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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM TO
NATIONAL DATACOMPUTER, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 04-2942832
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
900 MIDDLESEX TURNPIKE, BLDG. 5, BILLERICA, MASSACHUSETTS 01821
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(978) 663-7677
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, $.08 PAR VALUE PER SHARE
(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 registrant 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 the registrant'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. [X]
The registrant had revenues of approximately $5,255,000 in the calendar
year ended December 31, 1998. The aggregate market value of the voting stock
held by non-affiliates of the registrant on March 10, 1999 was approximately
$1,378,124. As of March 10, 1999, 2,276,850 shares of Common Stock, $.08 par
value per share, of the registrant were outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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PART I
This annual report on Form 10-KSB contains forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects", and similar
expressions are intended to identify forward-looking statements. The important
factors discussed in Item 1 "Description of Business" and Item 6 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" among
others, could cause actual future results to differ materially from those
indicated by forward-looking statements made herein and presented elsewhere by
management from time to time.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The mission of National Datacomputer, Inc. (the "Company"), a Delaware
corporation organized in 1987 is to provide solutions to workplace problems
through the use of mobile information systems. The Company designs,
manufactures, sells and services computerized systems used to automate the
collection, processing and communication of information related to product
sales, distribution, and inventory control. The Company's products and services
include data communication networks, application-specific software, hand-held
computers and related peripherals, and associated training and support services.
The Company's products facilitate rapid and accurate data collection, data
processing and two-way communication of information with a customer's host
information system.
The Company invests in technologies that support its systems solution
approach, such as application software and network communication systems. The
Company believes that its future success depends on superior marketing, service
and solutions. The Company's goal is to be the leading supplier in selected
market sectors. The key elements of the Company's strategy include: (i)
performing effective market research to assess and identify market sectors that
represent viable business opportunities; (ii) providing system communications to
a customer's host information system in addition to data collection software and
hardware; (iii) updating hardware and software solutions to remain current with
customers' needs as well as existing technology; and (iv) maintaining superior
software to run on the Company's hardware and network communications in selected
market segments.
INDUSTRY BACKGROUND
In the 1970s, the application of microprocessor-powered equipment began to
find applications where portable, battery-powered units were required. These
units found their largest applications in the retail industry for entering
re-order information into the distribution systems to supply retail stores. A
number of other data collection applications also began to appear in the
inventory service industry.
The state of the art in microprocessors at the time was units with small
memories and programs written in proprietary or machine languages contained in
firmware. The applications were, by necessity, simple compared to other
applications of computers in business and industry. As the need for more
flexible and sophisticated programs grew, the use of units requiring firmware
became less and less desirable. This situation existed until the mid-1980s when
personal computers blossomed and the computer industry shifted to low-powered
CMOS electronics (generally categorized as semiconductors requiring small power
drain). At that point, the opportunity to create software systems with the level
of flexibility and sophistication available in other parts of the software
industry presented itself and the hand-held personal computer was introduced.
Management believes that the future of hand-held computers is governed by
the software or solutions industry, and the opportunity to design computers for
"people who don't work at a desk" has opened up large new markets. The
application of this software technology to industries involving distribution of
products on routes is a good example of this opportunity as the distribution
process can be highly automated capturing every transaction as well as supplying
additional information for management controls not previously possible.
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PRODUCTS
The Company designs, manufactures, markets and services rugged, hand-held
computers, data collection devices and associated peripherals. The Company
believes that its customers require products that allow flexible tailored
software solutions in a cost-effective and timely manner.
HARDWARE
The Company's hand-held computers ("Datacomputers") include a
microprocessor, keyboard, LCD displays and full alphabetic and numeric character
sets. Application programs for the Datacomputer can be written on conventional
desk-top computers with commonly-used programming languages and then executed on
the Datacomputer. Application programs and data in Datacomputers are stored in
random access memory ("RAM") and can be readily changed by communicating
revisions or new programs to the Datacomputer through its industry standard
serial port. Datacomputers can receive data through bar-code readers, cables
from other computers (including other Datacomputers) and over telephone lines
through a modem. The Company's Datacomputer product line includes various models
of the Datacomputer, bar-code readers, printers, communication devices, carrying
cases, cables and add-on memory boards.
DATACOMPUTER MODEL DC4
The Datacomputer Model DC4 (the "DC4") is a hand-held computer that was
introduced in late 1997 and which is designed for use by the Route Service
market. The DC4 is an advanced version of the DC 3X described below in that it
employs a faster processor and a faster internal modem. The DC4 also
incorporates several significant features not available in the DC 3X, such as a
touch-screen, a signature capture capability and two slots for PC-cards. The
enhanced processing power and ruggedness of the DC4 is drawing interest from
markets other than the Company's traditional markets. The DC4 is intended to
complement rather than replace the DC 3X, which will continue to be sold to its
present markets. The Company estimates that approximately 26% of its 1998 total
revenue was attributable to sales of the DC4.
DATACOMPUTER MODEL 3X
The Datacomputer Model 3X (the "DC 3X") is a hand-held computer designed
for use by people whose jobs involve entry and access to a computer as they
stand or move about. The DC 3X contains an industry standard bar-code port that
allows quick and convenient scanning of bar-codes for accurate inventory
management and supports fixed beam pencil wands, CCD and laser light beam
readers for a multitude of scanning applications. The Company estimates that
approximately 21% of its 1998 total revenue was attributable to the sale of the
DC 3X.
The DC 3X is designed to be highly reliable, tolerant to human error and
easy to use. The DC 3X is shock resistant, water tight and operates over a wide
temperature range. In addition, the DC 3X's full-sized, numeric key pad is
designed for fast and accurate data entry, even while a user is wearing gloves.
The Company also offers optional accessories, such as an internal modem that
allows communications over telephone lines.
The Company offers the DC 3X in two different sales packages. The Pre-Sales
System (the "PSS") includes a DC 3X, software and various peripherals for sale
to customers who sell their products on routes and who book the sales orders
through a dedicated sales force. The Driver-Sales System (the "DSS") is a
packaged system that includes a DC 3X, one of several portable or truck-mounted
printers, peripherals and software. The DSS is used by customers who sell their
products through delivery drivers. The Company believes that the application
software included in the PSS and DSS packages described above permits a high
degree of customization for a variety of customer applications.
The PSS is typically purchased by distributors who sell products prior to
actual shipment. Due to the fact that the salesman is not required to create and
print out a delivery slip for any customer, there is no need for a printer. The
PSS allows the salesman to access all of the distributor's information on the
customer's account as well as to input the customer's next delivery order. The
DSS, on the other hand, is typically purchased by
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distributors who do not sell products prior to actual shipment. Accordingly, a
salesperson arriving at a stop performs an inventory check, determines how much
inventory should be delivered and prints out the delivery slip for the customer.
The DC 3X has many industrial applications, where portability, access
speed, ruggedness and small size are essential. Examples of two applications for
the DC 3X are set forth below:
DELIVERY ROUTES. At the end of each day, a driver parks his truck and goes
into the office where he connects his DC 3X to a host computer. The host
computer extracts and processes the information entered into the DC 3X by the
driver during his route. After processing the data, the host computer downloads
the delivery schedule and inventory for the driver's next day, including account
information about each customer. During the day, at each route stop, the driver
takes the customer's inventory, calculates what new stock needs to be added and
prints out a delivery slip for each customer. At the end of the day, a complete
report of the driver's deliveries can be printed. According to many of the
Company's customers, the implementation of the DC 3X has significantly improved
driver efficiency.
INSPECTION SYSTEMS. Using a DC 3X, a railroad inspector checks the
condition of railroad cars in the railroad yard. The DC 3X prompts the inspector
by requesting that he respond to a number of pre-determined questions. By
selecting specific answers to each question, the inspector reports a detailed
condition of each railroad car. After completing his inspection, the DC 3X is
connected to the railroad's repair center where the list of repairs and parts is
reviewed and processed by repairmen. The implementation of the DC 3X has
improved the effectiveness and efficiency of railroad car inspection and repair
by reducing human error and accelerating data collection and analysis. DC 3Xs
are presently in use at the BNSF, Union Pacific and Illinois Central Railroads.
DATACOMPUTER MODEL 2X
The Datacomputer Model 2X (the "DC 2X") is an advanced version of the DC
2.5 described below. The DC 2X provides all the features of the DC 2.5, but, is
also faster, has more memory and provides for a PC card slot option.
The Company estimates that approximately 4% of its 1998 total revenue was
attributable to the sale of the DC 2X.
DATACOMPUTER MODEL 2.5
The Datacomputer Model 2.5 (the "DC .5") is a hand-held computer designed
primarily for use by inventory auditors who enter voluminous numeric data,
mostly by touch keying. The Company offers utility software that includes a
modem, printer, bar code wand and scanner interfaces, screen and keyboard
routines, calculator functions and database functions. Due to the wide range of
optional features, the user is able to control the creation, updating and cost
of the DC 2.5's software.
The DC 2.5 is marketed primarily to inventory service companies. An
inventory service company is an organization that contracts with businesses who
maintain large inventories, such as department or retail stores. The Company
estimates that approximately 7% of its 1998 total revenue was attributable to
the sale of the DC 2.5.
ICAL MODEL 100R
The ICAL Model 100R (the "ICAL 100R") is designed and used for inventory
taking for financial and control purposes. The ICAL 100R allows a user to divide
a store's inventory into a maximum of 128 separate departments and keep a
running total in each department. The ICAL 100R is a recent version of a
hand-held product sold by the Company to the inventory audit market for the last
18 years. The Company estimates that approximately 6% of its 1998 total revenue
was attributable to the sale of the ICAL 100R.
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The primary customers for the ICAL 100R are inventory service companies,
which perform inventory taking for retailers and other institutions on a
contract basis, and retailers, primarily convenience store chains or others
selling large quantities of relatively low priced items.
Revenues generated by the ICAL 100R are almost exclusively from current
customers of the Company who wish to continue to use their installed base of
ICAL devices. The Company intends to continue to support the ICAL product line
to protect its customers' investments.
MARKETS
The Company currently focuses on the route accounting system market for
hand-held computers and believes it is well positioned in this industry to
become a leading provider. Route accounting involves concurrent order taking,
product delivery and inventory tracking. Salespeople enter customer orders in
hand-held computers and use the Company's portable printers to generate invoices
that are left with the customers' orders at their locations. At the end of a
route delivery day, information stored in hand-held computers is transferred to
the host information system and instructional and control information for the
next day's delivery routes is transferred back to the hand-held computer.
MARKETING AND DISTRIBUTION
The Company has separate marketing efforts for its Datacomputer products
and its ICAL 100R. Management believes that the Datacomputer products have a
wide variety of applications that have not yet been fully exploited by the
Company or potential users of the Datacomputer.
Recognizing the need to focus the Company's limited resources, the Company
has applied its business strategy for Datacomputers to a limited number of
selected markets. The Company is currently focused in market sectors where
businesses distribute their products on routes. The Company believes that the
route sales and service market is attractive because (i) customer acceptance of
hand-held computers has been established in several sectors; (ii) customers have
realized a substantial return on their investment in hand-held computers; and
(iii) the Company enjoys a competitive advantage in this market due to its
software and related services. To date, the Company believes it has gained the
leading positions in the office coffee service market sector, and has penetrated
the beer distribution, bakery, snacks and dairy market sectors.
The ICAL 100R is sold principally to repeat customers who already have a
sizable investment in their use of and applications for ICAL products. The
Company devotes relatively few resources to generate additional sales of ICAL
units above those demanded by past customers.
The Company primarily sells and distributes its systems and products
through a direct sales force that concentrates on systems sales.
DIRECT SALES FORCE
The Company believes that the optimum method for the marketing and sale of
its products is gained through direct sales. Therefore, direct selling is the
Company's primary strategy in the route sales and service market. The Company
believes that the key elements to successful direct selling include: (i)
maintaining a well-qualified direct sales staff that is experienced in marketing
and selling solutions to medium and large accounts; (ii) performing
well-executed software solutions; (iii) offering excellent service; and (iv)
maintaining good customer references.
SERVICE AND SUPPORT
The Company believes that superior service is a vital part of its
competitive strategy and therefore emphasizes the quality of both hardware and
software service. The Customer Service department manages all installations,
preparations, and follow-up support with each customer.
The Company typically offers industry-standard 90 day warranties and offers
several flexible service arrangements and maintenance contracts to meet customer
needs. In addition to technical support of installed
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systems, the Company provides pre-installation site surveys, installation
services, user training, technical training, application software support and
host information system interface assistance.
SOURCES OF SUPPLY
The Company believes there is more than one supplier for all of its raw
materials and maintains inventories and close working relationships with its
suppliers to ensure timely and reliable delivery. Although the Company has not
experienced major interruptions in production due to a shortage of raw
materials, prolonged supply shortages would materially and adversely affect the
Company's manufacturing operations, business and financial performance.
COMPETITION
The market for the Company's products is highly competitive and rapidly
changing. The Company's competitors include Norand, Symbol Technologies, Telxon
and related third-parties, all of which have greater financial, marketing and
technical resources than the Company. In addition, larger corporations could
enter into the route sales and service segment of the hand-held computer market.
The Company competes on the basis of product features, software, quality,
service and price.
EMPLOYEES
As of December 31, 1998, the Company had 37 full-time employees. Of these
employees, 6 were engaged in sales and marketing, 10 in service and customer
support, 6 in hardware and software development, 9 in manufacturing and 6 in
administration and finance. The Company's employees are not represented by a
labor union. Management believes that the Company's relationship with its
employees is good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company maintains its principal offices and manufacturing operations in
a leased 19,000 square foot facility in Billerica, Massachusetts. The Company's
lease expires on September 30, 2000. The annual base rent for the Company's
leased facilities is approximately $123,300. The lease further provides that the
Company will pay to its landlord as additional rent its pro rata share of
certain operational and maintenance costs at the facility during the term of the
lease. The Company believes that its facilities are adequate for its current
needs and that additional space, if required, would be available at competitive
rates.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any pending litigation other than
routine litigation that is incidental to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
From March 7, 1997, until October 15, 1998, the Company's Common Stock
traded on the NASDAQ Small Cap Market Quotation System ("NASDAQ") under the
symbol "IDCP". Since October 16, 1998, the Company's Common Stock has been
trading on the OTC Bulletin Board ("OTC"). On March 10, 1999, the last bid price
for the Common Stock as reported by OTC was $0.63 per share.
For the periods indicated below, the table sets forth the range of high and
low bid prices for the Common Stock as reported by NASDAQ or OTC. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
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HIGH LOW
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1997
First Fiscal Quarter........................................ $6.88 $3.88
Second Fiscal Quarter....................................... 3.75 2.00
Third Fiscal Quarter........................................ 1.88 1.00
Fourth Fiscal Quarter....................................... 1.00 .38
1998
First Fiscal Quarter........................................ $1.81 $ .50
Second Fiscal Quarter....................................... 1.47 .63
Third Fiscal Quarter........................................ 1.13 .50
Fourth Fiscal Quarter....................................... 1.13 .44
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As of March 10, 1999, there were approximately 2,375 stockholders of record
of the Company's Common Stock.
DIVIDENDS
Since inception, the Company has not paid any dividends on its Common Stock
and management does not anticipate the payment of any dividends to its
stockholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. The
declaration of dividends in the future will be at the election of the Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions and other pertinent
factors. The Company's outstanding Preferred Stock also requires that holders of
Preferred Stock be entitled to receive dividends prior to the payment of
dividends on the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Revenues decreased approximately 10% to approximately $5,255,000 in 1998
from approximately $5,813,000 in 1997. The decrease in revenues was primarily
attributable to a decrease in sales of units of the Company's Datacomputers
which decreased 24% to $3,507,532 in 1998 from $4,644,903 during 1997.
Service and other revenues increased to approximately $1,747,000 in 1998
from approximately $1,168,000 in 1997, an increase of approximately 50%. The
increase was a direct result of improved maintenance and pricing policies
instituted, combined with an increase in customer requested software
enhancements.
Cost of sales and services decreased approximately 15% to $2,781,000 in
1998 from approximately $3,265,000 in 1997. As a percentage of sales, cost of
sales and services decreased to approximately 53% in 1998 from approximately 56%
in 1997. This decrease is primarily due to the institution of the Company's
quality control programs, which improved the quality of the Company's products
and led to fewer field support demands and, thereby, lower field support costs.
Research and development expenses decreased to approximately $992,000 in
1998 from approximately $1,276,000 in 1997, a decrease of approximately 22%. The
decrease resulted primarily from a reduction in the Company's product
development staff due to the completion of the Datacomputer model DC4 which was
introduced in the later part of 1997. Although no assurance can be given, the
Company expects to maintain research and development spending necessary to
enhance current products and to develop future products.
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Selling, general and administrative expenses decreased to approximately
$1,773,000 in 1998 from approximately $2,373,000 in 1997, a decrease of
approximately 25%. The decrease resulted primarily from the Company's ongoing
programs of streamlining its operations and organizational structure.
The Company's operating loss was approximately $292,000 in 1998 as compared
to a loss from operations of approximately $1,101,000 in 1997. The decreased
loss was primarily attributable to the decrease in the expenses discussed above.
Interest expense was approximately $40,000 in 1998 as compared to
approximately $125,000 in 1997. This decrease resulted primarily from the
amortization of approximately $81,000 of interest expense related to the
discount on the convertible debt obtained in 1997.
On February 20, 1998, the Company announced the signing of a letter of
intent ("LOI"), subject to a definitive agreement, to merge with Infos
International, Inc. ("Infos"). The LOI has expired and the Company has entered
into discussion with Infos with an objective to either continue pursuing the
merger and/or to agree on access and exclusive territories for each company to
sell the other company's products.
In 1998 the Company paid approximately $99,000 for costs related with the
proposed merger. These costs were expensed and recorded as other expenses.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998, net cash used for operating activities decreased to
$11,854, as compared to net cash used for operating activities of $1,786,353 in
fiscal 1997. During fiscal 1998 and fiscal 1997, net cash used for investing
activities was $76,108 and $143,774, respectively. In fiscal 1998, net cash
provided by financing activities was $370,405 consisting primarily of the
issuance of preferred stock lowered by principal payment of a convertible note.
In fiscal 1997, net cash provided by financing activities was $1,416,573,
consisting primarily of the issuance of preferred stock and a convertible note.
In fiscal 1998, the Company incurred interest of $413,625 on its Series B, C, D
and F Convertible Preferred Stock as compared to $404,750 with respect to the
Series B, C and D Convertible Preferred Stock in fiscal 1997. In fiscal 1998,
the Company also issued Common Stock valued at $516,375 in satisfaction of
interest due on Series B, C, D and F Convertible Preferred Stock, as compared to
$386,000 with respect to the Series B, C and D in fiscal 1997.
In March 1998, the Company designated and sold 500 shares of Series E
Convertible Preferred Stock with a warrant to purchase up to 700,000 shares of
common stock at an exercise price of $.75 per share, for net proceeds of
$487,880. The warrant expires in March 2000. The proceeds of this financing were
allocated to the preferred shares and warrant based on management's estimate of
their fair values. This resulted in $214,000 being ascribed to the warrant which
was recorded as additional paid-in-capital and $273,880 being recorded as
preferred stock. Series E Convertible Preferred Stock has voting rights,
dividend preference, liquidation preference, mandatory conversion, and Company
redemption terms similar to the Company's existing Series B, Series C and Series
D Convertible Preferred Stock, and also has anti-dilution protection. The
Subscription Agreement for Series E Convertible Preferred Stock provides for a
right of first refusal on future issuances of stock by the Company. Series E
Convertible Preferred Stock is convertible into shares of common stock at a
conversion price of $.75.
The Company, in conjunction with the issuance of Series E Convertible
Preferred Stock, canceled its previously issued warrants to purchase 700,000
shares of common stock for $4.00 per share. Additionally, the Company changed
the conversion price on Series B and Series C Convertible Preferred Stock to
$2.74 and offered anti-dilution protection with respect to these shares. In
addition, the holders of the Series E Convertible Preferred Stock agreed to
place into escrow 2,100 shares of the Series B Convertible Preferred Stock that
they also owned. The Company may at its option and at any time through January
31, 2000 redeem the escrowed shares of Series B Convertible Preferred Stock at a
price of $1,250 per share.
Also in March 1998, the Company refinanced the $250,000 convertible debt by
making a principal payment of $75,000 and issuing a convertible note payable for
$175,000. The note bears interest at a rate of 6% per annum, matures in March
1999, and is convertible into shares of the Company's common stock at a
conversion price equal to the average closing bid price for the Company's common
stock for the five days
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ending March 6, 1998. On September 24, 1998, the debt holders agreed to convert
the note payable into 175 shares of Series F Convertible Preferred Stock.
Series F Convertible Preferred Stock has voting rights, dividend
preference, liquidation preference, anti-dilution protection and Company
redemption terms similar to the Company's existing Series B, C, D and E
Convertible Preferred Stock. The Subscription Agreement for Series F Convertible
Preferred Stock provides for registration rights for the shares of Common Stock
which the Series F Convertible Preferred Stock may be converted into. Series F
Convertible Preferred Stock is convertible into shares of common stock at a
conversion price of $1.00 at any time after one year from the date of issuance,
until 18 months after issuance, and will be subject to adjustments thereafter in
certain circumstances.
At December 31, 1998, the Company had cash of $491,174 and a current ratio
of 2.5:1. The Company anticipates that available cash, together with cash flow
from anticipated operations, will be sufficient to meet its working capital
needs for the remainder of fiscal 1999. However, unanticipated adverse results
of operations could impact anticipated cash flows and, as a result, there can be
no assurance that the Company will not be required to raise additional capital
or that the Company will be able to raise additional capital on favorable terms,
if at all.
IMPACT OF THE YEAR 2000 ISSUE.
The Company is assessing the nature, extent and cost of remediation of any
Year 2000 ("Y2K") readiness issues confronting the Company and its suppliers,
customers and other critical third parties. The project encompasses reviewing
the Company's products and internal systems, both information technology ("IT")
and non-information technology ("non-IT") as well as the Year 2000 readiness of
companies with which the Company has a material relationship, including
customers, suppliers, creditors, financial organizations, and utility providers.
This assessment has begun and the Company has identified certain requisite
corrective actions.
PRODUCTS. The Company is in the process of completing Y2K readiness
testing utilizing testing guidelines prepared by the British Standards Institute
identified as PD2000-1 in 1998. Corrective actions for software included in the
Company's products have included formulating software patches that provide
proper system operation or a combination of software patches and upgrades that
provide proper system operation and the reporting of the year 2000. These
patches and upgrades will be provided to customers for a determined fee. The
Company anticipates all testing and corrective actions related to Year 2000
issues in its products will be completed by December 1999. However,
notwithstanding such efforts, any failure of the Company's products to perform,
including system malfunctions due to the onset of the Year 2000, could result in
claims against the Company, which could have a material adverse effect on the
Company's business, results of operations or financial condition.
INFORMATION TECHNOLOGY. The Company is in the process of reviewing its
internal software applications to determine whether all network systems and
server architecture are Y2K-ready. The Company utilizes standard, vendor
supplied software for its electronic mail, corporate communications, engineering
design, manufacturing and accounting, materials purchasing/planning, desktop and
database systems. The Company has contacted these vendors to obtain assurances
that these IT systems are or will be Y2K compliant. Some software at the
individual user level remains to be tested and the Company anticipates this
testing will be completed in calendar 1999. To the extent that some older
versions of these software systems may not be Y2K compliant and are currently
being utilized by employees, the Company intends to upgrade such systems to
achieve Y2K readiness. The failure of any such IT system to be Y2K compliant
could have a material adverse effect on the Company and no assurance can be
provided that all such programs will be implemented on a timely basis.
NON-INFORMATION TECHNOLOGY. The Company is aware of potential non-IT
system (building security, telecommunications, utility and water systems, etc.)
risks associated with the Y2K issue and is currently evaluating its potential
exposure at its facility. The Company anticipates that any necessary renovation
of its non-IT systems as well as the validation of any repairs will be
substantially completed by December 1999. Formal queries to landlords, water,
utility and telecommunications providers for the Company's location, and
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other third parties with whom the Company has material relationships will be
sent to these suppliers by June 1999 to assess the systems' Y2K readiness.
SUPPLIERS. The Company is in the process of inquiring from its significant
suppliers the status of their Y2K readiness through completion of a Year 2000
Readiness Supplier Questionnaire that has been developed by a consortium of
semiconductor manufacturers. All such requests have been sent as of March 23,
1999 and the Company is hoping to receive responses by the end of April 1999
indicating that the respective third party is or will be Y2K ready by December
31, 1999. However, the Company has no means of assuring that third parties will
achieve Y2K readiness. Furthermore, there can be no assurance that IT, non-IT
and other suppliers who have provided Y2K readiness documentation will be Y2K
compliant or that such documentation accurately and fully reflects the Y2K
readiness of their systems. The Company's assessments of the effects of Y2K on
the Company are based, in part, upon information received from third parties and
the Company's reliance on that information. The failure of any such supplier's
systems to be Y2K compliant may have a material adverse effect on the Company's
business, results of operations or financial condition.
YEAR 2000 COSTS AND EXPENSES. The Company has used both internal and
external resources to address Y2K readiness and to program, test and implement
software for Y2K modifications. The Company specifically tracks the costs
associated with product software testing and patch development costs (consulting
and internal payroll costs), network server upgrades, internal payroll costs
related to the contacting of third parties to determine Y2K status, and postage
and related costs associated with providing patches and upgrades to customers
for software utilized in the Company's products. The Company has not separately
tracked the costs of utilizing its internal information systems personnel in
addressing its Y2K readiness, with these costs principally relating to payroll
and related benefits. Total costs for Y2K readiness are currently estimated to
be approximately $50,000 of which approximately $24,000 have been incurred
throughout all phases of the Y2K project. Costs incurred to date and anticipated
future costs have been, and will be funded through operations. As the Company
continues to complete its Y2K readiness plan, actual costs may exceed the
current estimate.
CONTINGENCY PLANS. The Company's contingency plan with respect to the Y2K
issue is currently being developed and will be completed by December 1999. The
Company is currently in the process of reviewing the status of all third party
suppliers. Replacement suppliers will be identified for critical suppliers who
the Company believes will not be Y2K ready. The Company is considering
contingency plans on a global basis relative to systematic failure of
electricity or telecommunications beyond the control of the Company. There can
be no assurance that any contingency plan measures will mitigate the impact of
Y2K problems.
If unforeseen Y2K readiness efforts are required or if the cost of any
updating, modification or replacement of the Company's systems or products
exceeds the Company's estimates, the Y2K issue could result in material costs
and have a material adverse effect on the business, results of operations or
financial condition of the Company. There can be no assurance that the Company
will be successful in addressing Y2K problems as they relate to its products and
internal systems.
In addition, there can be no assurance that the systems of third parties
with which the Company interacts will not suffer from Y2K problems. Furthermore,
Y2K problems that have been or may in the future be identified with respect to
the IT and non-IT systems of third parties having widespread national and
international interactions with persons and entities generally (for example,
certain systems of governmental agencies, utilities and information and
financial networks) could have a major impact on the Company's financial
condition or results of operations. The most reasonably likely worst case Y2K
scenario, in the event that the Company does not identify or fails to fix
material non-ready IT systems or non-IT systems operated by the Company or third
parties with which it has a material relationship, are not limited to, increased
operating costs, disruption in product shipments, loss of customer orders, and
claims of mismanagement, misrepresentation or breach of contract, any of which
could have a material adverse effect on the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board issued Statement of
Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS 130") and
Statement of Financial Accounting Standards No. 131 "Disclosure about Segments
of an Enterprise and Related Information ("SFAS 131").
9
<PAGE> 11
SFAS 130 establishes standards for reporting comprehensive income and its
components in the consolidated financial statements. SFAS 131 establishes
standards for reporting information on operating segments in interim and annual
financial statements. SFAS 130 and SFAS 131 were adopted in 1998, required
disclosure only and had no impact on the Company's financial position and
results of operations.
In February 1998, the Financial Accounting Standards Board issued
Statements of Accounting Standards No. 132 "Employers Disclosures about Pensions
and Other Post-retirement Benefits" ("SFAS 132"). SFAS 132 revises standards for
disclosures of employers' pension and other post retirements benefit plans. SFAS
132 does not change the measurement or recognition of those plans. SFAS 132 was
adopted in 1998 and had no impact on the Company's financial position and
results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal quarters and for
all fiscal years beginning after June 15, 1999. SFAS 133 will not have any
impact on the Company's financial position and results of operations.
ITEM 7. FINANCIAL STATEMENTS
See Item 13 below and the Index therein for a listing of the financial
statements and supplementary data filed as part of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
Each Director of the Company is elected for a period of one year and holds
office until his successor is elected and qualified. Vacancies may be filled by
a majority vote of Directors then remaining in office. Officers are elected by
and serve at the discretion of the Board of Directors. The following table sets
forth the year each Director was elected a Director and the age, positions and
offices currently held by each Director. For information about ownership of the
Company's voting securities by each Director, see "Security Ownership of Certain
Beneficial Owners and Management."
<TABLE>
<CAPTION>
YEAR
FIRST BECAME
NAME AGE DIRECTOR POSITION
- ---- --- ------------ --------
<S> <C> <C> <C>
Dr. Malcolm M. Bibby................. 58 1996 Chairman of the Board, President, and CEO
William R. Smart..................... 78 1989 Director
John P. Ward......................... 71 1967 Director
</TABLE>
BUSINESS EXPERIENCE AND BACKGROUNDS OF THE DIRECTORS
The background of each of the Company's current Directors is as follows:
DR. MALCOLM M. BIBBY has served as a Director of the Corporation since
January 1996 and was elected Chairman of the Board in July 1996. Dr. Bibby has
also served as President and Chief Executive Officer of the Company since April
1996. He was President of LXE Inc. ("LXE"), a diversified wireless data
communications products company, from 1983 to December 1994. During this period
LXE's annual revenues grew from approximately $600,000 to approximately
$63,000,000. Prior to LXE , Dr. Bibby was an Executive Assistant to the
President at Ciba Vision Care , a Vice President of Product Development at
Wesley-Jessen, Inc. and a Project Manager/Group Leader for hardware and software
development at Monsanto Co. Dr. Bibby holds a
10
<PAGE> 12
Bachelor of Science degree and a Ph.D. both in Electrical Engineering from the
University of Liverpool and an Master of Business Administration from the
University of Chicago.
WILLIAM R. SMART has served as a Director of the Company since December
1989. He spent 32 years with the General Electric Company where his
responsibilities included distribution and marketing management and general
management as a Division Vice President. He spent nine years with Honeywell,
Inc. where he served as Vice President in charge of European operations and
Senior Vice President of Honeywell Information Systems, responsible for
international operations as well as for the corporate staff. Mr. Smart currently
serves as a Senior Vice President of the Cambridge Strategic Management Group, a
privately-held management consultant company. Mr. Smart holds a Bachelor of
Science degree in Electrical Engineering from Princeton University. Mr. Smart is
also the non-executive Chairman of 1st Carolina Corporation (the "Corporation").
The Corporation filed a Chapter 7 bankruptcy petition in the United States
Bankruptcy Court for the District of South Carolina on August 16, 1994 (Case
Number 94-73884).
JOHN P. WARD has served as a Director of the Company since its founding in
1967. Since February 1996, Mr. Ward has served as the Chief Executive Officer of
Midas Vision Systems, Inc., a privately held company specializing in machine
vision systems for automatic optical inspections. From 1990 to 1996 Mr. Ward was
the Chief Executive Officer and Director of Vanzetti Vision Systems, Inc., a
privately-held company specializing in infrared systems. Mr. Ward was Vice
President of Engineering, co-founder and Clerk of the Company from its founding
until December 1986. From 1953 to 1968 Mr. Ward was a Design Section Manager at
the Raytheon Company. Mr. Ward holds a Bachelor of Science degree in Electrical
Engineering from the Massachusetts Institute of Technology and a Master of
Science degree in Electrical Engineering from Northeastern University.
EXECUTIVE OFFICERS
The executive officers of the Company, their ages and positions held in the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Malcolm M. Bibby................. 58 President, Chairman of the Board and CEO
Gerald S. Eilberg.................... 65 Vice President of Finance and Administration,
Chief Financial Officer
Joseph C. Pinto...................... 52 Vice President of Operations
Patrick T. Kearney(1)................ 50 Vice President of Sales
</TABLE>
- ---------------
(1) Mr. Kearney will commence his employment with the Company on April 1, 1999.
BUSINESS EXPERIENCE AND BACKGROUNDS OF THE EXECUTIVE OFFICERS
The following is a brief summary of the background of each executive
officer of the Company other than Dr. Malcolm M. Bibby, whose background is
summarized above.
GERALD S. EILBERG joined the Company in September 1988 as Vice President of
Finance and Administration and Chief Financial Officer. From October 1986 to
August 1988, Mr. Eilberg served as a financial consultant to small private and
public companies. From September 1982 to September 1986, he was President of
Direct Marketing Inc. Previous positions included Division and Corporate
Controller positions with large public companies. Mr. Eilberg is a graduate of
the Boston University School of Management and the Columbia University Graduate
School of Business.
JOSEPH C. PINTO joined the Company in March 1984 as Materials Manager,
advanced into the position of Manufacturing Manager in September 1986 and was
appointed Vice President of Manufacturing in January 1988. Prior to joining the
Company, Mr. Pinto had been Production Control Manager at BLH Electronics, a
manufacturer of process control systems, since January, 1979. Mr. Pinto holds a
Bachelor of Science degree in Industrial Technology from Northeastern University
and a Master of Science degree in Systems Management from Western New England
College.
11
<PAGE> 13
PATRICK T. KEARNEY will join the Company in April 1999 as Vice President of
Sales. He has extensive experience as a sales manager in the computer, software
solutions and hand-held computer markets, servicing VARs, distributors and
end-users. Most recently, Mr. Kearney was Director of Worldwide Sales at Optical
Access International, a developer and manufacturer of network storage systems.
From 1993 to 1996, Mr. Kearney was President of Ancilla Associates, a consulting
firm serving the computer market, specializing in sales, marketing and channel
development. Previous work experience includes being Vice President and General
Manager of U.S. Sales and Operations for Eden Group Limited, Eastern Regional
Manager of Poquet Computer Corporation, National Sales Manager and National
Marketing Manager of BASF Corporation. Mr. Kearney holds a Bachelor of Science
degree in Marketing from Providence College.
None of the Company's executive officers or Directors are related to any
other executive officer or Director.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) ("Section 16(a)") of the Securities Exchange Act of 1934, as
amended, requires executive officers, Directors, and persons who beneficially
own more than ten percent (10%) of the Company's Common Stock to file initial
reports of ownership on Form 3 and reports of changes in ownership on Form 4
with the Securities and Exchange Commission (the "SEC") and any national
securities exchange on which the Company's securities are registered. Executive
officers, Directors and greater than ten percent (10%) beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of copies of such forms furnished to the Company
and written representations from executive officers and Directors, the Company
believes that all Section 16(a) filings applicable to its executive officers,
Directors and ten percent (10%) beneficial owners were complied with during the
fiscal year ended December 31, 1998.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth the compensation paid during the fiscal
years ended December 31, 1998, December 31, 1997, and December 29,1996 ("Fiscal
1998, 1997 and 1996", respectively) to Dr. Malcolm M. Bibby, the Company's
President along with the other current executive officers of the Company, who
earned total compensation in excess of $100,000 during Fiscal 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(e)
---------------------
ANNUAL COMPENSATION LONG TERM
------------------- COMPENSATION AWARDS
(a) (b) (c) (d) ---------------------
--- ---- --------- ------ SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SAR(#)
--------------------------- ---- --------- ------ ---------------------
<S> <C> <C> <C> <C>
Dr. Malcolm M. Bibby(1)(2)(3).................. 1998 $150,461 $0 294,000
President, CEO and Chairman of the Board 1997 127,818 $0 0
1996 72,051 $0 118,750
Gerald S. Eilberg(4)........................... 1998 $110,413 $0 0
Vice President of Finance and Administration 1997 102,106 $0 0
and CFO 1996 102,106 $0 5,000
Larry F. Yeager(4)............................. 1998 $ 61,537 $0 0
Former Vice President of 1997 100,522 $0 0
Research and Development 1996 100,522 $0 5,000
</TABLE>
- ---------------
(1) On January 1, 1998, Non-Qualified Stock Options to purchase 294,000 shares
of Common Stock at an exercise price of $0.73 were granted to Dr. Bibby. The
294,000 shares vest fully on December 31, 2000, but contain the following
acceleration clauses: (a) 150,000 will vest upon a change in control of the
12
<PAGE> 14
Company, (b) 12,000 will vest for each fiscal quarter, from January 1, 1998
through December 31, 2000, in which the Company realizes positive net income
before taxes; (c) 50,000 will vest if the Company realizes net income before
taxes of $200,000 in any four consecutive quarters between January 1, 1998
and December 31, 2000; (d) 10,000 will vest for each $50,000 of net income
before taxes in excess of $200,000 that the Company realizes in any four
consecutive quarters between January 1, 1998 and December 31, 2000.
(2) On February 28, 1996, May 31, 1996, and November 30, 1996, Incentive Stock
Options to purchase 5,250, 48,000, 65,500 shares of Common Stock,
respectively, at an exercise price of $6.00 were granted to Dr. Bibby. Such
options were subsequently repriced on August 14, 1997 at an exercise price
of $1.47 per share. The options granted to Dr. Bibby have the following
vesting periods: (i) 6,000 options were fully vested upon grant (ii) 16,250
vested fully in 1996 (iii) 23,000 vested fully in 1997 (iv) 750 vested fully
in 1998 and (v) the remaining 72,750 vest fully in ten years, but contain
the following acceleration clauses: (a) 2,750 will vest 50% if net income
before taxes for the five year period ended December 31, 1999 exceeds
$1,000,000 and 100% if net income for the five year period exceeds
$2,000,000; and (b) up to 45,000 options will vest if sales during any four
consecutive quarters exceed $8,500,00 and the following amounts of net
income before taxes are exceeded:
<TABLE>
<CAPTION>
NET INCOME BEFORE TAXES OPTIONS THAT VEST
<S> <C>
$1,000,000 5,000
1,250,000 10,000
1,500,000 15,000
1,750,000 20,000
2,000,000 27,500
2,250,000 35,000
2,500,000 45,000
</TABLE>
(3) Dr. Bibby commenced employment with the Company in April 1996.
(4) On August 1, 1996, Incentive Stock Options to purchase 5,000 shares of
Common Stock at an exercise price of $5.00 were granted to each of Messrs.
Eilberg and Yeager. Such options were subsequently repriced on August 14,
1997 at an exercise price of $1.47 per share. The options granted to Messrs.
Eilberg and Yeager vest 25% in each of 1998, 1999, 2000 and 2001.
OPTION/SAR GRANTS IN FISCAL YEAR 1998
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS /SAR'S
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SAR'S EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH) DATE
(A) (B) (C) (D) (E)
- ---- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Malcolm M. Bibby(1)................ 294,000 83% $0.73 December 2007
</TABLE>
- ---------------
(1) On January 1, 1998, Non-Qualified Stock Options to purchase 294,000 shares
of Common Stock at an exercise price of $0.73 were granted to Dr. Bibby. The
294,000 shares vest fully on December 31, 2000, but contain the following
acceleration clauses: (a) 150,000 will vest upon a change in control of the
Company, (b) 12,000 will vest for each fiscal quarter, from January 1, 1998
through December 31, 2000, in which the Company realizes positive net income
before taxes; (c) 50,000 will vest if the Company realizes net income before
taxes of $200,000 in any four consecutive quarters between January 1, 1998
and December 31, 2000; (d) 10,000 will vest for each $50,000 of net income
before taxes in excess of $200,000 that the Company realizes in any four
consecutive quarters between January 1, 1998 and December 31, 2000.
13
<PAGE> 15
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/ IN-THE-MONEY
SARS OPTIONS
AT FY-END AT FY-END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)(1)
(A) (B) (C) (D) (E)
- ---- --------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
Malcolm M. Bibby
President, CEO...................... 0 $0 58,000/354,750 $0
Gerald S. Eilberg
Vice President Finance & Admin and
CFO................................. 0 $0 1,265/16,809 $0
Larry F. Yeager
Vice President of Research &
Development......................... 0 $0 15/0 $0
</TABLE>
- ---------------
(1) In-the-Money options, are those options for which the fair market value of
the underlying shares of Common Stock is greater than the exercise price of
the option. As of December 31, 1998, Dr. Bibby had exercisable options to
purchase 46,000 and 12,000 shares of Common Stock at share exercise prices
of $1.47 and $0.73 respectively. Messrs. Eilberg and Yeager had exercisable
options to purchase 1,265, and 1,265 shares of Common Stock, respectively,
at share exercise prices of $1.47. See "Security Ownership of Certain
Beneficial Owners and Management". The fair market value of the Company's
Common Stock underlying the options as of December 31, 1998 was $0.81 (OTC
closing bid price on December 30, 1998).
COMPENSATION OF DIRECTORS
During Fiscal 1998, the Company's Directors received an aggregate cash
compensation of $2,000 for their services as Directors. Messrs. Ward and Smart
received $1,000 respectively.
EMPLOYMENT AGREEMENT
On January 1, 1998, the Company entered into an employment agreement with
Dr. Bibby for a period of three years through December 31, 2000. The agreement
is automatically renewed for successive periods of one year, unless written
notice of non-renewal is given by the Company to Dr. Bibby not less than six
months before termination of the agreement. During this period Dr. Bibby will
serve as President and Chief Executive Officer of the Company for a Base Salary
of $150,000 per annum through December 31, 1998. For future years, any increases
in Base Salary will be established by the Board of Directors. Dr. Bibby will be
entitled to receive stock option grants and bonus arrangements as determined by
the Board of Directors from time to time. The Company may terminate this
agreement, if, at any time during the duration of the agreement, the Company has
incurred losses (exclusive of extraordinary items of income and loss) of
$1,000,000 or more in any four consecutive quarters. At such time, the Company
is obligated to pay Dr. Bibby 50% of his then current annual Base Salary, plus
benefits for six months. If the agreement is not renewed by the Company,
including upon change of control, then Dr. Bibby is entitled to receive
severance benefits which will be determined based upon an amount equal to (X)(i)
1/12th of 100% of Dr. Bibby's then current annual Base Salary, plus (ii) 1/12th
of 100% of Dr. Bibby's bonus arrangement earned for the Company's most recent
fiscal year, multiplied by (Y) the greater of the remaining calendar months
under the agreement or eighteen months.
14
<PAGE> 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 31, 1999, certain information
concerning stock ownership of the Company by (i) each person who is known by the
Company to own beneficially 5% or more of the Company's voting securities, (ii)
each of the Company's Directors and officers, and (iii) all Directors and
officers as a group. Except as otherwise indicated, the stockholders listed in
the table have sole voting and investment powers with respect to the shares
indicated. For purposes of this table, the Common Stock and the Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D
Convertible Preferred Stock, Series E Convertible Preferred Stock and Series F
Convertible Preferred Stock, (collectively, the "Preferred Stock") are treated
as one class. As of March 31, 1999, the Company had 2,276,850 shares of Common
Stock outstanding and approximately 2,375 stockholders of record. In addition,
the Company had 6,125 shares of Preferred Stock outstanding. Each share of
Preferred Stock, which has a face value of $1,000, is convertible into Common
Stock at a conversion price of $2.74 per share for the Series B, C and D, $0.75
per share for Series E and $1.00 for Series F. Based upon the conversion prices,
the Preferred Stock would be convertible into a total of 2,830,718 shares of
Common Stock. Each holder of Preferred Stock is entitled to the number of votes
equal to the number of shares of Common Stock into which such Preferred Stock is
convertible. The Company has no other voting securities.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED PERCENTAGE OF CLASS(2)
- --------------------------------------- ------------------ ----------------------
<S> <C> <C>
Dr. Malcolm M. Bibby (3)................................. 85,550 1.7%
William R. Smart......................................... 2,500 *
John P. Ward (4)......................................... 28,868 *
Gerald S. Eilberg (5).................................... 9,282 *
Larry F. Yeager (6)...................................... 13,430 *
All Directors and Officers as a Group (6
persons)(3)(4)(5)(6)(7)................................ 147,521 2.9%
</TABLE>
- ---------------
* Less than 1%.
(1) The address for all of the named entities is c/o National Datacomputer,
Inc., 900 Middlesex Turnpike, Bldg. 5, Billerica, Massachusetts 01821.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock that an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
This table reflects the ownership of all shares of Common Stock and the
Preferred Stock voting as a single class.
(3) Includes an aggregate of 58,000 shares of Common Stock underlying vested
options to purchase Common Stock.
(4) Includes 10,137 shares held by Mr. Ward's wife for which Mr. Ward disclaims
beneficial ownership.
(5) Includes 15 shares of Common Stock underlying vested options to purchase
Common Stock.
(6) Includes 15 shares of Common Stock underlying vested options to purchase
Common Stock.
(7) Includes an aggregate of 58,170 shares of Common Stock underlying vested
options to purchase Common Stock held by four of the Company's officers.
All of the Preferred Stock is registered in the name of RBB Bank AG ("RBB
Bank"). RBB Bank is not included in the table above because the Company has been
informed that RBB Bank holds such Preferred Stock solely in the capacity of
custodian for the benefit of numerous other investors. The Company has been
informed that none of such investors, either individually or in the aggregate
with affiliated entities, beneficially owns more than five percent (5%) of the
Company's issued and outstanding capital stock.
15
<PAGE> 17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements. The financial statements required to be filed
by Item 7 herewith are as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-1
Balance Sheet as of December 31, 1998 and December 31,
1997...................................................... F-2
Statement of Operations for the years ended December 31,
1998 and December 31, 1997................................ F-3
Statement of Stockholders' Equity for the years ended
December 31, 1998 and
December 31, 1997......................................... F-4
Statement of Cash Flows for the years ended December 31,
1998 and December 31, 1997................................ F-5
Notes to Financial Statements............................... F-6
</TABLE>
(a)(2) Exhibits.
(i) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3a* Certificate of Incorporation, as amended.(3c)
3b* Certificate of Amendment of Certificate of Incorporation to
increase the number of authorized shares.(3a)
3c* Certificate of Amendment of Certificate of Incorporation to
effect a 1:4 reverse split of Common Stock.(3b)
3d** Statement of Designation of Series B Convertible Preferred
Stock.(4a)
3e** Statement of increase of shares designated as Series B
Convertible Preferred Stock.(4b)
3f(+) Statement of Designation of Series C Convertible Preferred
Stock.(99a)
3g(+) Statement of Designation of Series D Convertible Preferred
Stock.(99b)
3h(++) Statement of Designation of Series E Convertible Preferred
Stock.(4(a))
3i Statement of Designation of Series F Convertible Preferred
Stock.
3j@ By-Laws.(3.02)
4a Instruments defining the rights of security holders (see
Exhibits 3a through 3j).
4b* Specimen Certificate of Common Stock, $.08 par value per
share.(4)
10a% 1994 Stock Option Plan.
10b#% 1995 Stock Option Plan.(10)
10c% 1997 Stock Option Plan.
10d% 1998 Stock Option Plan.
10e(++) Form of Regulation S Offshore Subscription Agreement.(4(b))
10f Employment Agreement of Dr. Bibby.
27 Financial Data Schedule.
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Previously filed with the Commission as Exhibits to, and
incorporated herein by reference from, the Company's Annual
Report on Form 10-K for the fiscal year ended December 29,
1996.
** Previously filed with the Commission as Exhibits to, and
incorporated herein by reference from, the Company's Current
Report on Form 8-K filed September 16, 1996.
(+) Previously filed with the Commission as Exhibits to, and
incorporated herein by reference from, the Company's Current
Report on Form 8-K filed March 3, 1997.
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C>
(++) Previously filed with the Commission as Exhibits to, and
incorporated herein by reference from, the Company's Current
Report on Form 8-K filed March 6, 1998.
@ Previously filed with the Commission as Exhibits to, and
incorporated herein by reference from, the Company's
Registration Statement on Form S-1 filed April 17, 1987.
# Previously filed with the Commission as Exhibits to, and
incorporated herein by reference from, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995.
% Management contract or compensatory plan, contract or
arrangement.
</TABLE>
Where a document is incorporated by reference from a previous filing, the
Exhibit number of the document in that previous filing is indicated in
parentheses after the description of such document.
(b) Reports on Form 8-K.
During the quarter for which this report is filed, the Company filed (i) a
Form 8-K dated October 22, 1998 to report the notice received from NASDAQ that
the Company was delisted from the SmallCap Market (ii) a Form 8-K dated November
25, 1998 to report the issuance of shares of Common Stock pursuant to Regulation
S, and (iii) a Form 8-K dated December 16, 1998 to report the issuance of shares
of Common Stock pursuant to Regulation S.
17
<PAGE> 19
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NATIONAL DATACOMPUTER, INC.
By: /s/ MALCOLM M. BIBBY
------------------------------------
Malcolm M. Bibby
President
Date: March 30, 1999
In accordance with the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- ---- -------- ----
<C> <S> <C>
/s/ MALCOLM M. BIBBY Chairman of the Board, President
- --------------------------------------------------- and Chief Executive Officer
Malcolm M. Bibby (principal executive officer) March 30, 1999
/s/ WILLIAM R. SMART Director
- ---------------------------------------------------
William R. Smart March 30, 1999
/s/ JOHN P. WARD Director
- ---------------------------------------------------
John P. Ward March 30, 1999
/s/ GERALD S. EILBERG Chief Financial Officer
- --------------------------------------------------- (principal financial and
Gerald S. Eilberg accounting officer) March 30, 1999
</TABLE>
18
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of National Datacomputer, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of National Datacomputer, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 12, 1999
F-1
<PAGE> 21
NATIONAL DATACOMPUTER, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 491,174 $ 208,731
Accounts receivable, net of allowance for doubtful
accounts of $146,600 and $108,602 at December 31, 1998
and December 31, 1997, respectively.................... 1,048,315 1,545,319
Inventories............................................... 1,516,306 1,298,979
Other current assets...................................... 31,493 59,800
------------ ------------
Total current assets................................... 3,087,288 3,112,829
Fixed assets, net........................................... 205,508 259,512
------------ ------------
$ 3,292,796 $ 3,372,341
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Convertible debt to related party......................... $ -- $ 75,000
Current obligations under capital lease................... 44,198 41,810
Accounts payable.......................................... 356,866 349,807
Accrued payroll and related taxes......................... 78,224 127,675
Accrued expenses -- other................................. 218,264 264,024
Accrued interest on preferred stock....................... 6,125 102,750
Deferred revenues, current portion........................ 552,334 470,125
Deferred compensation..................................... -- 45,214
------------ ------------
Total current liabilities.............................. 1,256,011 1,476,405
Convertible debt to related party........................... -- 158,730
Obligations under capital lease............................. 25,754 70,617
Deferred revenues........................................... 6,143 38,143
------------ ------------
1,287,908 1,743,895
------------ ------------
Stockholders' equity
Preferred stock, Series A convertible, $0.001 par value;
20 shares authorized; 0 shares issued and outstanding
at December 31, 1998 and December 31, 1997............. -- --
Preferred stock, Series B convertible $0.001 par value;
4,200 shares authorized, issued and outstanding
(liquidating preference of $4,200,000)................. 3,685,206 3,685,206
Preferred stock, Series C convertible $0.001 par value;
900 shares authorized, issued and outstanding
(liquidating preference of $900,000)................... 834,370 808,412
Preferred stock, Series D convertible $0.001 par value;
350 shares authorized, issued and outstanding
(liquidating preference $350,000)...................... 324,639 303,995
Preferred stock, Series E convertible $0.001 par value;
500 shares authorized; 500 and 0 shares issued and
outstanding at December 31, 1998 and December 31, 1997,
respectively (liquidating preference of $500,000)...... 273,880 --
Preferred stock, Series F convertible $0.001 par value;
175 shares authorized; 175 and 0 shares issued and
outstanding at December 31, 1998 and December 31, 1997,
respectively (liquidating preference of $175,000)...... 118,750 --
Common stock, $0.08 par value; 5,000,000 shares
authorized; 2,276,850 and 1,628,332 shares issued and
outstanding at December 31, 1998 and December 31, 1997,
respectively........................................... 182,148 130,267
Capital in excess of par value............................ 10,998,903 10,310,761
Accumulated deficit....................................... (14,000,566) (13,165,753)
Unamortized stock compensation............................ (61,173) (93,173)
Notes receivable -- employees............................. (351,269) (351,269)
------------ ------------
Total stockholders' equity............................. 2,004,888 1,628,446
------------ ------------
$ 3,292,796 $ 3,372,341
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 22
NATIONAL DATACOMPUTER, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Revenues
Net product revenue....................................... $ 3,507,532 $ 4,644,903
Service and other revenue................................. 1,747,495 1,167,875
----------- -----------
5,255,027 5,812,778
Cost of sales and services.................................. 2,780,698 3,264,805
----------- -----------
2,474,329 2,547,973
----------- -----------
Operating expenses:
Research and development.................................. 992,495 1,275,916
Selling, general and administrative....................... 1,773,414 2,373,285
----------- -----------
2,765,909 3,649,201
----------- -----------
Loss from operations........................................ (291,580) (1,101,228)
Other income (expense):
Interest income........................................... 9,534 13,258
Interest expense.......................................... (40,128) (124,596)
Other expense............................................. (99,014) --
----------- -----------
Net loss.................................................... $ (421,188) $(1,212,566)
=========== ===========
Calculation of net loss per common share and dilutive share
equivalent:
Net loss.................................................. $ (421,188) $(1,212,566)
Preferred stock preferences............................... (767,977) (667,412)
----------- -----------
Net loss attributable to common shareholders................ $(1,189,165) $(1,879,978)
=========== ===========
Basic and diluted net loss per share........................ $ (0.66) $ (1.40)
=========== ===========
Weighted average shares..................................... 1,798,226 1,343,876
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 23
NATIONAL DATACOMPUTER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES B SERIES C SERIES D SERIES E
--------------------- --------------------- --------------------- ---------------------
NET ISSUANCE NET ISSUANCE NET ISSUANCE NET ISSUANCE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ ------------ ------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 29,
1996................... 4,200 $3,685,206 -- -- -- -- -- --
Net loss................
Issuance of preferred
stock.................. 900 $867,183 350 $337,400
Interest on preferred
stock (Note 9).........
Issuance of common stock
in satisfaction of
accrued interest.......
Amortization of stock
compensation...........
Discounted conversion
rate on Preferred
Stock.................. (172,266) (136,998)
Amortization of
discounted conversion
rate on Preferred
Stock.................. 146,308 116,354
Issuance of common stock
as payment of issuance
cost on preferred stock
and convertible debt... (32,813) (12,761)
Discount conversion rate
on convertible debt....
----- ---------- --- -------- --- -------- --- --------
Balance at December 31,
1997................... 4,200 3,685,206 900 808,412 350 303,995 -- --
Net loss................
Issuance of preferred
stock.................. 500 273,880
Interest on preferred
stock (Note 9).........
Issuance of common stock
in satisfaction of
accrued interest.......
Amortization of stock
compensation...........
Discounted conversion
rate on Preferred
Stock.................. (75,000)
Amortization of
discounted conversion
rate on Preferred
Stock.................. 25,958 20,644 75,000
----- ---------- --- -------- --- -------- --- --------
Balance at December 31,
1998................... 4,200 $3,685,206 900 $834,370 350 $324,639 500 $273,880
===== ========== === ======== === ======== === ========
<CAPTION>
PREFERRED STOCK COMMON STOCK
SERIES F -----------------------------------
--------------------- CAPITAL IN NOTES UNAMORTIZED
NET ISSUANCE PAR EXCESS RECEIVABLE STOCK ACCUMULATED
SHARES PRICE SHARES VALUE OF PAR VALUE EMPLOYEES COMPENSATION DEFICIT
------ ------------ --------- -------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 29,
1996................... -- -- 1,251,925 $100,154 $ 9,755,957 $(351,269) $ (124,769) $(11,548,437)
Net loss................ (1,212,566)
Issuance of preferred
stock..................
Interest on preferred
stock (Note 9)......... (404,750)
Issuance of common stock
in satisfaction of
accrued interest....... 303,490 24,280 361,720
Amortization of stock
compensation........... 31,596
Discounted conversion
rate on Preferred
Stock.................. 309,264
Amortization of
discounted conversion
rate on Preferred
Stock.................. (262,662)
Issuance of common stock
as payment of issuance
cost on preferred stock
and convertible debt... 72,917 5,833 48,856
Discount conversion rate
on convertible debt.... 97,626
--- -------- --------- -------- ----------- --------- ---------- ------------
Balance at December 31,
1997................... -- -- 1,628,332 130,267 10,310,761 (351,269) $ (93,173) (13,165,753)
Net loss................ (421,188)
Issuance of preferred
stock.................. 175 175,000 214,000
Interest on preferred
stock (Note 9)......... (413,625)
Issuance of common stock
in satisfaction of
accrued interest....... 648,518 51,881 464,494
Amortization of stock
compensation........... 32,000
Discounted conversion
rate on Preferred
Stock.................. (75,000) 150,000
Amortization of
discounted conversion
rate on Preferred
Stock.................. 18,750 (140,352)
--- -------- --------- -------- ----------- --------- ---------- ------------
Balance at December 31,
1998................... 175 $118,750 2,276,850 $182,148 $10,998,903 $(351,269) $ (61,173) $(14,000,566)
=== ======== ========= ======== =========== ========= ========== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 29,
1996................... $ 1,516,842
Net loss................ (1,212,566)
Issuance of preferred
stock.................. 1,204,583
Interest on preferred
stock (Note 9)......... (404,750)
Issuance of common stock
in satisfaction of
accrued interest....... 386,000
Amortization of stock
compensation........... 31,596
Discounted conversion
rate on Preferred
Stock..................
Amortization of
discounted conversion
rate on Preferred
Stock..................
Issuance of common stock
as payment of issuance
cost on preferred stock
and convertible debt... 9,115
Discount conversion rate
on convertible debt.... 97,626
-----------
Balance at December 31,
1997................... 1,628,446
Net loss................ (421,188)
Issuance of preferred
stock.................. 662,880
Interest on preferred
stock (Note 9)......... (413,625)
Issuance of common stock
in satisfaction of
accrued interest....... 516,375
Amortization of stock
compensation........... 32,000
Discounted conversion
rate on Preferred
Stock..................
Amortization of
discounted conversion
rate on Preferred
Stock..................
-----------
Balance at December 31,
1998................... $ 2,004,888
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 24
NATIONAL DATACOMPUTER, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(421,188) $(1,212,566)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation........................................... 130,112 132,977
Amortization of stock compensation..................... 32,000 31,596
Amortization of deferred debt issuance costs and debt
discount.............................................. 18,789 91,952
Changes in assets and liabilities:
Decrease (increase) in accounts receivable........... 497,004 (924,282)
(Increase) decrease in inventories................... (217,327) 180,174
Decrease in other current assets..................... 25,788 92,460
Increase in accounts payable......................... 7,059 224,353
Decrease in accrued expenses and deferred
compensation........................................ (134,300) (157,517)
Increase (decrease) in deferred revenues............. 50,209 (245,500)
--------- -----------
Net cash used for operating activities............ (11,854) (1,786,353)
--------- -----------
Cash flows from investing activities:
Purchases of fixed assets................................. (76,108) (143,774)
--------- -----------
Net cash used for investing activities............ (76,108) (143,774)
--------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock and warrants,
net of issuance costs.................................. 487,880 1,204,583
Proceeds from issuance of convertible note to related
party.................................................. -- 250,000
Principal payment on convertible debt..................... (75,000) --
Principal payments on obligations under capital lease..... (42,475) (38,010)
--------- -----------
Net cash provided by financing activities......... 370,405 1,416,573
--------- -----------
Net increase (decrease) in cash and cash equivalents........ 282,443 (513,554)
Cash and cash equivalents at beginning of year.............. 208,731 722,285
--------- -----------
Cash and cash equivalents at end of year.................... $ 491,174 $ 208,731
========= ===========
Supplemental Cash Flow Information:
Cash paid for interest.................................... $ 13,964 $ 18,894
Noncash investing and financing activities:
Conversion of promissory note into Series F Preferred
Stock................................................. 175,000 --
Accrued interest on preferred stock charged to
accumulated deficit................................... 413,625 102,750
Acquisition of property and equipment under capital
lease................................................. -- 14,185
Common stock issued in satisfaction of interest on
preferred stock....................................... 516,375 386,000
Common stock issued as payment of issuance cost for
preferred stock ($45,574) and convertible debt........ -- 54,689
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 25
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
National Datacomputer, Inc. (the "Company") designs, develops,
manufactures, markets and services a line of hand-held battery powered
microprocessor-based data collection products and computers and associated
peripherals for use in mobile operations.
On December 28, 1997, the Board of Directors of the Company voted to change
the end of the Company's fiscal year from the last Sunday in December to
December 31.
In 1998 and 1997, the Company used cash for operations of $11,854 and
$1,786,353, respectively. The Company has financed its operations primarily
through the issuance of preferred stock and convertible debt totaling $675,000
in 1998 and $1,500,000 in 1997. If the Company is not successful in attaining
and sustaining cash from operations, it will need to reduce operating costs or
raise additional financing to maintain its operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue for products upon shipment at the time of
delivery to the customer, provided that the Company has no remaining significant
service obligations that are essential to the functionality of the product
delivered, collectibility is considered probable, and the fees are fixed and
determinable.
Revenue from installation and training is recognized upon the completion of
the project. Service revenue is recognized ratably over the contractual period.
Concentration of Credit Risk
The Company sells its products to customers in diverse industries
nationwide, particularly delivery based services such as bakeries and beer
distributors. The Company performs on-going credit evaluations of its customers,
provides credit on an unsecured basis, and maintains reserves for potential
credit losses. Such losses, in the aggregate, have not exceeded management's
expectations. Accounts receivable from three and two customers accounted for
approximately 48% of total accounts receivable at December 31, 1998 and December
31, 1997, respectively. Management does not believe that the Company is subject
to any unusual credit risk beyond the normal credit risk attendant to operating
its business.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
Fixed Assets
Fixed Assets are recorded at cost and depreciated over the estimated useful
lives of the assets, principally using accelerated methods. Leasehold
improvements are amortized over the shorter of the useful lives or the remaining
terms of the related leases. Maintenance and repair costs are expensed as
incurred.
Loss Per Share
Net loss per share is computed under SFAS No. 128, "Earnings Per Share."
Basic loss per share is computed by dividing loss, after deducting certain
amounts associated with the Company's preferred stock, by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
is
F-6
<PAGE> 26
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
computed using the weighted average number of common shares outstanding and
gives effect to all dilutive common share equivalents outstanding during the
period.
Interest payable to preferred stockholders, the fair value of inducements
to convert preferred stock into common stock, and any discounts implicit in the
conversion terms upon issuance of preferred stock (Note 9) are added to the net
loss to determine the amount of net loss attributable to common stockholders.
Common share equivalents consist of 4,174,336 and 2,625,444 shares of
common stock which may be issuable upon exercise of outstanding stock options
and warrants and the conversion of preferred stock and convertible debt at
December 31, 1998 and December 31, 1997, respectively. All common share
equivalents have been excluded from the calculation of weighted average shares
outstanding as their inclusion would be anti-dilutive.
Stock Compensation
The Company's employee stock option plans are accounted for in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," ("APB 25"). The Company adopted SFAS No. 123, "Accounting for Stock
Based Compensation," for disclosure only (Note 7).
Research and Development and Computer Software Development Costs
Research and development costs, other than software development costs, have
been charged to operations as incurred. SFAS No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed," requires the
capitalization of certain computer software development costs incurred after
technological feasibility is established. No software development costs have
been capitalized.
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 amount of assets and liabilities and
disclosure of contingencies at the date of the financial statements, and the
reported results of operations during the reporting period. Actual results could
differ from these estimates.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal quarters and for
all fiscal years beginning after June 15, 1999. SFAS 133 will not have any
impact on the Company's financial position and results of operations.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials.............................................. $ 424,173 $ 623,593
Work-in-process............................................ 731,730 450,238
Finished goods............................................. 360,403 225,148
---------- ----------
$1,516,306 $1,298,979
========== ==========
</TABLE>
F-7
<PAGE> 27
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31, DECEMBER 31,
(IN YEARS) 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Production and engineering equipment........ 3-5 $ 864,921 $ 809,363
Furniture, fixtures and office equipment.... 5 738,177 717,629
Leasehold improvements...................... Life of lease 23,021 23,021
---------- ----------
$1,626,119 $1,550,013
Less -- accumulated depreciation and
amortization.............................. 1,420,611 1,290,501
---------- ----------
$ 205,508 $ 259,512
========== ==========
</TABLE>
At December 31, 1998, office and engineering equipment under capital lease
totaled $156,998. Related accumulated amortization of equipment under capital
lease totaled $109,059 at December 31, 1998. At December 31, 1997, office and
engineering equipment under capital lease totaled $156,998, with related
accumulated amortization of $77,100.
5. CONVERTIBLE DEBT
In March 1997, the Company issued an unsecured Convertible Promissory Note
for $250,000 to RBB Bank AG. The note bears interest at the rate of 6% per annum
and had an original maturity date of March 1998. In March 1998, $175,000 of this
note was refinanced and will mature in March 1999.
The note is convertible at the option of the holder into shares of the
Company's common stock at a price of $2.74 per share. The discount of $97,626
implicit in the conversion terms at the date of issuance, based upon the market
price for the Company's common stock on that date, was recorded as a debt
discount and additional paid in capital. The debt discount is being amortized
over the term of the note as a charge to interest expense. Amortization of the
debt discount totaled $16,270 and $81,356 in 1998 and 1997, respectively.
In March 1998, the Company refinanced the $250,000 convertible debt by
making a principal payment of $75,000 and issuing a convertible note payable for
$175,000. The note bears interest at a rate of 6% per annum, matures in March
1999, and is convertible into shares of the Company's common stock at a
conversion price of $1.34.
In September 1998, the holders of the note payable converted the
outstanding debt of $175,000 into 175 shares, at a stated value of $1,000 per
share, of Series F Convertible Preferred Stock.
F-8
<PAGE> 28
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 4,253,449 $ 4,189,000
Business tax credit carryforwards......................... 291,611 297,000
Other..................................................... 189,240 127,000
----------- -----------
Gross deferred tax asset.................................. 4,734,300 4,613,000
Deferred tax asset valuation allowance.................... (4,734,300) (4,613,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The Company's effective tax rate differs from the statutory U.S. federal
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Statutory federal rate..................................... (34.0)% (34.0)%
State taxes................................................ (5.0)% (6.0)%
Non-deductible expenses.................................... 6.0% 0.4%
Other...................................................... 4.0% (4.0)%
Valuation allowance on deferred tax assets................. 29.0% 43.6%
----- -----
0.0% 0.0%
===== =====
</TABLE>
The Company has generated losses from operations in each of the last two
years and has no taxable income available to offset the carryback of net
operating losses. In addition, although management's operating plans anticipate
taxable income in future periods, such plans make significant assumptions which
cannot be reasonably assured, including continued development and market
acceptance of new products and expansion of the Company's customer base. Based
on the weight of all available evidence, the Company has provided a full
valuation allowance for deferred tax assets since the realization of these
future benefits is not sufficiently assured. As the Company achieves
profitability, these deferred tax assets would be available to offset future
income tax liabilities and expense.
At December 31, 1998, the Company has net operating loss and tax credit
carryforwards for federal tax purposes of $11,612,000 and $290,457,
respectively, which expire in various years through 2018 and 2010, respectively.
The Company has state net operating loss carryforwards for tax purposes of
$4,873,000, which expire in various years through 2003.
Any significant change in ownership, as defined in the Internal Revenue
Code, may result in an annual limitation on the amount of the net operating loss
and credit carryforwards which could be utilized.
7. STOCK OPTIONS
In 1989, 1994 and 1995, the Board of Directors approved the 1989 Stock
Option Plan, the 1994 Stock Option Plan and the 1995 Stock Option Plan (the
"Plans") respectively. The Plans provide for the granting of incentive stock
options and non-qualified stock options to purchase up to 323,685 shares of
common stock of the Company to employees, officers, directors and consultants.
The exercise price for incentive stock options granted may not be less than 100%
of the fair market value per share of the common stock on the date granted (110%
for options granted to holders of more than 10% of the voting stock of the
Company). The exercise price per share for non-qualified options may not be less
than the lesser of 50% of the fair market value per
F-9
<PAGE> 29
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
share of the common stock on the date of grant or the book value per share of
common stock as of the end of the fiscal year immediately preceding the date of
grant. The term of options granted under the Plans cannot exceed ten years (five
years for options granted to holders of more than 10% of the voting stock of the
Company). Outstanding options are written generally with five to ten-year
vesting periods, some with acceleration if certain profitability levels are
reached, and are fully exercisable by 2007.
On August 19, 1997, the Board of Directors, adopted the 1997 Stock Option
Plan ("1997 Plan") which provided for issuance of both incentive stock options
and non-qualified options to employees. A maximum of 200,000 shares of Common
Stock was reserved for issuance in accordance with the terms of the 1997 Plan.
The 1997 Plan now only provides for the issuance of non-qualified options since
a stockholder meeting was not held.
On January 1, 1998, the Board of Directors adopted the 1998 Stock Option
Plan ("1998 Plan") which provides for issuance of non-qualified options to
employees. A maximum of 300,000 shares of common stock of the Company will be
reserved for issuance in accordance with the terms of the 1998 Plan.
A summary of the status of the Company's stock option plans as of December
31, 1998 and December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.................. 277,716 $1.56 288,972 $4.82
Granted........................................... 354,000 0.82 16,875 1.47
Exercised......................................... -- -- -- --
Canceled.......................................... (85,598) 1.47 (28,131) 4.07
------- ----- ------- -----
Outstanding at end of year........................ 546,118 $1.10 277,716 $1.56
======= ===== ======= =====
Exercisable at end of year........................ 62,338 $1.77 59,778 $1.85
======= ===== ======= =====
Weighted average fair value of options granted
during the period............................... $0.81 $1.47
===== =====
</TABLE>
On August 14, 1997, the Board of Directors approved the repricing of
certain outstanding options with original exercise prices ranging from $4.00
- -$20.00 to a $1.47 exercise price. The exercise price of the repriced options
equaled the fair market value of the Company's common stock on the date of
repricing.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED AVERAGE EXERCISE
REMAINING NUMBER OF PRICE OF
NUMBER CONTRACTUAL LIFE, OPTIONS OPTIONS
EXERCISE PRICE OUTSTANDING IN YEARS EXERCISABLE EXERCISABLE
- -------------- ----------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C>
$0.73 - $1.47.................. 537,560 8.53 54,600 $1.47
$4.00 - $8.00.................. 8,425 5.33 7,605 4.36
$20.00......................... 133 0.97 133 20.00
------- ------ -----
Total..................... 546,118 62,338 $1.77
======= ====== =====
</TABLE>
F-10
<PAGE> 30
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company did not recognize any compensation expense under APB No. 25
during the years ended December 31, 1998 and December 31, 1997.
As discussed in Note 2, the Company elected to adopt SFAS No. 123 through
disclosure only. Had compensation cost for the Company's option plans been
determined based on the fair value of the options at the grant dates, as
prescribed by SFAS No. 123, the Company's net loss and net loss per share would
have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Net loss:
As reported.............................................. $421,188 $1,212,566
Pro forma................................................ $484,800 $1,304,272
Basic and diluted net loss per share:
As reported.............................................. $ 0.66 $ 1.40
Pro forma................................................ $ 0.70 $ 1.47
</TABLE>
The fair value of each option grant under SFAS No. 123 was estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 1998 and 1997, respectively:
I. Dividend yield of 0% for both periods;
II. Expected volatility of 158% and 291%;
III. Risk free interest rates of 5.37% -- 5.40% for options granted during
the year ended December 31, 1998 and 6.34% -- 6.71% for the year
ended December 31, 1997; and
IV. Weighted average expected option term of 10 years for both periods.
Because options vest over several years and additional options grants are
expected to be made in subsequent years, the above pro forma disclosures are not
necessarily representative of the pro forma effects on reported net income
(loss) for future years.
8. COMMON STOCK
In January 1996, the Company entered into an agreement with a consulting
firm, whereby the Company would compensate the firm for their services through
the issuance of 31,192 shares of the Company's common stock. The value of these
shares at the time of issuance was estimated by management to be approximately
$156,000, which is being amortized to expense over the five year term of the
agreement. Unamortized amounts are presented as a reduction of stockholders'
equity in the accompanying balance sheet.
On October 4, 1996, the Board of Directors approved an increase in the
number of authorized shares of Common Stock to 5,000,000 shares.
At December 31, 1998, the Company had reserved 2,723,150 shares of common
stock for issuance upon the exercise of common stock options and warrants and
the conversion of preferred stock. After the issuance of the Series E
convertible preferred stock, the 1998 option grants and changes made to the
conversion terms of the previously issued Series B, C and D convertible
preferred stock in 1998, the Company is required to reserve additional shares of
common stock which have not yet been authorized.
The Board of Directors of the Company will request approval from the
stockholders to increase the number of authorized shares in fiscal 1999. The
Company expects the shareholders to approve the authorization of the required
additional shares.
F-11
<PAGE> 31
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. CONVERTIBLE PREFERRED STOCK
In the second quarter of 1996, the Board of Directors approved the
designation of 4,200 shares of the Company's unissued preferred stock, $.001 par
value, as Series B convertible preferred stock. During 1996, the Company sold
4,200 shares of the newly designated Series B convertible preferred stock for
net proceeds of approximately $3,685,200.
In February 1997, the Board of Directors approved the designation of 900
shares of the Company's unissued preferred stock, $.001 par value, as Series C
convertible preferred stock. During 1997, the Company sold 900 shares of newly
designated Series C convertible preferred stock for net proceeds of
approximately $867,000. As payment of certain offering costs associated with the
issuance of the Series C convertible preferred stock, the Company issued 43,751
shares of unregistered common stock for a value of $32,813 based on the quoted
market price.
In February 1997, the Board of Directors approved the designation of 350
shares of the Company's unissued preferred stock, $.001 par value, as Series D
convertible preferred stock. During 1997, the Company sold 350 shares of newly
designated Series D convertible preferred stock for net proceeds of
approximately $337,400. As payment of certain offering costs associated with the
issuance of the Series C convertible preferred stock, the Company issued 17,013
shares of unregistered common stock for a value of $12,764 based on the quoted
market price.
In January 1998, the Board of Directors approved the designation of 500
shares of the Company's unissued preferred stock, $.001 par value, as Series E
convertible preferred stock. During 1998, the Company sold 500 shares of newly
designated Series E convertible preferred stock with attached warrants to
purchase up to 700,000 shares of common stock at $.75 per share, for net
proceeds of approximately $487,880. The proceeds of this financing were
allocated to the preferred shares and warrants based on management's estimation
of their fair values. This resulted in $214,000 being ascribed to warrants,
which was recorded as additional paid-in-capital and $273,880 being recorded as
preferred stock.
In September 1998, the Board of Directors approved the designation of 175
shares of the Company's unissued preferred stock, $.001 par value, as Series F
convertible preferred stock. During 1998, the holders of the convertible note
payable to a related party, converted debt with an outstanding principal balance
of $175,000 into 175 shares of Series F convertible preferred stock at a stated
value of $1,000 per share.
The Series B, Series C, Series D, Series E, and Series F convertible
preferred stock have the following characteristics:
Voting:
Holders of the Series B, Series C, Series D, Series E, and Series F
convertible preferred stock are entitled to a number of votes equal to the
number of shares of common stock into which these shares of convertible
preferred stock are then convertible. All shares of convertible preferred stock
are entitled to vote with the holders of common stock as a single class.
Dividends:
Holders of the Series B, Series C, Series D, Series E, and Series F
convertible preferred stock are entitled to receive dividends, when and if
declared by the Company's Board of Directors, prior and in preference to common
shareholders, equal to the amount of the per share dividend of common stock
declared, multiplied by the number of shares of common stock into which the
convertible preferred shares are then convertible.
F-12
<PAGE> 32
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest:
In addition to the dividend preference, the holders of the Series B, Series
C, Series D, and Series F convertible preferred stock shall receive interest per
annum based on the stated value of such shares. Series B convertible preferred
shareholders are entitled to receive interest equal to 8% per annum, Series C,
Series D and Series F convertible preferred shareholders are entitled to receive
interest equal to 6% per annum. Such interest will accrue from the original
issuance date, and shall be payable in cash or common stock, at the Company's
option, on a quarterly basis, commencing on the first quarter ended after
issuance. Payment of interest due with respect to those shares that remain
issued and outstanding at the end of the Company's fiscal quarters, shall be
made within 15 days after the filing with the Securities and Exchange Commission
of the applicable report.
During the years ended December 31, 1998 and December 31, 1997, the Company
incurred interest in the amount of $413,625 and $404,750, respectively for
Series B, Series C, Series D, and Series F convertible preferred stock for which
the Company has recorded a charge to accumulated deficit. During 1998, 380,650
shares were issued in satisfaction of the accrued interest due for 1998 and
99,252 shares were issued in satisfaction of the accrued and unpaid interest due
for 1997. In addition, $105,375 of interest remains unpaid and is recorded as
168,600 shares of common shares issued at December 31, 1998. During 1997,
276,604 shares were issued in satisfaction of the accrued interest due for 1997.
In addition, $102,750 of interest remained unpaid and is included in accrued
interest at December 31, 1997.
Liquidation Preference:
Upon liquidation of the Company, the holders of Series B, Series C, Series
D, Series E, and Series F convertible preferred stock have preference over the
common stockholders to receive liquidating distributions which equal the stated
value of such shares of stock, plus all accrued and unpaid dividends.
Conversion:
In connection with the issuance of Series E convertible preferred stock,
the Company, with the approval of the shareholders of Series B, Series C, and
Series D convertible preferred stock changed the conversion price of the Series
B, Series C, and Series D convertible preferred stock to $2.74 and provided
these shareholders with certain anti-dilution provisions. If at any time prior
to January 31, 2003, the Corporation's stockholders' equity at the end of any
fiscal quarter as reported on the Company's Form 10-KSB, or quarterly on Form
10-QSB filing with the Securities and Exchange Commission does not exceed
$1,500,000 plus 50% of the net proceeds of any future equity financing, then the
conversion price shall equal the lesser of $2.74 or sixty percent of the
Corporation's average closing price for the five trading days prior to the
conversion.
Each share of the Series B, Series C, Series D and Series E convertible
preferred stock is convertible at any time, at the option of the holders into
shares of common stock computed by dividing the stated value of the preferred
stock by the conversion price. The Series F convertible preferred stock is not
convertible until one year after issuance
The shareholders of Series E convertible preferred stock shall have the
right to convert each share of Series E convertible stock into an amount of
shares of common stock equal to the stated value of $1,000 per share divided by
the conversion price of $0.75.
On or after December 31, 1998, the conversion price for the Series E
convertible preferred stock shall equal sixty percent of the Corporation's
average closing bid price for the twenty trading days preceding the date of such
conversion, but in no event less than $0.60 and no more than $0.75 per share. If
at any time prior to January 31, 2003 the Company's stockholders' equity at the
end of any fiscal quarter does not exceed $1.5 million plus 50% of the net
proceeds of any future equity financing by any third party, then the conversion
price shall equal the lesser of $0.75 or sixty percent of the Company's bid
price for the five trading days prior
F-13
<PAGE> 33
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to the date of such conversion notice. The Shareholders of Series E convertible
preferred stock may not convert for a period of forty days from the date of
issuance.
The shareholders of Series F convertible preferred stock shall have the
right to convert each share of Series F convertible stock into an amount of
shares of common stock equal to the stated value of $1,000 per share divided by
the conversion price of $1.00. During the six month period commencing on the one
year anniversary of the date upon the Series F shares are originally issued and
continuing until the eighteen month anniversary of the issue date, the
conversion price shall equal $1.00.
During the period after this eighteen month anniversary and continuing
until all shares are converted, the conversion price of the Series F convertible
preferred stock shall equal the lesser of (i) $1.00 and (ii) if the closing
price shall trade below $1.00 for any ten consecutive trading days, then the
conversion price shall equal 70% of the Company's average bid price for the ten
days preceding the date of the conversion notice. The shareholders of Series F
convertible preferred stock may not convert for a period of a year from the date
of issuance.
Conversion discount:
The estimated discount of $46,601 and $262,662 implicit in the conversion
terms of the Series C and Series D convertible preferred stock at the date of
the issuance, based upon the quoted bid price for the Company's common stock on
those dates, has been included in the computation of net loss per share (Note 2)
for the years ended December 31, 1998 and December 31, 1997, respectively. The
estimated discount was recorded as a discount on the preferred stock and an
increase to additional paid-in capital. The amortization of the conversion
discount of $46,601 and $262,662 has been recorded as an increase to the
preferred stock and a decrease to additional paid-in capital for the years ended
December 31, 1998 and December 31, 1997, respectively.
The estimated discount of $150,000 implicit in the conversion terms of the
Series E and Series F convertible preferred stock at the date of the issuance,
based upon the quoted bid price for the Company's common stock on those dates,
has been included in the computation of net loss per share (Note 2) for the year
ended December 31, 1998. The estimated discount was recorded as a discount on
the preferred stock and an increase to additional paid-in capital. The
amortization of the conversion discount of $75,000 and $18,750 has been recorded
as an increase to the preferred stock and a decrease to additional paid-in
capital for Series E and Series F convertible preferred stock, respectively for
the year ended December 31, 1998.
Redemption:
In the event that the price of the Company's common stock, as reported by
the NASDAQ SmallCap market or the National Association of Securities Dealers,
Electronic Bulletin Board, equal or exceeds $20.00 per share for a period of
twenty consecutive trading days, the Company may redeem the Series B, Series C
and Series D convertible preferred stock at a price of $1,000 per share, subject
to certain anti-dilution provisions.
In addition, in connection with the issuance of the Series E convertible
preferred stock, the shareholders of the Series B convertible preferred stock
agreed to place into escrow 2,100 shares of the Series B convertible preferred
stock. The Company may at its option and at any time through January 31, 2000
redeem the escrowed shares of Series B convertible preferred stock at a price of
$1,250 per share.
At any time, on and after the expiration of the restrictions of conversion,
if the closing bid price of the Company's common stock as reported by the
principal stock exchange in which the Corporation's common stock then trades
equals or exceeds $5.00 for twenty consecutive trading days, then the Company at
its option may redeem the then issued and outstanding shares of Series E
convertible preferred stock at a price of $1,000 per share, subject to certain
anti-dilution provisions.
F-14
<PAGE> 34
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At any time, the Company may in its sole discretion, but shall not be
obligated to, redeem, in whole or in part, the then issued and outstanding
shares of Series F convertible preferred stock at a price of $1,200 per share,
subject to certain anti-dilution provisions.
10. ISSUANCE OF WARRANTS
On January 17, 1996, the Company issued warrants to purchase 90,000 shares
of the Company's common stock at $5.24 per share to all of the former holders of
the Company's Series A Convertible Preferred Stock. These warrants were
immediately exercisable and expire after three years. These warrants were issued
in consideration of the conversion of the Series A Convertible Preferred Stock.
The fair value of these warrants was estimated by management and determined to
be materially consistent with the amount of dividends waived by the holders of
Series A Convertible Preferred Stock.
In September 1997, the Company issued warrants to purchase 700,000 shares
of the Company's common stock at $4.00 per share to the Series B stockholders.
These warrants are exercisable immediately and expire on September 30, 2000. The
value of these warrants at the time of issuance was estimated by management to
be negligible, based primarily upon the market price of the Company's stock,
accordingly, no compensation cost has been recorded. In March 1998, these
warrants were canceled in conjunction with the issuance of the Series E
Convertible Preferred Stock.
In March 1998, in connection with the issuance of Series E convertible
preferred stock, the Company issued warrants to purchase a total of 700,000
shares of the Company's common stock at an exercise price of $0.75 per share.
These warrants were exercisable immediately and expire on January 1, 2001. The
fair value of these warrants at the time of issuance was estimated by management
to be $214,000 using a Black-Scholes pricing model based upon the quoted market
price assuming a dividend yield of 0%, expected volatility of 172%, a risk-free
interest rate of 5.65% and an expected term of two years. The value of the
warrant was recorded as decrease to Series E convertible preferred stock and an
increase to additional paid-in-capital.
11. CASHLESS OPTION EXERCISE PROGRAM
On March 1, 1994, the Board of Directors approved the 1994 cashless option
exercise program for all employees. The program allows employees to purchase
shares of common stock, payable with both recourse and non-recourse long term
promissory notes receivable. Under the above program, employees purchased a
total of 87,817 shares of common stock at a price of $4.00 per share. The notes
receivable, plus accrued interest, are due in March 2004, and are presented as a
reduction of stockholders' equity in the accompanying balance sheet.
12. COMMITMENTS
The Company leases its office facilities under an operating lease expiring
September 30, 2000. The lease contains an option for renewal and requires the
payment of taxes and other operating costs. At December 31, 1998, future minimum
rental payments under the operating lease amounted to approximately $300,000
payable as follows:
<TABLE>
<S> <C>
1999............................................... 171,000
2000............................................... 129,000
</TABLE>
Rent expense totaled $171,376 and $171,376 during the years ended December
31, 1998 and December 31, 1997, respectively.
F-15
<PAGE> 35
NATIONAL DATACOMPUTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also leases certain equipment under capital leases expiring at
various dates through the year 2001. Future minimum lease payments under capital
leases consist of the following at December 31, 1998:
<TABLE>
<S> <C>
1999............................................... 48,000
2000............................................... 30,000
2001............................................... 1,000
-------
Total minimum lease payments....................... $79,000
Less: amount representing interest................. 9,300
-------
Present value...................................... $69,700
=======
</TABLE>
13. FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the
normal course of business. Fair values are estimated based on assumptions
concerning the amount and timing of estimated future cash flows and assumed
discount rates reflecting varying degrees of perceived risk. Accordingly, the
fair values may not represent actual values of the financial instruments that
could have been realized as of year end or that will be realized in the future.
Fair values for cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses and convertible debt approximate their carrying
values at December 31, 1998 and December 31, 1997.
F-16
<PAGE> 1
EXHIBIT NO. 10A
NATIONAL DATACOMPUTER, INC.
1994 STOCK OPTION PLAN
1. Purpose.
(a) This 1994 Stock Option Plan (the "Plan") is intended to
provide incentives (a) to the directors, employees and consultants of National
Datacomputer, Inc. (the "Company"), its parent (if any) and any present or
future subsidiaries of the Company (collectively, "Related Corporations") by
providing them with opportunities to purchase stock in the Company pursuant to
options which do not qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), granted hereunder
("Non-Qualified Option" or "Non-Qualified Options"); (b) to directors, employees
and consultants of the Company and Related Corporations by providing them with
awards of stock in the Company ("Awards"); and (c) to directors, employees and
consultants of the Company and Related Corporations by providing them with
opportunities to make direct purchases of stock in the Company ("Purchases").
(b) Provided the conditions set forth in Paragraph 2 are met,
the Plan may provide, in addition to the Non-Qualified Options, Awards, and
opportunities to make Purchases described in subparagraph (a), incentives to the
employees of the Company and related Corporations by providing them with
opportunities to purchase stock in the Company pursuant to options which qualify
as "incentive stock options" under Section 422 of the Code granted hereunder
("ISO" or "ISOs").
(c) Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options." As used
herein, the terms "parent" and "subsidiary" mean "parent corporations" and
"subsidiary corporations" as those terms are defined in Section 425 of the Code.
2. Approval of ISO Provisions.
--------------------------
All provisions of this Plan relating to ISOs are subject to approval by
the holders of a majority of the outstanding shares of Common Stock of the
Company at a meeting of such stockholders (the "Stockholders") held within 12
months of the date of adoption of this Plan by the Board of Directors of the
Company (the "Board"). If such provisions are not approved, they will be void
and of no effect, and no ISOs shall be issued under the Plan. If any ISOs are
issued during the first 12 months of the Plan and the Stockholders fail to
approve the Plan within the 12 month period, all such ISOs shall be
automatically converted into Non-Qualified Options (retroactive to their date of
issuance) on the earlier of: (i) the date of the stockholder meeting at which
the Stockholders fail to approve the ISO provisions of the Plan, or (ii) the
first day of the second year of the Plan.
1
<PAGE> 2
If the Stockholders fail to approve the ISO provisions of the Plan, the
Plan shall nevertheless remain in effect and shall consist of all provisions set
forth herein other than provisions that relate exclusively to ISOs.
3. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the Board, subject to
the limitations set forth in Section 3(b) below. The Board may appoint a Stock
Plan Committee (the "Committee") of three or more of its members to administer
the Plan. No member of the Committee, while a member, shall be eligible to
participate in this Plan. Subject to ratification of the grant of each Option or
Award and of the authorization of each Purchase by the Board (if so required by
applicable state law), and subject to the terms of the Plan, the Committee, if
so appointed, shall have the authority to (i) determine the employees of the
Company and Related Corporations (from among the class of employees eligible
under paragraph 4 to receive ISOs) to whom ISOs may be granted, and to determine
(from among the class of individuals and entities eligible under paragraph 4 to
receive Non-Qualified Options and Awards and to make Purchases) to whom
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted; (ii) determine the time or times at which Options or Awards may be
granted or Purchases made; (iii) determine the number of shares that may be
purchased under each ISO, Non-Qualified Option and authorization to make
Purchases, and whether any option or authorization to make Purchases shall be
fully exercisable on the date of grant or shall be exercisable thereafter in
such installments as the Committee may specify; (iv) determine the option price
of shares subject to each Option, which price (with respect to ISOs) shall not
be less than the minimum price specified in paragraph 7, and the purchase price
of shares subject to each Purchase; (v) determine whether each Option granted
shall be an ISO or a Non-Qualified Option; (vi) determine (subject to paragraph
8) the time or times when each Option shall become exercisable and the duration
of the exercise period; (vii) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options, Awards and Purchases and
the nature of such restrictions, if any, and (viii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If the Committee
determines to issue a Non-Qualified Option, it shall take whatever actions it
deems necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Option, Award or authorization for any Purchase granted under it shall
be final unless otherwise determined by the Board. The Committee may from time
to time adopt such rules and regulations for carrying out the Plan as it may
deem best. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option, Award or authorization for Purchase granted under it.
(b) Notwithstanding anything to the contrary herein, including
but not limited to paragraph 3(a) hereof, the Committee shall have no authority
whatsoever to amend the terms of options granted pursuant to this 1994 Stock
Option Plan to certain management of the Company that contain a vesting schedule
based on the Company attaining certain income performance criteria. The options
contemplated by this paragraph are expected to vest in the tenth year following
their issuance. However, if during the first five years after issuance, the
Corporation has (i) $1,000,000 in net income before taxes in any fiscal year,
then 50% of the
2
<PAGE> 3
options shall become vested or (ii) $2,000,000 in net income before taxes in any
fiscal year, then 100% of the options shall become vested.
(c) The Committee may select one of its members as its
chairman, and shall hold meetings at such times and places as it may determine.
Acts by a majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the Committee shall mean the Board if
no Committee has been appointed. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
(d) Notwithstanding the provisions of paragraph 3(a), Options,
Awards and authorizations to make Purchases may be granted to members of the
Board but no Option, Award or authorization to make a Purchase shall be granted
to any person who is, at the time of the proposed grant, a member of the Board,
unless such grant has been approved by a majority vote of the other members of
the Board. All grants of Options, Awards and authorizations to make Purchases to
members of the Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Members of the
Board who are either (i) eligible for Options, Awards or authorizations to make
Purchases pursuant to the Plan or (ii) have been granted Options, Awards or
authorizations to make Purchases may vote on any matters affecting the
administration of the Plan or the grant of any Options, Awards or authorizations
to make Purchases pursuant to the Plan, except that no such member shall act
upon the granting to himself of Options, Awards or authorizations to make
Purchases, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with respect to
the granting to him of Options, Awards or authorizations to make Purchases.
(e) Notwithstanding any provision of this paragraph 3, in the
event the Company has registered or in the future does register any class of any
equity security pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), any grants to directors of Options made at any
time from the effective date of such registration until six months after the
termination of such registration shall be made only by the Board; provided,
however, that if a majority of the Board is eligible to participate in the Plan
or in any other stock option or other stock plan of the Company or any of its
affiliates, or has been so eligible at any time within the preceding year, any
grant to directors of Options must be made by, or only in accordance with the
recommendation of, a Committee consisting of three or more persons, who may but
need not be directors or employees of the Company, appointed by the Board but
having full authority to act in the matter, none of whom is eligible to
participate in this Plan or any other stock option or other stock plan of the
Company or any of its affiliates, or has been eligible at any time within the
preceding year. The requirements imposed by the preceding sentence shall also
apply with respect to grants to officers who are not also directors. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board.
3
<PAGE> 4
4. Eligible Employees and Others. ISOs may be granted to any employee
of the Company or any Related Corporation. Those directors of the Company who
are not employees may not be granted ISOs under the Plan. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any director
(whether or not an employee), employee or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant an ISO, a Non-Qualified
Option or an authorization to make a Purchase. The granting of an ISO, a
Non-Qualified Option or an authorization to make a Purchase to any individual or
entity shall neither entitle that individual or entity to, nor disqualify him
from, participation in any other grant of Options, Awards or authorizations to
make Purchases.
5. Stock. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of common stock of the Company, par value $.0002
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 35,000,000, subject to adjustment as provided in
paragraph 14. Any such shares may be issued as ISOs, Non-Qualified Options or
Awards, or to persons or entities making Purchases, so long as the number of
shares so issued does not exceed such number, as adjusted. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part (or if the Company shall reacquire any unvested shares issued pursuant to
Awards or Purchases,) the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be available for grants
of Options, Awards and authorizations to make Purchases under the Plan.
6. Granting of Options, Awards and Authorizations to Make Purchases.
Options, Awards and authorizations to make Purchases may be granted under the
Plan at any time on or after March 30, 1994 and prior to March 30, 2004. The
date of grant of an Option, Award or authorization to make a Purchase under the
Plan will be the date specified by the Committee at the time it grants the
Option, Award or authorization to make a Purchase; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 17.
7. Minimum Option Price: ISO Limitations.
-------------------------------------
(a) The price per share specified in the agreement relating to
each Non-Qualified Option granted under the Plan shall in no event be less than
the lesser of (i) the book value per share of Common Stock as of the end of the
fiscal year of the Company immediately preceding the date of such grant, or (ii)
50 percent of the fair market value per share of Common Stock on the date of
such grant.
(b) The price per share specified in the agreement relating to
each ISO granted under the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement relating
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to such ISO shall not be less than 110 percent of the fair market value of
Common Stock on the date of grant.
(c) In no event shall the aggregate fair market value
(determined at the time the Option is granted) of Common Stock for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Company and any
Related Corporation) exceed $100,000.
(d) If, at the time an Option is granted under the Plan, the
Common Stock that shall be issued pursuant to exercise of the Option has been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
"fair market value" shall be determined as of the last business day for which
the prices or quotes discussed in this sentence are available prior to the date
such Option is granted and shall mean (i) the average (on that date) of the high
and low prices of the Common Stock on the principal national securities exchange
on which the Common Stock is traded, if such Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that date) of the
Common Stock on the NASDAQ National Market List, if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted (on that date) by an established quotation
service for over-the-counter securities, if the Common Stock is not reported on
the NASDAQ National Market List. However, if the Common Stock to be issued
pursuant to the exercise of the Option has not been registered under the
Securities Act at the time the Option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Common Stock as determined by
the Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of the
unregistered Common Stock in private transactions negotiated at arm's length.
8. Option Duration. Subject to earlier termination as provided in
paragraphs 10 and 11, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or any
Related Corporation. Subject to earlier termination as provided in paragraphs 10
and 11, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 17.
9. Exercise of Option. Subject to the provisions of paragraphs 10
through 13, each Option granted under the Plan shall be exercisable as follows:
(a) The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
(b) Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee.
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<PAGE> 6
(c) Each Option or installment may be exercised at any time or
from time to time, in whole or in part, for up to the total number of shares
with respect to which it is then exercisable.
(d) The Committee shall have the right to accelerate the date
of exercise of any installment of any Option; provided that the Committee shall
not accelerate the exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to paragraph 17) if such acceleration would violate the annual vesting
limitation contained in Section 422(d)(1) of the Code, as amended, which
provides generally that with respect to ISOs granted after December 31, 1986,
the aggregate fair market value (determined at the time the option is granted)
of the stock with respect to which ISOs granted to any employee are exercisable
for the first time by such employee during any calendar year (under all plans of
the Company and any Related Corporation) shall not exceed $100,000.
10. Termination of Employment. If an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 11, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of 60 days
from the date of termination of his employment, but in no event later than on
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 17. Leave of absence with the written approval of the
Committee shall not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Company or any
Related Corporation to continue the employment of the employee after the
approved period of absence. Employment shall also be considered as continuing
uninterrupted during any other bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Option, Award or
authorization to make a Purchase the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time. In
granting any Non-Qualified Option, the Committee may specify that such
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination or cancellation provisions as the
Committee may determine.
11. Death; Disability; Dissolution. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by reason of his death, any
ISO of his may be exercised, to the extent of the number of shares with respect
to which he could have exercised it on the date of his death, by his estate,
personal representative or beneficiary who has acquired the ISO by will or by
the laws of descent and distribution, at any time prior to the ISO's specified
expiration date.
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If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of his disability, he shall have the right to
exercise any ISO held by him on the date of termination of employment, to the
extent of the number of shares with respect to which he could have exercised it
on that date, at any time prior to the ISO's specified expiration date. For the
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or any successor statute.
In granting any Non-Qualified Option, the Committee may
specify that such Non-Qualified Option shall be subject to the restrictions set
forth herein with respect to ISOs, or to such other termination and cancellation
provisions as the Committee may determine.
12. Assignability. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by him.
13. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 7 through 12 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may from time to time confer
authority and responsibility on one or more of its own members and/or one or
more officers of the Company to execute and deliver such instruments. The proper
officers of the Company are authorized and directed to take any and all action
necessary or advisable from time to time to carry out the terms of such
instruments.
14. Adjustments. Upon the happening of any of the events described
below, an optionee's rights with respect to Options granted to him hereunder,
and the recipient's rights with respect to Common Stock acquired pursuant to a
Purchase or Award hereunder, shall be adjusted as hereinafter provided, unless
otherwise specifically provided in the written agreement between the recipient
and the Company relating to such Option, Purchase or Award.
(a) In the event shares of Common Stock shall be subdivided or
combined into a greater or smaller number of shares or if, upon a merger,
consolidation, reorganization, split-up, liquidation, combination,
recapitalization or the like of the Company, the shares of Common Stock shall be
exchanged for other securities of the Company or of another corporation, each
optionee shall be entitled, subject to the conditions herein stated, to purchase
such number of shares of Common Stock or amount of other securities of the
Company or such other corporation as were exchangeable for the number of shares
of Common Stock which such optionee would have been entitled to purchase except
for such action, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination, or exchange; and
(b) In the event the Company shall issue any of its shares as
a stock dividend upon or with respect to the shares of stock of the class which
shall at the time be subject to option hereunder, each optionee upon exercising
an Option shall be entitled to receive (for the
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<PAGE> 8
purchase price paid upon such exercise) the shares as to which he is exercising
his Option and, in addition thereto (at no additional cost), such number of
shares of the class or classes in which such stock dividend were declared or
paid, and such amount of cash in lieu of fractional shares, as he would have
received if he had been the holder of the shares as to which he is exercising
his Option at all times between the date of grant of such Option and the date of
its exercise.
(c) If any person or entity obtains, by exercise of an Option
or by a Purchase or Award made hereunder, Common Stock that is subject to a
vesting schedule, repurchase options by the Company, or other such restrictions,
and such person or entity subsequently receives new or additional or different
shares or securities ("New Securities") in connection with a corporate
transaction described in subparagraph (b) above as a result of owning such
Common Stock, such New Securities shall be subject to all of the conditions and
restrictions applicable to the Common Stock with respect to which such New
Securities were issued.
(d) Notwithstanding the foregoing, any adjustments made
pursuant to sub-paragraphs (a) or (b) with respect to ISOs shall be made only
after the Committee, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs as that
term is defined in Section 425 of the Code, or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification of such
ISOs, it may refrain from making such adjustments.
(e) No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(f) No fractional shares shall actually be issued under the
Plan. Any fractional shares which, but for this subparagraph (f), would have
been issued to an optionee pursuant to any Option, shall be deemed to have been
issued and immediately sold to the Company for their fair market value, and the
optionee shall receive from the Company cash in lieu of such fractional shares.
(g) Upon the happening of any of the foregoing events
described in sub-paragraphs (a) or (b) above, the class and aggregate number of
shares set forth in paragraph 5 hereof that are subject to Options, Awards or
authorizations to make Purchases which previously have been or subsequently may
be granted under the Plan shall also be appropriately adjusted to reflect the
events described in such subparagraphs. The Committee shall determine the
specific adjustments to be made under this paragraph 14 and, subject to
paragraph 3, its determination shall be conclusive.
15. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the Option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, or (b) at the discretion of the Committee,
through delivery of shares of Common Stock having fair market value equal as of
the date of the exercise to the cash exercise price of the Option, or (c) at the
discretion of the
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<PAGE> 9
Committee, by delivery of the optionee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in 5 1274(d) of the Code, or (d) at the discretion of
the Committee, by any combination of (a), (b) and (c) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b) or (c) of the preceding sentence,
such discretion shall be exercised in writing at the time of the grant of the
ISO in question. The holder of an Option shall not have the rights of a
shareholder with respect to the shares covered by his Option until the date of
issuance of a stock certificate to him for such shares. Except as expressly
provided above in paragraph 14 with respect to changes in capitalization and
stock dividends, no adjustment shall be made for dividends or similar rights for
which the record date is before the date such stock certificate is issued.
16. Term and Amendment of Plan. This Plan was made effective on March
30, 1994 by a written consent of directors. Provisions of the Plan relating to
ISOs are subject to stockholder approval in accordance with the provisions of
Paragraph 2. The Plan shall expire on March 30, 2004. If approval by the
Stockholders of the ISO provisions of the Plan is not given, the Board may
terminate or amend the Plan in any respect at any time.
If approval by the Stockholders of the ISO provisions of the Plan is
given, the Board may terminate or amend the Plan in any respect at any time
provided, however, that the following amendments to the Plan shall require
Stockholder approval within 12 months before or after the date of the Board's
authorizing resolution: (a) any increase in the total number of shares that may
be issued under the Plan (except by adjustment pursuant to paragraph 14); (b)
any modification in the provisions of paragraph 4 regarding eligibility for
grants of ISOs; (c) any modification of the provisions of paragraph 7(b)
regarding the exercise price at which shares may be offered pursuant to ISOs
(except by adjustment pursuant to paragraph 14); and (d) any extension of the
expiration date of the Plan. In no event may action of the Board or Stockholders
alter or impair the rights of an Optionee, purchaser or Award recipient, without
his consent, under any Option, Award or authorization to make a Purchase
previously granted to him.
17. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions or installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the Optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
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18. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
19. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization or sale
of such shares.
20. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 21) or the vesting of restricted Common
Stock acquired on the exercise of an Option or by Award or Purchase hereunder,
the Company, in accordance with Section 3402(a) of the Code, may require the
optionee, Award recipient or purchaser to pay additional withholding taxes in
respect of the amount that is considered compensation includible in such
person's gross income. The Committee in its discretion may condition (i) the
exercise of an Option, (ii) the grant of an Award, (iii) the making of a
Purchase of Common Stock for less than its fair market value, or (iv) the
vesting of restricted Common Stock acquired by exercising an Option, making a
Purchase or receiving an Award, on the purchaser's or recipient's payment of
such additional withholding taxes.
21. Notice to Company of Disqualifying Disposition. Each employee who
receives ISOs shall agree to notify the Company in writing immediately after the
employee makes a disqualifying disposition of any Common Stock received pursuant
to the exercise of an ISO (a "Disqualifying Disposition"). Disqualifying
Disposition means any disposition (including any sale) of such stock before the
later of (a) two years after the employee was granted the ISO under which he
acquired such stock, or (b) one year after the employee acquired such stock by
exercising such ISO. If the employee has died before such stock is sold, these
holding period requirements do not apply and no Disqualifying Disposition will
thereafter occur.
22. Governing Law; Construction. The validity and construction of the
Plan and the instruments evidencing Options, Awards and Purchases shall be
governed by the laws of the Commonwealth of Massachusetts. In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
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<PAGE> 1
EXHIBIT NO. 10C
NATIONAL DATACOMPUTER, INC.
1997 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of National Datacomputer, Inc. (the "Corporation")
upon whose judgment, initiative and efforts the Corporation depends for the
successful conduct of its business, to acquire a closer identification of their
interests with those of the Corporation by providing them with opportunities to
purchase stock in the Corporation pursuant to options granted hereunder, thereby
stimulating their efforts on behalf of the Corporation and strengthening their
desire to remain involved with the Corporation.
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
<PAGE> 2
2.5 "Committee" means a Committee composed solely of two or more
Non-Employee Directors appointed by the Board to administer the Plan.
2.6 "Corporation" means National Datacomputer, Inc., a Delaware
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after the
effective date of the Plan.
2.8 "Incentive Stock Option" ("ISO") means an option that qualifies as
an incentive stock option as defined in Section 422 of the Code, as amended.
2.9 "Non-Employee Director" means (unless otherwise provided under Rule
16b-3 of the Securities Exchange Act of 1934) a member of the Board who (i) is
not currently an officer or Employee of the Corporation; (ii) does not receive
direct or indirect compensation from the Corporation or a parent or subsidiary
of the Corporation as a consultant or in any other capacity (except as a
Director) in an amount of more than $60,000 per year; (iii) does not possess an
interest in any other transaction for which proxy statement disclosure would be
required under Regulation S-K Item 404(a) (generally, transactions with the
Corporation involving an amount in excess of $60,000); and (iv) who is not
engaged in a business relationship with the Corporation for which disclosure
would be required pursuant to Regulation S-K Item 404(b) (generally involving,
among others, payments or indebtedness in excess of five percent of the
Corporation's or another entity's gross revenues or total assets, depending on
the transaction at issue).
2.10 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
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2.11 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.12 "Participant" means a person selected by the Board or by the
Committee to receive an award under the Plan.
2.13 "Plan" means this 1997 Stock Option Plan.
2.14 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the Participant.
2.15 "Stock" means either the Voting Common Stock, $.08 par value per
share, of the Corporation or any successor, including any adjustments in the
event of changes in capital structure of the type described in Article X.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time, in its
discretion delegate any of its functions under this Plan to one or more
Committees. All references in this Plan to the Board shall also include the
Committee or Committees, if one or more have been appointed by the Board. From
time to time the Board may increase the size of the Committee or committees and
appoint additional Non-Employee Directors as members thereto, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused,
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or remove all members of the Committee or committees and thereafter directly
administer the Plan. No member of the Board or a Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
options granted under it.
If a Committee is appointed by the Board, a majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
under the Plan shall be made by a majority of its members and may be made
without notice or meeting of the Committee by a writing signed by a majority of
Committee members.
3.2 Powers. The Board of Directors and/or any Committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
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(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board or any Committee appointed by it shall have full and
final authority in its discretion: (a) to determine the number of shares of
Stock subject to each Option; (b) to determine the time or times at which
Options will be granted; (c) to determine the option price of the shares of
Stock subject to each Option, which price shall be not less than the minimum
price specified in Article V of this Plan; (d) to determine the time or times
when each Option shall become exercisable and the duration of the exercise
period (including the acceleration of any exercise period), which shall not
exceed the maximum period specified in Article V; (e) to determine whether each
Option granted shall be an Incentive Stock Option or a Non-Qualified Option; and
(f) to waive, generally and in particular instances, compliance by a Participant
with any obligation to be performed by him under an Option, to waive any
condition or provision of an Option, and to amend or cancel any Option (and if
an Option is canceled, to grant a new Option on such terms as the Board may
specify), except that the Board may not take any action with respect to an
outstanding option that would adversely affect the rights of the Participant
under such Option without such Participant's consent. Nothing in the preceding
sentence shall be construed as limiting the power of the Board to make
adjustments required by Article X.
In no event may the Corporation grant any Employee an Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option
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plans of the Corporation and any Affiliated Corporation); provided, however,
that this paragraph shall have no force and effect if its inclusion in the Plan
is not necessary for Incentive Stock Options issued under the Plan to qualify as
such pursuant to Section 422(d)(1) of the Code.
ARTICLE IV
ELIGIBILITY
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan. Incentive Stock Options shall be granted only to
Employees.
4.2 Consultants, Directors and other Non-Employees. Any consultant,
Director (whether or not an Employee) and any other non-employee is eligible to
be granted Non-Qualified Option Awards under the Plan, provided the person has
not irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, consultants,
Directors and other non-employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
ARTICLE V
STOCK OPTION AWARDS
5.1 Number of Shares. Subject to the provisions of Article X of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not
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exceed 200,000 shares. The shares to be delivered upon exercise of Options under
this Plan shall be made available, at the discretion of the Board, either from
authorized but unissued shares or from previously issued and reacquired shares
of Stock held by the Corporation as treasury shares, including shares purchased
in the open market.
Stock issuable upon exercise of an Option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Corporation shall reacquire any unvested shares issued pursuant to
Options under the Plan, such shares shall thereafter be available for the
granting of other Options under this Plan, subject to the limits set forth in
Section 5.1 hereof.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted hereunder, the term shall not exceed ten (10) years from
the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Sections 6.3 and 6.4. Notwithstanding the foregoing,
the term of Options intended to qualify as Incentive Stock Options shall not
exceed five (5) years from the date of granting thereof if such Option is
granted to any Employee who at the time such Option is granted owns, directly or
indirectly, or is deemed to own by reason of the attribution rules set forth in
Section 425(d) of the Code, more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation and its Affiliated
Corporations (a "Ten-Percent Shareholder").
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5.4 Option Price. The Option price shall be determined by the Board at
the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than l00% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that no Incentive Stock Option shall be
granted hereunder to any Employee who is a Ten-Percent Shareholder unless the
Incentive Stock Option price equals not less than 110% of the fair market value
of the shares covered thereby at the time the Incentive Stock Option is granted.
5.5 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, then "fair market value" shall
be determined as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such Option is
granted and shall mean (i) the average (on that date) of the high and low prices
of the Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined in good faith by the Board after taking into consideration all
factors that it deems appropriate, including without limitation, recent sale and
offer prices of the Stock in private transactions negotiated at arm's length.
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5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.
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6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.5
hereof, or by any such other lawful consideration as the Board may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased, he or she shall possess no rights of a record holder with respect
to any of such shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
Option granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Corporation or
any Affiliated Corporation to continue the employment of the optionee after the
approved period of absence.
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If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any Option
that the Board may in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be deemed to include additional shares covered by
such Option; and (ii) unless the Board shall otherwise provide in the instrument
evidencing any Option, upon any such cessation of employment, such remaining
rights to purchase shall in any event terminate upon the earlier of (A) the
expiration of the original term of the Option; or (B) in the case of Incentive
Stock Options, the expiration of three months from the cessation of employment
unless where such cessation of employment is on account of disability, then the
expiration shall be one year from the date of such cessation of employment or
(c) for all Non-Qualified Options, three years from the date of such cessation
of employment. For purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions
relating to the exercisability of an Option following termination of service
shall be specified in the award. If not so specified, all Options held by such
Participant shall terminate on termination of service to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options at any time prior to three years from the date of death, except in the
case of Incentive Stock Options which shall be one year from the date of death;
provided that such options or
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Options shall expire in all events no later than the last day of the original
term of such Option; provided, further, that any such exercise shall be limited
to the purchase rights which have accrued as of the date when the optionee
ceased to be an Employee, whether by death or otherwise, unless the Board
provides in the instrument evidencing such Option that, in the discretion of the
Board, additional shares covered by such Option may become subject to purchase
immediately upon the death of the optionee.
ARTICLE VII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
ARTICLE VIII
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BENEFIT PLANS
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Participant any right to continue as an Employee of, or consultant or
advisor to, the Corporation or an Affiliated Corporation or affect the right of
the Corporation or any Affiliated Corporation to terminate them at any time.
Except as specifically provided by the Board in any particular case, the loss of
existing or potential profits granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
Participant even if the termination is in violation of an obligation of the
Corporation to the Participant by contract or otherwise.
ARTICLE IX
AMENDMENT, SUSPENSION OR TERMINATION
OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article X relative to capital changes, the
number of shares as to which Options may be granted pursuant to
Article V; and
(b) The requirements as to eligibility for participation in the Plan.
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Awards granted prior to suspension or termination of the Plan may not
be canceled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE X
CHANGES IN CAPITAL STRUCTURE
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Board so as
to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article X with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
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In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XI
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective when approved by the Board. The Plan
shall continue until such time as it may be terminated by action of the Board or
the Committee; provided, however, that no Options may be granted under this Plan
on or after the tenth anniversary of the date on which the Plan was adopted by
the Board. This plan must be approved by the stockholders of the Corporation
within twelve (12) months of the date it becomes effective if the Corporation is
to grant Incentive Stock Options under the Plan. If the Plan is not approved by
the stockholders within twelve (12) months of the date it becomes effective, the
Corporation may only grant Non-Qualified Options under the Plan.
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ARTICLE XII
CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS; TERMINATION OF ISOS
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Board or the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the Board
or the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with the Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's Incentive Stock Options
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Board or the Committee takes appropriate action. The Board, with
the consent of the optionee, may also terminate any portion of any Incentive
Stock Option that has not been exercised at the time of such termination.
ARTICLE XIII
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XIV
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GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XV
WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVI
NOTICE TO CORPORATION OF DISQUALIFYING DISPOSITION
Each Employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the Employee acquired Stock by exercising the Incentive Stock Option.
If the Employee has died before such Stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
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ARTICLE XVII
CONDITIONS ON DELIVERY OF STOCK
The Corporation shall not be obligated to deliver any shares of Stock
pursuant to Options granted under the Plan until, (a) in the opinion of the
Corporation's counsel, all applicable federal and state laws and regulations
have been complied with, and (b) all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Corporation's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Corporation may require, as a condition to exercise of
the option, such representations or agreements as counsel for the Corporation
may consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
ARTICLE XVIII
GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware
(without regard to the conflict of law principles thereof). In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
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EXHIBIT 10D
NATIONAL DATACOMPUTER, INC.
1998 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of National Datacomputer, Inc. (the "Corporation")
upon whose judgment, initiative and efforts the Corporation depends for the
successful conduct of its business, to acquire a closer identification of their
interests with those of the Corporation by providing them with opportunities to
purchase stock in the Corporation pursuant to options granted hereunder, thereby
stimulating their efforts on behalf of the Corporation and strengthening their
desire to remain involved with the Corporation.
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has
<PAGE> 2
been appointed, a Committee of the Board of Directors of the Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a Committee composed solely of two or more
Non-Employee Directors appointed by the Board to administer the Plan.
2.6 "Corporation" means National Datacomputer, Inc., a Delaware
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after the
effective date of the Plan.
2.8 "Incentive Stock Option" ("ISO") means an option that qualifies as
an incentive stock option as defined in Section 422 of the Code, as amended.
2.9 "Non-Employee Director" means (unless otherwise provided under Rule
16b-3 of the Securities Exchange Act of 1934) a member of the Board who (i) is
not currently an officer or Employee of the Corporation; (ii) does not receive
direct or indirect compensation from the Corporation or a parent or subsidiary
of the Corporation as a consultant or in any other capacity (except as a
Director) in an amount of more than $60,000 per year; (iii) does not possess an
interest in any other transaction for which proxy statement disclosure would be
required under Regulation S-K Item 404(a) (generally, transactions with the
Corporation involving an amount in excess of $60,000); and (iv) who is not
engaged in a business relationship with the Corporation for which disclosure
would be required pursuant to Regulation S-K Item 404(b) (generally involving,
among others, payments or indebtedness in excess of five percent of the
Corporation's
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or another entity's gross revenues or total assets, depending on the transaction
at issue).
2.10 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.11 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.12 "Participant" means a person selected by the Board or by the
Committee to receive an award under the Plan.
2.13 "Plan" means this 1998 Stock Option Plan.
2.14 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the Participant.
2.15 "Stock" means either the Voting Common Stock, $.08 par value per
share, of the Corporation or any successor, including any adjustments in the
event of changes in capital structure of the type described in Article X.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time, in its
discretion delegate any of its functions under this Plan to one or more
Committees. All references in this Plan to the Board
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shall also include the Committee or Committees, if one or more have been
appointed by the Board. From time to time the Board may increase the size of the
Committee or committees and appoint additional Non-Employee Directors as members
thereto, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members of
the Committee or committees and thereafter directly administer the Plan. No
member of the Board or a Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any options granted
under it.
If a Committee is appointed by the Board, a majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
under the Plan shall be made by a majority of its members and may be made
without notice or meeting of the Committee by a writing signed by a majority of
Committee members.
3.2 Powers. The Board of Directors and/or any Committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
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(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board or any Committee appointed by it shall have full and
final authority in its discretion: (a) to determine the number of shares of
Stock subject to each Option; (b) to determine the time or times at which
Options will be granted; (c) to determine the option price of the shares of
Stock subject to each Option, which price shall be not less than the minimum
price specified in Article V of this Plan; (d) to determine the time or times
when each Option shall become exercisable and the duration of the exercise
period (including the acceleration of any exercise period), which shall not
exceed the maximum period specified in Article V; (e) to determine whether each
Option granted shall be an Incentive Stock Option or a Non-Qualified Option; and
(f) to waive, generally and in particular instances, compliance by a Participant
with any obligation to be performed by him under an Option, to waive any
condition or provision of an Option, and to amend or cancel any Option (and if
an Option is canceled, to grant a new Option on such terms as the Board may
specify), except that the Board may not take any action
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with respect to an outstanding option that would adversely affect the rights of
the Participant under such Option without such Participant's consent. Nothing in
the preceding sentence shall be construed as limiting the power of the Board to
make adjustments required by Article X.
In no event may the Corporation grant any Employee an Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(d)(1) of the Code.
ARTICLE IV
ELIGIBILITY
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan. Incentive Stock Options shall be granted only to
Employees.
4.2 Consultants, Directors and other Non-Employees. Any consultant,
Director (whether or not an Employee) and any other non-employee is eligible to
be granted Non-Qualified Option Awards under the Plan, provided the person has
not irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, consultants,
Directors and other non-employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been
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granted an Award may be granted one or more additional Awards, if the Board so
determines. The granting of an Award to any individual shall neither entitle
that individual to, nor disqualify him from, participation in any other grant of
Awards.
ARTICLE V
STOCK OPTION AWARDS
5.1 Number of Shares. Subject to the provisions of Article X of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 300,000 shares. The shares to be delivered upon
exercise of Options under this Plan shall be made available, at the discretion
of the Board, either from authorized but unissued shares or from previously
issued and reacquired shares of Stock held by the Corporation as treasury
shares, including shares purchased in the open market.
Stock issuable upon exercise of an Option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Corporation shall reacquire any unvested shares issued pursuant to
Options under the Plan, such shares shall thereafter be available for the
granting of other Options under this Plan, subject to the limits set forth in
Section 5.1 hereof.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted
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hereunder, the term shall not exceed ten (10) years from the date of granting
thereof. Each Option shall be subject to earlier termination as provided in
Sections 6.3 and 6.4. Notwithstanding the foregoing, the term of Options
intended to qualify as Incentive Stock Options shall not exceed five (5) years
from the date of granting thereof if such Option is granted to any Employee who
at the time such Option is granted owns, directly or indirectly, or is deemed to
own by reason of the attribution rules set forth in Section 425(d) of the Code,
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation and its Affiliated Corporations (a Ten-Percent
Shareholder).
5.4 Option Price. The Option price shall be determined by the Board at
the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than l00% of the fair market value of the
shares covered thereby at the time the Incentive Stock Option is granted (but in
no event less than par value), provided that no Incentive Stock Option shall be
granted hereunder to any Employee who is a Ten-Percent Shareholder unless the
Incentive Stock Option price equals not less than 110% of the fair market value
of the shares covered thereby at the time the Incentive Stock Option is granted.
5.5 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, then "fair market value" shall
be determined as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such Option is
granted and shall mean (i) the average (on that date) of the high and low prices
of the Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on
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<PAGE> 9
that date) of the Stock on the NASDAQ National Market List, if the Stock is not
then traded on a national securities exchange; or (iii) the closing bid price
(or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Stock is not reported
on the NASDAQ National Market List. However, if the Stock is not publicly traded
at the time an Option is granted under the Plan, "fair market value" shall be
deemed to be the fair value of the Stock as determined in good faith by the
Board after taking into consideration all factors that it deems appropriate,
including without limitation, recent sale and offer prices of the Stock in
private transactions negotiated at arm's length.
5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the
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<PAGE> 10
exercise date of any Incentive Stock Option granted if such acceleration would
violate the annual vesting limitation contained in Section 422(d)(1) of the
Code.
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6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.5
hereof, or by any such other lawful consideration as the Board may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased, he or she shall possess no rights of a record holder with respect
to any of such shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
Option granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Corporation or
any Affiliated Corporation to continue the employment of the optionee after the
approved period of absence.
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If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that the Board may provide in the instrument evidencing any Option that
the Board may in its absolute discretion, upon any such cessation of employment,
determine (but be under no obligation to determine) that such accrued purchase
rights shall be deemed to include additional shares covered by such Option.
Unless the Board shall otherwise provide in the instrument evidencing any
Option, upon any such cessation of employment, such remaining rights to purchase
shall in any event terminate upon the earlier of (A) the expiration of the
original term of the Option; or (B) in the case of Incentive Stock Options, the
expiration of three months from the cessation of employment unless such
cessation of employment is on account of disability, then the expiration shall
be one year from the date of such cessation of employment or (C) for all
Non-Qualified Options, three years from the date of such cessation of
employment. For purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions
relating to the exercisability of an Option following termination of service
shall be specified in the award. If not so specified, all Options held by such
Participant shall terminate on termination of service to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted,
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<PAGE> 13
may, unless otherwise provided by the Board in any instrument evidencing any
Option, exercise such Options at any time prior to three years from the date of
death, except in the case of Incentive Stock Options which shall be one year
from the date of death; provided, that such Option or Options shall expire in
all events no later than the last day of the original term of such Option;
provided, further, that any such exercise shall be limited to the purchase
rights which have accrued as of the date when the optionee ceased to be an
Employee, whether by death or otherwise, unless the Board provides in the
instrument evidencing such Option that, in the discretion of the Board,
additional shares covered by such Option may become subject to purchase
immediately upon the death of the optionee.
ARTICLE VII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized
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<PAGE> 14
and directed to take any and all action necessary or advisable from time to time
to carry out the terms of such instruments.
ARTICLE VIII
BENEFIT PLANS
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Participant any right to continue as an Employee of, or consultant or
advisor to, the Corporation or an Affiliated Corporation or affect the right of
the Corporation or any Affiliated Corporation to terminate them at any time.
Except as specifically provided by the Board in any particular case, the loss of
existing or potential profits granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
Participant even if the termination is in violation of an obligation of the
Corporation to the Participant by contract or otherwise.
ARTICLE IX
AMENDMENT, SUSPENSION OR TERMINATION
OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
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<PAGE> 15
(a) Except as provided in Article X relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V; and
(b) The requirements as to eligibility for participation in the
Plan.
Awards granted prior to suspension or termination of the Plan may not
be canceled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE X
CHANGES IN CAPITAL STRUCTURE
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Board so as
to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article X with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the
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<PAGE> 16
Code) or would cause any adverse tax consequences for the holders of such
Incentive Stock Options. If the Board determines that such adjustments made with
respect to Incentive Stock Options would constitute a modification of such
Incentive Stock Options, it may refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XI
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective when approved by the Board. The Plan
shall continue until such time as it may be terminated by action of the Board or
the Committee; provided, however, that no Options may be granted under this Plan
on or after the tenth anniversary of the date on which the Plan was adopted by
the Board. This Plan must be approved by the stockholders of the Corporation
within twelve (12) months of the date it becomes effective if the
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Corporation is to grant Incentive Stock Options under the Plan. If the Plan is
not approved by the stockholders within twelve (12) months of the date it
becomes effective, the Corporation may only grant Non-Qualified Options under
the Plan.
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<PAGE> 18
ARTICLE XII
CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS; TERMINATION OF ISOS
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Board or the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the Board
or the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with the Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's Incentive Stock Options
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Board or the Committee takes appropriate action. The Board, with
the consent of the optionee, may also terminate any portion of any Incentive
Stock Option that has not been exercised at the time of such termination.
ARTICLE XIII
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
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<PAGE> 19
ARTICLE XIV
GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XV
WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVI
NOTICE TO CORPORATION OF DISQUALIFYING DISPOSITION
Each Employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the Employee acquired Stock by exercising the Incentive Stock Option.
If the Employee has
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<PAGE> 20
died before such Stock is sold, these holding period requirements do not apply
and no Disqualifying Disposition can occur thereafter.
ARTICLE XVII
CONDITIONS ON DELIVERY OF STOCK
The Corporation shall not be obligated to deliver any shares of Stock
pursuant to Options granted under the Plan until, (a) in the opinion of the
Corporation's counsel, all applicable federal and state laws and regulations
have been complied with, and (b) all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Corporation's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Corporation may require, as a condition to exercise of
the option, such representations or agreements as counsel for the Corporation
may consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
ARTICLE XVIII
GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware
(without regard to the conflict of law principles thereof). In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
<PAGE> 1
EXHIBIT 10F
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Dr. Malcolm Bibby As of January 1, 1998
The undersigned, National Datacomputer, Inc., a Delaware corporation,
which together with its wholly-owned subsidiaries, as well as its successors and
assigns (hereinafter collectively referred to as the "Company"), hereby agree
with you as follows:
l. Position and Responsibilities.
-----------------------------
1.1 You shall serve as President and Chief Executive Officer
of the Company and shall perform the duties customarily associated with such
capacity from time to time and at such place or places as the Company shall
designate are appropriate and necessary in connection with such employment;
provided, however, that you shall not be required to relocate your place of
employment beyond a 10 mile radius from Billerica, Massachusetts without your
prior written consent.
1.2 You will, to the best of your ability, devote your full
time and commercially reasonable efforts to the performance of your duties
hereunder and the business affairs of the Company. You agree to perform such
executive duties as may be reasonably assigned to you by or on authority of the
Company's Board of Directors from time to time.
1.3 You will duly and faithfully perform and observe any and
all reasonable rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
1.4 You will report directly to the Company's Board of
Directors.
2. Term of Employment.
------------------
2.1 The initial term of this Agreement shall be for the period
of years set forth on Exhibit A annexed hereto commencing with the date hereof
(the "Commencement Date"). Thereafter, this Agreement shall be automatically
renewed for successive periods of one year, unless the Company shall give you
not less than six (6) months written notice of non-renewal. Your employment with
the Company may be terminated at any time as provided in Section 2.2.
1
<PAGE> 2
If the Company gives you notice of non-renewal, the Company shall be obligated
to pay to you as Severance Benefits an amount set forth in Section 7 (prior to a
"Change of Control" as defined herein) or Section 8 (following a "Change of
Control") of Exhibit A hereto, as applicable, plus payment in full of any
amounts otherwise due you, less applicable taxes and other required withholdings
and any amounts you may owe to the Company.
2.2 The Company shall have the right, on written notice to
you, to terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein) stating in such notice the reasons therefor; or
(b) at any time, upon not less than fourteen (14)
days written notice, without "Cause" provided the Company shall be
obligated to pay to you as Severance Benefits an amount equal to the
sums set forth in Sections 7 or 8 of Exhibit A hereto, as applicable,
or
(c) For purposes of this Section 2.2 only, if at any
time the Company has incurred losses (exclusive of extraordinary items
of income and loss) of $1,000,000.00 or more in any four consecutive
fiscal quarters, the Company may terminate this Agreement and shall be
obligated to pay you (X) 50% of your then current annual Base Salary
payable in full upon the date of termination of employment, plus (Y)
Severance Benefits as described in Subsection 7(b) of Exhibit "A" for a
period of six (6) months. plus (Z) the sums previously due and payable
to you as described in Subsection 2.2(d)
(d) If the Company shall terminate your employment
under this Section 2, then the Company shall pay to you, in addition to
any sums due to you under Section 2.2(b), any sums then due to you
through the effective date of your termination, less (i) applicable
taxes and other required withholdings, and (ii) any amounts you may owe
to the Company, unless there is a written agreement to the contrary.
(e) Payments under Section 2.2 (b) shall not be due
or payable if you are terminated at any time for "Cause" (subject to
the advance payment requirement of Section 2.3) or if you voluntarily
resign from your employment.
2.3 For purposes of Section 2.2 (except as provided in Section
8(c) of Exhibit A), the term "Cause" shall mean (a) conviction of a felony
involving moral turpitude; or (b) willful or prolonged wrongful absence from
work not excused by disability. During the pendency of any such dispute
following your termination pursuant to this subsection 2.3, the Company will pay
you your full compensation plus any benefits provided in Exhibit A in effect
just prior to the effective date of termination and until the dispute is
resolved, but in any event,
2
<PAGE> 3
such payment shall not continue for more than the greater of the remaining
original term of this Agreement or eighteen (18) months and, if a court
determines that your employment was terminated without cause, such payments
shall be credited to any severance payments due you under Exhibit A. All such
payments shall be made on a bi-weekly basis in coordination with Company payroll
policies and the Company agrees to take all such further actions necessary to
insure the continued payment of such amounts during the pendency of any such
dispute, including, but not limited to, the issuance of an injunction by a court
of competent jurisdiction requiring such continued payment. However, if such
court issues a final and non-appealable order that the Company had Cause to
terminate you then you must return all compensation and the value of all
benefits paid and/or provided to you after the effective date of termination.
2.4 In the event of the Involuntary Termination of your
employment with the Company at any time, the Company hereby irrevocably agrees
to provide you with Severance Benefits as defined in Section 7 of Exhibit A
hereto or payments in the event of a "Change in Control" as defined in Section 8
of Exhibit A, as applicable. In this regard, the phrase "Involuntary
Termination" shall mean any termination of your employment by the Company other
than for "cause," as defined in Section 2.3, any notice by the Company not to
renew this Agreement pursuant to Section 2.1, or any termination of your
employment by you due to any of the following circumstances: (a) a reduction in
your Base Salary or Company-paid benefits, (b) a reduction in your eligibility
for any Company bonus or other benefit program, (c) a material or substantial
change in your title, position, authority or duties or moving your office within
the Company's facility, (d) a change of your principal place of employment from
Billerica, Massachusetts to another location beyond 10 miles of Billerica,
Massachusetts, (e) failure to elect you as a Director of the Company, or (f) the
breach of any material provision of this Agreement by the Company which is not
substantially cured within thirty (30) days following written notice to each
member of the Board of Directors.
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A hereto ("Compensation") for all services to be rendered by
you hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary
Information and Inventions Agreement").
4. Other Activities During Employment.
---------------------------------
4.1 Except for any outside directorships currently held by you
as listed on Exhibit B hereto, and except with the prior written consent of the
Company's Board of Directors, you will not during the term of this Agreement
undertake or engage in any other employment, occupation, directorship or
business enterprise other than one in which you are an inactive investor or as a
director, which consent shall not be unreasonably withheld or delayed .
4.2 You hereby agree that, except as disclosed on Exhibit B
hereto, during
3
<PAGE> 4
your employment hereunder, you will not, directly or indirectly, engage (a)
individually, (b) as an officer, (c) as a director, (d) as an employee, (e) as a
consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than two percent (2%)
interest in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the development of route accounting systems or
any other line of business engaged in or under demonstrable development by the
Company (such firm, corporation, partnership, trust, association, or other
organization being hereinafter referred to as a "Prohibited Enterprise"). Except
as may be shown on Exhibit B hereto, you hereby represent that you are not
engaged in any of the foregoing capacities (a) through (i) in any Prohibited
Enterprise.
5. Former Employers.
----------------
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship, whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
--------------------------
7.1 So long as the Company is not in breach of its obligations
to you hereunder, for a period of two (2) years after the termination or
expiration, for any reason, of your employment with the Company hereunder,
absent the Company's prior written approval, you will not directly or indirectly
engage in activities similar or reasonably related to those in which you shall
have engaged hereunder during the two years immediately preceding termination or
expiration for, nor render services similar or reasonably related to those which
you shall have rendered hereunder during such two years to, any person or entity
whether now existing or hereafter established which directly competes with (or
proposes or plans to directly compete
4
<PAGE> 5
with) the Company ("Direct Competitor") in any line of business engaged in or
under development by the Company. Nor shall you entice, induce or encourage any
of the Company's other employees to engage in any activity which, were it done
by you, would violate any provision of the Proprietary Information and
Inventions Agreement or this Section 7. As used in this Section 7.1, the term
"any line of business engaged in or under development by the Company" shall be
applied as at the date of termination of your employment, or, if later, as at
the date of termination of any post-employment consultation.
7.2 So long as the Company is not in breach of its obligations
to you hereunder, for a period of two (2) years after the termination of your
employment with the Company, the provisions of Section 4.2 shall be applicable
to you and you shall comply therewith. As applied to such two (2) year
post-employment period, the term "any other line of business engaged in or under
development by the Company," as used in Section 4.2, shall be applied as at the
date of termination of your employment with the Company or, if later, as at the
date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to
preclude you from performing the same services which the Company hereby retains
you to perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment so long as you do
not thereby violate any term of the Proprietary Information and Inventions
Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 6, 7, 8 and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 would be inadequate and you
therefore agree that the Company shall be entitled to such injunctive relief in
case of any such breach or threatened breach.
The Company's obligations and those of any successors or assignees of
the Company under this Agreement, including but not limited to the severance
provisions and other compensation and benefits due to you pursuant to Exhibit A
hereto, will be a condition of and are to remain those of any successor or
assignee. The Company acknowledges that a remedy at law for any breach or
threatened breach by the Company, its directors or agents of any of the
provisions of Exhibit A hereto or of this Agreement generally, or of any
extension of this Agreement, would be inadequate and the Company therefore
agrees that you shall be entitled to injunctive relief in case of any such
breach or threatened breach. In the event of any dispute pursuant to this
Agreement, the prevailing party in any litigation or arbitration shall be
entitled to
5
<PAGE> 6
prompt reimbursement of reasonable legal fees and related expenses incurred in
connection with such dispute.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to each member of the Board of
Directors and the Company at its principal office, or at such other office as
the Company may from time to time designate in writing. The date of personal
delivery or the date of mailing any notice under this Section 11 shall be deemed
to be the date of delivery thereof.
12. Waivers. If either party should waive any breach of any provision
of this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B, C and D hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
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<PAGE> 7
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law.
The exclusive venue for any dispute hereunder shall be the Superior
Court of the Trial Court of the Commonwealth of Massachusetts in Middlesex
County.
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
NATIONAL DATACOMPUTER. INC.
By:
------------------------------------
, duly authorized
Accepted and Agreed:
- -----------------------------
Dr. Malcolm Bibby
7
<PAGE> 8
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS OF
DR. MALCOLM BIBBY
l. Term. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for a period from the date of this Agreement (the
"Commencement Date") through December 31, 2000.
2. Compensation.
------------
(a) Base Salary. For the period from January 1, 1998 through
March 31, 1998, your Base Salary shall be $126,000 per annum, payable
on a bi-weekly basis. Thereafter, your Base Salary shall be $150,000.00
per annum through December 31, 1998, payable in equal bi-weekly
payments. For future years, any increases in Base Salary shall be as
established by the Board of Directors. The Base Salary may not be
decreased during your employment without your approval.
(b) Stock Option Grant. You shall be entitled to receive stock
option grants, in the form of the grant letter attached hereto as
Exhibit D.
(c) Incentive Payments. You shall be entitled to bonus
arrangements as determined by the Board of Directors from time to time.
3. Vacation. You shall be entitled to all legal and religious holidays,
and three weeks paid vacation per annum. Up to 50% of any unused
vacation may be accrued (but in any event not to exceed three weeks
paid vacation)or cashed in based on your then current Base Salary.
4. Insurance and Benefits. You shall be eligible to participate in any
health, dental, disability, accident and disability insurance or other
group benefit plan, as well as any other plan, program or policy of the
Company intended to benefit employees and, in particular, plans
designed to benefit principal Company executives (including but not
limited to stock incentive plans (other than stock option plans), stock
awards, etc.) which may be established by the Company or which the
Company is required to maintain by law.
5. Retirement Plan. You will be eligible to participate in the Company's
401(k) plan. If the Company elects to make contributions to the
Company's 401(k) plan or any Company retirement plans, you will
participate in such contributions in accordance with all laws and
regulations.
A-1
<PAGE> 9
6. Expense Reimbursement. You shall be entitled to reimbursement of all
proper business expenses in accordance with the Company's expense
reimbursement policies.
7. Severance Benefits.
------------------
(a) When provided for in this Agreement, you shall be entitled
to "Severance Benefits". When used in this Agreement, the term
Severance Benefits shall be determined based upon an amount equal to
(X) (i) 1/12th of 100% of your then current annual Base Salary, plus
(ii) 1/12th of 100% of your Incentive Compensation earned for the
Company's most recent fiscal year, multiplied by (Y) the greater of the
remaining calendar months under the original term of this Agreement or
eighteen (18) months (the "Severance Period"). This total amount shall
be paid to you as follows: 33 1/3% of such Severance Benefits shall be
paid to you within fourteen (14) days after your effective date of
termination and the remaining 66 2/3% shall be paid to you in twelve
(12) equal monthly installments commencing within forty (40) days after
the date of your termination of active employment with the Company.
(b) In addition, the term "Severance Benefits" shall include
the continuation for you and your family, during the Severance Period,
of all of the other benefits which are provided or available to you on
the last day of your actual service with the Company, including your
continued accrual and the vesting under the terms of any pension or
401(k) plan then sponsored by the Company to the maximum extent
permitted by law.
(c) The payments referred to above will be in addition to, and
not in substitution for, any accrued and unpaid salary, vacation,
pension, retirement or other benefits, unreimbursed expenses or other
payments to which you may be otherwise entitled.
(d) In the event of your permanent disability while you are
employed by the Company, your then current Base Salary shall continue
to be paid to your legal representative for the Severance Period to the
extent of available disability insurance and the Company shall use its
commercially reasonable best efforts to obtain coverage on your behalf
providing the same net after-tax benefit; and for a period of three (3)
years following your disability, the Company shall continue to provide
to you the health insurance coverage described above. If you die while
you are employed by the Company, all cash amounts which would have been
payable to you under this Exhibit A, unless otherwise provided for
herein, shall be paid immediately in accordance with the terms of this
Section 7 (to the extent of life insurance proceeds payable to the
Company or to your designee which policy the Company agrees to use its
commercially reasonable best efforts to obtain)to your estate and your
health insurance coverage shall be provided to your spouse for a period
of three (3) years following your death.
A-2
<PAGE> 10
(e) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with
this Agreement, by seeking other employment or otherwise.
8. Change in Control.
-----------------
(a) For purposes of this Agreement, "Change in Control" means
and shall be deemed to occur if any of the following occurs: (i) the
acquisition, after January 1, 1998, by an individual, entity or group
[within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 as amended (the "Exchange Act")] of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 35% or more of either (A) the outstanding shares of
common stock, no par value pr share, of the Company (the "Common
Stock"), or (B) the combined voting power of the voting securities of
the Company entitled to vote generally in the election of directors
(the "Voting Securities"); or (ii) Individuals who, on January 1, 1998,
constituted the Board of Directors of the Company (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company; or (iii) Approval by the Board of
Directors or the shareholders of the Company of a (A) tender offer to
acquire any of the Common Stock or voting securities, (B)
reorganization, (C) merger or (D) consolidation, other than a
reorganization, merger or consolidation with respect to which all or
substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Common Stock and voting securities beneficially
own, directly or indirectly, immediately after such reorganization,
merger or consolidation, more than 80% of the then outstanding common
stock and voting securities (entitled to vote generally in the election
of directors) of the Company resulting from such reorganization, merger
or consolidation in substantially the same proportions as their
respective ownership, immediately prior to such reorganization, merger
or consolidation, of the Common Stock and the voting securities; or
(iv) Approval by the Board of Directors or the shareholders of the
Company of (A) a complete or substantial liquidation or dissolution of
the Company, or (B) the sale or other disposition (including by
license) of all or substantially all of the assets of the Company,
excluding a reorganization of the Corporation under the corporate laws
of a state or province other than Delaware.
(b) In the event of your actual termination of employment
contemporaneous with or within three years following a Change in
Control, except (x) because of your death or Disability (as hereinafter
defined), (y) by the Company for Cause or (z) by you other than for
Good Reason (as hereinafter defined): (i) you shall be entitled to
receive, in lieu of the sums described in Section 7, a lump sum equal
to 100% of Severance Benefits due determined as if payable under
Section 7 above, to be paid in accordance with the terms of this
Agreement; and (ii) the following additional provisions shall apply
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<PAGE> 11
(which provisions shall supersede any other provisions of the
Agreement, including but not limited to Section 2 of the Agreement, to
the extent such provisions are inconsistent with the following
provisions):
(1) Disability. For purposes of this Section 8(c),
termination by the Company of your employment based on "Disability"
shall mean termination because of your absence from your duties with
the Company on a full time basis for ninety (90) consecutive days as a
result of your incapacity due to physical or mental illness, unless
within thirty (30) days after Notice of Termination (as hereinafter
defined) is given to you following such absence, you shall have
returned to the full time performance of your duties.
(2) Cause. For purposes of this Section 8(c),
termination by the Company of your employment for "Cause" shall mean
termination for Cause as defined in Section 2.3 and 2.2 (c) of this
Agreement.
(3) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination by you, in your reasonable
judgment, that there has been a material adverse change in
your status or position(s) as President and Chief Executive
Officer of the Company as in effect immediately prior to the
Change in Control, including, without limitation, a material
adverse change in your status or position as a result of a
diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact
that the Company is no longer publicly owned) or the
assignment to you of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal
of you from, or any failure to reappoint or reelect you to,
such position(s) (except in connection with the termination of
your employment for Cause or Disability or as a result of your
death or by you other than for Good Reason) or the failure of
the Corporation and its officers and significant employees
following a Change in Control to provide a work environment
reasonably appropriate and free from unwarranted or
inappropriate harassment for a member of senior management;
(B) a reduction by the Company in your Base Salary as
in effect immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect
any benefits as described above or other Plan (as hereinafter
defined) in which you are participating at the time of the
Change in Control of the Company (or Plans providing you with
at least substantially similar benefits) other than as a
result of
A-4
<PAGE> 12
the normal expiration of any such Plan in accordance with its
terms as in effect at the time of the Change in Control, or
the taking of any action, or the failure to act, by the
Company which would adversely affect your continued
participation in any of such Plans on at least as favorable a
basis to you as is the case on the date of the Change in
Control or which would materially reduce your benefits in the
future under any of such Plans or deprive you of any material
benefit enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide and credit
you with the number of paid vacation days to which you are
then entitled in accordance with this Agreement as in effect
immediately prior to the Change in Control;
(E) the Company's requiring you to be based at any
office that is greater than ten (10) miles from where your
office is located immediately prior to the Change in Control
except for required travel on the Company's business to an
extent substantially consistent with the business travel
obligations which you undertook on behalf of the Company prior
to the Change in Control;
(F) the failure by the Company to obtain from any
Successor (as hereinafter defined) the assent to this
Agreement contemplated by Section 8(c)(7) hereof;
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section (8)(c)(4)
below (and, if applicable, Section 8(c)(2) above); and for
purposes of this Agreement, no such purported termination
shall be effective; or
(H) the failure by the Company to fulfill any
material obligation contained in this Agreement and such
breach continues for a period of thirty (30) days following
written notice to the Board of Directors regarding such
breach.
For purposes of this Agreement, "Plan" shall mean any
compensation plan or any employee benefit plan such as a
thrift, pension, profit sharing, medical, disability,
accident, life insurance plan or a relocation plan or policy
or any other plan, program or policy of the Company intended
to benefit employees and, in particular, such Plans designed
to benefit the President and Chief Executive Officer or
Company executives.
A-5
<PAGE> 13
(4) Notice of Termination. Any purported termination
by the Company or by you following a Change in Control shall be
communicated by at least seven days' written notice to the other party
hereto which indicates the specific termination provision in this
Agreement relied upon (the "Notice of Termination").
(5) Date of Termination. "Date of Termination"
following a Change in Control shall mean (A) if your employment is to
be terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30)
day period), (B) if your employment is to be terminated by the Company
for any reason other than death or Disability or by you pursuant to
Sections 8(c)(3)(F) or 8(c)(7) hereof or for any other Good Reason, the
date specified in the Notice of Termination, or (C) if your employment
is terminated on account of your death, the day after your death. In
the case of termination of your employment by the Company for Cause
pursuant to Subsection 8(c)(2) hereof, if you have not previously
expressly agreed in writing to the termination, then within thirty (30)
days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning
the Termination, in which event the Date of Termination shall be the
date set either by mutual written agreement of the parties or by such
court having the matter before it. During the pendency of any such
dispute, the Company will continue to pay you your full compensation
and benefits as provided in Section 4 of this Exhibit A in effect just
prior to the time the Notice of Termination is given and until the
dispute is resolved. However, if such court issues a final and
non-appealable order finding that the Company had Cause to terminate
you, then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously
received by you.
(6) Compensation Upon Termination or During
Disability; Other Agreements.
(A) During any period following a Change in Control
of the Company that you fail to perform your duties as a
result of incapacity due to physical or mental illness, you
shall continue to receive your Base Salary at the rate then in
effect and any benefits or awards under any Plan shall
continue to accrue during such period, to the extent not
inconsistent with such Plans, until and unless your employment
is terminated pursuant to and in accordance with this Section
8(c). Thereafter, your benefits shall be determined in
accordance with the Plans then in effect.
(B) Subject to Section 8 (c) (5), hereof, if your
employment is terminated for Cause following a Change in
Control of the Company, the Company shall pay to you your Base
Salary through the Date of Termination at the rate in effect
just prior to the time a Notice of Termination is given plus
any
A-6
<PAGE> 14
benefits or awards which pursuant to the terms of any Plans
have been earned or become payable, but which have not yet
been paid to you. Thereupon the Company shall have no further
obligations to you under this Agreement.
(7) Successors, Binding Agreement.
-----------------------------
(A) The Company will seek, by written request at
least five (5) business days prior to the time a Person
becomes a Successor (as hereinafter defined), to have such
Person, by agreement in form and substance satisfactory to
you, assent to the fulfillment of the Company's obligations
under this Agreement. Failure of such Person to furnish such
assent by the later of (i) three (3) business days prior to
the time such Person becomes a Successor or (ii) two (2)
business days after such Person receives a written request to
so assent shall constitute Good Reason for termination by you
of your employment if a Change in Control of the Company
occurs or has occurred. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the
practical ability to control (either immediately or with the
passage of time), the Company's business directly, by merger
or consolidation, or indirectly, by purchase of the Company's
securities eligible to vote for the election of directors, or
otherwise.
(B) This Agreement shall inure to the benefit of and
be enforceable by your personal legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or, if no such
designee exists, to your estate.
(C) For purposes of this Section 8, the "Company"
shall include any subsidiaries of the Company and any
corporation or other entity which is the surviving or
continuing entity in respect of any merger, consolidation or
form of business combination in which the Company ceases to
exist; provided, however, for purposes of determining whether
a Change in Control has occurred herein, the term "Company"
shall refer to National Datacomputer, Inc. or its
Successor(s).
(8) Fees and Expenses; Mitigation.
-----------------------------
(A) The Company shall reimburse you, on a current
basis (bit in any event in no less than 30 days), for all
reasonable legal fees and related expenses incurred by you in
connection with the Agreement following a Change in Control of
the Company, including without limitation, (i) all such fees
and expenses, if any, incurred in contesting or disputing any
termination of your employment or
A-7
<PAGE> 15
defending yourself in any claim brought by the Company to the
effect that your position was frivolous or advanced in bad
faith, or (ii) your seeking to obtain or enforce any right or
benefit provided by this Agreement, in each case, regardless
of whether or not your claim is upheld by a court of competent
jurisdiction; provided, however, you shall be required to
repay any such amounts to the Company to the extent that a
court issues a final and non-appealable order setting forth
the determination that the position taken by you was frivolous
or advanced by you in bad faith.
(B) You shall not be required to mitigate the amount
of any payment the Company becomes obligated to make to you in
connection with this Agreement, by seeking other employment or
otherwise.
(C) All payments to be made to you under this
Agreement will be subject to required withholding of federal,
state and local income and employment taxes.
(D) Notwithstanding any other provision of this
Agreement, in the event that any payment of benefit received
or to be received by you as a result of or in connection with
a Change in Control, whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company (all such payment and benefits being hereinafter
called the "Total Payments") would subject you to the excise
tax (the "Excise Tax") imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then,
to the extent necessary to eliminate any such imposition of
the Excise Tax (after taking into account any reduction in the
Total Payments in accordance with the provisions of any other
plan, arrangement or agreement, if any), (a) any non-cash
severance payments otherwise payable to you shall first be
reduced (if necessary, to zero), and (b) any cash severance
payment otherwise payable to you shall next be reduced. For
purposes of the immediately preceding sentence, (i) no portion
of the Total Payments the receipt or enjoyment of which you
shall have effectively waived in writing shall be taken into
account, (ii) no portion of the Total Payment shall be taken
into account which in the opinion of nationally-recognized tax
counsel or certified public accountants (in each case as
selected by you) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including,
without limitation, by reason of Section 280G(b)(2) or
(b)(4)(A) of the Code, (iii) any payments to you shall be
reduced only to the extent necessary so that the Total
Payments [other than those referred to in clauses (i) and
(ii)] in their entirety constitute reasonable compensation for
services actually rendered within the meaning of section
280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel
or the
A-8
<PAGE> 16
accountants referred to in clause (ii); and (iv) the value of
any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by such
accountants in accordance with the requirements of Section
280G(d)(3) and (4) of the Code (and such determination shall
be reviewed by such tax counsel).
A-9
<PAGE> 17
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
DR. MALCOLM BIBBY
None
B-1
<PAGE> 18
EXHIBIT C
- --------------------------------------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
- --------------------------------------------------------------------------------
To: National Datacomputer, Inc.
900 Middlesex Turnpike
Billerica, Massachusetts
As of January 1, 1998
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company, except as may be
required by law and with the exception of information rightfully within the
public domain.
2. Conflicting Employment; Return of Confidential Material. In
accordance with the provisions of the Key Employment Agreement between myself
and the Company of same date, I agree that during my employment with the Company
I will not engage in any other employment, occupation, consulting or other
activity relating to the business in which the Company is now or may hereafter
become engaged, or which would otherwise conflict with my obligations to the
Company. In the event my employment with the Company terminates for any reason
whatsoever, I agree to promptly surrender and deliver to the Company all
records, materials, equipment, drawings, documents and data of which I may
obtain or produce during the course of my employment, and I will not take with
me any description containing or pertaining to any
C-1
<PAGE> 19
confidential information, knowledge or data of the Company which I may produce
or obtain during the course of my employment.
3. Assignment of Inventions.
------------------------
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to the members of the Board
of Directors of the Company in order to permit the Company to enforce its
property rights to such Invention in accordance with this Agreement. My
disclosure shall be received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
----------------------------------------------
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
C-2
<PAGE> 20
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
C-3
<PAGE> 21
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings and Counterparts; Governing Law. The headings of the
sections hereof are inserted for convenience only and shall not be deemed to
constitute a part hereof nor to affect the meaning thereof. This Agreement may
be signed in two counterparts, each of which shall be deemed an original and
both of which shall together constitute one agreement. This Agreement shall be
governed and construed under Massachusetts law.
C-4
<PAGE> 22
16. Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
---------------------------------
Dr. Malcolm Bibby
Accepted and Agreed:
NATIONAL DATACOMPUTER, INC.
By:
-----------------------------
C-5
<PAGE> 23
EXHIBIT D
NATIONAL DATACOMPUTER, INC.
900 MIDDLESEX TURNPIKE
BILLERICA, MASSACHUSETTS 01821
As of January 1, 1998
Mr. Malcolm M. Bibby
c/o National Datacomputer, Inc.
900 Middlesex Turnpike
Billerica, Massachusetts 01821
Dear Malcolm:
I am pleased to advise you that National Datacomputer, Inc. (the
"Company") has awarded you a non-qualified stock option to purchase up to two
hundred ninety-four thousand (294,000) shares of the Common Stock, $.08 par
value per share, of the Company, at a price equal to the average closing bid
price of the Company's Common Stock for the five (5) trading days preceding the
date of this letter (the "Option Exercise Price").
The following terms and conditions are applicable with respect to this
option, and your signature below shall constitute your acknowledgment and
acceptance of same:
(a) The price at which this option may be exercised shall be at a
per share price equal to the Option Exercise Price. All un-exercised
options shall expire on December 31, 2007.
(b) This option may be exercised in whole or in part from time to
time, provided, however, that an option may not be exercised as to less
than 100 shares at any one time unless it is being exercised in full and
the balance of the shares subject to option is less than 100.
(c) The shares of Common Stock underlying this option and the
exercise price therefor shall be appropriately adjusted from time to time
for stock splits, reverse splits, stock dividends, and reclassifications
of shares.
D-1
<PAGE> 24
(d) Performance Options.
(i) One hundred fifty thousand (150,000) of these
options shall vest upon the earlier of December 31, 2000, or a
sale or "Change in Control" of the Company as set forth in
Section (e) of this Option Grant letter or earlier as follows:
(A) In the event that the Company realizes Net Pre-Tax
Income of $200,000 in any four consecutive fiscal
quarters (the "Initial Vesting Event"), then options to
purchase 50,000 shares of Common Stock shall be fully
vested;
(B) After attainment of the Initial Vesting Event, an
additional 10,000 options shall vest for each $50,000 of
Net Pre-Tax Income in excess of $200,000 earned during
any four consecutive fiscal quarters.
For illustration purposes only, if the Company earns
$250,001 in the four consecutive fiscal quarters ending
December 31, 1998, then options to purchase an
additional 10,000 shares of Company stock would vest (in
excess of the original 50,000 vested options). If,
during the four consecutive fiscal quarters ended March
31, 1999, the Company earned $299,999, no additional
options (in excess of the original 60,000 vested
options) would vest. If, during the four consecutive
fiscal quarters ended June 30, 1999, the Company earned
$351,000, then an additional 20,000 options (in excess
of the original 60,000 vested options) would vest.
(ii) An additional one hundred forty four thousand
(144,000) options shall vest at December 31, 2000 (provided
that you are still employed by the Company at that time) or
shall vest earlier at the rate of twelve thousand (12,000)
options for each fiscal quarter from the period from January
1, 1998 through December 31, 2000 in which the Company
realizes positive Net Pre-Tax Income.
(iii) Net Pre-Tax Income shall mean the pre-tax net
income reported by the Company with the Company's quarterly or
annual filings with the Securities and Exchange Commission,
net of items of extraordinary gain or loss, income taxes and
interest expense, as determined in accordance with generally
accepted accounting principles applied on a consistent basis.
D-2
<PAGE> 25
(e) In the event of a sale or acquisition of substantially all of
the stock or assets of the Company or a "Change in Control" as defined in
Section 8 of Exhibit "A" of your Key Employee Agreement of even date with
the Company, all unvested options shall vest in full simultaneously with
such Change in Control. In the event of a sale or acquisition of
substantially all of the stock or assets of the Company by a third party,
you shall have thirty (30) days prior to the effective date of such sale
to exercise all options. Any options not exercised (except in the event of
a merger of the Company with a third party whereby Company employee stock
options are exchanged for options of the third party, in which event such
options need not be exercised) within such timeframe shall expire at the
end of such 30-day period (provided that the sale has occurred).
(f) In the event that the Company is unable to deliver shares upon
demand for exercise by you, then the Company shall pay to you, within five
(5) days after written demand by you, an amount in cash (via check or
wire) equal to (X) the difference between the Option Exercise Price and
the average closing ask price for the Company's Common Stock as reported
on the principal exchange for the Company's Common Stock for the five (5)
trading days preceding such demand, (Y) multiplied by the number of
options which you have sought to exercise.
When you wish to exercise this stock option, please refer to the
provisions of this letter and then correspond in writing with the Secretary of
the Company. Further, please indicate your acknowledgment and acceptance of this
option by signing the enclosed copy of this letter and returning it to the
undersigned.
Very truly yours,
__________________________________________
Gerald S. Eilberg, Chief Financial Officer
ACKNOWLEDGMENT AND CONSENT:
_______________________________
Malcolm M. Bibby, Optionee
D-3
<PAGE> 1
Exhibit
No. 11
COMPUTATION OF PER SHARE EARNINGS
National Datacomputer, Inc.
Statement recomputation of net income (loss) per common share
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net loss, as reported $ (421,188) $(1,212,566)
Preferred stock preference items:
Warrant $ (214,000) --
Discount inherent in conversion terms of Series C $ (25,958) $ (146,308)
convertible preferred stock upon issuance
Discount inherent in conversion terms of Series D $ (20,644) $ (116,354)
convertible preferred stock upon issuance
Discount inherent in conversion terms of Series E
convertible preferred stock upon issuance $ (75,000) --
Discount inherent in conversion terms of Series F $ (18,750) --
convertible preferred stock upon issuance
Interest on Series B, C, D and F convertible preferred stock $ (413,625) $ (404,750)
------------ ------------
Total preferred stock preference item $ (767,977) $ (667,412)
Net loss attributable to common stockholders $(1,189,165) $(1,879,978)
Weighted average shares outstanding:
A. Shares attributable to common stock outstanding 1,798,580 1,343,876
B. Shares attributable to convertible preferred stock outstanding -- --
C. Shares attributable to common stock options and warrants
pursuant to APB 15, paragraph 38 (a) -- --
------------ ------------
Weighted average shares outstanding 1,798,226 1,343,876
============ ============
Net loss per share $ (0.66) $ (1.40)
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 491,174
<SECURITIES> 0
<RECEIVABLES> 1,194,915
<ALLOWANCES> (146,600)
<INVENTORY> 1,516,306
<CURRENT-ASSETS> 3,087,288
<PP&E> 1,626,119
<DEPRECIATION> (1,420,611)
<TOTAL-ASSETS> 3,292,796
<CURRENT-LIABILITIES> 1,256,011
<BONDS> 31,897
0
5,236,845
<COMMON> 182,148
<OTHER-SE> (3,414,105)
<TOTAL-LIABILITY-AND-EQUITY> 3,292,796
<SALES> 3,507,532
<TOTAL-REVENUES> 5,225,027
<CGS> 2,780,698
<TOTAL-COSTS> 2,780,698
<OTHER-EXPENSES> 2,855,389
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,128
<INCOME-PRETAX> (421,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (421,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (421,188)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
