U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] Transition Report Under Section 13 or 15(d) of the
Exchange Act
For the transition period from _______ to _______
Commission file number: 0-20102
CELERITY SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 52-1283993
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
270 Bridge Street, Suite 301
Dedham, MA 02026
(Address of principal executive office)
(781) 329-1900
Issuer's telephone number
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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Number Outstanding Shares
Title of Class as of November 12, 1998
-------------- -------------------------
Common Stock, $.10 Par Value 8,042,798
Transitional Small Business Disclosure Format: Yes [_] No [X]
Exhibit Index on Page 21
Page 1 of 22
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CELERITY SOLUTIONS, INC.
SEPTEMBER 30, 1998
FORM 10-QSB
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998
and March 31,1998 3
Condensed Consolidated Statement of Operations for the
three and six months ended September 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis or Plan of
Operation 12
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 2. Changes in Securities 20
ITEM 3. Defaults Upon Senior Securities 20
ITEM 4. Submission of Matters to a Vote of Security Holders 20
ITEM 5. Other Information 21
ITEM 6. Exhibits and Reports on Form 8-K 21
Signatures 22
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Page 2 of 22
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
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Celerity Solutions, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30 March 31
1998 1998
-------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,345,740 $ 1,347,246
Short-term investments 520,334 994,384
Accounts receivable, net 3,137,764 2,200,754
Notes Receivable 328,900 1,159,893
Prepaid expenses and other current assets 190,136 109,649
-------------------------------------
Total current assets 5,522,874 5,811,926
Property and equipment: 1,437,250 1,266,250
Less: accumulated depreciation and amortization (855,336) (697,577)
-------------------------------------
581,914 568,673
Long term notes receivable 37,500
Notes receivable from related parties 100,731 117,999
Capitalized software, net 717,355 803,887
Goodwill, net 1,064,558 1,134,100
Other long-term assets 9,057 9,057
-------------------------------------
Total assets $ 8,033,989 $ 8,445,642
=====================================
</TABLE>
See accompanying notes.
Page 3 of 22
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Celerity Solutions, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)
September 30 March 31
1998 1998
--------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,562,574 $ 1,287,750
Income taxes payable 427,877 507,577
Current portion of notes payable to related parties 1,072,604 1,100,797
Unearned revenue and other current liabilities 389,419 494,640
--------------------------------------
Total current liabilities 3,452,474 3,390,764
Notes payable to related parties 986,112 1,178,051
Deferred rent 64,568 70,688
--------------------------------------
Total liabilities 4,503,154 4,639,503
--------------------------------------
Shareholders' equity:
Common stock, $.10 par value 884,289 884,289
Additional paid-in capital 18,900,290 18,900,290
Accumulated deficit (14,203,400) (13,928,096)
--------------------------------------
5,581,179 5,856,483
Less treasury stock, at cost (2,050,344) (2,050,344)
--------------------------------------
Total shareholders' equity 3,530,835 3,806,139
--------------------------------------
Total liabilities and shareholders' equity $ 8,033,989 $ 8,445,642
======================================
</TABLE>
See accompanying notes.
Page 4 of 22
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<CAPTION>
Celerity Solutions, Inc.
Condensed Consolidated Statements of Operations
Three Months Ended Six Months Ended
September 30 September 30
1998 1997 1998 1997
----------------------------------------------------------------------
-----(Unaudited)----- -----(Unaudited)-----
<S> <C> <C> <C> <C>
Revenue:
Services $ 2,189,742 $ 1,000,672 $ 4,123,313 $ 1,796,920
Software licenses 761,049 138,327 1,292,185 261,048
Hardware and other 105,810 1,020,481
--------------------------------------------------------------------
Total revenue 3,056,601 1,138,999 6,435,979 2,057,968
Cost of sales
Services 1,596,507 578,185 2,995,404 1,103,082
Hardware and related 86,881 868,277
Amortization of capitalized software 43,266 10,000 86,532 20,000
--------------------------------------------------------------------
Total cost of sales 1,726,654 588,185 3,950,213 1,123,082
--------------------------------------------------------------------
Gross Margin 1,329,947 550,814 2,485,766 934,886
Operating expenses:
Research and development 270,565 181,579 562,965 404,376
General and administrative 706,900 331,177 1,305,325 654,965
Sales and Marketing 483,402 205,480 839,677 329,824
Amortization of goodwill 34,771 20,680 69,543 41,360
--------------------------------------------------------------------
Total operating expenses 1,495,638 738,916 2,777,510 1,430,525
Operating loss (165,691) (188,102) (291,744) (495,639)
Other income (expense):
Interest and other income 22,443 67,241 87,888 136,038
Interest expense (60,572) (47,652) (124,450) (95,304)
Gain on sale of assets 2,037,104
--------------------------------------------------------------------
Income (loss) before income taxes (203,820) (168,513) (328,306) 1,582,199
Income tax (expense) benefit 33,000 813 53,000 (77,813)
--------------------------------------------------------------------
Net income (loss) $ (170,820) $ (169,326) $ (275,306) $ 1,504,386
====================================================================
Income (loss) Per Common Share:
Net income (loss) per share (.02) (.03) (.03) .25
====================================================================
Weighted average shares outstanding 8,017,798 6,032,065 8,017,798 6,032,065
====================================================================
Income (loss) Per Share-Assuming Dilution:
Net income (loss) per share (.02) (.03) (.03) .24
====================================================================
Weighted average shares outstanding 8,017,798 6,032,065 8,017,798 6,368,403
====================================================================
</TABLE>
See accompanying notes.
Page 5 of 22
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<CAPTION>
Celerity Solutions, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
September 30
1998 1997
--------------------------------
<S> <C> <C>
Operating Activities
Net income (loss) $ (275,306) $ 1,504,386
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation of property and equipment 157,759 106,788
Amortization of goodwill and developed software 156,074 61,360
Write-off of purchased research and development
Gain on sale of assets (2,037,104)
Changes in assets and liabilities (net of effect from
disposition):
Accounts receivable (937,010) (122,520)
Prepaid expenses and other current assets (80,487) (69,271)
Short and long term notes receivable 793,493
Long-term notes receivable from related parties and
other assets 17,268 (20,223)
Accounts payable and accrued liabilities 274,824 (71,479)
Income taxes payable (79,700)
Notes payable to related parties (220,130)
Unearned revenue, deferred rent and other current
liabilities (111,341) 85,208
--------------------------------
Net cash (used in) provided by operating activities (304,556) (562,855)
Investing Activities
Purchase of Somerset Automation, Inc. net of cash acquired
Proceeds from sale of assets 2,509,757
Capital expenditures (171,000) (110,287)
--------------------------------
Net cash (used in) provided by investing activities (171,000) 2,399,470
Financing Activities
Purchases of short-term investments (25,950)
Proceeds from sales of short-term investments 500,000 747,896
--------------------------------
Net cash provided by financing activities 474,050 747,896
--------------------------------
Net (decrease) increase in cash and cash equivalents (1,506) 2,584,511
Cash and cash equivalents at beginning of period 1,347,246 760,065
--------------------------------
Cash and cash equivalents at end of period $ 1,345,740 $ 3,344,576
================================
</TABLE>
See accompanying notes.
Page 6 of 22
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CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Statement of Information Provided
The accompanying unaudited condensed consolidated financial statements, which
are for interim periods, have been prepared in accordance with Form 10-QSB
instructions and do not include all disclosures provided in the annual
consolidated financial statements. These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes thereto contained in the Annual Report on
Form 10-KSB for the year ended March 31, 1998 of Celerity Solutions, Inc. (the
"Company"), as filed with the Securities and Exchange Commission on June 29,
1998. These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in the
preparation of the Company's March 31, 1998 Annual Report on Form 10-KSB. The
March 31, 1998 balance sheet was derived from audited consolidated financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
2. Reclassifications
Certain amounts in the September 30, 1997 Statement of Operations and Statement
of Cash Flows have been reclassified to conform to the September 30, 1998
presentation.
3. New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 131, "Disclosure about Segments of an Enterprise and Related Information",
which establishes standards for the way public business enterprises report
select information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. This statement must be
adopted for fiscal years beginning after December 15, 1997, but need not be
applied to interim financial statements in the initial year of its application.
Once this statement is adopted, comparative information for previous years is
required to be restated to comply with the reporting requirements of FASB No.
131. This Statement becomes effective for the Company with its annual Form
10-KSB filing for the fiscal year ending March 31, 1999. This Statement will
affect footnote disclosure but will not impact the Company's financial results.
4. Income (loss) Per Share
In February 1997, the FASB issued Statement No. 128, "Earnings per Share", which
must be adopted for periods ending after December 5, 1997 including interim
periods. The Company has adopted FASB No. 128 and has changed its method of
computing earnings per share and has restated prior periods. Under the new
requirements for calculating earnings per share, the dilutive effect of stock
options will be excluded. This statement also prohibits the inclusion of any
potential common shares from any computation when a loss from continuing
operations exists. The effect would be antidilutive. The Company is reporting a
loss from operations for the three and six month periods ended September 30,
1998, and the three months ended September 30, 1997 and thus has not added
potential common shares to the weighted average shares outstanding for those
periods.
Page 7 of 22
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CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4. Income (loss) Per Share, continued
The following table sets forth the computation of basic and diluted income
(loss) per share:
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (170,820) $ (169,326) $ (275,306) $ 1,504,386
=============================================================
Numerator for income (loss) per common
share and income (loss) per share-assuming
dilution $ (170,820) $ (169,326) $ (275,306) $ 1,504,386
=============================================================
Denominator:
Denominator for income (loss) per common
share-Weighted average shares outstanding 8,017,798 6,032,065 8,017,798 6,032,065
Effect of Dilutive securities:
* * * 336,338
-------------------------------------------------------------
Denominator for diluted income (loss) per
share- Adjusted weighted average shares 8,017,798 6,032,065 8,017,798 6,368,403
=============================================================
Income (loss) per common share $ (.02) $ (.03) $ (.03) $ .25
=============================================================
Income (loss) per common share-assuming
dilution $ (.02) $ (.03) $ (.03) $ .24
=============================================================
</TABLE>
*Potential common shares are not included because they would be antidilutive.
Had the numerator been a profit the potential common shares would have increased
the weighted average shares outstanding by 351,579; and 381,126 shares as of the
three months ended September 30, 1998 and 1997, respectively, and by 496,599
shares for the six months ended September 30, 1998. In addition, there were
options to purchase 1,193,000 shares at exercise prices between $2.469 and $4.66
per share outstanding at September 30, 1998 that were not included in the
potential common share computations because their exercise prices were greater
than the average market price of the common shares. There were also warrants to
purchase 599,621 shares at $3.57 and 2,500 shares at $2.47 which were
outstanding at September 30, 1998, but not included in the potential common
share computations because their exercise prices were greater than the average
market price of common shares. These would have been antidilutive, even if a
profit had been reported in the numerator.
Page 8 of 22
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CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. Notes receivable, current
Effective July 31, 1998, the Company entered into an agreement with Henninger
Media Services, Inc. ("HMSI") amending its secured promissory note dated June
30, 1993. The Company also entered into an agreement with Henninger Acquisition,
L.L.C. ("HALLC") and HMSI whereby the Company assigned all rights under its
secured agreement with HMSI, other than rights to payments and benefits stated
below, to HALLC.
The principal and interest on the original note totaled $1,159,893 as of the
March 31,1998 Balance Sheet and $1,211,759 as of the amendment. The original
note was amended as follows. Upon execution of the agreements HMSI and HALLC
paid the Company $845,359 and agreed to give the Company $60,000 of
post-production goods and services. HMSI also agreed to pay the Company four
additional separate monthly payments of Forty Thousand Dollars ($40,000)
followed by 12 separate payments of Twelve Thousand Five Hundred Dollars
($12,500). The total payments to be received under these agreements including
interest are $1,215,359. Payments under the above amendment and assignment have
been made as scheduled through September 30, 1998.
6. Sale of select multimedia assets, and acquisition of Somerset Automation,
Inc. (SAI)
On April 16, 1997, the Company sold certain of its multimedia assets to Davidson
& Associates (Davidson) a division of Cendant, Inc. for $2,509,759 in cash. The
assets sold include machinery and capital equipment utilized in art, animation
and audio production in St. Petersburg, Russia, and Concord, Massachusetts. The
net asset value of assets transferred was $472,655. As part of the transaction,
the Company amended its software development contract with Blizzard
Entertainment (the Company was paid all related receivables from the contract),
entered into a work-for-hire agreement with Davidson related to software
engineering services, and assigned and transferred its present Concord,
Massachusetts office lease to Davidson. The Gain on Sale resulting from this
transaction was $2,037,104.
On December 8, 1997, the Company acquired all of the outstanding stock of SAI
for stock, debt securities and cash valued at $5,557,918. The purchase price was
composed of 1,958,233 unregistered shares of the Company's common stock valued
at $2,313,848, long-term notes, with a stated interest rate of 7.5%, totaling
$747,907, and cash payments totaling $2,496,163. SAI was merged into Somerset, a
wholly owned subsidiary of the Company, at which time SAI's corporate existence
terminated. The transaction was accounted for under the purchase method of
business combinations. As a result of the acquisition; $394,553 of goodwill was
recorded and is being amortized on a straight line basis over seven years,
$665,323 of capitalized software was recorded and is being amortized on a
straight line basis over five years, and $3,094,527 of purchased research and
development was written off at December 8, 1997.
Page 9 of 22
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CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. Sale of select multimedia assets, and acquisition of Somerset Automation,
Inc. (SAI), continued
SAI's in-process technology involved rewriting, packaging and porting SAI's
software to Windows NT. The Company expects to expend $400,000 during the next
12 months in order to complete these projects. Due to the high levels of
competition in the warehouse management software industry, SAI is continually
working towards improving upon existing capabilities through implementation of
additional product enhancements. In addition, due to the nature of the industry,
SAI expects additional product platforms and/or functionalities to evolve that
are currently not in development. There can be no assurance that the Company
will be able to develop and market new products or product enhancements that
respond to technological change or evolving industry standards, that new
products will be released on schedule, or that released products will achieve
any degree of market acceptance. The inability, for technological or other
reasons, to successfully develop and introduce new products or product
enhancements could have a material adverse effect on the Company's business and
its operating results and financial condition. Supplemental pro forma revenue
and cost of sales for the three and six month periods ended Septemebr 30, 1998
and 1997, assuming the above transactions were consummated prior to April 1,
1997, are presented below.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
1998 1997 1998 1997
Actual Proforma Actual Proforma
-------------------------------------------------------------------
-----(Unaudited)-----
<S> <C> <C> <C> <C>
Revenue
Services $2,189,742 $1,993,943 $4,123,313 $3,713,353
Software licenses 761,049 438,927 1,292,185 636,647
Hardware and other 105,810 51,918 1,020,481 89,788
-------------------------------------------------------------------
Total revenue 3,056,601 2,484,788 6,435,979 4,439,788
Cost of sales
Services 1,596,507 1,039,561 2,995,404 2,031,008
Hardware and other 86,881 40,965 868,277 69,969
Amortization of Capitalized Software 43,266 43,266 86,532 86,532
-------------------------------------------------------------------
Total cost of sales 1,726,654 1,123,792 3,950,213 2,187,509
-------------------------------------------------------------------
Gross Margin $1,329,947 $1,360,996 $2,485,766 $2,252,279
===================================================================
</TABLE>
Page 10 of 22
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CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. Licensing, Distribution, and Development Agreements
Licensing and Distribution Agreement with Davidson & Associates, Inc. The
Company entered into an agreement with Davidson & Associates, Inc. on July 11,
1995 pursuant to which Davidson was granted a worldwide license to distribute
six software programs and related materials produced by the Company based upon
international folktale storybooks in a CD-ROM for Macintosh and Windows format.
The Company retains all right and title to all copyrights and trademarks
contained in the works. As consideration for the grant of license the Company
receives one-half (1/2) of the receipts less agreed upon costs and expenses.
Furthermore, Davidson agreed to pay the Company a non-refundable advance,
against future payments resulting from localized product, in the amount of
$90,000 for each localization kit accepted by Davidson. There were no revenues
recognized from this agreement during the three or six month periods ended
September 30, 1998 or 1997. In March 1998, the Company transferred and assigned
to Davidson any and all rights in full, which the Company had under this
agreement.
Publishing and Licensing Agreement with Broderbund Software, Inc. The Company
entered into an agreement dated February 9, 1996 with Broderbund granting a
worldwide license for two (2) titles in a CD-ROM for Macintosh and Windows
format. The Company retains all right and title to all copyrights and trademarks
contained in the work. As consideration for the grant of license the Company
will receive 30% of the receipts less agreed upon costs and expenses for sales,
on-line versions, sequels, foreign language adaptations and conversions by
publisher, and 50% of the receipts less agreed upon costs and expenses for OEM
sales, sequels, foreign language adaptations and conversions. Furthermore,
Broderbund agreed to pay the Company a non-refundable advance, against future
payments in the amount of $100,000 for each title accepted by Broderbund.
Broderbund also agreed to pay the Company a non-refundable advance, against
future payments resulting from localized product, in the amount of $150,000 for
each localization kit accepted by Broderbund. There were no revenues recognized
from this agreement during the three or six month periods ended September 30,
1998 or 1997.
Development Agreement with Blizzard Entertainment (Blizzard), subsidiary of
Davidson & Associates, Inc. On April 1, 1996 the Company entered into an
agreement with Blizzard to develop a computer software product based upon
Blizzard's WarCraft software series for the Windows 95 and Macintosh operating
systems. As part of the agreement the Company agreed all rights, titles, and
interest in work conceived, developed, created, obtained, or first reduced to
practice for Blizzard under this agreement. Subject to certain termination
provisions, Blizzard agreed to pay the Company a development fee of $1,250,000
to be paid out at the accomplishment of specified milestones. Blizzard also
agreed to pay royalties to the Company as follows; 5% on net receipts from $5
million to $10 million, 7.5% on net receipts from 10 million to 15 million, and
10% on net receipts of $15 million and above. This agreement was amended on
April 16, 1997 as part of the sale of certain multimedia assets to Davidson.
Under this amendment, the Company discontinued all development work and agreed
to halve any subsequent royalty receipts, reflecting the fact that the Company
was only responsible for half of the development. The amounts payable to the
Company for future milestone attainments under this agreement was $0 at
September 30, 1998 and 1997, respectively. There were no costs or revenues
generated under this agreement during the three or six month periods ended
September 30, 1998 or 1997.
Page 11 of 22
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CELERITY SOLUTIONS, INC..
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the condensed
unaudited financial statements included elsewhere within this quarterly report.
Fluctuations in annual and quarterly operating results may occur as a result of
certain factors such as the size and timing of customer contracts and
competition. Due to such fluctuations, historical results and percentage
relationships are not necessarily indicative of the results for any future
period. Statements, which are not historical facts contained in this report, are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from projected results. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly release the results of any revision to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Business Developments
During the current quarter the Company announced the signing of a
multi-million dollar agreement to provide Distribution Dynamics, Inc. (DDI) with
its entire suite of supply chain management software including its real-time
Supply Chain Planner, Sales Order Management, Purchase Order Management,
Warehouse Management and Inventory Control modules. This contract will generate
consulting revenues for both CSTI and Somerset over the next two years for
system configuration and implementation. DDI is a leading distributor of "C"
class commodity items, including fasteners and related items to original
equipment manufactures. This product suite, along with DDI's efforts to improve
their business processes, will provide DDI with a comprehensive system to manage
their current business divisions and the solid foundation required for future
growth. The professional services and license agreements with DDI are being
filed, herewith, as Exhibit 10.56.
The Company acquired CSTI on March 31, 1997 in a transaction accounted for
under the purchase method of accounting. This acquisition provided the Company
an entry into the supply chain management (SCM) sector of the business software
market. SCM encompasses the planning and control of material and resources from
customer order entry through warehousing and logistics to customer delivery. In
April 1997, the Company sold certain of its multimedia assets to Davidson. The
Company is focused on the business software market and has no plans to develop
new multimedia products in the foreseeable future. In August 1997, the Company
established Paragon, a limited liability company in St. Petersburg, Russia as a
wholly owned subsidiary. Paragon develops software for the Company. Paragon
employs 10 technical personnel some of whom were employed by the Company's
subsidiary AMI, which was sold in April of 1997. On December 8, 1997, the
Company acquired all of the outstanding stock of Somerset Automation, Inc.
(SAI), a privately held warehouse management software company based in Irvine,
California by means of a merger between SAI and Somerset Solutions, Inc.
(Somerset), a wholly owned subsidiary of the Company. SAI is a technology leader
in the warehouse management software market.
Page 12 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Presentation
Since the Company's April 1997 sale of select multimedia assets to
Davidson, the March 1997 acquisition of CSTI, and the December 1997 acquisition
of SAI, the Company has focused principally on the business software market.
Existing multimedia software titles continue to be sold through the distribution
channels that were established prior to the divestiture. However, multimedia
revenue represents a small fraction of the Company's revenues. Actual
comparisons are discussed below. The Company has also included a supplemental
discussion at the end of this section regarding pro forma revenue, a schedule of
which is included in the notes to the financial statements.
Net Sales
Revenues from services increased $1,189,070 or 119% and $2,326,393 or 129%
for the three month and six month periods ended September 30, 1998 versus the
same periods in 1997. This increase is attributable to the acquisition of SAI,
which added $1,380,941 and $2,362,076 in consulting revenue, partially offset by
decreases in service revenues at CSTI totaling $191,871 and $35,683 for the
three months and six months ended September 30, 1998, respectively. The decrease
in CSTI's revenue was attributable to the completion of several projects that
incurred non-billable time during the second quarter and the delay in the start
of new projects. Management expects that service revenues will increase over
fiscal 1998 levels for CSTI and Somerset, however there can be no assurance as
to the extent of such increase or if revenues will increase at all.
Revenues from software license sales increased $622,722 or 450% and
$1,031,137 or 395% for the three month and six month periods ended September 30,
1998 versus the same periods in 1997. This increase is attributable to increases
in license fee revenue at CSTI of $361,288 or 336 % and $593,918 or 300%, and
the acquisition of SAI which generated $288,170 and $496,306 in license fee
revenue partially offset by a decreases in multimedia royalties of $26,736 and
$59,086 for the three and six month periods ended September 30,1998,
respectively. CSTI's increase is attributable in part to the recognition of
license fees from a source code sale of $150,000. License revenue recognition
fluctuates with customer acceptance of the delivered product, product sales to
new and existing customers, and the percentage of completion calculation on
sales involving consulting modifications and implementation. The Company
continues to expand all phases of sales and marketing in order to generate
long-term business software sales growth.
Revenues from hardware and related sales increased $105,810 and $1,020,481
for the three and six month periods ended September 30, 1998 versus the same
periods in 1997. These increases are attributable to the acquisition of SAI,
which from time to time resells third party software and hardware with related
warehouse management system installations. Hardware sales during the first
quarter included two large sales totaling approximately $800,000. Hardware sales
fluctuate with the installation of new systems where the customer requires that
the Company's software be integrated with hardware. Hardware sales are not
expected to attain this level in subsequent quarters for fiscal 1999.
The level of net sales realized by the Company in any quarter is
principally dependent on the portion of projects completed. The purchase of
supply chain and warehouse management solutions requires a significant
commitment of capital and resources on the part of the customer, the sales
cycles are long and average from six to nine months. As a result, revenue is
subject to many risks such as budgetary cycles, changes in the business of a
customer and overall economic trends that are not controllable by the Company.
Quarterly results have varied significantly in the past and are likely to
Page 13 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Net Sales, continued
fluctuate in the future as a result of the timing of new orders, product
development expenditures, and the number and timing of new product completions.
A significant portion of the Company's operating expenses are fixed and planned
expenditures in any given quarter are based on sales and revenue forecasts.
Accordingly, if net sales do not meet the Company's expectations in any given
quarter, operating results and financial condition could be adversely and
disproportionately affected. As a result of these and other factors, the
Company's results of operations and financial condition for any period are
inherently difficult to predict. The Company continues to expand all phases of
sales and marketing in order to generate long-term sales growth. The Company
issued a press release on November 4, 1998 stating that management expects
fiscal 1999 revenues to increase over 100% from fiscal 1998, however there can
be no assurances as to the extent of such increase or if revenues will increase
at all.
Cost of Sales
Cost of services are incurred in connection with the sale of supply chain
and warehouse management software. Cost of services consists of costs primarily
associated with consulting and implementation services that are sold as part of
a total supply chain and warehouse management solution, and costs associated
with providing support to customers. These costs increased $1,018,322 or 176%
and $1,892,322 or 172% during the three and six month periods ended September
30, 1998 versus the same periods in 1997. Cost of services as a percent of
revenue from services increased from 58% to 73% or an increase of 15% and from
62% to 73% or an increase of 11% for the three and six month periods ended
September 30,1998 versus the same periods in 1997. The Company has increased its
consulting staff and engaged subcontractors in anticipation of growing
consulting revenue. The Company's cost of sales as a percent of sales also
increased due to the completion of several projects that incurred non-billable
time during the second quarter and the delay in the start of new projects. To
the extent that the Company's consulting revenues do not increase at anticipated
rates, the hiring of additional consultants could adversely affect the Company's
gross margins. The Company expects this expense to increase in absolute dollars,
but not as a percent of sales during fiscal 1999.
Cost of sales from hardware and related sales increased $86,881 and
$868,277 for the three and six month periods ended September 30, 1998 versus the
same periods in 1997. This increase is attributable to the acquisition of SAI,
which from time to time resells third-party software and hardware with related
warehouse management system installations. Hardware sales fluctuate with the
installation of new systems where the customer requires that the Company's
software be integrated with hardware. Hardware sales are not expected to attain
this level in subsequent quarters for fiscal 1999. The Company expects that
hardware cost of sales as a percentage of hardware sales will continue to
average approximately 86% during the remainder of fiscal 1999, but there can be
no assurance of this expectation.
Amortization of capitalized software increased $33,266 or 333% and $66,532
or 333% during the three and six month periods ended September 30, 1998 versus
the same period in 1997. This increase is attributable to the acquisition of SAI
on December 8, 1997. This acquisition resulted in the recording of capitalized
software, which is being amortized over five years. The actual capitalized
software amortization costs for fiscal 1999 are expected to be approximately
$173,000.
Page 14 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Research and Development
Research and development (R&D) expenses increased $88,986 or 49% and
$158,589 or 39% during the three and six month periods ended September 30, 1998
versus the same periods in 1997. R&D as a percent of sales excluding hardware
sales decreased from 16% to 9% for a decrease of 7% and from 20% to 10% for a
decrease of 10% for the three and six month periods ended September 30, 1998,
respectively. The Company expects R&D costs to increase in absolute dollars
during fiscal 1999 as a result of an expansion of product development and
integration of its supply chain and warehouse management software packages. The
Company expects R&D as a percent of sales to be consistent with or lower than
prior years, reflecting the realization of lower development costs through
increased utilization of the Company's St. Petersburg, Russia software
development facility. The R&D projects are presented below and are grouped by
each entity acquired.
CSTI's in-process technology involves several projects. Two large projects
involve a rewriting and porting of the Continuum 6.0 software to Windows NT and
the development of applets for the Internet. These projects have estimated
completion dates within the next twelve months. The Company expects to expend
$500,000 in order to complete these projects. Approximately one-half of these
costs will be completed and billed to clients as part of consulting engagements.
For many implementations of its products, CSTI performs a significant amount of
customization typically requiring six months and in some cases a year or more to
complete
Somerset's in-process technology involves rewriting, packaging and porting
software to Windows NT. The Company expects to expend $400,000 during the next
12 months in order to complete these projects. Due to the high levels of
competition in the warehouse management software industry, the Company is
continually working towards improving upon existing capabilities through
implementation of additional product enhancement.
Due to the nature of the industry, the Company expects additional product
platforms and/or functionalities to evolve that are currently not in
development. There can be no assurance that the Company will be able to develop
and market new products or product enhancements that respond to technological
change or evolving industry standards, that new products will be released on
schedule, or that released products will achieve any degree of market
acceptance. The inability, for technological or other reasons, to successfully
develop and introduce new products or product enhancements could have a material
adverse effect on the Company's business and its operating results and financial
condition.
General and Administrative
General and administrative expenses increased $375,723 or 113% and $650,360
or 99% during the three and six month periods ended September 30, 1998 versus
the same period in 1997. Approximately $218,000 of the increase for the three
month periods and $420,000 for the six month periods were due to the acquisition
of SAI and includes operating costs as well as increased costs incurred by the
Company for management and integration of Somerset. Of the remaining increase,
approximately $33,000 and $57,000 for the three and six month periods,
respectively, resulted from an increase in investor relations related activity
and $101,000 and $126,000, respectively, from CSTI. The increase at CSTI
resulted from the establishment of a separate infrastructure, which was
necessary for its continued growth. General and administrative expenses as a
percent of sales decreased by 6% and 12% for the three and six month periods
ended September 30, 1998, respectively. The exclusion of hardware sales in
Fiscal 1998 results in decreases of 5% and 8%, respectively. A significant
portion of the
Page 15 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
General and Administrative, continued
Company's operating expenses are fixed, and planned expenditures in any given
quarter are based on sales and revenue forecasts. Accordingly, if products are
not completed and/or shipped on schedule and net sales do not meet the Company's
expectations in any given quarter, operating results and financial condition
could be adversely affected. The Company expects general and administrative
expenses to increase in absolute dollars, but to continue to decrease as a
percent of sales in fiscal 1999 versus the same period in fiscal 1998.
Sales and Marketing
Sales and marketing expense increased $277,922 or 135% and $509,853 or 155%
during the three and six month periods ended September 30, 1998 versus the same
periods in 1997. This item includes personnel related costs, as well as, those
costs related to facilities, travel, trade shows, advertising and promotions.
The acquisition of SAI resulted in an increase of $226,800 and $404,996 for the
three and six month periods, respectively. CSTI's selling and marketing expenses
increased by $51,122 and $104,857 for the three and six month periods,
respectively. The Company is committed to an investment in sales and marketing
efforts and alliances. These efforts are expected to generate an increase in
future revenue. There can be no assurance that the Company will be able to
realize the benefits from this investment. The Company expects sales and
marketing expenses to increase in absolute dollars and as a percent of sales
during fiscal 1999.
Depreciation
Depreciation increased $24,858 or 42% and $50,972 or 48% during the three
and six month periods ended September 30, 1998 versus the same periods in 1997.
The acquisition of SAI was responsible for increases of $31,385 and $54,674 for
the three and six month periods, respectively. This was partially offset by
decreases in depreciation at CSTI of $6,527 and $3,702 for the same periods. The
Company expects depreciation to continue to increase during fiscal 1999 due to
this acquisition. The actual depreciation expense for fiscal 1999 is expected to
be approximately $300,000.
Amortization of Goodwill
Amortization of goodwill increased $14,091 or 68% and $28,183 or 68% during
the three and six month periods ended September 30, 1998 versus the same periods
in 1997. The acquisition of SAI was responsible for all of the increase and the
Company expects amortization of goodwill to continue to increase during fiscal
1999 due to this acquisition. The actual goodwill amortization costs for fiscal
1999 are expected to be approximately $139,000.
Gain on Sale of Assets
The gain of $2,037,104 resulted from the sale of select multimedia assets
to Davidson for $2,509,759 in cash. The assets sold include equipment utilized
in art, animation and audio production in St. Petersburg, Russia, and Concord,
Massachusetts.
Page 16 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Provision for Income Taxes
The provision for income taxes represents alternative minimum tax
liabilities and state income taxes on income earned. The Company expects an
effective tax rate of approximately 16% for fiscal year 1999. This rate differs
from the statutory rate due to anticipated partial recognition of $4,888,000 in
deferred tax assets which were fully reserved in March and September of 1998.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash, cash equivalents, and
short-term investments. During the six months ended September 30, 1998, cash,
cash equivalents, and investments decreased $475,556 or 20% to $1,866,074. This
decrease relates to $ 304,556 of cash used in operating activities (see below)
and $171,000 in capital expenditures. The Company will use its working capital
to finance its growth from ongoing operations and fund the continued expansion
of its sales and marketing resources.
Accounts receivable increased $937,010 or 43% to $3,137,764. Approximately
$317,000 and $620,000 of this increase occurred at CSTI and Somerset during the
six months, respectively. The increase is attributable to projects that started
near the end of the quarter which required large deposits, including
approximately $400,000 due from Distribution Dynamics, Inc.
Notes receivable decreased $793,493 or 68% because of payments related to
the Henninger note receivable being received. This is discussed in Note 5 of the
Notes to the Financial Statements.
Accounts payable and accrued liabilities increased $274,824 or 21% to
$1,562,574. This increase includes increases in accrued payroll and related
costs as well as increases in amounts to subcontractors.
Notes payable to related parties decreased $220,130, reflecting scheduled
payments being made and the subsequent shifting of other payments due from
long-term to current liabilities.
Unearned revenue decreased $111,341, reflecting the net recognition of
support maintenance and license revenue fees that are greater than the receipts
taken in on new yet-to-be recognized license fees.
In the opinion of management, existing cash and cash equivalent balances,
short-term investment balances, and cash generated from operations will satisfy
the Company's working capital and capital expenditure requirements for at least
the next twelve months. However, any material acquisitions of complementary
business, products or technologies could require the Company to obtain
additional sources of financing.
The Company does not currently have plans for major capital expenditures,
but does have $994,927 in long-term notes payable to related parties from the
acquisitions of SAI and CSTI. These notes are payable in various amounts which
began April 1, 1998 and end January 1, 2001. The Company believes that existing
cash and cash equivalent balances, short-term investment balances and potential
cash flow from operations will satisfy this long-term liability.
At June 30, 1998, the Company had outstanding Series A Warrants to purchase
599,621 shares of Common Stock at $3.57 per share. These warrants expire March
31, 1999, subject to extension by the Company. Pursuant to the redemption
provision in the Warrant Agreement, the Company has the option
Page 17 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Liquidity and Capital Resources, continued
of redeeming the warrants on an "all or nothing basis," and, given favorable
market conditions, may do so. Exercise of these warrants would generate
approximately $2,141,000 in cash.
The Company continues to consider investments in or acquisitions of
compatible businesses. However, there can be no assurance that the Company will
make investments in or enter into business combinations with other entities. In
the event that the Company engages in such transactions, it may require
additional financial resources.
Pro Forma Net Sales
The following discusses the pro forma changes in the Company's financial
results assuming that the SAI acquisition and the multimedia asset sale took
place prior to April 1, 1997. The Company believes that this comparison provides
a more meaningful analysis of current and prior quarter results.
Pro forma revenues from services increased $195,799 or 10% and $409,960 or
11% for the three and six month periods ended September 30, 1998 versus the same
periods in 1997. Somerset had increases of approximately $388,000 or 39% and
$446,000 or 23% for the three and six month periods ended September 30, 1998.
CSTI had a decrease of approximately $179,000 or 19% for the three months ended
September 30, 1998 but an increase of $39,000 or 2% for six months ended
September 30, 1998 versus the same periods in 1997. The decrease in CSTI's
revenue was attributable to the completion of several projects that incurred
non-billable time during the second quarter and the delay in the start of new
projects. Management expects that service revenues will again increase over
fiscal 1998 levels for CSTI and Somerset, however there can be no assurances as
to the extent of such increase or if revenues will increase at all.
Pro forma revenues from software license sales increased $322,122 or 73%
and 655,538 or 11% for the three and six month periods ending September 30, 1998
versus the same periods in 1997. CSTI had increases in license fee revenue of
$361,288 or 337% and $593,918 or 300%, respectively, for the three and six month
periods. CSTI's increase is attributable in part to the recognition of license
fees from a source code sale of $150,000. Somerset experienced a decrease in
license fee revenue in the second quarter of fiscal 1999 versus fiscal 1998 of
$12,430 or 4%, but an increase for the six months ended September 30, 1998 of
$120,706 or 32%. The exited multimedia business experienced decreases in both
periods of $26,736 and $59,086, respectively. License revenue recognition
fluctuates with customer acceptance of the delivered product, product sales to
new and existing customers, and the percentage completion calculation for
license contracts involving consulting modifications and implementation.
Pro forma revenues from hardware and other sales increased $53,892 or 104%
and $930,693 or 104% for the three and six month periods ended September 30,
1998 versus the same periods in 1997. This increase is attributable to Somerset
which resells third party software and hardware with related warehouse
management system installations. Hardware sales during the first quarter of the
year included two large sales totaling approximately $800,000.
Year 2000 Compliance Issues
Many older computer systems and software products in use today were
programmed with a two -digit date code field. These systems or software products
need to be modified, upgraded or replaced to distinguish the Year 2000 in order
to avoid the possibility of erroneous results or system failures. The
Page 18 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Year 2000 Compliance Issues, continued
effects of this issue and the efforts by companies to address it are uncertain.
The risk for Celerity exists in four areas: systems used by the Company to run
its business, systems used by the Company's vendors, potential warranty or other
claims from the Company's customers, and the potential reduced spending by
others companies as a result of significant information systems spending on Year
2000 issues.
The Company has inventoried and evaluated its internal systems, equipment,
and facilities and established a schedule to replace or upgrade systems that are
known to be Year 2000 non-compliant. The Company utilizes outside providers for
services such as payroll processing and 401(k) benefit administration, which may
or may not be Year 2000 compliant. The company has requested and received from a
majority of its vendors written confirmation of their knowledge of or plans for
Year 2000 compliance. The Company has taken steps to make sure that its internal
systems will function in the year 2000, but failure of any critical
technological component to operate properly may have an adverse impact on
business operations or require the Company to incur unanticipated expenses to
remedy any problems. The Company does not expect Year 2000 related compliance
costs to be material, but can not assure that such costs will be
inconsequential. The Company has not identified alternative contingency plans,
but will do so as it continues to assess the Year 2000 risk.
The Company's software products have been modified to be Year 2000
compliant. However, the Company's products are complex and might contain
undetected errors or failures even though intended to be Year 2000 compliant.
There can be no assurance that the Company's software products contain or will
contain all necessary date code changes or that errors will not be found in new
products or product releases, resulting in loss of or delay in product
acceptance. If the Company is unable, or is delayed in its efforts to make the
necessary date code changes, there could be a material adverse effect upon the
Company's business, operating results, financial condition and cash flows.
Many companies are expending significant resources to modify or upgrade
their existing software and hardware for Year 2000 compliance. This might reduce
funds available to purchase other software products such as the Company's supply
chain management software. Additionally, Year 2000 problems in a customer's
other software products might significantly limit the customer's realized
benefit from the supply chain management software. These events could result in
a material adverse effect on the Company's business, operating results,
financial condition and cash flows.
Future Operating results, (Statutory Safe Harbor Disclosure)
This report contains forward-looking statements. For this purpose, any
statement, 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.
Numerous factors may affect the Company's business and its results of
operations. These factors include the potential for significant fluctuations in
quarterly results, dependence on new products and rapid technological change,
risk of software errors or failures, the level and intensity of competition,
lack of product diversification, dependence on certain distribution channels,
proprietary intellectual property rights, limited operating history in the
supply chain management software industry, integration of acquisitions, loss of
key employees, lack of profitability, sustaining a public trading market,
absence of dividends, and international operations. For a discussion of these
and other factors that may affect the Company's future results, see the Form
10-KSB for March 31, 1998 filed by the Company with the SEC on June 1998 and the
S-3/A filed by the Company on July 17, 1998 with the SEC.
Page 19 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No Litigation.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 25, 1998 registrant held its 1998 Annual Meeting of Stockholders at
the Company's corporate offices located at 200 Baker Avenue, Suite 300, Concord,
Massachusetts. The following voting matters were approved at the meeting:
<TABLE>
<CAPTION>
Against/ Broker
For Withheld Abstain Non-Vote
--- -------- ------- --------
<S> <C> <C> <C> <C>
1. Election of five persons to the Board of Directors
to hold office until the next Annual Meeting or until
their successors have been elected and qualified or
their earlier resignation or removal:
Luda Kopeikina 6,085,393 34,517 -- --
Igor R. Razboff 6,085,393 34,517 -- --
Philip R. Redmond 6,085,393 34,517 -- --
Richard Santigati 6,085,393 34,517 -- --
Alan F. White 6,085,393 34,517 -- --
2. Ratification and approval of an Amendment to the
Company's Amended and Restated 1992 Non-
Qualified Stock Option Plan for Non-Employee
Directors to increase the number of stock options
granted to purchase the Company's common stock
as compensation for services as a Director from
15,000 per year to 20,000 per year effective on
August 25, 1998 5,805,556 221,321 93,033 --
3.
Ratification of the selection of Ernst & Young as the
Company's outside auditors 6,101,410 3,500 15,000 --
</TABLE>
Page 20 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
ITEM 5. OTHER INFORMATION
On August 25, 1998 the Compensation Committee of the Board of Directors voted to
amend the Amended and Restated 1991 Employee Stock Option Plan to change the
purchase price calculation of Common Stock under each Option granted to equal
the last trade price on the date of grant, if higher than the Fair Market Value
of the Common Stock. The amended plan is attached as Exhibit 4.5.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Number Description of Exhibits
- ------ -----------------------
4.5 Amended and Restated 1991 Non-Qualified Celerity Solutions, Inc.
Employee Stock Option Plan
4.6 Amended and Restate 1992 Non-Qualified Celerity Solutions, Inc.
Stock Option Plan for Non-Employee Directors
10.56 License and Professional Service agreements with Distribution
Dynamics, Inc. dated September 1, 1998
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
Page 21 of 22
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CELERITY SOLUTIONS, INC.
----------------------------------
(Registrant)
Date: November 13, 1998 /s/ James P. Dore
----------------------------------
James P. Dore
Controller (Principal Accounting
Officer)
Date: November 13, 1998 /s/ Edward Terino
----------------------------------
Edward Terino
Chief Financial Officer &
Secretary / Treasurer
Page 22 of 22
EXHIBIT 4.5
[LOGO]
THE AMENDED AND RESTATE 1991 NON-QUALIFIED
CELERITY SOLUTIONS, INC. EMPLOYEE STOCK OPTION PLAN
The following amends and restates the 1991 Non-Qualified Celerity
Solutions, Inc. Employee Stock Option Plan in its entirety.
1. Purpose of the Plan.
The purpose of the 1991 Non-Qualified Stock Option Plan of Celerity
Solutions, Inc., a Delaware corporation (the "Company"), is to further
promote the interests of the Company by enhancing the Company's ability to
attract, motivate and retain new and existing employees and consultants and
to encourage the highest level of performance by providing these employees
and consultants with a proprietary interest in the Company's growth and
financial success through grants of stock options and shares of restricted
stock in the future.
2. Definitions.
(a) "Board" shall mean the board of directors of the Company, as duly
elected from time to time.
(b) "Change in Control" shall be deemed to have occurred at such time as
either (i) the Company is merged or consolidated with or into another
entity (the "Merger Partner") and as a result of such merger or
consolidation less than fifteen percent (15%) of the outstanding
voting securities of the surviving or resulting entity shall be
beneficially owned in the aggregate, either directly or indirectly, by
the stockholders of the Company immediately prior to the effective
date of such merger or consolidation, or (ii) in the event that any
person, other than the Company, a wholly-owned subsidiary of the
Company, an employee benefit plan of the Company or one of its
subsidiaries, or an officer or director of the Company or an affiliate
of an officer or director, becomes the beneficial owner of fifty
percent (50%) or more of the Company's Common Stock.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
as interpreted by the regulations thereunder.
(d) "Committee" shall mean the Compensation Committee of the Company, or
such other committee as may be appointed by the Board from time to
time.
(e) "Common Stock" shall mean the common stock of the Company, par value
$.10 per share.
(f) "Company" shall mean Celerity Solutions, Inc., a Delaware corporation.
(g) "Consultant" shall mean any individual that is expressly designated as
a consultant of the Company or its Subsidiaries by the Committee in
its sole discretion.
<PAGE>
(h) "Date of Grant" shall mean the date as of which the Committee resolves
to grant an Option to an Optionee or grant Restricted Stock to a
Participant, as the case may be.
(i) "Disinterested Director" shall mean a member of the Board who is not,
during the one year prior to service as an administrator under this
Plan (as described in Section 4 of this Plan), granted or awarded an
Option or Restricted Stock pursuant to the terms of this Plan (or any
other plan of the Company or any of its Subsidiaries) except (i)
participation in a formula plan meeting the conditions of Rule
16b-3(c)(2)(ii) under the Exchange Act, (ii) participation in an
ongoing securities acquisition plan meeting the conditions in Rule
16b-3(d)(2)(i) under the Exchange Act, (iii) an election to receive an
annual retainer fee in either cash or an equivalent amount of
securities of the Company, or partly in cash and partly in securities,
or (iv) that participation in this Plan shall not disqualify a
director for the purpose of administering another plan that does not
permit participation by the Board; provided, that the scope of the
exceptions in this paragraph shall automatically be reduced or
expanded to the extent that Rule 16b-3 under the Exchange Act is
amended to reduce or expand the scope of the exceptions thereunder.
(j) "Employee" shall include every individual performing services to the
Company or its Subsidiaries if the relationship between such
individual and the Company or its Subsidiaries is the legal
relationship of employer and employee. This definition of "Employee"
is qualified in its entirety and is subject to the definition set
forth in Section 3401(c) of the Code and the regulations thereunder.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and as interpreted by the rules and regulations promulgated
thereunder.
(l) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in
the applicable Stock Option Agreement, but in no event less than the
par value per Share.
(m) "Fair Market Value" shall mean the average of the last trade price of
the Common Stock on all domestic exchanges on which the Common Stock
may at the time be listed or admitted to trading, or, if the Common
Stock, shall not be so listed or admitted to trading, the average of
the last trading price in the domestic over-the-counter market, in
each such case averaged over a period of 20 consecutive business days
prior to the day as of which Fair Market Value is being determined;
provided that if the Common Stock is listed on any domestic exchange,
the term "business days" as used in this sentence shall mean business
days on which such exchange is open for trading. If the Common Stock
is neither listed or admitted to trading on any domestic exchange nor
quoted in the domestic over-the counter market, the Fair Market Value
shall mean the last trade price as furnished by any dealer in
securities dealing in the Common Stock.
(n) "Option" shall mean the right granted to purchase Common Stock under
the Plan.
(o) "Optionee" shall mean a Participant who holds an Option.
(p) "Participants" shall mean those individuals described in Section 1 of
this Plan selected by the Committee who are eligible under Section 6
of this Plan for grants of either Options or Restricted Stock under
this Plan.
(q) "Permanent and Total Disability" shall mean that an individual is
unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than twelve (12) months. An
individual shall not be considered to suffer from Permanent and Total
Disability unless such individual furnishes proof of the existence
thereof in such form and manner, and at such times, as the Committee
may reasonably require. The scope of this definition shall
automatically be reduced or expanded to the extent that Section
22(e)(3) of the Code is amended to reduce or expand the scope of the
definition of Permanent and Total Disability thereunder.
<PAGE>
(r) "Plan" shall mean this 1991 Non-Qualified Celerity Solutions, Inc.
Employee Stock Option Plan, as amended from time to time.
(s) "Plan Award" shall mean the grant of either an Option or Restricted
Stock, as the context requires.
(t) "Restricted Stock" shall have that meaning set forth in Section 6(a)
of this Plan.
(u) "Restricted Stock Account" shall have that meaning set forth in
Section 6(a)(iii) of this Plan.
(v) "Restricted Stock Criteria" shall have that meaning in Section
6(a)(iv) of this Plan.
(w) "Restriction Period" shall have that meaning in Section 6(a)(v) of
this Plan.
(x) "Securities Act" shall mean the Securities Act of 1933, as amended,
and as interpreted by the rules and regulations promulgated
thereunder.
(y) "Services" shall mean services rendered to the Company or any of its
Subsidiaries by an Employee or Consultant, as the context requires.
(z) "Share" shall mean one share of Common Stock, as adjusted in
accordance with Sections 8 and 9 of this Plan (if applicable).
(aa) "Stock Option Agreement" shall mean the agreement executed between the
Company and an Optionee that contains the terms, conditions and
restrictions pertaining to the granting of an Option.
(bb) "Subsidiary" shall mean any corporation as to which more than fifty
percent (50%) of the outstanding voting stock or shares shall now or
hereafter be owned or controlled, directly by a person, any Subsidiary
of such person, or any Subsidiary of such Subsidiary.
(cc) "Vest Date" shall have that meaning in Section 6(a)(v) of this Plan.
3. Shares of Common Stock Subject to the Plan.
(a) Subject to the provisions of Sections 8 and 9, the aggregate number of
Shares that may be issued or transferred pursuant to an exercise of
Option or a grant of Restricted Stock under the Plan shall not exceed
three million (3,000,000) Shares. Such Shares may be either
authorized, but unissued shares, or Shares issued and thereafter
acquired by the Company. The Committee shall not issue more Shares
than are available for issuance under this Plan. The number of Shares
that are subject to unexercised Options at any time under this Plan
shall not exceed the number of Shares that remain available for
issuance under this Plan. The Company, during the term of this Plan,
shall at all times reserve and keep available sufficient Shares to
satisfy the requirements of this Plan.
(b) In the event that an Option previously granted shall for any reason
expire or be terminated without being exercised in whole or in part,
the unpurchased shares of Common Stock subject to the Option shall be
restored to the total number of shares of Common Stock with respect to
which Options may be granted under the Plan.
(c) Plan Awards may be granted under the Plan from time to time in
substitution of Options or Restricted Stock held by Consultants for
thirty two thousand five hundred (32,500) Shares which were issued
prior to July 20, 1993. Unless expressly stated otherwise, any
provision in the Plan applying to Options or Restricted Stock granted
under the Plan shall also apply to Options or Restricted Stock granted
to Consultants under prior Option Agreements.
<PAGE>
4. Administration of the Plan.
(a) This Plan shall be administered by the Committee, which shall consist
of at least two (2) persons, each of whom shall be Disinterested
Directors. The members of the Committee shall be appointed by the
Board for such terms as the Board may determine. The Board may from
time to time remove members from, or add members to, the Committee.
Vacancies on the Committee, however caused, may be filled by the
Board.
(b) The Board shall designate one of the members of the Committee as
chairman. The Committee may hold meetings at such times and places as
it shall determine. The acts of a majority of the Committee members
present at meetings at which a quorum exists, or acts reduced to or
approved in writing by a majority of all Committee members, shall be
valid acts of the Committee. A majority of the Committee shall
constitute a quorum.
(c) This Plan shall be administered by, or under the direction of, the
Committee constituted in such a manner as to comply at all times with
Rule 16b-3 (or any successor rule) under the Exchange Act. The
Committee shall administer this Plan so as to comply at all times with
the Exchange Act and, subject to the Code, shall otherwise have
absolute and final authority to interpret this Plan and to make all
determinations specified in or permitted by this Plan or deemed
necessary or desirable for its administration or for the conduct of
the Committee's business including without limitation the authority to
take the following actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to this Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes
of this Plan;
(iv) To determine when Plan Awards are to be granted under this
Plan;
(v) To select the Optionees and Participants;
(vi) To determine the number of Shares to be made subject to each
Plan Award;
(vii) To prescribe the terms, conditions and restrictions of each
Plan Award, including without limitation the Exercise Price
of an Option;
(viii) To amend any outstanding Stock Option Agreement or the
terms, conditions and restrictions of a grant of Restricted
Stock, subject to applicable legal restrictions and the
consent of the Optionee or Participant, as the case may be,
who entered into such agreement;
(ix) To establish procedures so that an Optionee may obtain a
loan through a registered broker-dealer under the rules and
regulations of the Federal Reserve Board, for the purpose of
exercising an Option;
(x) To establish procedures for an Optionee (1) to have withheld
from the total number of Shares to be acquired upon the
exercise of an Option that number of Shares having a Fair
Market Value, which, together with such cash as shall be
paid in respect of fractional shares, shall equal the
Exercise Price, and (2) to exercise a portion of an Option
by delivering that number of Shares already owned by an
Optionee having a Fair Market Value which shall equal the
partial Exercise Price and to deliver the Shares thus
acquired by such Optionee in payment of Shares to be
received pursuant to the exercise of additional portions of
the Option, the effect of which shall be that an Optionee
can in sequence utilize such newly acquired shares in
payment of the Exercise Price of the entire Option, together
with such cash as shall be paid in respect of fractional
shares;
<PAGE>
(xi) To establish procedures whereby a number of Shares may be
withheld from the total number of Shares to be issued upon
exercise of an Option, to meet the obligation of withholding
for federal and state income and other taxes, if any,
incurred by the Optionee upon such exercise; and
(xii) To take any other actions deemed necessary or advisable for
the administration of this Plan.
All interpretations and determinations of the Committee made
with respect to the granting of Plan Awards shall be final,
conclusive, and binding on all interested parties. The
Committee may make grants of Plan Awards on an individual or
group basis. No member of the Committee shall be liable for
any action that is taken or is omitted to be taken if such
action or omission is taken in good faith with respect to
this Plan or grant of any Plan Award.
(d) The Committee may in its sole discretion require as a condition
to the granting of any Plan Award, that a Participant agree not
to sell or otherwise dispose of a Plan Award, any Shares acquired
pursuant to a Plan Award or any other "derivative security" (as
defined by Rule 16a-1(c) under the Exchange Act) for a period of
six (6) months following the later of (i) the date of the grant
of such Plan Award, or (ii) the date when the Exercise Price of
an Option is fixed if such Exercise Price is not fixed on the
Date of Grant.
(e) The Committee may in its sole discretion designate officers or
employees of the Company to assist the Committee in the
administration of the Plan and to execute documents on behalf of
the Committee, and the Committee may delegate to such officers
and employees such other ministerial and limited discretion
duties as it sees fit.
5. Eligibility.
(a) Options and/or Restricted Stock may be granted under the Plan to
any Employee or Consultant (including Employees who are also
directors of the Company); provided, however, that no person
shall be eligible for any Plan Awards if the granting of a Plan
Award to such person would prevent the satisfaction by this Plan
of the general exemptive conditions of Rule 16b-3 under the
Exchange Act. Determinations by the Committee as to the identity
of the persons to whom Options shall be granted hereunder shall
be conclusive. Directors who are also Employees shall not be
eligible to receive Options under both employee and director's
plans.
(b) [Intentionally omitted.]
6. Restricted Stock.
(a) The Committee shall have the authority to grant to Participants
certain Shares that are subject to certain terms, conditions and
restrictions (the "Restricted Stock"). The Restricted Stock may
be granted by the Committee either separately or in combination
with Options. The terms, conditions and restrictions of the
Restricted Stock shall be determined from time to time by the
Committee without limitation, except as otherwise provided in
this Plan; provided, however, that each grant of Restricted Stock
shall require the Participant to remain an Employee of (or
otherwise provide Services to) the Company or any of its
Subsidiaries for at least six (6) months from the Date of Grant.
The granting, vesting and issuing of the Restricted Stock shall
also be subject to the following provisions:
(i) Restricted Stock shall be granted to Participants for
Services rendered and at no additional cost to Participant;
provided, however, that the value of the Services
<PAGE>
performed must, in the opinion of the Committee, equal or
exceed the par value of the Restricted Stock to be granted
to the Participant.
(ii) The Company shall establish a restricted stock account (the
"Restricted Stock Account") for each Participant to whom
Restricted Stock is granted, and such Restricted Stock shall
be credited to such account. No certificates will be issued
to the Participant with respect to the Restricted Stock
until the Vest Date as provided herein. Every credit of
Restricted Stock under this Plan to a Restricted Stock
Account shall be considered "contingent" and unfunded until
the Vest Date. Such contingent credits shall be considered
bookkeeping entries only, notwithstanding the "crediting" of
"dividends" as provided herein. Such accounts shall be
subject to the general claims of the Company's creditors.
The Participant's rights to the Restricted Stock Account
shall be no greater than that of a general creditor of the
Company. Nothing contained herein shall be construed as
creating a trust or fiduciary relationship between the
Participants and the Company, the Board or the Committee.
(iii) The terms, conditions and restrictions of the Restricted
Stock shall be determined by the Committee on the Date of
Grant. The Restricted Stock may not be sold, assigned,
transferred, redeemed, pledged or otherwise encumbered
during the period in which the terms, conditions and
restrictions apply (the "Restriction Period"). More than one
grant of Restricted Stock may be outstanding at any one
time, and the Restriction Periods may be of different
lengths. Receipt of the Restricted Stock is conditioned upon
satisfactory compliance with the terms, conditions and
restrictions of this Plan and those imposed by the
Committee.
(iv) At the time of each grant of Restricted Stock, the Committee
in its sole discretion may establish certain criteria to
determine the times at which restrictions placed on
Restricted Stock shall lapse (i.e., the termination of the
Restriction Period), which criteria may include, without
limitation, performance measures, targets and holding period
requirements (the "Restricted Stock Criteria"). The
Committee may establish a corresponding relationship between
the Restricted Stock Criteria and (i) the number of Shares
of Restricted Stock that may be earned, and (ii) the extent
to which the terms, conditions and restrictions on the
Restricted Stock shall lapse. Restricted Stock Criteria may
vary among grants of Restricted Stock; provided, however,
that once the Restricted Stock Criteria are established for
a grant of Restricted Stock, the Restricted Stock Criteria
shall not be modified with respect to such grant.
(v) On the date the Restriction Period terminates, the
Restricted Stock shall vest in the Participant (the "Vest
Date"), who may then require the Company to issue
certificates evidencing the Restricted Stock credited to the
Restricted Stock Account of such Participant.
(vi) The Committee may provide from time to time that amounts
equivalent to dividends shall be payable with respect to the
Restricted Stock held in the Restricted Stock Account of a
Participant. Such amounts shall be credited to the
Restricted Stock Account and shall be payable to the
Participant on the Vest Date.
(vii) If a Participant (x) with the consent of the Committee,
ceases to be an Employee or Consultant of, or otherwise
ceases to provide Services to, the Company or any of its
Subsidiaries, or (y) dies or suffers from Permanent and
Total Disability, the vesting or forfeiture (including
without limitation the terms, conditions and restrictions)
of any grant under this Section 6 shall be determined by the
Committee in its sole discretion, subject to any limitations
or terms of this Plan. If the Participant ceases to be an
Employee or Consultant of, or otherwise ceases to provide
Services to, the Company or any of its Subsidiaries for any
other reason, all grants of Restricted Stock under this Plan
shall be forfeited (subject to the terms of this Plan).
<PAGE>
(b) The Committee may establish procedures by which a Participant may
elect to defer the transfer of Restricted Stock to the
Participant. The Committee shall determine the terms and
conditions of such deferral in its sole discretion.
7. Terms and Conditions of Options.
(a) The purchase price of Common Stock under each Option granted
under the Plan shall be the Fair Market Value of the Common Stock
on the date the Option is granted, or the last trade price on the
date of grant, whichever is higher.
(b) Subject to the provision of Section 12, an Option granted under
the Plan shall become exercisable at such a time as the Committee
in its sole discretion shall determine and shall specify in a
Stock Option Agreement to be entered into with the Participant.
In servicing its discretion hereunder, the Committee may
determine that all Options granted shall become exercisable
immediately or that the Participant's right to exercise such
Options shall vest over a period of time and in such increments
as are specified by the Committee.
(c) The exercise of Options shall be subject to the following
requirements:
(i) An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in
accordance with the terms of the Stock Option Agreement by
the Optionee entitled to exercise the Option and full
payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment
may, as authorized by the Committee, consist of any form of
consideration and method of payment allowable under this
Plan. Upon the receipt of notice of exercise and full
payment for the Shares, the Shares shall be deemed to have
been issued and the Optionee shall be entitled to receive
such Shares and shall be a stockholder with respect to such
Shares, and the Shares shall be considered fully paid and
nonassessable. No adjustment will be made for a dividend or
other right for which the record date is prior to the date
on which the stock certificate is issued, except as provided
in Sections 8 or 9 of this Plan. An Option may not be
exercised for a fraction of a Share. Each exercise of an
Option shall reduce, by an equal number, the total number of
Shares that may thereafter be purchased under such Option.
(ii) Except as provided in Subsections 7(c)(iii) and 7(c)(iv), an
Option held by an Optionee shall terminate on the date the
Optionee ceases to be an Employee or Consultant of the
Company in the event the Optionee is terminated for cause
(as determined in the sole discretion of the Committee). If
the employment of the Optionee is terminated other than for
cause, then the Optionee may, but only within ninety (90)
days after such termination, exercise the Option to the
extent that the Optionee was entitled to exercise the Option
on such date; provided, however, the Committee may in its
sole discretion extend such date on which the Optionee may
exercise such Option. To the extent the Optionee is not
entitled to exercise an Option on such date or if the
Optionee does not exercise it within the time specified in
this subclause, the Option shall terminate.
(iii) Notwithstanding the provisions of Section 7(c)(i) and (ii)
above, in the event an Optionee is unable to continue to
perform Services for the Company or any of its Subsidiaries
as a result of such Optionee's Permanent and Total
Disability, such Optionee may exercise an Option in whole or
in part notwithstanding that such Option may not be fully
exercisable, but only until the earlier of the date (i) the
Option held by the Optionee expires, or (ii) twelve (12)
months from the date of termination of Services due to such
Permanent and Total Disability. To the extent the Optionee
is not entitled to exercise an Option on such date or if the
Optionee does not exercise it within the time specified
herein, such Option shall terminate.
<PAGE>
(iv) Upon the death of an Optionee, any Option held by an
Optionee shall terminate and be of no further effect;
provided, however, notwithstanding the provisions of Section
7(c)(ii) above, in the event an Optionee's death occurs
during the term of an Option held by such Optionee and, at
the time of death, the Optionee was an Employee or
Consultant, the Option may be exercised in whole or in part
notwithstanding that such Option may not have been fully
exercisable on the date of the Optionee's death, at any time
until the earlier of the date (i) the Option held by the
Optionee expires, or (ii) twelve (12) months from the date
of the Optionee's death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by
bequest or inheritance. To the extent the Option is not
entitled to be exercised on such date or if the Option is
not exercised within the time specified herein, such Option
shall terminate.
(v) If an Optionee retires at an age at which he would be
eligible to receive old-age benefits under the Federal
Social Security Act or retires with the consent of the
Company, such Optionee's Options shall expire six (6) months
after the retirement date.
(d) Any Option granted under this Plan may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution,
and is not assignable by operation of law or subject to
execution, attachment or similar process. Any Option granted
under this Plan can only be exercised during the Optionee's
lifetime by such Optionee. Any attempted sale, pledge,
assignment, hypothecation or other transfer of the Option
contrary to the provisions hereof and the levy of any execution,
attachment or similar process upon the Option shall be null and
void and without force or effect. No transfer of the Option by
will or by the laws of descent and distribution shall be
effective to bind the Company unless the Company shall have been
furnished written notice thereof and an authenticated copy of the
will and/or such other evidence as the Committee may deem
necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and
conditions of the Option. The terms of any Option transferred by
will or by the laws of descent and distribution shall be binding
upon the executors, administrators, heirs and successors of
Optionee.
(e) Any Option granted hereunder shall be deemed to be granted on the
Date of Grant. Written notice of the Committee's determination to
grant an Option to an Employee or Consultant, evidenced by a
Stock Option Agreement, dated as of the Date of Grant, shall be
given to such Employee or Consultant within a reasonable time
after the Date of Grant.
(f) Within the limitations of this Plan, the Committee may modify,
extend or renew outstanding Options or may accept the
cancellation of outstanding Options (to the extent not previously
exercised) for the granting of new Options in substitution
therefor. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, alter or
impair the Optionee's rights or obligations under such Option.
8. Adjustment Provisions.
If any subdivision or combination of shares of Common Stock or any stock
dividend, capital reorganization or recapitalization occurs after the
adoption of the Plan, the Committee shall make such proportionate
adjustments as are appropriate in the number of shares of Common Stock that
may be issued under Section 3 and in the purchase price of, and the number
of shares underlying, outstanding Options in order to prevent the dilution
or enlargement of the rights of any Option holder.
9. Effect of Merger or Other Reorganization.
If the Company shall be the surviving corporation in a merger,
consolidation or other reorganization, the holder of an Option shall be
entitled to receive an option to purchase the same
<PAGE>
number of shares (or a fraction of a share) in the surviving corporation
that a holder of a corresponding number of shares of Common Stock will be
entitled to receive under the terms of the merger, consolidation or other
reorganization. If the company dissolves, sells substantially all of its
assets, is acquired in a stock for stock or securities exchange, or is a
party to a merger, consolidation or other reorganization in which it is not
the surviving corporation, then each Option shall be exercisable in full
for a period of 60 days commencing upon the date the action of the
stockholders (or of the Board, if stockholder action is not required) is
taken to approve the transaction, and upon the expiration of that period
all Options and all rights thereto shall automatically terminate.
10. General Provisions.
(a) No provision of this Plan, under any Stock Option Agreement or
under any grant of Restricted Stock shall be construed to give
any Participant any right to remain an Employee or Consultant of,
or provide Services to, the Company or any of its Subsidiaries or
to affect the right of the Company to terminate any Participant's
service at any time, with or without cause.
(b) As a condition to the transfer of any Shares issued under this
Plan, the Company may require an opinion of counsel, satisfactory
to the Company, to the effect that such transfer will not be in
violation of the Securities Act or any other applicable
securities laws, rules or regulations, or that such transfer has
been registered under federal and all applicable state securities
laws. The Company may refrain from delivering or transferring
Shares issued under this Plan until the Committee has determined
that the Participant has tendered to the Company any and all
applicable federal, state or local tax owed by the Participant as
the result of the receipt of a Plan Award, the exercise of an
Option or the disposition of any Shares issued under this Plan,
in the event that the Company reasonably determines that it might
have a legal liability to satisfy such tax. The Company shall not
be liable to any person or entity for damages due to any delay in
the delivery or issuance of any stock certificate evidencing any
Shares for any reason whatsoever.
(c) No participant shall be entitled to the rights and privileges of
stock ownership relation to any shares of Common Stock underlying
an Option until such Option is exercised and the shares are
issued.
(d) Each Option is personal to the grantee, is not transferable by
the Participant other than by will or by the laws of descent and
distribution, and is exercisable, during the Participant's
lifetime, only by the Participant or his legal representative.
(e) This Plan and any and all Stock Option Agreements and agreements
relating to the grant of Restricted Stock executed in connection
with this Plan shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard to
conflicts of laws principles.
11. Amendment and Termination.
(a) The Board shall have the power, in its sole discretion, to amend,
suspend or terminate the Plan at any time. No such amendment
shall, without approval of the stockholders of the Company,
except as provided in Sections 8 and 9 or the Plan:
(i) change the class of person eligible to receive Options under
the Plan;
(ii) materially increase the benefits accruing to Participants
under the Plan;
(iii) increase the number of shares of Common Stock subject to the
Plan; or
(iv) amend this Section 11.
<PAGE>
(b) No amendment, suspension or termination of the Plan shall,
without the consent of the Participant alter, terminate, impair
or adversely affect any right or obligations under any Option
previously granted under or made a party of the Plan.
12. Effective Date and Duration of Plan.
The Plan was originally adopted by the Board of Directors and took effect
on October 23, 1990. This Amended and Restated Plan shall be effective as
of the date of its approval and adoption by the Board of Directors subject
only to the approval of the holders of a majority of the Company's Common
Stock present or represented and entitled to vote at a meeting of
stockholders. All Options outstanding under the Plan as of the effective
date of this Amended and Restated Plan shall continue in full force and
effect in accordance with their terms as granted pursuant to the Plan. No
Option shall be granted under the Plan after the tenth anniversary of the
effective date of the Amended and Restated Plan.
EXHIBIT 4.6
[LOGO]
THE AMENDED AND RESTATED 1992 NON-QUALIFIED STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose
The purpose of this Non-Qualified Stock Option Plan For
Non-Employee Directors (the "Plan") is to improve the ability of
CELERITY SOLUTIONS, INC. (the "Company") to attract and retain
highly qualified non-employee directors by encouraging such
directors of the Company to acquire a proprietary stake in the
Company and its future growth. It is the view of the Company that
it may achieve this goal by granting stock options under the
Plan.
2. Option Shares
Three hundred thousand (600,000) shares of the Common Stock of the Company,
par value $.10 per share (the "Stock"), are hereby reserved for issuance
upon the exercise of the stock options granted under the Plan (the
"Options"). The Stock may be issued pursuant to such Options either from
the Company's authorized, but unissued, Stock or from the Company's issued
but not outstanding Stock (treasury stock). Should any Options granted
hereunder not be exercised in the time allowed for such exercise, the
shares of Stock relating to such lapsed Options shall be available for
issuance pursuant to Options subsequently granted under the Plan.
3. Eligibility
All non-employee directors of the Company shall be eligible to receive
Options under the Plan.
4. Terms and Conditions
(a) Grant of Options: Subject to the provisions of the Plan, each
non-employee director of the Company shall be granted an Option for
the purchase of shares of Stock on each Date of Grant (as such term is
defined in paragraph (c) below) occurring during such director's
tenure as a director of the Company.
(b) Option Agreement: Each Option shall be evidenced by a written
agreement between the Company and the non-employee director specifying
the number of shares of Stock that may be purchased by its exercise.
(c) Date of Grant: The date on which an Option is granted to a
non-employee director (the "Date of Grant") shall be: (1) the date of
each annual meeting of shareholders of the Company at which a director
is elected or re-elected to serve on the Board of Directors commencing
with the annual meeting of shareholders for the fiscal year ended
March 31, 1995, and (2) the date on which a director who is not also
an employee is first elected by the Board of Directors to fill a
vacancy on the Board of Directors.
<PAGE>
(d) Number of Shares Granted: Each non-employee director shall receive an
Option to purchase 20,000 shares of Common Stock on each Date of Grant
during such director's service on the Board of Director's of the
Company. In addition, on the date of the annual meeting of
shareholders for the fiscal year ended March 31, 1995, each director
who is not also an employee of the Company and who has served as a
director of the Company for at least three years as of such date shall
be granted an Option to purchase 37,500 shares of Common Stock.
Non-employee directors who have served between two and three years as
of such date shall be granted an Option to purchase 25,000 shares of
Common Stock.
(e) Exercise of Options: Each Option issued hereunder shall be fully
vested as of the Date of Grant and each Option shall be exercisable
for a five year period commencing on the Date of Grant; provided,
however, that no Option granted hereunder may be exercised during the
six month period immediately following the Date of Grant pursuant to
Rule 16b-3(c) (1).
(f) Modification or Substitution of Options: Subject to the terms and
conditions and within the limitations of the Plan, the members of the
Board of Directors of the Company who are not eligible to participate
in the Plan may modify, extend or renew outstanding Options granted
under the Plan and accept the surrender and cancellation of
outstanding Options (to the extent not theretofore exercised) and
authorize the granting of new Options in substitution therefor or
Options as amended.
(g) Amendment: No amendment to this Section 5 of the Plan may be made more
than once every six (6) months, other than to comport with changes in
the Internal Revenue Code of 1986, as amended (the "Code"), the
Employee Retirement Income Security Act, or the rules promulgated
thereunder.
5. Option Price
The purchase price per share of Stock placed under an Option pursuant to
this Plan (the "Option Price") shall be equal to the Market Price of the
stock on the Date of Grant. "Market Price" shall mean the average of the
last trade price of the Common Stock on all domestic exchanges on which the
Common Stock may at the time be listed or admitted to trading, or, if the
Common Stock, shall not be so listed or admitted to trading, the average of
the last trading price in the domestic over-the-counter market, in each
such case averaged over a period of 20 consecutive business days prior to
the day as of which Market Price is being determined; provided that if the
Common Stock is listed on any domestic exchange, the term "business days"
as used in this sentence shall mean business days on which such exchange is
open for trading. If the Common Stock is neither listed or admitted to
trading on any domestic exchange nor quoted in the domestic over-the
counter market, the Market Price shall mean the last trade price as
furnished by any dealer in securities dealing in the Common Stock.
6. Duration of Option
Each Option granted hereunder may be exercised only by the individual to
whom it is issued. An Option granted hereunder shall be effective upon the
Date of Grant, and shall be exercisable for a five year period (the "Option
Period") from the Date of Grant; provided, however, that no Option granted
hereunder may be exercised during the six month period immediately
following the Date of Grant pursuant to Rule 16b-3(c)(1). If such holder
dies before fully exercising any portion of an Option then exercisable,
such Option may be exercised by such holder's legal representative's,
heir(s) or devisee(s) at any time within the six (6) month period following
his or her death.
7. [Intentionally Deleted]
8. Termination of the Plan
This Plan shall terminate upon the close of business ten (10) years from
the Adoption Date unless it shall have been sooner terminated by reason of
there having been granted and fully exercised Options covering the entire
six hundred thousand (600,000) shares of Stock subject to this Plan. Upon
such termination, no further Options may be granted hereunder. If, after
termination
<PAGE>
of this Plan as provided above, there are outstanding Options which have
not been fully exercised, such Options shall remain in effect in accordance
with their terms and shall remain subject to the terms of this Plan.
9. Exercise of Options
An Option granted pursuant to this Plan shall be exercisable at any time
within the Option Period, subject to the terms and conditions of such
Option. Exercise of any Option shall be made by the delivery, during the
period that such Option is exercisable, to the Company, in person or by
mail, of (i) written notice from the Optionee stating that the Optionee is
exercising such Option and (ii) the payment of the aggregate purchase price
of all shares as to which such Option is then exercised and the payment of
any required federal income tax withholding. Such aggregate purchase price
shall be paid to the Company in cash, Stock or any other class of equity
securities of the Company (such Stock and other class of equity securities
of the company are hereinafter collectively referred to as the "Company
Stock"), or in a combination of cash or Company Stock at the time of
exercise.
There may not, however, be any payment by an Optionee of the exercise price
in whole or in part with shares of Company Stock at a time when the Company
is Insolvent (as hereafter defined) or when such payment would make the
Company Insolvent, or as such payment may otherwise be prohibited by any
applicable state or Federal statute, rule or regulation, or any rule or
regulation of any stock exchange upon which Company Stock is traded, or if
Company Stock is traded on a recognized stock quotation service, which may
be the National Association of Securities Dealers Automated Quotations
System ("NASDAQ"), any rule or regulation of NASDAQ. For the purposes of
this Plan, "Insolvent' shall mean the inability of the company to pay its
debts as they become due in the usual course of its business. Company Stock
utilized in full or partial payment of the exercise price shall be valued
at the Market Price (as defined in paragraph 5 herein) on the date of
exercise of the Option.
Notwithstanding anything to the contrary contained herein, no written
notice shall be effective under this Section 9 unless it requests the
exercise of Options for one hundred (100) shares or an integral multiple
thereof; except to the extent necessary to make full exercise of the
Options in the event that only an odd lot remains. Upon the exercise of an
Option in compliance with the provisions of the Section, and upon the
receipt by the Company of the payment for the Stock so taken up, the
Company shall (i) deliver or cause to be delivered to the Optionee so
exercising his Option a certificate or certificates for the number of
shares of Stock with respect to which the Option is so exercised and
payment is so made, and (ii) register or cause such shares to be registered
in the name of the exercising Optionee in the corporate books and records.
10. Controlling Terms
Options granted pursuant hereto may include conditions that are more (but
not less) restrictive to the Optionee than the conditions contained herein
and, in such event, the more restrictive conditions shall apply.
11. Requirements of Law
If any law, regulation or order of the United States Securities and
Exchange Commission, or of any other commission or agency having
jurisdiction, shall require the Company or the exercising Optionee to take
any action with respect to the shares of Stock acquired by the exercise of
an Option, then the date upon which the Company shall deliver or cause to
be delivered the certificate or certificates for the shares of Stock shall
be postponed until full compliance has been made with all such requirements
of law or regulation. Further, in the event that the Company shall
determine that, in compliance with the Securities Act or any other
applicable statute or regulation, it is necessary to register any of the
shares of Stock with respect to which an exercise of an Option has been
made, or to qualify any such shares for exemption from any of the
requirements of the Securities Act or such other applicable statute or
regulation, it will do so at the Company's expense. Not until such an
action has been completed shall the Option shares be delivered to the
exercising Optionee. Further, in the event that at the time of exercise of
the Option the shares of Stock shall be listed on any stock exchange, then
if required by law or the exchange to do so, the Company shall register the
Option shares of Stock with respect to which exercise is so made in
accordance with the provisions of the Securities Act, any other applicable
law or regulation or any rules or
<PAGE>
regulations of any such exchange, and the Company shall make prompt
application for the listing of Option shares on such exchange at the
expense of the Company.
12. No Rights Conferred upon Granting of Options
The Optionee shall not have any rights as a shareholder of the Company with
respect to any shares of Stock prior to the date of issuance to the
Optionee of the certificate or certificates for such shares. Neither the
Plan nor the Option confer on the Optionee any right to be employed by the
Company.
13. Adjustments
In the event of any reorganization, merger, consolidation, acquisition,
separation, recapitalization, split-up, combination, exchange of shares or
stock dividend of the Stock or shares convertible into the Stock or similar
corporate action, the number and class of shares of Stock available
pursuant to this Plan and any Options granted pursuant to this Plan,
together with the Option Prices, shall be adjusted by appropriate
modifications in this Plan and in any Options outstanding pursuant to this
Plan. Any such adjustment to the Plan or to Options or Option Prices shall
be made by notice of the Company's Board of Directors, whose determination
shall be conclusive.
14. Amendment or Discontinuance of the Plan
The Company's Board of Directors may at any time suspend or discontinue the
Plan, but no amendment shall be authorized without shareholder approval
which (i) materially increases the benefits accruing to participants under
the Plan; (ii) materially increases the number of securities which may be
issued under the Plan, except as otherwise provided in Section 13; or (iii)
materially modifies the requirements as to eligibility for participation in
the Plan.
In addition, notwithstanding any other provision in the Plan, in the event
of a change in federal or state law or regulation which would make the
exercise of all or part of an existing Option unlawful or subject the
Company to a penalty, the Company's Board of Directors may restrict such
exercise without the consent of the Optionee or other holder thereof in
order to comply with such law or regulation or to avoid such penalty.
15. Liquidation of the Company
In the event of the complete liquidation or dissolution of the Company,
other than as an incident to a merger, reorganization or other adjustment
referred to in Section 13 above, any Options granted pursuant to this Plan
and remaining unexercised shall be deemed canceled without regard to or
without being limited by any other provisions of this Plan.
16. Unsecured Obligation
Optionees shall not have any interest in any fund or special asset of the
Company by reason of the Plan. No trust fund shall be created in connection
with the Plan or any award thereunder, and there shall be no required
funding of amounts which may become payable to any Optionee.
17. Governing Law
The Plan shall be governed by, construed and enforced in accordance with
the laws of the State of Delaware.
18. Compliance with Rule 16b-3
It is the intent of the Company that all Options granted hereunder comply
with the applicable provisions of Rule 16b-3, as amended, promulgated
pursuant to the Securities Exchange Act of 1934, as amended. As a result,
this Plan may be amended by the Company's Board of Directors in any manner
necessary or desirable to meet any provision or condition of Rule 16b-3. In
addition, all
<PAGE>
Options shall be granted in such a manner as to comply with the applicable
requirements of Rule 16b-3.
19. Approval
This Amended and Restated Plan shall take effect upon approval by the
holders of a majority of the Company's Common Stock present or represented
and entitled to vote at a meeting of stockholders, which approval must
occur within twelve (12) months after the date the Amended and Restated
Plan is adopted by the Board of Directors.
EXHIBIT 10.56
CELERITY SOLUTIONS, Inc.
Software License Agreement
THIS Software License Agreement (the "Agreement") made this September 25th, 1998
is entered into by and between Celerity Solutions, Inc., a corporation
incorporated under the laws of Delaware, having its principal place of business
at 200 Baker Avenue, Suite 300, Concord, Massachusetts, 01742 ("CELERITY"), and
Distribution Dynamics, Inc., having its principal place of business at 1676 N.
California Suite 400 Walnut Creek, CA 94596 ("LICENSEE").
BACKGROUND
CELERITY is the owner of certain proprietary technical information consisting of
computer programs useful in performing various business functions on a Computer
System, as described on "Exhibit A" ("Programs"). LICENSEE is desirous of
acquiring a perpetual, irrevocable, non-transferable and non-exclusive license
to use the Object Code version of the Programs on the Computer(s) identified on
"Exhibit B" for the LICENSEE's operation of its 25 Site(s).
The term "Software" shall mean the Programs (excluding third party software)
supplied to LICENSEE under the terms of this Agreement, and all other releases,
enhancements and modifications supplied to LICENSEE by CELERITY, if any are
agreed to by both parties (excluding third party software). The term "Object
Code" means all or any portion of the machine-readable code comprising the
Software. The term "Computer" means the individual specific computer or
computers on which LICENSEE will install and execute the Software as designated
from time to time on Exhibit B. The term "Site" means the location of the agreed
upon designated servers where LICENSEE will use the Licensed Program described
on Exhibit A. The term "User" means any person accessing the Software via
CELERITY software and/or screen programs. User owned software (host order entry
systems for example) that access data from the CELERITY server via defined API
or other interfaces do not count as concurrent Users for purposes of this
Agreement. The total number of Users may be designated from time to time on
Exhibit C.
NOW THEREFORE, in consideration of the BACKGROUND and the mutual covenants
herein contained, CELERITY and LICENSEE hereby agree as follows:
----------
1. Title. LICENSEE understands and acknowledges that ownership and title to
the Software, including any releases, enhancements and modifications
thereof, are and will remain the exclusive property of CELERITY.
2. Grant of License. Upon payment of the initial license fee established and
set forth in Section 4 hereof, CELERITY grants to LICENSEE, and LICENSEE
accepts from CELERITY, a perpetual, irrevocable, non-transferable and
non-exclusive license to use the Object Code version of the Software on the
Computer(s) identified on Exhibit B for the LICENSEE's own internal data
processing and computing needs for testing and training purposes only.
LICENSEE shall not use the licensed Software in a production environment
until all charges and fees as set forth in this Agreement and any
associated Professional Services Agreement have been paid to CELERITY.
LICENSEE may not, for any purpose or under any circumstances, use the
Software to provide data processing or management information or services
to any third party. Upon payment of the additional license fees required by
Section 4 hereof, LICENSEE may use the Software in connection with any
increase in the number of LICENSEE's Computer(s), Site(s), or User(s).
3. License Assignment. LICENSEE shall not assign or transfer its rights in
such license to any other person or entity; provided, however, that
LICENSEE may assign all its rights in the license to a subsidiary or
affiliate in which it owns a majority interest, or to a purchaser of
substantially all of the business and assets of LICENSEE on the conditions
that (i) LICENSEE retains no rights to use the Software and (ii) such
subsidiary, affiliate or purchaser agrees in writing to be bound by the
terms of this Agreement as if it had executed this Agreement as LICENSEE.
Any such subsidiary, affiliate or purchaser is hereinafter referred to as a
"Permitted Assignee". An assignment by LICENSEE of its rights in the
license to a Permitted Assignee shall not release LICENSEE of any of its
obligations and responsibilities under this Agreement.
4. License Fee. The license fee for the Software shall be as described in
Exhibit C (the "License Fee") and shall be subject to the License Fee Terms
specified in Exhibit C. LICENSEE agrees to notify CELERITY in writing at
least 30 days in advance of any increase in the number of LICENSEE's
Computer(s), Site(s), or User(s) for the software, at which time the
preparation of a new Exhibit B and/or Exhibit C will be required, and
LICENSEE shall concurrently therewith, pay to CELERITY additional license
fees, if any as described on Exhibit C. LICENSEE agrees that CELERITY shall
have the right at any time to access each computer upon which LICENSEE has
installed the Software to enable and permit CELERITY to verify the accuracy
of Exhibit B and Exhibit C to this Agreement.
5. Maintenance. CELERITY will, at the option of LICENSEE, provide the services
outlined in this Provision 5 beginning from the date of LICENSEE Acceptance
of the Software through April 1, 2000, and thereafter upon payment of
annual license renewal fees specified in Section 6, CELERITY agrees to
provide all new releases of the Software and new
Celerity Solutions, Inc./ Software Licence Agreement #SLA980908-DDI
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<PAGE>
documentation and to provide reasonable on-going telephone consultation
during Celerity's normal business hours. CELERITY additionally agrees to
provide program corrections for any Software error reported and determined
to be in its Software(s), documentation, or operational procedures. These
corrections will be provided in a timely fashion using reasonable efforts
and will be provided without any direct cost to the LICENSEE. CELERITY will
provide program corrections, updates, enhancements and all new releases of
the Software by either installing these items on LICENSEE's Computer(s) or
by electronic transmission through the modem without conveyance of title or
possession of any physical storage media. Should the error be found not to
be in CELERITY's Software, documentation, or operational procedures,
however, the LICENSEE will be billed for consulting time at published rates
and, the actual travel and living costs incurred by CELERITY.
Maintenance Election: Yes [X] No [_]
6. Annual License Renewal Fee. Annual License Renewal fees shall be payable as
follows: LICENSEE's first payment under this term will be due on April 1,
2000. LICENSEE's second payment under this term will be due one (1) year
from the VMI and Q&S DDI Acceptance of the Software. Annual License Renewal
fees will be billed ninety (90) days in advance of the due date and, may
only be canceled with 30 days notice prior to the due date. Annual License
Renewal fees, will become due and payable thereafter in each subsequent
year on or before the anniversary date ("due date") of the VMI and Q&S DDI
Acceptance of the Software . The annual license renewal fee is twelve
percent (12%) of the then current list price of the LICENSEE's Software
configuration. The annual license renewal fee can not, in any twelve (12)
month period, increase by an amount greater than the most current annual
increase in the Consumer Price Index For Urban Wage Earners CPI-W as
published by the Bureau Of Labor Statistics, U.S. Department Of Labor. This
fee provides for the continued use of the Software, and entitles the
LICENSEE to all the services outlined in Section 5, Maintenance, for a
period of one year from the due date or as otherwise provided herein.
7. Warranty. CELERITY warrants that, for one hundred & eighty (180) days
following DDI Acceptance of the Software, the Software will conform in all
material respects to the specifications contained in the documentation
initially furnished to the LICENSEE and as amended from time to time.
CELERITY's sole responsibility under this warranty shall be, at its option,
to correct or replace that portion of the Software which fails to conform
to said warranty or to refund the license fee paid, provided, however, that
the LICENSEE has reported in writing to CELERITY any defect or error
claimed to be a breach of warranty within ninety (180) days following
acceptance of the Software by LICENSEE. CELERITY will have no liability
under the foregoing warranty if (1) the LICENSEE modifies the Software
without CELERITY's prior written consent, (2) the LICENSEE fails to give
CELERITY written notice of the claimed breach of warranty or (3) the
failure to conform is caused in whole or part by persons other than
CELERITY or by products, equipment or computer programs not furnished by
CELERITY.
THE EXPRESSED WARRANTIES SET FORTH IN THIS SECTION ARE THE ONLY WARRANTIES
GIVEN BY CELERITY WITH RESPECT TO THE SOFTWARE FURNISHED TO LICENSEE.
CELERITY MAKES NO OTHER WARRANTIES, EXPRESS, IMPLIED OR ARISING BY CUSTOM
OR TRADE USAGE, AND SPECIFICALLY MAKES NO WARRANTY OF MERCHANTABILITY OR OF
FITNESS FOR ANY PARTICULAR PURPOSE. CELERITY'S EXPRESS WARRANTIES SHALL NOT
BE ENLARGED, DIMINISHED OR AFFECTED BY, AND NO OBLIGATION OR LIABILITY
SHALL ARISE OUT OF CELERITY'S RENDERING OF TECHNICAL OR OTHER ADVICE OR
SERVICE IN CONNNECTION WITH THE SOFTWARE.
Copyright or Patent Infringement: In the event of any claim that the
licensed Software infringes any valid United States copyright or patent,
provided that Celerity is promptly notified of such claim, is permitted to
control the defense of such claim and receives full cooperation from the
LICENSEE in connection with such defense, Celerity will at its own expense
take such action as it reasonably determines to be required to defend
against or, at is option, settle such claim. If in any suit or proceeding
based on such claim the licensed Software is held to infringe such a
copyright or patent, Celerity shall, at its own option and expense, (1)
promptly procure the right for continued Use of such licensed Software by
User, (2) promptly replace or modify such licensed Software so that it
becomes non-infringing or (3) return to LICENSEE all payments made under
this Agreement and terminate the license granted hereunder.
CELERITY's liability in contract or otherwise arising out of or in
connection with the Software or services under this Agreement shall not
exceed the fees paid to CELERITY by the LICENSEE within preceding nine
months with respect to the said Software or services. IN NO EVENT SHALL
CELERITY BE LIABLE FOR SPECIAL INCIDENTAL, OR CONSEQUENTIAL DAMAGES
RESULTING FROM LOSS OF USE, LOSS OF DATA, LOSS OF PROFITS, OR LOSS OF
BUSINESS ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OF THE
SOFTWARE OR CELERITY'S PERFORMANCE OF SERVICES OR OF ANY OTHER OBLIGATIONS
RELATING TO THE SOFTWARE, EVEN IF CELERITY HAS BEEN ADVISED OF THE
POSSIBLITY OF SUCH DAMAGES.
8. Title Warranty. Celerity hereby warrants and represents that the licensed
Software is the property of CELERITY and CELERITY has the power to grant
the license hereunder.
Celerity Solutions, Inc./ Software Licence Agreement #SLA980815-20
2
<PAGE>
9. Hiring of Employees. LICENSEE and CELERITY each acknowledge that it would
receive substantial value and that the other would be deprived of the
benefits of its work force if it were to solicit or hire the other party's
current employees and consultants or prior employees and consultants for a
period of 24 months from the last date that they worked for either party.
LICENSEE and CELERITY further agree to notify each other immediately, upon
solicitation of the other's current and prior employees and consultants, to
give the affected party the opportunity to retain such employees and
consultants. It is further acknowledged that any breach of such terms or
provisions of this Section 9 would result in injury to the non-breaching
party that would be difficult or impossible to accurately ascertain.
Therefore, because of the impossibility of ascertaining actual damages, it
is agreed that in the event of a breach of any provision of this section by
either party, the breaching party will pay to the other party with respect
to each such breach the sum of Seventy Five Thousand dollars ($75,000) as
liquidated damages and not as a penalty. The parties agree that the amount
of liquidated damages specified herein represents a reasonable
approximation of the damages, which would be incurred as a result of a
breach of this Section.
10. Confidentiality; Protection of Trade Secrets. LICENSEE acknowledges that
the Software, all related materials and information, and all associated
intellectual property rights, are and shall remain the exclusive property
of CELERITY, and that CELERITY holds all United States and international
copyright interests therein, the Software being treated as an unpublished
work. LICENSEE further acknowledges that the Software and all related
materials and information are treated by CELERITY as secret and proprietary
information of CELERITY of substantial value. LICENSEE shall hold such
Software, related materials and information in confidence, and shall not
use, copy, or disclose, nor permit any of LICENSEE's Personnel, or any
third party resources to use, copy, or disclose the same for any purpose
that is not specifically authorized under this Agreement. LICENSEE shall
require that the Software be kept on LICENSEE's premises in separate,
secured drawers or cabinets. LICENSEE shall limit use of and access to the
Software and related materials and information to LICENSEE's Personnel or
third party resources whom LICENSEE has reason to believe are trustworthy
and are directly involved in the use, support and maintenance of the
Software. LICENSEE shall hold in confidence, and shall not disclose to any
other person or entity, the terms and provisions of this Agreement,
including but not limited to the financial terms embodied herein. CELERITY
acknowledges the competitive nature of LICENSEE's business and the
competitive advantage realized through implementation of the Software. As
such, CELERITY agrees not to provide those companies listed in Exhibit D, a
license to use the Software for at least a three (3) year period from the
Effective Date of this Agreement.
11. Publicity Rights. CELERITY may include LICENSEE in its marketing and
promotional efforts after providing LICENSEE five-(5) days notice of its
intent. Agreement will not be unreasonably withheld.
12. Termination. In the event of a material breach by LICENSEE of this
Agreement or a material breach of any associated Professional Services
Agreement entered into between CELERITY and LICENSEE, CELERITY will give
LICENSEE written notice of such material breach. If LICENSEE fails to cure
such material breach within thirty (30) days after receipt of such notice,
this Agreement shall forthwith terminate, the license fee will be
forfeited, and all rights granted to LICENSEE hereunder shall revert to
CELERITY. Promptly upon such termination of this Agreement, LICENSEE must
return or destroy, as requested by CELERITY, all copies of the Software
(whether modified or unmodified), and all copies of other materials and
information related to the Software which are in LICENSEE's possession. In
the event of termination of this Agreement, the obligations, restrictions,
and prohibitions contained in Sections 4, 6, 10, and 11 hereof shall
survive such termination as necessary to effectuate their purposes, and
shall bind the parties and their respective legal representatives,
successors and assigns.
13. Miscellaneous.
A. Term. The term of this Agreement will commence on the date hereof and
will continue as set forth in Section 2 (Grant of License) unless
earlier terminated as provided in Section 12 (Termination).
B. Assignment/Sublicense. Except as specifically provided in Section 3
hereof, this Agreement and the rights and obligations may not be
assigned, transferred, pledged or hypothecated in any manner by either
of the parties hereto, whether voluntarily or by operation of law,
without the prior written consent of the other party provided that
either party may assign this Agreement and its rights and obligations
hereunder to a purchaser of all or substantially all of its assets or
pursuant to a merger or similar reorganization.
C. Taxes. LICENSEE shall pay any and all federal, state and local sales,
use and other taxes and charges, however designated, levied or imposed
on the license of the Software or resulting from this Agreement,
except taxes based upon CELERITY's net income and payroll.
D. Force Majeure. Except for the obligations described in Section 4 and
Section 6 hereof, and in Exhibit C hereto, neither party shall be in
default if its delay in performing, or failure to perform any
obligation hereunder is caused by supervening conditions beyond that
party's reasonable control, including acts of God, civil commotion,
communications line failure, and governmental demands and
requirements.
E. Entire Agreement; Amendments. This Agreement, together with any other
agreements between the parties hereto which have been identified in
the Master Agreement, constitute the entire contractual arrangement
between CELERITY and LICENSEE pertaining to the subject matters
thereof, and there are no other representations, warranties, covenants
or obligations except as explicitly set forth in each of them. All
other prior or contemporaneous agreements, representations,
Celerity Solutions, Inc./ Software Licence Agreement #SLA980815-20
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<PAGE>
proposals, understandings, negotiations and discussions, written or
oral, are hereby superseded and merged therein. This Agreement, and
other agreements identified in the Master Agreement, may be amended
only in writing executed by both parties.
F. General Interpretation. The terms of this Agreement and the words used
herein shall be deemed to be the language chosen by the parties hereto
to express their mutual intent. Therefore, this Agreement shall be
construed without regard to any presumption or rule requiring
construction against the party causing the Agreement or any portion
thereof to be drafted, or in favor of the party receiving a particular
benefit under this Agreement.
G. Captions. The captions of the sections of this Agreement are intended
and inserted solely for reference purposes, and shall not be
interpreted to govern, limit or aid in the construction of any term or
provision hereof.
H. Binding Effect. Subject to Section 3 and Sub Paragraph B above, each
and all of the provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors, personal representatives and assigns.
I. Governing Law. This Agreement will be governed by and construed and
enforced in accordance with the laws of and under the jurisdiction of
the State of Illinois, without reference to the choice of law
principles thereof.
J. Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and will be deemed to have
been duly given or made upon receipt by certified mail, postage
prepaid, return receipt requested, to the parties at the addresses set
forth above, or to such other address as each party may specify in
writing to the other.
K. Source Code Escrow. CELERITY and LICENSEE shall mutually agree to the
appointment of a software escrow agent. CELERITY will deposit with the
escrow agent the then most current version of the Software, along with
any and all technical and user documentation in machine-readable form,
within 10 business days of, Contract Execution, Completion of
Programming and Unit Test, Completion of First Factory Acceptance
Test, Completion of Factory Acceptance Test for the Vendor Managed
Inventory and Quoting & Sourcing Modules. Should CELERITY or any of
its successor organizations cease to do business for any reason or be
rendered incapable of providing technical support in a manner
consistent with the Terms of this Agreement, the LICENSEE, upon
request in writing to the escrow agent, shall receive delivery of the
then most current source code for the System(s) within thirty (30)
days of the date of LICENSEE's request.
a) Events of Bankruptcy and Receivership. For purposes of this
Agreement, the following shall be deemed to be "Events of
Bankruptcy" of CELERITY; (i) if CELERITY becomes "insolvent" as
defined in Title 11 of the United States Code, entitled
"Bankruptcy", 11 U.S.C. Section 101 et seq., as amended, or any
successor statute (hereinafter called the "Bankruptcy Code"), or
under the insolvency laws of any state, district, commonwealth or
territory of the United States of America (hereinafter the
"Insolvency Laws"); or (ii) if CELERITY files a voluntary
petition under the Bankruptcy Code or Insolvency Laws, which is
not dismissed within thirty (30) days of filing, or results in
the issuance of an Order for Relief against the debtor.
b) Return of Escrowed Property. Upon the occurrence of an Event of
Bankruptcy, or if CELERITY takes advantage of any Insolvency
Laws, then in any such event, CELERITY agrees immediately to
surrender and return, or immediately to cause to be surrendered
and returned, to LICENSEE all software, instruments, documents,
contracts, things and any form of proprietary information or
trade secret (as such terms may be defined under the laws of the
State governing this Agreement) (hereafter, the "Escrowed
Property") relating to LICENSEE and in the possession of the
Software Escrow Agent. CELERITY and LICENSEE hereby agree that
the Escrowed Property shall not constitute "property of the
estate" as such term is defined under Section 541 of the
Bankruptcy Code.
L. Severability. In the event that any of the terms or provisions of this
Agreement is, or becomes, or is declared to be invalid or void by any
court or tribunal of competent jurisdiction, such term(s) or
provision(s) shall be deemed severed from this Agreement and all of
the remaining terms and provisions hereof shall remain in full force
and effect.
M. Waiver. Any delay or omission by either party to exercise any right or
remedy under this Agreement will not be considered to be a waiver of
that or any other right or remedy contained in this Agreement. Except
as otherwise explicitly stated in this Agreement, all of the
respective rights of the parties are cumulative and may be exercised
separately or concurrently.
N. Prevailing Party: If either party hereto institutes any action or
proceeding in court in order to enforce any of the provisions hereof,
or any action for damages by reason of any alleged breach of any
provision hereof, then, as between
Celerity Solutions, Inc./ Software Licence Agreement #SLA980815-20
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<PAGE>
the two parties, the prevailing party in any such action or proceeding
shall be entitled to receive from the losing party its reasonable
litigation costs or expenses, including but not limited to, such
amount as the court may adjudge as reasonable attorney's fees. For
purposes of this section, the term "prevailing party" shall mean the
party whose original request for relief most nearly approximates the
final outcome of the action, including any settlement thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement, on the
date first above written.
Celerity Solutions, Inc. (CELERITY)
By: /s/ Luda Kopeikina
--------------------------------
Name: Luda Kopeikina
--------------------------------
Title: CEO 9/30/98
--------------------------------
Distribution Dynamics, Inc. (LICENSEE)
By: /s/ Larry DelSanto
--------------------------------
Name: Larry DelSanto
--------------------------------
Title: President / CEO
--------------------------------
Celerity Solutions, Inc./ Software Licence Agreement #SLA980815-20
5
<PAGE>
CELERITY SOLUTIONS, Inc.
Software License Agreement
Exhibit A
"Licensed Programs"
"Licensed Program" shall mean the Software as it exists as of the date of
Acceptance, as defined in the SOFTWARE License Agreement and consists of the
following application modules:
o Sales Order Management
o Supply Chain Planner
o Purchase Order Management
o Material Requests Management
o Inventory Control
o Accounts Payable Vendor File, Accounts Receivable Customer File, Control
General Ledger
o Warehouse Management System
Celerity Solutions, Inc. Distribution Dynamics, Inc.
(CELERITY) (LICENSEE)
By: /s/ L. Kopeikina By: /s/ Larry DelSanto
---------------- ------------------
Name: Luda Kopeikina Name: Larry DelSanto
--------------- --------------
Title: President / CEO Title: President/ CEO
--------------- --------------
Date: September 30, 1998 Date: September 30, 1998
------------------ ------------------
Celerity Solutions, Inc./Software License Agreement #SLA980908-DDI
1
<PAGE>
CELERITY SOLUTIONS, Inc.
Software License Agreement
Exhibit B & C Combined
"Designated Hardware Configuration & Locations"
Server recommendations are based on the CLIENT'S initial data concerning
facility sizes, number of users and transaction volumes as at the time of
signing this Agreement. Should the current data or site configuration change or
other significant facts be discovered, these server recommendations may be
subject to change:
- --------------------------------------------------------------------------------
WMS Site Type Server Type
- --------------------------------------------------------------------------------
Warehouse Location 25 Sites 17 Type 1 Servers
- --------------------------------------------------------------------------------
2 Type 2 Servers
- --------------------------------------------------------------------------------
3 Type 3 Servers
- --------------------------------------------------------------------------------
3 Type 4 Servers
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Continuum Site Type Sites Served Server Type
- --------------------------------------------------------------------------------
Central Location All Sites at Six Divisions 6 Type 2 Servers
- --------------------------------------------------------------------------------
Delivery of Software: CELERITY will provide the Software, including any new
releases, enhancements and modifications thereof, by downloading the Software
onto the LICENSEE's designated servers in California without conveyance of title
or possession of any physical storage media.
Celerity Solutions, Inc./Software License Agreement #SLA980908-DDI
2
<PAGE>
CELERITY SOLUTIONS, Inc.
Software License Agreement
Exhibit B & C Combined
"Designated Hardware Configurations & Locations"
Server Type Definitions:
- --------------------------------------------------------------------------------
Server Type 1 Base NT server, single 333 MHz CPU, 512M RAM, 4GB disk for O/S, 9
GB disk for data, 4/8 GB DAT (ProLiant 3000 series), Windows NT
Server 4.0, Backup Exec software
- --------------------------------------------------------------------------------
Server Type 2 Medium to Large NT server, dual 333 MHz CPUs, 1GB RAM, 4 GB
mirrored O/S (8 GB total), 12 GB disk in RAID (8GB useable), 4/8
GB DAT, redundant power supply (ProLiant 3000 series), Windows NT
Server 4.0, Backup Exec software
- --------------------------------------------------------------------------------
Server Type 3 Base Alpha 1200 UNIX server, dual 533MHz CPUs, 768MB RAM, 3
channel SCSI RAID controller, 16GB disk (12 GB useable), 4/8 GB
DAT, manuals, monitor, O/S license (No CPU expansion slots
available)
- --------------------------------------------------------------------------------
Server Type 4 Alpha 4100 UNIX server, dual 466 MHz CPUs, 1GB RAM, Pedestal
configuration, redundant power supply, 20/40 GB SCSI tape drive,
52 GB disk (36 GB data, 8 GB mirror O/S, RAID, hot backup), 3
channel SCSI RAID controller, monitor, manuals, cables, etc.
(expansion to 4 CPUs total possible)
- --------------------------------------------------------------------------------
Server Type 5 Alpha 8200 UNIX server, dual 625 MHz CPUs, 2 GB RAM, cabinet
configuration, redundant power supplies, 20/40 SCSI tape drive,
52 GB disk (36 GB data, 8 GB mirror O/S, RAID, hot backup), 3
channel SCSI RAID controller, monitor, manuals, cables (includes
installation) (expansion to 6 CPUs total possible)
- --------------------------------------------------------------------------------
Celerity Solutions, Inc./Software License Agreement #SLA980908-DDI
3
<PAGE>
CELERITY SOLUTIONS, Inc.
Software License Agreement
Exhibit B & C Combined
"Designated Hardware Configurations & Locations"
Software License Fee Payment Schedule
This attachment to Exhibit 10.56 has not been included pursuant to the Company's
request for confidential treatment, pursuant to the Freedom of Information Act
Rule 17CFR Section 200.83.
Celerity Solutions, Inc./Software License Agreement #SLA980908-DDI
4
<PAGE>
CELERITY SOLUTIONS, Inc.
Software License Agreement
Exhibit D
"Competitor List"
This attachment to Exhibit 10.56 has not been included pursuant to the Company's
request for confidential treatment, pursuant to the Freedom of Information Act
Rule 17CFR Section 200.83.
Celerity Solutions, Inc./Software License Agreement #SLA980908-DDI
5
<PAGE>
EXHIBIT 10.56, CONTINUED
CELERITY SOLUTIONS, Inc.
Professional Services Agreement
This is an Agreement dated as of September 1, 1998 (the "Effective Date")
between Celerity Solutions, Inc., a corporation incorporated under the laws of
Delaware, having its principal place of business at 200 Baker Avenue, Suite 300,
Concord, Massachusetts, 01742 ("CELERITY"), and Distribution Dynamics, Inc.,
having its principal place of business at 1676 N. California Suite 400 Walnut
Creek, CA 94596 (the "CLIENT").
CELERITY is in the business of providing software products and professional
services. The term "Professional Services" shall mean the services which CLIENT
shall authorize CELERITY to perform from time to time, as identified on "Exhibit
A" hereto, including but not limited to management, consulting, analysis and
design, installation, development and/or enhancement of computer programs, and
testing. The term "Charges" shall mean the fees and charges, as set forth in
"Exhibit B" hereto, which CUSTOMER agrees to pay to CELERITY for CELERITY's
Professional Services.
CLIENT is currently licensed or is obtaining a license to use CELERITY's
proprietary Continuum and WMS Software (the "Licensed Software") under
CELERITY's Software License Agreement. CLIENT wishes to engage CELERITY to
integrate changes into the Licensed Software in accordance with any Professional
Services provided under the terms of this Agreement.
In consideration of the foregoing and the mutual covenants contained below,
CELERITY and CLIENT agree as follows:
----------
0 Services. CELERITY shall provide Professional Services in a
professional and workman-like manner as authorized by CLIENT and
identified on Exhibit A hereto. CLIENT agrees to fully cooperate with
CELERITY in regard to CELERITY's performance of Professional Services
under this Agreement, and to take any reasonable actions necessary to
enable CELERITY to perform such Professional Services in an effective
and efficient manner.
The software and documentation developed by CELERITY pursuant to this
Agreement shall become part of the Licensed Software within the
meaning of the CLIENT's Computer Software License Agreement with
CELERITY, except that the terms of this Agreement shall govern with
respect to CELERITY's warranty of such software and documentation and
the limitations of liability associated therewith.
1 Charges. After January 1, 2000, CELERITY's standard charges as set
forth in Exhibit B, are subject to change and at anytime thereafter,
following ninety days written notice by CELERITY. CLIENT also agrees
to reimburse CELERITY for disbursements such as travel expenses,
telephone calls, supplies, transportation, secretarial and messenger
services, provided they are incurred in connection with the
performance of Professional Services hereunder at actual cost.
Invoices covering Professional Services performed and charges incurred
by CELERITY will be issued on a monthly basis and are payable within
ten days of the invoice date. A ten (10) percent interest charge will
be charged for all fees that are past due. In the event of termination
as provided in Section 3 of this Agreement, CLIENT agrees to pay for
all services performed by CELERITY up to the effective date of
termination and any other applicable termination fees within ten (10)
days of such termination.
In addition to any other sums payable hereunder, CLIENT shall pay to
or reimburse CELERITY upon demand as applicable, an amount equal to
any taxes, however designated, arising from or based upon this
Agreement or the goods or services provided hereunder, including sales
and/or use tax, local privilege or excise tax, tariff, duty, property
tax or assessment and related interest and penalties, if any, imposed
by any governmental authority at any time, but not taxes based on
CELERITY's net income.
2 Term and Termination. This Agreement shall become effective on the
Effective Date and shall continue in effect until the expiration of
the warranty period set forth in Section 7 of the Software License
Agreement unless terminated in accordance with this Section. This
Agreement may be terminated at any time by mutual agreement, or by
either party by giving thirty days prior written notice. Either party
may terminate this Agreement for cause by giving written notice
provided that the party that is receiving the notice does not remedy
the cause within thirty (30) days. Upon payment by CLIENT of all
outstanding fees, CELERITY shall return all CLIENT-supplied materials
to CLIENT.
If this Agreement is terminated in accordance with the preceding
paragraph, and provided CLIENT has paid all fees due to CELERITY
hereunder and is in full compliance with this Agreement and with its
other contracts with CELERITY, CLIENT shall have the right to use the
results of the integration of the Licensed Software as have been
completed by CELERITY as of the termination date.
Celerity Solutions, Inc./ Software Licence Agreement #PSA980908-DDI
<PAGE>
3 Client Responsibilities
4.1 CLIENT Data: All CLIENT-supplied source materials, including data, programs
and supplies, must necessarily be machine processable and compatible with
CELERITY's equipment and techniques. The CLIENT agrees that CELERITY may examine
and/or test CLIENT materials at CLIENT's expense to determine processability and
compatibility with CELERITY's equipment and data processing techniques. If any
such materials are incorrect, incomplete, not machine processable or not
compatible with CELERITY's equipment or techniques, CLIENT agrees to pay
CELERITY at CELERITY's prevailing rates to perform the work necessary to prepare
such materials for utilization by CELERITY. In such an event, or in the event
CLIENT's materials are not received in accordance with agreed upon schedules,
CELERITY will exercise its best efforts in rescheduling CLIENT's work and CLIENT
agrees to extend schedule completion dates appropriately and pay for additional
expense, if any, incurred by CELERITY as a result.
If any CLIENT initiated changes to Exhibit A of this Agreement provides for the
development of a new program by CELERITY, CLIENT agrees, if requested by
CELERITY, to submit to CELERITY sufficient test data to test all aspects of such
program to establish satisfactory program performance prior to its utilization
for data processing hereunder. Such program testing and CLIENT's approval of the
test results will establish CLIENT's acceptance of the developed program,
subject to the performance requirements of Section 6 of this Agreement. CELERITY
may require such acceptance by CLIENT in writing as a condition of CELERITY's
further performance under this Agreement.
4.2 Liaison: CLIENT shall assign one or more Designated Representatives. Such
person(s) shall have the duty of acting as the point of contact with CELERITY
personnel to facilitate the expeditious execution of the work called for in
Exhibit A and any future CLIENT initiated changes to Exhibit A, attached hereto.
Such person shall be empowered to request modifications or alterations of the
services performed, in the form and using any procedures established by CLIENT ,
and shall also be the person to whom any communications relating to this
Agreement, its Exhibits, or the performance thereunder may be directed. CLIENT
may designate one or more replacement Designated Representatives at any time by
so notifying CELERITY in writing.
4.3 Solicitation Of Employees: CLIENT and CELERITY each acknowledge that it
would receive substantial value and that the other would be deprived of the
benefits of its work force if it were to solicit or hire the other party's
current employees and consultants or prior employees and consultants for a
period of 24 months from the last date that they worked for either party. CLIENT
and CELERITY further agree to notify each other immediately, upon solicitation
of the other's current and prior employees and consultants, to give the affected
party the opportunity to retain such employees and consultants. It is further
acknowledged that any breach of such terms or provisions of this Section 4.3
would result in injury to the non-breaching party that would be difficult or
impossible to accurately ascertain. Therefore, because of the impossibility of
ascertaining actual damages, it is agreed that in the event of a breach of any
provision of this section by either party, the breaching party will pay to the
other party with respect to each such breach the sum of seventy-five thousand
dollars ($75,000) as liquidated damages and not as a penalty. The parties agree
that the amount of liquidated damages specified herein represents a reasonable
approximation of the damages, which would be incurred as a result of a breach of
this Section.
4 CELERITY Responsibilities
5.1 CELERITY Personnel: CELERITY reserves the right to determine which of its or
its subcontractor's personnel shall be assigned to any particular project and to
replace or reassign such personnel during a project. CELERITY and CLIENT agree
that CLIENT shall have the right to exercise a veto over any and all replacement
personnel proposed by CELERITY, until mutually acceptable replacement personnel
have been identified. CLIENT assumes full responsibility for any impact on the
project schedule due to a personnel veto. CELERITY assumes responsibility for
compensating its personnel and subcontractors providing services hereunder and
will ensure that all deductions required of employers by state, federal and
local laws, including deductions for social security and withholding taxes, and
contributions for unemployment compensation funds, are made and that standard
workmen's compensation and liability insurance is obtained.
Each party to this Agreement is an independent contractor and not an agent,
servant, partner or joint venturer with the other party, for any purpose, and
neither party by virtue of this Agreement shall have any right, power or
authority to act or create any obligation, expressed or implied, on behalf of
the other party.
Celerity Solutions, Inc./ Software Licence Agreement #PSA980908-DDI
2
<PAGE>
5.2 Progress Reports: CELERITY shall submit written progress reports to CLIENT
not less frequently than once each two (2) calendar weeks during the first six
(6) months of the term of this Agreement, and after the expiration of said six
month period, as often as requested by CLIENT, but no more frequently than once
per calendar month. Each of such progress reports shall contain a section
describing the methodology used by CELERITY in estimating its costs and charges,
and comparing actual charges accrued by CELERITY with any previously developed
budget or estimate for such period. If CLIENT or CELERITY has specified an
estimate of payments to be made for the services to be rendered by CELERITY
under Exhibit A of this Agreement, and it becomes apparent during the
performance of such services that the cost of completion will exceed such
estimate, CELERITY shall so advise CLIENT as far in advance as possible. CLIENT
shall thereupon have ten days within which to request CELERITY in writing to
cease further work (provided that CLIENT shall remain fully liable to pay
CELERITY for work performed theretofore). If CLIENT does not make such a request
within the ten day period, CELERITY shall proceed to completion of the services.
5.3 Data Safeguards: All written information submitted by CLIENT to CELERITY in
connection with services performed by CELERITY under this Agreement which is
identified as proprietary information will be safeguarded by CELERITY to at
least the same extent as CELERITY safeguards like information relating to its
own business.
5 LIABILITY
6.1 Acceptance Testing: Acceptance Testing will be performed as specified in the
CLIENT's General Design Study document, Version 1.0, dated 7/15/98, on pages
1-40 and 1-41. CLIENT acknowledges that acceptance testing must be completed
promptly. At the conclusion of the acceptance test, CLIENT shall present to
CELERITY a complete list of any failures by the software to meet the acceptance
test. If the software does not pass the acceptance test, CELERITY shall correct
such deficiency promptly following consultation with CLIENT regarding the manner
in which the software fails the acceptance test. The time and expense charges
for such corrections shall be billed to CLIENT, excepting those cases wherein
the need for corrections arises from an inherent defect in the Licensed
Software, in which case the costs of any corrections shall be borne by CELERITY.
CLIENT shall be deemed to have accepted the software when the listed errors are
corrected and no new errors have been introduced as a result of such
corrections. Notwithstanding the foregoing, use of the software in a production
environment constitutes immediate acceptance.
6.2 Standard Of Care: CELERITY will perform all services required under this
Agreement in a manner consistent with generally accepted standards for the data
processing and allied services industry.
6.3 Warranty: CELERITY makes no warranties whatsoever, express or implied, oral
or written, including but not limited to implied warranties of merchantability
and fitness or adequacy for a particular purpose with respect to any
Professional Services performed by CELERITY pursuant to this Agreement.
CELERITY makes no warranty to any third parties concerning the services
performed hereunder. CELERITY does not authorize CLIENT to obligate CELERITY to
any third party in any manner.
6.4 Limitation Of Liability: CELERITY shall be liable for loss, destruction or
damage of CLIENT-supplied materials only if due to the negligence of CELERITY
and then only to the extent of restoring the lost, destroyed, or damaged
materials. CLIENT agrees to keep a copy of all materials provided to CELERITY
such that CELERITY will not at any time have the only existing copy of any
CLIENT-supplied information. CELERITY shall not be liable for failure to
provide, or delays in providing, services hereunder, if due to any cause beyond
CELERITY's reasonable control.
THE WARRANTIES IN THIS SECTION 6 ARE EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED WITH REGARD TO ANY GOODS OR SERVICES PROVIDED HEREUNDER,
INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR USE OR PURPOSE.
IN NO EVENT SHALL CELERITY BE LIABLE FOR ANY INDIRECT, SPECIAL OR EXEMPLARY OR
CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR ARISING OUT OF THE PERFORMANCE OF
SERVICES HEREUNDER OR THE USE OF THE SOFTWARE DEVELOPED OR MODIFIED PURSUANT TO
THIS AGREEMENT EVEN IF CELERITY HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH
DAMAGES. CELERITY'S TOTAL LIABILITY FOR ANY CLAIM BASED UPON THIS CONTRACT SHALL
BE LIMITED TO ONE-HALF OF THE AMOUNT OF FEES PAID BY CLIENT HEREUNDER, IN THE
NINE MONTHS PRIOR TO SUCH CLAIM.
6 PROPRIETARY RIGHTS
A complete set of all documentation developed by CELERITY pursuant to the
services performed hereunder shall be made available to CLIENT upon completion
or termination of the services performed hereunder, to be used by CLIENT on the
same terms and conditions as the Documentation provided under the Computer
Software License Agreement. All documentation, programs, specifications and
applications developed by CELERITY in connection with this Agreement are and
shall remain the sole property of CELERITY and CELERITY reserves the right to
use thereafter any ideas, techniques, or routines as may be developed during the
course of the services provided.
Celerity Solutions, Inc./ Software Licence Agreement #PSA980908-DDI
3
<PAGE>
Notwithstanding anything else to the contrary in this Agreement, CELERITY
acknowledges that the Licensed Software will be modified in the course of its
adaptation to CLIENT's business, and that the Licensed Software may therefore
contain elements which the CLIENT desires to keep confidential. Celerity
acknowledges the competitive nature of CLIENT's business and the competitive
advantage realized through implementation of the Licensed Software. As such,
CELERITY agrees not to provide the companies listed on Exhibit C, a license to
use the Licensed Software for at least a three (3) year period from the
Effective Date of this Agreement.
8. GENERAL
8.1 Assignment: This Agreement and the rights and obligations may not be
assigned, transferred, pledged or hypothecated in any manner by either of the
parties hereto, whether voluntarily or by operation of law, without the prior
written consent of the other party provided that either party may assign this
Agreement and its rights and obligations hereunder to a purchaser of all or
substantially all of its assets or pursuant to a merger or similar
reorganization.
8.2 Benefit: Except as herein expressly provided to the contrary, the provisions
of this Agreement are for the benefit of the parties hereto (and their
respective successors and permitted assigns) solely and not for the benefit of
any other person, persons or legal entities.
8.3 Waiver: Either party's failure to insist in any instance upon the strict
performance by the other of any of the terms of the Agreement shall not be
construed as a permanent waiver of such or of any of the other terms or
provisions hereof.
8.4 Notice: Except as otherwise provided herein, notice to a party hereto shall
be in writing and deemed to have been sufficiently given or served for all
purposes hereof if personally delivered or mailed by first class certified or
registered mail, return receipt requested, postage prepaid, or commercial
overnight delivery service, at the respective addresses set forth in the
preamble to this Agreement, or at such other address as the party to whom such
notice is directed may have designated by like notice in writing to the other
parties hereto. A notice shall be deemed to have been given when personally
delivered or, otherwise, on the earlier of (i) three (3) days after the date on
which it is deposited in the mails, or (ii) the date on which it is received.
8.5 Complete Agreement: This Agreement (including any Exhibits) contains the
entire understanding between CELERITY and CLIENT with respect to the subject
matter hereof, and supersedes and replaces any and all prior agreements,
negotiations, proposals, or representations regarding the subject matter hereof.
No modification, termination or waiver of any provision hereof shall be binding
upon a party unless made in writing and executed by an authorized officer of
such party. In the event CLIENT issues a purchase order, memorandum,
specifications or other instrument covering the Professional Services herein
provided, it is hereby specifically agreed and understood that such purchase
order, memorandum, specifications, or instrument is for CLIENT's internal
purposes only and any and all terms and conditions contained therein, whether
printed or written, shall be of no force or effect.
8.6 Authority: Each party represents that it has full power and authority to
enter into and perform this Agreement and that the person signing this Agreement
on its behalf has been properly authorized and empowered to enter into this
Agreement.
8.7 Construction: Section headings appearing in this Agreement are inserted for
convenience of reference only and shall not be construed to be interpretations
of text. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision hereof shall be prohibited by or invalid under any such
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating or nullifying the remainder of such provision
or any other provisions of this Agreement.
8.8 Force Majeure: Neither CELERITY nor CLIENT shall be responsible for failure
to fulfill its obligations under this Agreement due to acts of God, labor
dispute, war, insurrection, riot, nuclear disaster, fire, earthquakes or other
causes beyond its reasonable control.
8.9 Governing Law; Jurisdiction: This Agreement, including the validity hereof
and the rights and obligations of the parties hereunder, shall be construed in
accordance with and governed in all respects by the laws of the State of
Illinois. Each party hereto, to the extent that it may lawfully do so, hereby
consents to the jurisdiction of the courts of the State of Illinois as well as
to the jurisdiction of all courts from which an appeal may be taken from such
courts, for the purpose of any suit, action or other proceeding arising out of
any of its obligations hereunder or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any such courts. Each party further agrees that a summons and
complaint commencing an action or proceeding in any of such courts shall be
properly served and shall confer personal jurisdiction if served personally or
by certified mail to it at its addresses provided for in Section 8.5 of this
Agreement or as otherwise provided under the laws of the State of Illinois.
8.10 Mutual Indemnity: Each of the parties hereto agrees to save, indemify and
hold harmless the other, and each of its agents, servants, employees, officers,
directors, shareholders, affiliates, business invitees or consultants, from and
against all actions, claims, costs, damages, judgements, losses and suits,
including without exception, all reasonable costs of suit, including accounting
fees, attorney's fees or investigatory fees, arising from and in any way
connected with any intentional tort or act of gross negligence committed by such
party or by one or more of its agents, servants, employees, officers, directors,
shareholders, affiliates, business invitees or consultants.
Celerity Solutions, Inc./ Software Licence Agreement #PSA980908-DDI
4
<PAGE>
8.11 Prevailing Party: If either party hereto institutes any action or
proceeding in court in order to enforce any of the provisions hereof, or any
action for damages by reason of any alleged breach of any provision hereof,
then, as between the two parties, the prevailing party in any such action or
proceeding shall be entitled to receive from the losing party its reasonable
litigation costs or expenses, including but not limited to, such amount as the
court may adjudge as reasonable attorney's fees. For purposes of this section,
the term "prevailing party" shall mean the party whose original request for
relief most nearly approximates the final outcome of the action, including any
settlement thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
CELERITY SOLUTIONS, Inc. DISTRIBUTION DYNAMICS, Inc.
By: /s/ Luda Kopeikina By: /s/ Larry DelSanto
------------------------- ----------------------------
Name: Luda Kopeikina Name: Larry DelSanto
------------------------- ----------------------------
Title: CEO Title: President/ CEO
------------------------- ----------------------------
Date: 9/30/98 Date: September 30, 1998
Celerity Solutions, Inc./ Software Licence Agreement #PSA980908-DDI
5
<PAGE>
CELERITY SOLUTIONS, Inc.
Professional Services Agreement
Exhibit A
Description of Professional Services
Distribution Dynamics, Inc.
Description of Professional Services:
CELERITY will provide CLIENT with management, consulting, analysis and design,
installation, development and/or enhancement of computer programs, and testing
services related to the implementation of the CELERITY Continuum and WMS
software at CLIENT as outlined in the Functional and Enhancement Narratives of
the Distribution Dynamics General Design Study, Version 1.0 dated July 15th,
1998.
Celerity Solutions, Inc. Distribution Dynamics, Inc.
(CELERITY) (CLIENT)
By: /s/ L. Kopeikina By: /s/ Larry DelSanto
Name: Luda Kopeikina Name: Larry DelSanto
Title: President / CEO Title: President/ CEO
Date: September 30, 1998 Date: September 30, 1998
Celerity Solutions, Inc./Professional Services Agreement #PSA980908-DDI
1
<PAGE>
CELERITY SOLUTIONS, Inc.
Professional Services Agreement
Exhibit B
Description of Professional Service Fees
Distribution Dynamics, Inc.
Time and Materials Fees:
o CELERITY Professional Services will be billed at:
o Flat Rate $135/hour
o Once monthly, CELERITY will bill CLIENT for the actual hours worked that
period per the time and materials rate described above
o Client will pay CELERITY for all out-of-pocket expenses incurred by
CELERITY in connection with the Professional Services performed under this
Agreement. These expenses will be billed monthly by CELERITY
o CLIENT agrees to pay CELERITY upon receipt of an invoice
Celerity Solutions, Inc. Distribution Dynamics, Inc.
(CELERITY) (CLIENT)
By: /s/ L. Kopeikina By: /s/ Larry DelSanto
Name: Luda Kopeikina Name: Larry DelSanto
Title: President / CEO Title: President/ CEO
Date: September 30, 1998 Date: September 30, 1998
Celerity Solutions, Inc./Professional Services Agreement #PSA980908-DDI
2
<PAGE>
CELERITY SOLUTIONS, Inc.
Professional Services Agreement
Exhibit C
Competitors List
Distribution Dynamics, Inc.
This attachment to Exhibit 10.56 has not been included pursuant to the Company's
request for confidential treatment, pursuant to the Freedom of Information Act
Rule 17CFR Section 200.83.
Celerity Solutions, Inc./Professional Services Agreement #PSA980908-DDI
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 FOUND ON
PAGES 3-5 OF THE COMPANY'S FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,345,740
<SECURITIES> 520,334
<RECEIVABLES> 3,274,044
<ALLOWANCES> (136,280)
<INVENTORY> 0
<CURRENT-ASSETS> 5,522,874
<PP&E> 1,437,250
<DEPRECIATION> (855,336)
<TOTAL-ASSETS> 8,033,989
<CURRENT-LIABILITIES> 3,452,474
<BONDS> 0
0
0
<COMMON> 884,289
<OTHER-SE> 18,900,290
<TOTAL-LIABILITY-AND-EQUITY> 8,033,989
<SALES> 1,020,481
<TOTAL-REVENUES> 6,435,979
<CGS> 868,277
<TOTAL-COSTS> 3,950,213
<OTHER-EXPENSES> 2,777,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124,450
<INCOME-PRETAX> (328,306)
<INCOME-TAX> (53,000)
<INCOME-CONTINUING> (275,306)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (275,306)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
