<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-53867
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
4FRONT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 840675510
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
5650 GREENWOOD PLAZA
SUITE 107
ENGLEWOOD, COLORADO 80111
(303) 721-7341
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
CRAIG KLEINMAN
5650 GREENWOOD PLAZA
SUITE 107
ENGLEWOOD, COLORADO 80111
(303) 721-7341
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
PAUL JACOBS, ESQ. DAVID AYRES, ESQ.
GREGG BERMAN, ESQ. ERIC DOERING, ESQ.
FULBRIGHT & JAWORSKI L.L.P. BROBECK HALE AND DORR
666 FIFTH AVENUE INTERNATIONAL
NEW YORK, NEW YORK 10103 HASILWOOD HOUSE
(212) 318-3000 60 BISHOPGATE
LONDON EC2N 4AJ ENGLAND
+44-171-638-6688
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the offering. / /________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT OF SHARES PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE (2) PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share 4,600,000 $12.81 $58,926,000 $17,383.17(3)
</TABLE>
(1) Includes 600,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Pursuant to Rule 457(c), the proposed maximum offering price per share and
the proposed maximum aggregate offering price have been calculated on the
basis of the average of the high and low sale prices of the Common Stock as
reported by the Nasdaq National Market on May 26, 1998.
(3) Previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 5, 1998
PROSPECTUS
4,000,000 SHARES
[LOGO]
4FRONT TECHNOLOGIES, INC.
COMMON STOCK
Of the 4,000,000 shares of Common Stock offered hereby, 3,200,000 shares are
being offered initially in the United States and Canada by the U.S. Underwriters
(the "U.S. Offering") and 800,000 shares are being offered initially outside the
United States and Canada in a concurrent offering by the International Managers
(the "International Offering.") The U.S. Offering and the International Offering
are sometimes referred to collectively as the "Offering." The initial public
offering price and the aggregate underwriting discount will be identical for
both offerings. See "Underwriting."
Of the 4,000,000 shares of Common Stock offered hereby, 3,433,992 shares are
being offered by the Company and 566,008 shares are being offered by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the Common Stock by the Selling Stockholders except for the receipt of
approximately $1.9 million from the exercise of certain options and warrants by
the Selling Stockholders. See "Principal and Selling Stockholders." The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
FFTI. On June 4, 1998, the last reported sale price of the Common Stock was
$12 1/4 per share. See "Price Range of Common Stock." Application has been made
to approve the Common Stock for quotation on EASDAQ under the symbol FFTI.
--------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total (3).................. $ $ $ $
</TABLE>
(1) See "Underwriting" for indemnification agreements with the U.S. Underwriters
and the International Managers (together, "Underwriters.")
(2) Before deducting estimated expenses of the offering payable by the Company
estimated at $850,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 600,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting."
--------------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998 at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
FAC/EQUITIES
WHEAT FIRST UNION
KAUFMAN BROS., L.P.
----------------
CO-MANAGERS AND MARKET MAKERS ON EASDAQ
HAMBRECHT & QUIST EUROMARKETS
PANMURE GORDON & CO. LIMITED
, 1998
<PAGE>
[PHOTO PAGE]
4FRONT TECHNOLOGIES, INC.
HARDWARE MAINTENANCE
FULL ON-SITE MAINTENANCE AND SUPPORT SERVICES
HELP DESK SERVICES
HELP DESK SERVICES FOR CORPORATE AND RETAIL USERS IN THE UK AND EUROPE.
NETWORK SOLUTIONS
ENTERPRISE-WIDE NETWORK COMPUTING AND REMOTE ACCESS SOLUTIONS.
MANAGED SERVICES
MANAGED SERVICES FOR CORPORATE USERS THROUGHT THE UK AND EUROPE.
SOFTWARE SOLUTIONS
TAILORED MANAGEMENT INFORMATION SYSTEMS
STORAGE SYSTEMS AND PRODUCTS
SUPPLYING HIGH-CAPACITY STORAGE SOLUTIONS TO CORPORATE USERS.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, ON EASDAQ OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company, any Selling Stockholder or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Common Stock offered
hereby to any person in any jurisdiction in which it is unlawful to make such an
offer or solicitation to such person. Neither the delivery of the Prospectus nor
any sale made hereby shall under any circumstances imply that the information
herein is correct as of any date subsequent to the date hereof.
------------------------------
In addition to tradenames of the Company, this Prospectus also includes
product names and trademarks and other trade names of other organizations.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING INFORMATION UNDER "RISK FACTORS" AND CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK
FACTORS." UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES
THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE FROM THE COMPANY UP TO
600,000 ADDITIONAL SHARES OF COMMON STOCK WILL NOT BE EXERCISED. THE COMPANY
CONDUCTS OPERATIONS IN BRITISH POUNDS STERLING. FOR FINANCIAL REPORTING
PURPOSES, BRITISH POUNDS ARE CONVERTED INTO U.S. DOLLARS AT THE PREVAILING RATE
AS OF THE DATE OR AT THE WEIGHTED AVERAGE FOR THE PERIOD COVERED. UNLESS
SPECIFICALLY STATED OTHERWISE HEREIN, ALL CONVERSIONS OF BRITISH POUNDS INTO
U.S. DOLLARS REFERENCED IN THIS PROSPECTUS HAVE BEEN CONVERTED USING A
CONVERSION RATE OF 1.670 AND 1.631 DOLLARS PER POUND IN RESPECT OF OPERATIONS
DURING THE THREE MONTHS ENDED APRIL 30, 1998 AND 1997, RESPECTIVELY, AND 1.643,
1.607 AND 1.575 DOLLARS PER POUND IN RESPECT OF OPERATIONS DURING THE YEARS
ENDED JANUARY 31, 1998, 1997 AND 1996, RESPECTIVELY, AND AT A RATE OF 1.671,
1.633, 1.602 AND 1.511 DOLLARS PER POUND IN RESPECT OF THE APRIL 30, 1998,
JANUARY 31, 1998, 1997 AND 1996 BALANCE SHEETS. REFERENCES IN THIS PROSPECTUS TO
A FISCAL YEAR OF THE COMPANY REFER TO THE 12-MONTH PERIOD ENDING OR ENDED ON
JANUARY 31 OF THAT YEAR. THEREFORE, FISCAL 1998 REFERS TO THE 12-MONTH PERIOD
ENDED JANUARY 31, 1998.
THE COMPANY
4Front Technologies, Inc. ("4Front" or the "Company") is a leading provider
of information technology ("IT") solutions, which consist of specialized
computer services and complementary products, primarily to blue chip
corporations and government authorities in the United Kingdom ("UK") and, to a
growing extent, in Continental Europe. 4Front's solutions include hardware
maintenance, help desk support, network services, specialized software services
and products and the supply of high-end storage systems. 4Front's customers
include British Petroleum, British Telecom, Computer Sciences Corporation,
Dupont, IBM, JP Morgan, NatWest Capital Markets, Pfizer, Reuters and the UK
Ministry of Defence.
Accelerating technological advancement, migration of organizations toward
multivendor distributed networks, and increased globalization of corporate
activity have contributed to a significant increase in the sophistication and
interdependency of corporate computing systems. The Company believes that the
desire by corporations to focus upon their core activities while enjoying the
benefits of such multivendor distributed networks, together with increasing
skill shortages within the IT industry, have led them increasingly to rely upon
specialist outsourcing service organizations such as the Company to support the
development and maintenance of their IT systems.
The UK computer services market, the fastest growing in Europe, is currently
estimated at $18 billion annually, according to the 1997 Holway Report on
Software and Computing Services in Europe (the "Holway Report"). The UK market
grew by an estimated 19% between 1996 and 1997. The Western European computer
services market is currently estimated at $110 billion, according to the Holway
Report. This market grew by an estimated 13% between 1996 and 1997. Both the UK
and the Western European computer services markets remain highly fragmented,
with no single company serving more than 6% of the respective markets.
The Company's objective is to leverage its position in the UK to become a
leading independent provider of IT solutions in Europe. The key elements of the
Company's strategy are to (i) leverage and promote the "4Front" brand, (ii)
increase client penetration, (iii) further expand the range of services and
products offered, (iv) continue to build the Company's market position in
Continental Europe and (v) pursue strategic acquisitions and alliances.
The Company's principal corporate offices are located at 5650 Greenwood
Plaza Blvd., Suite 107, Englewood, Colorado 80111, telephone (303) 721-7341. The
Company's principal operational offices are located at 57A Hatton Garden,
London, EC1N 8JD, England, telephone +44-171-269-5800.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company............................................... 3,433,992 shares
The Selling Stockholders.................................. 566,008 shares
Total................................................. 4,000,000 shares
Common Stock offered for sale in:
United States offering.................................... 3,200,000 shares
International offering.................................... 800,000 shares
Total................................................. 4,000,000 shares
Common Stock to be outstanding after the Offering........... 11,019,317 shares(1)
Use of proceeds............................................. Repayment of certain
indebtedness and for working
capital and general corporate
purposes, including potential
strategic acquisitions.
Nasdaq National Market Symbol............................... FFTI
Proposed EASDAQ Symbol...................................... FFTI
</TABLE>
- ------------------------
(1) Excludes 2,003,840 shares of Common Stock subject to outstanding stock
options, exercisable at an average exercise price of $5.22 per share, and
979,457 shares of Common Stock, subject to outstanding warrants, exercisable
at an average exercise price of $6.63 per share. Does not include 50,410
shares of Common Stock reserved for issuance upon the exercise of options.
See "Management--Stock Options" and "--Stock Options and Benefit Plans."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED JANUARY 31, APRIL 30,
----------------------------------------------------- --------------------
1994 1995 1996(2) 1997(3) 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA (1):
Revenues:
Services......................................... $ 1,986 $ 4,571 $ 7,869 $ 19,032 $ 45,302 $ 8,196 $ 16,437
Products......................................... 851 6,669 24,380 33,983 38,843 10,428 10,267
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................... 2,837 11,240 32,249 53,015 84,145 18,624 26,704
--------- --------- --------- --------- --------- --------- ---------
Gross Profit:
Services......................................... 1,341 2,669 4,979 12,391 22,761 4,048 8,808
Products......................................... 215 1,757 5,707 4,606 6,722 1,547 1,733
--------- --------- --------- --------- --------- --------- ---------
Total gross profit............................. 1,556 4,426 10,686 16,997 29,483 5,595 10,541
--------- --------- --------- --------- --------- --------- ---------
Selling, general and administrative................ 1,117 3,565 9,567 13,792 22,796 4,355 8,004
Depreciation and amortization...................... 63 216 560 976 2,213 406 716
Net income (loss).................................. $ 304 $ 355 $ (652) $ (2,344) $ 3,069 $ 631 $ 1,092
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share (Basic)................ $ 0.25 $ 0.20 $ (0.24) $ (0.45) $ 0.47 $ 0.10 $ 0.15
Net income (loss) per share (Diluted).............. $ 0.25 $ 0.20 $ (0.24) $ (0.45) $ 0.43 $ 0.09 $ 0.13
Weighted average number of shares:
Basic............................................ 1,198 1,813 2,743 5,170 6,589 6,515 7,060
Diluted.......................................... 1,198 1,813 2,743 5,683 7,129 6,696 8,653
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1998
--------------------------
AS
ACTUAL ADJUSTED(4)
----------- -------------
<S> <C> <C>
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Current assets.......................................................... $ 40,403 $ 73,871
Current liabilities..................................................... 38,162 30,962
Total assets............................................................ 62,424 95,892
Long-term debt (including capital lease obligations).................... 487 487
Total stockholders' equity.............................................. $ 23,008 $ 63,676
</TABLE>
- ------------------------
(1) The Company has grown substantially through acquisitions which materially
affect the comparability of the financial data reflected herein. The Summary
Consolidated Financial Information includes the results of operations of
businesses which were acquired effective January 1994, November 1994, April
1995, August 1996, October 1996, September 1997 and October 1997, and which
were accounted for under the purchase method of accounting. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
(2) In fiscal 1996, the Company incurred the share of a joint venture's loss of
$761.
(3) In fiscal 1997, the Company incurred (i) a non-recurring charge of $2,286
which related to the Company's reorganization and restructuring of its
maintenance support services business, including reduction of employee
headcount, (ii) a write down of goodwill of $552 relating to the loss of
certain contracts by an acquired company and (iii) the write down of an
investment in a joint venture partner of $500 and the share of a joint
venture's loss of $799.
(4) Adjusted to give effect to the sale of 3,433,992 shares of Common Stock by
the Company hereby at an assumed public offering price of $12 1/4 per share
and the application of the net proceeds therefrom and from the exercise of
certain options and warrants by the Selling Stockholders, after deducting
the estimated underwriting discount and offering expenses payable by the
Company. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS,
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE
PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), THAT INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING
STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH BELOW AND UNDER "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS," AS WELL AS IN THIS PROSPECTUS GENERALLY. WITHOUT LIMITING THE
FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-
LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN
THE FOLLOWING RISK FACTORS. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE
MADE AS OF THE DATE OF THIS PROSPECTUS AND THE COMPANY ASSUMES NO OBLIGATION TO
UPDATE SUCH FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS WHY ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS.
FUTURE OPERATING RESULTS UNCERTAIN. Although the Company had net income of
$304,000 and $355,000 in the fiscal years ended January 31, 1994 and 1995,
respectively, and net income of $3,069,000 in the fiscal year ended January 31,
1998, the Company had a net loss of $652,000 in the fiscal year ended January
31, 1996, primarily due to write-downs relating to capitalized software
development costs and the Company's investment in the ActionTrac International
partnership, and a net loss of $2,344,000 in the fiscal year ended January 31,
1997, primarily due to the write-down of goodwill in connection with
acquisitions, reorganization costs and the write-down of the Company's
investment in the ActionTrac International partnership. As of April 30, 1998,
the Company had an accumulated deficit of approximately $2.1 million. The
revenue growth rates and profitability experienced by the Company in recent
periods may not be indicative of its future growth and profitability and there
can be no assurances that the Company will remain profitable. The Company plans
to continue to expand its level of operations, resulting in increased fixed
costs and operating expenses. The Company's operating results and net income
will be adversely affected to the extent that net sales and gross profits do not
increase sufficiently to offset such increased expenses, of which there can be
no assurance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
FLUCTUATIONS IN QUARTERLY AND ANNUAL OPERATING RESULTS. The Company's
quarterly and annual operating results have in the past varied and may in the
future vary significantly depending on factors such as the effect of Company
acquisitions, the size, timing and recognition of revenue from significant
orders, increased competition, the timing of new product releases by the Company
and its competitors, market acceptance of the Company's products, changes in the
Company's and its competitors' pricing policies, budgeting cycles of its
customers, changes in operating expenses, changes in Company strategy, personnel
changes, foreign currency exchange rates, changes in the outlook for new
products and services and general economic factors. In addition, because the
gross margins of the Company's services and products have varied in the past and
may vary in the future both among themselves and over time, changes in the
revenue mix from services and products may affect quarterly operating results.
The Company therefore believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and that such comparisons should
not be relied upon as indications of future performance. Further, it is possible
that in some future quarter the Company's revenue or operating results will be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock could be materially adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
GROWTH STRATEGY; ACQUISITION OF COMPLEMENTARY BUSINESSES. A significant
component of the Company's growth strategy depends on the Company's ability to
acquire complementary businesses. The Company faces increasing competition from
other potential purchasers when seeking to acquire computer services companies.
Although the Company has been successful in acquiring computer services
companies, there can be no assurance that suitable additional acquisitions can
be identified, consummated or successfully integrated into
6
<PAGE>
the Company's operations. The Company has used a combination of cash and Common
Stock for acquisitions. In the event that potential acquisition candidates are
unwilling to accept the Company's securities as consideration, the Company will
be required to use more cash resources to continue its acquisition program. In
addition, if sufficient financing is not available as needed on terms acceptable
to the Company, the Company's acquisition program could be adversely affected.
INTEGRATION OF NEW ACQUISITIONS; ABILITY TO MANAGE GROWTH. As a result of
both acquisitions and internal growth, the Company has recently experienced a
period of rapid growth and expansion. The Company's growth and expansion has
placed, and could continue to place, a significant strain on the Company's
personnel and other resources. The Company expects to continue to grow primarily
by the acquisition of service companies which are complementary to the Company's
existing business operations. See "--Growth Strategy; Acquisition of
Complementary Businesses." Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations of the acquired companies,
the diversion of management's attention from other business concerns, risks of
entering markets in which the Company has limited or no direct experience and
the potential loss of key employees of the acquired companies. There can be no
assurance that any acquisition will result in long-term benefits to the Company
or that the Company's management will be able to effectively manage the
resulting businesses. In addition, the Company's future success will depend in
part on its ability to manage potentially rapid growth as it makes additional
acquisitions. To accommodate this recent growth and to compete effectively and
manage future growth, if any, the Company will be required to continue to
implement and improve its operational, financial and management information
systems, procedures and controls on a timely basis and to expand, train,
motivate and manage its workforce. There can be no assurance that the Company's
personnel, systems, procedures and controls will be adequate to support the
Company's existing and future operations. The failure to implement and improve
the Company's operational, financial and management systems or to expand, train,
motivate or manage employees could have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company's recent growth can be sustained. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Strategy."
ABILITY TO RESPOND TO TECHNOLOGICAL CHANGE. The market for computer systems
and products is characterized by constant technological change, frequent new
product introductions and evolving industry standards. The Company's future
success is dependent upon the continuation of a number of trends in the computer
industry, including the migration by IT end-users to multivendor and multisystem
computing environments, the overall increase in the sophistication and
interdependency of computing technology, and a focus by IT managers on
cost-efficient management. The Company believes these trends have resulted in a
movement by both end-users and original equipment manufacturers toward
outsourcing and an increased demand for product and support services providers
that have the ability to provide a broad range of multivendor product and
support services. There can be no assurance these trends will continue into the
future. Any failure by the Company to anticipate or respond adequately to
technological developments and customer requirements could have a material
adverse effect on the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to achieve
these objectives.
COMPETITION; LIMITED BARRIERS TO ENTRY. The computer services industry is
intensely competitive and is composed of literally hundreds of companies, many
of which have capital, marketing expertise and personnel resources far superior
to that of the Company. There can be no assurance that the Company will be able
to compete successfully in the future or that competitive pressures will not
result in price reductions or other developments in the Company's market which
could have a material adverse effect on the Company. See
"Business--Competition." In addition, barriers to entry in the markets in which
the Company operates are limited, and there can be no assurance that existing or
new competitors will not develop products or provide services that are superior
to the Company's products or services or achieve greater market acceptance.
EXPANSION OF OPERATIONS WITHIN EUROPE. The Company has recently expanded
its geographic market beyond the UK by selling its products and services in
Europe and, as of April 30, 1998, generated approximately
7
<PAGE>
6% of its revenue from Continental Europe. The Company's operations within
Europe are subject to additional risks associated with international operations
such as increased difficulties in protecting intellectual property and
application of the rules and regulations of additional jurisdictions. The
Company seeks, where appropriate, to enter into relationships with local
partners as a way of mitigating the risks of operating in these additional
countries. There can be no assurance, however, of the Company's ability to
identify prospective local partners or to otherwise overcome the risks
associated with geographic expansion.
DEPENDENCE ON AVAILABILITY, RECRUITMENT AND RETENTION OF TECHNICAL
PERSONNEL. The Company depends upon its ability to attract, hire and retain
technical personnel who possess the skills and experience necessary to meet the
Company's own personnel needs and the staffing requirements of its clients.
Competition for individuals with proven technical skills is intense. The IT
industry in general experiences a high rate of attrition of such personnel. The
Company competes for such individuals with systems integrators, providers of
outsourcing services, temporary personnel agencies, computer systems
consultants, clients and potential clients. Many large competitors have recently
announced extensive campaigns to hire additional technical personnel.
Competition for quality technical personnel has continued to intensify,
resulting in increased personnel costs for many IT service providers. Failure to
attract and retain sufficient technical personnel would have a material adverse
effect on the Company's business, operating results and financial condition.
FOREIGN EXCHANGE AND RELATED RISKS. The Company markets its products to
European and other foreign countries but conducts its business primarily in
pounds sterling. The purchase prices received by the Company for its products
will be affected by the foreign exchange rates for pounds sterling relative to
the foreign currency. Changes in the exchange rates between pounds sterling (in
which the Company's business is conducted) and U.S. dollars (in which the
Company's financial statements are presented) may significantly affect the
results of operations and other financial information concerning the Company as
presented in the Company's financial statements. The Company monitors exchange
rate fluctuations between the pound sterling (in which form approximately 95% of
the Company's revenues are received) and U.S. dollars (which are used for
approximately 30% of the Company's purchases) and will seek to minimize the risk
of such fluctuations when deemed appropriate by entering into hedge transactions
in which dollars are bought forward to match obligations as they come due. As
the Company's business continues to expand into Europe, to the extent its sales
are denominated in currencies other than the pound sterling or U.S. dollar, the
Company will be required to adopt similar procedures to protect itself against
risks of currency fluctuations.
FOREIGN TAX RATES. The Company is subject to taxation in a number of
different jurisdictions, including the U.S., the UK, France and Belgium and, if
the Company is successful in further expanding its market in Europe, it may
become subject to taxation in additional jurisdictions. See "--Expansion of
Operations within Europe." In addition, transactions among the Company and its
foreign subsidiaries may become subject to U.S. and foreign withholding taxes.
Applicable tax rates in foreign jurisdictions differ from those of the U.S. and
are subject to periodic change. The extent, if any, to which the Company will
receive credit in the U.S. for taxes paid in foreign jurisdictions will depend
upon the application of limitations set forth in the Internal Revenue Code of
1986, as amended, as well as provisions of any tax treaties which may exist
between the U.S. and such foreign jurisdiction.
INTELLECTUAL PROPERTY. Certain of the Company's operations are dependent in
part upon their software development methodology and other proprietary
intellectual property rights. The Company relies upon a combination of trade
secret, nondisclosure and other contractual arrangements, technical measures and
copyright and trademark laws to protect its proprietary rights. The Company
holds no patents or registered copyrights. The Company generally enters into
confidentiality agreements with its employees, consultants, clients and
potential clients and limits access to and distribution of its proprietary
information. There can be no assurance that the steps taken by the Company in
that regard will be adequate to deter misappropriation of its proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights. In addition,
although the Company believes that its services and
8
<PAGE>
products do not infringe on the intellectual property rights of others, there
can be no assurance that such a claim will not be asserted against the Company
in the future.
RISKS CONCERNING YEAR 2000. The Year 2000 problem concerns the inability of
certain computer systems to appropriately recognize the year 2000 when the last
two digits of the year are entered in the date field. The Company has assessed
its Year 2000 requirements and believes it will have to spend approximately
$400,000 in the aggregate during fiscal 1999 and fiscal 2000 to make its major
computer systems and some non-critical programs Year 2000 compliant. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000." The Company, however, could be adversely affected by
the Year 2000 problem if computer systems of third parties such as banks,
suppliers and others with which the Company does business fail to address the
Year 2000 problem successfully. There can be no assurance that the Year 2000
problem, if experienced by such third parties, will not have a material adverse
effect upon the Company's business, operating results and financial condition.
Many companies may need to modify or upgrade their information systems to
address the Year 2000 problem. The effects of this issue and of the efforts by
other companies to address it are unclear. The Company believes that the
purchasing patterns of customers and prospective customers might be affected by
Year 2000 issues. Many companies are expending significant resources to correct
their current software systems for Year 2000 compliance. These expenditures
might result in reduced funds available to purchase IT services and products
such as those offered by the Company.
DEPENDENCE ON CONTINUED AUTHORIZATION TO RESELL AND PROVIDE
MANUFACTURER-AUTHORIZED SERVICES. The Company's future success with IT services
and products sales depends in part on its continued authorization as a service
provider and its continued status as a certified reseller of certain hardware
and software products. Without such sales and service authorizations, the
Company would be unable to provide the range of services and products currently
offered by the Company. In general, the agreements between the Company and such
manufacturers include termination provisions, some of which are immediate. There
can be no assurance that such manufacturers will continue to authorize the
Company as an approved reseller or service provider, and the loss of one or more
of such authorizations could have a material adverse effect on the Company's
business, operating results or financial condition.
DEPENDENCE ON SUPPLIERS. Although the Company has not experienced
significant problems with its suppliers of hardware, software and peripherals,
there can be no assurance that such relationships will continue or that, in the
event of a termination of its relationships with any given supplier, it would be
able to obtain alternative sources of supply without a material disruption in
the Company's ability to provide products and services to its clients.
Furthermore, as is typical in the industry, the Company receives credits or
allowances from many manufacturers for market development which are used to
offset a portion of the Company's cost of products sold. Changes in the
availability, structure or timing of these credits or allowances or any material
disruption in the Company's supply of products could have a material adverse
effect on the Company's business, operating results or financial condition.
PROJECT RISKS. The nature of the Company's engagements exposes the Company
to a variety of risks. Many of the Company's engagements involve projects that
are critical to the operations of its clients' businesses. The Company's failure
or inability to meet a client's expectations in the performance of its services
or to do so in the time frame required by such client could result in a claim
for substantial damages against the Company, regardless of whether the Company
was responsible for such failure. Service providers, such as the Company, are in
the business of employing people and placing them in the workplace of other
businesses. Therefore, the Company is also exposed to liability with respect to
actions taken by its employees while on assignment, such as damages caused by
employee errors and omissions, misuse of client proprietary information,
misappropriation of funds, discrimination and harassment, theft of client
property, other criminal activity or torts and other claims. Although the
Company maintains general liability insurance coverage, there can be no
assurance that such coverage will continue to be available on reasonable terms
or in sufficient amounts to cover one or more large claims, or that the insurer
will not disclaim coverage as to any future claim. The successful assertion of
one or
9
<PAGE>
more large claims against the Company that exceed available insurance coverage
or changes in the Company's insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could have a
material adverse effect on the Company's business, operating results and
financial condition.
In addition, the Company has a number of fixed price contracts. If the
Company experiences cost overruns and it is not able to pass along such cost
overruns to its clients, the Company's business, operating results and financial
condition could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL. The Company's continued success will depend to
a significant extent upon its senior management, including Anil Doshi, the
Company's Chairman of the Board and Chief Executive Officer, and Mark Ellis, its
Vice Chairman and President. The loss of the services of one or more key
employees could have a material adverse effect on the Company's business,
financial condition or operating results. In addition, although the Company has
employment agreements with its key employees which contain non-solicitation
provisions, if one or more key employees join a competitor or form a competing
company, the resulting loss of existing or potential clients could have a
material adverse effect on the Company's business, financial condition or
operating results. In the event of the loss of any key employee, there can be no
assurance that the Company would be able to prevent the unauthorized disclosure
or use of its procedures, practices, new product development or client lists.
See "Management--Employment Arrangements."
CONCENTRATED OPERATIONS; PROPERTY DAMAGE. The Company operates primarily
out of its facilities located in Brighton, London, Newbury, Ruislip and Watford,
England and the remainder of its operations take place at the Company's other
facilities in England and in Belgium and France. The Company currently maintains
property damage insurance aggregating approximately $18 million covering its
inventory, furniture, equipment, machinery and buildings and business
interruption insurance in the aggregate of approximately $56 million for losses
relating to its facilities. Material damage to, or the loss of, the Company's
facilities due to fire, severe weather, flood or other acts of God, even if
insured against, would have a material adverse effect on the Company's business,
results of operations and financial condition.
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS. The Company currently has
no specific plan for the majority of the proceeds of this Offering. See "Use of
Proceeds." Accordingly, management will have broad discretion in the use of such
proceeds. In addition, the Company's intended uses of the net proceeds of this
Offering are estimates only and there could be significant variation in the use
of proceeds due to changes in business, technology or the economy.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION,
BY-LAWS AND DELAWARE LAW. The Company's Board of Directors has authority to
issue up to 5,000,000 shares of undesignated Preferred Stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
and conversion rights of such shares, without any further vote or action by the
Company's stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. The Company
has no current plans to issue shares of Preferred Stock following this Offering.
Further, certain provisions of the Company's Certificate of Incorporation and
Bylaws and of Delaware law could delay, prevent or make more difficult a merger,
tender offer or proxy contest involving the Company. Among other things, these
provisions: (i) permit directors to be removed only for cause and (ii) specify
advance notice requirements for stockholder proposals and director nominations.
DIVIDEND POLICY. The Company currently intends to retain earnings to
support its growth strategy and does not anticipate paying dividends on its
Common Stock in the foreseeable future. See "Dividend Policy."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,433,992 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $12 1/4 per share are estimated to be $38.8 million, after deducting the
estimated underwriting discount and offering expenses payable by the Company.
The Company will not receive any proceeds from the sale of the 566,008 shares of
Common Stock offered by the Selling Stockholders hereby except that the Company
will receive approximately $1.9 million from the exercise of certain options and
warrants by the Selling Stockholders.
The Company intends to use approximately $7.2 million of the net proceeds to
repay its outstanding indebtedness, which aggregated approximately $7.2 million
on June 4, 1998. The indebtedness to be repaid consists of approximately: $2.6
million outstanding under the Company's revolving line of credit with Barclays
Bank; $1.0 million owed by the Company's French subsidiary under revolving
credit facilities; and $3.6 million owed by the Company to a UK factoring
company. The Company's UK revolving line of credit bore interest at 10% per
annum as of April 30, 1998 and at 9% per annum as of June 4, 1998. The Company's
French subsidiary's credit facilities bore interest at rates of between 4.55%
and 9.15% per annum as of April 30, 1998. Pursuant to the Company's arrangement
with a UK factoring company, the Company borrows against eligible trade
receivables for an administrative fee of 0.075% of eligible trade receivables.
The facility bore interest at 9% per annum as of April 30, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."
The remainder of the net proceeds of this Offering, estimated to be $33.5
million, will be used for general corporate purposes, including for strategic
acquisitions. The Company is not currently in discussions to make any material
acquisition and there can be no assurance that the Company will be able to
identify and consummate suitable additional acquisitions. Pending such uses, the
net proceeds will be invested in short-term, investment grade, interest-bearing
securities.
DIVIDEND POLICY
4Front has never declared or paid any dividends on its Common Stock. The
Company currently anticipates that all future earnings will be retained by the
Company to support its growth strategy. Accordingly, 4Front does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. The payment
of any future dividends will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, future earnings, operations,
capital requirements, the general financial condition of the Company,
contractual restrictions and general business conditions.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
FFTI. From January 3, 1996 to June 15, 1996, the Common Stock was traded on the
Nasdaq SmallCap Market. The following table sets forth for the periods indicated
the high and low reported sale prices per share for the Common Stock as reported
by the Nasdaq National Market since June 16, 1996 and the Nasdaq SmallCap Market
prior thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, 1996 HIGH LOW
- -------------------- ------- -------
<S> <C> <C>
First Quarter....... $ 6 7/8 $ 3 1/8
Second Quarter...... $ 8 1/2 $ 4 1/4
Third Quarter....... $ 6 1/2 $ 3 1/4
Fourth Quarter...... $ 5 $ 3
<CAPTION>
YEAR ENDED DECEMBER
31, 1997 HIGH LOW
- -------------------- ------- -------
<S> <C> <C>
First Quarter....... $ 4 3/8 $ 2 3/4
Second Quarter...... $ 5 3/8 $ 2 5/8
Third Quarter....... $ 6 15/16 $ 3 5/8
Fourth Quarter...... $12 3/4 $ 5 3/8
<CAPTION>
YEAR ENDED DECEMBER
31, 1998 HIGH LOW
- -------------------- ------- -------
<S> <C> <C>
First Quarter....... $11 7/8 $ 6 5/8
Second Quarter
(through June 4,
1998)............. $14 7/8 $10 3/8
</TABLE>
The number of stockholders of record of Common Stock on June 4, 1998 was
approximately 1,500. On
June 4, 1998, the last reported sale price of the Common Stock as reported by
the Nasdaq National Market was $12 1/4.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of April
30, 1998, and as adjusted to give effect to the sale by the Company of the
3,433,992 shares of Common Stock offered by the Company hereby and the
application by the Company of the net proceeds therefrom as described in "Use of
Proceeds" and the receipt by the Company of approximately $1.9 million upon the
exercise of certain options and warrants by the Selling Stockholders. The table
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF APRIL 30, 1998
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current liabilities....................................................................... $ 38,162 $ 30,962
--------- -----------
--------- -----------
Capital lease obligations, net of current maturities...................................... $ 487 $ 487
--------- -----------
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares authorized; no shares issued......... -- --
Common Stock, $.001 par value, 30,000,000 shares authorized; 7,151,317 shares issued,
and 11,019,317 shares issued as adjusted.............................................. 7 11
Additional paid-in capital.......................................................... 25,270 65,934
Accumulated deficit................................................................. (2,062) (2,062)
Cumulative foreign currency translation adjustments................................. (207) (207)
--------- -----------
Total stockholders' equity.......................................................... 23,008 63,676
--------- -----------
Total capitalization.............................................................. $ 23,495 $ 64,163
--------- -----------
--------- -----------
</TABLE>
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information with respect to
the Company's financial position as of January 31, 1997 and 1998 and its results
of operations for each of the years ended January 31, 1996, 1997 and 1998, has
been derived from the audited Consolidated Financial Statements of the Company
that have been audited by KPMG, independent auditors, which are included herein.
The selected consolidated financial information with respect to the Company's
financial position as of January 31, 1996 has been derived from the Consolidated
Financial Statements of the Company that have been audited by KPMG, independent
auditors, and the selected consolidated financial information with respect to
the Company's financial position as of January 31, 1994 and 1995 and its results
of operations for the years ended January 31, 1994 and 1995 have been derived
from the Consolidated Financial Statements of the Company that have been audited
by AJ. Robbins, P.C., independent auditors, which are not included herein. The
selected consolidated financial information with respect to the Company's
financial position as of April 30, 1997 and 1998, has been derived from the
unaudited Consolidated Financial Statements of the Company which, in the opinion
of management of the Company, have been prepared on the same basis as the
audited Consolidated Financial Statements of the Company, and include all normal
and recurring adjustments necessary for a fair presentation of the information
set forth therein. The results for the three months ended April 30, 1998, are
not necessarily indicative of future results. The selected consolidated
financial information presented below should be read in conjunction with the
Consolidated Financial Statements of the Company and notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
APRIL 30
YEAR ENDED JANUARY 31, (UNAUDITED)
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA (1):
Revenues:
Services........................................ $ 1,986 $ 4,571 $ 7,869 $ 19,032 $ 45,302 $ 8,196 $ 16,437
Products........................................ 851 6,669 24,380 33,983 38,843 10,428 10,267
--------- --------- --------- --------- --------- --------- ---------
Total revenues................................ 2,837 11,240 32,249 53,015 84,145 18,624 26,704
--------- --------- --------- --------- --------- --------- ---------
Cost of revenues:
Cost of services................................ 645 1,902 2,135 6,642 22,541 4,148 7,629
Cost of products................................ 636 4,912 18,673 29,376 32,121 8,881 8,534
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues........................ 1,281 6,814 20,808 36,018 54,662 13,029 16,163
--------- --------- --------- --------- --------- --------- ---------
Write down of software development costs.......... -- -- 755 -- -- -- --
Gross profit:
Services........................................ 1,341 2,669 4,979 12,390 22,761 4,048 8,808
Products........................................ 215 1,757 5,707 4,607 6,722 1,547 1,733
--------- --------- --------- --------- --------- --------- ---------
Total gross profit............................ 1,556 4,426 10,686 16,997 29,483 5,595 10,541
--------- --------- --------- --------- --------- --------- ---------
Selling, general and administrative............... 1,117 3,565 9,567 13,792 22,796 4,355 8,004
Depreciation and amortization..................... 63 216 560 976 2,213 406 716
Write down of goodwill............................ -- -- -- 552 -- -- --
Reorganization and restructuring costs (2)........ -- -- -- 2,286 -- -- --
Income (loss) before interest income and expense,
income taxes, share of results in equity
investee and write down of investments.......... 376 645 559 (609) 4,474 834 1,821
--------- --------- --------- --------- --------- --------- ---------
Net interest income (expense)..................... (66) (142) (244) (20) (356) 7 (141)
Write down of investments......................... -- -- -- (500) -- -- --
Share of results in equity investee (3)........... -- -- (761) (799) -- -- --
Net income (loss)................................. $ 304 $ 355 $ (652) $ (2,344) $ 3,069 $ 631 $ 1,092
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share (Basic)............... $ 0.25 $ 0.20 $ (0.24) $ (0.45) $ 0.47 $ 0.10 $ 0.15
Net income (loss) per share (Diluted)............. $ 0.25 $ 0.20 $ (0.24) $ (0.45) $ 0.43 $ 0.09 $ 0.13
Weighted average number of shares:
Basic........................................... 1,198 1,813 2,743 5,170 6,589 6,515 7,060
Diluted......................................... 1,198 1,813 2,743 5,683 7,129 6,696 8,653
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
----------------------------------------------------- 1998
1994 1995 1996 1997 1998 (UNAUDITED)
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Current assets........................................ $ 5,041 $ 6,588 $ 13,464 $ 30,349 $ 36,915 $ 40,403
Current liabilities................................... 5,892 7,008 14,750 24,763 35,974 38,162
Total assets.......................................... 6,203 9,887 17,943 42,021 59,208 62,424
Long-term debt (including capital lease
obligations)........................................ 403 74 93 489 497 487
Total stockholders' equity............................ $ (92) $ 2,805 $ 3,101 $ 16,769 $ 21,594 $ 23,008
</TABLE>
- ------------------------
(1) The Company has grown substantially through acquisitions which materially
affect the comparability of the financial data reflected herein. The
Selected Consolidated Financial Information includes the results of
operations of acquisitions which were acquired effective January 1994,
November 1994, April 1995, August 1996, October 1996, September 1997 and
October 1997, and which were accounted for under the purchase method of
accounting. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview."
(2) Reflects a non-recurring charge which related to the Company's
reorganization and restructuring of its maintenance and support services
businesses, including the reduction of employee headcount.
(3) Consists of the Company's share of the operating loss of the equity investee
(the "ActionTrac Joint Venture") of $(179,000) and $(205,000) and the
write-down of the Company's investment in and advances to the ActionTrac
Joint Venture of $(582,000) and $(594,000) for the years ended January 31,
1996 and 1997, respectively.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL INFORMATION" AND THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
4Front is a leading provider of IT solutions, which consist of specialized
computer services and complementary products, primarily to blue chip
corporations and government authorities in the UK and, to a growing extent, in
Continental Europe. 4Front's solutions include hardware maintenance, help desk
support, network services, specialized software services and the supply of
high-end storage systems.
The Company recognizes revenues from the sale of services as services are
performed and, in the case of long-term agreements for the provision of hardware
maintenance, ratably over the term of such agreements. Revenues from the sale of
products are recognized when the product is shipped.
The Company has grown rapidly due, in large part, to acquisitions. K2
Systems Plc, Xanadu Systems Ltd ("Xanadu"), and CI Support Limited, were
acquired in fiscal 1995, Compass Computer Group ("Compass") was acquired in
fiscal 1996, Hammer Distribution Limited ("Hammer") and Datapro Computers Group
Limited ("Datapro") were acquired in fiscal 1997 and Firstpoint Limited
("Firstpoint") and Eurosystems France S.A. ("Eurosystems") were acquired in
fiscal 1998. These acquisitions have been accounted for under the purchase
method of accounting and on a consolidated basis in the Company's financial
statements for periods ending after the effective date of such acquisitions.
In the fourth quarter of fiscal 1997, the Company took a charge of $2.3
million which related to the Company's reorganization and restructuring of its
maintenance and support services businesses including the reduction of employee
headcount. In addition, in the fourth quarter of fiscal 1997, the Company
recorded a charge of $552,000 which related to the write-down of goodwill
resulting from the Xanadu acquisition due to Xanadu's loss of several key
contracts. Finally, as a result of the bankruptcy of ActionTrac Inc. on December
24, 1996, the Company took a charge of $1.3 million, consisting of $799,000,
which represented the Company's investment in the ActionTrac Joint Venture, a
help desk joint venture with ActionTrac Inc., and $500,000 which represented the
Company's investment in ActionTrac Inc.
Because of the effect upon the Company's results of operations for the years
ended January 31, 1996, 1997 and 1998 of acquisitions made during those periods,
write-downs of certain asset carrying values and restructuring and
reorganization costs, direct comparison of the Company's results of operations
for these periods will not, in the view of management of the Company, prove
meaningful. A summary of the elements which management of the Company believes
essential to an analysis of the results of operations for such periods is
presented below.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain statement
of operations data and certain financial data expressed as a percentage of
revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
-----------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED JANUARY 31, APRIL 30,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........................................................ 33.1 32.1 35.0 30.0 39.5
Selling, general and administrative................................. 29.7 26.0 27.1 23.3 30.0
Depreciation and amortization....................................... 1.7 1.8 2.6 2.2 2.7
Income (loss) before interest income and expense, income taxes,
share of results in equity investee and write down of
investments....................................................... 1.7 (1.1) 5.3 4.5 6.8
Net income (loss)................................................... (2.0)% (4.4)% 3.6% 3.4% 4.1%
</TABLE>
THREE MONTHS ENDED APRIL 30, 1998 COMPARED WITH THE THREE MONTHS ENDED APRIL 30,
1997
REVENUES
Revenues for the three months ended April 30, 1998 were $26.7 million, an
increase of $8.1 million, or approximately 43.4% compared to $18.6 million for
the three months ended April 30, 1997. Revenues from services were $16.4
million, or 61.6% of total revenues, with revenues from the supply of products
at $10.3 million, or 38.4% of the total revenues. In the comparable period of
the prior year, product revenues were $10.4 millon or 56.0% of total revenues
and services revenues were $8.2 million or 44.0% of total revenues.
GROSS PROFIT
Gross profit for the three months ended April 30, 1998 was $10.5 million, an
increase of $4.9 million, or 88.4% compared to $5.6 million for the three months
ended April 30, 1997. Gross margin increased from 30.0% for the three months
ended April 30, 1997 to 39.5% for the three months ended April 30, 1998. This
increase in gross margin arose primarily as a result of the significant growth
of the services business which has higher margins than the products business.
Gross profit for services increased 117.6% from $4.0 million for the three
months ended April 30, 1997 to $8.8 million for the three months ended April 30,
1998. Gross profit for products increased 12.0% from $1.5 million for the three
months ended April 30, 1997 to $1.7 million for the three months to April 30,
1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $8.0 million, an increase
of $3.6 million, or 83.8% compared to $4.4 million for the three months ended
April 30, 1997. As a percentage of revenues, selling, general and administrative
expenses increased to 30.0% from 23.3% in three months ended April 30, 1998.
Selling general and administrative expenses increased primarily as a result of a
growth in infrastructure necessary to support the expansion of the Company's
businesses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the three months ended April 30,
1998 was $716,000, an increase of $310,000, or 76.4% compared to $406,000 for
the three months ended April 30, 1997. This increase arose principally from the
acquisition of Firstpoint, acquired in September 1997. Depreciation was
$294,000, an increase of $99,000 or 50.8%, from $195,000 for the prior period.
Amortization of goodwill from acquisitions was
16
<PAGE>
$422,000, an increase of $211,000, or 100.0%, from $211,000 for the prior
period. An amortization period of between ten and fifteen years is utilized with
respect to acquisitions.
INCOME (LOSS) BEFORE INTEREST INCOME AND EXPENSE, INCOME TAXES AND SHARE OF
RESULTS IN EQUITY
INVESTEE.
Income before interest expense and income taxes for the three months ended
April 30, 1998 was $1.8 million, an increase of $987,000, or 118.3%, as compared
to $834,000 for the three months ended April 30, 1997. As a percentage of
revenues, income before interest expense and income taxes increased to 6.8% in
the three months ended April 30, 1998 as compared to 4.5% for the three months
ended April 30, 1997. Neither period was affected by the equity investee.
INTEREST
Interest expense for the three months ended April 30, 1998 was $209,000, an
increase of $138,000 or 194.4% compared to $71,000 for the three months ended
April 30, 1997, arising from higher utilization of bank lines of credit during
the period. Interest income decreased from $78,000 for the three months ended
April 30, 1997 to $68,000 a decrease of $10,000, arising from lower cash
balances on hand during the quarter.
FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED WITH FISCAL YEAR ENDED JANUARY 31,
1997
REVENUES
Revenues for fiscal 1998 were $84.1 million, an increase of $31.1 million,
or approximately 58.7% compared to $53.0 million for fiscal 1997. Approximately
$11.7 million of this increase resulted from the Company's acquisitions of
Firstpoint, effective September 8, 1997, and of Eurosystems, effective October
28, 1997, none of which revenues were included in the Company's results for
fiscal 1997. The remaining $19.4 million of this increase came from the growth
of the Company's existing businesses, principally in the services division.
Services revenues were $45.3 million or 53.8% of total revenues for fiscal 1998,
an increase of $26.3 million compared to $19.0 million for fiscal 1997. Products
revenues were $38.8 million or 46.2% of total revenues for fiscal 1998, a
decrease from 64.1% of total revenues for fiscal 1997.
GROSS PROFIT
Gross profit for fiscal 1998 was $29.5 million, an increase of $12.5
million, or 73.5% compared to $17.0 million for fiscal 1997. Gross margin
increased to 35.0% for fiscal 1998 from 32.1% for fiscal 1997. This increase in
gross margin arose primarily as a result of the significant internal growth of
the services business which has higher margins than the products business and
the inclusion of Firstpoint's business in the final five months of fiscal 1998.
Gross profit for services for fiscal 1998 increased by $10.4 million to $22.8 or
83.7% from $12.4 million for fiscal 1997. Gross margins for services decreased
in fiscal 1998 to 50.2% from 65.1% in fiscal 1997 resulting from the
acquisitions of Firstpoint and Datapro, whose margins were historically lower
overall than the Company's margins for services. Gross profit for products
increased by $2.1 million or 45.9% to $6.7 million for fiscal 1998 compared to
$4.6 million for fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for fiscal 1998 were $22.8
million, an increase of $9.0 million, or 65.3% compared to $13.8 million for
fiscal 1997. As a percentage of revenues, selling, general and administrative
expenses increased to 27.1% in fiscal 1998, from 26.0% in fiscal 1997. Selling
expenses increased to $8.3 million from $6.6 million in line with the expansion
of the Company's business. General and administrative expenses increased to
$14.5 million from $7.2 million primarily as a result of the growth in
infrastructure necessary to support the expansion of the Company's business.
17
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for fiscal 1998 was $2.2 million, an
increase of $1.2 million, or 126.7% compared to $1.0 million for fiscal 1997.
This increase arose principally from the acquisitions of Hammer, Datapro and
Firstpoint. Depreciation for fiscal 1998 was $1.1 million, an increase of
$574,000 or 110.8%, from $518,000 for fiscal 1997. Amortization of goodwill from
acquisitions for fiscal 1998 was $1.1 million, an increase of $663,000, or
144.8%, from $458,000 for fiscal 1997.
INCOME (LOSS) BEFORE INTEREST INCOME AND EXPENSE, INCOME TAXES AND SHARE OF
RESULTS IN
EQUITY INVESTEE ("IBITI")
IBITI for fiscal 1998 was $4.5 million, an increase of $5.1 million, as
compared to a loss of $609,000 for fiscal 1997. As a percentage of revenues,
IBITI increased to 5.3% in fiscal 1998 as compared to a negative 1.1% for fiscal
1997. The increase results primarily from the inclusion in fiscal 1997 of a
goodwill write-down of $552,000, a charge for reorganization and restructuring
of $2.3 million, and from the overall improvement in operating performance by
the Company. There were no such similar charges in fiscal 1998. IBITI (excluding
write-downs and reorganization and restructuring costs) for fiscal 1997 was $2.2
million. As a percentage of revenue, IBITI (excluding write-downs and
reorganization and restructuring costs) was 4.2% in fiscal 1997.
INTEREST
Interest expense for fiscal 1998 was $632,000, an increase of $335,000, or
112.8% compared to $297,000 for fiscal 1997. This increase resulted primarily
from the increased use of bank lines of credit during fiscal 1998, which were
not utilized to the same extent in fiscal 1997. Interest income for fiscal 1998
and 1997 was approximately $276,000.
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED WITH FISCAL YEAR ENDED JANUARY 31,
1996
REVENUES
Revenues for fiscal 1997 were $53.0 million, an increase of $20.8 million,
or approximately 64.4% compared to $32.2 million for fiscal 1996. Approximately
$13.8 million of this increase resulted from the Company's acquisitions of
Hammer, effective August 15, 1996, and of Datapro effective October 11, 1996,
none of which revenues were included in the Company's results for fiscal 1996.
The remaining $7.0 million of this increase came from the growth of the
Company's existing businesses, principally in services. Service revenues were
$19.0 million for fiscal 1997, an increase of $11.1 million or 141.9% from $7.9
million for fiscal 1996. Product revenues were $34.0 million, an increase of
$9.6 million or 39.4% from $24.4 million for fiscal 1996.
GROSS PROFIT
Gross profit for fiscal 1997 was $17.0 million, an increase of $6.3 million,
or 59.1% compared to $10.7 million for fiscal 1996. Gross margin decreased to
32.1% for fiscal 1997 from 33.1% for fiscal 1996. This decrease in gross margin
arose primarily as a result of the inclusion for the final six months of fiscal
1997 of Hammer's information storage systems business, which had lower gross
margins than some other areas of the Company's operations. Gross profits for
services increased 148.9% to $12.4 million for fiscal 1997 compared to $5.0
million for fiscal 1996. Gross profits for products decreased 19.3% to $4.6
million for fiscal 1997 from $5.7 million for fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for fiscal 1997 were $13.8
million, an increase of $4.2 million, or 44.2% compared to $9.6 million for
fiscal 1996. As a percentage of revenues, selling, general and administrative
expenses decreased to 26.0% in fiscal 1997 from 29.7% in fiscal 1996. Selling
expenses increased to $6.6
18
<PAGE>
million from $5.9 million in line with the expansion of the Company's business.
General and administrative expenses increased to $7.2 million from $3.7 million
primarily as a result of the growth in infrastructure necessary to support the
expansion of the Company's business.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for fiscal 1997 was $976,000, an
increase of $416,000, or 74.3% compared to $560,000 for fiscal 1996. This
increase arose principally from the acquisition of Hammer and Datapro.
Depreciation for fiscal 1997 was $518,000, an increase of $162,000 or 45.5%,
from $356,000 for fiscal 1996. Amortization of goodwill from acquisitions for
fiscal 1997 was $458,000, an increase of $254,000, or 124.5%, from $204,000 for
fiscal 1996.
INCOME (LOSS) BEFORE INTEREST INCOME AND EXPENSE, INCOME TAXES AND SHARE OF
RESULTS IN EQUITY
INVESTEE
IBITI for the fiscal year ended January 31, 1997 was a negative $609,000, a
decrease of $1,168,000, as compared to $559,000 for the fiscal year ended
January 31, 1996. As a percentage of revenues, IBITI decreased to a negative
1.1% in fiscal 1997 as compared to 1.7% for fiscal 1996. The decrease results
primarily from a goodwill write-down of $552,000 and a charge for reorganization
and restructuring of $2.3 million. See "-Overview." IBITI (excluding write-downs
and reorganization and restructuring costs) for fiscal 1997 was $2.2 million,
which as a percentage of revenues, was 4.2% for fiscal 1997.
INTEREST
Interest expense for fiscal 1997 was $297,000, an increase of $39,000, or
15.1% compared to $258,000 for fiscal 1996. Interest income for fiscal 1997 was
$277,000, an increase of $263,000 compared to $14,000 for fiscal 1996, primarily
as a result of the net proceeds from the Company's secondary offering in June
1996.
LIQUIDITY AND CAPITAL RESOURCES
From inception until June 1996, the Company's sources of capital have been
cash flows from operations, private placements of securities, primarily from its
controlling stockholders and related parties, and borrowings from banks. On June
19, 1996, the Company completed a public offering of 3,000,000 shares of the
Company's Common Stock at a price of $5.75 per share. On July 9, 1996 the
Company completed the sale of a further 450,000 shares pursuant to the
underwriters' over-allotment option. As a result of the offering the Company
raised net proceeds of $16.0 million.
The Company maintains a revolving line of credit with a UK bank. This
facility provides for borrowings of up to $4.9 million (L3,000,000). This
facility bore interest at 10% per annum on utilized amounts at January 31, 1998
and at April 30, 1998 and 9% at June 4,1998. At April 30, 1998, $1.4 million was
outstanding under this facility and $2.6 million was outstanding under this
facility at June 4, 1998. Management expects to be able to retain this facility
for the foreseeable future, although no assurances can be given.
The Company's French subsidiary maintains revolving credit facilities in the
aggregate amount of $1.1 million. Interest was charged at rates of between 4.55%
and 9.15% on utilized amounts at January 31, 1998 and at April 30, 1998. At
April 30, 1998, $1.0 million was outstanding under these facilities.
The Company maintains a facility with a UK factoring company, pursuant to
which it borrows against eligible trade receivables. The Company pays the
factoring company an administrative fee of 0.075% of eligible trade receivables
and interest of 9% per annum at January 31, 1998 and April 30, 1998. At April
30, 1998, $2.9 million under this agreement was outstanding and at June 4, 1998,
$3.6 million under this agreement was outstanding with a limit of approximately
$5.3 million.
19
<PAGE>
Outstanding advances from stockholders are shown on the Company's balance
sheet as stockholder advances. Outstanding advances as of April 30, 1998,
January 31, 1998 and 1997, were $18,000, $18,000 and $504,000, respectively.
These outstanding advances do not bear interest and are payable on demand.
The Company's working capital decreased from $5.6 million at January 31,
1997 to $1.0 million at January 31, 1998, a decrease of $4.6 million. This
decrease arose primarily from $6.8 million paid for acquisitions in fiscal 1998.
At April 30, 1998, working capital increased to $2.2 million as a result of cash
paid for option and warrant exercises.
Net cash used by operating activities during the three months ended April
30, 1998, was $913,000, which reflected the net effect of an increase in
accounts payable, accrued liabilities and inventories and a decrease in deferred
revenues. Net cash provided by operating activities during fiscal 1998 was $1.4
million, an increase of $3.5 million from the net cash used by operations of
$2.1 million in fiscal 1997. The net cash provided in fiscal 1998 reflects the
net effect of a decrease in accounts payable, accrued liabilities, accounts
receivable and deferred revenues and an increase in inventories combined with
depreciation and amortization.
Net cash used by investing activities was $948,000 for the three months
ended April 30, 1998, primarily reflecting cash used for the purchase of
equipment and the payment of deferred compensation relating to the Firstpoint
acquisition. Net cash used by investing activities in fiscal 1998 was $7.2
million, an increase of $2.4 million from the $4.8 million net cash used in
fiscal 1997. The net cash used primarily reflects the cash paid to acquire
Firstpoint and Eurosystems during fiscal 1998.
Net cash provided by financing activities was $1.7 million for the three
months ended April 30, 1998, resulting primarily from increased bank lines of
credit and payments of outstanding obligations and the receipts of cash from
stock option exercises. Net cash provided by financing activities was $3.8
million for fiscal 1998, a decrease of $8.3 million for fiscal 1997. The
decrease is due to the net proceeds from the Company's secondary offering in
June 1996. The cash provided in fiscal 1998 reflects primarily the proceeds from
the exercise of warrants and proceeds from notes payable and payments of
outstanding obligations.
The Company believes that the cash flows from operations and borrowing
availability under its credit facilities and the Company's net proceeds from
this Offering will satisfy the Company's anticipated working capital
requirements through at least the next 12 months.
INFLATION
Inflation has not had a material effect upon the Company's results of
operations to date. In the event the rate of inflation should accelerate in the
future, it is expected that costs in connection with the provision by the
Company of its services and products will increase, and, to the extent such
increased costs are not offset by increased revenues, the operations of the
Company may be adversely affected.
YEAR 2000
Many existing computer programs use only two digits to identify a year in
the date field. These programs do not consider the impact of the upcoming change
in the century. If not corrected, many computer applications could fail or
create erroneous results by the Year 2000. Internally, the Company has assessed
its Year 2000 computer issues. The Company estimates that it will have to spend
approximately $400,000 in the aggregate during fiscal 1999 and fiscal 2000 to
make its major computer systems, and some non-critical programs, Year 2000
compliant. The Company is testing applications and believes that solutions will
be implemented in a timely manner.
SELECTED CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation, in accordance with generally
accepted accounting
20
<PAGE>
principals. The operating results for any interim period are not necessarily
indicative of results for any other period.
<TABLE>
<CAPTION>
QUARTER ENDED,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
OCTOBER JANUARY
APRIL 30, JULY 31, 31, 31, APRIL 30,
1997 1997 1997 1998 1998
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Selected Consolidated Statement of Operations Data:
Revenues:
Services................................................. $ 8,196 $ 8,313 $ 12,947 $ 15,846 $ 16,437
Products................................................. 10,428 10,507 8,491 9,417 10,267
--------- --------- --------- --------- ---------
Total revenues......................................... 18,624 18,820 21,438 25,263 26,704
--------- --------- --------- --------- ---------
Cost of revenues:
Cost of services......................................... 4,148 3,789 6,623 7,980 7,629
Cost of products......................................... 8,881 8,933 6,913 7,395 8,534
--------- --------- --------- --------- ---------
Total cost of revenues................................. 13,029 12,722 13,536 15,375 16,163
--------- --------- --------- --------- ---------
Gross profit:
Services................................................. 4,048 4,524 6,324 7,866 8,808
Products................................................. 1,547 1,574 1,578 2,022 1,733
--------- --------- --------- --------- ---------
Total gross profit..................................... 5,595 6,098 7,902 9,888 10,541
--------- --------- --------- --------- ---------
Selling, general and administrative........................ 4,355 4,687 6,040 7,715 8,004
Depreciation and amortization.............................. 406 453 568 786 716
Income before interest income and expense, income taxes,
share of results in equity investee and write down of
investments............................................ 834 958 1,294 1,387 1,821
Net income............................................... $ 631 $ 677 $ 822 $ 939 $ 1,092
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share (Basic)............................. $ 0.10 $ 0.10 $ 0.13 $ 0.14 $ 0.15
Net income per share (Diluted)........................... $ 0.09 $ 0.10 $ 0.11 $ 0.12 $ 0.13
Weighted average number of shares:
Basic.................................................... 6,515 6,514 6,522 6,700 7,060
Diluted.................................................. 6,696 6,776 7,637 8,061 8,653
</TABLE>
21
<PAGE>
BUSINESS
4Front is a leading provider of IT solutions, which consist of specialized
computer services and complementary products, primarily to blue chip
corporations and government authorities in the UK and, to a growing extent, in
Continental Europe. 4Front's solutions include hardware maintenance, help desk
support, network services, specialized software services and products and the
supply of high-end storage systems.
OVERVIEW OF THE UK AND EUROPEAN INFORMATION TECHNOLOGY MARKET
The UK computer services market, the fastest growing in Europe, is currently
estimated at $18 billion annually, according to the 1997 Holway Report on
Software and Computing Services in Europe (the "Holway Report"). The UK market
grew by an estimated 19% between 1996 and 1997. The Western European computer
services market is currently estimated at $110 billion, according to the Holway
Report. This market grew by an estimated 13% between 1996 and 1997. Both the UK
and the Western European computer services markets remain highly fragmented,
with no single company serving more than 6% of the respective markets.
Historically, large UK and European organizations satisfied IT requirements
through mainframe or stand-alone midrange systems utilizing hardware and
software produced by a single original equipment manufacturer ("OEM").
Maintenance, support and development of these systems were usually provided
directly by the OEMs or, in certain instances, by an organization's in-house
technical support staff. However, developments over recent years have resulted
in a movement by many organizations away from this traditional reliance on OEMs
and in-house technical support staff towards outsourced solutions provided by
independent suppliers of multivendor computer hardware maintenance and
technology support services.
European computing environments have become increasingly complex primarily
as a result of the migration of large organizations from centralized computing
environments characterized by single vendor systems to a decentralized,
geographically diverse environment characterized by multivendor and multisystem
distributed networks. This has resulted in greater expense and substantial
inefficiencies for organizations in developing and supporting their computer
systems. The imminent introduction of the European single currency and the
problems posed by the need for Year 2000 compliance are further factors which
add to this growing complexity.
As a result of these factors, organizations are increasingly turning towards
outsourced IT solutions. Historically, some customers sought the help of
original equipment manufacturers ("OEMs") to address their computer service
needs. The Company believes that customers are now reluctant to outsource
computer services directly to OEMs, which may be perceived as favoring the OEMs'
respective product lines. In addition, the complexity and customization of
mission critical corporate computing systems typically exceed the expertise of
most horizontal integrators and value added resellers ("VARs").
As a result, business and government organizations are increasingly looking
to third-party vendors employing skilled IT professionals to develop, install
and manage complex customized information and communication systems and to
provide applications software and comprehensive solutions for their information
systems needs. These organizations are also turning to third-party vendors to
provide IT services in order to maximize the effectiveness of their in-house
systems and personnel. In addition, the personal computer market is growing
rapidly throughout Europe and home computer users are increasingly looking for
sources of support and advice.
THE 4FRONT SOLUTION
The Company is a leading provider of a wide range of IT solutions and
services and complementary products which are not typically offered together by
most VARs and horizontal distributors. 4Front's solutions include hardware
maintenance, help desk support, network services, specialized software services
and products and the supply of high-end storage systems. In addition, because it
is independent, the Company is able to offer products from a range of OEMs and
is therefore not viewed by its customers as favoring one OEM's product over
another, except on the basis of quality. The Company combines strong technical
expertise, innovation and "best of breed" products in order to design and
implement customized IT solutions.
22
<PAGE>
The Company reviews its service and product offerings on a continuous basis
in order to ensure that it is able to provide the most advanced and
cost-effective solutions. The services and products offered by the Company are
designed primarily to enhance the effectiveness of, rather than replace,
in-house MIS departments, thereby creating a partnership approach and an
incentive to utilize the services and products of the Company. The partnership
principle is a key aspect of the Company's working relationship with its
customers.
STRATEGY
The Company's objective is to leverage its position in the UK to become a
leading independent provider of IT solutions in Europe. The key elements of the
Company's strategy are:
LEVERAGE MARKET POSITION AND PROMOTE THE "4FRONT" BRAND. The Company
believes that a strong brand name will become increasingly important to its
marketing and selling efforts. 4Front has already established a leading market
position in the UK computer services market and it intends to leverage this
position and continue to invest in sales and marketing to highlight successful
engagements and promote the 4Front brand name in the corporate and government
marketplace.
INCREASE CLIENT PENETRATION. The Company intends to increase its revenues
from existing clients by cross-selling its services and products. The Company
believes that the access to and goodwill derived from its long-term client
relationships will provide it with significant advantages in marketing
additional offerings to its clients.
FURTHER EXPAND THE RANGE OF SERVICES AND PRODUCTS. The Company intends to
utilize its IT industry knowledge to increase the range of services and products
it offers and to anticipate customers' needs. For example, the Company recently
announced its intention to provide business continuity services which enable
customers to recover from interruption or damage to their IT systems.
CONTINUE TO BUILD THE COMPANY'S MARKET POSITION IN CONTINENTAL
EUROPE. 4Front intends to leverage its leading position in the UK to expand its
position in Continental Europe. The Company plans to accelerate the growth of
its European activities through acquisitions and further internal growth, both
to strengthen its existing presence in the French and Benelux markets and to
give the Company a presence in markets which the Company has targeted for
expansion such as Germany, Italy and Spain.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. Given the highly fragmented
nature of the European IT services industry, the Company believes significant
acquisition opportunities exist. The Company seeks to acquire IT service
companies or establish alliances to offer complementary services and to
facilitate its expansion into Europe.
SERVICES AND PRODUCTS
4Front is a leading provider of IT solutions, which consist of specialized
computer services and complementary products, primarily to blue chip
corporations and government authorities in the UK and, to a growing extent, in
Continental Europe. Although the Company's solutions support a broad range of
computing environments, the Company's main area of focus is the network and
distributed computing market. The Company
23
<PAGE>
customizes its solutions to meet its clients' needs. The services and products
that the Company provides are as follows:
<TABLE>
<CAPTION>
STORAGE
HARDWARE HELP DESK NETWORK MANAGED SOFTWARE SYSTEMS AND
MAINTENANCE SERVICES SOLUTIONS SERVICES SOLUTIONS PRODUCTS
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
- - Field Repair - Corporate - Design - Install/ - Financial - Mass Storage
Services - On-Site - LAN and Server Roll Out Packages - Disk
- Client Server - Remote Implementation - Software - Document - Custom RAID
- Desktop - Retail - Integration Upgrade and Management - Tape
computers - Storage Integration - Project Costing - Build to Order
- Storage Management - Asset Software PCs and Storage
subsystems - Remote Management
- Peripherals Management - Consulting and
- Network Project
devices Management
- Point of Sale - Training
equipment - Business
- -On-site Continuity/
Engineering Disaster
Services Recovery
</TABLE>
HARDWARE MAINTENANCE
The Company is the fourth largest independent hardware maintenance company
in the UK. 4Front provides full on-site multi-vendor maintenance and support
services through a team of field service engineers supported by technical repair
specialists. The Company's maintenance services focus primarily on the server,
desktop and EPOS (Electronic Point of Sale) markets. Unlike most in-house IT
departments, 4Front can service mission critical installations by providing
guaranteed response times and 24 hour a day support, 7 days a week. Services are
coordinated from the Company's National Call Center in West London for UK
operations, from its base outside Paris for its French operations and from
Brussels for its Benelux operations.
4Front is ISO 9002 certified and supports the majority of the industry
leading hardware platforms including IBM, DEC, Sun, Hewlett-Packard, Dell,
Compaq, Mitsubishi Apricot, as well as networking products and associated
peripherals from suppliers such as Bay Networks and Cisco. The Company provides
maintenance and support under service contracts with terms ranging typically
from one to three years. During fiscal 1998, these contracts had renewal rates
of approximately 80%. Customers that the Company currently provides hardware
maintenance services to include British Petroleum, Computer Sciences
Corporation, Fina Petroleum, IBM and Reuters, among others. The Company also
repairs and refurbishes computer parts and assemblies for service customers and
for OEMs, VARs and other third-party maintenance companies.
HELP DESK SERVICES
4Front provides a range of help desk services both to corporate customers,
and through alliances with major retailers, to the retail PC market. The
Company's help desk operations are provided and directed from the Company's
National Call Center in West London.
For corporate customers, 4Front provides help desk services which are
tailored to the specific requirements of the customer. The service can range
from a remote off-site help desk support service for a designated number of
corporate users to a complete "Enterprise Help Desk," providing a single point
of contact for all computer problems. Depending on the customer's requirements,
the help desk service can be run from the Company's own offices or can be
located on-site at the customer's premises. The Company's help desk services can
provide call response and logging, fault diagnosis, first line support, call
priority, liaison with in-house services or third
24
<PAGE>
party sources, back up from 4Front's own centralized support staff, and
management of the call to final resolution. Because the Company is not tied to a
specific vendor, the Company makes recommendations without the limitations
imposed by close affiliation to a particular manufacturer. The Company's
customers for this service include London Borough of Tower Hamlets, N.M.
Rothschild and Pfizer, among others.
The Company provides telephonic help desk services on behalf of its retail
clients directly to individual home computer users 24 hours a day, 7 days a
week. The service is offered either under the Company's "4Help" brand or under
the name of the Company's corporate customer. The Company typically provides
services to end-users for periods ranging from 90 days to one year and typically
charges retailers a fixed price per computer. The Company currently has
agreements to provide help desk services to customers of leading UK computer
retailers including Dixons, the leading UK electrical goods retailer, Argos, the
leading UK catalog retailer, and John Lewis, a leading UK private department
store chain.
NETWORK SOLUTIONS
4Front offers its corporate and government customers a comprehensive range
of enterprise-wide network solutions and services encompassing network design,
installation, integration, monitoring and support, remote network management and
network training. The Company has recently begun to offer web sourcing services
to its clients. In addition to offering complete solutions, 4Front may supply
specific individual network services, including cabling. The Company is one of a
limited number of companies approved by British Telecom as a Category 5
installer and is a British Telecom cabling and installation partner. 4Front has
expertise in a diverse range of specialized areas of wide and local area
networking, including network communications (voice and data) and
interconnectivity, remote access, multi-platform integration, Internet and
Intranet technology, and enterprise wide storage solutions. In meeting its
customers' network requirements the Company supplies both network services and
network products. These include hardware, software, network computers, cabling
and storage products. 4Front has a wide range of network product and service
accreditations from vendors such as British Telecom, Compaq, IBM, Intel,
Microsoft, Mitsubishi Apricot, Novell, Shiva, Sun, Unisys and 3Com. The Company
provides these services under contracts which vary in length and content
depending on the services provided. Customers that utilize these services
include Dupont, Energis and Royal Sun Alliance, among others.
MANAGED SERVICES
4Front also provides a range of managed services to its corporate customers.
These services include special project management, enterprise-wide roll-out
programs, system and software upgrades, Year 2000 consultation and training. In
addition, the Company has recently begun offering business continuity/disaster
recovery services. The Company provides these services under contracts which
vary in length and content depending on the services provided. The Company
provides these services to the French Ministry of Agriculture, GEC-Marconi
Aerospace and JP Morgan, among others.
SOFTWARE SOLUTIONS
The Company supplies and supports financial application software for
corporate and government customers. The software is either proprietary to the
Company or is a customized version of software produced by outside vendors. The
Company's proprietary software products include a specialized project accounting
product for the construction industry, an asset and property management product
used by health trusts and municipalities and a project costing product used by
corporations and municipalities. The Company is seeking to add to its product
range and in March 1998 acquired the exclusive UK distribution rights of a
web-based financial reporting tool called DBLive@Web under license from its
developer. The sale of software involves a substantial service element;
consequently, the Company typically provides its customers with pre-sales
software and technical consultation, business analysis, software specification,
software development and supply, implementation, training, project management
and software support and upgrades.
25
<PAGE>
The Company also supplies products by Tetra, a UK software company, which
specializes in software for accounting, distribution and inventory control. This
software is typically customized by the Company for specific vertical markets,
including the telesales, technology distribution and government markets.
The Company typically licenses software and provides integration services to
its clients, which include Alcatel Data Networks, DTZ Debenham Thorpe, one of
the UK's leading chartered surveyors, and Fairfax Meadows, a subsidiary of
Hillsdown Holdings, one of the UK's leading food conglomerates.
STORAGE SYSTEMS AND PRODUCTS
4Front is one of the UK's leading distributors of high end storage systems.
The Company is the leading distributor of Seagate Technology's high capacity
disc drives in Europe, IBM's high capacity disc drives in the UK and Sony's high
capacity tape products in the UK. The Company has also developed a focused range
of its own brand products which are marketed under the V2 brand name. These
include a complete range of build to order or customized PCs as well as a range
of storage subsystems. The Company markets these products to OEMs, system
integrators and VARs in the UK.
CUSTOMERS
The Company's customers are mainly large and medium sized national and
multinational companies and government authorities. The following is a
representative list of the Company's customers, each of which contributed in
excess of $100,000 in revenues for fiscal 1998:
<TABLE>
<S> <C> <C>
FINANCE INDUSTRIAL RETAIL
JP Morgan British Petroleum Argos
NatWest Capital Markets Dupont Dixons
Reuters Pfizer John Lewis
TELECOMMUNICATIONS CONSTRUCTION/ENGINEERING POINT OF SALE
British Telecom Brown & Root Asda
Energis GEC--Marconi Aerospace Going Places
Fujitsu Mitsui Babcock House of Fraser
INSURANCE OEM/OUTSOURCERS GOVERNMENT
Legal & General ADP French Ministry of Agriculture
Royal Sun Alliance Computer Sciences Corporation London Borough of Tower Hamlets
Sedgwicks IBM UK Ministry of Defence
</TABLE>
No single customer accounted for more than 5% of the Company's revenues in
any of the last three fiscal years.
SALES AND MARKETING
The Company markets services and products as part of a systems solution to
its clients and emphasizes its ability to provide highly qualified personnel to
implement these solutions cost effectively. Sales of services are predominantly
made directly to the corporate and government markets, while the sales of
storage systems are predominantly made through sub-distributors and VARs where
the Company's products are typically used as elements of a VAR's overall
solutions.
The Company's direct sales force is primarily focused on large and
multinational corporate customers and is organized by operating groups based on
the Company's services and products and also increasingly on a
26
<PAGE>
corporate account basis in the case of larger customers. Direct sales channels
include field sales, telemarketing and direct mail. At April 30, 1998, the
Company had approximately 80 sales and marketing personnel.
The Company's sales representatives are focused on developing
cross-marketing opportunities. The Company promotes these activities by
scheduling internal sales conferences, paying a portion of compensation based on
internal business referrals and maintaining a formal corporate accounts
structure.
COMPETITION
The overall computer services industry is intensely competitive and is
composed of hundreds of companies, many of whom have capital, marketing
expertise and personnel resources far superior to that of 4Front. The Company
competes primarily with a wide range of companies of varying sizes that operate
both in the niche markets which the Company serves and in the computer services
industry generally. 4Front also competes with larger European computer service
and consulting firms.
The Company believes that the principal competitive factors in the industry
are breadth of service offerings, quality of products supplied, expertise in
niche markets, price and service. The Company believes that its ability to offer
specialized solutions and to remain competitive in these markets will depend
largely upon its ability to recruit and retain highly skilled personnel.
The Company believes that it is able to successfully compete with large
European computer service and consulting firms due to its focus and
concentration in specified niche markets and the Company's high level of
specialized skills and services. The Company also believes that it is able to
obtain a competitive advantage with respect to both larger and smaller
competitors in the niche markets which it serves through its proprietary systems
and customized software and its reputation and leadership position in specialist
markets.
EMPLOYEES
As of April 30, 1998, the Company employed a total of 689 employees
consisting of 82 in sales and marketing, 253 in engineering, 160 in technical
support and 194 in logistics, management and administration. The Company's
employees are not represented by a labor union, and the Company has not had any
work stoppages, strikes or organization attempts. The Company believes that its
employee relations are good.
27
<PAGE>
PROPERTIES
The Company does not own any real property. The Company currently leases
office and warehouse space as follows:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE LEASE EXPIRATION
- -------------------------------------- --------------- ------------------
<S> <C> <C>
BELGIUM
Brussels.............................. 8,980 March, 2002
FRANCE
Paris................................. 10,390 August, 2006
Champs Sur Marne...................... 1,570 February, 2006
UNITED KINGDOM
Aberdeen.............................. 1,000 October, 1998
Basingstoke........................... 14,100 September, 1999
Brighton.............................. 5,340 February, 2002
Bristol............................... 9,800 September, 2006
Livingstone........................... 1,000 May, 2000
London................................ 5,935 April, 2002
Newbury............................... 7,110 September, 2002
Ruislip............................... 13,100 February, 2002
Slough................................ 17,242 December, 2010
Manchester............................ 11,400 January, 2001
Warrington............................ 3,500 December, 2012
Watford............................... 9,500 August, 2013
UNITED STATES
Englewood, Colorado................... 500 December, 1999
</TABLE>
The Company's aggregate property lease payments are currently $1,546,000 per
annum and are subject to reviews during the terms of the various leases. The
Company believes that it has adequate office and warehouse space to accommodate
its needs for the next several years.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company. Their respective backgrounds
are described following the table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------------------------------
<S> <C> <C>
Anil Doshi................................ 53 Chairman of the Board, Chief Executive Officer and Director
Mark Ellis................................ 44 Vice Chairman of the Board, President and Director
Kenneth Newell............................ 54 Vice President of Corporate Affairs and Director
Terence Burt.............................. 41 Vice President, Chief Operating Officer and Director
Craig Kleinman............................ 42 Secretary and Director
Stephen McDonnell......................... 35 Chief Financial Officer
Brian V. Murray........................... 50 Director
Arthur Keith Ross......................... 46 Director
</TABLE>
ANIL DOSHI is Chairman of the Board of Directors, Chief Executive Officer
and a Director of the Company since April 1993. Mr. Doshi co-founded Communic8
Software (the Company's predecessor-in-interest) in January 1990 and served as
its Chairman from April 1992 to March 1993. Mr. Doshi is a Fellow of the
Institute of Chartered Accountants in England and Wales, and he is also an
Associate of the Chartered Institute of Taxation. From 1988 until 1990, Mr.
Doshi was a consultant to and then Deputy Chairman of PPI Enterprises, Inc., a
New York based holding company ("PPI"). In 1990, PPI's parent company, Polly
Peck International, plc, a UK company, went into administration under UK law, an
insolvency proceeding analogous to Chapter 11 Bankruptcy in the United States.
MARK ELLIS is Vice Chairman of the Board of Directors since April 1998 and
President and a Director of the Company since April 1993. Mr. Ellis co-founded
Communic8 Software and served as a director from January 1992 until March 1993.
From 1988 to January 1991, Mr. Ellis served as the President of PPI. As
President of PPI, he managed that company's American expansion program and
negotiated a number of acquisitions in the U.S., including the $875 million
acquisition of Del Monte Tropical Fruit from RJR Nabisco. Mr. Ellis was
graduated from St. John's College at Cambridge University in England and
received a B.A. in Law in 1975, an L.L.B. in 1976, and an M.A. in Law in 1978.
See preceding paragraph for additional information regarding PPI.
KENNETH NEWELL has been Vice President of Corporate Affairs of the Company
since April 1998 and a Director of the Company since April 1996. He was a
co-founder of K2 Group Plc in 1988, which was acquired by the Company in January
1994, and was 4Front Group plc's Chief Executive until 1997. Mr. Newell is a
Fellow of the Institute of Chartered Secretaries and Administrators following
study at the City of London College.
TERENCE BURT has been a Vice President and Chief Operating Officer since
April 1998 and a Director since April 1997. He was a co-founder of K2 Group Plc,
and was Managing Director of the Company's systems integration division between
1990 and 1996. He became Managing Director of the services division in 1996 and
Managing Director of 4Front Group in 1997. Mr. Burt was graduated from the
University of Hertfordshire and is a member of the Chartered Institute of
Management Accountants.
CRAIG KLEINMAN is Secretary and a Director of the Company since April 1993.
Mr. Kleinman served as Chief Financial Officer of the Company from April 1993
until April 1996. During the past nine years, Mr. Kleinman has been a
shareholder in the certified public accounting firm Kleinman, Guerra & Company,
P.C. Mr. Kleinman received a B.S. degree in accounting from the University of
Colorado in 1978 and is a member of the American Institute of Certified Public
Accountants.
STEPHEN MCDONNELL has been Chief Financial Officer of the Company since
September 1996. From April 1993 to September 1996, Mr. McDonnell served 4Front
Group plc as a financial accountant. Prior to joining the Company in April 1993,
Mr. McDonnell was Chief Accountant for five years to French Connection plc, a UK
public company. Mr. McDonnell was graduated from the College of Commerce in
Dublin, Ireland.
29
<PAGE>
BRIAN V. MURRAY has been a Director of the Company since April 1996. Mr.
Murray is President and Chief Executive Officer of B.V. Murray & Co., an
investment banking firm, which he founded in July 1996. Prior thereto, Mr.
Murray held various positions at Bear, Stearns & Co., Inc. from 1976 until July
1996, when he was a Senior Managing Director.
ARTHUR KEITH ROSS has been a Director of the Company since February 1996.
Mr. Ross is currently a private investor and a consultant to the London law
firm, Denton, Hall and Burgin. From 1986 to 1994, Mr. Ross was a partner in the
London law firm Clifford Chance, which he joined in 1984. Mr. Ross headed the
Clifford Chance South East Asian office in Singapore from 1988 to 1991. Mr. Ross
was graduated from Christ's College at Cambridge University in England and
received a BA in Law in 1973 and an MA in Law in 1976.
All directors hold office until the next meeting of the stockholders of the
Company and until their successors are elected and qualified.
The Board of Directors has an Audit Committee which is charged with
reviewing the Company's internal accounting procedures and consulting with and
reviewing the selection of the Company's independent auditors. The Audit
Committee currently consists of Messrs. Doshi, Ross and Murray. The Board of
Directors also has a Compensation Committee charged with recommending to the
Board the compensation for the Company's executives and administering the
Company's stock option plans. The Compensation Committee is currently composed
of Messrs. Doshi, Ellis, Murray and Ross. The Board of Directors has also
established an Executive Committee charged with exercising powers of the Board
of Directors expressly delegated to it. The Executive Committee is currently
composed of Messrs. Doshi and Ellis. During fiscal 1998, the Executive Committee
met once. Each director attended at least 75% of the meetings of the Board of
Directors and of all committees of the Board of Directors on which he served.
EXECUTIVE COMPENSATION
The tables and discussion below set forth information about the compensation
awarded to, earned by, or paid to the Company's chief executive officer and the
four other most highly compensated executive officers during the fiscal years
indicated. Except as noted below, no other executive officer of the Company or
any of its then existing subsidiaries earned compensation in excess of $100,000
during any of such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- --------------------------
FISCAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS OPTIONS COMPENSATION(2)
- ----------------------------------------------------- ----------- ---------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Anil Doshi
Chairman of the Board and Chief Executive
Officer(3)......................................... 1998 $ 205,375 $ 90,365 -- $ 65,857
1997 169,821 24,105 -- 19,631
1996 38,196 -- 120,000 --
Mark Ellis
Vice Chairman of the Board and President(3)........ 1998 180,730 65,720 -- 43,918
1997 158,336 24,105 -- 15,260
1996 36,158 -- 120,000 10,266
Kenneth Newell
Vice President for Corporate Affairs............... 1998 152,663 32,860 -- 37,934
1997 129,902 24,105 -- 25,604
1996 107,107 23,626 109,300 29,580
Terence Burt
Vice President and Chief Operating Officer......... 1998 149,239 36,968 10,000 25,424
1997 110,080 44,996 -- 21,526
1996 94,506 39,378 98,050 13,368
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Stephen McDonnell
Chief Financial Officer............................ 1998 71,950 24,645 10,000 10,246
1997 56,212 16,070 4,000 9,481
1996 51,975 -- 8,000 8,505
</TABLE>
- ------------------------
(1) Represents the period beginning February 1 of the prior year and ending
January 31 of the year indicated.
(2) Represents contributions made by the Company to Executive Pension Plans, car
allowances and insurance benefits.
(3) Messrs. Doshi and Ellis entered into employment agreements with the Company
in November 1995, which provide for annual base salaries of $256,000 and
$225,000 as of February 1, 1998, respectively. See "--Employment
Arrangements." Prior to November 1995, Messrs. Doshi and Ellis did not
receive any salary compensation for services to the Company.
STOCK OPTIONS
The following table sets forth certain summary information concerning
individual grants of stock options made during the year ended January 31, 1998
to each of the Company's executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED 1998 (1) PER SHARE (2) DATE (3) 5%(4) 10%(4)
- ------------------------------------------------ ----------- ------------- ------------- ----------- --------- ----------
Anil Doshi...................................... 0 -- -- -- -- --
Mark Ellis...................................... 0 -- -- -- -- --
Kenneth Newell.................................. 0 -- -- -- -- --
Terence Burt.................................... 10,000 2.9% $ 3.38 2/13/07 $ 91,461 $ 165,000
Stephen McDonnell............................... 7,500 2.2% $ 3.38 2/13/07 $ 68,550 $ 124,200
2,500 0.7% $ 8.75 11/24/07 $ 9,425 $ 27,975
</TABLE>
- ------------------------
(1) Based on an aggregate of 334,500 options which were granted during fiscal
1998.
(2) All options were granted at fair market value on the date of grant.
(3) All options have a fixed term of ten years and vest in full over 30 months
from the date of grant.
(4) Potential gains are reported net of the option exercise price, but before
taxes associated with exercise. These amounts represent certain assumed
rates of appreciation only in the price of the Company's Common Stock during
the terms of the options in accordance with rates specified in applicable
federal securities regulations. Actual gains on stock option exercises are
dependent on the future performance of the Common Stock and overall stock
market conditions. The amounts reflected in this table may not necessarily
be achieved. The Company's Common Stock price, as reported by the Nasdaq
National Market on January 30, 1998, was $7.69 per share.
On March 24, 1998, subject to stockholder approval to amend the Company's
1996 Equity Incentive Plan, 40,000 options were granted to each of Messrs.
Doshi, Ellis, Newell and Burt and 6,000 options were granted to Mr. Kleinman,
each at an exercise price of $8.75, equal to the fair market value of the Common
Stock on the date of grant. In addition, on March 24, 1998, Mr. McDonnell
received 5,000 options at an exercise price of $8.75.
31
<PAGE>
The following table sets forth at January 31, 1998, the number of options
and the value of unexercised options held by each of the executive officers
named in the Summary Compensation Table. No options were exercised in the fiscal
year ended January 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED
OPTIONS AT YEAR END IN-THE-MONEY
---------------------------- OPTIONS AT
NAME EXERCISABLE UNEXERCISABLE YEAR END(1)
- ------------------------------------------------------------------------ ----------- --------------- ------------
<S> <C> <C> <C>
Anil Doshi.............................................................. 270,000 -- $ 876,300
Mark Ellis.............................................................. 270,000 -- 876,300
Kenneth Newell.......................................................... 200,000 -- 628,200
Terence Burt............................................................ 168,333 6,667 553,900
Stephen McDonnell....................................................... 27,667 9,333 93,766
</TABLE>
- ------------------------
(1) Computed based upon the difference between the stock option exercise price
and the closing price of the Company's Common Stock on January 30, 1998
($7.69).
EMPLOYMENT ARRANGEMENTS
Messrs. Doshi and Ellis entered into employment agreements with the Company
which commenced November 1, 1995. These agreements are terminable at any time
after an initial term of three years on one years' notice. Under such
agreements, Messrs. Doshi and Ellis are entitled to base annual salaries of
$256,000 (L156,250) and $225,000 (L137,000), respectively. Prior to the
execution of such employment agreements, neither Messrs. Doshi nor Ellis had
received salary compensation for services performed for the Company and its
affiliates.
Messrs. Newell and Burt entered into employment agreements with the Company
at salaries as at February 1998 of $195,000 (L118,750) and $195,000 (L118,750).
No other executive officer is currently party to an employment agreement
with the Company. As appropriate, other employment contracts may be entered into
with other key executives.
STOCK OPTIONS AND BENEFIT PLANS
In September and November 1994 the Company issued a total of 1,260,875
options to management, employees and consultants, exercisable for five years at
an exercise price of $4.00 per share.
In August and November 1995 the Company issued a total of 725,463 options to
management, employees and consultants, exercisable for five years at an exercise
price of $5.00 per share. Of the options granted, 120,000, 120,000, 60,000,
20,000, 109,300 and 98,050 options were granted to Messrs. Doshi, Ellis,
Kleinman, Ross, Newell and Burt, respectively.
The Company maintains contributory, non-defined pension plans for the
benefit of Messrs. Doshi and Ellis to which it makes contributions of
approximately $54,000 (L32,000) per annum. The Company also maintains
contributory, non-defined pension plans for the benefit of Messrs. Newell and
Burt to which it makes contributions of approximately $15,000 (L9,000) per
annum.
1996 EQUITY INCENTIVE PLAN
In May 1996, the Company, adopted the 1996 4Front Technologies, Inc. Equity
Incentive Plan (the "Plan"), which provides for the issuance of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and non-qualified stock options, to purchase an aggregate of up to
400,000 shares of the Common Stock of the Company. The Plan permits the granting
of options to officers, employees, directors and consultants of the Company.
This Plan was approved by stockholders on February 5, 1997 and
32
<PAGE>
pursuant to the Plan a total of 247,000 options, exercisable at between $3 3/8
and $5 3/4 per share, being at or above market value at time of grant, have been
granted to employees and to two directors. In November 1997, a total of 87,500
options, exercisable at $8.75, being at or above market value at the time of
grant, were granted to employees. In March 1998, the Board of Directors adopted
amendments to the Plan, subject to stockholder approval, which would increase
the number of options available for grant thereunder to 800,000 and permit the
granting of additional options to directors. In addition, subject to stockholder
approval, the Board granted 40,000 options each to Messrs. Doshi, Ellis, Newell
and Burt and 6,000 options each to Messrs. Kleinman, Ross and Murray, each at an
exercise price of $8.75 per share, equal to the fair market value of the Common
Stock on the date of grant.
COMPENSATION OF DIRECTORS
Messrs. Murray and Ross each received compensation of $15,000 in the fiscal
year 1998. In March 1998, their compensation was increased to $20,000 per year.
No other director receives any compensation for services as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Doshi, Ellis,
Murray and Ross. Messrs. Doshi and Ellis abstain from votes on their own
compensation. See "--Employment Arrangements."
33
<PAGE>
- -
CERTAIN TRANSACTIONS
As of January 31, 1998, a total of $18,000 remained outstanding from the
Company to Mr. Doshi primarily representing expenses due for fiscal 1998. As at
January 31, 1997, a receivable of $644,356 was due from Mr. Anthony Malpas, a
related party. During fiscal 1998, Mr. Malpas invoiced the Company $198,250 for
consultancy services. The remaining receivable from Mr. Malpas of $446,106 was
settled on September 30, 1997. At January 31, 1998, all receivables from related
parties have been settled and there is nothing owed to the Company.
34
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 26, 1998 by (i) each person
known to the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each of the Company's directors, (iii) each of
the persons named in the Summary Compensation Table, (iv) all directors and
executive officers of the Company as a group and (v) each Selling Stockholder.
Unless otherwise indicated below, the persons named below have sole voting and
investment power with respect to the number of shares set forth opposite their
names, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON STOCK
STOCK BENEFICIALLY
OWNED BEFORE THE NUMBER OF BENEFICIALLY OWNED
OFFERING(1) SHARES AFTER THE OFFERING(1)
----------------------- BEING -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT SOLD NUMBER PERCENT
- --------------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND OTHER PRINCIPAL
STOCKHOLDERS
- ---------------------------------------------------------
Anil Doshi (2)........................................... 960,212 12.94% -- 960,212 8.41%
Mark Ellis (3)........................................... 547,812 7.38 45,000 502,812 4.40
Kenneth Newell (4)....................................... 262,578 3.57 40,000 222,578 1.96
Terence Burt (5)......................................... 230,915 3.15 40,000 190,915 1.69
Arthur Keith Ross (6).................................... 182,350 2.52 10,000 172,350 1.54
Craig Kleinman (7)....................................... 91,000 1.26 15,000 76,000 *
Stephen McDonnell (8).................................... 29,000 * 10,000 19,000 *
Brian Murray (9)......................................... 9,167 * -- 9,167 *
FMR Corporation (10)..................................... 615,900 8.61 -- 615,900 5.52
OTHER SELLING STOCKHOLDERS
- ---------------------------------------------------------
Stuart Doshi (11)........................................ 190,000 2.63 40,000 150,000 1.34
The Claudius Trust (12).................................. 86,250 1.19 80,000 6,250 *
Simon Andrews (12)....................................... 82,044 1.14 20,000 62,044 *
Chris Hervey (12)........................................ 60,000 * 20,000 40,000 *
Mark McVeigh (13)........................................ 58,667 * 25,000 33,667 *
Peter Wellings (12)...................................... 42,300 * 42,300 -- *
James Sutherland (12).................................... 41,000 * 16,000 25,000 *
Bruce Horowitz (12)...................................... 25,000 * 12,500 12,500 *
Joe Huard (12)........................................... 24,000 * 24,000 -- *
Miller & Holguin (12).................................... 22,708 * 22,708 -- *
Paul Banko (14).......................................... 13,500 * 6,000 7,500 *
Massoud Kharrazian (12).................................. 12,500 * 12,500 -- *
Marvin Susemihl (12)..................................... 12,500 * 12,500 -- *
David Bampton (12)....................................... 12,000 * 4,000 8,000 *
Peter Blowitz (12)....................................... 10,000 * 10,000 -- *
Walter Hendricks (12).................................... 10,000 * 10,000 -- *
Philip Mendonca (12)..................................... 10,000 * 10,000 -- *
Andrew Gueritz (12)...................................... 7,500 * 7,500 -- *
John Walduck (12)........................................ 7,167 * 1,750 5,417 *
Paul Leonard (12)........................................ 5,667 * 1,750 3,917 *
Tim Baugh (12)........................................... 5,625 * 1,500 4,125 *
Lindsay Baugh (12)....................................... 5,625 * 1,500 4,125 *
John Fox (12)............................................ 5,500 * 2,500 3,000 *
Keith Brackpool (12)..................................... 5,000 * 5,000 -- *
Audrey Manning (12)...................................... 2,500 * 1,500 1,000 *
Michael Seymour (12)..................................... 2,500 * 2,500 -- *
Chris Arnold (12)........................................ 1,750 * 1,000 750 *
Marina McGovern (12)..................................... 1,750 * 1,750 -- *
David Mullender (12)..................................... 1,750 * 500 1,250 *
Bryan Parnham (12)....................................... 1,750 * 750 1,000 *
Allison McKie (12)....................................... 750 * 750 -- *
Amanda Williams (12)..................................... 750 * 750 -- *
Gary Rawlins (12)........................................ 750 * 750 -- *
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON STOCK
STOCK BENEFICIALLY
OWNED BEFORE THE NUMBER OF BENEFICIALLY OWNED
OFFERING(1) SHARES AFTER THE OFFERING(1)
----------------------- BEING -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT SOLD NUMBER PERCENT
- --------------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Jason Goddard (12)....................................... 750 * 750 -- *
Lorna Reynolds (12)...................................... 750 * 750 -- *
Paul Barrie (12)......................................... 750 * 750 -- *
Peter Lees (12).......................................... 750 * 750 -- *
Samantha Thompson (12)................................... 750 * 750 -- *
Andrew Cowl (12)......................................... 750 * 750 -- *
Claire Savage (12)....................................... 750 * 750 -- *
Keith Sponder (12)....................................... 750 * 750 -- *
Mayur Morjaria (12)...................................... 750 * 750 -- *
All Directors and Executive Officers as a Group
(9 persons) (15)....................................... 2,267,522 27.49 160,000 2,107,522 17.28
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities. The address of
each director and executive officer of the Company is c/o 4 Front
Technologies, Inc., 57A Hatton Garden, London EC1N 8JD England.
(2) Includes 45,512 shares owned by Aliki Financial Corp., in which Mr. Doshi
has a 65% interest. Also includes 270,000 shares purchasable pursuant to
immediately exercisable options.
(3) Includes 45,512 shares owned by Aliki Financial Corp., in which Mr. Ellis
has a 35% interest. Also includes 270,000 shares purchasable pursuant to
immediately exercisable options.
(4) Includes 7,051 shares owned by Mr. Newell's wife and 28,790 shares held by
Lex Nominees International as nominee for a Jersey resident settlement
established for the benefit of Mr. Newell and his wife and children. Also
includes 200,000 shares purchasable pursuant to immediately exercisable
options. Mr. Newell disclaims beneficial ownership of the shares held by
his wife.
(5) Includes 33,347 shares owned by Mr. Burt's wife and 28,794 shares held by
Lex Nominees International as nominee for a Jersey resident settlement
established for the benefit of Mr. Burt and his wife and children. Also
includes 168,333 shares purchasable pursuant to immediately exercisable
options. Mr. Burt disclaims beneficial ownership of the shares held by his
wife.
(6) Includes 83,500 shares purchasable pursuant to immediately exercisable
options.
(7) Includes 75,000 shares purchasable pursuant to immediately exercisable
options.
(8) Consists of 29,000 shares purchasable pursuant to immediately exercisable
options.
(9) Includes 6,667 shares purchasable pursuant to immediately exercisable
options.
(10) Based on information in an amended Schedule 13G dated February 14, 1998,
filed by the beneficial owner. The amended Schedule 13G states that such
beneficial owner has sole power to dispose of all of such shares. The
address of such beneficial owner is 82 Devonshire Street, Boston, MA 02109.
(11) Includes 60,000 shares purchasable pursuant to immediately exercisable
options.
(12) Consists of shares purchasable pursuant to immediately exercisable options
or warrants.
(13) Includes 18,000 shares purchasable pursuant to immediately exercisable
options.
(14) Includes 6,000 shares purchasable pursuant to immediately exercisable
warrants.
(15) Includes 1,096,500 shares subject to options which are immediately
exercisable. Does not include 201,000 shares subject to options which are
not exercisable within 60 days of May 26, 1998.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Certificate of Incorporation of the Company provides the Company with
the authority to issue 30,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. At May 15, 1998, there were 7,151,317 shares of Common Stock
outstanding. No shares of Preferred Stock are outstanding.
DIVIDENDS. Each share of Common Stock is entitled to dividends if, as and
when dividends may be declared by the Board of Directors of the Company and
paid. Under the Delaware General Corporation Law, the Company may declare and
pay dividends only out of its surplus, or in case there shall be no such
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding year. No dividends may be declared, however, if
the capital of the Company has been diminished by depreciation, losses or
otherwise to an amount less than the aggregate amount of capital represented by
any issued and outstanding stock having a preference on distribution.
VOTING RIGHTS. Each share of Common Stock is entitled to one vote on all
matters.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series as
determined by the Board of Directors. The Board of Directors is authorized to
issue the shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of such Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock, including the loss of voting control to
others. The Company currently has no plan to issue any shares of such Preferred
Stock.
REGISTRATION RIGHTS
If the Company proposes to register any of its securities, either for its
own account or for the account of other stockholders, the Company is required,
with certain exceptions, to notify stockholders of the Company holding 2,354,665
shares of Common Stock in the aggregate and, subject to certain limitations, to
include in such registration all of the shares of Common Stock requested to be
included by such holders. The Company is generally required to pay all the
expenses of such registration other than underwriting discounts and commissions.
In connection with this Offering, the Company has notified such stockholders and
stockholders selling 372,508 shares of Common Stock have determined to
participate in the Offering.
DELAWARE ANTI-TAKEOVER LAW
Under Section 203 of the Delaware General Corporation Law (the "Delaware
Anti-Takeover Law"), certain "business combinations" between a Delaware
corporation whose stock generally is publicly traded or held of record by more
than 2,000 stockholders and any person acquiring 15% or more of the voting stock
of such Delaware corporation (an "interested stockholder") are prohibited for a
three-year period following the date that such stockholder became an interested
stockholder, unless (i) either the business combination or the transaction which
resulted in the stockholder becoming an "interested stockholder" was approved by
the board of directors of the corporation prior to the time the other party to
the business combination became an interested stockholder, (ii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers and stock held in employee stock plans in
which the employees do not have a right to determine confidentially whether to
tender or vote stock held by the plan), or (iii) the business combination was
approved by the board of directors of the corporation and authorized by 66 2/3%
of the voting stock which the interested stockholder did not own. The
corporation may opt out of the effect of this statute by (i) including a
provision to such effect in the corporation's original certificate of
37
<PAGE>
incorporation, (ii) amendment to the corporation's bylaws made by the board of
directors within 90 days after the effective date of the statute or (iii)
amendment of the corporation's certificate of incorporation or bylaws approved
by holders of a majority of the shares entitled to vote; provided that such
amendment shall not take effect until 12 months after its adoption and shall not
affect any business combination with interested stockholders which are effected
during such 12 months. The three-year prohibition does not apply to certain
business combinations proposed by an interested stockholder following the
announcement or notification of certain extraordinary transactions involving the
corporation and a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with the approval
of a majority of the corporation's directors. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as a stockholder who becomes the beneficial owner of 15% or
more of a Delaware corporation's voting stock. Section 203 could have the effect
of delaying, deferring or preventing a change in control of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director derives an improper personal benefit.
Moreover, the provisions do not apply to claims against a director for
violations of certain laws, including federal securities laws. If the Delaware
General Corporation Law is amended to authorize the further elimination or
limitation of directors' liability, then the liability of directors of the
Company shall automatically be limited to the fullest extent provided by law.
The Company's By-laws also contain provisions to indemnify the directors,
officers, employees or other agents to the fullest extent permitted by the
Delaware General Corporation Law. In addition, the Company has entered into
indemnification agreements with its current directors. These provisions and
agreements may have the practical effect in certain cases of eliminating the
ability of stockholders to collect monetary damages from directors. The Company
believes that these contractual agreements and the provisions in its Certificate
of Incorporation and By-laws are necessary to attract and retain qualified
persons as directors and officers.
TRANSFER AGENT
The Transfer Agent for the Common Stock is American Securities Transfer
Incorporated.
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<PAGE>
CERTAIN UNITED STATES FEDERAL
TAX CONSEQUENCES FOR NON-U.S. HOLDERS
The following is a general summary of certain United States federal income
and estate tax consequences of the ownership and disposition of Common Stock by
"Non-U.S. Holders" (as defined below). This discussion is based on existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations promulgated thereunder, judicial decisions and
administrative rulings, all of which are subject to change or alternative
construction, possibly with retroactive effect. This summary does not address
all federal income and estate tax consequences that may be relevant to a
Non-U.S. Holder in light of such holder's particular circumstances, or to
certain Non-U.S. Holders that may be subject to special treatment under U.S.
federal income tax laws, such as life insurance companies, tax-exempt
organizations, banks or other financial institutions or certain expatriates or
former long-term residents of the United States. For purposes of this summary,
the term "Non-U.S. Holder" means a beneficial owner of Common Stock that for
federal income tax purposes is not (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of its source and (iv) a trust if either (a) a U.S. court is able to
exercise primary supervision over the trust's administration and one or more
U.S. persons have the authority to control all of the trust's substantial
decisions or (b) the trust was in existence on August 20, 1996 and, in general,
would have been treated as a U.S. Holder under rules applicable prior to such
time, provided the trust elects to continue such treatment thereafter.
EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES OF OWNING AND DISPOSING OF SHARES OF COMMON STOCK, AS WELL AS ANY
TAX CONSEQUENCES OF OWNING AND DISPOSING OF SHARES OF COMMON STOCK UNDER THE
LAWS OF ANY STATE, LOCAL OR OTHER TAXING JURISDICTION.
DIVIDENDS. Dividends paid to a Non U.S. Holder generally will be subject to
United States federal withholding tax at a 30% rate (or lower rate provided
under an applicable income tax treaty) unless the dividends are taxable as
effectively connected with the conduct of a trade or business in the United
States and the Non-U.S. Holder delivers IRS Form 4224 to the payor. If the
dividends are effectively connected with the conduct of a trade or business in
the United States by the Non-U.S. Holder, such dividends will not be subject to
the withholding tax described above and will instead be subject to U.S. federal
income tax on a net income basis as if such Non-U.S. Holder were a U.S.
resident. If such Non-U.S. Holder is a foreign corporation, it may also be
subject to a United States branch profits tax on such effectively connected
income at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty.
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding rules
discussed above and, under the current interpretation of Treasury regulations,
for purposes of determining the applicability of an income tax treaty rate.
However, under recently issued Treasury regulations (the "New Regulations"),
that generally will be effective for distributions after December 31, 1999, a
Non-U.S. Holder of Common Stock who wishes to claim the benefit of an applicable
treaty rate generally would be required to provide an Internal Revenue Service
Form W-8 (or suitable substitute form) certifying such Non-U.S. Holder's
entitlement to benefits under the treaty. Special procedures are provided in the
New Regulations for payments through qualified intermediaries. In addition,
under the New Regulations, in the case of a Non-U.S Holder that is fiscally
transparent (e.g., a partnership) for U.S. federal income tax purposes, the
certification requirements generally would be applied to each of the ultimate
beneficial owners of the entity. Non-U.S. Holders are advised to consult their
tax advisors regarding the effect, if any, of the New Regulations.
DISPOSITION OF COMMON STOCK. A Non-U.S. Holder of Common Stock generally
will not be subject to United States federal income tax or withholding tax on
any gain realized on the sale, exchange, retirement or other disposition of
Common Stock, unless (i) the gain is effectively connected with a United States
trade or business of the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder
who is an individual and who holds the Common Stock as a capital asset, such
holder is present in the United States for a period or periods aggregating
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<PAGE>
183 days or more during the taxable year of the disposition, and either such
holder has a "tax home" in the United States or the disposition is attributable
to an office or other fixed place of business maintained by such holder in the
United States, (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of the Code applicable to certain United States expatriates whose
loss of U.S. citizenship has as one of its principal purposes the avoidance of
U.S. taxes, or (iv) the Company is then or has been within a specified period a
United States real property holding corporation. The Company does not believe
that it is, or is likely to become, a United States real property holding
corporation. To the extent that the amount of cash and the fair market value of
any property received upon the sale or other disposition of Common Stock is
deemed a dividend distribution, the Non-U.S. Holder may be subject to tax on
such cash or other property as described above under "Dividends."
FEDERAL ESTATE TAX. An individual Non-U.S. Holder who is treated as the
owner of or has made certain lifetime transfers of an interest in Common Stock
will be required to include the value thereof in his or her gross estate for
U.S. federal estate tax purposes and may be subject to U.S. federal estate tax
unless an applicable estate tax treaty provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX. The
Company must report annually to the IRS and to each Non-U.S. Holder any dividend
that is subject to withholding, or that is exempt from U.S. withholding tax
(pursuant to a tax treaty or the exceptions described above), and any tax
withheld with respect to such dividends. Copies of the information returns
reporting such dividends and withholding may be made available to the tax
authorities in the country in which the Non-U.S. Holder is a resident under the
provisions of an applicable income tax treaty.
U.S. backup withholding, which is imposed at the rate of 31% on certain
payments to persons that fail to furnish information under the U.S. information
reporting requirements, generally will not apply to dividends paid to Non-U.S.
Holders that are subject to the 30% withholding tax described above or that are
subject to treaty reduction, or, under current law, to a Non-U.S. Holder at an
address outside the United States.
Under the rules in effect for payments made on or before December 31, 1999,
payment of the proceeds of the sale or other disposition of Common Stock to or
through a United States office of a broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding at a rate of 31% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption (provided the broker does not have actual
knowledge that the holder is a U.S. Person or that the conditions of any other
exemption are not, in fact, satisfied). Payment of the proceeds of the sale of
Common Stock to or through a foreign office of a foreign broker that is not a
"U.S. related person" generally will not be subject to information reporting or
backup withholding tax. For this purpose, a "U.S. related person" is (i) a
"controlled foreign corporation" for United States federal income tax purposes
or (ii) a foreign person 50% or more of whose gross income from all sources for
a specified period is derived from activities that are effectively connected
with the conduct of a United States trade or business. In the case of the
payment of proceeds from the disposition of Common Stock to or through a foreign
office of a broker that is either a United States person or a U.S. related
person, information reporting is required on the payment unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder and the
broker has no actual knowledge to the contrary.
With respect to payments made after December 31, 1999, the New Regulations,
subject to certain transition rules, alter the foregoing rules in certain
respects. Those regulations provide presumptions under which a Non-U.S. Holder
is subject to information reporting and backup withholding at the rate of 31%
unless the Company receives certification from the holder (or the Non-U.S.
Holder satisfies certain documentary evidence requirements) establishing
non-U.S. status. Depending on the circumstances, this certification will need to
be provided (i) directly by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity, by
the partners, shareholders or other beneficiaries of such entity, or (iii)
certain qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's United States federal income tax, provided that the required
information is furnished to the IRS. Non-U.S. Holders of Common Stock should
consult their own tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 11,019,317 shares of
Common Stock outstanding. Of those shares, the 4,000,000 shares sold in the
Offering, and an additional approximately 7,000,000 shares, are freely tradeable
without restriction (except as to affiliates of the Company) or further
registration under the Securities Act.
The Company, all of the Company's executive officers and directors and the
Selling Stockholders have agreed that, without the prior written consent of
Hambrecht & Quist on behalf of the Underwriters, they will not (i) offer,
pledge, sell, contract to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock (whether such shares or any such securities are now owned by
such stockholder or acquired after the date of this Prospectus), or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, for a
period of 90 days after the date of this Prospectus, other than (A) the sale to
the Underwriters of the shares of Common Stock under the Underwriting Agreement
or (B) the issuance by the Company of shares of Common Stock upon the exercise
of an option or warrant or the conversion of a security outstanding on the date
hereof of which the Underwriters have been advised in writing. These individuals
and entities collectively beneficially hold 1,212,566 shares of Common Stock. Of
such 1,212,566 shares of Common Stock, approximately 175,044 shares of Common
Stock held by non-affiliates are eligible for sale in the public market without
restriction pursuant to Rule 144(k) under the Securities Act following this 90
day period and approximately 1,037,522 shares of Common Stock held by affiliates
are to be eligible for sale in the public market, subject to certain volume and
other limitations, see "Principal and Selling Stockholders."
In general, under Rule 144 of the Securities Act as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
restricted securities within the meaning of Rule 144 ("Restricted Shares") for
at least one year (including any preceding period of ownership by a continuous
chain of non-affiliated holders), would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock or the average weekly
trading volume of the Common Stock on the Nasdaq National Market during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least two years (including any period of
ownership of preceding non-affiliated holders), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements. An
"affiliate" is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or under common control with,
such issuer.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement (the
"U.S. Underwriting Agreement"), Hambrecht & Quist LLC, FAC/Equities, a division
of First Albany Corporation, Wheat First Union, a division of Wheat First
Securities, Inc. and Kaufman Bros., L.P. (the "U.S. Underwriters") have
severally agreed to purchase from the Company and the Selling Stockholders the
following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------ ----------
<S> <C>
Hambrecht & Quist LLC.................................................................................
First Albany Corporation..............................................................................
Wheat First Securities, Inc...........................................................................
Kaufman Bros., L.P....................................................................................
----------
Total............................................................................................. 3,200,000
----------
----------
</TABLE>
Subject to the terms and conditions of the International Underwriting
Agreement (the "International Underwriting Agreement"), Hambrecht & Quist
Euromarkets and Panmure Gordon & Co. Limited (the "International Managers") have
severally agreed to purchase from the Company and the Selling Stockholders the
following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
Hambrecht & Quist Euromarkets.........................................................................
Panmure Gordon & Co. Limited..........................................................................
-----------
Total............................................................................................. 800,000
-----------
-----------
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting Agreement
(collectively, the "Underwriting Agreement") provide that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased. The offering price and the underwriting discount
for the U.S. Offering and the International Offering are identical. The closing
for the International Offering is a condition to the closing of the U.S.
Offering, and the closing of the U.S. Offering is a condition to the closing of
the International Offering.
The U.S. Underwriters and International Managers propose to offer the shares
of Common Stock directly to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers (who may include the
U.S. Underwriters and the International Managers) at such public offering price
less a concession not in excess of $ per share. The U.S. Underwriters and
the International Managers may allow and such dealers may reallow a concession
not in excess of $ per share to certain other dealers. After the Offering
of the shares, the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the U.S. Underwriters and the International
Managers an option, exercisable no later than 30 days after the date of this
Prospectus, to purchase up to 480,000 shares of Common Stock and 120,000 shares
of Common Stock, respectively. To the extent that either or both of such options
are exercised, each of the U.S. Underwriters or International Managers will have
a firm commitment to purchase approximately the same percentage thereof which
the number of shares of Common Stock to be purchased by it shown in the above
tables bears to the total number of shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the options, to sell shares to the U.S.
Underwriters and the International Managers to the extent the option is
exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of Common Stock
offered hereby.
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The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of Common Stock in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Managers against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the U.S. Underwriters and the International Managers may be required to make in
respect thereof.
The Selling Stockholders have agreed that they will not, without the prior
written consent of Hambrecht & Quist LLC, sell, offer, contract to sell, make
any short sale, pledge, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or any rights to purchase or
acquire Common Stock or enter into any swap or other agreement that transfers,
in whole or in part, any of the economic consequences or ownership of Common
Stock owned by them during the 90-day period following the date of this
Prospectus.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers pursuant to which
each U.S. Underwriter has agreed that, as part of the distribution of the shares
of Common Stock (plus any shares issued to cover over-allotments) offered in the
U.S. Offering (i) it is not purchasing any of such shares for the account of a
non-U.S. or Canadian Person (as defined below) and (ii) it has not offered or
sold, and will not offer, sell, resell or deliver, directly or indirectly, any
of such shares outside the United States and Canada or to a non-U.S. or Canadian
Person. In addition, pursuant to the same agreement, each International Manager
has agreed that, as a part of the distribution of the shares of Common Stock
(plus any shares of Common Stock issued to cover over-allotments) offered in the
International Offering, (a) it is not purchasing any of such shares for the
account of any U.S. or Canadian Person (as defined below) and (b) it has not
offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares in the United States or Canada or to any U.S. or
Canadian Person. Each International Manager has also agreed that it will offer
to sell shares only in compliance with all relevant requirements of any
applicable laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Underwriting Agreements and the
Agreement between U.S. Underwriters and International Managers, including (i)
certain purchases and sales between the U.S. Underwriters and the International
Managers, (ii) certain offers, sales, resales, deliveries or distributions to or
through investment advisors or other persons exercising investment discretion,
(iii) purchases, offers or sales by a U.S. Underwriter who is also acting as an
International Manager or by an International Manager who is also acting as a
U.S. Underwriter and (iv) other transactions specifically approved by Hambrecht
& Quist LLC as Lead Underwriter and Hambrecht & Quist Euromarkets as Lead
Manager. As used herein, (a) the term "United States" means the United States of
America (including the District of Columbia) and its territories, its
possessions and other areas subject to its jurisdiction (b) the term "Canada"
means Canada, its provinces, territories and possessions and other areas subject
to its jurisdiction and (c) the term "U.S. or Canadian Person" means any
resident or citizen of the United States or Canada, any corporation, partnership
or other entity created or organized in or under the laws of the United States
or Canada or any political subdivision thereof or any estate or trust, the
income of which is subject to United States federal income taxation or Canadian
income taxation regardless of its source (other than a foreign branch of any
U.S. or Canadian Person), and includes any United States or Canadian branch of a
person who is not otherwise a U.S. or Canadian Person.
Pursuant to the Agreement between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the International
Managers of such number of shares of Common Stock as may be mutually agreed
upon. Unless otherwise agreed, the price of any shares of Common Stock so sold
shall be the public offering price as then in effect for the shares of Common
Stock being sold by the U.S. Underwriters and the International Managers, less
the selling concession allocable to such shares. To the extent that there are
sales between the U.S. Underwriters and the International Managers pursuant to
the Agreement between U.S. Underwriters and International Managers, the number
of shares of Common Stock initially available for sale by
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<PAGE>
the U.S. Underwriters or by the International Managers may be more or less than
the amount appearing on the cover page of this Prospectus.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making in
the Company's Common Stock during the cooling off period.
In connection with this offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on Nasdaq immediately prior to
the commencement of sales in this offering in accordance with Rule 103 of
Regulation M under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Passive market making consists of displaying bids on Nasdaq
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during a
specified period and must be discontinued when such limit is reached. Passive
market making may stabilize the market price of the Common Stock at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.
Subject to applicable limitations, the Underwriters, in connection with this
offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject to applicable limitations, the Underwriters may also place
bids or make purchases on behalf of the underwriting syndicate to reduce a short
position created in connection with this offering. The Underwriters are not
required to engage in these activities and may end these activities at any time.
Such transactions may be effected on the Nasdaq National Market, on EASDAQ or
otherwise.
In June 1996, in conjunction with an underwritten public offering, the
Company issued to First Albany Corporation and Kaufman Bros., L.P. warrants (the
"Warrants") to purchase 120,000 and 180,000 shares of the Company's Common
Stock, respectively. The aggregate consideration paid for the 300,000 Warrants
was $300.00. The exercise price per Warrant is $9.4875. The Company has granted
certain registration rights with respect to the Warrants to First Albany
Corporation and Kaufman Bros., L.P., neither of which firm is selling shares in
the Offering.
The Company has submitted to the EASDAQ market authority an application for
admission to trading on EASDAQ of the Common Stock under the symbol FFTI.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Fulbright & Jaworski
L.L.P., 666 Fifth Avenue, New York, New York 10103. Attorneys of Fulbright &
Jaworski L.L.P. beneficially own 12,700 shares of the Company's Common Stock.
Certain legal matters will be passed upon for the Underwriters by Brobeck Hale
and Dorr International, Hasilwood House, 60 Bishopsgate, London EC2N 4AJ
England.
EXPERTS
The consolidated financial statements of 4Front Technologies, Inc. included
in this Prospectus and in the Registration Statement have been audited by KPMG,
independent certified public accountants, to the extent and for the periods set
forth in their reports appearing elsewhere in this Prospectus and in the
Registration
44
<PAGE>
Statement, and are included in reliance upon such reports given upon the
authority of such firm as experts in auditing and accounting.
AVAILABLE INFORMATION
4Front is subject to the informational requirements of the Exchange Act, and
in accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by 4Front may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may be obtained from the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition, material filed by
4Front can be inspected at the offices of the Nasdaq National Market at 1735 K
Street, N.W., Washington, D.C. 20006-1506. The Commission maintains a Web site
at http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including 4Front.
4Front has filed with the Commission a Registration Statement on Form S-1
(the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules filed as a part thereof, as permitted by the rules and regulations of
the Commission. For further information with respect to 4Front and the Common
Stock, reference is hereby made to such Registration Statement, including the
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus as to the contents of any contract or other documents referred to
herein are not necessarily complete and where such contract or other document is
an exhibit to the Registration Statement, each such statement is qualified in
all respects by the provisions of such exhibit, to which reference is hereby
made for a full statement of the provisions thereof. The Registration Statement,
including the exhibits filed as a part thereof, may be inspected without charge
at the public reference facilities maintained by the Commission as set forth in
the preceding paragraph. Copies of these documents may be obtained at prescribed
rates from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the Company's quarterly and annual reports together with the
Company's Certificate of Incorporation will be sent by the Company to Belgian
Investors at no cost upon written request to the Company's principal executive
officers.
EASDAQ INFORMATION
BELGIUM RESTRICTIONS
Prior to trading on EASDAQ the Common Stock shall not, whether directly or
indirectly, be offered, sold, transferred or delivered in Belgium to any
individual or entity other than institutional investors referred to in Article
3.2 DEG. of the Belgian Royal Decree of January 9, 1991 on the public character
of transactions involving public savings and the qualification of certain
transactions as public offerings, acting on their own account.
UNITED KINGDOM RESTRICTIONS
The Common Stock is not being offered or sold in or into the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses (or in other circumstances that do not constitute an offer to
the public in the United Kingdom for the purposes of the Public Offers of
Securities Regulations 1995), and this Prospectus may only be issued or passed
on in or into the United Kingdom to any person to whom the Prospectus may
lawfully be issued or passed on by reason of, or of any regulation made under,
Section 58 of the Financial Services Act 1986. All applicable provisions of the
Public Offers of Securities Regulations 1995 and the Financial Services Act 1986
must be complied with in respect of anything done in relation to the Offering
from or otherwise involving, the United Kingdom.
45
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of January 31, 1997 and 1998 and April 30, 1998
(unaudited)........................................................................ F-3
Consolidated Statements of Operations for the years ended January 31, 1996, 1997 and
1998 and for the three months ended April 30, 1997 and 1998 (unaudited)............ F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
January 31, 1996, 1997 and 1998 and for the three months ended April 30, 1997 and
1998 (unaudited)................................................................... F-5
Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1997 and
1998 and for the three months ended April 30, 1997 and 1998 (unaudited)............ F-6
Notes to the Consolidated Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
4Front Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of 4Front
Technologies, Inc. and subsidiaries as of January 31, 1998 and 1997 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three year period ended January 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of 4Front
Technologies, Inc. and Subsidiaries as of January 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the years in the
three year period ended January 31, 1998, in conformity with United States
generally accepted accounting principles.
KPMG
Chartered Accountants
Registered Auditors
London, England
April 30, 1998
F-2
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
JANUARY 31, JANUARY 31, 1998
1997 1998 (UNAUDITED)
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 6,653 $ 4,586 $ 4,353
Accounts receivable, net of allowance for doubtful
accounts of $273,000, $452,000 and $463,000
respectively...................................... 15,365 18,357 20,450
Deposits............................................ 31 49 51
Inventories......................................... 7,133 11,852 13,187
Prepaid expenses.................................... 905 1,835 1,986
Income taxes receivable............................. 32 17 17
Other current assets................................ 230 219 359
----------- ----------- -----------
Total current assets............................ 30,349 36,915 40,403
PROPERTY AND EQUIPMENT, net........................... 2,051 2,855 3,083
INVESTMENT IN AND ADVANCES TO EQUITY INVESTEE......... 143 -- --
RECEIVABLE, RELATED PARTY............................. 644 -- --
INTANGIBLE ASSETS, net................................ 7,777 16,935 16,772
DEFERRED INCOME TAX................................... 974 2,402 2,079
OTHER ASSETS.......................................... 83 101 87
----------- ----------- -----------
TOTAL ASSETS.......................................... $ 42,021 $ 59,208 $ 62,424
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 13,057 $ 16,279 $ 16,782
Accrued liabilities................................. 2,483 4,027 4,303
Stockholder advances................................ 504 18 18
Lines of credit--bank............................... 1,177 2,309 3,762
Notes payable....................................... -- 2,858 2,852
Capital lease obligations, current portion.......... 546 482 472
Income taxes payable................................ 493 1,273 1,516
Deferred revenue.................................... 6,503 8,728 8,457
----------- ----------- -----------
Total current liabilities....................... 24,763 35,974 38,162
CAPITAL LEASE OBLIGATIONS, less current portion....... 489 497 487
OTHER LONG TERM LIABILITIES........................... -- 1,143 767
----------- ----------- -----------
TOTAL LIABILITIES..................................... 25,252 37,614 39,416
----------- ----------- -----------
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, no par value, 30,000,000 shares
authorized, 6,514,747, 7,051,317 and 7,151,317
shares issued and outstanding, respectively....... 22,988 24,877 25,277
Accumulated (deficit)............................... (6,222) (3,154) (2,062)
Cumulative foreign currency translation
adjustment........................................ 3 (129) (207)
----------- ----------- -----------
Total stockholders' equity...................... 16,769 21,594 23,008
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $ 42,021 $ 59,208 $ 62,424
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
FOR THE YEARS ENDED JANUARY 31, (UNAUDITED)
------------------------------- ------------------------
1996 1997 1998 1997 1998
--------- --------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES
Services.................................. $ 7,869 $ 19,032 $ 45,302 $ 8,196 $ 16,437
Products.................................. 24,380 33,983 38,843 10,428 10,267
--------- --------- --------- ----------- -----------
32,249 53,015 84,145 18,624 26,704
--------- --------- --------- ----------- -----------
Cost of services.......................... 2,135 6,642 22,541 4,148 7,629
Cost of products.......................... 18,673 29,376 32,121 8,881 8,534
Write down of software development
costs................................... 755 -- -- -- --
--------- --------- --------- ----------- -----------
21,563 36,018 54,662 13,029 16,163
--------- --------- --------- ----------- -----------
GROSS PROFIT
Services................................ 4,979 12,391 22,761 4,048 8,808
Products................................ 5,707 4,606 6,722 1,547 1,733
--------- --------- --------- ----------- -----------
10,686 16,997 29,483 5,595 10,541
OPERATING EXPENSES:
Selling, general and administrative
expenses.............................. 9,567 13,792 22,796 4,355 8,004
Depreciation............................ 356 518 1,092 195 294
Amortization............................ 204 458 1,121 211 422
Write down of goodwill.................. -- 552 -- -- --
Reorganization and restructuring
costs................................. -- 2,286 -- -- --
--------- --------- --------- ----------- -----------
Total operating expenses.............. 10,127 17,606 25,009 4,761 8,720
--------- --------- --------- ----------- -----------
INCOME (LOSS) BEFORE INTEREST, INCOME
TAXES, AND SHARE OF RESULTS IN EQUITY
INVESTEE................................ 559 (609) 4,474 834 1,821
Interest income........................... 14 277 276 78 68
Interest expense.......................... (258) (297) (632) (71) (209)
Write down of investments................. -- (500) -- -- --
--------- --------- --------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND
SHARE OF RESULTS IN EQUITY INVESTEE..... 315 (1,129) 4,118 841 1,680
SHARE OF OPERATING (LOSS) OF EQUITY
INVESTEE................................ (761) (799) -- -- --
--------- --------- --------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES......... (446) (1,928) 4,118 841 1,680
INCOME TAXES.............................. 206 416 1,049 210 588
--------- --------- --------- ----------- -----------
NET INCOME (LOSS)......................... $ (652) $ (2,344) $ 3,069 $ 631 $ 1,092
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE (Basic)
in accordance with SFAS No. 128......... $ (0.24) $ (0.45) $ 0.47 $ 0.10 $ 0.15
NET INCOME (LOSS) PER COMMON SHARE
(Diluted) in accordance with SFAS No.
128..................................... $ (0.24) $ (0.45) $ 0.43 $ 0.09 $ 0.13
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
FULLY DILUTED SHARES OUTSTANDING.......... 2,742,614 5,682,716 7,129,307 6,695,698 8,652,926
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements
F-4
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
ACCUMULATED TRANSLATION
SHARES AMOUNT (DEFICIT) ADJUSTMENT TOTAL
--------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1995....... 2,511,325 $5,810,709 $(3,226,648) $ 220,870 $2,804,931
Stock issued to acquire
Compass....................... 192,556 385,112 -- -- 385,112
Stock issued to bridge loan
holders....................... 25,750 51,500 -- -- 51,500
Stock issued in private
placement, net of offering
costs......................... 262,144 665,353 -- -- 665,353
Stock issued for services....... 13,333 60,000 -- -- 60,000
Net (loss) for the year......... -- -- (651,951) -- (651,951)
Foreign currency translation
adjustment.................... -- -- -- (214,169) (214,169)
--------- ---------- ------------ ----------- ----------
BALANCE, JANUARY 31, 1996....... 3,005,108 6,972,674 (3,878,599) 6,701 3,100,776
Exercise of stock options....... 53,639 536 -- -- 536
Stock issued in offering, net of
offering costs................ 3,450,000 16,003,388 -- -- 16,003,388
Exercise of warrants............ 6,000 11,490 -- -- 11,490
Net (loss) for the year......... -- -- (2,343,787) -- (2,343,787)
Foreign currency translation
adjustment.................... -- -- -- (3,868) (3,868)
--------- ---------- ------------ ----------- ----------
BALANCE, JANUARY 31, 1997....... 6,514,747 22,988,088 (6,222,386) 2,833 16,768,535
Stock issued to acquire
Eurosystems................... 58,896 600,000 -- -- 600,000
Exercise of warrants............ 477,674 1,289,298 -- -- 1,289,298
Net income for the year......... -- -- 3,068,620 -- 3,068,620
Foreign currency translation
adjustment.................... -- -- -- (132,270) (132,270)
--------- ---------- ------------ ----------- ----------
BALANCE, JANUARY 31, 1998....... 7,051,317 24,877,386 (3,153,766) (129,437) 21,594,183
Net income for period
(unaudited)................... -- -- 1,092,118 -- 1,092,118
Exercise of stock options....... 100,000 400,000 -- -- 400,000
Foreign currency translation
adjustment.................... -- -- -- (77,705) (77,705)
--------- ---------- ------------ ----------- ----------
BALANCE, APRIL 30, 1998
(UNAUDITED)................... 7,151,317 $25,277,386 $(2,061,648) $(207,142) $23,008,596
--------- ---------- ------------ ----------- ----------
--------- ---------- ------------ ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
APRIL 30,
FOR THE YEARS ENDED JANUARY 31, (UNAUDITED)
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1997 1998
--------- --------- --------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss).................................... $ (652) $ (2,344) $ 3,069 $ 631 $ 1,092
Adjustments to reconcile net income (loss) to net
cash provided (used) by
operating activities
Depreciation......................................... 356 518 1,092 195 294
Amortization......................................... 204 458 1,121 211 422
Write down of software development costs............. 755 -- -- -- --
Write down of goodwill............................... -- 552 -- -- --
Write down of investments............................ -- 500 -- -- --
Share of results in equity investee.................. 761 799 -- -- --
Stock issued for services............................ 60 -- -- -- --
(Gain) on disposal of fixed assets................... (36) (152) (54) (23) (8)
Decrease (increase) in accounts receivable........... (525) (2,850) 2,234 1,446 (2,093)
Decrease (increase) in deposits...................... 24 6 (18) -- --
Decrease (increase) in inventories................... (348) (1,162) (2,432) (694) (1,218)
Decrease (increase) in prepaid expenses.............. (71) (119) (171) (148) (151)
Decrease in deferred income tax...................... -- -- 725 136 323
Increase in income taxes............................. 204 188 256 75 242
(Increase) decrease in other current assets.......... (78) 37 11 43 (140)
Increase (decrease) in receivable--related party..... (9) 47 -- -- --
Increase (decrease) in accounts payable.............. 1,876 529 (1,783) (619) 503
Increase (decrease) in accrued liabilities........... 543 429 (263) (394) 276
Increase (decrease) in deferred revenue.............. 515 499 (2,402) (1,608) (455)
--------- --------- --------- ----------- -----------
Net cash provided (used) by operating activities..... 3,579 (2,065) 1,385 (749) (913)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of equipment................................ (406) (608) (880) (223) (401)
Proceeds from disposal of equipment.................. 178 186 164 26 8
Acquisition of subsidiaries, including related
expenses, net of cash acquired..................... (1,614) (3,840) (6,574) (987) (569)
Investment in and advances to equity investee........ (445) (551) 143 (2) --
Software development costs........................... (383) -- -- -- --
Increase (decrease) in other assets.................. (24) 23 (17) (1) 14
--------- --------- --------- ----------- -----------
Net cash (used) by investing activities.............. (2,694) (4,790) (7,164) (1,187) (948)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Decrease (increase) in lines of credit-bank.......... (653) (1,053) 468 2,206 1,453
Proceeds from notes payable.......................... 500 -- 2,858 -- (5)
Repayment of notes payable........................... (584) (2,849) -- -- --
Proceeds from (repayment of) stockholders' advances.. (228) 112 (40) -- --
Decrease (increase) in deferred offering costs....... (78) 339 -- -- --
Payments of capital lease obligations................ (144) (445) (731) (197) (142)
Net proceeds from issuance of common stock........... 665 16,015 1,289 -- 400
--------- --------- --------- ----------- -----------
Net cash provided (used) by financing activities..... (522) 12,119 3,844 2,009 1,706
--------- --------- --------- ----------- -----------
Effect of exchange rate changes on cash.............. (213) (3) (132) (22) (78)
Net increase (decrease) in cash...................... 150 5,261 (2,067) 51 (233)
--------- --------- --------- ----------- -----------
Cash at beginning of period.......................... 1,242 1,392 6,653 6,653 4,586
Cash at end of period................................ $ 1,392 $ 6,653 $ 4,586 $ 6,704 $ 4,353
Supplemental disclosure of cash flow information:
Cash paid for interest expense....................... $ 58 $ 297 $ 632 $ 71 $ 209
Cash paid for income taxes........................... $ -- $ 547 $ 42 $ -- $ --
</TABLE>
See accompanying notes to the consolidated financial statements
F-6
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1998
1. NATURE OF BUSINESS
4Front Technologies, Inc. ("4 Front" or the "Company") is a leading provider
of information technology ("IT") solutions, which consist of specialized
computer services and complementary products, primarily to blue chip
corporations and government authorities in the United Kingdom ("UK") and, to a
growing extent, in Continental Europe. 4Front's solutions include hardware
maintenance, help desk support, network services, specialized software services
and products and the supply of high-end storage systems.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries from the date of acquisition. All significant
intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.
The accompanying interim unaudited condensed consolidated financial
statements as of April 30, 1998 and for the three months ended April 30, 1997
and 1998 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In the opinion of management, the accompanying interim unaudited condensed
consolidated financial statements contain all material adjustments consisting
only of normal recurring adjustments necessary to present fairly the financial
condition, the results of operations, the changes in stockholders' equity and
cash flows of 4Front Technologies, Inc. for the interim periods presented.
The results of the three months ended April 30, 1998 are not necessarily
indicative of the results of operations for the full year. These interim
unaudited condensed consolidated financial statements and related footnotes
should be read in conjunction with the financial statements and footnotes
thereto included herein.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. Actual amounts could differ from those estimates. Significant assets
and liabilities with reported amounts based on estimates include accounts
receivable, inventories, deferred revenues and deferred income taxes.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) REVENUE RECOGNITION
Revenue from the sale of computer hardware and software is generally
recognized when the product is shipped and in the case of software licenses only
after the license has been signed and further obligations are not
F-7
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
significant. Where fixed fee contracts involve significant obligations after
shipment of the product, revenue is recognized on the percentage-of-completion
method of accounting.
Revenues from engineering, implementation and training are recognized as the
services are performed. Revenues from maintenance agreements are recognized
ratably over the terms of the agreements.
In all such cases, the Company only recognizes revenue when collection of
the related receivable is probable.
B) DEPOSITS
Amounts paid by the Company as advances against future purchases of software
are recorded as deposits until such time as the software is received.
C) INVENTORIES
Inventories are stated at the lower of cost (first in, first out method) or
market value. Inventories consist primarily of computer hardware, software and
work in progress. Work in progress represents labor and material costs incurred
for customer software projects.
D) DEFERRED OFFERING COSTS
Deferred offering costs represent costs incurred for proposed offerings of
common stock. Costs are charged against the proceeds of the offering, if
successful, or to operations, if unsuccessful.
E) DEPRECIATION
Property and equipment are stated at cost. Equipment held under capital
leases is stated at the present value of minimum lease payments at the inception
of the lease. The Company provides for depreciation of equipment using the
straight-line method over the estimated useful lives of the respective assets,
which range from three to five years. Equipment held under capital leases is
amortized using the straight-line method over the lease term.
F) INVESTMENT IN AND ADVANCES TO EQUITY INVESTEE
In prior years the investment in the ActionTrac International partnership
was accounted for using the equity method under which the Company's results
included its 50% share of the partnership's operating profits or losses in
accordance with the terms of the partnership agreement.
F-8
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G) FOREIGN CURRENCY TRANSLATION
The Company considers the pound sterling to be the functional currency of
its UK operations. The reporting currency of the Company is the US dollar;
accordingly, all amounts included in the consolidated financial statements have
been translated into US dollars.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDING JANUARY 31, APRIL 30,
(UNAUDITED)
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
EXCHANGE RATES 1996 1997 1998 1997 1998
- ----------------------------------------- --------- --------- --------- --------- ---------
Average.................................. 1.575 1.607 1.643 1.631 1.670
Period end............................... 1.511 1.602 1.633 1.622 1.671
</TABLE>
All assets and liabilities of the UK operations are translated into US
dollars using the exchange rates in effect on reporting dates for assets and
liabilities. Income and expenses are translated at averaged rates in effect for
the periods presented. The cumulative currency translation adjustment is reflect
as a separate component of stockholders' equity on the consolidated balance
sheet.
Foreign currency transaction gains and losses are included in the
consolidated results of operations for the periods presented. During the fiscal
year ended January 31, 1997 and 1998 the Company had operating foreign exchange
gains of $339,000 and $611,000, respectively. In fiscal year ended January 31,
1996 gains and losses made were insignificant. For the three months ended April
30, 1997 and 1998 the Company had operating foreign exchange gains of $140,000
and $44,000, respectively.
H) INTANGIBLE ASSETS
In connection with acquisitions accounted for under the purchase method (see
note 5), the Company recorded goodwill based on the excess of the purchase price
paid (cost of the acquisition) over the estimated fair value of the identifiable
tangible and intangible assets and liabilities of the acquiree on the date of
purchase. Goodwill is reported at cost, net of accumulated amortization, and is
being amortized over its estimated useful life of between five and fifteen
years. Accumulated amortization at January 31, 1997 and 1998 is $1.3 million and
$2.4 million, respectively.
In September 1997, the Company acquired Firstpoint. The acquisition of
Firstpoint was deemed by management to be of strategic importance to the Company
as it was to be the single largest acquisition by the Company in the services
and help desk marketplace. The acquisition brought the Company into place as one
of the top 5 independent maintenance services and help desk providers in the UK
and gave the Company sufficient critical mass whereby enhancing its ability to
successfully bid for service and help desk contracts in excess of $1 million
revenues per annum. Firstpoint was a company which had strategic importance to
the Company for the above reasons but in addition Firstpoint had been in
existence for more than 20 years and had successfully maintained large market
presence throughout the technology changes over that period and had in fact been
able to branch out and expand into areas previously not covered. To date,
following the acquisition of Firstpoint, the Company now manages in excess of 15
services and help desk contracts worth in excess of $1 million revenues each per
annum. Management has deemed that an amortization period of fifteen years is the
appropriate amortization period for the goodwill on this acquisition.
F-9
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
In addition, the Company assesses long-lived assets for impairment under
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. Under those rules, goodwill associated
with assets acquired in a purchase business combination is included in
impairment evaluations when events or circumstances exist that indicate the
carrying amount of those assets may not be recoverable.
I) SOFTWARE DEVELOPMENT COSTS
The Company charges all costs of establishing technological feasibility of
software products to research and development expense as incurred. Thereafter,
software development costs are capitalized and reported at the lower of
unamortized cost or net realizable value. Capitalization of software development
costs ceases and amortization over the estimated useful life (not to exceed
three years) of the product commences when the product is available for general
release to customers. Any write down resulting from the periodic testing of net
realizable value is recorded as accelerated amortization.
The total amounts of software development costs capitalized during the years
ended January 31, 1996, 1997 and 1998, all of which relate to the StreamZ
communication software product, were $337,000, $0 and $0 respectively.
J) INCOME TAXES
The company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are recognized for deferred tax assets if
it is considered more likely than not that all or some portion of the deferred
tax assets will not be realized. Income tax expense is tax payable for the
current period and the change during the year in deferred tax assets and
liabilities.
K) DEFERRED REVENUE
Deferred revenue is comprised of maintenance and support fees to be earned
in the future on agreements existing and billed for at the balance sheet date.
L) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is calculated in accordance with SFAS No.
128. Basic net income (loss) per common share is calculated by dividing net
income (loss) by the weighted average number of common stock.
F-10
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
M) CONCENTRATION OF CREDIT RISK
At January 31, 1997 and 1998, cash includes L545,000 ($875,000) and
L2,138,000, ($3,491,000) respectively and at April 30, 1998 L2,014,000,
($3,363,000) held in demand deposit accounts in United Kingdom banks where
deposits are not insured by the government. These balances are subject to
foreign currency fluctuations, which in the past have not been material.
N) STOCK-BASED COMPENSATION
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation. The
Statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Statement defines a fair value
based method of accounting for stock option plans whereby compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period. Under the new Statement, companies may continue to
measure compensation cost of stock-based plans using the current accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. Companies electing to remain with the accounting in Opinion
No. 25 must make pro forma disclosures of net income and earnings per share as
if the fair value based method of accounting defined if the Statement were
applied. The Statement was effective in 1996 and the Company adopted its
provisions as of February 1, 1996. The Company has adopted the alternative
accounting treatment allowed by the Standard and measures compensation cost in
accordance with the provisions in Opinion No. 25.
The cost resulting from the issuance of warrants and options to employees
under a compensatory plan is based on their intrinsic value at the measurement
date, which is equivalent to the excess of the fair market value of the
Company's common stock over the exercise price of the related warrants or
options.
The cost resulting from the issuance of warrants and options to
non-employees as part of transactions involving the exchange of products or
services, or contracts to provide such, is based on their intrinsic value at the
date of grant.
O) LONG-LIVED ASSETS
The Company adopted the provisions of SFAS No. 121, Accounting for the
impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
February 1, 1996. This Statement required that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell.
P) ADOPTION OF NEW STANDARDS
The Company adopted the provisions of SFAS No. 128, Earnings Per Share, in
January 1998. This Statement simplifies the standards for computing earnings per
share previously found in APB Opinion No. 15, Earnings per Share, and makes them
more comparable to international EPS standards. Statement 128 replaces the
presentation of primary EPS with a presentation of basic EPS. In addition, the
Statement requires dual
F-11
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Prior periods are restated to
conform to the new standard.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") was also issued
in June 1997 and is effective for fiscal years beginning after December 31,
1997. SFAS 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis used internally
for evaluating segment performance and resource allocation. The Company will
make the required disclosures for fiscal 1999.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2 "Software Revenue Recognition". SOP
97-2 establishes standards relating to the recognition of all aspects of
software revenue. SOP 97-2 is effective for transactions entered into in fiscal
years beginning after December 15, 1997, except for certain provisions related
to vendor specific evidence which are effective for years beginning after
December 15, 1998. Implementation guidelines for this standard have not yet been
issued and a wide range of potential interpretations are being discussed by the
accounting profession. Once available, such implementation guidance could lead
to unanticipated changes in the Company's current revenue accounting practices,
and such changes could be material to the Company's future revenue and earnings.
The Company adopted SOP 97-2 as amended in its first quarter of fiscal 1999 and
such adoption did not have a material impact on its financial statements.
5. WRITE-DOWN OF GOODWILL
In the fourth quarter of fiscal year 1997, the Company recorded a charge of
$552,000 related to the write down of goodwill to estimated recoverable value.
The asset of goodwill related to the Xanadu acquisition was determined to have
been impaired as a result of the loss during the year of several key franchises
relating to the operation of this subsidiary. Anticipated future cash flows of
the subsidiary indicate the recoverability of the asset is not reasonably
assured.
Upon determination that impairment of goodwill has occurred, the amount of
the impairment is calculated by determining that portion of the goodwill which
would not be expected to be recovered against operating income during the
remaining amortization period based on estimated discounted future cash flows.
6. REORGANIZATION AND RESTRUCTURING
In November 1996, the Company integrated its maintenance and support
services businesses, which involved the closure of surplus facilities and
various involuntary redundancies. The reorganization was substantially completed
by February 1997. The reorganization and restructuring costs of $2.3 million
include $716,000 relating to write down of fixed assets, $1.25 million relating
to property costs and $320,000 relating to involuntary redundancy costs of
employees. Of this amount, $1.3 million relates to the write down and costs paid
during the year to January 31, 1997 and $988,000 was included as a liability at
January 31, 1997, and this was fully utilized by January 31, 1998.
F-12
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
7. BUSINESS ACQUISITIONS
Effective March 31, 1995, 4Front Group Plc changed its name to Mortlake
Software Limited. At the same time, the K2 Group Plc became the principal
holding company of the UK operations and changed its name to 4Front Group Plc.
Effective April 6, 1995, the Company acquired all the common stock of CCG
Holdings Limited ("CCG") for cash consideration of L550,000 ($880,000) together
with the issuance of 83,720 shares of common stock and an agreement to deliver
up to an additional 108,836 shares of common stock valued at $2 per share in the
event that certain profit targets were achieved. In addition, the Managing
Director of CCG received options on 23,680 shares of common stock exercisable at
$0.01 and was also entitled to receive additional options on up to 29,959 shares
of common stock exercisable at $0.01 upon similar terms as to the entitlement of
the CCG sellers to the performance related shares detailed above. On December
13, 1995 the board of directors of the Company deemed that all of the profit
targets had been achieved and additional shares and options were duly issued.
The business of CCG, carried out through its principal and wholly owned
subsidiary, Compass Computer Group Limited (Compass), is the supply of computer
hardware and software products for use within the commercial, industrial,
scientific and government market places. It specializes in data storage systems,
high end computers, networking products and associated technical consultancy and
support together with maintenance services, all provided throughout the UK.
Effective August 15, 1996, the Company acquired Hammer Distribution Limited
("Hammer") for $1.7 million cash (L1.1 million) plus an agreement to pay an
additional maximum of $1.2 million cash (L750,000) based on the profits for
Hammer for the year to January 31, 1997. In April 1997 a final contingent
consideration of L537,000 ($860,000) was paid to the former stockholders of
Hammer based on the profits for the year to January 31, 1997.
Effective October 11, 1996 4Front Technologies Inc., acquired all of the
issued and outstanding stock of Datapro Computers Group Limited ("Datapro"), for
L1.39 million cash ($2.15 million), plus an agreement to pay an additional
maximum of L135,000 ($200,000) based on the net assets in the Datapro September
1996 management accounts. The additional L135,000 ($200,000) was paid in
December 1996.
All acquisitions in fiscal year ended January 31, 1998 have been accounted
for under the purchase method. On September 8, 1997, the Company acquired 100%
of the issued and outstanding shares of Firstpoint Limited. The transaction is
summarized as follows (in $ thousands):
<TABLE>
<S> <C>
Assets acquired:
Current assets................................................... $ 6,110
Property and equipment........................................... 276
Goodwill......................................................... 6,871
Deferred taxation.................................................. 1,380
Liabilities assumed:
Current liabilities.............................................. (4,756)
Deferred revenue................................................. (3,594)
-----------
Purchase price..................................................... $ 6,287
-----------
-----------
</TABLE>
The Company paid approximately $4.45 million in cash, net of cash received
in the acquisition. In addition to the amount paid at the closing of the
transaction, the Company will pay a further $1.8 million as deferred
F-13
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
7. BUSINESS ACQUISITIONS (CONTINUED)
consideration in equal quarterly instalments to February 1999. An amortization
period of fifteen years is used in relation to the Firstpoint acquisition.
On October 28, 1997, the Company acquired 100% of the issued and outstanding
shares of Eurosystems France S.A. which included the wholly owned subsidiaries
Netix S.A. and Eurosystems Belgium. This transaction is summarized as follows
(in $ thousands):
<TABLE>
<S> <C>
Assets acquired:
Current assets................................................... $ 2,163
Property and equipment........................................... 175
Goodwill......................................................... 2,728
Liabilities assumed:
Current liabilities.............................................. (2,904)
Deferred revenue................................................. (1,032)
-----------
Purchase price..................................................... $ 1,130
-----------
-----------
</TABLE>
The Company issued 58,896, ($600,000) in shares of its common stock to the
former shareholders and $530,000 cash as consideration on acquisition. There is
no deferred consideration. An amortization period of ten years is used in
relation to the Eurosystems acquisition.
8. EARNINGS PER SHARE
The computation for basic earnings per share is based on the net income
divided by the weighted average number of common shares outstanding for the
period.
The Computation for diluted earnings per share is based on the Treasury
Stock Method as per the requirements of SFAS No. 128. When common stock
equivalents have an anti-dilutive effect on earnings (loss) per share, they are
excluded from the calculation.
F-14
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
8. EARNINGS PER SHARE (CONTINUED)
The calculation for earnings per share is shown below for the following
periods;
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income/(loss)........................................ $ (652) $ (2,344) $ 3,069
--------- --------- ---------
Weighted Average Number of Common Shares outstanding..... 2,743 5,170 6,589
--------- --------- ---------
Net income/(loss) per Common Share Basic................. $ (0.24) $ (0.45) $ 0.47
--------- --------- ---------
--------- --------- ---------
DILUTED EARNINGS PER SHARE
Net income/(loss)........................................ $ (652) $ (2,344) $ 3,069
--------- --------- ---------
Weighted Average Number of Common Shares outstanding..... 2,743 5,170 6,589
Additional Shares to be Issued upon Assumed Exercise of
Options and Warrants................................... -- -- 2,557
Shares Hypothetically Repurchased at the Average Market
Price with the Proceeds of Exercise.................... -- -- (2,017)
--------- --------- ---------
Adjusted Shares for Dilution............................. 2,743 5,170 7,129
--------- --------- ---------
Net income/(loss) per Common Share Diluted............... $ (0.24) $ (0.45) $ 0.43
--------- --------- ---------
--------- --------- ---------
</TABLE>
9. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
JANUARY 31, -----------
------------------------ 1998
1997 1998 (UNAUDITED)
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer hardware............................ $ 6,949 $ 11,702 $ 13,074
Computer software............................ 83 20 9
Work in progress............................. 100 130 104
----------- ----------- -----------
$ 7,132 $ 11,852 $ 13,187
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-15
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
10. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1997 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Vehicles................................................................. $ 1,324 $ 1,327
Furniture, fixtures and equipment........................................ 1,246 2,767
Computer equipment....................................................... 1,508 3,168
----------- -----------
4,078 7,262
Less accumulated depreciation............................................ (2,027) (4,407)
----------- -----------
$ 2,051 $ 2,855
----------- -----------
----------- -----------
</TABLE>
11. INVESTMENT IN AND ADVANCES TO EQUITY INVESTEE
On December 7, 1993, the Company and ActionTrac, Inc., a United States
corporation specializing in help desk products and services for the computer
software industry, formed a partnership named ActionTrac International
(ActionTrac) which is equally owned by the Company and ActionTrac, Inc.
ActionTrac held the world rights outside the United States, Canada and Mexico to
the proprietary help desk systems, services and software of ActionTrac, Inc. The
purpose of the partnership was to expand ActionTrac, Inc.'s current North
American operations on a worldwide basis. On May 13, 1994 ActionTrac established
ActionTrac UK Limited as a wholly owned UK subsidiary.
Under the terms of the partnership agreement, the Company was required to
make a capital contribution of $500,000, which was used to establish ActionTrac
UK Limited and to develop the UK help desk operations, and ActionTrac, Inc.
contributed a ten year renewable license for the help desk software. During the
years ended January 31, 1996 and 1997, the Company made further advances to the
partnership amounting to $478,000 and $551,000, respectively. In conjunction
with its participation in the ActionTrac partnership the Company acquired
500,000 shares of restricted ActionTrac, Inc. common stock at $1 per share.
Development of the UK help desk was completed and ActionTrac UK Limited
commenced operations on May 1, 1995. The Company's share of the partnership's
operating loss for the period from May 1, 1995 to January 31, 1996 amounted to
$179,000.
Due to the accelerated pace of technological change (including recent
advances in telecommunications systems and help desk software technology) and
the increasing diversity in the market for help desk services the Company
re-evaluated the net realizable value of its investment in and advances to the
ActionTrac International partnership at January 31, 1996. As a result the
Company recorded a write down of $582,000 in the year to January 31, 1996.
On December 24, 1996 ActionTrac Inc., the Company's former partner in the
ActionTrac Joint Venture, filed for bankruptcy in the USA. As a result of the
bankruptcy, the Company reviewed the carrying value of its investment in
ActionTrac Inc. and its advances to the ActionTrac joint venture. It was
concluded that these were not recoverable and the Company has therefore written
off its investment in ActionTrac Inc. of $500,000 and advances to the equity
investee of $799,000.
F-16
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
11. INVESTMENT IN AND ADVANCES TO EQUITY INVESTEE (CONTINUED)
Further to the acquisition of Datapro in October 1996, the Company has
acquired an investment in a small UK software company called Channel Business
Systems. The Company is actively looking to dispose of this equity investee
which at January 31, 1997 is recorded in the accounts of the Company at
$143,000. The Company disposed of this in fiscal 1998 for its book value.
12. ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
<S> <C> <C>
1997 1998
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Valued Added Tax......................................... $ 1,741 $ 1,876
Payroll taxes............................................ 686 1,866
Other.................................................... 56 285
----------- -----------
$ 2,483 $ 4,027
----------- -----------
----------- -----------
</TABLE>
13. LINES OF CREDIT BANK
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1997 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
The Company has a L650,000 (approximately $1.1 million) line of credit
(overdraft protection) with a United Kingdom bank. Interest is charged
at 2.75% above bank base rates. Bank base interest rate was 7.25% at
January 31, 1998....................................................... $ 583 $ 943
The Company has a L997,000 (approximately $1.6 million) line of credit
(overdraft protection) with a United Kingdom bank which includes
L200,000 (approximately $0.3 million) VAT and duty deferment on the
import of goods into the United Kingdom. Interest is charged at 2.5%
above bank base rate of 7.25% at January 31, 1998...................... 296 644
The Company has a L700,000 (approximately $1.1 million) line of credit
(overdraft protection) with a United Kingdom bank. Interest is charged
on utilized facilities at 2.5% above bank base rate of 8.25% at January
31, 1998. The line of credit is secured on the assets of the Company... 298 --
The Company's French subsidiary Eurosystems France S.A. has bank lines of
credit with French and Belgium banks for $1.1 million. Interest is
charged at rates between 4.55% and 9.15% on utilized amounts. The lines
of credit are secured on the assets of Eurosystems France.............. -- 722
----------- -----------
$ 1,177 $ 2,309
----------- -----------
----------- -----------
</TABLE>
F-17
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
14. NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1997 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to a United Kingdom factoring company representing advance
payments on eligible trade receivables. The Company remains liable for
the advance payments in the event the receivables are not collected.
The Company pays the factoring company an administrative fee of 0.075%
of the receivable balance and interest at 1.75% above bank base rates.
Bank base rate was 7.25% at January 31, 1998. This facility was not in
existence at January 31, 1997 the facility is secured by a fixed and
floating charge over the trade receivables of Hammer................... $ -- $ 2,858
----------- -----------
$ -- $ 2,858
----------- -----------
----------- -----------
</TABLE>
15. INCOME TAXES
The Company files a separate US federal income tax return for its domestic
operations and a Local income tax return for each of its foreign subsidiaries.
The foreign subsidiaries compute taxes at rates in effect in their respective
locations. Deferred federal income taxes are not provided on the undistributed
earnings of the Company's foreign subsidiaries to the extent the Company intends
to permanently reinvest such earnings in the its foreign operations.
At January 31, 1998 the Company has available for future use approximately
$1,390,000 of net operating loss carryforwards expiring from 2004 through 2012,
related to its domestic operations and $4,877,000 related to its foreign
operations, which are carry forward indefinitely.
The provision for income taxes (benefit) is as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
US Federal...................................... $ -- $ -- $ --
US State........................................ -- -- --
Foreign......................................... 206 526 625
--- --- -----------
206 526 625
Deferred:
US Federal...................................... -- -- (467)
US State........................................ -- -- (71)
Foreign......................................... -- (110) 962
--- --- -----------
-- (110) 424
--- --- -----------
Total provision for income taxes.............. $ 206 $ 416 $ 1,049
--- --- -----------
--- --- -----------
</TABLE>
F-18
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
15. INCOME TAXES (CONTINUED)
The Company computes income tax expense based on the foreign statutory
rates. Income tax expense for the years ended January 31, 1996 and 1997 was
computed by applying the UK statutory rate of 33% to pre-tax income (loss).
During the year ended January 31, 1998, the UK statutory rate was reduced from
33% to 31%. For the year ended January 31, 1998, the Company computed income tax
expense at a rate of 33% for 2 months and 31% for 10 months resulting in a
blended tax rate of 31.33% for the year.
Income tax expense for the years ended January 31, 1996, 1997 and 1998
differed from the amounts computed by applying the UK statutory tax rate to
pre-tax income (loss) as a result of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Expected tax at UK rate........................... $ (147) $ (636) $ 1,290
Effect of write-downs and amortization of
goodwill........................................ 500 395 351
Change in valuation allowance..................... (156) 452 (418)
Utilization of net operating losses for which no
benefit was previously recognized............... -- -- (289)
Effect of UK statutory rate change on deferred tax
assets and liabilities.......................... -- -- 59
Non deductible items and other.................... 9 205 56
----- ----- -----------
Actual tax charge................................. $ 206 $ 416 $ 1,049
----- ----- -----------
----- ----- -----------
</TABLE>
The tax effects of temporary differences and net operating loss
carryforwards that give rise to deferred tax assets and (liabilities) are as
follows at January 31:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Net operating loss carryforwards......................... $ 1,361 $ 2,041
Other deferred tax assets................................ 430 662
----------- -----------
Total deferred tax assets................................ 1,791 2,703
Valuation allowance...................................... (818) (301)
----------- -----------
Deferred tax assets, net................................. $ 973 $ 2,402
----------- -----------
----------- -----------
</TABLE>
In order for the net deferred tax asset to be realized, the Company's
foreign operations will need to earn taxable income of approximately $7.0
million. Since the UK net operating loss carryforwards can be carried forward
indefinitely, there is no time limit over the period this income must be earned.
Management believe that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the net deferred
tax assets.
At January 31, 1996 and 1997, the Company had established a valuation
allowance against its otherwise recognizable deferred tax assets of its domestic
operations due to uncertainty surrounding the ability of the Company, to
generate taxable income in furture periods in its domestic operations. For the
year ended January 31, 1998, the valuation allowance decreased by $289,000 as a
result of the utilization of net operating
F-19
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
15. INCOME TAXES (CONTINUED)
losses for which no previous benefit had been recognized. Furthermore, the
valuation allowance decreased because management beleives that it is more likely
than not that the results of future operations will generate sufficient taxable
income to realize $418,000 of deferred tax assets of its domestic operations.
Due to the uncertainty surrounding the ability of the Company, to generate
taxable income in future periods in its domestic operations, the Company has
recorded a valuation allowance against a portion of its otherwise recognizable
deferred tax assets of its domestic operations.
16. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases vehicles under capital leases which expire over the next
two years. The gross amount of these capital leases is as follows:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Vehicles, gross........................................... $ 937 $ 1,025
Less accumulated depreciation............................. (348) (499)
--------- ---------
Net....................................................... $ 589 $ 526
--------- ---------
--------- ---------
</TABLE>
The total charge for depreciation for assets under capital leases for the
year to January 31, 1998 was $253,196.
F-20
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments including payments for rental inventories with
a net book value of $63,320, under capital leases together with the present
value of net minimum lease payments at January 31, 1998 are as follows (in
thousands):
<TABLE>
<S> <C>
1999................................................................ $ 558
2000................................................................ 320
2001................................................................ 196
2002................................................................ 65
2003................................................................ 12
---------
Total minimum lease payments........................................ 1,151
Less amount representing interest................................... (172)
---------
Present value of net minimum lease payments......................... 979
Less current portion................................................ (482)
---------
$ 497
---------
---------
</TABLE>
The Company also has certain non-cancellable operating leases for premises and
various equipment and vehicles. Total rental expenses for operating leases for
the years ending January 31, 1996, 1997 and 1998 amounted to $961,455,
$1,107,086 and $2,421,431, respectively.
The principal lease commitments for premises are as follows:
- the Company's K2 subsidiary leases an office facility in Watford, England
for $197,000 (L124,000) per year. The lease, on which there are periodic
reviews, expires August 2013.
- the Company's 4Front Services subsidiary leases an office/warehouse
facility in Ruislip, England for $140,000 (L87,410) per year expiring
February 2002.
- the Company's Firstpoint subsidiary leases an office/warehouse facility in
Slough, England for $465,000 (L285,000) per year. The lease which expires
in December 2010 is subject to periodic reviews.
- the Company's Datapro subsidiary leases an office/warehouse facility in
Brighton, England for $56,000 (L35,000) expiring in February 2002.
- the Company's 4Front Products subsidiary leases an office/warehouse
facility in Newbury, England for $60,000 (L37,000). The lease expires in
September 2002.
- the Company's Hammer subsidiary leases office/warehouse facilities in
Basingstoke, England for $10,000 (L67,000). The leases expire in September
1999 and March 2000.
- the Company's 4Front Group subsidiary leases offices in London, England
for $60,000 (L37,000). The lease expires in April 2002.
F-21
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Obligations under operating leases are as follows for each of the years
ending January 31, (in thousands):
<TABLE>
<S> <C>
1999............................................................... $ 2,915
2000............................................................... 2,618
2001............................................................... 1,867
2002............................................................... 1,476
2003............................................................... 882
Thereafter......................................................... 6,715
---------
Total.............................................................. $ 16,473
---------
---------
</TABLE>
LITIGATION
The Company is involved in various claims and legal proceedings arising in
the ordinary course of business. In the opinion of management, the ultimate
settlement of these matters will not have a material adverse effect on the
Company's consolidated financial position or consolidated results of its
operations.
17. STOCKHOLDERS' EQUITY
RECENT STOCK TRANSACTIONS
As of January 31, 1995 the Company's counsel, Miller & Holguin, converted
$75,000 of fees into 18,750 shares of the Company's common stock valued at $4.00
per share.
Effective April 6, 1995 the Company acquired all of the outstanding shares
of CCG Holdings Limited (Compass, now called 4Front Products) in exchange for
192,556 shares of the Company's common stock and cash consideration payable to
the selling stockholders.
During May 1995 the Company issued 25,750 shares of common stock as part of
a bridge financing valued at $2.00 per share. In connection with this bridge
financing the Company issued warrants convertible at any time from September
1996 to June 2000 into 257,500 shares of common stock at $4.50 per share (see
note 18).
During 1995 the Company received $1,166,074 ($665,353 net of offering costs)
from the sale of 262,144 shares of common stock in private placement offerings.
In connection with these placements the Company issued warrants convertible at
any time prior to May 2000 into 150,457 shares of common stock at $6.50 per
share and further warrants convertible between October 1996 and October 2001
into 100,000 shares of common stock at $7.50 a share.
In November 1995, the Company's then Counsel, Miller & Holguin, converted
$60,000 of fees into 13,333 shares of the Company's common stock valued at $4.50
per share and were issued with warrants convertible at any time from November
1996 to November 2001 into 13,333 shares of common stock at $7.50 a share.
In June 1996, the Company sold 3,000,000 shares of common stock at $5.75 in
a public offering of shares. Pursuant to this offering the underwriters
exercised the over allotment option under which an additional 450,000 shares of
common stock were sold.
Pursuant to the Offering of the Companys' Common Stock completed in June
1996, 300,000 warrants to purchase Common Stock were granted to the underwriters
at an exercise price of $9.49.
F-22
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
17. STOCKHOLDERS' EQUITY (CONTINUED)
During fiscal year ended January 31, 1997 and 1998, 25,163 options
previously granted in August and November 1995 at $5.00 lapsed due to the
grantees no longer working for the Company.
In the fiscal year ended January 31, 1997, 6,000 warrants at $2.00 were
exercised.
The number of warrants outstanding are summarized as follows at January 31:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
TO BE ISSUED ON
CONVERSION
--------------------
<S> <C> <C> <C>
DATE CONVERTIBLE CONVERSION PRICE 1997 1998
- ----------------------------------------- ------------------- --------- ---------
Prior to December 31, 1997............... $ 2.00 487,000 --
Prior to December 31, 1997............... 7.50 157,200 --
Prior to August 9, 1997.................. 4.00 15,425 --
Prior to January 31, 2000................ 4.50 197,500 197,500
September 1996 to June 2000.............. 4.50 257,500 257,500
Prior to May 2000........................ 6.50 150,457 150,457
October 1996 to October 2001............. 7.50 113,333 113,333
June 1996 to June 2001................... 9.49 300,000 300,000
</TABLE>
During fiscal 1998, 407,774 of the $2.00 warrants were exercised, 69,900 of
the $7.50 warrants were exercised and all remaining $2.00, $7.50 and $4.00
warrants expired.
18. STOCK OPTIONS
Pursuant to a non-qualified plan approved by the Board of Directors in 1989,
all employees of the Company may be granted options to purchase common stock of
the Company at a price not less than the fair market value on the date of grant.
The term of the option shall be no longer than five years from the date the
option is granted. The Company has reserved 75,000 of the authorized but
unissued shares of common stock for issuance upon exercise of the options.
Pursuant to the above plan 57,500 options were granted as of July 27, 1989 to
current and former officers and directors of the Company. The options were
exercised in July 1994 for $38,352.
In September and November 1994 the Company, through another stock option
plan, has issued 1,260,875 options to management, employees and consultants to
purchase common stock at an exercise price of $4.00 per share. These options are
exercisable through periods ending September and November 1999.
In August and November 1995 the Company through another stock option plan
has issued 725,463 options to management, employees and consultants to purchase
common stock at an exercise price of $5.00 per share. These options are
exercisable through August and November 2000.
In August 1995, options to purchase 24,000 shares of common stock at a price
of $4.40 per share (expiring August 2000) were issued to a consultant pursuant
to a contractual obligation.
1996 EQUITY INCENTIVE PLAN
In May 1996, the Company, adopted the 1996 4Front Technologies, Inc. Equity
Incentive Plan (the "Plan"), which provides for the issuance of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and non-qualified stock options, to purchase an aggregate of up to
400,000
F-23
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
18. STOCK OPTIONS (CONTINUED)
shares of the Common Stock of the Company. The Plan permits the grant of options
to officers, employees, directors and consultants of the Company. This Plan was
approved by stockholders on February 5, 1997 at a Special Meeting.
Pursuant to the Plan, in February 1997, 122,000 options were issued by the
Company to management and employees to purchase common stock at an exercise
price of $5.75. These options are exercisable through February 2007.
Pursuant to the Plan, in February 1997, 125,000 options were issued by the
Company to management and employees to purchase common stock at an exercise
price of $3.38. These options are exercisable through February 2007.
Pursuant to the Plan, in November 1997, 87,500 options were issued by the
Company to management and employees to purchase common stock at an exercise
price of $8.75. These options are exercisable through November 2007.
A summary of the status of the Company's stock option plans as of January
31, 1996, 1997 and 1998 and changes during the years ended on those dates is
presented below (shares in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ----------- ----------- ----------- -----------
Outstanding at beginning of year........... 1,261 $ 4.00 2,010 $ 4.37 1,985 $ 4.36
Granted.................................... 749 4.98 -- -- 335 5.65
Exercised.................................. -- -- -- -- -- --
Forfeited.................................. -- -- (25) 5.00 (135) 4.90
Outstanding at end of year................. 2,010 4.37 1,985 4.36 2,185 4.52
----- ----- -----
Options exercisable at year-end............ 2,010 1,985 2,185
----- ----- -----
----- ----- -----
</TABLE>
19. BRIDGE FINANCING
The cash portion of the Compass acquisition was funded primarily from the
proceeds of a $790,000 bridge loan which was completed in January, 1995 and a
private equity placement completed in May, 1995 in which gross proceeds of
approximately $630,000 were raised. This bridge loan, plus interest, fell due on
May 31, 1995. Some of the balance of the May, 1995 placement proceeds were
utilized to repay certain participants in the January, 1995 bridge loan, while
the other participants either converted their bridge loan into equity as offered
in the private equity placement or, in the case of the holders of approximately
$530,000 of the January, 1995 bridge loan amount, chose to extend their
participation into a new bridge loan of $1,030,000 which was completed by the
Company in June, 1995. The proceeds of this June, 1995 bridge loan were used to
fund acquisition costs and to provide additional general working capital for the
Company. This bridge loan, plus interest, was originally due on December 14,
1995. At January 31, 1996 $50,000 of this loan had been repaid, and the
remaining $980,000 was fully repaid in June 1996, following the successful
completion of the sale of common stock in the offering.
F-24
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
20. RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the
notes to the consolidated financial statements, the following related party
transactions have taken place.
CONTROL OF THE COMPANY
The Chairman of the Board and Chief Executive Officer and Vice Chairman of
the Board and President have signifcant shareholdings.
RECEIVABLE-RELATED PARTY
As of January 31, 1997 and 1998 the Company is owed $644,356 and $0
respectively by a company controlled by a stockholder. The receivable is
non-interest bearing, due in 1997 and guaranteed by another stockholder.
STOCKHOLDERS ADVANCES
As of January 31, 1997 and 1998 the Company's major stockholders were owed
$504,000 and $18,000 respectively, in non-interest, unsecured advances, due on
demand, subordinated to the collection of a receivable from a company controlled
by a stockholder.
CONSULTING SERVICES
During the periods ended January 31, 1996, 1997, 1998 the Company
compensated one of its officers/ stockholders for services in the amount of
approximately $29,818, $47,286 and $64,868 respectively. At January 31, 1996 and
1997, $0 and $0 respectively, was owed to this related party.
OFFICE SPACE
The Company rents office space in Denver, Colorado provided by an
officer/stockholder of the Company at $500 per month. The lease is on a
month-to-month basis.
PRIVATE PLACEMENT COSTS
During the year ended January 31, 1997 the Company's Chairman/Chief
Executive Officer paid offering costs on behalf of the Company of $193,000 which
was subsequently reimbursed.
BRIDGE LOANS
A relative of the Company's Chairman participated in the bridge financing
arrangements described in note 17 and as of January 31, 1997 and 1998 was owed
$980,000 and $0, respectively. In addition, the relative received a total of
36,500 shares of Common Stock and warrants representing 365,000 shares of Common
Stock in connection with the bridge loan arrangements of January and June 1995.
The $980,000 was repaid in June 1996 following the successful offering of shares
by the Company.
OTHER
Prior to his appointment as a non-executive director of the Company, Mr.
A.K. Ross purchased 15,000 shares of the Company's Common Stock and warrants to
purchase 15,000 shares for total consideration of
F-25
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
20. RELATED PARTY TRANSACTIONS (CONTINUED)
$66,000 in the Company's May, 1995 private placement of securities. In June,
1995, Mr. Ross loaned $50,000 to the Company, in consideration of which the
Company issued to Mr. Ross 1,250 shares of Common Stock and warrants to purchase
12,500 shares. The $50,000 loan has been repaid to Mr. Ross, with interest.
During the year January 31, 1997 Mr. Ross was paid $10,000 salary for his duties
as non-executive director . This was increased to $15,000 as of February 1,
1997.
In April 1996 Mr. Brian Murray was appointed as a non-executive director of
the Company. Mr. Murray was paid a salary of $10,000 per annum for his services
as non-executive director for the year to January 31, 1997. This was increased
to $15,000 as of February 1, 1997.
21. PENSION PLANS
The Company sponsors, through its 4Front Group subsidiary, a money purchase
pension plan (voluntary) covering its Chairman and Chief Executive Officer and
President. The Company made contributions of approximately $18,000 (L12,000) and
$54,000 (L32,000) in the years ended January 31, 1997 and 1998 respectively per
year under this plan, although no contribution was made in the year ended
January 31, 1996. The Company through its 4Front Products, Datapro, Firstpoint,
K2 and 4Front Services subsidiaries also sponsor money purchase pension plans
(voluntary) covering certain directors and employees. There are no accrued
pension contributions at January 31, 1995, 1996 and 1997 under any plan. The
Company and its subsidiaries contributed $321,000 under all pension plans for
other employees in the fiscal year ended January 31, 1998.
22. STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", (SFAS No. 123), which encouraged the use of a fair value based
method of accounting for compensation expense associated with stock options and
similar plans. However, SFAS No. 123 permits the continued use of the intrinsic
value based method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", but requires additional disclosures,
including pro forma calculations of net earnings and earnings per share as if
the fair value method of accounting prescribed by SFAS No. 123 had been applied
in 1996 and 1997. The pro forma data presented below is not representative of
the effects on reported amounts for future years for SFAS No. 123 does not apply
to awards prior to 1996 and additional awards are expected in the future.
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
--------- --------- --------- ---------
Net income (loss) (in thousands).................. $ (2,343) $ 3,069 $ (2,995) $ 2,155
Income (loss) per share........................... $ (0.45) $ 0.47 $ (0.58) $ 0.31
Average shares outstanding........................ 5,170,254 6,588,911 5,170,254 6,851,253
Average fair value of grants during the year......
Black-Scholes option pricing model assumptions:
Risk-free interest rate......................... 5.2% 5.2%
Expected life (years)........................... 10 10
Volatility...................................... 66.9% 66.9%
</TABLE>
F-26
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
23. FOREIGN OPERATIONS
Included in the accompanying consolidated financial statements are the
following amounts for the United Kingdom and Continental Europe operations at:
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------
<S> <C> <C>
1997 1998
------------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash.......................................... $ 875 $ 3,438
Accounts receivable........................... 15,365 18,357
Inventories................................... 7,132 11,852
Deposits...................................... 31 49
Other current assets.......................... 1,099 1,936
Income taxes receivable....................... 32 6
Property and equipment, net................... 2,051 2,855
Other assets.................................. 83 101
------------- -------------
$ 26,668 $ 38,594
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------- ------------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................ $ 32,249 $ 53,015 $ 84,145
------------- ------------- -------------
Cost of revenues................ 20,808 36,018 54,662
Write down of software
development costs............. 755 -- --
Expenses........................ 10,262 16,729 23,937
Income taxes.................... 206 416 1,049
------------- ------------- -------------
Net income (loss)............... $ 217 $ (148) $ 4,497
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
During the year ended January 31, 1996, 1997 and 1998, no customers
accounted for 10% or more of total revenues.
F-27
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997 AND 1998
24. SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
NON-CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------------- ----------------- -----------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Stock issued to bridge financing
holders....................... $ 52 $ -- $ --
Purchase of equipment financed
with capital lease
obligations................... $ 72 $ 398 $ 675
Stock issued to acquire
Compass....................... $ 385 $ -- $ --
Stock issued to acquire
Eurosystems................... $ -- $ -- $ 600
</TABLE>
25. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a summary of the change in the allowance for doubtful
accounts for each of the years in the three year period ended January 31, 1998.
<TABLE>
<CAPTION>
1996 1997 1998
--- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Balance at the beginning of year........................ $ 33 $ 79 $ 273
Provision............................................... 71 349 518
Charges................................................. (25) (155) (339)
--- --------- ---------
Balance at the end of the year.......................... $ 79 $ 273 $ 452
--- --------- ---------
--- --------- ---------
</TABLE>
26. COMPREHENSIVE INCOME (UNAUDITED)
The Company has adopted Statement of Financial Accounting Standard ("SFAS")
No. 130, "Reporting Comprehensive Income," which establishes standards for the
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income/(loss) generally encompasses
all changes in shareholders' equity (except those arising from transactions with
owners) and includes net income/(loss), net unrealized capital gains or losses
on available for sale securities and foreign currency translation adjustments.
The Company's comprehensive income was $609,000 and $1,014,000 for the three
months ended April 30, 1997 and 1998, respectively.
F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 6
Use of Proceeds...................... 11
Dividend Policy...................... 11
Price Range of Common Stock.......... 12
Capitalization....................... 12
Selected Consolidated Financial
Information........................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 15
Business............................. 22
Management........................... 29
Certain Transactions................. 34
Principal and Selling Stockholders... 35
Description of Capital Stock......... 37
Certain United States Federal Tax
Consequences for Non-U.S.
Holders............................ 39
Shares Eligible For Future Sale...... 41
Underwriting......................... 42
Legal Matters........................ 44
Experts.............................. 44
Available Information................ 45
EASDAQ Information................... 45
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
4,000,000 SHARES
[LOGO]
4FRONT TECHNOLOGIES, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
HAMBRECHT & QUIST
FAC/EQUITIES
WHEAT FIRST UNION
KAUFMAN BROS., L.P.
----------------
CO-MANAGERS AND MARKET MAKERS ON EASDAQ
HAMBRECHT & QUIST
EUROMARKETS
PANMURE GORDON & CO.
LIMITED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all estimated
expenses in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
SEC filing fee................................................. $17,383.17
NASD filing fee................................................ $ 6,392.60
Nasdaq National Market Listing Fee............................. $17,500.00
Easdaq Listing Fee............................................. $55,000.00
Printing expenses.............................................. $225,000.00
Legal fees and expenses........................................ $250,000.00
Accounting fees and expenses................................... $220,000.00
Blue sky expenses and counsel fees............................. $45,000.00
Transfer agent and registrar fees.............................. $10,000.00
Miscellaneous.................................................. $ 3,724.23
Total...................................................... $850,000.00
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under standards similar to those discussed above, except that
no indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that despite the adjudication of liability, such person
is fairly and reasonably entitled to be indemnified for such expenses which the
Court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under such Section 145. The
Company's directors and
II-1
<PAGE>
officers are insured against losses arising from any claim against them as such
for wrongful acts or omissions, subject to certain limitations.
The Company's Bylaws provide that the Company shall indemnify certain
persons, including officers, directors and controlling persons, to the fullest
extent permitted by the General Corporation Law of the State of Delaware.
Under Section 7 of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act of 1933. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 - Form of Underwriting Agreement (United States version)
1.2 - Form of Underwriting Agreement (International version)
3.1 - Certificate of Incorporation of the Company, as amended to date. (1)
3.2 - Bylaws of the Company, as amended to date.(1)
4.1 - Specimen Form of Stock Certificate for the Company's Common Stock.(4)
5.1 - Opinion of Fulbright & Jaworski L.L.P.*
10.1 - 1996 Equity Incentive Plan.(1)
10.2 - Indemnity Agreement between the Company and Craig Kleinman dated October 27, 1987.(2)
10.3 - Share Sale Agreement Relating to K-2 Group Plc dated March 7, 1994 by and among Lex Nominees
International Limited and ORS, Peter Leith Wellings and 4Front Technologies, Inc.(3)
10.4 - Form of Option to Purchase Shares in 4Front Technologies, Inc. dated as of March 7, 1994 by and among
4Front Technologies, Inc. and shareholders of K-2 Group.(3)
10.5 - Form of Executive Pension Plan for the benefit of Anil Doshi.(4)
10.6 - Form of Executive Pension Plan for the benefit of Mark Ellis.(4)
10.7 - Form of 4Front Executive Officer Service Agreement.(4)
10.8 - Lease Agreement dated September 7, 1988 for lease by K2 of premises at Unit 4, Colonial Business Park,
Colonial Way, Watford England, as amended.(4)
10.9 - Lease Agreement dated April 28, 1992 for lease by K2 of premises at Units 5 and 6, Colonial Business
Park, Colonial Way, Watford England.(4)
10.10 - Form of Executive Officer Service Agreement (K2).(4)
10.11 - K2 Systems Group Pension Scheme effective March 6, 1991.(4)
10.12 - Form of Executive Pension Plan for the benefit of Ken Newell.(4)
10.13 - Form of Amendment dated October 21, 1994 to Option to Purchase Shares in 4Front Technologies, Inc. dated
as of March 7, 1994 by and among 4Front Technologies, Inc. and shareholders of K-2 Group.(5)
10.14 - Form of November 1, 1994 Option Agreement for Employees and Consultants.(5)
10.15 - Share Sale Agreement Relating to CI Support Limited effective November 1, 1994 by and among Burnaby
Investments Limited and K2 Group plc.(5)
10.16 - Share Sale Agreement Relating to CCG Holdings Limited dated May 11, 1995 by and among Richard Ian Sharpe
& ORS and the Company.(5)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.17 - Facility Letter dated May 25, 1994 from Barclays Bank Plc to Compass Computer Group Limited.(5)
10.18 - Facility Letter dated April 12, 1995 from Barclays Bank Plc to Compass Computer Group Limited.(5)
10.19 - Form of Employment Agreement effective as of November 1, 1995 between the Company and Anil Doshi.(6)
10.20 - Form of Employment Agreement effective as of November 1, 1995 between the Company and Mark Ellis.(6)
10.21 - Form of August, 1995 Option Agreement for Employees and Consultants.(5)
10.22 - Share Sale Amendment Agreement dated December 13, 1995 between Richard Ian Sharpe & ORS, the Company,
Joel Jervis, CCG Holdings Limited and 4Front Group PLC.(6)
10.23 - Put Option Agreement dated December 13, 1995 between Richard Ian Sharpe & ORS and the Company.(6)
10.24 - Factoring Agreement with Kellock Limited, dated October 23, 1997.(1)
10.25 - Credit Facility with Midland Bank, dated August 28, 1997.(1)
10.26 - Lease for Slough Property, as amended, dated as of December 29, 1989, as amended.(1)
10.27 - Lease for Hatton Garden Property, dated as of July 15, 1997.(1)
10.28 - Lease for Ruislip Property, dated as of February 21, 1997.(1)
10.29 - Amendment to Factoring Agreement with Kellock Limited, dated May 23, 1998.
10.30 - Letter of Intent between 4Front Group Plc and Barclays Bank, dated May 7, 1998.
21.1 - List of Subsidiaries.(1)
23.1 - Consent of KPMG
23.2 - Consent of Fulbright & Jaworski L.L.P. (filed as part of Exhibit 5.1).
24 - Power of Attorney.*
27.0 - Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously filed.
(1) Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1998.
(2) Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1987
(3) Previously filed as Exhibit to the Company's Report on Form 8-K dated March
7, 1994.
(4) Previously filed as Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1994.
(5) Previously filed as Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1995.
(6) Previously filed as Exhibit to the Company's Quarterly Report on Form 10-Q
for the fiscal period ended October 31, 1995.
All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the provisions described above in Item 14, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission
II-3
<PAGE>
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
B. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on June 1, 1998.
By: /s/ ANIL DOSHI
- --------------------------------------------------------------------------------
Name: Anil Doshi
Title: Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ ------------------------------------
<C> <S> <C>
/s/ ANIL DOSHI Chairman of the Board, Chief June 1, 1998
---------------------------- Executive Officer and Director
Anil Doshi (PRINCIPAL EXECUTIVE OFFICER)
/s/ MARK ELLIS Vice Chairman, President and June 1, 1998
---------------------------- Director
Mark Ellis
/s/ STEPHEN MCDONNELL Chief Financial Officer June 1, 1998
---------------------------- (PRINCIPAL FINANCIAL AND
Stephen McDonnell ACCOUNTING OFFICER)
* Secretary and Director June 1, 1998
----------------------------
Craig Kleinman
* Vice President of Corporate Affairs June 1, 1998
---------------------------- and Director
Kenneth Newell
* Vice President, Chief Operating June 1, 1998
---------------------------- Officer and Director
Terence Burt
* Director June 1, 1998
----------------------------
Brian V. Murray
* Director June 1, 1998
----------------------------
Arthur Keith Ross
</TABLE>
*By Mark Ellis
AS ATTORNEY-IN-FACT
By: /s/ MARK ELLIS
-------------------------
Mark Ellis
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 - Form of Underwriting Agreement (United States version)
1.2 - Form of Underwriting Agreement (International version)
10.29 - Amendment to Factoring Agreement with Kellock Limited, dated May 23, 1998.
10.30 - Letter of Intent between 4Front Group Plc and Barclays Bank, dated May 7, 1998.
23.1 - Consent of KPMG
</TABLE>
<PAGE>
Exhibit 1.1
Brobeck Hale and Dorr
Draft of June 2, 1998
4FRONT TECHNOLOGIES, INC.
3,200,000 Shares (1)
(1) Plus an option to purchase from the Company up to 480,000 additional
shares to cover over-allotments.
1
<PAGE>
Common Stock
UNDERWRITING AGREEMENT
(U.S. Version)
_____ __, 1998
HAMBRECHT & QUIST LLC
First Albany Corporation
Wheat First Securities, Inc.
Kaufman Bros., L.P.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
4Front Technologies, Inc., a Delaware corporation (herein called the
Company), proposes to offer and sell 2,747,192 shares of its authorized but
unissued Common Stock, par value $.001 per share (herein called the Common
Stock), and the shareholders of the Company named in Schedule II hereto
(herein collectively called the Selling Securityholders) propose to sell an
aggregate of 452,808 shares of Common Stock (said 3,200,000 shares of Common
Stock being herein called the Underwritten Stock). The Company proposes to
grant to the U.S. Underwriters (as hereinafter defined) an option to purchase
up to 480,000 additional shares of Common Stock (herein called the Option
Stock and with the Underwritten Stock herein collectively called the Stock).
The Common Stock is more fully described in the Registration Statement and the
Prospectus hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several U.S.
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the U.S. Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent
and warrant that you have been authorized by each of the other U.S.
Underwriters to enter into this Agreement on its behalf and to act for it in
the manner herein provided.
It is understood by all the parties that the Company and the Selling
Securityholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale of 800,000
shares of Common Stock in an offering to be conducted outside the United
States and Canada on EASDAQ (the "International Offering), through
arrangements with certain underwriters outside the United States and Canada,
Hambrecht & Quist Euromarkets and Panmure Gordon & Co. Limited (the
"International Managers") providing for the sale of 686,800 shares of Common
Stock by the Company and 113,200 shares of Common Stock by the Selling
Securityholders and an overallotment option from the Company. Anything
herein or therein to the contrary notwithstanding, the respective closings
under this Agreement and the International Underwriting Agreement are hereby
made expressly conditional on one another.
The U.S. Underwriters hereunder and the International Managers are
simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement Between Syndicates"), which provides,
among other things, that Hambrecht & Quist LLC shall act as the global
coordinator for the offering of the Common Stock and for the transfer of
Common Stock between the two syndicates.
2
<PAGE>
The prospectuses for the U.S. Offering and for the International Offering
are identical, except that the prospectus for the International Offering
includes an Exhibit A incorporating certain additional information required by
EASDAQ.
1. Registration Statement. The Company has filed with the Securities
and Exchange Commission (herein called the Commission) a registration
statement on Form S-1 (No. 333-(), including the related preliminary
prospectus, for the registration of the Stock under the Securities Act of
1933, as amended (herein called the Securities Act). Copies of such
registration statement and of each amendment thereto, if any, including the
related preliminary prospectus (meeting the requirements of Rule 430A of the
rules and regulations of the Commission) heretofore filed by the Company with
the Commission, have been delivered to you.
The term Registration Statement as used in this Agreement shall mean such
registration statement, including all exhibits filed therewith or incorporated
by reference therein, all financial statements, all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred
to below, in the form in which it became effective, and any registration
statement filed pursuant to Rule 462(b) of the rules and regulations of the
Commission with respect to the Stock (herein called a Rule 462(b) registration
statement), and, in the event of any amendment thereto after the effective
date of such registration statement (herein called the Effective Date), shall
also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term U.S. Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in
the Registration Statement) and, in the event of any supplement or amendment
to such prospectus after the Effective Date, shall also mean (from and after
the filing with the Commission of such supplement or the effectiveness of such
amendment) such prospectus as so supplemented or amended. The term
Preliminary U.S. Prospectus as used in this Agreement shall mean each
preliminary prospectus, including the documents incorporated by reference
therein, included in such registration statement prior to the time it becomes
effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties of the Company and the Significant
Selling Securityholders.
(a) The Company and Mark Ellis, Kenneth Newell, Craig Kleinman,
Terence Burt, Stephen McDonnell and Arthur Keith Ross (the "Significant
Selling Shareholders") hereby represent and warrant as follows:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement
3
<PAGE>
and the Prospectus and as being conducted, and is duly qualified to
conduct business and (to the extent such concept has meaning in such
jurisdiction) in good standing in all U.S. jurisdictions or foreign
countries in which the character of the property owned or leased or
the nature of the business transacted by it makes qualification
necessary (except where the failure to be so qualified would not
have a material adverse effect on the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, herein called a "Material Adverse
Affect").
(ii) Each of the subsidiaries of the Company as listed in Annex
A hereto (individually a "Subsidiary", and collectively the
"Subsidiaries"), has been duly organized and is an existing
corporation in good standing (to the extent such term has meaning in
the relevant jurisdiction) under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
and each Subsidiary of the Company is duly qualified to do business
as a foreign corporation in good standing (to the extent such term
has meaning in the relevant jurisdiction) in all other jurisdictions
in which its ownership or lease of property or the conduct of its
business requires such qualification; all of the issued and
outstanding share capital of each Subsidiary of the Company has been
duly authorized and validly issued and is fully paid and not subject
to any call for the payment of further capital; and, except as
otherwise indicated on such Annex A, the entire share capital of
each Subsidiary is owned by the Company, directly or through
Subsidiaries, free from liens, encumbrances and defects.
(iii) The Company and the Subsidiaries have filed all material
income tax returns which have been required to be filed under the
laws of the jurisdiction of their organization and any other country
or political subdivision thereof having taxing jurisdiction over the
Company and the Subsidiaries or any of their properties, or have
received an extension of the filing date thereof, and have paid all
taxes indicated by said returns and all assessments received by them
or any of them to the extent that such taxes have become due and are
not being contested in good faith. All tax liabilities of the
Company and the Subsidiaries have been adequately provided for in
the financial statements of the Company.
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has
not been any materially adverse change in the business, properties,
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, other than as set
4
<PAGE>
forth in the Registration Statement and the Prospectus, and since
such dates, except in the ordinary course of business, neither the
Company nor any of its Subsidiaries has entered into any material
transaction not referred to in the Registration Statement and the
Prospectus.
(v) No order preventing or suspending the use of any
Preliminary U.S. Prospectus has been issued by the Commission, and
each Preliminary U.S. Prospectus, at the time of filing thereof,
conformed in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder.
(vi) The Registration Statement and the U.S. Prospectus comply,
and on the Closing Date (as hereinafter defined) and any later date
on which Option Stock is to be purchased, the U.S. Prospectus will
comply, in all material respects, with the provisions of the
Securities Act and the Securities Exchange Act of 1934, as amended
(herein called the Exchange Act), and the rules and regulations of
the Commission thereunder; on the Effective Date, the Registration
Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the U.S. Prospectus did not
and, on the Closing Date and any later date on which Option Stock is
to be purchased, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading, and the International
Prospectus (as defined below) conforms in all material respects to
the requirements of the Belgian Royal Decree No. 185 of 9 July 1935
on the Banking and Finance Commission, the Belgian Royal Decree of
31 October 1991 on the Prospectus to be published for Public Issues
of Securities and the EASDAQ Rule Book (collectively, the "EASDAQ
Rules"); provided, however, that none of the representations and
warranties in this subparagraph (vi) shall apply to statements in,
or omissions from, the Registration Statement or the Prospectus made
in reliance upon and in conformity with information herein or
otherwise furnished in writing to the Company by or on behalf of the
U.S. Underwriters for use in the Registration Statement or the
Prospectus.
(vii) Each of (A) the Preliminary U.S. Prospectus and (B) the
preliminary international prospectus (the "Preliminary International
Prospectus" and, together with the Preliminary U.S. Prospectus, the
"Preliminary Prospectus") at the respective dates thereof, did not
and will not, and each of (A) the U.S. Prospectus and (B) the final
international prospectus (the "International Prospectus" and,
together with the U.S. Prospectus, the "Prospectus") at the
5
<PAGE>
respective dates thereof, does or did or will not, and any further
amendment or supplement thereto, as of the date of any such
amendment or supplement, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an U.S. Underwriter through
Hambrecht & Quist LLC expressly for use therein or by a Selling
Securityholder expressly for use therein; references herein to
prospectus, Preliminary Prospectus or Prospectus shall mean each and
every relevant prospectus, unless the context otherwise requires.
(viii) The Stock is duly and validly authorized; the shares of
the Stock to be sold by the Company will be, when issued and sold to
the U.S. Underwriters as provided herein, duly and validly issued,
fully paid and nonassessable; and the Stock conforms to the
description thereof in the Prospectus. No approval or authority of
the shareholders or the Board of Directors of the Company will be
required for the transfer and sale of the Stock to be sold by the
Selling Securityholders or the issuance and sale of the Stock as
contemplated herein, except such as has been obtained.
(ix) Prior to the Closing Date the Stock to be issued and sold
by the Company and the Stock to be sold by the Selling
Securityholders will be authorized for listing by EASDAQ and by the
Nasdaq National Market, upon official notice of issuance.
(x) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any U.S. Underwriter for a brokerage commission, finder's fee or
other like payment.
(xi) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file
a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to a Registration Statement or in any securities
being registered pursuant to any other registration statement filed
by the Company under the Act.
(xii) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is
required for the consummation of the transactions contemplated by
this Agreement in connection with the
6
<PAGE>
issuance and sale of the Stock by the Company, except such as have
been obtained and made under the Act, the Exchange Act, the EASDAQ
Rules and such as have been obtained and made under the securities
laws of any state of the United States or any other jurisdiction.
(xiii) The execution, delivery and performance of this Agreement
and the issuance and sale of the Stock will not result in a breach
or violation of any of the terms and provisions of, or, constitute a
default under, (i) any statute, rule, regulation or order of any
governmental agency or body or any court, having jurisdiction over
the Company or any Subsidiary or any of their respective properties,
or (ii) any agreement or instrument to which the Company or any such
Subsidiary is a party or by which the Company or any Subsidiary is
bound or to which any of their respective properties is subject, or
(iii) the charter or by-laws of the Company or any such Subsidiary,
other than (with respect to clauses (i), (ii) and (iii) above)
breaches, violations or defaults which would not, individually or in
the aggregate, have a Material Adverse Effect; and the Company has
full power and authority to authorize, issue and sell the Stock
being issued by the Company, as contemplated by this Agreement.
(xiv) This Agreement has been duly authorized, executed and
delivered by the Company.
(xv) Except as disclosed in the Prospectus, the Company and the
Subsidiaries have good and marketable title to all properties and
assets owned by them, in each case free from liens, encumbrances and
defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and the
Subsidiaries hold any leased real or personal property under valid
and enforceable leases with no exceptions that would materially
interfere with the use made or to be made thereof by them.
(xvi) The Company and the Subsidiaries possess certificates,
authorities or permits issued by appropriate governmental agencies
or bodies necessary to conduct the business now operated by them and
neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to
the Company or any of the Subsidiaries would have a Material Adverse
Effect.
(xvii) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is imminent
that might have a Material Adverse Effect.
7
<PAGE>
(xviii) Except as disclosed in the Prospectus, including under the
section "Risk Factors - Intellectual Property", the Company and the
Subsidiaries own, possess or can acquire on reasonable terms,
adequate trademarks, trade names and other rights to inventions,
know-how, patents, copyrights, confidential information, licenses,
software code, audiovisual works, formats, algorithms, underlying
data and other intellectual property (collectively, "Intellectual
Property Rights") necessary to conduct the business now operated by
them, and neither the Company nor any Subsidiary has received any
notice of infringement of or conflict with asserted rights of others
with respect to any Intellectual Property Rights that, if determined
adversely to the Company or any Subsidiary, would individually or in
the aggregate have a Material Adverse Effect.
(xix) Except as disclosed in the Prospectus, there are no
pending actions, suits or proceedings against or affecting the
Company or any Subsidiary, or any of their respective properties
that, if determined adversely to the Company or any Subsidiary,
would individually or in the aggregate have a Material Adverse
Effect, or would materially and adversely affect the ability of the
Company to perform its obligations under this Agreement, or which
are otherwise material in the context of the sale of the Stock; and
no such actions, suits or proceedings are, to the Company's
knowledge, threatened or contemplated.
(xx) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position
of the Company and its consolidated Subsidiaries as of the dates
shown and their results of operations and cash flows for the periods
shown; and such financial statements (except as otherwise expressly
indicated) have been prepared in conformity with generally accepted
accounting principles in the United States applied on a consistent
basis.
(xxi) Except as disclosed in the Prospectus, since the date of
the latest audited financial statements included in the Prospectus
there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the
financial condition, business, properties or results of operations
of the Company and the Subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its share capital.
(xxii) The Company is not and, after giving effect to the
offering and sale of the Offered Shares and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" as defined in the United States Investment
Company Act of 1940.
8
<PAGE>
(xxiii) All material transactions during the Company's current or
last three fiscal years between the Company (including its
Subsidiaries) and any Selling Shareholder or any officer, director
or 10% securityholder of the Company have been accurately disclosed
in the Prospectus, in each case to the extent required by the Act.
(xxiv) Neither the Company nor, to the Company's knowledge, any
of its officers or directors or any of the Selling Securityholders,
has taken, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the
price of the Stock to facilitate the sale or resale of the Stock.
(xxv) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization, and (ii) transactions are recorded as
necessary to permit preparation of financial statements in
conformity with U.S. generally accepted accounting principles and to
maintain accountability for assets.
(xxvi) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the
value of their respective properties and as is customary for
companies engaged in similar industries.
(xxvii) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's
officers or directors or any of the Selling Securityholders, except
as set forth in the Registration Statement or as otherwise disclosed
in writing to the Representatives.
(b) Each of the Selling Securityholders hereby severally, and not
jointly, represents and warrants as follows:
(i) Such Selling Securityholder has (or will have upon
exercise of currently exercisable options or warrants) good and
marketable title to all the shares of Stock to be sold by such
Selling Securityholder hereunder, free and clear of all liens,
encumbrances, equities, security interests and claims whatsoever,
with full right and authority to deliver the same hereunder,
subject, in the case of each Selling Securityholder, to the rights
of the Company, as Custodian (herein called the Custodian), and that
upon the delivery of and payment for such shares of the Stock
hereunder, the several U.S. Underwriters will receive good and
marketable title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
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<PAGE>
(ii) Certificates in negotiable form for the shares of the
Stock to be sold by such Selling Securityholder have been placed in
custody under a Custody Agreement for delivery under this Agreement
with the Custodian (or, if such Selling Securityholder is selling
shares that are the subject of options or warrants, such Selling
Securityholder has placed in custody duly executed and irrevocable
option exercise instructions, which provide for delivery of the
shares to be purchased thereunder to the Underwriters pursuant to
this Agreement); such Selling Securityholder specifically agrees
that the shares of the Stock represented by the certificates so held
in custody for such Selling Securityholder (or to be issued in
accordance with the option or warrant exercise instructions so held
in custody) are subject to the interests of the several U.S.
Underwriters and the Company, that the arrangements made by such
Selling Securityholder for such custody, including the Power of
Attorney provided for in such Custody Agreement, are to that extent
irrevocable, and that the obligations of such Selling Securityholder
shall not be terminated by any act of such Selling Securityholder or
by operation of law, whether by the death or incapacity of such
Selling Securityholder (or, in the case of a Selling Securityholder
that is not an individual, the dissolution or liquidation of such
Selling Securityholder) or the occurrence of any other event; if any
such death, incapacity, dissolution, liquidation or other such event
should occur before the delivery of such shares of the Stock
hereunder, certificates for such shares of the Stock shall be
delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity,
dissolution, liquidation or other event had not occurred, regardless
of whether the Custodian shall have received notice of such death,
incapacity, dissolution, liquidation or other event.
(iii) Such Selling Securityholder has duly authorized (if not an
individual), executed and delivered this Agreement, the Custody
Agreement (as hereinafter defined), and the Power of Attorney (as
hereinafter defined). Such Selling Securityholder has full right,
power and authority to execute and deliver this Agreement, the power
of Attorney and the Custody Agreement and to perform his or its
obligations under such documents. The execution and delivery of
this Agreement, the Power of Attorney and the Custody Agreement and
the consummation by such Selling Securityholder of the transaction
herein and therein contemplated and the fulfillment by such Selling
Securityholder of the terms hereof and thereof will not require any
consent, approval, authorization, or other order of any court,
regulatory body, administrative agency or other government body
(except as may be required under the Act, the Exchange Act, state
securities laws or Blue Sky laws of any other jurisdiction) and will
not conflict with or result in a breach of any of the terms and
provisions of, or constitute a default under, the organizational
documents of such Selling
10
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Securityholder, if not an individual, or any indenture, mortgage,
deed of trust or other agreement or instrument to which such Selling
Securityholder is a party, or of any order, rule or regulation
applicable to such Selling Securityholder of any court or of any
regulatory body or administrative agency or other government body
having jurisdiction.
(iv) In connection with the distribution of the shares of the
Stock in the Offering, such Selling Securityholder has not taken and
will not take, directly or indirectly, any action designed to, or
which has constituted, or which might reasonably be expected to
cause or result in the stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Stock and,
other than as permitted by the Act, such Selling Securityholder will
not distribute any prospectus or other offering material in
connection with the offering of the Stock. The Representatives
shall notify the Selling Securityholder promptly in writing
following the completion of the distribution of the Offering that
such distribution has been completed.
(v) Without having undertaken to determine independently the
accuracy or completeness of the representations and warranties of
the Company contained herein, such Selling Securityholder has no
reason to believe that the representations and warranties of the
Company contained in Section 2(a) are not true and correct.
(vi) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder
has not independently verified the accuracy or completeness of all
the information contained therein, nothing has come to the attention
of such Selling Securityholder that would lead such Selling
Securityholder to believe that: (A) on the Effective Date, the
Registration Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, (B) on the Effective Date, the Prospectus contained
and, on the Closing Date, contains any untrue statement of a
material fact or omitted or omits to state any material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
3. Purchase of the Stock by the U.S. Underwriters.
(a) On the basis of the representations and warranties and subject
to the terms and conditions herein set forth, the Company agrees to issue
and sell 2,747,192 shares of the Underwritten Stock to the several U.S.
Underwriters, each Selling Securityholder agrees to sell to the several
U.S. Underwriters the number of shares of
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<PAGE>
the Underwritten Stock set forth in Schedule II opposite the name of such
Selling Securityholder, and each of the U.S. Underwriters agrees to
purchase from the Company and the Selling Securityholders the respective
aggregate number of shares of Underwritten Stock set forth opposite its
name in Schedule I. The price at which such shares of Underwritten Stock
shall be sold by the Company and the Selling Securityholders and
purchased by the several U.S. Underwriters shall be $___ per share. The
obligation of each U.S. Underwriter to the Company and each of the
Selling Securityholders shall be to purchase from the Company and the
Selling Securityholders that number of shares of the Underwritten Stock
which represents the same proportion of the total number of shares of the
Underwritten Stock to be sold by each of the Company and the Selling
Securityholders pursuant to this Agreement as the number of shares of the
Underwritten Stock set forth opposite the name of such U.S. Underwriter
in Schedule I hereto represents of the total number of shares of the
Underwritten Stock to be purchased by all U.S. Underwriters pursuant to
this Agreement, as adjusted by you in such manner as you deem advisable
to avoid fractional shares. In making this Agreement, each U.S.
Underwriter is contracting severally and not jointly; except as provided
in paragraphs (b) and (c) of this Section 3, the agreement of each U.S.
Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the U.S. Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 8 or 9
hereof) to purchase and pay for the number of shares of the Stock agreed
to be purchased by such U.S. Underwriter or U.S. Underwriters, the
Company or the Selling Securityholders shall immediately give notice
thereof to you, and the non-defaulting U.S. Underwriters shall have the
right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other U.S. Underwriters to purchase, in
such proportions as may be agreed upon between you and such purchasing
U.S. Underwriter or U.S. Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which such defaulting
U.S. Underwriter or U.S. Underwriters agreed to purchase. If the
non-defaulting U.S. Underwriters fail so to make such arrangements with
respect to all such shares and portion, the number of shares of the Stock
which each non-defaulting U.S. Underwriter is otherwise obligated to
purchase under this Agreement shall be automatically increased on a pro
rata basis to absorb the remaining shares and portion which the
defaulting U.S. Underwriter or U.S. Underwriters agreed to purchase;
provided, however, that the non-defaulting U.S. Underwriters shall not be
obligated to purchase the shares and portion which the defaulting U.S.
Underwriter or U.S. Underwriters agreed to purchase if the aggregate
number of such shares of the Stock exceeds 10% of the total number of
shares of the Stock which all U.S. Underwriters agreed to purchase
hereunder. If the total number of shares of the Stock which the
defaulting U.S. Underwriter or U.S. Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding
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<PAGE>
sentences, the Company and the Selling Securityholders shall have the
right, within 24 hours next succeeding the 24hour period above referred
to, to make arrangements with other U.S. Underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms
herein set forth. In any such case, either you or the Company and the
Selling Securityholders shall have the right to postpone the Closing Date
determined as provided in Section 5 hereof for not more than seven
business days after the date originally fixed as the Closing Date
pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting U.S.
Underwriters nor the Company and the Selling Securityholders shall make
arrangements within the 24hour periods stated above for the purchase of
all the shares of the Stock which the defaulting U.S. Underwriter or U.S.
Underwriters agreed to purchase hereunder, this Agreement shall be
terminated without further act or deed and without any liability on the
part of the Company or the Selling Securityholders to any non-defaulting
U.S. Underwriter and without any liability on the part of any
non-defaulting U.S. Underwriter to the Company or the Selling
Securityholders. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting U.S. Underwriter from liability
in respect of any default of such U.S. Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several U.S. Underwriters to
purchase, severally and not jointly, up to 480,000 shares in the
aggregate of the Option Stock from the Company at the same price per
share as the U.S. Underwriters shall pay for the Underwritten Stock.
Said option may be exercised only to cover over-allotments in the sale of
the Underwritten Stock by the U.S. Underwriters and may be exercised in
whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate
number of shares of the Option Stock as to which the several U.S.
Underwriters are exercising the option. Delivery of certificates for the
shares of Option Stock, and payment therefor, shall be made as provided
in Section 5 hereof. The number of shares of the Option Stock to be
purchased by each U.S. Underwriter shall be the same percentage of the
total number of shares of the Option Stock to be purchased by the several
U.S. Underwriters as such U.S. Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem
advisable to avoid fractional shares.
4. Offering by U.S. Underwriters.
(a) The terms of the initial public offering by the U.S.
Underwriters of the Stock to be purchased by them shall be as set forth
in the Prospectus. The U.S. Underwriters may from time to time change
the public offering price after the closing of
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<PAGE>
the initial public offering and increase or decrease the concessions and
discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front
cover page and under "Underwriting" in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Stock filed by
the Company (insofar as such information relates to the U.S.
Underwriters) constitutes the only information furnished by the U.S.
Underwriters to the Company for inclusion in the Registration Statement,
any Preliminary Prospectus, and the Prospectus, and you on behalf of the
respective U.S. Underwriters represent and warrant to the Company that
the statements made therein are correct.
5. Delivery of and Payment for the Stock.
(a) Delivery of certificates for the shares of the Underwritten
Stock and the Option Stock (if the option granted by Section 3(c) hereof
shall have been exercised not later than 7:00 A.M., San Francisco time,
on the date two business days preceding the Closing Date), and payment
therefor, shall be made at the office of Brobeck Hale and Dorr
International, London, at 11:00 a.m. London time, on the fourth business
day after the date of this Agreement, or at such time on such other day,
not later than seven full business days after such fourth business day,
as shall be agreed upon in writing by the Company, the Selling
Securityholders and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 3(b) hereof) are herein
called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of
Option Stock, and payment therefor, shall be made at the office of
Brobeck Hale and Dorr International, London, at 11:00 a.m. London time,
on the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made
to the Company or its order, and payment for the Stock purchased from the
Selling Securityholders shall be made to the Custodian, for the account
of the Selling Securityholders, in each case in U.S. dollars by one or
more certified or official bank check or checks in same day funds. Such
payment shall be made upon delivery of certificates for the Stock to you
for the respective accounts of the several U.S. Underwriters against
receipt therefor signed by you. Certificates for the Stock to be
delivered to you shall be registered in such name or names and shall be
in such denominations as you may request at least one business day before
the Closing Date, in the case of Underwritten Stock, and at least one
business day prior to the purchase
14
<PAGE>
thereof, in the case of the Option Stock. Such certificates will be made
available to the U.S. Underwriters for inspection, checking and packaging
at the offices of Lewco Securities Corporation, 34 Exchange Place,
Harborside Financial Plaza 2, Jersey City, NJ 07311, on the business day
prior to the Closing Date or, in the case of the Option Stock, by
3:00 p.m., New York time, on the business day preceding the date of
purchase.
It is understood that you, individually and not on behalf of the
U.S. Underwriters, may (but shall not be obligated to) make payment to
the Company and the Selling Securityholders for shares to be purchased by
any U.S. Underwriter whose check shall not have been received by you on
the Closing Date or any later date on which Option Stock is purchased for
the account of such U.S. Underwriter. Any such payment by you shall not
relieve such U.S. Underwriter from any of its obligations hereunder.
6. Further Agreements of the Company and the Selling Securityholders.
Each of the Company and the Selling Securityholders respectively covenants and
agrees as follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A and file the International Prospectus
with the Belgian Banking and Finance Commission (the "Belgian
Commission") for approval not later than the filing of the U.S.
Prospectus as aforesaid, and (ii) not file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which
you shall have reasonably objected in writing or which is not in
compliance with the Securities Act or the rules and regulations of the
Commission with respect to the U.S. Prospectus or with the EASDAQ Rules
with respect to the International Prospectus.
(b) The Company will promptly notify each U.S. Underwriter in the
event of (i) the request by the Commission or the Belgian Commission for
amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information, (ii) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended
institution of any action or proceeding for that purpose, (iv) the
suspension of approval of the International Prospectus by the Belgian
Commission, (v) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Stock for sale in
any jurisdiction, or (vi) the receipt by it of notice of the initiation
or threatening of any proceeding for such purpose. The Company and the
Selling Securityholders will make every reasonable effort to prevent the
issuance of such a stop order and, if such an order shall at any time be
issued, to obtain the withdrawal thereof at the earliest possible moment.
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(c) The Company will (i) on or before the Closing Date, deliver to
you a signed copy of the Registration Statement as originally filed and
of each amendment thereto filed prior to the time the Registration
Statement becomes effective and, promptly upon the filing thereof, a
signed copy of each post-effective amendment, if any, to the Registration
Statement (together with, in each case, all exhibits thereto unless
previously furnished to you) and will also deliver to you, for
distribution to the U.S. Underwriters, a sufficient number of additional
conformed copies of each of the foregoing (but without exhibits) so that
one copy of each may be distributed to each U.S. Underwriter, (ii) as
promptly as possible deliver to you and send to the several U.S.
Underwriters, at such office or offices as you may designate, as many
copies of the Prospectus as you may reasonably request, and
(iii) thereafter from time to time during the period in which a
prospectus is required by law to be delivered by an U.S. Underwriter or
dealer, likewise send to the U.S. Underwriters as many additional copies
of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission
and, to the extent required with the Belgian Commission, as you may
reasonably request for the purposes contemplated by the Securities Act
and the EASDAQ Rules.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an U.S. Underwriter or dealer any
event relating to or affecting the Company, or of which the Company shall
be advised in writing by you, shall occur as a result of which it is
necessary, in the opinion of counsel for the Company or of counsel for
the U.S. Underwriters, to supplement or amend the Prospectus in order to
make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser of the Stock, the
Company will forthwith prepare and file with the Commission and, to the
extent required, the Belgian Commission a supplement to the Prospectus or
an amended prospectus so that the Prospectus as so supplemented or
amended will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the
initial public offering of the Stock by the U.S. Underwriters and during
such period, the U.S. Underwriters shall propose to vary the terms of
offering thereof by reason of changes in general market conditions or
otherwise, you will advise the Company in writing of the proposed
variation, and, if in the opinion either of counsel for the Company or of
counsel for the U.S. Underwriters such proposed variation requires that
the Prospectus be supplemented or amended, the Company will forthwith
prepare and file with the Commission and, to the extent required, with
the Belgian Commission a supplement to the Prospectus or an amended
prospectus setting forth such variation. The Company authorizes the U.S.
Underwriters and all dealers to whom any of the Stock may be sold by the
several U.S. Underwriters to use the Prospectus, as from time to time
amended or supplemented, in connection
16
<PAGE>
with the sale of the Stock in accordance with the applicable provisions
of the Securities Act and the applicable rules and regulations thereunder
for such period.
(e) Prior to the filing thereof with the Commission or the Belgian
Commission, the Company will submit to you, for your information, a copy
of any post-effective amendment to the Registration Statement and any
supplement to the Prospectus or any amended prospectus proposed to be
filed.
(f) The Company will cooperate, when and as requested by you, in
the qualification of the Stock for offer and sale under the securities or
blue sky laws of such jurisdictions as you may designate and, during the
period in which a prospectus is required by law to be delivered by an
U.S. Underwriter or dealer, in keeping such qualifications in good
standing under said securities or blue sky laws; provided, however, that
the Company shall not be obligated to file any general consent to service
of process or to qualify as a foreign corporation in any jurisdiction in
which it is not so qualified. The Company will, from time to time,
prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof,
the Company will furnish to you, and to each U.S. Underwriter who may so
request in writing, copies of all periodic and special reports furnished
to shareholders of the Company and of all information, documents and
reports filed with the Commission and the Belgian Commission or EASDAQ.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective
Date, the Company will make generally available to its security holders
an earnings statement in accordance with Section 11(a) of the Securities
Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to
the performance of their obligations under this Agreement, including all
costs and expenses incident to (i) the preparation, printing and filing
with the Commission, the National Association of Securities Dealers, Inc.
("NASD"), and the Belgian Commission of the Registration Statement, any
Preliminary Prospectus and the Prospectus, (ii) the listing application
fees of `the Nasdaq National Market and EASDAQ, (iii) the furnishing to
the U.S. Underwriters of copies of any Preliminary Prospectus and of the
several documents required by paragraph (c) of this Section 6 to be so
furnished, (iv) the printing of this Agreement and related documents
delivered to the U.S. Underwriters, (v) the preparation, printing and
filing of all supplements and amendments to the Prospectus referred to in
paragraph (d) of this Section 6, (vi) the furnishing to you and the U.S.
Underwriters of the reports and information referred to in paragraph (g)
of this Section 6
17
<PAGE>
and (vii) the printing and issuance of stock certificates, including the
transfer agent's fees. The Selling Securityholders will pay any transfer
taxes incident to the transfer to the U.S. Underwriters of the shares of
the Stock being sold by the Selling Securityholders.
(j) The Company agrees to reimburse you, for the account of the
several U.S. Underwriters, for blue sky fees and related disbursements
(including counsel fees and disbursements and cost of printing memoranda
for the U.S. Underwriters) paid by or for the account of the U.S.
Underwriters or their counsel in qualifying the Stock under state and
foreign securities or blue sky laws and in the review of the offering by
the NASD, the Belgian Commission and EASDAQ.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the U.S. Underwriters from the payment of the
expenses and costs which the Company and the Selling Securityholders
hereby agree to pay and shall not affect any agreement which the Company
and the Selling Securityholders may make, or may have made, for the
sharing of any such expenses and costs.
(l) The Company and each of the Selling Securityholders hereby
agrees that, without the prior written consent of Hambrecht & Quist LLC
on behalf of the U.S. Underwriters, the Company or such Selling
Securityholder, as the case may be, will not, for a period of 90 days
following the commencement of the public offering of the Stock by the
U.S. Underwriters, directly or indirectly, (i) sell, offer, contract to
sell, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
shares of Common Stock or any securities convertible into or exchangeable
or exercisable for or any rights to purchase or acquire Common Stock or
(ii) enter into any swap or other agreement that transfers, in whole or
in part, any of the economic consequences or ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the Stock to
be sold to the U.S. Underwriters pursuant to this Agreement, (B) the
purchase by the Selling Securityholders of shares of Common Stock issued
by the Company upon the exercise of options granted under the stock
option plans of the Company (the "Option Plans") or upon the exercise of
warrants outstanding as of the date hereof, all as described in
footnote (1) to the table under the caption "The Offering" in the
Preliminary Prospectus, and (C) the grant by the Company of options to
purchase Common Stock under the Option Plans.
(m) The Company shall not invest or otherwise use the proceeds
received by the Company from its sale of the Stock in such manner as
would require the Company
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or any of the Subsidiaries to register as an investment company under the
United States Investment Company Act of 1940.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
7. Indemnification and Contribution.
(a) Subject to the provisions of paragraph (f) of this Section 7,
the Company and the Significant Selling Securityholders jointly and
severally agree and the Selling Securityholders (other than the
Significant Selling Securityholders) severally and not jointly agree to
indemnify and hold harmless each U.S. Underwriter and each person
(including each partner or officer thereof) who controls any U.S.
Underwriter within the meaning of Section 15 of the Securities Act from
and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become
subject under the Securities Act, the Exchange Act or the common law or
otherwise, and the Company and the Significant Selling Securityholders
jointly and severally agree and the Selling Securityholders (other than
the Significant Selling Securityholders) severally and not jointly agree
to reimburse each such U.S. Underwriter and controlling person for any
legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any
such losses, claims, damages or liabilities or in connection with any
investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of
or based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (including the
Prospectus as part thereof and any Rule 462(b) registration statement)
or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (ii) any untrue statement
or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented
if the Company shall have filed with the Commission and/or the Belgian
Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that (1) the
indemnity agreements of the Company and the Selling Securityholders
contained in this paragraph (a) shall not apply to any such losses,
claims, damages, liabilities or expenses if such statement or omission
was made in reliance upon and in conformity with information furnished
as herein stated or otherwise furnished in writing to the Company by or
on behalf of any U.S. Underwriter for use in any Preliminary Prospectus
or the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto, (2) the indemnity agreement contained in
this paragraph (a) with respect to any Preliminary Prospectus shall not
inure to the benefit of any U.S.
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Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Stock which is the subject
thereof (or to the benefit of any person controlling such U.S.
Underwriter) if at or prior to the written confirmation of the sale of
such Stock a copy of the Prospectus (or the Prospectus as amended or
supplemented) was not sent or delivered to such person (excluding the
documents incorporated therein by reference) and the untrue statement or
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or
supplemented) unless the failure is the result of noncompliance by the
Company with paragraph (c) of Section 6 hereof, and (3) each Selling
Securityholder (other than the Significant Selling Securityholders) shall
only be liable under this paragraph with respect to (A) information
pertaining to such Selling Securityholder furnished by or on behalf of
such Selling Securityholder expressly for use in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto or (B) facts that would
constitute a breach of any representation or warranty of such Selling
Securityholder set forth in Section 2(b) hereof. The indemnity agreements
of the Company and the Selling Securityholders contained in this
paragraph (a) and the representations and warranties of the Company and
the Selling Securityholders contained in Section 2 hereof shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified party and shall survive the
delivery of and payment for the Stock.
(b) Each U.S. Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration
Statement on his own behalf or pursuant to a power of attorney, each of
its directors, each other U.S. Underwriter and each person (including
each partner or officer thereof) who controls the Company or any such
other U.S. Underwriter within the meaning of Section 15 of the Securities
Act, and the Selling Securityholders from and against any and all losses,
claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act, or the common law or otherwise and to
reimburse each of them for any legal or other expenses (including, except
as otherwise hereinafter provided, reasonable fees and disbursements of
counsel) incurred by the respective indemnified parties in connection
with defending against any such losses, claims, damages or liabilities or
in connection with any investigation or inquiry of, or other proceeding
which may be brought against, the respective indemnified parties, in each
case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (including the Prospectus as part thereof and any Rule 462(b)
registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or
(ii) any untrue statement or alleged untrue statement of a material fact
20
<PAGE>
contained in the Prospectus (as amended or as supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, if such
statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing
to the Company by or on behalf of such indemnifying U.S. Underwriter for
use in the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto. The indemnity agreement of each U.S.
Underwriter contained in this paragraph (b) shall remain operative and in
full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and
payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a)
and (b) of this Section 7 agrees that, upon the service of a summons or
other initial legal process upon it in any action or suit instituted
against it or upon its receipt of written notification of the
commencement of any investigation or inquiry of, or proceeding against,
it in respect of which indemnity may be sought on account of any
indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification
to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be
available to any party who shall fail so to give the Notice if the party
to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have
related and was prejudiced by the failure to give the Notice, but the
omission so to notify such indemnifying party or parties of any such
service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of such indemnity
agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnifying
party shall be entitled, if it so elects within a reasonable time after
receipt of the Notice by giving written notice (herein called the Notice
of Defense) to the indemnified party, to assume (alone or in conjunction
with any other indemnifying party or parties) the entire defense of such
action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or
parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; provided,
however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the
indemnifying party or parties and of the indemnified party or parties in
conducting the defense of such action, suit, investigation, inquiry or
proceeding or that there may be legal defenses available to such
indemnified party or parties different from or in addition to those
available to the indemnifying party
21
<PAGE>
or parties, then counsel for the indemnified party or parties shall be
entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified
party or parties and (ii) in any event, the indemnified party or parties
shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. If, within a
reasonable time after receipt of the Notice, an indemnifying party gives
a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties,
the indemnifying party or parties will not be liable under paragraphs (a)
through (c) of this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or
proceeding, except that (A) the indemnifying party or parties shall bear
the legal and other expenses incurred in connection with the conduct of
the defense as referred to in clause (i) of the proviso to the preceding
sentence and (B) the indemnifying party or parties shall bear such other
expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the
Notice, no Notice of Defense has been given, the indemnifying party or
parties shall be responsible for any legal or other expenses incurred by
the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in paragraph (a) or
(b) of this Section 7 (i) in such proportion as is appropriate to reflect
the relative benefits received by each indemnifying party from the
offering of the Stock or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of each indemnifying party
in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, or actions in respect thereof, as
well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Securityholders on the
one hand and the U.S. Underwriters on the other shall be deemed to be in
the same respective proportions as the total net proceeds from the
offering of the Stock received by the Company and the Selling
Securityholders and the total underwriting discount received by the U.S.
Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to the aggregate public offering price of the Stock.
Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by each indemnifying party and the parties' relative
22
<PAGE>
intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro
rata allocation (even if the U.S. Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to in the first
sentence of this paragraph (d). The amount paid by an indemnified party
as a result of the losses, claims, damages or liabilities, or actions in
respect thereof, referred to in the first sentence of this paragraph (d)
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this
paragraph (d), no U.S. Underwriter shall be required to contribute any
amount in excess of the underwriting discount applicable to the Stock
purchased by such U.S. Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The U.S. Underwriters' obligations
in this paragraph (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of
a summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from
whom contribution may be sought, but the omission so to notify such party
or parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise (except as specifically provided in paragraph (c) of this
Section 7).
(e) Neither the Company nor the Selling Securityholders will,
without the prior written consent of each U.S. Underwriter, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such U.S.
Underwriter or any person who controls such U.S. Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of
such U.S. Underwriter and each such controlling person from all liability
arising out of such claim, action, suit or proceeding.
(f) The liability of each Selling Securityholder under such Selling
Securityholder's representations and warranties contained in paragraph
(b) of Section 2 hereof and under the indemnity and reimbursement
agreements contained in the provisions of this Section 7 and Section 11
hereof shall be limited to an amount equal to the net proceeds from the
Stock sold by such Selling Securityholder to the U.S. Underwriters. The
Company and the Selling Securityholders may agree, as among themselves
and without limiting the rights of the U.S. Underwriters under this
Agreement, as to the respective amounts of such liability for which they
each shall be responsible.
23
<PAGE>
8. Termination. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended on Nasdaq or EASDAQ, or if there shall
have occurred (i) the engagement in hostilities or an escalation of major
hostilities by the United States or any member country of the European Union
or the declaration of war or a national emergency by the United States or any
member country of the European Union on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
calamity, crisis or change in economic or political conditions in the
financial markets of the United States would, in the U.S. Underwriters'
reasonable judgment, make the offering or delivery of the Stock impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, The Nasdaq Stock Market or EASDAQ, or limitations on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the U.S.
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by The Bank of England or any U.S.
federal or New York State authorities or (vi) the taking of any action by The
Bank of England or any U.S. federal, state or local government or agency in
respect of its monetary or fiscal affairs which in the U.S. Underwriters'
reasonable opinion has a material adverse effect on the securities markets in
the United States or the European Union. If this Agreement shall be
terminated pursuant to this Section 8, there shall be no liability of the
Company or the Selling Securityholders to the U.S. Underwriters and no
liability of the U.S. Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders agree to indemnify and hold
harmless the U.S. Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of U.S. Underwriters' Obligations. The obligations of
the several U.S. Underwriters to purchase and pay for the Stock shall be
subject to the performance by the Company and by the Selling Securityholders
of all their respective obligations to be performed hereunder at or prior to
the Closing Date or any later date on which Option Stock is to be purchased,
as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective, and no
stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the
Commission.
24
<PAGE>
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except
as to the financial statements contained therein), shall have been
approved at or prior to the Closing Date by Brobeck Hale and Dorr
International, counsel for the U.S. Underwriters.
(c) You shall have received from Fulbright & Jaworski L.L.P., U.S.
counsel for the Company and certain of the Selling Securityholders, an
opinion, addressed to the U.S. Underwriters and dated the Closing Date,
covering the matters set forth in Annex B hereto, and if Option Stock is
purchased at any date after the Closing Date, an additional opinion from
such counsel, addressed to the U.S. Underwriters and dated such later
date, confirming that the statements expressed as of the Closing Date in
such opinion remain valid as of such later date.
(d) You shall have received from Nicholson Graham & Jones, U.K.
counsel for the Company, an opinion, addressed to the U.S. Underwriters
and dated the Closing Date, covering the matters set forth in Annex C
hereto, and if Option Stock is purchased at any date after the Closing
Date, an additional opinion from such counsel, addressed to the U.S.
Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinion remain valid as of such
later date.
(e) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were
true and correct and neither the Registration Statement nor the
Prospectus omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein,
respectively, not misleading, (ii) since the Effective Date, no event has
occurred which should have been set forth in a supplement or amendment to
the Prospectus which has not been set forth in such a supplement or
amendment, (iii) since the respective dates as of which information is
given in the Registration Statement in the form in which it originally
became effective and the Prospectus contained therein, there has not been
any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions
in the ordinary course of business, and, since such dates, except in the
ordinary course of business, neither the Company nor any of its
subsidiaries has entered into any material transaction not referred to in
the Registration Statement in the form in which it originally became
effective and the Prospectus contained therein, (iv) neither the Company
nor any of its subsidiaries has any material contingent obligations which
are not disclosed in the Registration Statement and the Prospectus,
(v) there are not any pending or known threatened legal proceedings to
which the Company or any of its subsidiaries is a party or of which
property of the Company or any of its subsidiaries is the subject which
are material and which are not disclosed in the Registration Statement
25
<PAGE>
and the Prospectus, (vi) there are not any franchises, contracts, leases
or other documents which are required to be filed as exhibits to the
Registration Statement which have not been filed as required, (vii) the
representations and warranties of the Company and the Selling
Securityholders herein are true and correct in all material respects as
of the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and (viii) there has not been any material
change in the market for securities in general or in political, financial
or economic conditions from those reasonably foreseeable at the time of
execution of this Agreement as to render it impracticable in your
reasonable judgment to make a public offering of the Stock, or a material
adverse change in market levels for securities in general (or those of
companies in particular) or financial or economic conditions which render
it inadvisable to proceed.
(f) You shall have received on the Closing Date and on any later
date on which Option Stock is purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the Chief
Executive Officer and the Chief Financial Officer of the Company, stating
that the respective signers of said certificate have carefully examined
the Registration Statement in the form in which it originally became
effective and the Prospectus contained therein and any supplements or
amendments thereto, and that the statements included in clauses (i)
through (vii) of paragraph (e) of this Section 9 are true and correct.
(g) You shall have received from KPMG a letter, addressed to the
U.S. Underwriters and dated the Closing Date and any later date on which
Option Stock is purchased, confirming that they are independent public
accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations
thereunder and based upon the procedures described in their letter
delivered to you concurrently with the execution of this Agreement
(herein called the Original Letter), but carried out to a date not more
than three business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be,
and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to
reflect any changes in the facts described in such Original Letter since
the date of such Original Letter or to reflect the availability of more
recent financial statements, data or information. The letters shall not
disclose any change, or any development involving a prospective change,
in or affecting the business or properties of the Company or any of its
subsidiaries which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Stock or the
purchase of the Option Stock as contemplated by the Prospectus.
26
<PAGE>
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the
qualification referred to in paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold by
the Company and sold by the Selling Securityholders in the U.S. Offering
shall have been duly authorized for listing by the Nasdaq National Market
upon official notice of issuance and the Stock to be issued and sold by
the Company and sold by the Selling Securityholders in the International
Offering shall have been duly authorized for listing by EASDAQ.
(j) On or prior to the Closing Date, you shall have received from
all Selling Securityholders and all directors and officers of the Company
agreements, in form reasonably satisfactory to Hambrecht & Quist LLC,
stating that without the prior written consent of Hambrecht & Quist LLC
on behalf of the U.S. Underwriters, such person or entity will not, for a
period of 90 days following the commencement of the public offering of
the Stock by the U.S. Underwriters, directly or indirectly, (i) sell,
offer, contract to sell, make any short sale, pledge, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of
any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire
Common Stock or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or
such other securities, in cash or otherwise.
(k) The International Underwriting Agreement shall not have been
terminated and all of the conditions set forth in Sections 8 and 9
thereof shall have been satisfied or waived.
All the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance
with the provisions hereof only if Brobeck Hale and Dorr International,
counsel for the U.S. Underwriters, shall be satisfied that they comply in
form and scope.
In case any of the conditions specified in this Section 9 shall not
be fulfilled, this Agreement may be terminated by you by giving notice to
the Company and to the Selling Securityholders. Any such termination
shall be without liability of the Company or the Selling Securityholders
to the U.S. Underwriters and without liability of the U.S. Underwriters
to the Company or the Selling Securityholders; provided, however, that
(i) in the event of such termination, the Company agrees to indemnify and
hold harmless the U.S. Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses
referred to in paragraphs (i) and (j) of Section 6 hereof, and (ii) if
this Agreement is terminated by you because of any refusal, inability or
failure on the part of the Company or the Selling Securityholders to
perform any agreement herein, to fulfill any of the conditions herein, or
to
27
<PAGE>
comply with any provision hereof other than by reason of a default by any
of the U.S. Underwriters, the Company will reimburse the U.S.
Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have
been incurred by them in connection with the transactions contemplated
hereby.
10. Conditions of the Obligation of the Company and the Selling
Securityholders. The obligation of the Company and the Selling
Securityholders to deliver the Stock shall be subject to the conditions that
(a) the Registration Statement shall have become effective, (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission, (c) the
International Prospectus shall have become effective on EASDAQ and no
suspension thereof shall be in effect and (d) the International Underwriting
Agreement shall not have been terminated and all of the conditions set forth
in Sections 8 and 9 thereof shall have been satisfied or waived.
In case any of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the U.S.
Underwriters and without liability of the U.S. Underwriters to the Company or
the Selling Securityholders; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the U.S.
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Securityholders under this
Agreement, including all costs and expenses referred to in paragraphs (i) and
(j) of Section 6 hereof.
11. Reimbursement of Certain Expenses. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a quarterly basis the U.S. Underwriters for all reasonable legal
and other expenses incurred in connection with investigating or defending any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in paragraph (a) of Section 7 of this Agreement, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this Section 11 and the possibility that such payments
might later be held to be improper; provided, however, that (i) to the extent
any such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of the Company, the Selling Securityholders and the
several U.S. Underwriters and, with respect to the provisions of Section 7
hereof, the several parties (in addition to the Company, the Selling
Securityholders and the several U.S. Underwriters) indemnified under the
provisions of said Section 7, and their respective personal representatives,
successors and
28
<PAGE>
assigns. Nothing in this Agreement is intended or shall be construed to give
to any other person, firm or corporation any legal or equitable remedy or
claim under or in respect of this Agreement or any provision herein contained.
The term "successors and assigns" as herein used shall not include any
purchaser, as such purchaser, of any of the Stock from any of the several U.S.
Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the U.S.
Underwriters, shall be mailed, telegraphed or delivered to Hambrecht & Quist
LLC, One Bush Street, San Francisco, California 94104, U.S.A.; and if to the
Company, shall be mailed, telegraphed or delivered to 4Front Technologies,
4Front Technologies, Inc., 57A Hatton Garden, London EC1N 8JD, England; and if
to the Selling Securityholders, shall be mailed, telegraphed or delivered to
the Selling Securityholders in care of Anil Doshi at 4Front Technologies, Inc.
at the above address. All notices given by telegraph shall be promptly
confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless
of (a) any termination of this Agreement, (b) any investigation made by or on
behalf of any U.S. Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
directors or officers, and (c) delivery and payment for the Stock under this
Agreement; provided, however, that if this Agreement is terminated prior to
the Closing Date, the provisions of paragraphs (l) of Section 6 hereof shall
be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
Please sign and return to the Company and to the Selling Securityholders in
care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several U.S. Underwriters in accordance with its
terms.
Very truly yours,
4FRONT TECHNOLOGIES, INC.
By
--------------------------
[Name]
[Title]
29
<PAGE>
SELLING SECURITYHOLDERS:
[List Names]
By
--------------------------
[Attorney-in-Fact]
30
<PAGE>
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
First Albany Corporation
Wheat First Securities, Inc.
Kaufman Bros., L.P.
By Hambrecht & Quist LLC
By
--------------------------
Managing Director
Acting on behalf of the several U.S. Underwriters,
including themselves, named in Schedule I hereto.
31
<PAGE>
SCHEDULE I
U.S. UNDERWRITERS
Number of
Shares to be
U.S. Underwriters Purchased
- ----------------- ------------
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . .
First Albany Corporation . . . . . . . . . . . . . . . . .
Wheat First Securities, Inc. . . . . . . . . . . . . . . .
Kaufman Bros., L.P. . . . . . . . . . . . . . . . . . . . .
---------
Total. . . . . . . . . . . . . . . . . . . . . . 3,200,000
---------
---------
32
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
Number of
Name of Shares
Selling Securityholders to be Sold
- ----------------------- ----------
The Claudius Trust . . . . . . . . . . . . . . . . . . . . . . . 64,000
Mark Ellis . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Peter Wellings . . . . . . . . . . . . . . . . . . . . . . . . . 33,840
Kenneth Newell . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Terence Burt . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Stuart Doshi . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Mark McVeigh . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Joe Huard. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,200
Miller & Holguin . . . . . . . . . . . . . . . . . . . . . . . . 18,168
Chris Hervey . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
Simon Andrews. . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
James Sutherland . . . . . . . . . . . . . . . . . . . . . . . . 12,800
Craig Kleinman . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Bruce Horowitz . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Marvin Susemihl. . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Massoud Kharazian. . . . . . . . . . . . . . . . . . . . . . . . 10,000
Arthur Keith Ross. . . . . . . . . . . . . . . . . . . . . . . . 8,000
Peter Blowitz. . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Philip Mendonca. . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Stephen McDonnell. . . . . . . . . . . . . . . . . . . . . . . . 8,000
Walter Hendricks . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Andrew Gueritz . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Paul Banko . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,800
Keith Brackpool. . . . . . . . . . . . . . . . . . . . . . . . . 4,000
David Bampton. . . . . . . . . . . . . . . . . . . . . . . . . . 3,200
John Fox . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Michael Seymour. . . . . . . . . . . . . . . . . . . . . . . . . 2,000
John Walduck . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400
Marina McGovern. . . . . . . . . . . . . . . . . . . . . . . . . 1,400
Paul Leonard . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400
Audrey Manning . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Lindsay Baugh. . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Tim Baugh. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Chris Arnold . . . . . . . . . . . . . . . . . . . . . . . . . . 800
Allison McKie. . . . . . . . . . . . . . . . . . . . . . . . . . 600
Amanda Williams. . . . . . . . . . . . . . . . . . . . . . . . . 600
33
<PAGE>
Number of
Name of Shares
Selling Securityholders to be Sold
- -----------------------
- ----------
Andrew Cowl. . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Bryan Parnham. . . . . . . . . . . . . . . . . . . . . . . . . . 600
Claire Savage. . . . . . . . . . . . . . . . . . . . . . . . . . 600
Gary Rawlins . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Jason Goddard. . . . . . . . . . . . . . . . . . . . . . . . . . 600
Keith Sponder. . . . . . . . . . . . . . . . . . . . . . . . . . 600
Lorna Reynolds . . . . . . . . . . . . . . . . . . . . . . . . . 600
Mayur Morjaria . . . . . . . . . . . . . . . . . . . . . . . . . 600
Paul Barrie. . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Peter Lees . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Samantha Thompson. . . . . . . . . . . . . . . . . . . . . . . . 600
David Mullender. . . . . . . . . . . . . . . . . . . . . . . . . 400
Total . . . . . . . . . . . . . . . . . . . . . . . 452,808
-------
-------
34
<PAGE>
ANNEX A
SUBSIDIARIES OF THE COMPANY
Name Jurisdiction
<PAGE>
ANNEX B
Matters to be Covered in the Opinion of
Fulbright & Jaworski, L.L.P.,
U.S. Counsel for the Company
and certain of the Selling Securityholders
i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation and in good standing
in each state of the United States of America in which its ownership or
leasing of property requires such qualification, and has full corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement;
ii) the authorized capital stock of the Company is as set forth in the
Prospectus; proper corporate proceedings have been taken validly to authorize
such authorized capital stock; all of the outstanding shares of such capital
stock (including the Underwritten Stock and the shares of Option Stock issued,
if any) have been duly and validly issued and are fully paid and
nonassessable; any Option Stock purchased after the Closing Date, when issued
and delivered to and paid for by the U.S. Underwriters as provided in the
Underwriting Agreement, will have been duly and validly issued and be fully
paid and nonassessable; and no preemptive rights of, or rights of refusal in
favor of, shareholders exist with respect to the Stock, or the issue and sale
thereof, pursuant to the Certificate of Incorporation or Bylaws of the Company
and, to the knowledge of such counsel, there are no contractual preemptive
rights that have not been waived, rights of first refusal or rights of co-sale
which exist with respect to the Stock being sold by the Selling
Securityholders or the issue and sale of the Stock being sold by the Company;
iii) the Registration Statement has become effective under the Securities
Act and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the
use of the Prospectus is in effect and no proceedings for that purpose have
been instituted or are pending or contemplated by the Commission;
iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and the Exchange
Act and with the rules and regulations of the Commission thereunder;
B-36
<PAGE>
v) the information required to be set forth in the Registration
Statement in answer to Items 9 and 10 (insofar as it relates to such counsel)
of Form S-1 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is
required with respect to such Items, and, the description of the Company's
stock option plans and the options granted thereunder and the options granted
otherwise than under such plans set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to said
plans and options to the extent required by the Securities Act and the rules
and regulations of the Commission thereunder;
vi) such counsel does not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
vii) each of the U.S. Underwriting Agreement and the International
Underwriting Agreement has been duly authorized, executed and delivered by the
Company;
viii) each of the U.S. Underwriting Agreement and the International
Underwriting Agreement has been duly executed and delivered by or on behalf of
the Selling Securityholders and the Custody Agreement between the Selling
Securityholders and the Company, as Custodian, and the Power of Attorney
referred to in such Custody Agreement and, if applicable, the relevant option
exercise instructions, have been duly executed and delivered by the several
Selling Securityholders;
ix) the issue and sale by the Company of the shares of Stock sold by the
Company as contemplated by the U.S. Underwriting Agreement and the
International Underwriting Agreement will not conflict with, or result in a
breach of, the Certificate of Incorporation or Bylaws of the Company or any
agreement or instrument known to such counsel to which the Company or any of
its subsidiaries is a party or any applicable law or regulation, or so far as
is known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
x) to such counsel's knowledge, all holders of securities of the
Company having rights to the registration of shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the Company
are set forth on the schedule attached to such opinion. Such securityholders
have waived such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement or the securityholders having such rights are including all or a
portion of such securities in the Registration Statement;
xi) upon delivery of the shares of Stock to be sold by the Selling
Securityholders pursuant to the U.S. Underwriting Agreement and the
International Underwriting Agreement,
B-37
<PAGE>
and payment therefor as contemplated therein, and assuming for the purpose of
this opinion that the U.S. Underwriters and International Managers purchased
the same in good faith without notice of any adverse claims, within the
meaning of the Uniform Commercial Code in effect in the State of New York (the
"UCC"), the U.S. Underwriters and International Managers will acquire title to
the Stock purchased by them from the Selling Securityholders free and clear of
any adverse claim (within the meaning of section 8-302 of the UCC);
xii) based insofar as factual matters with respect to the stock to be
sold by the Selling Securityholders are concerned solely upon certificates of
the Selling Securityholders, the accuracy of which such counsel have no reason
to question, no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act, the EASDAQ Rules and such as may be
required under state securities or blue sky laws in connection with the
purchase and distribution of the Stock by the U.S. Underwriters; and
xiii) the Stock issued and sold by the Company and the Selling
Securityholders in the U.S. Offering will be duly authorized for listing by
the Nasdaq National Market upon official notice of issuance.
------------------------------------
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or of the State of California, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
In addition to the matters set forth above, counsel rendering the foregoing
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel that leads them to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by reference therein,
as to which such counsel need not express any opinion or belief) at the
Effective Date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, that the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
contained or incorporated by reference therein, as to which such counsel need
not express any opinion or belief) as of its date or at the Closing Date (or
any later date on which Option Stock is purchased), contained or contains any
untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
B-38
<PAGE>
ANNEX C
Matters to be Covered in the Opinion of
Nicholson Graham & James,
U.K. Counsel for the Company
(i) Each of [list UK subsidiaries] (the "U.K. Subsidiaries") is duly
incorporated or organized under the laws of England and Wales with full power
and authority under its Memorandum and Articles of Association to own or lease
its properties and conduct its business as described in the Registration
Statement; no order or resolution for the winding-up of any of the U.K.
Subsidiaries has been issued and no notice of appointment in respect of any of
the U.K. Subsidiaries of a liquidator, receiver, administrative receiver or
administrator has been given; the U.K. Subsidiaries are duly qualified to
transact business in the United Kingdom; the issued share capital of each of
the U.K. Subsidiaries has been duly authorised and validly issued and is fully
paid and not subject to further calls for funds and the issued share capital
of each of the U.K. Subsidiaries is owned by the Company; the issued share
capital of each of the U.K. Subsidiaries is owned free and clear of all liens,
encumbrances and equities and claims; and there are no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into any share capital or of ownership
interests in any of the U.K. Subsidiaries;
(ii) The execution and delivery by the Company of the Underwriting
Agreement and the issue and sale by the Company of the shares of Stock sold by
the Company as contemplated thereby will not conflict with, or result in a
breach of, the Memorandum and Articles of Association of any of the U.K.
Subsidiaries or any agreement or instrument known to such counsel to which any
of the U.K. subsidiaries is a party or any applicable U.K.or European Union
law or regulation, or so far as is known to such counsel, any order, writ,
injunction or decree, of any jurisdiction, court or governmental
instrumentality and no consent, approval authorization, filing or order of, or
qualification with, any U.K. Governmental body or agency is required for the
performance by the Company of its obligations under the Underwriting
Agreement.
(iii) The Prospectus has been approved by the Belgian Commission and
has become effective under the EASDAQ Rules and, to the best of such counsel's
knowledge, no withdrawal of the approval of the International Prospectus or
suspension preventing the use of the International Prospectus is in effect and
no proceedings for that purpose have been instituted or are pending or
contemplated by the Belgian Commission;
(iv) The Prospectus (except as to the financial statements and
schedules and other financial data contained therein, as to which such counsel
need express no opinion) complies as to form in all material respects with the
requirements of the Belgian Commission and the EASDAQ Rules; and
(v) The Stock to be issued and sold by the Company and to be sold by
the Selling Securityholders in the International Offering has been duly
authorized for listing by EASDAQ.
C-39
<PAGE>
Exhibit 1.2
Brobeck Hale and Dorr
Draft of June 1, 1998
4FRONT TECHNOLOGIES, INC.
800,000 Shares (1)
(1) Plus an option to purchase from the Company up to 120,000 additional
shares to cover over-allotments.
1
<PAGE>
Common Stock
UNDERWRITING AGREEMENT
(International Version)
_____ __, 1998
HAMBRECHT & QUIST EUROMARKETS
Panmure Gordon & Co. Limited
As International Managers
c/o Hambrecht & Quist Euromarkets
The Registry
Royal Mint Court
London EC3N 4EY
Ladies and Gentlemen:
4Front Technologies, Inc., a Delaware corporation (herein called the
Company), proposes to offer and sell 686,800 shares of its authorized but
unissued Common Stock, par value $.001 per share (herein called the Common
Stock), and the shareholders of the Company named in Schedule II hereto (herein
collectively called the Selling Securityholders) propose to sell an aggregate
of 113,200 shares of Common Stock (said 800,000 shares of Common Stock being
herein called the Underwritten Stock). The Company proposes to grant to the
International Managers (as hereinafter defined) an option to purchase up to
120,000 additional shares of Common Stock (herein called the Option Stock and
with the Underwritten Stock herein collectively called the Stock). The Common
Stock is more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
International Managers, for whom you are acting, named in Schedule I hereto
(herein collectively called the International Managers, which term shall also
include any Manager purchasing Stock pursuant to Section 2(b) hereof). You
represent and warrant that you have been authorized by each of the other
International Managers to enter into this Agreement on its behalf and to act
for it in the manner herein provided.
It is understood by all the parties that the Company and the Selling
Securityholders are concurrently entering into an agreement (the "U.S.
Underwriting Agreement") providing for the sale of 3,200,000 shares of Common
Stock in an offering to be conducted in the United States and Canada on the
Nasdaq National Market (the "U.S. Offering), through arrangements with certain
Managers in the United States, Hambrecht & Quist LLC, First Albany Corporation,
Wheat First Securities, Inc. and Kaufman Bros., L.P. (the "U.S. Underwriters"),
providing for the sale of 2,747,192 shares of Common Stock by the Company and
452,808 shares of Common Stock by the Selling Securityholders and an
overallotment option from the Company. Anything herein or therein to the
contrary notwithstanding, the respective closings under this Agreement and the
U.S. Underwriting Agreement are hereby made expressly conditional on one
another.
The International Managers hereunder and the U.S. Managers are
simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement Between Syndicates"), which provides,
among other things, that Hambrecht & Quist LLC shall act as the global
coordinator for the
2
<PAGE>
offering of the Common Stock and for the transfer of Common Stock between the
two syndicates and for consultation by the lead Manager hereunder with
Hambrecht & Quist LLC prior to exercising the rights of the International
Managers under Section 8 herof.
The prospectuses for the U.S. Offering and for the International Offering
are identical, except that the prospectus for the International Offering
includes an Exhibit A incorporating certain additional information required by
EASDAQ.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the U.S. Underwriters shall be to the International
Managers hereunder, to the Common Stock or the Stock shall be to the Common
Stock or the Stock hereunder as just defined, to this Agreement (meaning
therein the U.S. Underwriting Agreement) shall be to this Agreement (except
where this Agreement is already referred to or as the context may otherwise
require) and to the Managers or to Hambrecht & Quist LLC shall be to the
addressees of this Agreement and to Hambrecht & Quist Euromarkets, and in
general, all such provisions and defined terms shall be applied mutatis
mutandis as if the incorporated provisions were set forth in full herein having
regard to their context in this Agreement as opposed to the U.S. Underwriting
Agreement.
1. Representations and Warranties of the Company and the Significant
Selling Securityholders. The Company, the Significant Selling Securityholders
and each of the several Selling Securityholders hereby make to the
International Managers the same respective representations and warranties as
are set forth in Section 2 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
2. Purchase of the Stock by the International Managers.
(a) On the basis of the representations and warranties and subject
to the terms and conditions herein set forth, the Company agrees to issue
and sell 686,800 shares of the Underwritten Stock to the several
International Managers, each Selling Securityholder agrees to sell to the
several International Managers the number of shares of the Underwritten
Stock set forth in Schedule II opposite the name of such Selling
Securityholder, and each of the International Managers agrees to purchase
from the Company and the Selling Securityholders the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in
Schedule I. The price at which such shares of Underwritten Stock shall be
sold by the Company and the Selling Securityholders and purchased by the
several International Managers shall be $___ per share. The obligation of
each International Manager to the Company and each of the Selling
Securityholders shall be to purchase from the Company and the Selling
Securityholders that number of shares of the Underwritten Stock which
represents the same proportion of the total number of shares of the
Underwritten Stock to be sold by each of the Company and the Selling
Securityholders pursuant to this Agreement as the number of shares of the
Underwritten Stock set forth opposite the name of such International
Manager in Schedule I hereto represents of the total number of shares of
3
<PAGE>
the Underwritten Stock to be purchased by all International Managers
pursuant to this Agreement, as adjusted by you in such manner as you deem
advisable to avoid fractional shares. In making this Agreement, each
International Manager is contracting severally and not jointly; except as
provided in paragraphs (b) and (c) of this Section 2, the agreement of
each International Manager is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the International Managers
shall fail or refuse (otherwise than for a reason sufficient to justify
the termination of this Agreement under the provisions of Section 7 or 8
hereof) to purchase and pay for the number of shares of the Stock agreed
to be purchased by such International Manager or International Managers,
the Company or the Selling Securityholders shall immediately give notice
thereof to you, and the non-defaulting International Managers shall have
the right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other International Managers to purchase,
in such proportions as may be agreed upon between you and such purchasing
International Manager or International Managers and upon the terms herein
set forth, all or any part of the shares of the Stock which such
defaulting International Manager or International Managers agreed to
purchase. If the non-defaulting International Managers fail so to make
such arrangements with respect to all such shares and portion, the number
of shares of the Stock which each non-defaulting International Manager is
otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares
and portion which the defaulting International Manager or International
Managers agreed to purchase; provided, however, that the non-defaulting
International Managers shall not be obligated to purchase the shares and
portion which the defaulting International Manager or International
Managers agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which al
International Managers agreed to purchase hereunder. If the total number
of shares of the Stock which the defaulting International Manager or
International Managers agreed to purchase shall not be purchased or
absorbed in accordance with the two preceding sentences, the Company and
the Selling Securityholders shall have the right, within 24 hours next
succeeding the 24hour period above referred to, to make arrangements with
other International Managers or purchasers satisfactory to you for
purchase of such shares and portion on the terms herein set forth. In any
such case, either you or the Company and the Selling Securityholders shall
have the right to postpone the Closing Date determined as provided in
Section 4 hereof for not more than seven business days after the date
originally fixed as the Closing Date pursuant to said Section 4 in order
that any necessary changes in the Registration Statement, the Prospectus
or any other documents or arrangements may be made. If neither the
non-defaulting International Managers nor the Company and the Selling
Securityholders shall make arrangements within the
4
<PAGE>
24hour periods stated above for the purchase of all the shares of the
Stock which the defaulting International Manager or International Managers
agreed to purchase hereunder, this Agreement shall be terminated without
further act or deed and without any liability on the part of the Company
or the Selling Securityholders to any non-defaulting International Manager
and without any liability on the part of any non-defaulting International
Manager to the Company or the Selling Securityholders. Nothing in this
paragraph (b), and no action taken hereunder, shall relieve any defaulting
International Manager from liability in respect of any default of such
International Manager under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth,
the Company grants an option to the several International Managers to
purchase, severally and not jointly, up to 120,000 shares in the aggregate
of the Option Stock from the Company at the same price per share as the
International Managers shall pay for the Underwritten Stock. Said option
may be exercised only to cover over-allotments in the sale of the
Underwritten Stock by the International Managers and may be exercised in
whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares
of the Option Stock as to which the several International Managers are
exercising the option. If exercised, the option to purchase Option Shares
hereunder must be exercised simultaneously with the exercise (if any) by
the U.S. Underwriters of the corresponding option under the U.S.
Underwriting Agreement, and the closing of the sale of the Option Stock
hereunder shall take place simultaneously with the sale of Option Stock
under the U.S. Underwriting Agreement. Delivery of certificates for the
shares of Option Stock, and payment therefor, shall be made as provided in
Section 4 hereof. The number of shares of the Option Stock to be
purchased by each International Manager shall be the same percentage of
the total number of shares of the Option Stock to be purchased by the
several International Managers as such International Manager is purchasing
of the Underwritten Stock, as adjusted by you in such manner as you deem
advisable to avoid fractional shares.
5
<PAGE>
3. Offering by International Managers.
(a) The terms of the initial public offering by the International
Managers of the Stock to be purchased by them shall be as set forth in the
Prospectus. The International Managers may from time to time change the
public offering price after the closing of the initial public offering and
increase or decrease the concessions and discounts to dealers as they may
determine.
(b) The information set forth in the last paragraph on the front
cover page and under "Underwriting" in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Stock filed by
the Company (insofar as such information relates to the International
Managers) constitutes the only information furnished by the International
Managers to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the
respective International Managers represent and warrant to the Company
that the statements made therein are correct.
4. Delivery of and Payment for the Stock.
(a) Delivery of certificates for the shares of the Underwritten
Stock and the Option Stock (if the option granted by Section 2(c) hereof
shall have been exercised not later than 7:00 A.M., San Francisco time, on
the date two business days preceding the Closing Date), and payment
therefor, shall be made at the office of Brobeck Hale and Dorr
International, London, at 11:00 a.m. London time, on the fourth business
day after the date of this Agreement, or at such time on such other day,
not later than seven full business days after such fourth business day, as
shall be agreed upon in writing by the Company, the Selling
Securityholders and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 2(b) hereof) are herein
called the Closing Date.
(b) If the option granted by Section 2(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of
Option Stock, and payment therefor, shall be made at the office of Brobeck
Hale and Dorr International, London, at 11:00 a.m. London time, on the
third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made
to the Company or its order, and payment for the Stock purchased from the
Selling Securityholders shall be made to the Custodian, for the account of
the Selling Securityholders, in each case in U.S. dollars by one or more
certified or official bank check or checks in same day funds. Such
payment shall be made upon delivery of certificates for the Stock to you
for the respective accounts of the several International
6
<PAGE>
Managers against receipt therefor signed by you. Certificates for the
Stock to be delivered to you shall be registered in such name or names and
shall be in such denominations as you may request at least one business
day before the Closing Date, in the case of Underwritten Stock, and at
least one business day prior to the purchase thereof, in the case of the
Option Stock. Such certificates will be made available to the Managers
for inspection, checking and packaging at the offices of Lewco Securities
Corporation, 34 Exchange Place, Harborside Financial Plaza 2, Jersey City,
NJ 07311, on the business day prior to the Closing Date or, in the case of
the Option Stock, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
International Managers, may (but shall not be obligated to) make payment
to the Company and the Selling Securityholders for shares to be purchased
by any International Manager whose check shall not have been received by
you on the Closing Date or any later date on which Option Stock is
purchased for the account of such International Manager. Any such payment
by you shall not relieve such International Manager from any of its
obligations hereunder.
5. Further Agreements of the Company and the Selling Securityholders.
Each of the Company and the Selling Securityholders hereby makes with the
International Managers the same agreements as are set forth in Section 6 of the
U.S. Underwriting Agreement, which Section is incorporated herein by reference.
6. Indemnification and Contribution.
(a) Subject to the provisions of paragraph (f) of this Section 6,
the Company and the Significant Selling Securityholders jointly and
severally agree and the Selling Securityholders (other than the
Significant Selling Securityholders) severally and not jointly agree to
indemnify and hold harmless each International Manager and each person
(including each partner or officer thereof) who controls any
International Manager within the meaning of Section 15 of the Securities
Act from and against any and all losses, claims, damages or liabilities,
joint or several, to which such indemnified parties or any of them may
become subject under the Securities Act, the Exchange Act or the common
law or otherwise, and the Company and the Significant Selling
Securityholders jointly and severally agree and the Selling
Securityholders (other than the Significant Selling Securityholders)
severally and not jointly agree to reimburse each such International
Manager and controlling person for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified
parties in connection with defending against any such losses, claims,
damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding which may be brought against, the
respective indemnified parties, in each case arising out of or based
upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus
as part thereof and any Rule 462(b) registration statement) or any
post-effective amendment thereto (including any Rule 462(b) registration
statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not
7
<PAGE>
misleading, or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus or the Prospectus
(as amended or as supplemented if the Company shall have filed with the
Commission and/or the Belgian Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that (1) the indemnity agreements of the Company and
the Selling Securityholders contained in this paragraph (a) shall not
apply to any such losses, claims, damages, liabilities or expenses if such
statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing
to the Company by or on behalf of any International Manager for use in any
Preliminary Prospectus or the Registration Statement or the Prospectus or
any such amendment thereof or supplement thereto, (2) the indemnity
agreement contained in this paragraph (a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any International Manager
from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof
(or to the benefit of any person controlling such International Manager)
if at or prior to the written confirmation of the sale of such Stock a
copy of the Prospectus (or the Prospectus as amended or supplemented) was
not sent or delivered to such person (excluding the documents incorporated
therein by reference) and the untrue statement or omission of a material
fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented) unless the
failure is the result of noncompliance by the Company with paragraph (c)
of Section 5 hereof (as incorporated from the U.S. Underwriting
Agreement), and (3) each Selling Securityholder (other than the
Significant Selling Securityholders) shall only be liable under this
paragraph with respect to (A) information pertaining to such Selling
Securityholder furnished by or on behalf of such Selling Securityholder
expressly for use in any Preliminary Prospectus or the Registration
Statement or the Prospectus or any such amendment thereof or supplement
thereto or (B) facts that would constitute a breach of any representation
or warranty of such Selling Securityholder set forth in Section 1 hereof.
The indemnity agreements of the Company and the Selling Securityholders
contained in this paragraph (a) and the representations and warranties of
the Company and the Selling Securityholders contained in Section1 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Stock.
(b) Each International Manager severally agrees to indemnify and
hold harmless the Company, each of its officers who signs the Registration
Statement on his own behalf or pursuant to a power of attorney, each of
its directors, each other International Manager and each person (including
each partner or officer thereof) who
8
<PAGE>
controls the Company or any such other International Manager within the
meaning of Section 15 of the Securities Act, and the Selling
Securityholders from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of
them may become subject under the Securities Act, the Exchange Act, or the
common law or otherwise and to reimburse each of them for any legal or
other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of counsel) incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding which may be brought against, the
respective indemnified parties, in each case arising out of or based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement) or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (as amended or as supplemented
if the Company shall have filed with the Commission any amendment thereof
or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
International Manager for use in the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto. The
indemnity agreement of each International Manager contained in this
paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 6 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it
or upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in
such paragraphs, it will promptly give written notice (herein called the
Notice) of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for
in such paragraphs shall be available to any party who shall fail so to
give the Notice if the party to whom such Notice was not given was unaware
of the action, suit, investigation, inquiry or proceeding to which the
Notice would have related and was prejudiced by the failure to give the
Notice, but the omission so to notify such indemnifying party or
9
<PAGE>
parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have
to the indemnified party for contribution or otherwise than on account of
such indemnity agreement. Any indemnifying party shall be entitled at its
own expense to participate in the defense of any action, suit or
proceeding against, or investigation or inquiry of, an indemnified party.
Any indemnifying party shall be entitled, if it so elects within a
reasonable time after receipt of the Notice by giving written notice
(herein called the Notice of Defense) to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding,
in which event such defense shall be conducted, at the expense of the
indemnifying party or parties, by counsel chosen by such indemnifying
party or parties and reasonably satisfactory to the indemnified party or
parties; provided, however, that (i) if the indemnified party or parties
reasonably determine that there may be a conflict between the positions of
the indemnifying party or parties and of the indemnified party or parties
in conducting the defense of such action, suit, investigation, inquiry or
proceeding or that there may be legal defenses available to such
indemnified party or parties different from or in addition to those
available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to
the extent reasonably determined by such counsel to be necessary to
protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel
chosen by such indemnified party or parties participate in, but not
conduct, the defense. If, within a reasonable time after receipt of the
Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to
the indemnified party or parties, the indemnifying party or parties will
not be liable under paragraphs (a) through (c) of this Section 6 for any
legal or other expenses subsequently incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding, except that (A) the indemnifying party or parties
shall bear the legal and other expenses incurred in connection with the
conduct of the defense as referred to in clause (i) of the proviso to the
preceding sentence and (B) the indemnifying party or parties shall bear
such other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If, within a reasonable time after receipt
of the Notice, no Notice of Defense has been given, the indemnifying party
or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 6, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a
10
<PAGE>
result of the losses, claims, damages or liabilities referred to in
paragraph (a) or (b) of this Section 6 (i) in such proportion as is
appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as
any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Securityholders on the one hand
and the International Managers on the other shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of
the Stock received by the Company and the Selling Securityholders and the
total underwriting discount received by the International Managers, as set
forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Stock. Relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by each
indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro
rata allocation (even if the International Managers were treated as one
entity for such purpose) or by any other method of allocation which does
not take into account the equitable considerations referred to in the
first sentence of this paragraph (d). The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities, or
actions in respect thereof, referred to in the first sentence of this
paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or
claim which is the subject of this paragraph (d). Notwithstanding the
provisions of this paragraph (d), no International Manager shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Stock purchased by such International Manager. No person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
International Managers' obligations in this paragraph (d) to contribute
are several in proportion to their respective underwriting obligations and
not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from
whom contribution may be sought, but the omission so to notify such party
or parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise (except as specifically provided in paragraph (c) of this
Section 6).
(e) Neither the Company nor the Selling Securityholders will,
without the prior written consent of each International Manager, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding
11
<PAGE>
in respect of which indemnification may be sought hereunder (whether or
not such International Manager or any person who controls such
International Manager within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act is a party to such claim, action,
suit or proceeding) unless such settlement, compromise or consent includes
an unconditional release of such International Manager and each such
controlling person from all liability arising out of such claim, action,
suit or proceeding.
(f) The liability of each Selling Securityholder (other than the
Significant Selling Securityholders) under such Selling Securityholder's
representations and warranties contained in Section 1 hereof and under the
indemnity and reimbursement agreements contained in the provisions of this
Section 6 and Section 10 hereof shall be limited to an amount equal to the
net proceeds from the Stock sold by such Selling Securityholder to the
International Managers. The Company and the Selling Securityholders may
agree, as among themselves and without limiting the rights of the
International Managers under this Agreement, as to the respective amounts
of such liability for which they each shall be responsible.
7. Termination. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended on Nasdaq or EASDAQ, or if there shall
have occurred (i) the engagement in hostilities or an escalation of major
hostilities by the United States or any member country of the European Union or
the declaration of war or a national emergency by the United States or any
member country of the European Union on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
calamity, crisis or change in economic or political conditions in the financial
markets of the United States would, in the International Managers' reasonable
judgment, make the offering or delivery of the Stock impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, The Nasdaq Stock Market or EASDAQ, or limitations on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
International Managers' reasonable opinion materially and adversely affects or
will materially or adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by The Bank of England or any U.S.
federal or New York State authorities or (vi) the taking of any action by The
Bank of England or any U.S. federal, state or local government or agency in
respect of its monetary or fiscal affairs which in the International Managers'
reasonable opinion has a material adverse effect on the securities markets in
the United States or the European Union. If this Agreement shall be terminated
12
<PAGE>
pursuant to this Section 7, there shall be no liability of the Company or the
Selling Securityholders to the International Managers and no liability of the
International Managers to the Company or the Selling Securityholders; provided,
however, that in the event of any such termination the Company and the Selling
Securityholders agree to indemnify and hold harmless the International Managers
from all costs or expenses incident to the performance of the obligations of
the Company and the Selling Securityholders under this Agreement, including all
costs and expenses referred to in paragraphs (i) and (j) of Section 6 of the
U.S. Underwriting Agreement.
8. Conditions of International Managers' Obligations. Subject to the
Agreement Between Syndicates, the obligations of the several International
Managers to purchase and pay for the Stock shall be subject to the performance
by the Company and by the Selling Securityholders of all their respective
obligations to be performed hereunder at or prior to the Closing Date or any
later date on which Option Stock is to be purchased, as the case may be, and
additional conditions identical to those set forth in Section 9 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference;
provided that the reference in Section 9(k) of the U.S. Underwriting Agreement
to the International Underwriting Agreement shall be deemed to refer to the
U.S. Underwriting Agreement and the reference therein to Sections 8 and 9 shall
be deemed to refer to Sections 9 and 10.
9. Conditions of the Obligation of the Company and the Selling
Securityholders. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective, (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission, (c) the
International Prospectus shall have become effective on EASDAQ and no
suspension thereof shall be in effect, and (d) the U.S. Underwriting Agreement
shall not have been terminated and all of the conditions set forth in Sections
9 and 10 thereof shall have been satisfied or waived.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the International
Managers and without liability of the International Managers to the Company or
the Selling Securityholders; provided, however, that in the event of any such
termination the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless the International Managers from all costs
or expenses incident to the performance of the obligations of the Company and
the Selling Securityholders under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 of the U.S.
Underwriting Agreement.
10. Reimbursement of Certain Expenses. Each of the Company and the
Selling Securityholders hereby jointly and severally agree to pay or cause to
be paid certain expenses
13
<PAGE>
on the same terms as are set forth in Section 11 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this Reference.
11. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company, the Selling Securityholders and the several
International Managers and, with respect to the provisions of Section 6 hereof,
the several parties (in addition to the Company, the Selling Securityholders
and the several International Managers) indemnified under the provisions of
said Section 6, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give
to any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser,
as such purchaser, of any of the Stock from any of the several International
Managers.
12. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the International
Managers, shall be mailed, telegraphed or delivered to Hambrecht & Quist
Euromarkets, The Registry, Royal Mint Court, London EC3N 4EY, England; and if
to the Company, shall be mailed, telegraphed or delivered to 4Front
Technologies, 4Front Technologies, Inc., 57A Hatton Garden, London EC1N 8JD,
England; and if to the Selling Securityholders, shall be mailed, telegraphed or
delivered to the Selling Securityholders in care of Anil Doshi at 4Front
Technologies, Inc. at the above address. All notices given by telegraph shall
be promptly confirmed by letter.
13. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any International Manager or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
directors or officers, and (c) delivery and payment for the Stock under this
Agreement; provided, however, that if this Agreement is terminated prior to the
Closing Date, the provisions of paragraphs (l) of Section 6 of the U.S.
Underwriting Agreement shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of California.
Please sign and return to the Company and to the Selling Securityholders in
care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several International Managers in accordance with its
terms.
Very truly yours,
14
<PAGE>
4FRONT TECHNOLOGIES, INC.
By
--------------------------
[Name]
[Title]
SELLING SECURITYHOLDERS:
[List Names]
By
--------------------------
[Attorney-in-Fact]
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST EUROMARKETS
Panmure Gordon & Co. Limited
By Hambrecht & Quist Euromarkets
By
---------------------------
Managing Director
Acting on behalf of the several International Managers,
including themselves, named in Schedule I hereto.
15
<PAGE>
SCHEDULE I
INTERNATIONAL MANAGERS
Number of
Shares to be
Managers Purchased
- -------- ------------
Hambrecht & Quist Euromarkets
Panmure Gordon & Co. Limited . . . . . . . . . . ________
Total. . . . . . . . . . . . . . . . . . 800,000
16
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
Number of
Name of Shares
Selling Securityholders to be Sold
- ----------------------- ----------
The Claudius Trust . . . . . . . . . . . . . . . . . . . . . . . 16,000
Mark Ellis . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Peter Wellings . . . . . . . . . . . . . . . . . . . . . . . . . 8,460
Kenneth Newell . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Terence Burt . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Stuart Doshi . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Mark McVeigh . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Joe Huard. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,800
Miller & Holguin . . . . . . . . . . . . . . . . . . . . . . . . 4,540
Chris Hervey . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Simon Andrews. . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
James Sutherland . . . . . . . . . . . . . . . . . . . . . . . . 3,200
Craig Kleinman . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Bruce Horowitz . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Marvin Susemihl. . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Massoud Kharazian. . . . . . . . . . . . . . . . . . . . . . . . 2,500
Arthur Keith Ross. . . . . . . . . . . . . . . . . . . . . . . . 2,000
Peter Blowitz. . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Philip Mendonca. . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Stephen McDonnell. . . . . . . . . . . . . . . . . . . . . . . . 2,000
Walter Hendricks . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Andrew Gueritz . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Paul Banko . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Keith Brackpool. . . . . . . . . . . . . . . . . . . . . . . . . 1,000
David Bampton. . . . . . . . . . . . . . . . . . . . . . . . . . 800
John Fox . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500
Michael Seymour. . . . . . . . . . . . . . . . . . . . . . . . . 500
John Walduck . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Marina McGovern. . . . . . . . . . . . . . . . . . . . . . . . . 350
Paul Leonard . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Audrey Manning . . . . . . . . . . . . . . . . . . . . . . . . . 300
Lindsay Baugh. . . . . . . . . . . . . . . . . . . . . . . . . . 300
Tim Baugh. . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Chris Arnold . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Allison McKie. . . . . . . . . . . . . . . . . . . . . . . . . . 150
Amanda Williams. . . . . . . . . . . . . . . . . . . . . . . . . 150
17
<PAGE>
Number of
Name of Shares
Selling Securityholders to be Sold
- ----------------------- ----------
Andrew Cowl. . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Bryan Parnham. . . . . . . . . . . . . . . . . . . . . . . . . . 150
Claire Savage. . . . . . . . . . . . . . . . . . . . . . . . . . 150
Gary Rawlins . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Jason Goddard. . . . . . . . . . . . . . . . . . . . . . . . . . 150
Keith Sponder. . . . . . . . . . . . . . . . . . . . . . . . . . 150
Lorna Reynolds . . . . . . . . . . . . . . . . . . . . . . . . . 150
Mayur Morjaria . . . . . . . . . . . . . . . . . . . . . . . . . 150
Paul Barrie. . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Peter Lees . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Samantha Thompson. . . . . . . . . . . . . . . . . . . . . . . . 150
David Mullender. . . . . . . . . . . . . . . . . . . . . . . . . 100
Total . . . . . . . . . . . . . . . . . . . . . . . . . 113,200
--------
--------
18
<PAGE>
[LETTERHEAD OF KELLOCK LIMITED]
The Directors
Hammer Distribution Limited
62 Tempus Business Centre
Kingsclere Road
Basingstoke
Hants
RG21 6XG
23 May 1998
Dear Sirs
Cashflow Finance Agreement dated 28 October 1997
We refer to your request to increase the Refer Limit. We confirm as follows:-
1 Refer Limit
With immediate effect the Refer Limit in Clause 3(a) is increased to
(pounds)3,250,000
2 Review Date
The Cashflow Finance Facility and/or your funding requirements and/or
these increases shall be reviewed on 10 May 1999
Yours sincerely
KELLOCK LIMITED
/s/ B N Short
B N Short
Company Secretary
We acknowledge receipt of a copy of the above mentioned document
/s/ [ILLEGIBLE]
- ------------------------------
Director
<PAGE>
Clearway Code:
4210
[LETTERHEAD OF BARCLAYS BANK PLC]
The Directors
4Front Group Plc
57A Hatton Garden
LONDON
EC1N 8JD 7th May 1998
Dear Sirs
We are pleased to advise you that Barclays Bank Plc ("the Bank") has agreed to
provide 4Front Group Plc and nominated operating subsidiaries (together referred
to as "the Borrower") with the following Facilities (the "Facilities").
The schedules attached hereto form part of the terms and conditions of this
letter.
1. Facilities
Overdraft Facility (pounds)3,000,000 (Schedule A)
Bonds, Guarantees and/or
Indemnities (pounds) 400,000 (Schedule B)
Spot & Forward Exchange
Transactions (pounds) 500,000 (Schedule C)
Ancillary Facilities (See Schedule D)
BusinessMaster (See Schedule D)
Following completion of the acceptance formalities detailed below, the
Facilities will become available for drawing/utilisation subject to the
terms and conditions stated.
2. Availability
Subject to the terms and conditions within the schedules, the Facilities
are marked for review on 30th April 1999.
3. Information
The Borrower shall provide the Bank with:-
<PAGE>
- -2-
a) Copies of its consolidated annual audited accounts including a
balance sheet and profit and loss account and individual audited
accounts for all group companies, as soon as they are available and
not later than 180 days from the end of its financial year
b) Quarterly copies of the operating group of companies unaudited
management accounts, including a balance sheet, profit and loss
account as soon as they are available and not later than 45 days
from the end of the quarter to which they relate
c) 10K and 10Q reports for 4Front Technologies Inc within 45 days from
the end of the period to which they relate
d) Forecast financial information for the following financial year as
soon as it is available and no later than 45 days from the end of
the previous financial year
together with any other information which the Bank may request from time
to time.
4. Security
All indebtedness will be secured by:-
a) Cross Guarantees and Debentures from:
4Front Group Plc
4Front Group UK Limited
CCG Holdings Limited
4Front Services Limited
4Front Networks Limited
Datapro Computers Group Limited
Hammer Distribution Limited
Firstpoint Limited
Mitre Technology Limited
K2 Systems Plc
Xanadu Systems Limited
in the Bank's standard form
b) A Guarantee from 4Front Technologies Inc
c) Composite Accounting documentation from all group companies as above
d) A Charge over the Kellock Ltd Invoice Discounting Agreement for
Hammer Distribution Ltd
<PAGE>
- -3-
together with any other security and/or guarantees which are subsequently
held by the Bank.
5. Debenture Formula
The Borrower shall within 30 days of the last day of the month under
review provide to the Bank with such information as the Bank may require
to enable it to monitor compliance with the debenture formula to include
aged debtor/creditor figures.
The formula shall be:-
The Borrower shall ensure that the total amount of the indebtedness, being
the aggregate of the Borrower's overdraft and liabilities (whether actual
or contingent) under the BGI's incurred by the Borrower to the Bank, shall
at all times be covered twice by third party debtors outstanding of less
than 90 days.
6. Currency Indemnity
If, for any reason, any amount payable to the Bank is received or
recovered in a currency other than the contractual currency in which it is
due, then to the extent that the amount actually received or recovered by
the Bank (when converted by the Bank into the contractual currency at the
applicable rate of exchange) falls short of the amount due in the
contractual currency, the Borrower shall, as a separate and independent
obligation, reimburse the Bank on demand (on a full indemnity basis) for
the amount of such shortfall.
7. Parent Authority
Authority of Parent to agree changes to the Composition of the Borrowers
and to the limit and terms applicable to the Facility.
By countersigning this letter, each Borrower (other than the Parent)
irrevocably authorises the Parent (which is hereby appointed the agent of
the Borrowers for such purposes) from time to time (i) to agree with the
Bank in writing to add any further subsidiary or subsidiaries as a
Borrower or Borrowers, and/or (ii) to remove any subsidiary as a Borrower,
and/or (iii) to make such changes to the limit and sub limits and other
terms applicable to the Facility as the Parent may deem appropriate,
and/or (iv) to sign any document and perform any act on behalf of the
Borrowers (or any of them) required to effect or implement any of the
foregoing. Each change so agreed by the Parent shall be binding on each
Borrower and the terms of this letter will continue in full force and
effect, save as expressly amended thereby.
8. Applicable Law
The Facilities and this letter shall be governed by and construed and take
effect in accordance with English law.
<PAGE>
- -4-
9. Acceptance
The Facility will become available to the Borrower for drawing only upon
receipt by the Bank of the following in form and substance satisfactory to
the Bank. These Facilities are available for acceptance by 22nd May 1998.
a) The enclosed duplicate of this letter duly signed on the Borrower's
behalf as evidence of acceptance of the terms and conditions stated
therein.
b) A certified true copy of a resolution of the Borrower's Board of
Directors:-
i) Accepting the Facilities and this offer on the terms and
conditions stated herein.
ii) Authorising a specified person, or persons, to countersign and
return to the Bank the enclosed duplicate of this Facility
letter.
Authorising the Bank to accept instructions and confirmations
in connection with the Facilities signed in accordance with
the Bank's signing mandate current from time to time, and to
accept instructions in connection with drawings under the SFET
facility by telephone from any person specifically authorised
to give such telephone instructions.
Yours faithfully
For and on behalf of
BARCLAYS BANK PLC
/s/ A J Garside
A J GARSIDE
DEPUTY DIRECTOR
Direct Dial (0118) 9553101
<PAGE>
SCHEDULE A
STERLING OVERDRAFT
Purpose
To assist with working capital requirements relating to the Borrower's normal
trading activities.
Amount
(pounds)3,000,000
Interest Rate
The overdraft will be available by way of a Composite Accounting System ("CAS")
in accordance with a Composite Accounting Agreement made between the Parent and
its subsidiaries named below and the Bank, subject to the sub limits detailed
below at the Reading branch of the Bank (the "Branch") with interest charged at
a rate of 1 1/2% per annum over the Bank's Base Rate current from time to time.
Interest, together with other charges, will be debited to the Borrower's current
accounts at the Branch quarterly in arrears in March, June, September and
December each year, or at such other times as may be determined by the Bank, and
such interest will be calculated on the basis of actual days elapsed over a 365
day year.
Sub Limits
<TABLE>
<CAPTION>
Company Amount
- ------- ------
<S> <C>
4Front Group Plc (pounds)3,000,000
4Front Group UK Limited Nil
CCG Holdings Limited Nil
Xanadu Systems Ltd Nil
K2 Systems Plc Nil
4Front Services Ltd Nil
4Front Networks Ltd Nil
Mitre Technology Ltd Nil
Datapro Computers Group Ltd Nil
Hammer Distribution Ltd Nil
Firstpoint Ltd Nil
</TABLE>
No amounts may be drawn in excess of the agreed facility but if, exceptionally,
the Bank pays amounts which are not agreed in advance, then a borrowing margin
of 1% above Base Rate will apply on the excess balance over the agreed limit. If
limits are exceeded without prior arrangement, payments may be returned unpaid
without further reference to you.
Availability
This overdraft is repayable upon demand. Subject to this overriding condition,
we have marked the limit for review on 30th April 1999.
<PAGE>
Fees and Costs
1. Arrangement fee of 1/4% flat to include all security fees. These are
subject to review at next anniversary of Facilities.
2. Agreed management fee - no fees are initially payable. However, in the
event that there is a significant length of time spent on new or
unforeseen issues, an additional fee may be payable but this will be
discussed and agreed with you at the time.
3. Money transmission costs will continue to be charged as already advised.
4. If your account exceeds the agreed overdraft limit, the Bank will normally
make separate additional charges to cover the costs incurred as a result.
Any excesses are agreed entirely at the Bank's discretion.
<PAGE>
SCHEDULE B
BONDS GUARANTEES AND/OR INDEMNITIES
1. Interpretation
For the purpose of this Facility Letter:-
a) "Counter Indemnities" means the Counter Indemnities from time to
time held by the Bank in relation to the Obligations and, unless the
context otherwise requires, includes each or any of them;
b) "Obligations" means the bonds, guarantees and/or indemnities issued
by the Bank or its correspondents under the Facility and, unless the
context otherwise requires, includes each or any of them;
c) "Sterling Equivalent" means, in relation to an amount denominated in
foreign currency, the amount of Sterling which could be purchased
with such foreign currency amount at the Bank's spot rate for the
purchase of Sterling with such foreign currency on the date on which
conversion is required;
d) "Utilised Amount" means, on the date on which the calculation is
required, the maximum amount of all liabilities due, owing or
incurred, whether actually or contingently and whether presently
payable or not, by the Bank under or in connection with the
Obligations, including where Obligations are denominated in foreign
currencies the Sterling Equivalent of the relevant liabilities of
the Bank in relation to such Obligations.
References to the singular include the plural and vice versa.
2. Utilisation
The Bank agrees to issue Obligations in Sterling and/or foreign currencies
when requested by the Borrower, provided that:-
a) No Obligation may be issued if, as a result, the Utilised Amount
would exceed the Facility Amount;
b) No Obligation may be issued until the acceptance formalities
detailed in clause 9 have been completed;
c) No Obligation may be issued after 30th April 1999;
d) The terms of the relevant Obligation have been approved by the Bank;
e) The Borrower has provided all information in connection with the
relevant Obligation required by the Bank;
f) The Borrower has agreed to pay the fees required by the Bank in
relation to the relevant Obligation;
<PAGE>
g) An Obligation will not be issued until the Bank has satisfied itself
that it holds a Counter Indemnity in respect of such Obligation or,
as the case may be, such Obligation is covered by an existing
Counter Indemnity.
3. Availability
a) The Bank may in its sole discretion at any time:-
i) Cancel its commitment to issue any further Obligations (if
unissued); and/or
ii) Demand from the Borrower the payment of all amounts (if any)
outstanding under this Facility Letter whereupon the same
shall be immediately due and payable; and/or
iii) Require the Borrower on demand to deposit and maintain with
the Bank an amount in Sterling sufficient to cover the
Utilised Amount and require the Borrower to give security over
the money so deposited (together with interest accruing
thereon) in form and substance satisfactory to the Bank to
secure the Borrower's liabilities to the Bank under this
Facility Letter and/or the Counter Indemnities.
b) Any sum of money at any time standing to the credit of the Borrower
with the Bank in any currency upon any account or otherwise may be
applied by the Bank, at any time after exercising the Bank's right
under clause 3(a) above (without notice to the Borrower), in or
towards the payment or discharge of any indebtedness now or
subsequently owing to the Bank by the Borrower hereunder and/or
under the Counter Indemnities and the Bank may use any such money to
purchase any currency or currencies required to effect such
application.
4. Fees
The Bank's standard tariff as advised from time to time shall apply.
Correspondents charges and out of pocket expenses will be passed on at
cost.
<PAGE>
SCHEDULE C
SPOT AND FORWARD EXCHANGE TRANSACTIONS
Barclays Bank Plc (the "Bank") has agreed to provide the Borrower with a Spot
and Forward Exchange Transactions (SFET) facility of up to (pounds)500,000
(Five Hundred Thousand Pounds) with a settlement risk element of up to
(pounds)500,000 (Five Hundred Thousand Pounds) (the "SFET facility").
1. All monies owing under the SFET facility are repayable upon written demand
by the Bank and/or any undrawn portion of the SFET may be cancelled by the
Bank at any time. Following demand and/or cancellation, no further
utilisation may be made under the SFET. The Bank may, at any time after
such demand and/or cancellation (i) call for payment of full cash cover
for the full amount of all liabilities outstanding under the SFET facility
and/or (ii) close out all or any outstanding contracts affected pursuant
to the SFET facility.
The Borrower shall indemnify the Bank on demand against any loss,
liability or expenses which the Bank may reasonably sustain or incur as a
consequence of making such demand or as a consequence of non-performance
by the Borrower of any obligation under this letter.
In the absence of demand or cancellation by the Bank, the SFET facility is
available for your utilisation until 30th April 1999 and no liability or
liabilities incurred may extend more than three months beyond the
aforementioned expiry date. However, the Bank will be pleased to discuss
the Borrower's future requirements shortly before that date.
2. Change of Circumstances
In the event of any change in applicable law or regulation or the existing
requirements of, or any new requirements being imposed by, the Bank of
England or other regulatory authority the result of which, in the sole
opinion of the Bank, is to increase the cost of it of funding, maintaining
or making available the SFET facility to reduce the effective return to
the Bank, then the Borrower shall pay to the Bank such sum as may be
certified by the Bank to the Borrower as shall compensate the Bank for
such increased cost or such reduction.
3. Currency Indemnity
If, for any reason, any amount payable to the Bank is received or
recovered in a currency other than the contractual currency in which it is
due, then to the extent that the amount actually received or recovered by
the Bank (when converted by the Bank into the contractual currency at the
applicable rate of exchange) falls short of the amount due in the
contractual currency, the Borrower shall, as a separate and independent
obligation, reimburse the Bank on demand (on a full indemnity basis) for
the amount of such shortfall.
4. The SFET facility covers the maximum liability of the Borrower to the Bank
outstanding at any time under contracts of not more than 12 months
duration for the forward purchase or sale of foreign currency for delivery
at a future date and the spot purchase or sale of foreign currencies. The
SFET facility consists of two figures. The larger figure represents the
total aggregate value of all deals and/or
<PAGE>
contracts, whether spot or forward and whether sales or purchases which
may be outstanding with the Bank at any one time. The smaller figure
indicates the total aggregate value of all deals and/or contracts, whether
purchases or sales, including spot transactions, where the Bank is
required irrevocably to pay away funds prior to receiving firm
confirmation of incoming cover. The Bank's decision in such matters is
final.
5. When wishing to utilise the SFET facility, the Borrower should telephone
Southern Treasury Centre, telephone (0118) 9802041. All payment and
delivery instructions are to be advised to and processed by the Branch and
confirmed by letter at the earliest opportunity.
<PAGE>
SCHEDULE D
ANCILLARY FACILITIES
Barclays Bank Plc (the "Bank") has agreed to provide the Borrower with the
following Facilities as detailed below.
1. Facilities
BusinessMaster II
Three Day Payments (pounds)1,000,000
International Payments (pounds)750,000
BACS
(pounds)500,000
Company Barclaycard
(pounds)100,000
The above three Facilities are subject to the terms and conditions as
detailed separately in each application form.
Set Off
Any sum of money at any time standing to the credit of the Borrower with
the Bank in any currency upon any account or otherwise (whether or not any
such account is held in the Borrower's name) or provided to the Bank as
cash cover for any bills and/or any outstanding liabilities under the
Ancillary Facilities may be applied by the Bank at any time (without
notice to the Borrower) in or towards the discharge of any money or
liabilities now or hereafter due, owing or incurred to the Bank by the
Borrower hereunder (whether presently payable or not).
2. Availability
In the absence of demand or cancellation by the Bank, the Facilities are
available for utilisation until 30th April 1999. However, the Bank will be
pleased to discuss the Borrower's future requirements shortly before that
date.
<PAGE>
EXHIBIT 23.1
The Board of Directors and Stockholders
4Front Technologies, Inc. and Subsidiaries
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG
CHARTERED ACCOUNTANTS
REGISTERED AUDITORS
London, England
June 4, 1998
