<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 1997
REGISTRATION NO. 333-14027
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SEEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 7372 55-0686906
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5001 BAUM BOULEVARD
PITTSBURGH, PENNSYLVANIA 15213
(412) 682-4991
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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RAVINDRA KOKA
PRESIDENT
SEEC, INC.
5001 BAUM BOULEVARD
PITTSBURGH, PENNSYLVANIA 15213
(412) 682-4991
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
<TABLE>
<S> <C>
DANIEL L. WESSELS, ESQ. JEFFREY P. SOMERS, ESQ.
COHEN & GRIGSBY, P.C. MORSE, BARNES-BROWN & PENDLETON, P.C.
2900 CNG TOWER RESERVOIR PLACE
625 LIBERTY AVENUE 1601 TRAPELO ROAD
PITTSBURGH, PENNSYLVANIA 15222 WALTHAM, MASSACHUSETTS 02154
(412) 394-4900 (617) 622-5930
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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 same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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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.
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<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED JANUARY 17, 1997
PROSPECTUS
1,500,000 SHARES
LOGO
COMMON STOCK
The 1,500,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby are being issued and sold by SEEC, Inc. (the "Company"
or "SEEC"). Prior to the offering contemplated hereby (the "Offering"), there
has been no public market for the Common Stock of SEEC. It is currently
estimated that the initial public offering price will be in the range of $6.00
to $7.50 per share. For a discussion of the factors to be considered in
determining the initial public offering price for the Common Stock, see
"Underwriting." SEEC has applied to list the Common Stock for quotation on the
Nasdaq Small-Cap Market under the symbol "SEEC."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
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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.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share.................................... $ $ $
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Total(3)..................................... $ $ $
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</TABLE>
(1) Excludes a non-accountable expense allowance equal to two and one-half
percent (2.5%) of the total proceeds from the sale of the common stock
($ per share) payable to H.C. Wainwright & Co., Inc., and
Cruttenden Roth Incorporated, the representatives of the Underwriters (the
"Representatives"), and the value of warrants to be issued to the
Representatives to purchase the number of shares of Common Stock equal to
ten percent (10%) of the number of shares being offered hereby at an
exercise price of 120% of the public offering price (the "Representatives'
Warrants"). The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering estimated to be $700,000,
including the Representatives' non-accountable expense allowance.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional shares of its Common Stock at the Price to Public, less
the Underwriting Discount shown above, solely to cover over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein, when, as and if received and accepted by them, subject to their right to
reject orders in whole or in part and subject to other conditions. It is
expected that delivery of the certificates for the shares of Common Stock will
be made against payment therefor at the offices of H.C. Wainwright & Co., Inc.
in Boston, Massachusetts on or about January , 1997.
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H.C. WAINWRIGHT & CO., INC. CRUTTENDEN ROTH
INCORPORATED
THE DATE OF THIS PROSPECTUS IS JANUARY , 1997.
<PAGE> 3
SEEC PROVIDES PC-BASED SOFTWARE ANALYSIS TOOLS
TO ENABLE CUSTOMERS TO MAINTAIN AND REDEVELOP LEGACY
COBOL APPLICATIONS AND RELATED DATABASES.
A diagram describing SEEC's products and illustrating their use on a PC/LAN to
maintain and redevelop COBOL applications which are downloaded from a mainframe
to a LAN Server.
SEEC, COBOL ANALYST(TM), COBOL ANALYST 2000(TM), SMART CHANGE FACTORY(TM),
COBOL SLICER(TM), AND DATE ANALYZER(TM) ARE TRADEMARKS, SERVICE MARKS OR
REGISTERED TRADEMARKS OF SEEC. THIS PROSPECTUS ALSO INCLUDES TRADEMARKS, TRADE
NAMES AND REFERENCES TO INTELLECTUAL PROPERTY OWNED BY OTHER COMPANIES.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Prospective investors should consider carefully the information
discussed under "Risk Factors." Except as otherwise indicated, all information
in this Prospectus assumes that (i) prior to the effectiveness of the
Registration Statement of which this Prospectus is a part the Company's charter
will be amended to increase its authorized Common Stock to 20,000,000 shares and
to authorize 10,000,000 shares of preferred stock and the Company will effect a
1-for-2.2094 reverse split of the Company's Common Stock and (ii) the
Underwriters' over-allotment option is not exercised. See "Description of
Capital Stock" and "Underwriting." The Company was incorporated under the name
Software Engineering and Enhancement Center, Inc., as a West Virginia
corporation, in 1988. In 1989, the Company changed its name to SEEC, Inc. and in
1992 reincorporated in Pennsylvania. References herein to fiscal years are
references to the fiscal year of SEEC ended March 31 of the year specified
(e.g., "fiscal 1996" refers to the fiscal year ended March 31, 1996).
THE COMPANY
SEEC provides a suite of software products and business solutions for
maintaining and redeveloping legacy COBOL software applications and related
databases, including solutions for year 2000 compliance. SEEC also provides
solutions for the migration of existing COBOL applications from mainframe to
client/ server environments. The Company's software products and solutions are
designed to minimize the time and cost of maintenance and redevelopment by
automating various functions and utilizing well-defined and repeatable
processes.
COBOL applications require continual maintenance and redevelopment in order
to satisfy constantly changing information requirements and to incorporate
advances in technology. The installed base of software applications written in
the COBOL programming language is enormous. Industry sources estimate that more
than 150 billion lines of COBOL code are in use worldwide. Industry sources
indicate that a substantial portion of COBOL application resources are dedicated
to maintenance and redevelopment. An immediate maintenance requirement is caused
by the inability of most legacy applications to process accurately calculations
and logic involving the year 2000 and beyond. Date dependent programs are
ubiquitous in many existing COBOL applications. SEEC anticipates that demand for
year 2000 compliance products and solutions, such as those provided by SEEC,
will increase rapidly over the next few years. Industry sources estimate that
total costs to industry and government to address year 2000 compliance could
total $300 billion to $600 billion worldwide.
The Company's software products, which are based on the Company's core
COBOL analysis technology, automate many of the procedures required for COBOL
application maintenance and redevelopment, including year 2000 compliance. The
Company's products analyze and modify COBOL source code, which is downloaded
from a mainframe to a PC/LAN Microsoft Windows environment where it is stored in
application dictionaries for performance of maintenance and redevelopment
functions. SEEC has also developed software tools that enable customers to
extract business rules and functions from legacy COBOL applications for reuse in
object-oriented client/server environments.
SEEC provides year 2000 solutions through its Smart Change Factory, a
repeatable process that combines the Company's proprietary software tools and
third-party software tools with well-defined procedures to efficiently utilize
customer information resources. The Smart Change Factory provides an end-to-end
solution, including impact assessment, planning, source code correction and
testing. The Company's products and solutions may be integrated with the
customer's existing organization, allowing the customer to retain control of
critical software applications. The Company's products and solutions may also be
used for complete application outsourcing by the customer to SEEC or to licensed
third-party solution providers.
3
<PAGE> 5
The Company's primary objective is to become a leading provider of software
products and business solutions for the maintenance and redevelopment of legacy
software applications and related databases. The key elements of the Company's
strategy to achieve its objective are (i) pursuing a broad-based distribution
strategy, (ii) efficiently utilizing customer information resources and
maximizing customer options and flexibility with the Smart Change Factory
approach, and (iii) providing PC/LAN-based software tools with a graphical user
interface that are easier to use and learn than mainframe-based tools and
conserve valuable mainframe resources. SEEC anticipates that the knowledge and
close working relationship developed with customers in providing year 2000
solutions will provide additional opportunities for SEEC to provide ongoing
solutions for COBOL maintenance and redevelopment and for migration from
mainframe to client/server environments.
SEEC sells and licenses its products and solutions predominantly to Fortune
1000 or similarly-sized companies, government organizations, and third-party
service providers worldwide. Representative customers for the Company's year
2000 solutions include Wheeling Pittsburgh Corporation, Mack Trucks, Rockwell
International Corporation, Northern Illinois Gas, Foremost Insurance Company
(through IBM's Integrated Systems and Solutions Corp.), and Aluminum Company of
America (ALCOA). Representative customers for which SEEC has provided general
COBOL maintenance and redevelopment products and solutions include Sallie Mae,
American Savings Bank, Mellon Bank, N.A., Securities Industry Automation
Corporation, Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corporation, Deere & Co., Illinois Department of Employment Security and
Columbia Gas. SEEC has licensed its software products to several service
providers, including Complete Business Solutions, Inc., IBM's Integrated Systems
and Solutions Corp. and Coopers & Lybrand.
The Company's executive offices are located at 5001 Baum Boulevard,
Pittsburgh, Pennsylvania 15213 and its telephone number is (412) 682-4991.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered by SEEC........ 1,500,000 shares
Common Stock outstanding prior to the
Offering................................ 2,806,373(1)
Common Stock to be outstanding after the
Offering................................ 4,306,373 shares (1)(2)
Use of proceeds........................... To expand sales and marketing, hire new
personnel, increase capital expenditures and for
working capital and other general corporate
purposes.
Proposed Nasdaq Small-Cap Market Symbol... SEEC
</TABLE>
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(1) Excludes (i) 85,763 shares of Common Stock issuable upon exercise of
outstanding stock options granted under the SEEC, Inc. 1994 Stock Option
Plan (the "Stock Option Plan") at a weighted average exercise price of $1.77
per share, (ii) 167,458 shares of Common Stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $0.02 per
share, (iii) 9,052 shares of Common Stock issuable upon exercise of options
granted to non-employee directors, and (iv) 137,148 shares of Common Stock
reserved for the grant of additional options under the Stock Option Plan.
See "Management-- Stock Option Plan," "Management--Compensation of
Directors" and "Description of Capital Stock-- Warrants and Conversion
Rights."
(2) Excludes 150,000 shares (172,500 shares if the Underwriters' over-allotment
option is exercised) of Common Stock issuable upon exercise of the
Representatives' Warrants at an exercise price equal to 120% of the public
offering price.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................... $ 363 $ 456 $ 864 $ 785 $1,029 $ 412 $1,089
Costs and expenses............... 544 831 1,037 1,124 1,316 600 1,033
Income (loss) from operations.... (181) (375) (173) (339) (287) (188) 56
Other expense, net............... (13) (41) (49) (57) (55) (24) (24)
Net income (loss)................ (194) (416) (222) (396) (342) (212) 32
Net income (loss) per common and
common share equivalent....... $(.08) $(.17) $ (.09) $ (.15) $ (.13) $ (.08) $ .01
Weighted average number of common
and common equivalent shares
outstanding................... 2,340 2,517 2,612 2,612 2,619 2,615 2,901
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
AS
ACTUAL ADJUSTED(1)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 822 $ 9,488
Working capital..................................................... 843 9,509
Total assets........................................................ 1,485 10,018
Total long-term obligations......................................... 213 213
Total shareholders' equity (deficit)................................ (112) 8,554
</TABLE>
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(1) Adjusted to give effect to the sale of 1,500,000 shares of Common Stock
offered by SEEC hereby at an assumed public offering price of $6.75 per
share, after deducting the estimated underwriting discount and estimated
offering expenses. See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
In evaluating the Company and the Offering, potential investors should
carefully consider the following factors, among other things, before purchasing
the Common Stock offered by this Prospectus.
HISTORY OF NET OPERATING LOSSES; ACCUMULATED DEFICIT; ANTICIPATED LOSSES
The Company has incurred a net loss in each of the last three fiscal years
equal to $222,000 in fiscal 1994, $396,000 in fiscal 1995 and $342,000 in fiscal
1996. The Company had an accumulated deficit of approximately $1.7 million as of
March 31, 1996 and September 30, 1996. While the Company had net income for the
first six months of fiscal 1997, the Company anticipates that it will incur a
net loss for the current fiscal year as the Company substantially increases
expenditures for sales and marketing and hiring new personnel. There can be no
assurance that the Company will be profitable in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Financial Statements.
POSSIBLE FLUCTUATION OF OPERATING RESULTS; FUTURE OPERATING RESULTS UNCERTAIN
The Company has experienced fluctuations in revenue and operating results.
These fluctuations are due, in part, to the budgeting and purchasing practices
of the Company's customers, which affect the volume and timing of product orders
and solution engagements received by the Company. The Company's solutions
business may be characterized by significant customer concentration and
relatively large projects. The timing of product shipments or completion of
customer solution engagements, especially at or near the end of any accounting
period, could cause variations in operating results from period to period and
could result in quarterly losses. In addition, variations in the Company's
revenue and operating results may occur as a result of a number of other
factors, such as employee hiring and utilization rates and the number of working
days in a quarter, demand for the Company's products and solutions, and
competitive conditions in the industry. Many of these factors are not within the
Company's control. Fluctuations in operating results may also adversely affect
and cause volatility in the market price of the Company's Common Stock. The
Company believes that quarter-to-quarter comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
INTENSE COMPETITION
The market for the Company's software products and solutions, including its
solutions for the year 2000 problem and client/server migration, is intensely
competitive and is characterized by rapid change in technology and user needs
and the frequent introduction of new products. The Company's principal
competitors in the software tools market include VIASOFT, Inc., Micro-Focus
Group Public Limited Company and Computer Associates International, Inc. The
Company also competes with large service providers such as IBM's Integrated
Systems and Solutions Corp., Cap Gemini America, Computer Horizons Corp. and the
Big Six accounting firms. Certain of these service providers have developed or
acquired proprietary software tools. Many of the Company's competitors are more
established, benefit from greater name recognition and have substantially
greater financial, technical and marketing resources than the Company. The
Company believes that the principal factors affecting competition in its markets
include product performance and reliability, product functionality, ability to
respond to changing customer needs, ease of use, training, quality of support
and price. Other than technical expertise and, with respect to the year 2000
compliance market, the limited time available to enter the market, there are no
significant proprietary or other barriers to entry that could keep potential
competitors from developing or acquiring similar tools or providing competing
solutions in the Company's market.
The Company's ability to compete successfully in the sale of products and
solutions will depend in large part upon its ability to attract new customers,
sell products and services, deliver and support product enhancements to its
existing and new customers and respond effectively to continuing technological
change by developing new products and solutions. There can be no assurance that
the Company will be able to compete successfully in the future, or that future
competition for product sales and solutions will not have a material
6
<PAGE> 8
adverse effect on the business, results of operations and financial condition of
the Company. See "Business-- Competition."
UNCERTAINTY OF CURRENT AND FUTURE DEMAND FOR YEAR 2000 SOLUTIONS
The Company is currently focusing significantly on the marketing and sale
of products and solutions for year 2000 assessment, planning, correction and
testing. Although the Company believes that the market for solutions to the year
2000 problem will grow significantly as the year 2000 approaches, there can be
no assurance that this market will develop to the extent anticipated by the
Company. In addition, organizations affected by the year 2000 problem may not be
willing or able to allocate the financial or other resources required to address
the problem in a timely manner. Many organizations may attempt to resolve the
problem internally rather than purchase tools and solutions from outside firms
such as the Company. Due to these factors, development of the market for
solutions to the year 2000 problem is uncertain and unpredictable. If the market
fails to increase, or increases more slowly than anticipated, the Company's
business, operating results and financial condition could be materially and
adversely affected. Furthermore, the demand for year 2000 products and solutions
is likely to diminish rapidly after the year 2000. As a result, the Company
could experience a significant decline in revenues unless it is able to offset
declines in year 2000 related revenues with increased sales of products and
solutions for general legacy system maintenance and redevelopment or for
migration of COBOL applications from mainframe systems to client/server systems.
There can be no assurance that the Company will be able to replace revenues
related to year 2000 products and solutions after the year 2000. See "Business."
UNCERTAINTY OF MARKET ACCEPTANCE OF SEEC'S PRODUCTS AND SOLUTIONS
Failure of the Company to achieve market acceptance of its products and
solutions will have a material adverse effect on the Company's business, results
of operations and financial condition. Future revenues from sales of products
and solutions are dependent on the use of PCs by large organizations as a
solution platform for COBOL maintenance and redevelopment. Currently most
maintenance and redevelopment software tools are designed for use on mainframe
platforms. The Company believes that PC-based tools and solutions have certain
advantages over mainframe-based solutions but are relatively new and not widely
used. A large number of decision-makers who might evaluate the Company's
products and solutions are experienced in mainframe operating environments and
may not readily accept PC-based products and solutions. Additional marketing and
educational activities will be necessary to convince the COBOL maintenance and
redevelopment market of the advantages of PC-based solutions. Failure to achieve
wider market acceptance of PC-based solutions could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company's year 2000 products and solutions provide automated solutions
for many year 2000 assessment, planning, correction and testing tasks and
procedures. There can be no assurance that potential customers will perceive the
benefits of automation of various year 2000 compliance tasks, and therefore they
may determine to perform manually all aspects of the year 2000 compliance
process.
The Company has developed products for the migration of existing COBOL
software applications from mainframe to client/server architectures. The Company
has not attempted to market and sell such products to date and there can be no
assurance that they will achieve market acceptance. The Company anticipates that
migration from mainframe systems to client/server systems will be gradual,
particularly for customized applications. Many organizations perceive a high
degree of risk and expense in migrating entire applications from a mainframe to
a client/server. As a result, the market for client/server migration tools and
solutions may not develop to the extent or in the time periods anticipated by
the Company. See "Business."
DEPENDENCE ON MAJOR CUSTOMERS AND LARGE CONTRACTS
Historically, a large portion of the Company's annual revenues have been
derived from a relatively small number of customers. During fiscal 1994, 1995
and 1996, and the six months ended September 30, 1996, revenues from Complete
Business Solutions, Inc. were $181,000, $319,000, $330,000 and $256,000, which
accounted for 21%, 41%, 32% and 24%, respectively, of the Company's total
revenues in each of these periods.
7
<PAGE> 9
Additionally, two other customers in fiscal 1995 and three other customers in
fiscal 1996 and the six months ended September 30, 1996 accounted for 15%, 32%
and 15% of the Company's total revenues, respectively. If the Company is unable
to broaden its customer base and reduce its dependence on large orders from
relatively few customers, the loss of, or significant reduction in orders from,
any of such customers could materially and adversely affect the Company's
business, operating results and financial condition. See "Business--Customers"
and Notes 3 and 6 to Financial Statements.
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in part upon its ability to hire and
retain key senior management and skilled technical, professional services and
marketing personnel. Although the Company believes it will be able to hire
qualified personnel for such purposes, an inability to do so could materially
adversely affect the Company's ability to market, sell and enhance its products
and solutions. The market for qualified personnel has historically been, and the
Company expects that it will continue to be, intensely competitive. The demand
for experienced COBOL project managers and programmers is expected to continue
to increase significantly over the next several years, particularly as a result
of the year 2000 problem. The Company has recently hired a Chief Financial
Officer and intends to hire other senior management personnel in the near
future. The Company's success will depend in part on the successful assimilation
and performance of these individuals. The loss of one or more of its key
employees or the Company's inability to hire and retain other qualified
employees could have a material adverse effect on the Company's business. The
Company has employment agreements with certain key employees, but does not
maintain key man life insurance on any of these persons. See
"Management--Employment Agreements."
ABILITY TO MANAGE CHANGE AND RAPID GROWTH
The Company expects its business and the industry in which it competes to
continue to undergo rapid change. The Company plans to expand significantly
distribution and marketing capabilities, solutions capabilities, the number of
Smart Change Factories and management and personnel infrastructure. In light of
the business opportunities presented by the year 2000 problem, the Company's
business strategy contemplates rapid growth. If the Company experiences rapid
growth, its ability to be profitable may depend, among other things, on its
ability to manage a large number of personnel, a number of Smart Change
Factories and other maintenance and redevelopment projects concurrently on a
worldwide basis. The failure of the Company's management to respond effectively
to and manage changing technological and business conditions could have a
material adverse impact on the Company's business, results of operations and
financial condition. See "Business."
ABILITY TO ADDRESS TECHNOLOGICAL CHANGES AND CUSTOMER REQUIREMENTS
The Company's future success will depend significantly on its ability to
enhance its current products and develop or acquire new products to satisfy
evolving industry standards, technological developments and changing customer
needs. There can be no assurance that the Company will be successful in
developing or acquiring product enhancements or new products, that it can
introduce such products or enhancements on a timely basis, or that any such
products or enhancements will be successful in the marketplace. The Company's
delay or failure to develop or acquire technological improvements or to adapt
its products to technological change would have a material adverse effect on its
business, results of operations and financial condition. There can also be no
assurance that new technologies will not be developed by one or more third
parties that render the Company's tools and solutions for COBOL maintenance and
redevelopment or client/server migration technologically obsolete.
POSSIBLE VOLATILITY OF STOCK PRICE
The Company believes factors such as general conditions in the computer
hardware and software industries and announcements of new products by the
Company or by its competitors may cause the market price of the Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market
in general, and the shares of technology companies in particular, have
experienced extreme price fluctuations.
8
<PAGE> 10
These broad market and industry fluctuations, over which the Company has no
control, may adversely affect the market price of the Common Stock.
INABILITY TO PROTECT PROPRIETARY RIGHTS
The Company regards its software products and solutions as proprietary and
attempts to protect them under a combination of copyright, trade secret and
trademark laws as well as by contractual restrictions on employees and third
parties. Despite these precautions, it may be possible for unauthorized parties
to copy the Company's software or to reverse engineer or otherwise obtain and
use information the Company regards as proprietary. The Company has no patents,
and existing trade secret and copyright laws provide only limited protection.
Certain provisions of the license and distribution agreements generally used by
the Company, including provisions protecting against unauthorized use, copying,
transfer and disclosure, may be unenforceable under the laws of certain
jurisdictions, and the Company is required to negotiate limits on these
provisions from time to time. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. There can be no assurance that the steps taken by the
Company will be adequate to deter misappropriation of proprietary information or
that the Company will be able to detect unauthorized use and take appropriate
steps to enforce its intellectual property rights.
Significant and protracted litigation may be necessary to protect the
Company's intellectual property rights, to determine the scope of the
proprietary rights of others or to defend against claims for infringement.
Although the Company is not currently involved in any litigation with respect to
intellectual property rights, infringement claims against software developers
are likely to increase as the number of functionally similar products in the
market increases. There can be no assurance that third-party claims, with or
without merit, alleging infringement will not be asserted against the Company in
the future. Such assertions can be time consuming and expensive to defend and
could require the Company to cease the manufacture, use and sale of infringing
products and services, to incur significant litigation costs and expenses and to
develop or acquire non-infringing technology or to obtain licenses to the
alleged infringing technology. There can be no assurance that the Company would
be able to develop or acquire alternative technologies or to obtain such
licenses on commercially acceptable terms. See "Business--Product Protection."
POTENTIAL FOR PRODUCT LIABILITY
The Company's products and solutions relate to key aspects of its
customers' information systems. The Company has never been the subject of a
damages claim related to its products. However, any failure in a customer's
system could result in a claim for substantial damages against the Company,
regardless of the Company's responsibility for such failure. In connection with
the sale of its products and services, the Company attempts to limit
contractually its liability for damages arising from negligent acts, errors,
mistakes or omissions. Despite this precaution, there can be no assurance that
the limitations of liability set forth in its customer contracts would be
enforceable or would otherwise protect the Company from liability for damages.
Additionally, the Company maintains general liability insurance coverage with
limits of $1 million. However, there can be no assurance that such coverage will
continue to be available on acceptable terms, or will be sufficient 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 more large claims against the
Company that exceed available insurance coverages or changes in the Company's
insurance policies, such as premium increases or the imposition of large
deductible or co-insurance requirements, could materially and adversely affect
the Company's business, operating results and financial condition.
CERTAIN TRANSACTIONS; POTENTIAL CONFLICTS OF INTEREST
The Company has engaged in certain material transactions with certain of
its management and shareholders and maintains certain material business
relationships with ERA Software Systems Private Limited ("ERA"), a significant
shareholder of the Company. Ravindra Koka, the President, a director and a
principal shareholder of the Company, and Shankar Krish, an employee of the
Company, are directors and significant shareholders of ERA. See
"Business--Research and Development," "Certain Transactions--ERA Relationship"
and Notes 5 and 6 to Financial Statements.
9
<PAGE> 11
SIGNIFICANT UNALLOCATED NET PROCEEDS; DISCRETION OF MANAGEMENT
The Company intends to use the net proceeds of this Offering to expand
sales and marketing efforts, hire management, sales and technical personnel,
increase capital expenditures and for working capital and other general
corporate purposes. In addition, the Company may use a portion of the net
proceeds of this Offering to acquire businesses, products or technologies
complementary to its business. Although the Company has from time to time
engaged in discussions with respect to possible acquisitions, it has no present
plans, intentions, understandings, commitments or agreements, nor is it
currently engaged in any negotiations, with respect to any such transaction.
Pending such uses, the Company intends to invest the net proceeds from this
Offering in short-term, investment-grade, interest-bearing securities. The
Company has no other specific uses for the proceeds of this Offering, and the
exact use of the proceeds will be subject to the discretion of management. See
"Use of Proceeds."
INFLUENCE BY EXISTING SHAREHOLDERS
After the sale of shares of Common Stock offered hereby, the Company's
officers, directors and principal shareholders with whom certain directors are
affiliated will own beneficially an aggregate of approximately 46% of the
outstanding shares of Common Stock (approximately 44% if the Underwriters'
over-allotment option is exercised in full). As a result, these shareholders, if
they act together, will be able to elect all of the Company's directors and
generally to direct its affairs. This concentration of ownership by existing
shareholders may also have the effect of delaying or preventing a change in
control of the Company. See "Principal Shareholders and Holdings of Management."
PRIOR DEFAULTS
The Company is a party to a Term Loan Agreement with the Industrial Credit
and Investment Corporation of India Limited ("ICICI") dated May 3, 1994 (the
"ICICI Loan Agreement") and a Cooperation and Project Financing Agreement with
ICICI and ERA Software Systems Private Limited ("ERA") dated June 1, 1990 (the
"Cooperation Agreement"). During fiscal 1996, the Company defaulted on certain
covenants and obligations under the ICICI Loan Agreement. At March 31, 1996, the
Company was in arrears on interest payments totaling $20,250 and at June 30,
1996 on interest payments totalling $27,000. Pursuant to a letter dated
September 25, 1996 (the "ICICI Waiver Letter") ICICI agreed that it would not
declare an event of default if the unpaid interest was paid on or before
September 30, 1996. All such payments were brought current prior to September
30, 1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
The ICICI Loan Agreement also contains covenants (a) prohibiting the
Company from issuing any equity securities or changing its capital structure,
(b) requiring the Company to submit annual audited financial statements to
ICICI, (c) requiring the Company to submit an auditor's certificate for the
utilization of certain funds, (d) prohibiting the Company from prepaying any
loan from any other party, and (e) requiring the Company to notify ICICI of any
event or condition that would constitute an event of default under the ICICI
Loan Agreement. At March 31, 1996 the Company was in default of one or more of
these covenants. Pursuant to the ICICI Waiver Letter, ICICI waived compliance
with the foregoing covenants or consented to modifications of the relevant
provisions of the ICICI Loan Agreement in order to permit noncompliance.
Pursuant to the Cooperation Agreement, the Company is required to make
royalty payments to ICICI on January 15 and July 15 of each year. ICICI agreed
to defer these payments until January 1997 and waived any previous defaults for
nonpayment of royalties. ICICI also provided a written waiver of the Company's
noncompliance for all years through March 31, 1996 with the requirement that the
Company provide ICICI with certain financial statements.
The Company does not anticipate that it will default in the future in the
performance or observance of any of the covenants of the ICICI Loan Agreement or
in the Cooperation Agreement, each as modified
pursuant to the ICICI Waiver Letter.
10
<PAGE> 12
UNLIKELY TO DECLARE DIVIDENDS
The Company has never declared or paid cash dividends on its capital stock
and does not anticipate paying any cash dividends in the foreseeable future. The
Company currently anticipates that it will retain future earnings, if any, to
fund the development and growth of its business. In addition, the ICICI Loan
Agreement prohibits the Company from declaring dividends on its capital stock at
any time when it is in default of its payment obligations under the ICICI Loan
Agreement. In 1996, the Company was in default of certain payment and other
obligations under the ICICI Loan Agreement, but as of September 30, 1996 brought
such payment obligations current and received a written waiver from ICICI of all
existing and prior defaults. See "Risk Factors--Prior Defaults" and "Dividend
Policy."
DILUTION OF NEW INVESTORS; BENEFITS TO CURRENT SHAREHOLDERS
New investors purchasing Common Stock in the Offering will experience
immediate and substantial dilution in the net tangible book value of each share
of the Common Stock purchased by them. The Company's current shareholders will
benefit from an immediate increase in the net tangible book value per share of
their Common Stock and will also benefit from the development of any public
market for their Common Stock as a result of the Offering. The holders of
outstanding stock options and warrants to purchase shares of the Common Stock
will similarly benefit upon the exercise thereof. The Company's existing
shareholders paid an aggregate of $1,587,000 for the outstanding Common Stock,
or an average of $.57 per share. The Company's existing shareholders will have
an unrealized average gain of $6.18 per share, based upon an assumed initial
public offering price of $6.75 per share, for an aggregate unrealized gain of
$17,355,000. Dilution to new investors will be 70.5% or $4.76 per share.
Assuming the exercise of all outstanding options and warrants, the average price
per share paid by the Company's shareholders would be $.58, resulting in average
unrealized appreciation of $6.17 per share and aggregate unrealized appreciation
of $18,938,000, based upon such assumed initial public offering price. See
"Dilution" and "Shares Eligible for Future Sale."
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
There has been no public market for the Common Stock prior to the Offering
and there can be no assurance that a public market will develop or, if
developed, will be sustained following the Offering. The Company has applied to
list the Common Stock for quotation on the Nasdaq Small-Cap Market under the
symbol "SEEC." The price of the Common Stock offered hereby will be determined
through negotiation between the Company and the Representatives and may not be
indicative of the market price for the Common Stock after the Offering. The
factors to be considered in determining the Offering price will be the
preliminary demand for the Common Stock, prevailing market and economic
conditions, the Company's revenue and earnings, estimates of its business
potential and prospects, the present state of its business operations, an
assessment of its management, the consideration of these factors in relation to
the market valuation of comparable companies in related businesses and the
current condition of the markets in which it operates. Certain factors, such as
subsequent sales of Common Stock into the market by existing shareholders and
market conditions generally, could cause the market price of the Common Stock to
vary substantially. Certain existing shareholders and the Representatives have
registration rights for the Common Stock they own or may acquire and accordingly
will have the ability to exercise such rights and sell such shares free of
securities law restrictions. See "Certain Transactions," "Shares Eligible for
Future Sale" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICES
Sales of a substantial number of shares of the Common Stock in the public
market following this Offering could adversely affect the market price for the
Common Stock. Of the 2,806,373 shares of Common Stock that will be held by the
Company's current shareholders immediately after the completion of the Offering,
(representing approximately 65% of the Common Stock outstanding after the
Offering, or approximately 62% if the Underwriters' over-allotment option is
exercised in full), 2,040,144 shares will be eligible for sale in the public
market after the expiration of the 270-day lock-up period described below,
subject to certain volume and other limitations, pursuant to Rule 144
promulgated under the Securities Act ("Rule 144"). Certain of
11
<PAGE> 13
the existing shareholders of the Company and the Representatives have
registration rights for the Common Stock they own and accordingly will have the
ability to exercise such rights and sell their Common Stock free of such volume
and other limitations after the 270-day lock-up period expires. Except for the
exercise of stock options pursuant to the Stock Option Plan and the exercise of
certain outstanding warrants, the Company and its directors, executive officers,
and holders of substantially all of its outstanding shares of Common Stock,
stock options and warrants, have agreed with the Underwriters not to sell any
Common Stock for 270 days from the date of this Prospectus without the prior
written consent of the Representatives. In addition, the Company's directors and
executive officers and certain of its principal shareholders have agreed to
place a portion of their shares of Common Stock, stock options and warrants into
escrow to satisfy the requirements of certain state securities laws. Such
securities will be held in escrow for at least one year and will be released
upon the occurrence of certain specified events. See "Shares Eligible for Future
Sale" and "Underwriting."
ANTITAKEOVER MEASURES
The Company's Bylaws divide the Board of Directors into three classes, with
each class to be as equal in number of directors as possible. At each annual
meeting of shareholders, directors will be elected for three-year terms to
succeed the directors of the class whose terms are expiring. In accordance with
the Pennsylvania Business Corporation Law, directors serving on classified
boards of directors may only be removed from office for cause. In addition,
under the Company's Articles of Incorporation, the Board of Directors has the
authority to fix the rights and preferences of, and issue shares of, Preferred
Stock without further action of the shareholders. Therefore, Preferred Stock
could be issued, without shareholder approval, that could have voting,
liquidation and dividend rights superior to that of the Common Stock. The
issuance of Preferred Stock could adversely affect the voting power of holders
of Common Stock and the likelihood that such holders of Common Stock would
receive dividend payments and payments on liquidation. The Company has no
present plan to issue any shares of Preferred Stock. One or all of these
provisions could, under certain circumstances, operate to delay, deter or
prevent a change in control of the Company or limit the price that potential
acquirors or investors may be willing to pay in the future for the Company or
shares of its Common Stock.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements, including (i)
the potential size of and anticipated growth in the year 2000 compliance market;
(ii) anticipated trends in the Company's financial condition and results of
operations (including expected changes in the Company's gross margin and
general, administrative and selling expenses); (iii) the Company's business
strategy for growth in the market for year 2000 compliance, other COBOL
maintenance and redevelopment and client/server migration; and (iv) the
Company's ability to distinguish itself from its current and future competitors.
These forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. In addition
to the other risks described elsewhere in this "Risk Factors" discussion,
important factors to consider in evaluating such forward-looking statements
include (i) the shortage of reliable market data regarding the market for year
2000 solutions, other COBOL maintenance and redevelopment and client/ server
migration; (ii) changes in external competitive market factors which might
impact trends in the Company's results of operations; (iii) unanticipated
working capital or other cash requirements; (iv) changes in the computer
hardware and software industries and the year 2000 solutions market; and (v)
various competitive factors that may prevent the Company from competing
successfully in the marketplace. In light of these risks and uncertainties, many
of which are described in greater detail elsewhere in this "Risk Factors"
discussion, actual results could differ materially from the forward-looking
statements contained in this Prospectus.
12
<PAGE> 14
THE COMPANY
The Company was incorporated under the name Software Engineering and
Enhancement Center, Inc., as a West Virginia corporation, in 1988. In 1989, the
Company changed its name to SEEC, Inc. and in 1992 reincorporated in
Pennsylvania. When used in this Prospectus, unless the context requires
otherwise, the terms "Company" and "SEEC" refer to SEEC, Inc. and its
predecessor. The Company's executive offices
are located at 5001 Baum Boulevard, Pittsburgh, Pennsylvania 15213 and its
telephone number is
(412) 682-4991.
USE OF PROCEEDS
The net proceeds to SEEC from the sale of the Common Stock offered hereby
(based upon an assumed public offering price of $6.75 per share (the mid-point
of the price range on the cover of this Prospectus) and after deducting the
estimated underwriting discount and estimated expenses of the Offering) are
estimated to be approximately $8,666,000 (approximately $10,033,000 if the
Underwriters' over-allotment option is exercised in full). Such proceeds are
anticipated to be used as follows:
<TABLE>
<CAPTION>
PERCENTAGE
APPROXIMATE OF
AMOUNTS NET PROCEEDS
----------- ------------
<S> <C> <C>
Sales and Marketing
Compensation and related expenses............................... $ 2,500,000
Trade shows, advertising and other marketing expenses........... 2,000,000
Establish and maintain domestic and international sales
offices...................................................... 500,000
-----------
$ 5,000,000 50%
-----------
Capital Expenditures
Facility expansion/relocation................................... $ 400,000
Equipment....................................................... 600,000
-----------
$ 1,000,000 10%
-----------
Hiring Personnel (advertising, recruiting, training and other
associated costs)............................................... $ 1,000,000 10%
Working Capital................................................... 3,033,000 30%
----------- ---
Total........................................................ $10,033,000 100%
========== ===========
</TABLE>
None of the net proceeds of the Offering are specifically designated for
payments to officers or directors. Although SEEC has no current understandings,
commitments or agreements, and is not currently engaged in any negotiations,
with respect to any acquisition transaction, a portion of the proceeds may be
used for the acquisition of complementary businesses, products or technologies.
Pending such uses, SEEC intends to invest the net proceeds from this Offering in
short-term, investment-grade, interest-bearing securities. Management believes
that cash flow from operations and the net proceeds of the Offering will be
sufficient to meet the Company's future cash flow needs for at least one year
following the Offering.
DIVIDEND POLICY
SEEC has never declared or paid any cash dividends on its Common Stock.
SEEC intends to continue to retain its earnings, if any, to finance the
development and growth of its business. Consequently, SEEC does not expect to
pay cash dividends in the foreseeable future. The Company's Loan Agreement with
ICICI prohibits it from declaring any dividends on its capital stock at any time
when it is in default of its payment obligations under such Loan Agreement. In
1996, the Company was in default of certain payment and other obligations under
the ICICI Loan Agreement, but as of September 30, 1996 brought such payment
obligations current and received a written waiver from ICICI of all existing and
prior defaults. See "Risk Factors--Prior Defaults," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and Note 9 to Financial Statements.
13
<PAGE> 15
DILUTION
The net tangible book value of SEEC as of September 30, 1996 was
approximately ($.04) per share of Common Stock. Net tangible book value per
share of the Common Stock is equal to the book value of SEEC's total assets less
the book value of its total liabilities, divided by the total number of shares
of Common Stock outstanding as of September 30, 1996. After giving effect to the
sale by SEEC of the 1,500,000 shares of Common Stock offered hereby (assuming a
public offering price of $6.75) and after deducting the estimated underwriting
discount and the estimated offering expenses payable by SEEC, and taking into
account the 1-for-2.2094 reverse split of the Company's Common Stock, the pro
forma net tangible book value of SEEC at September 30, 1996 would have been
$8,554,000, or $1.99 per share. This represents an immediate increase in the net
tangible book value of $2.03 per share to existing holders of Common Stock and
an immediate dilution of $4.76 per share to the persons purchasing shares of
Common Stock at the assumed public offering price. If the 1-for-2.2094 reverse
split had not occurred, the Company's net tangible book value per share would be
substantially lower. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price................................................. $6.75
Net tangible book value before the Offering................................. ($.04)
Increase attributable to new investors...................................... 2.03
-----
Pro forma net tangible book value after the Offering.......................... 1.99
-----
Dilution to new investors (70.5%)............................................. $4.76
=====
</TABLE>
The following table compares, as of September 30, 1996, the number of
shares of Common Stock purchased from SEEC by its existing shareholders prior to
the Offering and to be purchased by new investors in the Offering, the total
consideration paid or to be paid to SEEC and the average price per share paid or
to be paid to SEEC by SEEC's current shareholders and by new investors
purchasing shares in the Offering, at an assumed public offering price of $6.75
per share, and assuming no exercise of the Underwriters' over-allotment option:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders......................... 2,806,373 65% $ 1,587,000 14% $ .57
New investors................................. 1,500,000 35 10,125,000 86 $6.75
--------- --- ----------- ---
Total......................................... 4,306,373 100% $11,712,000 100%
========= === =========== ===
</TABLE>
The foregoing table assumes no exercise of outstanding options or warrants.
As of September 30, 1996, there were (i) 54,081 shares of Common Stock reserved
for issuance upon exercise of outstanding options granted under the Stock Option
Plan, (ii) 167,458 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants, (iii) 168,830 shares of Common Stock reserved for issuance
upon the grant of additional options under the Stock Option Plan, and (iv) 9,052
shares of Common Stock reserved for issuance upon exercise of outstanding
options granted to non-employee directors. Subsequent to September 30, 1996,
SEEC granted options to purchase 31,682 shares of Common Stock under the Stock
Option Plan. In addition, SEEC will issue to the Representatives, effective upon
consummation of this Offering, the Representatives' Warrants. See
"Management--Stock Option Plan," "Principal Shareholders and Holdings of
Management" and "Underwriting."
14
<PAGE> 16
CAPITALIZATION
The following table presents the capitalization of SEEC as of September 30,
1996, as adjusted to give effect to the sale by SEEC of the 1,500,000 shares of
Common Stock offered hereby at an assumed public offering price of $6.75 per
share after deducting the estimated underwriting discount and the estimated
offering expenses payable by SEEC.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
ACTUAL AS ADJUSTED
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term obligations:
Long-term debt, less current maturities............................ $ 180 $ 180
Accrued royalties.................................................. 33 33
------- --------
Total........................................................... 213 213
------- --------
Shareholders' Equity (Deficit):
Preferred Stock, $.01 par value, 10,000,000 shares authorized, no
shares issued and outstanding................................... -- --
Common Stock, $.01 par value, 20,000,000 shares authorized,
2,806,373 shares issued and outstanding; as adjusted, 4,306,373
shares issued and outstanding (1)............................... 28 43
Additional paid-in capital......................................... 1,559 10,210
Accumulated deficit................................................ (1,699) (1,699)
------- --------
Total shareholders' equity (deficit)............................ (112) 8,554
------- --------
Total capitalization............................................ $ 101 $ 8,767
======= ========
</TABLE>
- ---------
(1) Does not include 85,763 shares of Common Stock issuable upon exercise of
outstanding options granted under the Stock Option Plan, 9,052 shares of
Common Stock issuable upon exercise of options granted to non-employee
directors, 167,458 shares of Common Stock issuable upon exercise of
outstanding warrants, 137,148 shares of Common Stock reserved for issuance
upon the grant of additional options under the Stock Option Plan, and the
shares of Common Stock issuable upon exercise of the Representatives'
Warrants. See "Management--Stock Option Plan" and "Principal Shareholders
and Holdings of Management."
15
<PAGE> 17
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. Portions of the selected financial data
presented below have been derived from the Company's financial statements which
have been audited by BDO Seidman, LLP, independent certified public accountants,
whose report covering the balance sheets as of March 31, 1995 and 1996 and the
statements of operations, changes in shareholders' deficit and cash flows for
each of the three years in the period ended March 31, 1996 is included elsewhere
herein. The statement of operations data for the year ended March 31, 1993 and
September 30, 1995 and the balance sheet data as of March 31, 1993 and September
30, 1995 are derived from unaudited financial statements of the Company not
included herein. The statement of operations data for the year ended March 31,
1992 and the balance sheet data as of March 31, 1992 are derived from audited
financial statements of the Company not included herein. The statement of
operations data for the six months ended September 30, 1995 and 1996 and the
balance sheet data as of September 30, 1996 are derived from unaudited financial
statements of the Company which are included herein. Management believes that
the unaudited financial statements of the Company include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial condition and results of operations of the Company
for the periods presented. The results for the six months ended September 30,
1996 are not necessarily indicative of results that may be realized for any
other interim period or for the full year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER
YEARS ENDED MARCH 31, 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
----- ----- ------ ------- ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees........................ $ 43 $ 187 $ 396 $ 287 $ 270 $ 104 $ 375
Software maintenance fees.................... -- 13 64 106 102 58 76
Professional services--product related....... -- 68 41 42 181 32 266
Professional services--other................. 182 138 363 350 476 218 372
Grant revenue................................ 138 50 -- -- -- -- --
----- ----- ------ ------- ------- ------- ------
Total revenues......................... 363 456 864 785 1,029 412 1,089
----- ----- ------ ------- ------- ------- ------
Operating expenses:
Cost of software license and maintenance
fees....................................... -- 29 91 92 102 44 94
Professional services--product related....... -- 37 10 14 59 13 136
Professional services--other................. 156 77 255 243 440 182 303
General and administrative................... 46 150 149 132 141 75 86
Sales and marketing.......................... 46 221 215 236 237 108 276
Research and development..................... 296 317 317 407 337 178 138
----- ----- ------ ------- ------- ------- ------
Total operating expenses............... 544 831 1,037 1,124 1,316 600 1,033
----- ----- ------ ------- ------- ------- ------
Income (loss) from operations.................. (181) (375) (173) (339) (287) (188) 56
----- ----- ------ ------- ------- ------- ------
Other expense, net:
Interest expense............................. (16) (42) (50) (63) (75) (38) (31)
Other income................................. 3 1 1 6 20 14 7
----- ----- ------ ------- ------- ------- ------
Total other expense, net............... (13) (41) (49) (57) (55) (24) (24)
----- ----- ------ ------- ------- ------- ------
Net income (loss).............................. $(194) $(416) $ (222) $ (396) $ (342) $ (212) $ 32
===== ===== ====== ======= ======= ======= ======
Net income (loss) per common share
equivalent................................... $(.08) $(.17) $ (.09) $ (.15) $ (.13) $ (.08) $ .01
===== ===== ====== ======= ======= ======= ======
Weighted average number of common and common
equivalent shares outstanding................ 2,340 2,517 2,612 2,612 2,619 2,615 2,901
===== ===== ====== ======= ======= ======= ======
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 18 $ 26 $ 45 $ 328 $ 111 $ 146 $ 822
Working capital (deficit)...................... (37) (28) 6 187 128 185 843
Total assets................................... 100 128 235 583 429 512 1,485
Due to officers and shareholders............... 137 146 155 164 172 168 --
Notes payable to related parties (current and
long-term portions).......................... 155 488 525 562 600 581 --
Advance royalty................................ -- -- 159 698 796 808 785
Total long-term obligations.................... 306 702 810 858 1,042 953 213
Total shareholders' deficit.................... (257) (720) (942) (1,337) (1,677) (1,549) (112)
</TABLE>
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with the preceding "Selected Financial Data" and the Company's
Financial Statements and the Notes thereto and the other financial data included
elsewhere in this Prospectus. Information for the six months ended September 30,
1996 is not necessarily indicative of results that may be realized for any other
interim period or for the full fiscal year.
OVERVIEW
The Company was founded in 1988 to develop tools and solutions for
maintenance and redevelopment of legacy COBOL applications. In 1992, the Company
commercially introduced its first product, COBOL Analyst. From 1992 to 1996, the
Company devoted significant resources to developing its proprietary suite of
products for COBOL maintenance and redevelopment, including products for year
2000 impact analysis. In 1995 and 1996, the Company introduced its COBOL Analyst
2000, COBOL Slicer, LAN version of COBOL Analyst, and Date Analyzer products.
The Company has continually enhanced its COBOL Analyst product line. The Company
began to increase its commitment to providing year 2000 related professional
services in fiscal 1996 as a result of the increased awareness of and demand for
year 2000 solutions.
The Company derives its revenues primarily from software license fees,
professional services fees and royalties from distributors of the Company's
software products. The Company's software is licensed primarily to Fortune 1000
companies, governmental organizations and service providers. The Company's
product related services are provided to customers in conjunction with its
software products and its other professional services are primarily programming
services provided on a contract basis to similar large organizations. The
Company's products and services are marketed through its sales force directly in
the United States and Canada and through product distributors, service providers
and systems integrators worldwide. To date, substantially all of the Company's
revenues have come from sales in the United States.
The Company's revenues from software license fees and product-related
professional services increased significantly in the six months ended September
30, 1996. This increase is attributable to the investments made since July 1995
in marketing year 2000 tools and solutions. The Company anticipates that this
trend will continue as it continues to build its sales and marketing
infrastructure. The demand for the Company's year 2000 products and solutions
are expected to increase significantly as market awareness of the year 2000
problem continues to grow. The Company expects that the knowledge and close
working relationships developed with customers in providing year 2000 solutions
will provide additional opportunities for the Company to provide on-going
solutions for COBOL maintenance and redevelopment and for migration from
mainframe to client/server environments.
The Company anticipates that its revenues from software license fees will
increase not only as a result of increased awareness of the year 2000 problem,
but also as a result of the Company providing VIASOFT, Inc. ("VIASOFT") with
copies of its software products following termination of its International
Software Marketing and License Agreement with VIASOFT. The $785,000 balance of
the unearned advance royalty from VIASOFT as of September 30, 1996 will be
recognized by the Company as income as copies of the licensed programs are
manufactured and delivered to VIASOFT pursuant to its request. See "Business--
Sales, Marketing and Distribution."
Revenues from professional services fees--other are expected to decrease in
significance as the Company shifts its resources and professional staff from
contract programming to year 2000 products and services.
The Company recognizes software license fees upon shipment of the software
to the customer. Revenues from software maintenance are deferred and recognized
straight-line over the contract support period, which is generally one year.
Software maintenance contracts are generally renewable on an annual basis,
although the Company also negotiates long-term maintenance contracts from time
to time. Revenues from professional services are recognized as the services are
provided or on achievement of performance milestones. See Note 1 to Financial
Statements.
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<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain income and expense items.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------- -------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees............................. 46% 36% 26% 25% 34%
Software maintenance fees......................... 7 14 10 14 7
Professional services fees--product related....... 5 5 18 8 25
Professional services fees--other................. 42 45 46 53 34
---- ---- ---- ---- ----
Total revenues................................. 100 100 100 100 100
---- ---- ---- ---- ----
Operating expenses:
Cost of software license and maintenance fees..... 10 12 10 11 9
Professional services--product related............ 1 1 6 3 12
Professional services--other...................... 30 31 43 44 28
Sales and marketing............................... 25 30 23 26 25
Research and development.......................... 37 52 33 43 13
General and administrative........................ 17 17 13 18 8
---- ---- ---- ---- ----
Total operating expenses....................... 120 143 128 145 95
---- ---- ---- ---- ----
Income (loss) from operations....................... (20) (43) (28) (45) 5
---- ---- ---- ---- ----
Total other income (expense), net................... (6) (7) (5) (6) (2)
---- ---- ---- ---- ----
Net income (loss)................................... (26)% (50)% (33)% (51)% 3%
==== ==== ==== ==== ====
</TABLE>
COMPARISON OF SIX MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Revenues. Total revenues were $1,089,000 in the first six months of fiscal
1997, an increase of 164% from $412,000 in the first six months of fiscal 1996.
Software license fees were $375,000 in the first six months of fiscal 1997, an
increase of 261% from $104,000 in the first six months of fiscal 1996. The
increase in software license fees was attributable to the Company's decision to
market its products and solutions directly to end users, and increased customer
awareness of the year 2000 problem which resulted in higher demand for the
Company's year 2000 tools and solutions. Software license fees include royalties
from distributors of the Company's products. Royalties were $84,000 in the first
six months of fiscal 1997, compared to $10,000 in the first six months of fiscal
1996. This increase is attributable to the commencement of marketing by ERA, the
Company's distributor in India, in the third quarter of fiscal 1996. VIASOFT,
which was the Company's only distributor during the first six months of fiscal
1996, accounted for $12,000 and $10,000 of royalties in the first six months of
fiscal 1997 and 1996, respectively.
Software maintenance fees were $76,000 in the first six months of fiscal
1997, an increase of 31% from $58,000 in the first six months of fiscal 1996.
Software maintenance fees generally correlate with software license fees.
Therefore, the increase in software maintenance fees is attributable to the
increase in software license fees during the quarter and during all of fiscal
1996. Professional services-product related revenues increased to $266,000 in
the first six months of fiscal 1997 from $32,000 in the first six months of
fiscal 1996. This increase is primarily attributable to increased customer
awareness of the year 2000 problem and acceptance of the Company's Smart Change
Factory process and tools. The number of customers for year 2000 services
increased from two in the first six months of fiscal 1996 to ten in the first
six months of fiscal 1997. Revenues from professional services--other were
$372,000 in the first six months of fiscal 1997, an increase of 71% from
$218,000 in the first six months of fiscal 1996. This increase is attributable
to increased demand for C++ and Windows programming services. The Company does
not expect this rate of increase to
18
<PAGE> 20
be sustained through fiscal 1997 as it shifts its resources to meet the expected
increase in demand for its year 2000 products and services.
Cost of Revenues. Cost of revenues includes cost of software license and
maintenance fees, cost of professional services--product related and cost of
professional services--other. Included in the cost of software license and
maintenance fees are royalties which the Company pays to ICICI and ERA for each
product which the Company sells, and to VIASOFT for certain products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company's total cost of revenue was $533,000 in the first six months of
fiscal 1997, an increase of 123% from $239,000 in the first six months of fiscal
1996. Cost of software license and maintenance fees increased 114%, from $44,000
in the first six months of fiscal 1996 to $94,000 in the first six months of
fiscal 1997. This increase is primarily attributable to increased royalty
expenses, in particular those payable to ICICI, ERA and VIASOFT. Professional
services--product related costs increased from $13,000 in the first six months
of fiscal 1996 to $136,000 in the first six months of fiscal 1997, corresponding
to the increase in revenues for year 2000 services discussed above. Professional
services--other costs increased by 66%, from $182,000 in the first six months of
fiscal 1996 to $303,000 in the first six months of fiscal 1997. The increases in
professional services--product related and professional services--other are both
due to the additional costs of professional staff required to provide the
services. See Note 6 to Financial Statements.
The Company's gross margin (total revenues less cost of revenues) as a
percentage of revenue was 51% in the first six months of fiscal 1997 compared to
42% in the first six months of fiscal 1996. Gross margin percentages were 79%
and 73% for software license and maintenance fees, 49% and 59% for professional
services--product related, and 19% and 17% for professional services--other,
respectively, for the first six months of fiscal 1997 and the first six months
of fiscal 1996. Gross margin percentages for software license and maintenance
fees will fluctuate depending on the mix of software products and the varying
royalty expenses associated with those products. The Company anticipates that
the gross margin percentage for software license and maintenance fees will
generally range from 70% to 80%. The gross margin percentages for professional
services--product related will vary depending on the type of services provided.
Services that are relatively highly automated, such as year 2000 inventory and
impact assessments, typically require fewer professional hours to perform than
services involving planning, source correction or testing. Furthermore, the
Company's pricing for product related services will vary based on the complexity
and scope of the engagement, and competitive considerations.
The gross margin percentage of 59% for professional services--product
related in the first six months of fiscal 1996 was generated from $32,000 in
revenues. In contrast, the gross margin percentage of 49% in the first six
months of fiscal 1997 was generated from $266,000 in revenues, and is more
representative of the gross margin that can be expected for this category of
revenue as it reflects the experience of providing a wider range of services
over a larger number of engagements. The Company anticipates that the overall
gross margin percentage for product related professional services will range
from 40% to 50%, with highly-automated services generating a higher gross margin
percentage. The gross margin percentages for professional services-- other will
fluctuate based on the prices of the individual service contracts, the Company's
payroll and other costs of professional staff providing the services, and the
proportionate contribution of each contract to the total revenue for this
category in a period. The increase in gross margin percentage to 19% in the
first six months of fiscal 1997 from 17% in the first six months of fiscal 1996
is due to an increased proportion of higher margin contracts.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related benefits allocated to the Company's sales and
marketing personnel, plus the costs of advertising and promotional activities.
Sales and marketing expenses were $276,000 in the first six months of fiscal
1997, an increase of 156% from $108,000 in the first six months of fiscal 1996.
The increase is due primarily to the Company's decision to increase the direct
marketing of its products and solutions to customers. During the first six
months of fiscal 1997, the Company's expenditures for sales compensation, trade
shows, advertising, and recruiting sales personnel each increased compared to
the same period in fiscal 1996.
19
<PAGE> 21
General and Administrative. General and administrative expenses include
the costs of finance and accounting, rental of office space and other
administrative functions of the Company. General and administrative expenses
were $86,000 in the first six months of fiscal 1997, an increase of 15% from
$75,000 in the first six months of fiscal 1996. This increase is due primarily
to additional payroll and rent costs, and also legal expenses associated with
contract negotiations.
Research and Development. Total expenditures for research and development
were $138,000 in the first six months of fiscal 1997 as compared to $178,000 in
the first six months of fiscal 1996, a decrease of 22%. The decrease was due to
a reduction in the total number of Company personnel allocated to research and
development. The Company has temporarily re-directed some professional staff to
meet the increased demand for year 2000 services, while additional professional
staff is being recruited and trained.
Interest Expense. Interest expense was $31,000 in the first six months of
fiscal 1997, compared to $38,000 in the first six months of fiscal 1996. The
expense in both periods includes interest on various obligations, including
notes and advances payable to certain directors and shareholders, and deferred
salaries of two operating officers and shareholders. Certain of the
interest-bearing obligations were converted to shares of the Company's Common
Stock in July 1996. See Notes 8, 9 and 11 to Financial Statements.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995
Revenues. The Company's total revenues were $1,029,000 in fiscal 1996
compared to $785,000 in fiscal 1995, an increase of 31%. This growth resulted
principally from an increase in professional services fees related to year 2000
compliance. Total software license fees were $270,000 in fiscal 1996 compared to
$287,000 in fiscal 1995, a decrease of 6%. The decrease reflected the Company's
decision to defer further development of its internal sales infrastructure until
VIASOFT's limited exclusive distribution rights expired in May 1995 and the
limited resources available to build additional sales infrastructure. Total
distributor royalties were $38,000 in fiscal 1996 as compared to $81,000 in
fiscal 1995, a decrease of 53%. Distributor royalties included $21,000 and
$81,000 in royalties from VIASOFT in fiscal 1996 and 1995, respectively, and,
during fiscal 1996, royalties from ERA's distribution activities in India. The
growth in distributor royalties was affected by VIASOFT's limited exclusive
distribution rights which restricted the Company from appointing other
distributors until May 1995. Since that time, the Company has pursued a
distribution strategy of licensing its software products to third-party service
providers and to end-user customers.
Maintenance revenue was $102,000 in fiscal 1996 compared to $106,000 in
fiscal 1995, a decrease of 4%. The decrease is attributable to the timing of
recognition of maintenance revenue, typically ratably over a 12-month period
following the software license sale. Software license fee revenue declined in
fiscal 1995 as compared to fiscal 1994, which resulted in reduced maintenance
fees over the following 12 months. Total product-related professional service
fees were $181,000 in fiscal 1996 compared to $42,000 in fiscal 1995, an
increase of 331%. This increase is attributable to the Company's introduction of
year 2000 compliance services and the increase in the demand for these services.
Other professional services revenue was $476,000 in fiscal 1996 compared to
$350,000 in fiscal 1995, an increase of 36%. The increase was attributable to
increased demand for C++ and Windows programming services. The Company does not
expect this rate of increase to be sustained through fiscal 1997 as it shifts
resources to meet the expected increase in demand for its year 2000 products and
services.
Cost of Revenues. The Company's total cost of revenues was $601,000 in
fiscal 1996 compared to $349,000 in fiscal 1995, an increase of $252,000 or 72%.
This increase was primarily attributable to the Company hiring additional
professional staff to meet the increased customer demand for services.
Cost of software license and maintenance fees was $102,000 in fiscal 1996,
an increase of 11% from $92,000 in fiscal 1995. The increase is due to increased
royalty costs and additional material costs related to software license sales
and maintenance. Professional services--product related costs and expenses were
$59,000 in fiscal 1996 compared to $14,000 in fiscal 1995, an increase of 321%.
This is due to the Company's hiring additional professional staff to perform
services. Professional services--other costs increased by $197,000, or 81%, to
$440,000 in fiscal 1996 from $243,000 in fiscal 1995. The increase in costs is
attributable to growth in the volume of services provided, coupled with
increases in personnel costs, including non-
20
<PAGE> 22
recurring recruiting and placement expenses. The cost of personnel and
recruiting and placement expenses are expected to increase due to anticipated
additions to the Company's professional staff and increased market demand for
qualified personnel.
The Company's gross margin as a percentage of revenue was 42% in fiscal
1996 compared to 56% in fiscal 1995. Gross margin percentages were 73% and 77%
for software license and maintenance fees, 67% and 67% for professional
services--product related, and 8% and 31% for professional services--other,
respectively, for fiscal 1996 and fiscal 1995. The four percentage point decline
in gross margin percentage for software license and maintenance fees is
attributable to the mix of products sold and the varying royalty expenses
associated with the various products. The gross margin percentages for
professional services--product related were comparable in fiscal 1996 and fiscal
1995. The gross margin percentage for professional services--other declined by
23 percentage points from fiscal 1995 to fiscal 1996 as a result of the
increased costs incurred in fiscal 1996 of hiring and compensating qualified
personnel, as described above.
Sales and Marketing. Sales and marketing expenses were $237,000 in fiscal
1996, approximately equal to expenses of $236,000 in fiscal 1995. These expenses
did not increase between fiscal 1995 and fiscal 1996 due to the Company's
decision not to develop its internal sales infrastructure.
General and Administrative. General and administrative expenses were
$141,000 in fiscal 1996 compared to $132,000 in fiscal 1995, an increase of 7%.
This increase is due primarily to additional costs for accounting services.
Research and Development. Total expenditures for research and development
were $337,000 in fiscal 1996 compared to $407,000 in fiscal 1995, a decrease of
17%. The decline is primarily attributable to the Company's completion of
development of many of its year 2000 products and the COBOL maintenance and
redevelopment products, and to the resulting temporary reallocation of personnel
to providing professional services.
Interest Expense. Interest expense increased by 19%, to $75,000 in fiscal
1996 from $63,000 in fiscal 1995. The interest expense in fiscal 1996 and 1995
includes interest on various obligations, including indebtedness to ICICI, notes
and advances payable to certain directors and shareholders, and deferred
salaries of two officers. Such notes, advances and deferred salaries were
converted into shares of Common Stock during the second quarter of fiscal 1997.
See Notes 8, 9 and 11 of Notes to Financial Statements.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1995 AND MARCH 31, 1994
Revenues. The Company's total revenues were $785,000 in fiscal 1995
compared to $864,000 in fiscal 1994, a decrease of 9%. Software license fees
were $287,000 in fiscal 1995 compared to $396,000 in fiscal 1994, a decrease of
28%. During fiscal 1994, the Company entered into a license agreement that
provided limited exclusive distribution rights to VIASOFT. As a result, the
Company deferred efforts to further develop its sales infrastructure. The
decline in direct sales of software licenses was partially offset by VIASOFT
distributor royalties in fiscal 1995 and 1994 of $81,000 and $1,000,
respectively. Maintenance revenue was $106,000 in fiscal 1995, an increase of
66% from $64,000 in fiscal 1994. Maintenance revenue is recognized ratably,
typically over a 12-month contract maintenance period following the license of
the software. As a result, the change in maintenance revenues during the current
fiscal year generally corresponds to the trend in software license fees,
excluding royalties, during the previous fiscal year. Professional
services--product related revenues increased by 2%, from $41,000 in fiscal 1994
to $42,000 in fiscal 1995, as the Company focused primarily on product
development, training and support during fiscal years 1995 and 1994.
Professional services--other revenues decreased by 4%, from $363,000 in fiscal
1994 to $350,000 in fiscal 1995. The Company did not actively pursue business in
this category, focusing its efforts instead on the areas detailed above.
Cost of Revenues. The Company's total cost of revenues was $349,000 in
fiscal 1995 compared to $356,000 in fiscal 1994, a decrease of 2%. Cost of
software license and maintenance fees was $92,000 in fiscal 1995 compared to
$91,000 in fiscal 1994. The increase is attributable to increased royalty
expenses. Professional services--product related costs and expenses increased by
40%, to $14,000 in fiscal 1995 from
21
<PAGE> 23
$10,000 in fiscal 1994. This increase is due to additional professional staff
costs. Professional services--other costs decreased by $12,000 or 5% to $243,000
in fiscal 1995 from $255,000 in fiscal 1994. The decline corresponds to the 4%
decrease in revenue for this category.
The Company's gross margin as a percentage of revenue was 56% in fiscal
1995 compared to 59% in fiscal 1994. Gross margin percentages were 77% and 80%
for software license and maintenance fees, 67% and 76% for professional
services--product related and 31% and 30% for professional services--other,
respectively, for fiscal 1995 and fiscal 1994. The three percentage point
decline in gross margin percentage for software license and maintenance fees is
attributable to the mix of products sold and the varying royalty expenses
associated with the various products. The gross margin percentage for
professional services--product related declined by nine percentage points, the
result of increased costs of $4,000 versus increased revenues of $1,000 from
fiscal 1994 to fiscal 1995. The decline in gross margin percentage is due to the
increased costs of professional staff. The gross margin percentages for
professional services--other were comparable in fiscal 1995 and fiscal 1994.
Research and Development. Total expenditures for research and development
were $407,000 in fiscal 1995 as compared to $317,000 in fiscal 1994, an increase
of $90,000, or 28%. The Company focused on developing and introducing new
products and solutions during fiscal 1995, including those in the Smart Change
Factory year 2000 compliance package.
Sales and Marketing. Sales and marketing expenses were $236,000 in fiscal
1995 compared to $215,000 in fiscal 1994, an increase of 10%. The increase is
primarily attributable to management devoting additional time to sales and
marketing activities during fiscal 1995.
General and Administrative. General and administrative expenses were
$132,000 in fiscal 1995 as compared to $149,000 in fiscal 1994, a decrease of
11%. This decrease is due primarily to increased allocations of management time
to sales and marketing efforts.
Interest Expense. Interest expense increased by 26%, to $63,000 in fiscal
1995 from $50,000 in fiscal 1994. The interest expense in fiscal 1995 and 1994
includes interest on various obligations, including notes and advances payable
to certain directors and shareholders, and deferred salaries of two officers.
Such notes, advances and deferred salaries were converted into shares of Common
Stock during the second quarter of fiscal 1997. See Notes 8, 9 and 11 to
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since its organization, the Company has funded its operations and its
product development from the following principal sources: (i) proceeds from the
sale of shares of Common Stock, (ii) the ICICI grants and loan described below,
(iii) payments received from the sale of products and services, including
$900,000 in advance royalties from VIASOFT, (iv) proceeds from the issuance of
subordinated and demand notes and (v) deferral of payments of salaries to the
Company's executive officers. As of March 31, 1996, the Company had working
capital of $128,000, total liabilities of $2,106,000 and cash and cash
equivalents of $111,000. However, since March 31, 1996, $225,000 of the
Company's 10% Subordinated Notes, $220,000 of unsecured notes and advances
payable to certain directors and shareholders, and $127,106 of deferred salaries
payable to two officers, together with accrued interest, were converted into
237,025 shares of Common Stock. In addition, since March 31, 1996, the Company
sold 211,425 shares of Common Stock for an aggregate of $747,440. As a result of
these transactions and profitable results of operations for the six months ended
September 30, 1996, the Company's working capital, total liabilities and cash
and cash equivalents at September 30, 1996 had improved to $843,000, $1,597,000
and $822,000, respectively.
The Company's initial development of its COBOL maintenance products was
funded in part by grants totaling $255,000 from ICICI pursuant to a Cooperation
and Project Financing Agreement dated June 1, 1990 (the "Project Financing
Agreement") among ICICI, the Company and ERA. The Project Financing Agreement
requires the Company to pay royalties to ICICI equal to 10% of the Company's
gross revenues from product sales and 5% of gross revenues from maintenance and
services, up to a maximum royalty payment of $525,000. Through September 30,
1996, the Company paid royalties of approximately $77,000 to ICICI. See Note 6
to Financial Statements.
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<PAGE> 24
During fiscal 1995, the Company funded its operations in part through a
$300,000 term loan from ICICI. The loan is collateralized by the Company's
accounts receivable and certain of its tangible personal property. The loan
bears interest at the prime rate (as published in The Wall Street Journal) plus
2.5% per annum, subject to a maximum rate of 9% and a minimum rate of 6%. The
interest rate applicable to the loan was 9% at September 30, 1996 and March 31,
1996. Interest is payable quarterly on the 15th of each January, April, July and
October. The principal amount of the loan is payable in quarterly installments
of $30,000 each on the 15th of each March, June, September and December,
commencing December 15, 1996, with the final payment due March 15, 1999. If the
Company is in default under the ICICI Loan Agreement, ICICI has the right to
convert all unpaid principal and interest into shares of Common Stock of the
Company at fair value as determined by an independent evaluator. In 1996, the
Company was in default of certain payment and other obligations under the ICICI
Loan Agreement, but as of September 30, 1996 brought such payment obligations
current and received a written waiver from ICICI of all existing and prior
defaults. The Company does not have any indebtedness other than to ICICI and is
not a party to a line of credit. See "Risk Factors-- Prior Defaults."
The Company's cash flows have been used primarily for general operating
expenses, equipment purchases and internal research and development funding. At
September 30, 1996 and September 30, 1995, the Company had cash, cash
equivalents, and temporary investments of $822,000 and $250,000, respectively.
The Company had a net deferred tax asset at September 30, 1996 of approximately
$726,000, offset by a valuation allowance of the same amount since the Company
has not determined that it is more likely than not that it will be realized.
The Company intends to use the net proceeds of the Offering in order to
market its products and solutions, expand its property, plant and equipment,
hire personnel to market and perform year 2000 compliance services and for
working capital and general corporate purposes. Management believes that cash
flows from operations and the net proceeds of the Offering will be sufficient to
meet the Company's future cash flow needs for at least one year following the
Offering. In the longer term, the Company may require additional sources of
liquidity to fund future growth. Such sources of liquidity may include
additional equity offerings or debt financings.
IMPACT OF INFLATION
Increases in the inflation rate are not expected to affect the Company's
operating expenses. Although the Company has no current plans to borrow funds,
if it were to do so at variable interest rates, any increase in interest rates
would increase the Company's cost of borrowed funds.
SEASONALITY
The Company's operations are not affected by seasonal fluctuations,
although the Company's cash flows may at times be affected by fluctuations in
the timing of cash receipts from large contracts.
NEW ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The Company has determined that
it will continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under SFAS No. 123. The Company will be required to disclose the pro
forma net income or loss and per share amounts in the notes to the financial
statements using the fair-value-based method beginning in the year ending March
31, 1997, with comparable disclosures for the year ended March 31, 1996. The
Company has not determined the impact of these pro forma adjustments.
23
<PAGE> 25
BUSINESS
GENERAL
SEEC provides a suite of software products and business solutions for
maintaining and redeveloping legacy COBOL software applications and related
databases, including solutions for year 2000 compliance. SEEC also provides
solutions for the migration of existing COBOL applications from mainframe to
client/ server environments. The Company's software products and solutions are
designed to minimize the time and cost of maintenance and redevelopment by
automating various functions and utilizing well-defined and repeatable
processes.
The Company's software products, which are based on the Company's core
COBOL analysis technology, automate many of the procedures required for COBOL
application maintenance and redevelopment, including year 2000 compliance. In
1992, SEEC introduced the first PC Windows-based product for COBOL maintenance
and redevelopment as an alternative to existing mainframe-based tools. The
Company's products analyze and modify COBOL source code, which is downloaded
from the mainframe to a PC/LAN Microsoft Windows environment where it is stored
in application dictionaries for performance of maintenance and redevelopment
functions. SEEC has also developed software tools that enable customers to
extract business rules and functions from legacy COBOL applications for reuse in
object-oriented client/server environments. SEEC markets and sells its products
and solutions primarily to Fortune 1000 companies and similarly-sized business
and governmental organizations.
INDUSTRY BACKGROUND
GENERAL COBOL MAINTENANCE AND REDEVELOPMENT
Most large business and governmental organizations utilize large mainframe
computer systems for the informational requirements of their businesses. These
systems contain the core knowledge and processes that support the major
operations of these organizations. Examples of such systems include insurance
claims processing systems, airline reservation systems, on-line banking systems,
manufacturing systems and utility billing systems. These computer systems are
primarily run on large, mainframe computers using programs written in the COBOL
programming language. The organizations that rely on these legacy systems
typically have made enormous investments in their systems.
Organizations that rely on large mainframe systems must continually
maintain and redevelop their legacy applications to meet constantly changing
information requirements and to incorporate advances in technologies. The
maintenance and redevelopment process is time consuming and labor intensive.
Industry sources estimate that worldwide there are more than 10,000 IBM
mainframe sites and more than 150 billion lines of COBOL code currently in use.
Industry sources also indicate that a substantial portion of COBOL application
resources are dedicated to the maintenance and redevelopment of these systems.
An immediate maintenance requirement is caused by the inability of most legacy
applications to process accurately calculations and logic involving the year
2000 and beyond.
The use of substantial resources in the maintenance and redevelopment
process limits the resources available to large organizations for other
important informational tasks, such as developing new software applications.
Consequently, many large organizations are seeking to improve the maintenance
and redevelopment process in order to reduce costs, improve productivity and
preserve information systems investments. These trends have resulted in
increased demand for automated software tools for maintenance and redevelopment
that supplement traditional, mostly manual, methods that are often tedious, time
consuming and error-prone. Many organizations lack the internal resources to
incorporate new and developing technologies, train personnel, and develop
efficient methodologies to perform or improve legacy applications maintenance
and redevelopment. As a result, certain organizations have outsourced certain
functions to third-party service providers which have developed efficient,
state-of-the-art approaches to legacy system maintenance and redevelopment.
24
<PAGE> 26
YEAR 2000 OPPORTUNITY
Awareness and recognition of the year 2000 problem has been spreading
rapidly as the millennium approaches. The year 2000 problem relates to the
highly-publicized inability of many existing computer systems to process
information or logic completely or accurately involving the year 2000 and
beyond. The problem results from the traditional use of two-digit date fields to
perform computations and decision-making functions. For example, a program using
a two-digit date field may misinterpret "00" as the year 1900 rather than 2000.
As a result, many legacy systems are at risk. For example, unless year 2000
compliance is completed in certain systems, credit cards and ATM cards will
expire prematurely and insurance policies that span three to seven years cannot
be written. These date-dependent programs are ubiquitous in legacy software
applications used in many critical business operations.
Many organizations lack the internal resources to address adequately the
year 2000 problem in a timely manner. One industry source estimates that the
overall cost of solving the year 2000 problem worldwide will be in the range of
$300 to $600 billion. Another industry source estimates that for an average
company with 35,000 programs, it would take 75 to 150 person-years to complete
the necessary analysis and coding for year 2000 compliance, which translates
into a three-year period for a team of 25 to 50 programmers. A number of
solutions providers, including SEEC, have developed special programs to meet the
needs of year 2000 compliance.
SEEC believes that over the next three years most organizations will
attempt to acquire cost-effective solutions for the year 2000 problem. As a
result, SEEC anticipates that demand for year 2000 tools and solutions will grow
significantly. Since the problem requires a large number of programs and systems
to be corrected, it is anticipated that most organizations will not have
adequate internal resources to perform all the year 2000 conversion tasks.
Consequently, most organizations will attempt to utilize highly-automated
solutions and in many cases to outsource the conversion to service providers who
can achieve economies of scale by setting up procedures, or "factories", that
utilize automation tools and well-defined processes for year 2000 compliance. In
addition, SEEC believes that the year 2000 problem will cause many organizations
to explore further the possibility of migrating all or portions of their legacy
systems to client/server systems.
CLIENT/SERVER MIGRATION
As computing technology evolves and information processing requirements
expand, large organizations are seeking to preserve the investment in their
existing systems by integrating their mainframe computers with modern
distributed computer processing architectures, such as client/server systems.
Distributed computing refers to computer transactions that may take place among
different types of computers at one or more locations, thereby permitting
enterprise-wide information exchanges to occur that otherwise might not be
possible. In a client/server environment, a mid-range computer serves as a
network's hub or server. The server is connected to several desktop PCs or
workstations known as "clients" throughout an organization.
SEEC believes that the client/server approach has several benefits over
mainframe-based systems, including user friendliness, flexibility in creating
new applications in response to changes in an organization's informational
requirements, accessibility of corporate data from a variety of databases, and
the ability to present data in a variety of formats. Client/server architectures
are becoming more cost effective as a result of technological advances made in
PCs, networking, disk storage, operating systems and software applications.
SEEC expects many large organizations to adopt a strategy of retaining many
key COBOL applications on existing mainframe systems, migrating all or part of
other existing applications to a client/server environment and pursuing new
application development in both mainframe and client/server environments.
Although the year 2000 problem will require organizations to focus on mainframe
systems maintenance, SEEC anticipates that it will also provide an impetus to
replace some mainframe systems with client/server systems. SEEC anticipates that
many organizations that engage in client/server migration will attempt to reduce
their costs and risks by utilizing software tools that extract business rules
and functions from legacy COBOL applications for reuse in object-oriented
client/server environments. (Object-oriented technology is a new paradigm for
designing a software system by describing the attributes of concepts, things and
actions and then broadly reusing that description and its software code.) SEEC
has developed software tools for this
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purpose and intends to market and sell its solutions and tools to new and
existing customers engaged in client/ server migration.
COMPANY STRATEGY
SEEC's objective is to become a leading provider of software products and
business solutions for the maintenance and redevelopment of legacy software
applications and related databases. Key elements of the Company's strategy to
achieve its objective are the following:
Broad Based Distribution Strategy. SEEC intends to continue to pursue a
broad based distribution strategy for its software tools and solutions,
including selling directly to end-user customers, licensing to third-party
service providers such as Complete Business Solutions, Inc., IBM's Integrated
Systems and Solutions Corp. and Coopers & Lybrand, and utilizing product
distributors.
Customer Partnerships. A key element of the Company's strategy is to work
in partnership with its customers to minimize the time and cost of legacy
application maintenance and redevelopment. SEEC's Smart Change Factory combines
the Company's software tools with well-defined procedures to efficiently utilize
customer information resources. The Smart Change Factory provides a customer
with a complete end-to-end solution and an analytical approach to year 2000
conversion whereby appropriate solutions for different software applications may
be adopted and implemented in order to save the customer time and expense. The
Smart Change Factory approach provides a range of options that address customer
concerns regarding control over critical software applications. End-user
customers have the option of implementing the Company's tools and solutions in
house or of outsourcing the maintenance work to SEEC or a licensed third party
service provider. See "Business--Products and Solutions--Smart Change Factory."
PC/LAN Microsoft Windows-Based Software Tools. SEEC introduced the first
PC-based COBOL maintenance and redevelopment tools in 1992. SEEC believes
PC-based tools offer certain advantages over mainframe based tools, including
the ability to (i) utilize a graphical user interface that is easier to use and
learn, (ii) analyze source code in a high-performance, interactive PC
environment that conserves valuable mainframe resources and (iii) provide
cost-effective solutions for maintenance and redevelopment.
GROWTH STRATEGY
SEEC believes that year 2000 compliance will significantly increase the
awareness of issues regarding legacy COBOL system maintenance and redevelopment.
In addition, SEEC believes that the trend to outsource certain legacy
application maintenance and redevelopment functions by Fortune 1000 or
similarly-sized companies and government organizations will continue. The
following are key elements of the Company's growth strategy.
Increase Sales to Existing Customers. SEEC intends to increase its sales of
software tools and solutions to existing customers, including year 2000
compliance tools and solutions. Many of SEEC's existing customers are currently
examining the year 2000 problem or are engaged in year 2000 impact assessments
and planning. The Company will also continue to provide customers with tools and
solutions for year 2000 correction and testing.
Target New Customers with Year 2000 Products and Solutions. SEEC intends to
take advantage of the opportunity presented by the year 2000 problem by
vigorously marketing the Smart Change Factory approach to year 2000 compliance
and the benefits of PC-based solutions. In addition to expanding its direct
marketing and sales activities, SEEC intends to establish additional marketing
and distribution channels through additional distributors and strategic
relationships with third party service providers.
Leverage Expanded Customer Base. SEEC anticipates that the knowledge and
close working relationship it develops with its new and existing customers in
providing solutions for year 2000 compliance will provide additional
opportunities for SEEC to provide tools and solutions for on-going COBOL
maintenance and redevelopment and for the longer-term process of migration from
large mainframe to client/server environments. SEEC believes client/server
systems will be implemented in an object-oriented environment and will create
demand for extracting and reusing business objects. SEEC has already developed
products
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such as COBOL Slicer and SEEC Object Designer in furtherance of this aspect of
its business strategy. SEEC believes that these opportunities will sustain
growth beyond the year 2000 although there can be no assurance that such growth
will materialize.
Enhance Technological Leadership and Excellence. SEEC intends to continue
to expand the functionality of its products and solutions by developing new
products and solutions that build on both its core technology and its experience
with maintenance and redevelopment processes. SEEC also plans to pursue
opportunities for product and technology acquisitions or alliances that
complement its existing products or allow expansion into new product areas and
markets.
PRODUCTS AND SOLUTIONS
CORE SOFTWARE TECHNOLOGY
SEEC's software products, which are based on its core COBOL analysis
technology, provide a comprehensive and integrated approach to automating many
of the procedures required for COBOL application maintenance and redevelopment,
including year 2000 compliance. The diagram below depicts the process utilized
by SEEC's core COBOL analysis technology.
A diagram depicting the process utilized by SEEC's core COBOL analysis
technology.
Download. COBOL and related source code resides in libraries on the
mainframe. SEEC utilizes third party tools to download COBOL source code,
database definitions, screen definitions and job control language to a PC or LAN
server for capture into SEEC's application dictionary. SEEC provides interfaces
with source control software to synchronize the sources with the version stored
in the application dictionary.
The Application Capture Facility. The application capture facility
processes the downloaded source code to create an application dictionary that
stores all of the information that represents the data and business logic of
legacy COBOL systems. The Company's software utilizes proprietary parsing and
data flow technology to create the relationships between the entity-related
information reflected in a customer's files and databases, as well as the
processes that use them. Most organizations have very little documentation of
their legacy systems. The application dictionary enables users to understand the
business intent of the existing systems by providing
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documentation of the legacy programs. Information about the flow of control
among programs is also stored in the application dictionary, enabling users to
group the items by business function.
Application Dictionary. The application dictionary is a repository that
stores all key design objects in a COBOL application, such as COBOL source code,
database definitions, screen definitions and job control language, which is a
set of instructions which helps the computer in managing the execution of
programs and the use of computer resources.
The Application Analysis Facility. The application analysis facility
performs system and program, impact and logic analysis functions, each of which
is described below:
System and Program Analysis. The application analysis facility
generates several views of programs and systems that help customers
understand the logic of a program or the flow of control between programs
and systems. It provides an interactive graphical view of the logic and
data structures and enables a user to navigate through the application to
locate execution patterns relating to a particular function. Program
execution is simulated through a code walk-through feature whereby a user
can trace program logic without data. It also identifies data and program
anomalies such as dead code and dead data.
Three examples of system and program analysis are control flow, data
structure analysis and documentation. The control flow is based on job
flows or analysis of transaction flow among programs. This documents the
relationships between various program steps in a system and the files and
databases processed in each step. The information regarding the screen
dialog can also be obtained for on-line systems. The data structure
analysis derives graphical views of database schema as represented in
sequential files and databases. The databases which the system and program
analysis facility supports are IBM's Information Management System ("IMS"),
Database/2 ("DB2") and virtual sequential access method ("VSAM"). The user
can view the data definitions and obtain information regarding where a data
structure is used and the transformations performed on data by various
programs. The application analysis facility automatically generates
documentation of programs and systems. Most legacy systems have very little
documentation. The documentation generated by the Company's core COBOL
analysis technology increases the productivity of a programmer who is
required to make changes or enhancements to a system unfamiliar to the
programmer. Industry standard metrics to measure complexity of programs are
also generated to assist in estimating effort required to maintain a legacy
COBOL system.
Impact Analysis. Impact analysis provides the ability to assess the
impact of making changes to an application by analyzing the data flow and
interrelationships between different components of an application. For
example, this facility assesses the impact of expanding a database from
two-digit date fields to four-digit date fields. The impact analysis will
accurately identify the programs, affected items and affected logical
statements in the application. The application analysis facility supports a
wide range of databases such as IMS, DB2 and VSAM; Computer Associates IDMS
and Software AG's ADABAS. The impact analysis reports can be loaded into
any relational database for further analysis.
Logic Analysis. Logic analysis is used to derive several program views
which can be displayed or printed. Logic analysis is useful in conjunction
with data flow analysis to understand and extract business rules and is
useful in understanding and documenting programs.
PC Test Environment. Once COBOL applications are modified, they must be
tested to ensure proper performance. SEEC's goal is to provide an integrated
workgroup environment for COBOL maintenance in the PC/LAN setting. To facilitate
the programmer's task of using different tools that are customized for the
programmer's installation, the Company's software products interface with
testing tools from other software vendors.
Upload. Third party tools are used to upload the redeveloped COBOL source
code, database definitions, screen definitions and job control language from the
PC/LAN server to the mainframe where additional testing may be performed.
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PRODUCTS
SEEC COBOL Analyst. COBOL Analyst is based upon the Company's core COBOL
analysis technology. COBOL Analyst is a PC/LAN-based application maintenance and
redevelopment software tool that is used for performing system-wide change
impact analysis, program and system understanding, business rule extraction and
documentation. Organizations use COBOL Analyst either to enhance existing legacy
applications or to rewrite these applications in a client/server architecture
based on business rules extracted from the legacy application. COBOL Analyst
comes with several additional features to ease maintenance and redevelopment
tasks. COBOL Analyst's Code Walk-thru facility guides programmers through
multiple execution scenarios and records traversed paths for future analysis and
follow-up. The Synonym Processor detects and identifies redundant data across
programs, screens, files and databases in an application. COBOL Analyst's DB2
Analyzer loads and analyzes the DB2 data definitions and the structured query
language ("SQL") embedded within the program in an application with drill-down
capability to explore design details. The Inventory/Analysis tool allows users
to feed system-level cross reference information into a relational database,
enabling programmed and ad hoc queries.
SEEC COBOL Analyst 2000. COBOL Analyst 2000 is an enhanced version of COBOL
Analyst that contains all the capabilities of COBOL Analyst, as well as several
additional features designed to address year 2000 compliance. Currently, COBOL
Analyst 2000 assists in the assessment, planning and correction phases of year
2000 compliance. SEEC is currently enhancing the capabilities of COBOL Analyst
2000 to enable it to automate further the correction phase of year 2000
compliance. COBOL Analyst 2000 includes a feature to scan for date patterns in
order to locate date items and a synonym processing feature to identify indirect
references to date items.
SEEC COBOL Slicer. COBOL Slicer, which is derived from the core COBOL
analysis technology, utilizes "program slicing" technology to provide an
interactive PC-based slicing tool designed to increase productivity in
understanding program logic while redeveloping applications. COBOL Slicer
assists in the documentation of valuable business rules embedded in legacy COBOL
systems. SEEC's COBOL Slicer allows customers to understand the program, data
structures and input/output screens of an application. Business rules can then
be identified by locating appropriate slicing criteria and understanding the
code slice, control flow and the logical data model. COBOL Slicer is also being
used for testing, including testing for year 2000 compliance. SEEC is currently
enhancing COBOL Slicer to further automate the generation of test cases.
SEEC Date Analyzer. Date Analyzer is a stand-alone product which provides
year 2000 impact analysis for non-COBOL applications. Date Analyzer examines the
various programs or source files across languages using a pattern-matching
scheme, and then analyzes the language rules to detect the items and statements
which are potentially affected by the year 2000. Pre-defined language rules can
be extended, and rules may be defined for languages not included as a part of
the product. Date Analyzer can be used to perform year 2000 analysis on ten
programming languages, including Software AG's NATURAL and Information Builders'
FOCUS. The Company intends to enhance Date Analyzer to analyze other languages
as market opportunities present themselves.
SEEC Object Designer. Object Designer is a stand-alone product that
interfaces with the Company's core COBOL analysis technology. Object Designer
utilizes an object modeling technique to represent the business model and
generate the database design for relational databases such as Oracle and Sybase.
Object Designer allows the user to specify methods in C++ language, and generate
objects which are reusable by applications in PC-based visual languages such as
Microsoft's Visual Basic and Sybase's Power Builder. The object model can be
populated by mapping objects to entities in the legacy application using the
application dictionary. Object Designer may be utilized in conjunction with
COBOL Analyst and COBOL Slicer and/or third party software tools to extract
business rules to build reusable objects for client/server migration. Object
Designer is currently in the beta testing stage of development and has not been
marketed and sold to date. SEEC expects that its first sales of Object Designer
will be in the first half of 1997.
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SMART CHANGE FACTORY
The year 2000 problem presents a significant marketing opportunity for
SEEC. SEEC provides year 2000 compliance solutions through its Smart Change
Factory, a repeatable process that combines the Company's proprietary software
tools with certain third-party software tools and well-defined procedures
designed to efficiently utilize customer information resources. The Company's
Smart Change Factory products and solutions may be integrated with a customer's
existing organization, allowing the customer to retain control of critical
software applications. The Company's products and solutions may also be used for
complete application outsourcing by the customer to SEEC or to licensed
third-party solution providers.
The year 2000 compliance process involves four phases: (1) inventory and
impact assessment, (2) planning, (3) source correction and (4) testing. The
inventory and impact assessment and source correction phases can be automated to
a greater extent using software tools than the planning and testing phases,
which tend to be more labor intensive and require more expert intervention. The
Company's approach to each of these phases is discussed below.
Inventory and Impact Assessment Phase. This phase, which is highly
automatable, involves identification of the applications, programs, files,
databases and external interfaces that are or may be affected by the use of
two-digit date fields, assessment of potential program or system failures that
may occur, identification of programs that must be corrected, and a preliminary
estimate of the timing and cost of implementing required corrections. SEEC's
COBOL Analyst 2000 automates various functions, including identification of date
items, synonyms and year 2000 affected source code. That information is then
imported to Microsoft Access or other relational databases, and is used to
create a set of technical assessment reports identifying in detail affected
programs, data items and logic statements, as well as a preliminary estimate of
source correction and testing budgets.
Planning Phase. The planning phase involves analysis of the data generated
in the impact assessment phase in order to generate a comprehensive plan for
implementation of the correction process, including tools and procedures to be
used, sequencing of programs for the correction phase, and test procedures to be
followed. This phase is critical to developing an efficient correction and test
phase plan to minimize customer expenses and maximize utilization of customer
information resources. On an outsourced project, SEEC will work very closely
with the customer during this phase to develop a plan that takes into
consideration the nature of the organization, its informational requirements and
budget constraints. It is during this phase that the Smart Change Factory
approach described below will be applied analytically to determine the most
appropriate correction for each application, which may be program logic changes
for certain applications and date field expansion for others. During the
planning phase SEEC may also recommend phasing out particular programs,
replacement of particular programs, redevelopment of programs, or no correction
at all. COBOL Analyst 2000 is used as an assistance tool in the planning
process, but this process necessarily involves a significant amount of judgment
and decision-making.
Source Correction Phase. This phase involves implementation of the
corrective steps decided upon in the planning phase. Software tools can
significantly improve productivity in this phase, and SEEC is enhancing COBOL
Analyst 2000 and related tools to further automate source code correction. In
the Smart Change Factory process, this phase is a well defined, assembly
line-like process, with repeatable steps. The Company's tools for implementing
procedural application changes utilize a rule-based editing scheme in which
program logic changes can be implemented by SEEC or the customer.
Testing Phase. In this phase, all corrected and functionally related
programs must be tested to ensure proper functionality and continued operation
using the year 2000 and beyond. SEEC and industry sources estimate that this
phase of the year 2000 compliance process will be the most time consuming, the
most labor intensive and the least susceptible to automation. SEEC is enhancing
its software tools to add features that will automate certain steps in the
testing phase. Testing parameters will vary for each customer, depending on
industry and legacy applications in place.
The Smart Change Factory approach to year 2000 compliance may be
distinguished from the so-called "mass change" approach which involves the
automatic expansion of all two digit date fields in all applications
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to four digit date fields. The Smart Change Factory approach, on the other hand,
involves analysis of the impact of the year 2000 on each application and a
determination of the most appropriate solution for each application. Under the
Smart Change Factory approach, the Company's tools are utilized to help
determine the technical feasibility of implementing program logic changes to
particular applications that enable the applications to become year 2000
compliant without expanding date fields. The Company's tools are then utilized
to assist in implementing date field expansion where appropriate and program
logic changes where appropriate. The Smart Change Factory approach typically
involves more time and effort in the planning phase of the process, while the
mass change approach typically involves considerably more time and effort in the
correction and testing phases. Since the source correction and testing phases
tend to be much larger and more labor intensive than the planning phase, the
mass change approach can result in significantly higher costs to the customer.
SEEC'S CLIENT-SERVER MIGRATION SOLUTION
SEEC's client/server migration solution is based on SEEC's redevelopment
process which leverages the entity information and the business rules embedded
in legacy COBOL software applications. SEEC's tools avoid the re-creation of
entity information and business rules, a costly and time consuming process.
SEEC's methodology enables the user to rapidly build an object model utilizing
SEEC's Object Designer product, which reuses information from the legacy COBOL
systems stored in the COBOL Analyst Application Dictionary.
SEEC's client/server solutions are based on a three-tiered architecture
where the business objects created from the legacy COBOL systems in conjunction
with visual and database objects enable a user to build an application rapidly.
SEEC's redevelopment process enables an information systems organization to
extract business rules for reuse in the client/server environment using the
COBOL Slicer tool.
PRICING OF PRODUCTS AND PROFESSIONAL SERVICES
SEEC's software products are typically licensed to customers. License
agreements generally limit the use of products to a user or number of users. The
LAN license will permit concurrent use which is monitored by the LAN server
component of the product. Some of the software components are licensed for use
on designated servers or a number of servers at a specified site. The price for
a typical workgroup license for COBOL Analyst is approximately $25,000, and for
COBOL Analyst 2000 is approximately $35,000.
The Company's professional services are generally priced on a time and
materials basis. Year 2000 impact assessments are conducted for a fixed price
based on the number of lines of code in a customer's legacy system. A typical
assessment for a Fortune 1000 company is priced in the $100,000 to $150,000
range. Year 2000 planning and conversion projects, which typically represent a
significantly larger share of the total cost of year 2000 compliance, are priced
either on a time and material or fixed price basis. System integration testing
and implementation support is done on a time and materials basis. Customers
generally pay travel and living expenses for SEEC's personnel working at the
customer site.
CUSTOMER AND TECHNICAL SUPPORT
SEEC offers maintenance for each of its products, which entitles the
customer to receive technical support and advice, including problem resolution
services, installation assistance, error corrections and any product
enhancements released during the maintenance period. Maintenance and support
services are provided primarily by telephone or e-mail from SEEC's Pittsburgh,
Pennsylvania headquarters.
SEEC's standard license agreement does not require SEEC to provide
maintenance for any period of time and does not provide express or implied
warranties for SEEC's product software. In connection with the sale of its
products, SEEC offers optional annual maintenance support, including major
program updates and technical support.
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CUSTOMERS
SEEC's products and services are used by information systems departments of
Fortune 1000 companies and similarly sized business and governmental
organizations. Customers who have purchased at least $25,000 of products and/or
services from SEEC and for whom SEEC currently provides maintenance, including
product updates and technical support, include the following:
YEAR 2000 SOLUTIONS
Wheeling Pittsburgh Corporation
Mack Trucks
Rockwell International
Corporation
Northern Illinois Gas
Foremost Insurance Company
(through IBM's Integrated
Systems and Solutions Corp.)
Aluminum Company of America
Weirton Steel Corporation
University of Pittsburgh
GENERAL COBOL MAINTENANCE
AND REDEVELOPMENT
Sallie Mae
American Savings Bank
Mellon Bank, N.A.
Securities Industry
Automation Corporation
Deere & Co.
Pershing Division of Donaldson,
Lufkin & Jenrette Securities
Corporation
Illinois Department of
Employment Security
Columbia Gas
SERVICE PROVIDERS
Complete Business
Solutions, Inc.
IBM's Integrated Systems and
Solutions Corp.
Coopers & Lybrand
Silverline Industries
During fiscal 1996, revenues from Complete Business Solutions, Inc., ASD
International and Wheeling Pittsburgh Corporation accounted for 32%, 14% and
10%, respectively, of SEEC's total revenues. During the six months ended
September 30, 1996, revenues from those same customers accounted for 24%, 5% and
7%, respectively, of SEEC's total revenues. No other customer during such
periods accounted for more than 10% of SEEC's total revenues.
SALES, MARKETING AND DISTRIBUTION
SEEC markets its products and services primarily to Fortune 1000 companies
and similarly-sized business and governmental organizations. SEEC's marketing
efforts are implemented through its direct sales force utilizing a direct mail
campaign supported by promotion through trade articles and trade shows that
address the software maintenance market. SEEC's marketing efforts are also
implemented through software licenses and other arrangements with service
providers that provide solutions to COBOL maintenance. SEEC sells and supports
its products and services from its Pittsburgh, Pennsylvania headquarters. As of
November 1, 1996, SEEC had four employees engaged in sales and marketing.
Prior to fiscal 1996, SEEC deferred efforts to further develop its sales
and marketing infrastructure due to VIASOFT's limited exclusive distribution
rights, which expired in May 1995, and the limited resources available to SEEC.
SEEC intends to use a substantial portion of the proceeds of the Offering to
expand the sales and marketing of its products and services. See "Use of
Proceeds."
SEEC intends to continue to pursue a broad-based distribution strategy for
its software tools and solutions. In addition to making direct sales to end-user
customers, SEEC licenses its products and solutions to several third-party
solutions providers such as Complete Business Solutions, Inc., IBM's Integrated
Systems and Solutions Corp. and Coopers & Lybrand. These third-party solutions
providers utilize the Company's tools and solutions in connection with COBOL
maintenance and redevelopment engagements, including year 2000 compliance, with
their own customers. SEEC also intends to utilize product distributors for sales
of its products. SEEC has product distribution agreements with ERA Software
Systems Private Limited, SEEC's product distributor in India, and VIASOFT.
In November 1993, SEEC entered into a five-year International Software
Marketing and License Agreement (the "VIASOFT Agreement") with VIASOFT, pursuant
to which SEEC granted VIASOFT a worldwide license to use and market all of
SEEC's products that address the COBOL maintenance market, including the COBOL
Analyst product line, under VIASOFT's private label "ESW/PC". The license
granted
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to VIASOFT limited exclusive marketing rights through June 1, 1995 and
non-exclusive rights thereafter. Pursuant to the VIASOFT Agreement, VIASOFT pays
SEEC a royalty of 30% of all license or maintenance fees related to its
distribution of SEEC's products up to a maximum of $2 million and thereafter a
royalty of 25% of license fees and 30% of maintenance fees related to SEEC's
products. During fiscal 1995 and 1996, and for the first six months of fiscal
1997, revenue from VIASOFT accounted for approximately 13%, 8% and 3%,
respectively, of SEEC's total revenue. During fiscal 1994, revenue from VIASOFT
accounted for less than 1% of the Company's total revenue.
SEEC may terminate the VIASOFT Agreement after the third or fourth
anniversaries of the commencement of the VIASOFT Agreement if VIASOFT does not
make minimum payments of at least $1 million during the 12 months preceding the
third or fourth anniversaries. The VIASOFT Agreement, which expires in December
1998, is subject to automatic renewal for five successive one-year periods if
VIASOFT has made minimum payments of at least $1 million during the 12 months
preceding the applicable expiration date.
SEEC gave notice to VIASOFT on December 3, 1996 of its intention to
terminate the VIASOFT Agreement as a result of VIASOFT's not making minimum
royalty payments of at least $1,000,000 during the 12 months preceding the third
anniversary of the date of the Agreement. SEEC has received notice from VIASOFT
that it does not intend to extend the VIASOFT Agreement by making such minimum
payments and acknowledging that the VIASOFT Agreement will terminate effective
June 4, 1997. Following such termination date, SEEC will be obligated to provide
VIASOFT with sufficient copies of the licensed products to cover the unearned
advance royalties from VIASOFT.
The VIASOFT Agreement permitted SEEC to use VIASOFT's proprietary COBOL
Parser Validation Suite to test SEEC's products. In exchange for such use, SEEC
agreed to pay to VIASOFT a royalty of 5% of SEEC's sales of products which
contain or use a COBOL parser, subject to a maximum royalty payment of $1
million and a minimum royalty payment of $100,000, during the five-year period
ending November 30, 1998.
SEEC has granted several organizations the non-exclusive right to market
SEEC's products in connection with COBOL maintenance and redevelopment
solutions, including year 2000 solutions. SEEC intends to enter into additional
distribution, license and/or marketing agreements, particularly with service
providers or strategic systems integrators, for its software products.
COMPETITION
The market for SEEC's software products and solutions, including its
solutions for the year 2000 problem and client/server migration, is intensely
competitive and is characterized by rapid change in technology and user needs
and the frequent introduction of new products. SEEC's principal competitors in
the software tools market include VIASOFT, Micro-Focus Group Public Limited
Company and Computer Associates International, Inc. The Company also competes
with large service providers such as IBM's Integrated Systems and Solutions
Corp., Cap Gemini America, Computer Horizons Corp. and the Big Six accounting
firms. Certain of these service providers have developed or acquired proprietary
software tools.
SEEC believes that the principal factors affecting competition in the
software tools market include product performance and reliability, product
functionality, ability to respond to changing customer needs, ease of use,
training, quality of support and price. The primary competitive factors in the
solutions markets, including the year 2000 compliance market, are price,
service, the expertise and experience of the service personnel and the ability
of such personnel to provide solutions to applications problems. Other than
technical expertise and, with respect to the year 2000 compliance market, the
limited time available until the year 2000 arrives, there are no significant
proprietary or other barriers to entry that could prevent potential competitors
from developing or acquiring similar tools or providing competing solutions in
the Company's market.
The Company's ability to compete successfully in the sale of products and
solutions will depend in large part upon its ability to attract new customers,
deliver and support product enhancements to its existing and new customers and
respond effectively to continuing technological change by developing new
products and solutions. The Company believes that its PC-based tools will enable
it to compete effectively with various
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other tool vendors, including those that offer mainframe solutions, in certain
segments of the year 2000 market and the COBOL maintenance and redevelopment
market. SEEC believes that its primary competitive advantages are price,
performance and support. The Company believes that the performance and support
advantages of its PC-tools include a graphical user interface, ease-of-use and
portability, coverage and maintenance for a wide range of platforms, languages
and databases, and the accuracy and completeness of analysis and solutions that
its tools provide.
SEEC believes its Smart Change Factory approach offers a comprehensive,
competitive advantage. The Company's Smart Change Factory offers customers time-
and expense-saving options for a complete end-to-end solution and an analytical
approach to year 2000 conversions. See "Business-- Products and Solutions--
Smart Change Factory."
SEEC's PC-based tools are offered at a lower price than mainframe
solutions, provide similar functionality, and also enable valuable mainframe
resources to be conserved because year 2000 compliance and on-going maintenance
and redevelopment functions are performed on the PC.
RESEARCH AND DEVELOPMENT
SEEC plans to continue significant research and development to enhance the
functionality and performance of its COBOL Analyst product line. In fiscal 1997,
the emphasis will be on enhancing the automation in source correction for year
2000 compliance for COBOL systems, enhancement of COBOL Slicer for test coverage
analysis, and increased support for non-COBOL languages. In fiscal 1998, the
Company intends to enhance its Object Designer product for client/server
migration based on customer feedback and technology trends in the industry.
SEEC's development of new products has been accomplished primarily with
in-house development personnel and resources in conjunction with ERA. The
initial development of SEEC's COBOL maintenance products was funded in part by a
grant from ICICI pursuant to the Project Financing Agreement among ICICI, SEEC
and ERA. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
The Project Financing Agreement provided for joint ownership by SEEC and
ERA of all products developed with funds provided thereunder. In March 1996,
SEEC and ERA entered into a Product Purchase Agreement (the "Product Purchase
Agreement"), pursuant to which ERA transferred its ownership interest in SEEC's
products and technologies to SEEC and agreed to assist SEEC in developing new
products and technologies. Pursuant to the Product Purchase Agreement, ERA has
the nonexclusive right to perform design and development work with respect to
SEEC's products pursuant to specified development schedules. In addition, ERA
has agreed to maintain in India the necessary infrastructure and personnel to
support such design and development work. ERA has also agreed to transfer to
SEEC the necessary manpower for product support and to maintain a team of
personnel in India for maintenance of SEEC's products.
SEEC has the right to purchase ERA's research and development facility,
including personnel, equipment and information utilized by ERA for design,
development and maintenance of products, upon the occurrence of certain events
including a change of control of ERA, a termination of the Product Purchase
Agreement by ERA upon 12 months notice, certain defaults by ERA, an initial
public offering by ERA or the failure by the parties to agree upon maintenance
fees after the first six years of the Product Purchase Agreement. See "Certain
Transactions."
As of January 1, 1997, SEEC had four employees engaged in product
development and ten employees of ERA were engaged in product development for
SEEC. All of SEEC's research and development employees are located at SEEC's
Pittsburgh, Pennsylvania headquarters. In addition to developing new products,
SEEC continually updates its existing products through enhancements and new
releases.
During fiscal 1994, 1995 and 1996, and the six months ended September 30,
1995 and 1996, research and development expenditures, including research and
development fees paid to ERA, were $317,000, $407,000, $337,000, $178,000 and
$138,000, respectively.
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PRODUCT PROTECTION
SEEC relies on a combination of copyright, trade secret and trademark laws,
and contractual provisions to establish and protect its rights in its software
products and proprietary technology. SEEC protects the source code version of
its products as a trade secret and as an unpublished copyrighted work. Despite
these precautions, it may be possible for unauthorized parties to copy certain
portions of SEEC's products or reverse engineer or obtain and use information
that SEEC regards as proprietary. SEEC has no patents and existing copyright and
trade secret laws offer only limited protection. Certain provisions of the
license and distribution agreements generally used by SEEC, including provisions
protecting against unauthorized use, copying, transfer and disclosure, may be
unenforceable under the laws of certain jurisdictions, and SEEC is required to
negotiate limits on these provisions from time to time. In addition, the laws of
some foreign countries do not protect SEEC's proprietary rights to the same
extent as do the laws of the United States. SEEC has been and may be required
from time to time to enter into source code escrow agreements with certain
customers and distributors, providing for release of source code in the event
SEEC breaches its support and maintenance obligations, files bankruptcy or
ceases to continue doing business. SEEC licenses its products for PCs pursuant
to "shrink-wrap" license agreements that are not negotiated with or signed by
licensees and may therefore be unenforceable in certain jurisdictions.
SEEC's competitive position may be affected by its ability to protect its
proprietary information. However, because the software industry is characterized
by rapid technological change, SEEC believes that patent, trademark, copyright,
trade secret and other legal protections are less significant to SEEC's success
than other factors such as the knowledge, ability and experience of SEEC's
personnel, new product and service development, frequent product enhancements,
customer service and ongoing product support.
While SEEC has no knowledge that it is infringing the proprietary rights of
any third party, there can be no assurance that such claims will not be asserted
in the future with respect to existing or future products. Any such assertion by
a third party could require SEEC to pay royalties, to participate in costly
litigation and defend licensees in any such suit pursuant to indemnification
agreements, or to refrain from selling an alleged infringing product or service.
EMPLOYEES
SEEC had 25 employees as of January 1, 1997, including five in sales and
marketing, four in research, development and support, twelve in professional
services and four in corporate operations and administration. In light of SEEC's
plans for rapid expansion and growth in order to capture a significant share of
the year 2000 compliance market, the future success of SEEC will depend in large
part upon its continued ability to attract and retain highly skilled and
qualified personnel. Competition for such personnel is intense in the computer
software industry, particularly for talented software developers, service
consultants and sales and marketing personnel. None of SEEC's employees is
represented by a collective bargaining agreement. SEEC believes that its
relations with its employees are good.
FACILITIES
SEEC's principal administrative, research and development, customer support
and marketing facilities are located in approximately 3,000 square feet of space
in Pittsburgh, Pennsylvania. SEEC occupies these premises under a lease
agreement expiring July 31, 1997. SEEC believes that its facilities are adequate
for its current needs and that suitable additional space will be available as
needed.
LEGAL PROCEEDINGS
As of the date of this Prospectus, SEEC is not a party to any litigation
and is not aware of any pending or threatened litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of SEEC and their ages and positions
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- ---- ------------------------------------------------------------
<S> <C> <C>
Raj Reddy 59 Chairman and Director
Ravindra Koka 46 President, Chief Executive Officer, Treasurer and Director
John D. Godfrey 47 Vice President, Operations and Customer Services,
Secretary and Director
Richard J. Goldbach 41 Chief Financial Officer
Radha Ramaswami Basu 46 Director
Stanley A. Young 70 Director
Abraham Ostrovsky(1) 53 Director Elect
</TABLE>
- ---------
(1) Elected to serve as a director of SEEC effective immediately after the
consummation of the Offering.
Raj Reddy is a co-founder of SEEC and has served as a director since SEEC's
inception in 1988 and as Chairman since 1989. Dr. Reddy serves as a consultant
in a scientific or engineering capacity from time to time on projects for SEEC.
Dr. Reddy has been Dean of the Carnegie Mellon University School of Computer
Science since 1992 and is the Herbert A. Simon University Professor of Computer
Science and Robotics. Dr. Reddy joined Carnegie Mellon University's Department
of Computer Science in 1969 and served as Director of the Robotics Institute
from 1979 to 1992. Dr. Reddy is Chairman of the Board of Directors of Carnegie
Group, Inc., a member of the Board of Directors of Telxon Corporation and
Industry.Net, Inc. and a member of the Technical Advisory Board of Microsoft
Corporation.
Ravindra Koka is a co-founder of SEEC and has been President and Chief
Executive Officer and a director of SEEC since its inception in 1988. Mr. Koka
is a founding shareholder and director of ERA, a software consulting firm based
in India and a shareholder of SEEC, and a founding shareholder and director of
ACS Technologies Limited, an Indian company engaged in providing computer
hardware maintenance and service. Prior to founding SEEC, Mr. Koka was a program
analyst with System Development Corp., a senior systems analyst and mainframe
application developer for Roan Consolidated Mines and a visiting scientist and
Adjunct Associate Professor at Carnegie Mellon University's Department of
Computer Science.
John D. Godfrey has been Vice President, Operations and Customer Services,
and Secretary of SEEC since 1989, and was elected a director of SEEC in March
1996. Prior to joining SEEC, Mr. Godfrey served in various management positions
at Cimflex Teknowledge Corp., was director of engineering for American Auto-
Matrix, Inc. and PERQ Systems Corp. and served as manager of graphic information
systems for Mellon Bank, N.A.
Richard J. Goldbach joined SEEC in October 1996 as Chief Financial Officer.
Mr. Goldbach had previously served as Finance Director for ADVO, Inc., a direct
mail marketing company, from May 1991 to September 1996, and as Chief Financial
Officer and Treasurer of Scribe Systems, Inc., a computer software publishing
company, from January 1986 to December 1990. Prior to that time, Mr. Goldbach
was a senior manager in the audit department of Arthur Andersen LLP. He is a
certified public accountant.
Radha Ramaswami Basu was elected a director of SEEC in August 1996. Ms.
Basu is the general manager of Hewlett Packard Company's International Software
Operation, a position she has held since February 1994. Ms. Basu has held
various positions since joining Hewlett Packard in 1978, including worldwide
account manager for international programming from 1990 to 1994.
Stanley A. Young has been a director of SEEC since it was founded in 1988.
Mr. Young has been active as a consultant and venture capital investor for the
past five years and is Chairman, President and Chief Executive Officer of Young
Management Group, Inc., a management consulting firm. Mr. Young is a director
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of JetForm Corporation, Andyne Computer, Inc. and Cable-Sat Systems, Inc. Mr.
Young was formerly a director and seed investor in Parametric Technology
Corporation.
Abraham Ostrovsky has been elected to serve as a director of SEEC effective
immediately after the consummation of the Offering. Mr. Ostrovsky has been
Chairman and Chief Executive Officer of Cable-Sat Systems, Inc. since February
1996. Mr. Ostrovsky is also Chairman of JetForm Corporation, a provider of
forms-based workflow automation software, a position he has held since 1993. He
joined JetForm in 1991 as Chief Operating Officer and was Chief Executive
Officer from 1991 to 1995. Prior to joining JetForm, Mr. Ostrovsky was
concurrently the Senior Vice President of Erskine House PLC, an office equipment
dealership, and the Chairman of Savin Florida, a subsidiary of Erskine House,
from 1988 to 1990.
TERMS OF DIRECTORS AND OFFICERS
The Company's directors are elected by the shareholders. Effective upon the
closing of the Offering, the Company's Board of Directors will be divided into
three classes, with the members of each class serving staggered three-year
terms. The Board of Directors will consist of two Class I directors (Abraham
Ostrovsky and Stanley A. Young), two Class II directors (Radha R. Basu and John
D. Godfrey), and two Class III directors (Ravindra Koka and Raj Reddy), whose
terms will expire at the 1997, 1998 and 1999 Annual Meeting of Shareholders,
respectively. SEEC's Bylaws provide that the number of directors shall be fixed
from time to time by a majority of the Board of Directors and that vacancies on
the Board of Directors (including vacancies created by an increase in the number
of directors) may be filled by a majority of the Board of Directors then in
office or by the sole remaining director, or, if the Board of Directors or the
sole remaining director fails to act, by the shareholders.
Upon the occurrence of a default under the ICICI Loan Agreement, it has the
right to appoint one director of SEEC. In 1996, the Company was in default of
certain payment and other obligations under the ICICI Loan Agreement, but as of
September 30, 1996 brought such payment obligations current and received a
written waiver from ICICI of all existing and prior defaults. See "Risk
Factors--Prior Defaults" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
Officers are appointed by the Board of Directors and, except for those
officers with which SEEC has entered into employment agreements, serve at the
pleasure of the Board. See "Management--Employment Agreements."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two standing committees: a
Compensation Committee and an Audit Committee. SEEC's Bylaws provide that all
committees must have two or more members and that the Audit Committee must have
at least two members who are not employees of SEEC. The members of the
Compensation and Audit Committees serve at the pleasure of the Board of
Directors.
The Compensation Committee is responsible for administering the Stock
Option Plan, to the extent provided in the authorizing Board resolutions for
such plan, and for reviewing and making recommendations to the Board with
respect to the salaries, bonuses and other compensation of executive officers,
including the terms and conditions of their employment, and other compensation
matters. The members of the Compensation Committee are Radha R. Basu and Raj
Reddy.
The Audit Committee is responsible, to the extent provided in the
authorizing Board resolutions, for making an annual recommendation, based on a
review of qualifications, to the Board for the appointment of independent public
accountants to audit the financial statements of SEEC and to perform such other
duties as the Board may from time to time prescribe. The Audit Committee will
also be responsible for reviewing and making recommendations to the Board with
respect to (i) the scope of audits conducted by SEEC's independent public
accountants and (ii) the accounting methods and the system of internal control
used by SEEC. In addition, the Audit Committee will review reports from SEEC's
independent public accountants concerning compliance by management with
governmental laws and regulations and with SEEC's policies
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<PAGE> 39
relating to ethics, conflicts of interest and disbursements of funds. The
members of the Audit Committee are Raj Reddy and Stanley A. Young.
STRATEGIC ADVISORY BOARD
In 1996, the Company appointed a Strategic Advisory Board comprised of Mr.
Glen Chatfield and Ms. Radha R. Basu. The Strategic Advisory Board advises the
Company's Board of Directors and management on business and product strategy.
Mr. Chatfield is a director of Carnegie Group, Inc. Mr. Chatfield was
President of Chatfield Enterprises from April 1990 to November 1992, and has
been President of Optimum Power Technology, Inc. since December 1992, Chairman
of Emprise Technologies, Inc. since December 1992, and General Partner of CEO
Venture Fund since January 1986. He was a founder of Duquesne Systems, Inc., a
predecessor of LEGENT Corporation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors was formed in
September 1996. Radha R. Basu and Raj Reddy, who were not at any time during the
year ended March 31, 1996, or at any other time, officers or employees of SEEC,
are the only members of the Compensation Committee. No executive officer of SEEC
serves as a member of the board of directors or compensation committee of
another entity which has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee.
COMPENSATION OF DIRECTORS
Following completion of the Offering, SEEC intends to pay its non-employee
directors $2,000 per Board meeting attended in person and $1,000 per Board
meeting attended by telephone. Directors who are employees do not receive any
compensation for services performed in their capacity as directors. SEEC
reimburses each director for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and any of its committees.
In connection with their agreeing to serve on the Board of Directors, on
September 30, 1996, SEEC granted to each of Radha R. Basu and Abraham Ostrovsky
ten-year options to purchase 4,526 shares of Common Stock at $3.62 per share.
The options vest 50% each on the first and second anniversaries of their
commencement of service as directors.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by SEEC during the
fiscal year ended March 31, 1996 to Ravindra Koka, the Company's Chief Executive
Officer. No executive officer received total salary and bonus in excess of
$100,000 during the fiscal year ended March 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
NAME AND PRINCIPAL POSITION SALARY
- ------------------------------------------------------------------------------ ------------
<S> <C>
Ravindra Koka................................................................. $ 86,980
(President and Chief Executive Officer)
</TABLE>
No stock options were granted to Mr. Koka during the fiscal year ended
March 31, 1996. As of March 31, 1996, SEEC had not awarded stock appreciation
rights to any employee. Also, SEEC currently has no defined benefit or actuarial
plans.
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<PAGE> 40
The following table sets forth certain information with respect to the
value of stock options held by Mr. Koka at March 31, 1996. Mr. Koka did not
exercise any options to purchase Common Stock during the fiscal year ended March
31, 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END (#) AT FISCAL YEAR-END ($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ravindra Koka................................ 5,431 -- $15,360 --
</TABLE>
- ---------
(1) Represents the difference between the fair market value of the Common Stock
underlying the options as of March 31, 1996 and the exercise price of the
options.
EMPLOYMENT AGREEMENTS
Effective October 1, 1996, SEEC entered into a two-year employment
agreement with Ravindra Koka pursuant to which he agreed to serve as SEEC's
President and Chief Executive Officer at a base annual salary of $98,000, which
will increase to $107,800 upon the closing of this Offering. The agreement
renews automatically at the end of the initial two year term and each renewal
term for a one year period unless either party gives 30 days notice of intent
not to renew. The agreement is terminable by SEEC immediately for cause. The
agreement prohibits Mr. Koka from directly or indirectly selling products that
compete with SEEC's products for two years following termination under specified
circumstances of his employment with SEEC, and from improperly disclosing or
using SEEC's proprietary information. Mr. Koka's employment agreement also
includes the provisions relating to severance described below. SEEC has also
entered into employment agreements with Messrs. Godfrey and Goldbach.
The employment agreements with each of Messrs. Koka, Godfrey and Goldbach
provide that if, on or after the date of a "Change in Control" (as defined
below), SEEC, for any reason, terminates the employee's employment or the
employee resigns "for good reason" (as defined below), then SEEC shall pay to
the employee within five days following the date of termination or date of
resignation: (i) the employee's salary and benefits through the termination date
or resignation date, both as in effect on the date prior to the date of the
Change in Control, and (ii) the amount of any bonus payable to the employee for
the year in which the Change in Control occurred, pro rated to take into account
the number of days that have elapsed in such year prior to the termination date
or resignation date. In addition, during a specified period following the
termination or resignation date, SEEC shall continue to pay to the employee his
annual salary, as in effect on the day prior to the date of the Change in
Control on the dates when such salary would have been payable had the employee
remained employed by SEEC and shall continue to provide to the employee during
such specified period, at no cost to the employee, the benefits the employee was
receiving on the day prior to the date of the Change in Control, or benefits
substantially similar thereto. The specified period is twelve months for Mr.
Koka and nine months for Messrs. Godfrey and Goldbach.
For purposes of the employment agreements, a "Change in Control" is deemed
to occur upon any of the following events: (i) any individual, corporation,
partnership, association, trust or other entity becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of SEEC representing 50% or more of the combined voting power of
SEEC's then outstanding voting securities; (ii) the individuals who as of the
date of the agreements are members of the Board of Directors of SEEC (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of SEEC (provided, however, that if the election, or
nomination for election by SEEC's shareholders, of any new director was approved
by a vote of at least a majority of the Incumbent Board, such new director will,
for purposes of such agreements, be considered as a member of the Incumbent
Board); (iii) an agreement by SEEC to consolidate or merge with any other entity
pursuant to which SEEC will not be the continuing or surviving corporation or
pursuant to which shares of the Common Stock of SEEC would be converted into
cash, securities or other property, other than a merger of SEEC in which holders
of the Common Stock of
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SEEC immediately prior to the merger would have the same proportion of ownership
of Common Stock of the surviving corporation immediately after the merger; (iv)
an agreement of SEEC to sell, lease, exchange or otherwise transfer in one
transaction or a series of related transactions substantially all of the assets
of SEEC; (v) the adoption of any plan or proposal for a complete or partial
liquidation or dissolution of SEEC; or (vi) an agreement to sell more than 50%
of the outstanding voting securities in one or a series of related transactions
other than an initial public offering of voting securities registered with the
Securities and Exchange Commission.
The term "good reason" means (i) a material diminution by SEEC of the
employee's title or responsibilities, as that title and those responsibilities
existed on the day prior to the date of a Change in Control; (ii) a material
diminution by SEEC in the employee's salary, benefits or incentive or other
forms of compensation, all as in effect on the day prior to the date of a Change
in Control; or (iii) any reassignment of the employee or relocation of SEEC's
principal executive offices outside of the greater Pittsburgh area.
STOCK OPTION PLAN
On September 12, 1994, the Board of Directors adopted, and the shareholders
of SEEC approved, the SEEC, Inc. 1994 Stock Option Plan (the "Stock Option
Plan"). Under the Stock Option Plan, a committee designated by the Board of
Directors or, if no committee is designated, the full Board (the "Committee") is
authorized to grant stock options. The Stock Option Plan has a 10-year term and,
subject to anti-dilution adjustments, a maximum of 226,305 shares of Common
Stock may be awarded under the Stock Option Plan. Employees of SEEC who, in the
opinion of the Committee, are responsible for the continued growth, development
and financial success of SEEC are eligible to receive stock options under the
Stock Option Plan. The Committee has the discretion to determine the persons to
whom grants of options shall be made and, subject to the terms of the Stock
Option Plan, the terms and conditions of each stock option grant. All options
will be fully vested upon a Change of Control (as defined in the Stock Option
Plan) of SEEC.
Options. The Committee will establish the exercise price of options at the
time of each grant. The exercise price of incentive stock options must be no
less than 100% of the fair market value of a share of Common Stock on the grant
date. The exercise price of incentive stock options granted to a shareholder of
SEEC that owns more than 10% of the total combined voting power of all classes
of stock of SEEC (a "Significant Shareholder"), must be no less than 110% of the
fair market value of a share of Common Stock on the grant date. Options become
exercisable at such times and in such installments as the Committee shall
provide at the date of grant. Options have a maximum term of 10 years (5 years
for an incentive stock option granted to a Significant Shareholder). The option
exercise price may be paid (i) in cash, (ii) with the Committee's approval, in
stock held by the optionee for at least six months prior to the exercise date or
(iii) otherwise as the Committee may approve. Options may be designated by the
Committee as incentive stock options for which the amount of option "spread" at
the time of exercise, assuming no disqualifying disposition, is generally not to
be taxable income to the grantee (except for possible alternative minimum tax
liability) and is not deductible by SEEC for federal income tax purposes.
Exercise after Termination of Employment. If an optionee's employment by
SEEC is terminated for cause, all unvested or unexercised options will terminate
and be forfeited. In the event an optionee ceases to be an employee because of
death or disability, all options will vest and any unexercised option may be
exercised for twelve months following the date of his or her death or
disability. If an optionee's employment terminates by reason of retirement under
SEEC's normal retirement policy, all vested and unexercised options may be
exercised for three months following such termination in the case of an
incentive stock option or twelve months in the case of a nonqualified stock
option. If an optionee's employment terminates for any other reason, any portion
of an option then unexercisable will be forfeited and the then-exercisable
portion of any unexercised option may be exercised for 30 days following such
termination. The Committee has the discretion to extend such post-termination
exercisability.
Company's Right to Purchase Shares. The Stock Option Plan provides SEEC
with certain rights to repurchase shares acquired through the exercise of stock
options granted under the Stock Option Plan and a
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<PAGE> 42
right of first refusal with respect to shares acquired through exercise of stock
options granted under the Stock Option Plan. Such rights will terminate upon the
closing of this Offering.
Amendments. The Stock Option Plan may be amended by the Board of Directors
without shareholder approval except as may be required to permit incentive stock
options to continue to be issued under the Stock Option Plan.
As of January 1, 1997, SEEC had granted options to purchase an aggregate of
89,157 shares of Common Stock under the Stock Option Plan, of which 85,763
remained outstanding and unexercised.
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<PAGE> 43
CERTAIN TRANSACTIONS
The following is a summary of certain transactions to which SEEC was or is
a party and in which certain executive officers, directors or shareholders of
SEEC had or have a direct or indirect material interest, all of which were made
on terms no less favorable to the Company than those available from unaffiliated
parties.
ERA RELATIONSHIP
SEEC has certain relationships and has engaged in certain transactions with
ERA, an Indian software development company. SEEC owns approximately 8%,
Ravindra Koka, the President, a director and a principal shareholder of SEEC,
approximately 14% and Shankar Krish, an employee of SEEC, approximately 8% of
the outstanding capital stock of ERA. Mr. Koka and Mr. Krish are also directors
of ERA. In addition, ERA owns 226,305 shares of Common Stock of SEEC and the ERA
Foundation for the Administration of the SEEC, Inc. Stock Option Plan (the "ERA
Foundation") owns 271,566 shares of Common Stock of SEEC. Of the shares held by
the ERA Foundation, 226,305 shares are held for the benefit of ERA and will be
distributed to ERA or to ERA's shareholders (other than Mr. Koka) upon
termination of the ERA Foundation, which will occur upon the consummation of
this Offering. The other 45,261 shares of Common Stock held by the ERA
Foundation are held in trust for the employees of ERA. The trustees of the ERA
Foundation, one of whom is Mr. Koka, may grant ERA employees options to purchase
some or all of the 45,261 shares. SEEC issued the 271,566 shares of Common Stock
to the ERA Foundation in 1992 in consideration for shares of stock of ERA
representing a 10% interest in ERA and cash in the amount of $1,000.
Since SEEC's inception in 1988, ERA has provided certain research and
development services to SEEC. SEEC's initial development of its COBOL
maintenance products was funded in part by a grant from ICICI pursuant to the
Project Financing Agreement among ICICI, SEEC and ERA. The Project Financing
Agreement provided that SEEC and ERA would each have an ownership interest in
all products developed with funds provided thereunder. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Notes 5 and 6 to Financial
Statements.
In March 1996, SEEC and ERA entered into the Product Purchase Agreement,
pursuant to which ERA transferred to SEEC its 35% ownership interest in
jointly-owned products and technologies, including COBOL Analyst, COBOL Slicer,
Object Designer, Date Analyzer and related derivative and add-on products, all
products developed pursuant to the Project Financing Agreement and all products
covered by the VIASOFT Agreement. In consideration of ERA's transfer of its
ownership interest in the products and technology, SEEC issued 226,305 shares of
Common Stock to ERA. The transaction was assigned a nominal value of $2,263 (the
par value of the shares issued) as reflected in the Statements of Changes in
Shareholders' Deficit in the accompanying Financial Statements. The assigned
value reflects the predecessor basis of ERA in the products, consistent with the
Company's accounting policy of expensing all research and development costs.
ERA also agreed to assist SEEC in developing new products and technologies.
Pursuant to the Product Purchase Agreement, ERA has the non-exclusive right to
perform design and development work with respect to SEEC's products pursuant to
specified development schedules. In addition, ERA has agreed to maintain in
India the necessary infrastructure and personnel to support such design and
development work. ERA has also agreed to transfer to SEEC the necessary manpower
for product support and to maintain a team of personnel in India for maintenance
of SEEC's products.
In consideration of ERA's developmental obligations under the Product
Purchase Agreement, SEEC agreed to pay ERA certain research and development
fees. SEEC is obligated to pay ERA, through December 31, 1996, a research and
development fee equal to 10% of its gross receipts from the products so
developed by ERA prior to the date of the Product Purchase Agreement, but not
less than $12,000 per quarter, and thereafter on mutually agreed terms. SEEC
also agreed to pay to ICICI on behalf of ERA 5% of its gross receipts from
products and services derived from COBOL redevelopment, and from all data-base
reengineering and reverse engineering products and services. As of September 30,
1996, the balance of the maximum royalty payable to ICICI on behalf of ERA was
$158,940. In addition, during the first three years of
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the Product Purchase Agreement, SEEC has agreed to pay ERA a maintenance fee at
a flat rate of $5,000 per month, and, in the next three years, $6,000 per month
as long as the Product Purchase Agreement remains in effect. Each party has the
right to terminate the Product Purchase Agreement upon certain events of
default, upon the change of control of the other party or upon 12 months notice.
SEEC incurred a total of $100,000, $87,000, $79,000 and $56,000 in royalties and
fees due to ERA during fiscal 1994, 1995 and 1996 and the six months ended
September 30, 1996, respectively. See "Business--Research and Development" and
Notes 5 and 6 to Financial Statements.
Pursuant to the Product Purchase Agreement, upon a change of control of
ERA, SEEC has the right to repurchase some or all of the shares of Common Stock
owned by ERA. SEEC also has the right to purchase ERA's research and development
facilities upon the occurrence of certain events including a change of control
of ERA, a termination of the Product Purchase Agreement by ERA upon 12 months
notice, certain defaults by ERA, an initial public offering by ERA or the
failure by the parties to agree upon maintenance fees after the first six years
of the Product Purchase Agreement. In the event SEEC does not purchase ERA's
facilities, ERA has agreed to maintain those facilities at a minimum of the same
size and quality as prior to the change of control. In the event of a change of
control of SEEC, ERA has the right to request a renegotiation of any or all of
the research and development provisions of the Product Purchase Agreement.
Pursuant to a Marketing Agreement dated March 1, 1996, SEEC granted ERA the
non-exclusive right to distribute SEEC's products in India only. Under such
agreement, ERA pays SEEC a royalty of 50% (40% during the first six months of
the agreement) of SEEC's suggested international list price for all products
distributed by ERA. During fiscal 1996 and the first six months of fiscal 1997,
ERA paid $11,500 and $39,820, respectively, in royalties to SEEC. The agreement
is for a term of three years. SEEC may terminate the agreement (i) for cause;
(ii) at any time after the first 12 months by paying ERA an amount equal to 150%
of ERA's gross revenues for the previous 12 months from sales of SEEC's
products; (iii) at any time after the first 18 months upon failure of the
parties to agree upon minimum sales by ERA or upon a business plan for ERA's
marketing of the products; or (iv) upon failure of ERA to achieve the agreed
upon minimum sales of SEEC's products.
SEEC, ERA and certain of the shareholders of SEEC have entered into a
Shareholders Agreement dated March 31, 1996. The agreement prohibits ERA from
transferring any of its shares of Common Stock without the prior written consent
of SEEC. Further, SEEC and the other parties to the Agreement have the right to
purchase the shares of Common Stock held by ERA in the event ERA wishes to sell
such shares. The Shareholders Agreement will terminate upon consummation of this
Offering.
SEEC anticipates that in the future decisions must be made with respect to
various categories of transactions between SEEC and ERA, such as the terms and
conditions under which ERA may provide research and development for SEEC
following December 31, 1996, whether SEEC will acquire ERA's research and
development facilities and whether SEEC and ERA will enter into a business
combination. All future transactions between SEEC and its officers, directors
and principal shareholders and their affiliates, including future transactions
between SEEC and ERA outside the ordinary course, will be approved by a majority
of the Board of Directors, including a majority of the disinterested directors,
and will be on terms no less favorable to SEEC than could be obtained from
unaffiliated third parties.
STOCK PURCHASES
In March 1996, Dr. Reddy, Chairman of the Board of SEEC, and Mr. Koka and
Mr. Godfrey, each an officer and director of SEEC, purchased from SEEC 33,945,
34,643 and 22,886 shares of Common Stock, respectively, at a price of $0.02 per
share, pursuant to the exercise of warrants issued to them in April 1993.
In July 1996, Dr. Reddy purchased from SEEC 30,184 shares of Common Stock
at a price of $3.31 per share by converting $75,000 in advances, plus accrued
interest, made by Dr. Reddy to SEEC from August 1990 to September 1992. The
advances were deemed to have accrued interest at a rate of 7% per annum.
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<PAGE> 45
In July 1996, Mr. Koka and Mr. Godfrey purchased from SEEC 31,909 and
20,918 shares of Common Stock, respectively, at a price of $3.31 per share. Mr.
Koka and Mr. Godfrey paid for their shares by converting demand notes issued to
them by SEEC in March 1992 to evidence deferred salaries owed to them. The
demand notes bore interest at a rate of 7% per annum and were in the respective
principal amounts of $76,541 and $50,565.
In July 1996, Stanley Young, a director of SEEC, purchased from SEEC 30,571
shares of Common Stock at a price of $3.31 per share by converting two demand
notes issued to him by SEEC in August 1990 and June 1991 in connection with two
$25,000 loans by Mr. Young to SEEC, and by converting the principal and accrued
interest of a $25,000 10% Subordinated Note purchased by Mr. Young in September
1992.
In July 1996, Amar Foundation, a shareholder of SEEC, purchased from SEEC
38,888 shares of Common Stock at a price of $3.31 per share by converting a
demand note issued by SEEC in June 1991 in connection with a $95,000 loan by
Amar Foundation to SEEC. The note bore interest at a rate of 7% per annum.
In July 1996, Abraham Ostrovsky, who will become a director of SEEC
following the closing of the Offering, purchased from SEEC 2,660 shares of
Common Stock at a price of $3.31 per share by converting a $6,250 10%
Subordinated Note purchased by Mr. Ostrovsky in April 1992.
In September 1996, Radha R. Basu, a director of the Company, purchased
4,139 shares of Common Stock at a price of $3.62 per share.
In September 1996, Shyamala Reddy and Geetha Reddy, each of whom is a
daughter of Dr. Raj Reddy, purchased 32,588 and 10,862 shares of Common Stock,
respectively, at a price of $3.62 per share.
REGISTRATION RIGHTS AGREEMENT
SEEC has entered into a Registration Rights Agreement, dated as of August
15, 1996 (the "Registration Rights Agreement"), with certain holders of its
Common Stock. The Registration Rights Agreement provides that each of the
parties will have the right, commencing on the date which is 270 days following
the date of this Prospectus, to demand registration of some or all of their
shares under the Securities Act in connection with the offering thereof on a
firm commitment underwritten basis, subject to the demand being made by the
holders of at least a majority of the securities registerable thereunder. As of
the date of this Prospectus, the aggregate number of shares of Common Stock
outstanding as to which such demand registration rights may be exercised is
448,450. The Registration Rights Agreement also provides that each of the
parties has the right, whenever SEEC proposes to register any of its securities,
to require that SEEC include in such registration some or all of each of the
parties' shares. The expenses of such registrations (other than underwriting
discounts and commissions) will be borne by SEEC. SEEC has agreed to indemnify
the parties to the Registration Rights Agreement for losses caused by (i) any
untrue or alleged untrue statement or omission of material fact in any
registration statement and (ii) with certain exceptions, any violation by SEEC
of the Securities Act or any rule or regulation thereunder in connection with a
registration.
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<PAGE> 46
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of SEEC's Common Stock at January 1, 1997, by each person
known by SEEC to be the beneficial owner of more than 5% of the outstanding
Common Stock, by each director and director-elect of SEEC, by the Chief
Executive Officer of SEEC and by all directors, director nominees and executive
officers of SEEC as a group.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF SHARES PERCENT OF SHARES
COMMON STOCK OUTSTANDING OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PRIOR TO OFFERING(2) AFTER OFFERING(3)
- ------------------------------------------- --------------------- -------------------- -----------------
<S> <C> <C> <C>
Ravindra Koka (4).......................... 796,160 28.3% 18.5%
Raj Reddy (5).............................. 516,741 18.4 12.0
Adam D. Young (6).......................... 456,006 16.3 10.6
Amar Foundation (7)........................ 308,191 10.8 7.1
ERA Foundation for the Administration of
the SEEC, Inc. Stock Option Plan (8)..... 271,566 9.7 6.3
John D. Godfrey (9)........................ 229,735 8.2 5.3
ERA Software Systems Private Limited
(10)..................................... 226,305 8.1 5.3
Adam D. Young Qualified Annuity Trust
(11)..................................... 150,870 5.4 3.5
Ravindra Koka Retained Annuity Trust
(12)..................................... 150,190 5.4 3.5
Stanley A. Young (13)...................... 64,516 2.3 1.5
Radha R. Basu (14)......................... 4,139 .2 .1
Abraham Ostrovsky (15)..................... 5,488 .2 .1
All directors, directors-elect and
executive officers as a group (7 persons)
(16)..................................... 1,616,779 56.7 37.1
</TABLE>
- ---------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Shares of Common Stock subject to
options or warrants exercisable within 60 days are deemed outstanding for
computing the percentage of the person or group holding such options or
warrants, but are not outstanding for computing the percentage of any other
person. Except as noted, each shareholder has sole voting power and sole
investment power with respect to all shares beneficially owned by such
shareholder.
(2) Based upon 2,806,373 shares outstanding prior to the Offering.
(3) Based upon 4,306,373 shares outstanding after the Offering. Does not
reflect shares, if any, to be purchased by any such individual in the
Offering.
(4) Includes 5,431 shares of Common Stock issuable upon the exercise of
outstanding options and 150,190 shares of Common Stock owned by Ravindra
Koka Retained Annuity Trust of which Mr. Koka is trustee. Also includes
271,566 shares of Common Stock owned by ERA Foundation, of which Mr. Koka
is a co-Trustee, with respect to which Mr. Koka disclaims any financial
interest. Does not include 226,305 shares of Common Stock owned by ERA, of
which Mr. Koka is a director and stockholder, with respect to which Mr.
Koka disclaims any beneficial interest. Mr. Koka's address is in care of
SEEC, Inc., 5001 Baum Boulevard, Pittsburgh, Pennsylvania 15213.
(5) Mr. Reddy's address is in care of SEEC, Inc., 5001 Baum Boulevard,
Pittsburgh, Pennsylvania 15213.
(6) Includes 150,870 shares of Common Stock owned by Adam D. Young Qualified
Annuity Trust, of which Mr. Young's wife is trustee. Adam D. Young's
address is 10 Riverside Drive, Marblehead, Massachusetts 01945.
(7) Includes 42,998 shares of Common Stock issuable upon the exercise of
outstanding warrants. Amar Foundation's address is 630 Los Trancos Road,
Portola Valley, California 94025.
(8) ERA Foundation's address is in care of Ravindra Koka, Trustee, SEEC, Inc.
5001 Baum Boulevard, Pittsburgh, Pennsylvania 15213.
(9) Includes 4,888 shares of Common Stock issuable upon the exercise of
outstanding options. Mr. Godfrey's address is in care of SEEC, Inc., 5001
Baum Boulevard, Pittsburgh, Pennsylvania 15213.
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<PAGE> 47
(10) ERA's address is 4 Motilal Nehru Nagar, 1st Floor, Begumpet Road, Hyderabad
500 016 India. Dr. Kishore Buddhiraju, as the Managing Director of ERA, has
voting and investment control over the shares held by ERA.
(11) The address of Adam D. Young Qualified Annuity Trust is in care of Dana
Young, Trustee, 10 Riverside Drive, Marblehead, Massachusetts 01945.
(12) The address of Ravindra Koka Retained Annuity Trust is in care of Ravindra
Koka, Trustee, SEEC, Inc., 5001 Baum Boulevard, Pittsburgh, Pennsylvania
15213.
(13) Includes 33,945 shares of Common Stock issuable upon the exercise of
outstanding warrants. Stanley Young's address is in care of Young
Management Group, Inc., 24 New England Executive Park, Burlington,
Massachusetts 01803.
(14) Ms. Basu's address is c/o Hewlett Packard Company, International Software
Operation, 1266 Kifer Road, Sunnyvale, California 94086.
(15) Includes 2,828 shares issuable upon the exercise of outstanding warrants.
Mr. Ostrovsky's address is in care of Cable-Sat Systems, Inc., 2105
Hamilton Avenue, Suite 140, San Jose, California 95125.
(16) Includes 10,319 shares issuable upon exercise of outstanding options and
36,773 shares issuable upon exercise of outstanding warrants.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of SEEC consists of (i) 20,000,000 shares of
Common Stock, par value $.01 per share and (ii) 10,000,000 shares of Preferred
Stock, without par value (the "Preferred Stock"). The following description of
the capital stock of SEEC does not purport to be complete or to give full effect
to the provisions of statutory or common law and is subject in all respects to
the provisions of SEEC's Articles of Incorporation (the "Articles") as in effect
from time to time.
COMMON STOCK
As of January 1, 1997, SEEC had issued and outstanding 2,806,373 shares of
Common Stock. All outstanding shares of Common Stock are, and the shares offered
hereby will be, fully paid and nonassessable. The holders of Common Stock are
entitled to one vote for each share held of record on all matters voted upon by
shareholders and may not cumulate votes for the election of directors. Thus, the
owners of a majority of the shares of Common Stock outstanding may elect all of
the directors, if they choose to do so, and the owners of the balance of such
shares would not be able to elect any directors. Subject to preferences that may
be applicable to any outstanding shares of Preferred Stock, each share of
outstanding Common Stock is entitled to participate equally in any distribution
of net assets made to the shareholders upon liquidation, dissolution or winding
up of SEEC and is entitled to participate equally in dividends as and when
declared by SEEC's Board of Directors. There are no redemption, sinking fund,
conversion or preemptive rights with respect to the shares of Common Stock. All
shares of Common Stock have equal rights and preferences.
PREFERRED STOCK
SEEC's Board of Directors is authorized by the Articles to fix or alter the
rights, preferences, privileges and restrictions of any series of Preferred
Stock, including the dividend rights, original issue price, conversion rights,
voting rights, terms of redemption, liquidation preferences and sinking fund
terms thereof, and the number of shares constituting any such series and the
designation thereof, and to increase or decrease the number of shares of such
series subsequent to the issuance of shares of such series (but not below the
number of shares then outstanding). As the terms of the Preferred Stock can be
fixed by the Board of Directors without shareholder action, the Board may issue
Preferred Stock with terms calculated to defeat a proposed takeover of SEEC or
to make the removal of management more difficult. The Board of Directors,
without shareholder approval, could issue Preferred Stock with dividend, voting,
conversion and other rights which could adversely affect the rights of the
holders of Common Stock. SEEC's Board of Directors currently has no plans to
issue shares of Preferred Stock.
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<PAGE> 48
WARRANTS AND CONVERSION RIGHTS
Stanley A. Young, a director of SEEC, and Amar Foundation, a shareholder of
SEEC, hold warrants to purchase 33,945 and 42,998 shares of Common Stock,
respectively, at an exercise price of $.02 per share. The warrants were issued
in April 1993 in connection with loans to SEEC made by Mr. Young and Amar
Foundation in the amounts of $50,000 and $95,000, respectively, and in
connection with Mr. Young's purchase of a $25,000 10% Subordinated Note. The
warrants are currently exercisable, and expire on December 31, 1999.
Certain other purchasers of SEEC's 10% Subordinated Notes, all of which
were converted into shares of Common Stock in August 1996, hold warrants to
purchase an aggregate of 90,515 shares of Common Stock at an exercise price of
$.02 per share. The warrants were issued in April, September and October 1992 in
connection with the holders' purchases of SEEC's 10% Subordinated Notes, are
exercisable upon the effectiveness of the Offering, and expire on April 1, 1997
(45,258 shares) and September 28, 1997 (45,257 shares). Abraham Ostrovsky, who
will become a director of SEEC upon consummation of the Offering, is a holder of
warrants to purchase 2,828 shares of Common Stock which will expire on April 1,
1997. See "Certain Transactions."
SEEC will also issue the Representatives' Warrants to the Representatives
upon consummation of the Offering. See "Underwriting."
SEEC's loan agreement with ICICI provides that upon a default by SEEC under
such agreement, ICICI has the right to convert the unpaid principal and interest
of such loan into shares of Common Stock at fair value as determined by an
independent evaluator. In 1996, the Company was in default of certain payment
and other obligations under the ICICI Loan Agreement, but as of September 30,
1996 brought such payment obligations current and received a written waiver from
ICICI of all existing and prior defaults. See "Risk Factors--Prior Defaults" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
REGISTRATION RIGHTS
SEEC has granted registration rights to certain shareholders of SEEC. See
"Certain Transactions-- Registration Rights Agreement." SEEC also has granted
certain registration rights to the Representatives in connection with the
issuance of the Representatives' Warrants. See "Underwriting".
TRANSFER AGENT
The transfer agent for the Common Stock will be American Stock Transfer &
Trust Company.
CERTAIN ANTI-TAKEOVER CONSIDERATIONS
SEEC's Articles will authorize the Board of Directors to issue, from time
to time, without any further action on the part of SEEC's shareholders, up to
10,000,000 shares of Preferred Stock in one or more series, with such
preferences, limitations and relative rights as are determined by the Board of
Directors at the time of issuance. The issuance of shares of Preferred Stock
could be used by SEEC to discourage or make more difficult a merger, tender
offer or similar transaction involving SEEC and may encourage any party seeking
to acquire control of SEEC to negotiate the transaction, in advance, with the
Board of Directors and to present any proposed transaction to all of the
shareholders. The Board of Directors believes that an arms'-length negotiation
of the terms of any takeover of control of SEEC is likely to result in more
favorable terms for all shareholders than the terms of a takeover that is
initiated without advance negotiations with the Board of Directors.
SEEC has elected not to be governed by certain "anti-takeover" provisions
that had been added to the Pennsylvania Business Corporation Law (the "BCL"),
including provisions that (i) strip voting rights from "control shares," (ii)
require disgorgement of short-term profits upon disposition of stock by certain
controlling persons and (iii) require severance payments and protection of
collective bargaining agreements following certain control share acquisitions.
SEEC's Bylaws divide the Board of Directors into three classes, each class
to be as nearly equal in number of directors as possible. At each annual meeting
of shareholders, directors in each class will be elected
47
<PAGE> 49
for three-year terms to succeed the directors of that class whose terms are
expiring. Abraham Ostrovsky and Stanley A. Young are Class I directors whose
terms of office will expire in 1997. Radha R. Basu and John D. Godfrey are Class
II directors whose terms will expire in 1998. Ravindra Koka and Raj Reddy are
Class III directors whose terms will expire in 1999. This provision could, under
certain circumstances, operate to delay, defer or prevent a change in control of
SEEC.
The VIASOFT Agreement provides that, if SEEC (or its principals) receives
an unsolicited offer to enter into a transaction or series of transactions
involving the sale of substantially all of its business or product line, whether
through the sale or exchange of capital stock, merger, consolidation, or sale or
other transfer of assets, or a transaction or series of transactions that would
result in a change in control of SEEC (any of the foregoing being a "significant
transaction"), VIASOFT will have an exclusive right for a period of seven days
to negotiate with SEEC with respect to accomplishing a mutually acceptable
significant transaction. During the exclusive period, the Company is obligated
to negotiate in good faith exclusively with VIASOFT and not negotiate with or
solicit any offers or discussions from any third party with respect to a
significant transaction. The VIASOFT Agreement, and therefore the rights and
obligations of VIASOFT and SEEC described above, will terminate effective June
4, 1997. See "Business--Sales, Marketing and Distribution."
LIMITATION OF DIRECTORS' LIABILITY
Section 1713 of the BCL provides that, if a bylaw adopted by the
shareholders of a Pennsylvania business corporation so provides, a director of
such corporation will not be personally liable for monetary damages for any
action taken unless the director has breached or failed to perform the duties of
his office under the BCL and the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness. Section 1713 provides that its
provisions do not apply to the responsibility or liability of a director
pursuant to any criminal statute or the liability of a director for the payment
of taxes pursuant to federal, state or local law. As permitted by the provisions
of the BCL, SEEC'S Bylaws limit the personal liability of directors of SEEC for
monetary damages for actions taken as a director, except to the extent that the
director has breached or failed to perform his or her duties to SEEC and the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness. The Company does not believe that its Bylaws would affect any
liabilities of the Company's directors under the federal securities laws.
INDEMNIFICATION
As permitted by the BCL, SEEC's Bylaws require SEEC to indemnify all
directors and officers of SEEC. Under such provisions, any director or officer
who, in his or her capacity as such, is made or threatened to be made a party to
any suit or proceeding must be indemnified if such director or officer acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of SEEC. The Bylaws and the BCL further provide that such
indemnification is not exclusive of any other rights to which such individuals
may be entitled under the Articles, any agreement, insurance policies, vote of
shareholders or disinterested directors or otherwise. SEEC has not purchased
directors' and officers' insurance.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and assuming no exercise of outstanding
warrants and options, SEEC will have outstanding 4,306,373 shares of Common
Stock. Of such shares, the 1,500,000 shares sold in this Offering, and any of
the 225,000 shares which may be sold upon exercise of the Underwriters'
over-allotment option, will be freely tradable by persons other than
"affiliates" of SEEC, as that term is defined in Rule 144 under the Securities
Act. The remaining 2,806,373 shares of Common Stock are "restricted securities"
within the meaning of Rule 144 (the "Restricted Shares"). The Restricted Shares
may not be sold unless they are registered under the Securities Act or sold
pursuant to an applicable exemption from registration, including an exemption
pursuant to Rule 144 under the Securities Act. Holders of approximately 448,450
Restricted Shares have certain registration rights pursuant to the Registration
Rights Agreement. See "Certain Transactions--Registration Rights Agreement."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, including persons who may be deemed to be "affiliates" of SEEC,
as that term is defined under Rule 144, may sell within any three-month period a
48
<PAGE> 50
number of Restricted Shares that does not exceed the greater of one percent of
the then outstanding shares of the Common Stock (estimated to be 43,064 shares
after completion of this Offering, or 45,314 shares if the Underwriters'
over-allotment option is exercised in full) or the average weekly trading volume
of the Common Stock on the open market during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain manner-of-sale
limitations, notice requirements, and the availability of current public
information about SEEC. Pursuant to Rule 144(k), a person (or persons whose
shares are aggregated) who is deemed not to have been an "affiliate" of SEEC at
any time during the three months preceding a sale, and who has beneficially
owned Restricted Shares for at least three years, would be entitled to sell such
shares under Rule 144 without regard to the volume limitations, manner-of-sale
provisions or notice requirements. Restricted Shares properly sold in reliance
upon Rule 144 are thereafter freely tradable without restrictions or
registration under the Securities Act, unless thereafter held by an "affiliate"
of SEEC.
An employee, officer or director of or consultant to SEEC who purchased or
was awarded shares or options to purchase shares pursuant to a written
compensatory plan or contract is entitled to rely on the resale provisions of
Rule 701 under the Securities Act, which permits affiliates and non-affiliates
to sell their Rule 701 shares without having to comply with Rule 144's holding
period restrictions, in each case commencing 90 days after the effectiveness of
the Offering (the "Effective Date"). In addition, non-affiliates may sell Rule
701 shares without complying with the public information, volume and notice
provisions of Rule 144.
Beginning 270 days after the Effective Date, upon the expiration of the
lock-up agreements described below, or earlier in the discretion of the
Representatives, approximately 2,040,144 Restricted Shares will become eligible
for sale in the public market in reliance upon Rule 144. In addition,
outstanding options and warrants to purchase approximately 34,593 and 167,458
shares of Common Stock, respectively, will be fully vested as of the Effective
Date, and all such options and warrants are subject to the 270-day lock-up
agreements described below.
The Company, each of its directors, officers and employees, and certain
other existing shareholders, who hold in the aggregate approximately 2,534,807
shares of Common Stock, options to purchase approximately 94,815 shares of
Common Stock, and warrants to purchase approximately 167,458 shares of Common
Stock have agreed with the Representatives, that they will not, without the
prior written consent of the Representatives, sell or otherwise dispose of any
shares of Common Stock or options to acquire shares of Common Stock during the
270-day period following the Effective Date.
The Company's directors and executive officers and certain of the Company's
principal shareholders have agreed, pursuant to the requirements of certain
state securities laws, to place a portion of their shares of Common Stock, stock
options and warrants into escrow. Such securities will be released from escrow
upon the earlier to occur of (i) the Common Stock being listed on a reliable
public securities market, including the Nasdaq National Market System, after at
least one year from the date of this Prospectus, (ii) the Company achieving
annual net earnings per share of at least 5% of the public offering price of the
Common Stock for two consecutive fiscal years after the date of this Prospectus
or (iii) the Company having average annual net earnings per share of at least 5%
of the public offering price of the Common Stock for any five consecutive fiscal
years after the date of the Prospectus. If such events do not occur, 25% of the
securities will be released from escrow on each of the sixth, seventh, eighth
and ninth anniversaries of the date of this Prospectus.
Prior to this Offering there has been no market for the Common Stock, and
no prediction can be made as to the effect, if any, that sales of Restricted
Shares, or the availability of Restricted Shares for sale, by existing
shareholders in reliance upon Rule 144, pursuant to registration or otherwise
will have on the market price of Common Stock. The sale by SEEC or the
shareholders referred to above of a substantial number of shares of Common Stock
after this Offering could adversely affect the market price for the Common
Stock.
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<PAGE> 51
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement
(the "Underwriting Agreement"), each of the Underwriters has severally agreed to
purchase from SEEC, and SEEC has agreed to sell to the Underwriters, the number
of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
H.C. Wainwright & Co., Inc. .....................................................
Cruttenden Roth Incorporated.....................................................
---------
Total....................................................................... 1,500,000
=========
</TABLE>
The Underwriting Agreement provides that the several Underwriters, subject
to the terms and conditions set forth therein, will purchase all of the shares
of Common Stock offered hereby if any of the shares are purchased. In the event
of a default by an Underwriter, the Underwriting Agreement provides that, under
certain circumstances, the purchase commitment of each nondefaulting Underwriter
may be increased or the Underwriting Agreement may be terminated. The
Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to the approval of certain legal matters by counsel and
various other conditions.
The Underwriters, for whom H.C. Wainwright & Co., Inc. and Cruttenden Roth
Incorporated are acting as the representatives (the "Representatives"), have
advised the Company that they propose to offer the shares of Common Stock, other
than some or all of the Reserved Shares (as defined below), to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at that price less a concession not in excess
of $ per share. The Underwriters may allow, and the dealers may reallow, a
discount not in excess of $ per share on sales to other dealers. After the
initial public offering, the offering price, concession and reallowance may be
changed by the Underwriters.
At the request of SEEC, the Underwriters have reserved up to approximately
75,000 shares (the "Reserved Shares") of Common Stock for sale to certain
directors, officers, employees and friends of SEEC, and certain relatives of
such directors, officers, employees and friends of SEEC, who have expressed an
interest in purchasing shares of Common Stock in this Offering. The Reserved
Shares will be sold to such persons through brokerage accounts opened
specifically for such purpose through H.C. Wainwright & Co., Inc. The price for
such Reserved Shares will be the public offering price. The number of shares
available to the general public will be reduced to the extent such persons
purchase the Reserved Shares. Any Reserved Shares that are not so purchased by
such persons at the initial closing of this Offering will be sold by the
Underwriters to the general public on the same terms as the other shares of
Common Stock offered hereby.
SEEC has granted an option to the Underwriters, exercisable within 30 days
after the date of this Prospectus, to purchase up to 225,000 additional shares
of Common Stock at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriters may
exercise the option solely for the purpose of covering over-allotments, if any,
in connection with the sale of shares of Common Stock.
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<PAGE> 52
The Underwriters do not intend to sell any of the Company's securities to
accounts for which they exercise discretionary authority.
SEEC has agreed to pay the Representatives a non-accountable expense
allowance of two and one-half percent (2.5%) of the gross proceeds of the
Offering, which will include proceeds from the over-allotment option, if
exercised. The Representatives' expenses in excess of the non-accountable
expense allowance, including their legal expenses, will be borne by the
Representatives.
In the Underwriting Agreement, SEEC has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
SEEC has agreed to sell to the Representatives, for nominal consideration,
a warrant to purchase from SEEC up to 150,000 shares of Common Stock (172,500
shares if the Underwriters' overallotment option is exercised in full) at an
exercise price per share equal to 120% of the initial public offering price (the
"Representatives' Warrants"). The Representatives' Warrants are exercisable for
a period of four years beginning one year from the date of this Prospectus, and
are not transferable for a period of one year except to officers of the
Representatives or to any successor to the Representatives. SEEC has granted
certain registration rights to the holders of the Representatives' Warrants. The
Representatives' Warrants contain anti-dilution provisions providing for
appropriate adjustment upon the occurrence of certain events.
SEEC and its directors, executive officers, and certain other employees and
the holders of substantially all of the Common Stock and options and warrants to
purchase Common Stock outstanding prior to the offering have agreed that they
will not offer, contract, sell or otherwise dispose of directly or indirectly
any shares of Common Stock for a period of 270 days following the date of this
Prospectus, without the prior written consent of the Representatives except, in
the case of SEEC, for the shares of Common Stock offered hereby and the issuance
of shares of Common Stock upon the exercise of stock options granted under the
Stock Option Plan and, in the case of the shareholders, for gifts of the Common
Stock provided the donee agrees in writing to be bound by the same restrictions.
Prior to this Offering, there has been no public market for the Common
Stock. Accordingly, the public offering price will be determined by negotiation
between SEEC and the Representatives. Among the factors to be considered in
determining the public offering price will be the preliminary demand for the
Common Stock, prevailing market and economic conditions, SEEC's revenues and
earnings, estimates of the business potential and prospects of SEEC, the present
state of SEEC's business operations, an assessment of SEEC's management, and the
consideration of these factors in relation to the market valuation of comparable
companies in related businesses and the current condition of the markets in
which SEEC operates.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each agreement which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part. See "Additional Information."
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
herein will be passed upon for SEEC by Cohen & Grigsby, P.C., Pittsburgh,
Pennsylvania and for the Underwriters by Morse, Barnes-Brown & Pendleton, P.C.,
Waltham, Massachusetts.
EXPERTS
The financial statements and schedule included in this Prospectus and in
the Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in accounting and auditing.
51
<PAGE> 53
ADDITIONAL INFORMATION
SEEC has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
pursuant to this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement or the exhibits thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to SEEC and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto. Such information may be reviewed at, or obtained by mail
at prescribed rates from, the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, such information may
also be reviewed at the regional offices of the Commission at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven
World Trade Center, New York, New York 10007. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov. Statements made in this
Prospectus concerning the provisions of such documents are summaries of such
documents and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.
Prior to this Offering, SEEC has not been required to file reports under
the Exchange Act. However, following the completion of this Offering, SEEC will
be required to file reports and other information with the Commission pursuant
to the Exchange Act. Such reports and other information may be inspected at, and
copies thereof obtained from, the offices of the Commission as set forth in the
preceding paragraph.
SEEC intends to furnish its shareholders with annual reports containing
audited financial statements reported on by independent public accountants
following the end of each fiscal year, and quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year
following the end of each such fiscal quarter.
52
<PAGE> 54
SEEC, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants............................... F-2
Balance Sheets................................................................... F-3
Statements of Operations......................................................... F-4
Statements of Changes in Shareholders' Deficit................................... F-5
Statements of Cash Flows......................................................... F-6
Notes to Financial Statements.................................................... F-7
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
(The following is the form of opinion that BDO Seidman, LLP will be in a
position to issue upon completion of the recapitalization described in Note 1.)
To the Shareholders and
Board of Directors
SEEC, Inc.
Pittsburgh, Pennsylvania
We have audited the accompanying balance sheets of SEEC, Inc. as of March
31, 1995 and 1996, and the related statements of operations, changes in
shareholders' deficit, and cash flows for each of the three years in the period
ended March 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SEEC, Inc. as of March 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
August 30, 1996, except for Notes 15
and 16(d), (e) and (f), as to which
the date is October 1, 1996, and the
recapitalization described in Note 1,
as to which the date is January 15, 1997
Boston, Massachusetts
F-2
<PAGE> 56
SEEC, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 SEPTEMBER
--------------------------- 30,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 327,718 $ 110,841 $ 821,934
Accounts receivable:
Trade--less allowance for doubtful accounts of
$3,935 and $7,776 at March 31, 1995 and 1996,
respectively and $7,776 at September 30, 1996
(Notes 3 and 9).............................. 189,276 244,679 467,437
Affiliate--ERA (Notes 5 and 6)................. 16,734 992 --
Prepaid expenses (Note 2)......................... 18,693 39,734 153,024
----------- ----------- -----------
Total current assets......................... 552,421 396,246 1,442,395
EQUIPMENT, NET (NOTES 4 AND 9)...................... 26,009 27,693 37,742
INVESTMENT IN AFFILIATE (Note 5).................... 5,000 5,000 5,000
----------- ----------- -----------
$ 583,430 $ 428,939 $ 1,485,137
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable:
Trade.......................................... $ 46,938 $ 66,930 $ 273,645
Affiliate--ERA (Notes 5 and 6)................. -- -- 81,050
Current portion of notes payable to related
parties (Note 8)............................... 125,650 -- --
Accrued payroll, related taxes and withholdings... 34,800 45,660 53,570
Accrued interest payable (Note 9)................. 13,075 20,250 8,000
Deferred maintenance revenue...................... 52,841 54,103 62,802
Customer advance.................................. 31,645 21,330 --
Current maturities of long-term debt (Note 9)..... 60,000 60,000 120,000
----------- ----------- -----------
Total current liabilities.................... 364,949 268,273 599,067
Due to officers/shareholders (Notes 10 and 11)...... 163,580 172,477 --
Notes payable to related parties, less current
portion (Notes 8 and 10).......................... 436,837 599,638 --
Long-term debt, less current maturities (Note 9).... 240,000 240,000 180,000
Advance royalty (Note 6)............................ 697,656 796,479 784,733
Accrued royalties (Note 6).......................... 17,452 29,040 33,314
----------- ----------- -----------
Total liabilities............................ 1,920,474 2,105,907 1,597,114
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 2, 5, 6, 7, 10,
12, 13, 15 AND 16)
SHAREHOLDERS' DEFICIT
(NOTES 2, 5, 7, 8, 9, 10, 11 AND 16):
Preferred stock--no par value; 10,000,000 shares
authorized; none outstanding
Common stock--$.01 par value; 20,000,000 shares
authorized; 2,040,144, 2,357,923 and 2,806,373
shares issued and outstanding at March 31, 1995
and 1996, and September 30, 1996,
respectively................................... 20,402 23,580 28,064
Additional paid-in capital........................ 31,969 30,812 1,559,303
Accumulated deficit............................... (1,389,415) (1,731,360) (1,699,344)
----------- ----------- -----------
Total shareholders' deficit.................. (1,337,044) (1,676,968) (111,977)
----------- ----------- -----------
$ 583,430 $ 428,939 $ 1,485,137
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 57
SEEC, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 SIX MONTHS ENDED
-------------------------------------- SEPTEMBER 30
1994 1995 1996 ------------------------
---------- ---------- ---------- 1995 1996
---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE (Note 3):
Software license fees
(Notes 5 and 6)............ $ 396,338 $ 287,011 $ 269,589 $ 104,151 $ 375,215
Software maintenance fees..... 63,808 105,399 101,868 57,644 75,906
Professional services--product
related.................... 40,735 42,355 181,395 32,207 266,391
Professional services--other
(Note 5)................... 362,975 349,898 476,413 218,209 371,999
---------- ---------- ---------- ---------- ----------
Total revenues............. 863,856 784,663 1,029,265 412,211 1,089,511
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of software license and
maintenance fees
(Notes 5 and 6)............ 91,162 91,468 101,991 43,844 94,086
Professional services--product
related.................... 9,853 13,952 58,542 13,398 135,427
Professional services--other
(Note 5)................... 254,826 242,921 439,545 182,379 302,708
General and administrative
(Note 12).................. 148,981 132,358 142,058 75,401 86,989
Sales and marketing........... 215,087 235,977 236,788 107,570 276,221
Research and development (Note
5)......................... 317,471 407,231 336,954 177,766 137,810
---------- ---------- ---------- ---------- ----------
Total operating expenses... 1,037,380 1,123,907 1,315,878 600,358 1,033,241
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS... (173,524) (339,244) (286,613) (188,147) 56,270
---------- ---------- ---------- ---------- ----------
OTHER EXPENSE, NET:
Interest expense
(Notes 6, 8, 9 and 11)..... (50,066) (62,866) (74,712) (37,969) (31,438)
Other income.................. 1,105 5,818 19,380 13,652 7,184
---------- ---------- ---------- ---------- ----------
Total other expense, net... (48,961) (57,048) (55,332) (24,317) (24,254)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) (Note 13)..... $ (222,485) $ (396,292) $ (341,945) $ (212,464) $ 32,016
========== ========== ========== ========== ==========
Net income (loss) per common
share......................... $ (.09) $ (.15) $ (.13) $ (.08) $ .01
========== ========== ========== ========== ==========
Weighted average number of
common and common equivalent
shares outstanding............ 2,611,798 2,612,477 2,618,701 2,615,193 2,900,793
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 58
SEEC, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance--April 1, 1993
(Note 1).................... 2,036,750 $20,368 $ 30,353 $ (770,638) $ (719,917)
Net loss for year............. -- -- -- (222,485) (222,485)
--------- ------- ---------- ----------- -----------
Balance--March 31, 1994....... 2,036,750 20,368 30,353 (993,123) (942,402)
Exercise of stock options..... 3,394 34 1,616 -- 1,650
Net loss for year............. -- -- -- (396,292) (396,292)
--------- ------- ---------- ----------- -----------
Balance--March 31, 1995....... 2,040,144 20,402 31,969 (1,389,415) (1,337,044)
Exercise of warrants (Note
10)......................... 91,474 915 1,106 -- 2,021
Acquisition of software rights
from affiliate (Note 5)..... 226,305 2,263 (2,263) -- --
Net loss for year............. -- -- -- (341,945) (341,945)
--------- ------- ---------- ----------- -----------
Balance--March 31, 1996....... 2,357,923 23,580 30,812 (1,731,360) (1,676,968)
Issuance of common stock for:
Conversion of notes and
other long-term
liabilities payable to
related parties (Notes 8
and 11).................. 237,025 2,370 783,165 -- 785,535
Cash (Note 16).............. 211,425 2,114 745,326 -- 747,440
Net income--six months ended
September 30, 1996
(Unaudited)................. -- -- -- 32,016 32,016
--------- ------- ---------- ----------- -----------
Balance--September 30, 1996
(Unaudited)................. 2,806,373 $28,064 $1,559,303 $(1,699,344) $ (111,977)
========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 59
SEEC, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 SIX MONTHS ENDED
------------------------------------- SEPTEMBER 30
1994 1995 1996 ----------------------
--------- --------- --------- 1995 1996
--------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $(222,485) $(396,292) $(341,945) $(212,464) $ 32,016
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation............................. 7,941 13,389 14,351 5,787 5,800
Provision for doubtful accounts.......... -- -- 6,836 4,000 --
Proceeds from advance royalty............ 160,000 620,000 120,000 120,000 --
Accrued non-current interest............. 46,048 46,046 46,048 23,025 13,420
Accrued non-current royalty.............. 6,667 10,785 11,588 6,688 4,274
Changes in operating assets and
liabilities:
Accounts receivable................... (93,339) (26,262) (62,239) 62,311 (222,758)
Accounts receivable--affiliate........ -- (16,734) 15,742 16,734 992
Prepaid expenses...................... 8,521 (17,260) (21,041) (93,486) (113,290)
Accounts payable...................... (11,345) (48,942) 19,992 (10,330) 206,715
Accounts payable--affiliate........... 43,923 (43,923) -- 24,083 81,050
Accrued payroll, related taxes and
withholdings........................ 30,812 (27,794) 10,860 1,294 7,910
Accrued interest payable.............. -- 13,075 7,175 425 (12,250)
Deferred maintenance revenue.......... 29,721 (2,174) 1,262 (9,564) 8,699
Advance royalty....................... (1,120) (81,225) (21,177) (10,136) (11,746)
Customer advance...................... 32,671 (43,355) (10,315) (4,530) (21,330)
--------- --------- --------- --------- --------
Net cash provided (used) by operating
activities................................. 38,015 (666) (202,863) (76,163) (20,498)
--------- --------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment...................... (19,033) (18,564) (16,035) (1,781) (15,849)
Purchase of certificate of deposit......... -- -- -- (103,662) --
--------- --------- --------- --------- --------
Net cash used by investing activities........ (19,033) (18,564) (16,035) (105,443) (15,849)
--------- --------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............... -- 300,000 -- -- --
Proceeds from sale of common stock......... -- -- -- -- 747,440
Exercise of common stock warrants and
options.................................. -- 1,650 2,021 -- --
--------- --------- --------- --------- --------
Net cash provided by financing activities.... -- 301,650 2,021 -- 747,440
--------- --------- --------- --------- --------
Net increase (decrease) in cash and cash
equivalents................................ 18,982 282,420 (216,877) (181,606) 711,093
CASH AND CASH EQUIVALENTS:
Beginning of year.......................... 26,316 45,298 327,718 327,718 110,841
--------- --------- --------- --------- --------
End of year................................ $ 45,298 $ 327,718 $ 110,841 $ 146,112 $821,934
========= ========= ========= ========= ========
Supplemental cash flow information:
Cash paid during the period for interest... $ -- $ -- $ 19,825 $ 13,075 $ 29,250
========= ========= ========= ========= ========
Purchase of software rights from affiliate
(Note 5)................................. $ -- $ -- $ 2,263 $ -- $ --
========= ========= ========= ========= ========
Conversion of debt to common stock (Notes 8
and 11).................................. $ -- $ -- $ -- $ -- $785,535
========= ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 60
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business. SEEC, Inc. (the Company) provides a suite of software products
and related services to assist primarily Fortune 1000 companies and
similarly-sized business and governmental organizations in the maintenance and
redevelopment of existing legacy COBOL software applications and related
databases for large mainframe systems. The Company also provides solutions for
the system redevelopment required for year 2000 compliance and to support the
migration of existing COBOL applications from a mainframe to a client/server
environment.
The Company's PC-Windows-based products for COBOL application maintenance
and redevelopment are designed to be alternatives to existing mainframe-based
tools. Marketing efforts are conducted through the Company's direct sales force,
product distributors, and relationships with third-party service providers under
non-exclusive marketing licenses. The Company sells and supports its products
and services from its Pittsburgh, Pennsylvania headquarters.
The Company has a strategic software research and development alliance with
ERA Software Systems Private, Limited (ERA), a software consulting and
development group based in India. The Company and ERA are affiliated through
common ownership (see Notes 5 and 6).
Recapitalization. On January 15, 1997, the Board of Directors effected a
1-for-2.2094 reverse stock split in connection with a proposed public offering
of the Company's common stock. All shares, options, warrants and per share
amounts in the accompanying financial statements have been adjusted to reflect
the effects of this recapitalization.
Basis of Presentation. The accompanying balance sheet as of September 30,
1996, the related statements of operations, changes in shareholders' deficit,
and cash flows for the six months ended September 30, 1996, and the statements
of operations and cash flows for the six months ended September 30, 1995, have
not been audited. However, in the opinion of management, they include all
adjustments necessary for a fair presentation of the financial position, results
of operations, and cash flows for the periods presented. The results of
operations for the six months ended September 30, 1996 are not necessarily
indicative of results to be realized for any other interim period or for the
full year.
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 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.
Cash, Cash Equivalents and Concentrations of Credit Risk. The statements of
cash flows classify changes in cash and cash equivalents (short-term,
highly-liquid investments readily convertible into cash with an original
maturity of three months or less) according to operating, investing or financing
activities. Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of cash, temporary cash
investments and accounts receivable.
The Company places its cash and temporary cash investments with a financial
institution which management considers to be of high quality; however, at times
such deposits may be in excess of the Federal Deposit Insurance Corporation
insurance limit.
Concentrations of credit risk with respect to accounts receivable result
from a significant portion of revenues being derived from a small number of
entities (see Notes 3 and 6); however, the Company's customer base is dispersed
across many different industries and geographic areas. The Company generally
extends credit to its customers without requiring collateral; however, it
closely monitors extensions of credit and has not experienced significant credit
losses.
F-7
<PAGE> 61
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition. Revenues are derived from the license of software
products, customer support and maintenance contracts, and COBOL maintenance and
redevelopment contracts. Revenue from product sales is recognized upon shipment.
Customer support and maintenance contract revenue is recognized ratably over the
term of the related agreement. The Company provides programming and
reengineering services under time and materials and fixed price contracts.
Revenues from time and materials contracts are recognized as the services are
provided. Revenues from fixed price contracts, which are all less than six
months in duration, are recognized on achievement of specified performance
milestones negotiated with customers. This method, which recognizes revenues on
substantially the same basis as the percentage-of-completion method, is used
because management considers milestones to be the best available measure of
progress on these contracts. Provision for estimated losses on uncompleted
contracts is made in the period in which such losses are determinable (see Note
6).
Equipment. Equipment is stated at cost. Maintenance and repairs which are
not considered to extend the useful life of assets are charged to operations as
incurred.
Depreciation of equipment is calculated using the declining balance method.
Estimated useful lives of assets are as follows: computer equipment-3 to 5
years; software and other equipment-5 years; and, furniture and fixtures-5 to 7
years.
Investment in Affiliate. The Company's investment in ERA, which represents
an ownership interest of less than 10%, is accounted for at cost. Management
does not believe that the common ownership interests of the Company and ERA are
sufficient to enable either of them to exert significant influence necessary to
require the Company's investment in ERA to be accounted for under the equity
method of accounting. Further, in management's opinion, the use of the equity
method of accounting would not have a significant effect on the Company's
financial position or results of operations.
Research and Development Costs. Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed" (FAS 86), establishes criteria for capitalization of
software development costs beginning upon the establishment of product
technological feasibility and concluding when the product is available for
general release to customers.
Management believes that in applying the above criteria capitalizable costs
must be carefully evaluated in conjunction with certain factors including, among
other things, costs reimbursed by the ICICI grant (see Notes 5 and 6),
anticipated future revenues, estimated economic product life, amortization
methodologies, and frequency of changes in software and hardware technologies.
After carefully evaluating these factors, management concluded that the amounts
which should have been capitalized pursuant to FAS 86, specifically costs
incurred after technological feasibility is established and prior to general
release of the software to customers, were immaterial and therefore no software
development costs have been capitalized to date.
Advertising Costs. The Company expenses advertising costs as incurred.
Stock-Based Compensation. The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS No. 123), which establishes financial accounting
and reporting standards for stock-based employee compensation plans. The Company
intends to adopt this statement during its year ending March 31, 1997. Other
than additional disclosures regarding stock options granted pursuant to the
Company's 1994 Stock Option Plan, this statement will not have an effect on the
Company's financial statements. The Company does not intend to adopt the expense
recognition provision of FAS No. 123.
Income Taxes. Deferred federal and state income taxes arise from temporary
differences and are accounted for using the asset and liability method to
recognize their tax consequences by applying enacted
F-8
<PAGE> 62
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is recognized
in the period that includes the enactment date (see Note 13).
Net Income (Loss) per Common Share. Net income (loss) per common and common
equivalent share, using the weighted average number of common and common
equivalent shares outstanding, was computed in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83 (SAB 83) by applying the
treasury stock method. Pursuant to SAB 83, common and common equivalent shares
issued by the Company during the 12 months immediately preceding a proposed
public offering at prices substantially below the initial public offering price
together with common share equivalents which result from the grant of common
stock options having exercise prices substantially below the initial public
offering price during the same period have been included in the calculation of
the shares used in computing net income (loss) per share as if they were
outstanding for all periods prior to the initial public offering.
Common equivalent shares, consisting of warrants and stock options, issued
12 months prior to the Company's proposed initial filing date of its
registration statement (October 11, 1996) have not been included in the
computation of net loss per common share because their effect was antidilutive
for the years ended March 31, 1994 and 1995 and the six months ended September
30, 1995.
NOTE 2--LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company has been dependent upon external sources of
financing and has not generated sufficient revenue to finance continuing
operations. Management recognizes that continuation of the Company is dependent
upon its ability to generate sufficient revenues, and/or obtain additional
financing to support continuance of operations and satisfy obligations.
Management has taken positive actions to reduce debt and increase working
capital.
During July 1996 long-term liabilities to officers/shareholders totaling
$172,477 (see Note 11) and notes payable to related parties totaling $599,638
(see Note 8) were converted to common stock. Further, since July 1, 1996 and
through September 30, 1996, 211,425 shares of common stock have been sold
through private placements to raise additional cash of $747,440 (see Note 16).
The Company is also planning an initial public offering of its common stock
which is expected to close in January 1997. The Company intends to use the
proceeds of the offering to expand sales and marketing, hire new personnel,
increase capital expenditures and for working capital and other general
corporate purposes. Although the Company believes that the proceeds from its
proposed offering will be adequate to meet its working capital needs, there can
be no assurance that the Company will not continue to experience liquidity
problems because of adverse market conditions or other unfavorable events.
Through September 30, 1996, the Company has deferred certain costs
associated with the initial public offering totaling $132,865 which will be
charged against the proceeds of the planned offering. In the event the initial
public offering does not occur, these costs will be charged to operations.
NOTE 3--MAJOR CUSTOMERS
VIASOFT has been a significant customer of the Company as described in Note
6. During the years ended March 31, 1994, 1995 and 1996, a significant
percentage of the Company's revenues was derived from a few other customers.
Sales to Complete Business Solutions, Inc. (CBSI) represented approximately 21%,
41% and 32% of revenues, respectively, for such periods. Additionally, sales to
WI State Materials Center represented 16% of revenues in 1994, and sales to ASD
International (ASD) and Wheeling Pittsburgh
F-9
<PAGE> 63
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 3--MAJOR CUSTOMERS--CONTINUED
Corporation (WP) represented 14% and 10%, respectively, of revenues in 1996.
Accounts receivable from such customers aggregated $86,741 and $89,486 at March
31, 1995 and 1996, respectively.
During the six months ended September 30, 1995 and 1996, CBSI accounted for
28% and 24% of revenues, respectively. Also, during the six months ended
September 30, 1995, ASD and WP accounted for 15% and 12% of revenues,
respectively. Accounts receivable from CBSI at September 30, 1996 totaled
$101,164.
NOTE 4--EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31 SEPTEMBER 30
-------------------- ------------
1995 1996 1996
-------- -------- ------------
<S> <C> <C> <C>
Computer equipment............................ $ 43,708 $ 52,393 $ 66,805
Software and other equipment.................. 8,707 8,707 8,707
Furniture and fixtures........................ 6,113 10,427 11,864
-------- -------- --------
Total equipment............................... 58,528 71,527 87,376
Accumulated depreciation...................... (32,519) (43,834) (49,634)
-------- -------- --------
Equipment, net................................ $ 26,009 $ 27,693 $ 37,742
======== ======== ========
</TABLE>
NOTE 5--TRANSACTIONS WITH AFFILIATE
The Company and ERA developed certain COBOL analysis software products (the
Products) through their cooperative research and development efforts which were
funded in part through grants from the Industrial Credit and Investment
Corporation of India, Ltd. (ICICI), an investment bank that administers an
agreement between the governments of the United States of America and the
Republic of India. The ongoing process of development of the Products commenced
in 1990 and has been undertaken pursuant to the terms of various agreements
among the Company, ERA, and ICICI, which have been amended from time to time to
reflect their evolving relationships.
Until March 31, 1996, the Company had a 65% ownership interest in the
Products and paid a royalty to ICICI (see Note 6), a 10% royalty to ERA based on
revenues from sales or licensing of Products and a monthly research and
development fee of $5,000 to ERA.
Pursuant to a product purchase agreement (the Product Purchase Agreement)
dated March 31, 1996, the Company acquired ERA's 35% interest in the Products in
exchange for 226,305 shares of the Company's common stock. The transaction was
assigned a nominal value of $2,263 to reflect the predecessor basis of ERA in
the Products by applying the Company's accounting policy of expensing all
research and development costs.
Pursuant to the Product Purchase Agreement, the Company has agreed to pay
the following to:
- ERA--a research and development fee equal to 10% of gross Product
revenues (in no event will quarterly payments be less than $12,000)
through December 31, 1996, and thereafter on terms to be mutually
determined;
- ICICI on behalf of ERA--5% of gross Product revenues until such aggregate
payments (see Note 6) satisfy ERA's obligation to ICICI (the ERA
Obligation) after which such payments shall cease; and,
F-10
<PAGE> 64
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 5--TRANSACTIONS WITH AFFILIATE--CONTINUED
- ERA--a monthly maintenance fee of $5,000 for the first three years,
$6,000 for the next three years, and thereafter in amounts to be mutually
determined.
Upon a change in control in ERA, as defined in the Product Purchase
Agreement, the Company has the right to repurchase some or all of its common
stock owned by ERA. In the event of a change in control in the Company, as
defined, ERA has the right to request a renegotiation of any or all of the
research and development provisions of the Product Purchase Agreement. Further,
under certain circumstances, the Company has the right to purchase ERA's
research and development facilities at which time the Company will assume
responsibility for repayment of any unpaid ERA Obligation under the June 1, 1990
ICICI Agreement (see Note 6).
The Product Purchase Agreement will continue in effect until terminated by
either party and places certain restrictions on ERA's ability to design or
develop similar products for itself or any third party for a period of two years
subsequent to termination. The agreement also provides that all work performed
subsequent to March 31, 1996 by ERA will be done on a work for hire basis; any
products developed will be owned by the Company and will not result in any
ownership rights to ERA.
The Company also has an informal arrangement with ERA to administer the
billing and related collection function for a contract (to provide consulting
services to a corporation operating in the United States) for which the Company
retains 10% of the collected revenues.
Effective March 1, 1996, the Company formalized its marketing arrangements
with ERA by entering into a marketing agreement to distribute the Company's
products on a non-exclusive basis in India. The agreement, which can be
terminated by either party after eighteen months, provides for royalties to be
paid by ERA to the Company based on 40% of revenues (using the suggested
international list prices established by the Company) from customers in India
through September 1, 1996, and 50% thereafter. Royalties received under the
terms of the marketing agreement for the year ended March 31, 1996 and the six
months ended September 30, 1996, amounted to $11,500 and $39,820, respectively.
The Company incurred the following expenses in connection with its
activities with ERA during the periods presented below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31 SEPTEMBER 30
----------------------------- ------------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Royalty expense...................... $39,633 $26,552 $18,941 $ 6,702 $17,152
======= ======= ======= ======= =======
Research and development fees........ $60,000 $60,000 $60,000 $30,000 $39,000
======= ======= ======= ======= =======
Fees applicable to professional
services provided by ERA
employees.......................... $25,250 $ 5,636 $72,429 $29,107 $45,872
======= ======= ======= ======= =======
</TABLE>
NOTE 6--ROYALTY AGREEMENTS
VIASOFT, Inc.--Effective December 1, 1993, the Company entered into a
five-year license agreement (the License Agreement) with VIASOFT, Inc. (the
Licensee) which generally grants to Licensee a worldwide license to use and
market certain of the Company's products on a private label basis. The License
Agreement provides, among other things, for royalties of up to 30% of any
license or maintenance fees related to licensed products and minimum advance
royalty payments totaling $900,000 during the 18-month exclusivity period which
expired on May 31, 1995.
F-11
<PAGE> 65
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 6--ROYALTY AGREEMENTS--CONTINUED
The Company may terminate the License Agreement after December 1, 1996 or
1997, if the Licensee does not make annual minimum royalty payments of
$1,000,000 during the twelve-month period preceding the respective anniversary
date. The termination will become effective six months following the Company's
written notice to the Licensee. The License Agreement may be renewed for five
successive one-year periods after the end of the five-year initial term, if the
Licensee continues to meet the $1,000,000 annual minimum royalty target.
To date, the Company has not received any royalty payments beyond the
minimum advance royalty of $900,000, which is being recognized as income as
copies of the licensed products are delivered to VIASOFT for resale, and, to a
lesser extent, as royalties on the related maintenance revenues are reported to
the Company by VIASOFT. Software license fees as presented in the accompanying
statements of operations includes VIASOFT royalty income of $1,120, $81,225 and
$21,177 for the years ended March 31, 1994, 1995 and 1996, and $10,136 and
$11,746 for the six months ended September 30, 1995 and 1996, respectively.
Total revenues from VIASOFT, including income from the advance royalty,
represented less than 1%, 13% and 8% of the Company's total revenues for the
years ended March 31, 1994, 1995 and 1996, and 2% and 3% for the six months
ended September 30, 1995 and 1996, respectively.
The $784,733 balance of the advance royalty at September 30, 1996 will be
recognized as income subsequent to September 30, 1996 as the Company fulfills
requests from VIASOFT to manufacture and deliver copies of the licensed products
to VIASOFT for resale. Upon termination of the agreement, the Company is
obligated to deliver to VIASOFT that number copies of the licensed products
equal to the then balance of the advance royalty divided by the applicable
product royalty amounts.
The License Agreement also requires the Company to pay a royalty of 5% of
sales of its products which contain or use a COBOL parser, up to $1,000,000, but
in no event less than $100,000, over five-years. Any unpaid royalties will be
paid in twelve monthly installments following the conclusion of the license
term.
ICICI--Pursuant to the terms of the June 1, 1990 ICICI agreement, as
amended (the ICICI Agreement), the Company received a $255,000 grant to
partially fund research and development costs to develop the Products in
association with ERA. The grant program administered by ICICI was designed to
accelerate the pace and quality of technological innovation through the
promotion and financing of Indo-U.S. cooperative technology development ventures
(see Note 5). ERA received a grant of Indian Rs. 4,000,000 ($116,448 at March
31, 1996) under the ICICI Agreement for similar purposes.
The ICICI Agreement requires the Company and ERA to make royalty payments
based on Product revenues up to a maximum of $525,000 and Indian Rs. 8,000,000
($232,897 at March 31, 1996), respectively. Both the Company and ERA are jointly
and severally obligated for payment of the royalties. However, subsequent to
March 31, 1993, ICICI agreed to accept from the Company total royalties of 10%
of Product revenues and 5% of revenues from Product maintenance and Product
related services in satisfaction of future royalties due from the Company and
ERA. Total royalty expense under the ICICI Agreement for the years ended March
31, 1994, 1995 and 1996, amounted to $44,861, $33,940 and $34,006, and totaled
$12,799 and $45,842 for the six months ended September 30, 1995 and 1996,
respectively.
At March 31 and September 30, 1996, the balance of the maximum royalty
obligation to be paid by the Company pursuant to the ICICI Agreement, after
deducting accrued royalties at such dates, was $443,830 and $410,741, and the
amount of the ERA Obligation (see Note 5) was Indian Rs. 6,174,138 ($179,742)
and Rs. 5,666,211 ($158,940), respectively.
As of March 31, 1996 the Company was in default of certain payment
obligations and covenants of the ICICI Agreement and term loan agreement
described in Note 9. As of September 30, 1996 the Company
F-12
<PAGE> 66
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 6--ROYALTY AGREEMENTS--CONTINUED
brought such payment obligations current and received written waivers from ICICI
of all existing and prior defaults.
NOTE 7--STOCK OPTION PLAN
On September 12, 1994, the Company's shareholders approved the SEEC, Inc.
1994 Stock Option Plan (the Plan) under which a maximum of 226,305 common
shares, subject to anti-dilution adjustments, may be awarded during the Plan's
10-year term. The purpose of the Plan is to promote the interests of the Company
and its shareholders by providing key employees with additional incentives to
continue the success of the Company.
Under the Plan, options are awarded by a committee designated by the
Company's Board of Directors or, if no committee is designated, the full Board.
Incentive stock options and non-qualifying stock options may be granted to
purchase a specified number of shares of common stock at a price not less than
the fair market value on the date of grant and for a term not to exceed 10
years. Options become exercisable at such times and in such installments as
determined at the date of grant subject to continued employment and certain
other conditions including a limited ability to sell or otherwise transfer
shares issued pursuant to the Plan.
The following table summarizes the activity in stock options since the
Plan's inception:
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES PER SHARE
------ --------------
<S> <C> <C>
September 12, 1994--Inception................................ -- $ --
Granted.................................................... 31,092 .44 - .49
Exercised.................................................. (3,394) .49
Cancelled, expired or terminated........................... -- --
=============
------
Balance--March 31, 1995...................................... 27,698 $ .44 - .49
=============
Granted.................................................... 21,858 $ .44
Exercised.................................................. -- --
Cancelled, expired or terminated........................... -- --
=============
------
Balance--March 31, 1996...................................... 49,556 $ .44 - .49
=============
Granted.................................................... 4,525 $ 3.31
Exercised.................................................. -- --
Cancelled, expired or terminated........................... -- --
=============
------
Balance--September 30, 1996.................................. 54,081 $ .44 - 3.31
====== =============
</TABLE>
At March 31 and September 30, 1996, options totaling 21,318 and 27,744
shares, respectively, were exercisable at prices of $.44 to $.49 per share (see
Note 16).
F-13
<PAGE> 67
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 8--NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consisted of the following:
<TABLE>
<CAPTION>
MARCH 31 SEPTEMBER 30
-------------------- ------------
1995 1996 1996
-------- -------- ------------
<S> <C> <C> <C>
Unsecured note payable to a director with
interest
at 7% due June 1996............................ $ 50,000 $ 50,000 $ --
Unsecured note payable to shareholder with
interest
at 7% due June 1996............................ 95,000 95,000 --
Unsecured advance from shareholder with imputed
interest at 7%................................. 75,000 75,000 --
10% subordinated notes due April 1997--Series
I.............................................. 100,000 100,000 --
10% subordinated notes due September 1997--Series
II (including $25,000 to a director)........... 125,000 125,000 --
Accrued interest................................. 117,487 154,638 --
-------- -------- ------
562,487 599,638 --
Less current maturities of principal and
interest....................................... 125,650 -- --
-------- -------- ------
$436,837 $599,638 $ --
======== ======== ======
</TABLE>
In connection with negotiating the terms of the notes and advances payable,
the Company issued warrants, on the basis of one warrant (pre-split) for each
dollar of the loan principal, to purchase 201,403 shares of common stock at $.02
per share (see Note 10).
The Series I and II notes are subordinate to all of the Company's
borrowings and are subject to prepayment upon the closing of any venture funding
of as least $1,000,000 or a public offering under the Securities Act of 1933.
Interest on the Series I and II notes is due quarterly; however, pursuant
to the note terms, all payments have been deferred until the Company has
positive cash flow, at which time scheduled quarterly payments of interest shall
commence. Interest previously deferred is payable at maturity.
Interest charged to expense on the notes payable to related parties for the
years ended March 31, 1994, 1995 and 1996 totaled $37,152, $37,150 and $37,152,
respectively, and $18,950 and $11,054 for the six months ended September 30,
1995 and 1996, respectively.
Effective July 1996, all of the outstanding principal and accrued interest
due to the related parties was converted into 184,198 shares of the Company's
common stock at a value of $3.31 per share. Accordingly, the entire balance of
notes and advance payable has been classified as long-term at March 31, 1996.
NOTE 9--LONG-TERM DEBT
The Company is a party to a term loan agreement with ICICI pursuant to
which ICICI made a loan of $300,000 to the Company. The loan bears interest at
the prime rate plus 2.5% (limited to a floor of 6% and ceiling of 9%) and
requires quarterly principal payments of $30,000 commencing December 1996. The
loan is secured by the Company's trade accounts receivable and equipment. Upon
any event of default, the Company may not declare dividends and ICICI has the
option to convert the then outstanding principal balance and accrued interest
into shares of the Company's common stock at a fair value to be determined by an
independent appraiser.
F-14
<PAGE> 68
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 9--LONG-TERM DEBT--CONTINUED
Principal payments were originally scheduled to commence December 15, 1995.
On July 23, 1996, the ICICI term loan agreement was amended to defer principal
payments until December 15, 1996.
At March 31, 1996, the aggregate maturities of notes payable to related
parties (see Note 8) and long-term debt for each of the next three fiscal years
are presented below:
<TABLE>
<CAPTION>
NOTES
PAYABLE TO
YEARS ENDING RELATED
MARCH 31 PARTIES TERM LOAN TOTAL
- ------------ ----------- --------- --------
<S> <C> <C> <C> <C>
1997............................................ $ -- $ 60,000 $ 60,000
1998............................................ 599,638 120,000 719,638
1999............................................ -- 120,000 120,000
----------- --------- --------
$ 599,638 $300,000 $899,638
======== ======== ========
</TABLE>
As of March 31, 1996, the Company was in default of certain payment
obligations and covenants of the ICICI term loan agreement and the ICICI
Agreement described in Note 6. As of September 30, 1996 the Company brought such
payment obligations current and received written waivers from ICICI of all
existing and prior defaults.
NOTE 10--COMMON STOCK WARRANTS
At March 31, 1994, 1995 and 1996, the Company had outstanding warrants to
purchase 258,932, 258,932 and 167,458 shares of the Company's common stock,
respectively, at $.02 per share (see Notes 8 and 11). Warrants for 91,474 shares
were exercised as of March 18, 1996. At March 31, 1996, warrants for 76,943
shares are exercisable. In addition, outstanding warrants for 90,515 shares
become exercisable upon the earlier to occur of the closing of the sale of the
Company's Common Shares in a public offering registered under the Securities Act
of 1933 or various dates from April 1997 through December 1999. All outstanding
warrants expire on various dates from April 1997 through December 1999. At March
31, 1994, 1995 and 1996 and September 30, 1996, 258,932, 258,932, 167,458 and
167,458 shares of common stock, respectively, were reserved for issuance upon
the exercise of outstanding warrants.
NOTE 11--DUE TO OFFICERS/SHAREHOLDERS
A portion of the annual salary of two officers and shareholders,
aggregating $127,106, was deferred. Interest at 7% has also been accrued on the
deferred salaries. The Company also issued warrants, on the basis of one warrant
(pre-split) for each dollar of deferred salary, to purchase 57,529 shares of
common stock at a value of $.02 per share (see Note 10). Interest of $8,896 was
charged to expense during each of the years ended March 31, 1994, 1995 and 1996,
and $4,449 and $2,595 for the six months ended September 30, 1995 and 1996,
respectively. Effective July 1996, the entire balance of principal and accrued
interest was converted into 52,827 shares of the Company's common stock at a
value of $3.31 per share.
NOTE 12--OPERATING LEASES
The Company's headquarters are occupied under an operating lease agreement
which expires July 31, 1997. The Company also rents two apartments in
Pittsburgh, Pennsylvania under terms of operating leases which have remaining
terms of twelve months or less. Management intends to renew or replace these
leases during the normal course of business. Total rent expense incurred for all
leases during the years ended March 31, 1994, 1995, and 1996 amounted to
$11,832, $20,350 and $23,710, and was $10,736 and $18,364 for the six months
ended September 30, 1995 and 1996, respectively.
F-15
<PAGE> 69
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 12--OPERATING LEASES--CONTINUED
Future minimum rental payments required under non-cancelable leases with
terms of one year or more, as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
MARCH 31 AMOUNT
- ------------ -------
<S> <C> <C>
1997.................................................. $38,576
1998.................................................. 12,592
-------
$51,168
=======
</TABLE>
NOTE 13--INCOME TAXES
No provision for income taxes was recorded for the years ended March 31,
1994, 1995 and 1996, due to the Company's significant net operating loss
position. As presented below, the Company has calculated a deferred tax benefit;
however, a corresponding valuation allowance has been recorded to offset the
deferred benefit of net operating loss carryforwards and reversing temporary
differences since management could not determine that it is more likely than not
that the benefit can be realized in the foreseeable future.
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
MARCH 31
---------------------- SEPTEMBER 30,
1995 1996 1996
-------- --------- -------------
<S> <C> <C> <C>
Net deferred tax asset resulting from using
the cash method of accounting for tax
reporting, attributable to:
Accounts payable........................ $ 18,757 $ 27,571 $ 144,804
Deferred maintenance revenue and advance
royalty............................... 309,655 350,950 349,693
Accrued interest payable................ 68,919 90,879 3,301
Accrued royalties....................... 7,201 11,982 13,745
Deferred compensation................... 52,444 52,444 --
Accounts receivable, net................ (85,000) (100,533) (192,864)
Other, net.............................. 55,900 42,190 (43,532)
-------- --------- ---------
427,876 475,483 275,147
Tax effect of federal and state net operating
loss carryforwards......................... 174,097 263,301 450,427
-------- --------- ---------
Net deferred tax asset....................... 601,973 738,784 725,574
Valuation allowance.......................... 601,973 738,784 725,574
-------- --------- ---------
Deferred tax asset, net...................... $ -- $ -- $ --
======== ========= =========
</TABLE>
F-16
<PAGE> 70
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 13--INCOME TAXES--CONTINUED
The Company has available at March 31, 1996, unused net operating loss
carryforwards that may be applied to reduce future taxable income and expire as
follows:
<TABLE>
<CAPTION>
NET OPERATING LOSS
EXPIRES DURING CARRYFORWARDS
YEAR ENDING ----------------------
MARCH 31 FEDERAL STATE
- -------------- -------- --------
<S> <C> <C> <C>
1998.............................................. $ -- $600,584
2006.............................................. 65,955 --
2007.............................................. 70,111 --
2008.............................................. 230,949 --
2010.............................................. 53,743 --
2011.............................................. 225,416 --
-------- --------
$646,174 $600,584
======== ========
</TABLE>
Changes in the Company's ownership, if considered substantial, may result
in an annual limitation on the amount of carryforwards that could be utilized.
The expected statutory tax benefit of the Company's financial accounting
losses for the years ended March 31, 1994, 1995, 1996 and the six months ended
September 30, 1995, have not been recorded due to the uncertainty of their
ultimate realization. During the six months ended September 30, 1996, an overall
decrease in the temporary differences comprising the net deferred tax asset
eliminated taxable income.
NOTE 14--FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Values of Financial Instruments", requires disclosure of the following
information about the fair value of certain financial instruments for which it
is practicable to estimate that fair value. The amounts disclosed represent
management's best estimates of fair value.
The carrying value of financial instruments (none of which are held or
issued for trading purposes) including cash and cash equivalents, accounts
receivable, accounts payable, and notes payable to related parties approximated
fair value as of March 31, 1995 and 1996, and at September 30, 1996, because of
the relatively short maturity of these instruments.
The Company has not estimated the fair value of the loan described in Note
9, or the amount due to officers/shareholders described in Note 11 (for which
quoted market prices are not available) because it has not yet obtained or
developed the valuation model necessary to make the estimate, and the cost of
obtaining an independent valuation appears excessive considering the materiality
of the instruments to the Company.
NOTE 15--COMMITMENTS AND CONTINGENCIES
The Company has entered into employment/severance (change in control)
agreements with three executive officers, effective October 1, 1996, and has
employment agreements with certain key employees which provide for minimum
annual salaries and automatic annual renewal at the end of the initial two year
term. The agreements generally contain, among other things, confidentiality
agreements, assignment to the Company of inventions made during employment (and
under certain circumstances for two years following termination of employment)
and non-competition agreements for the term of the agreements plus two years.
F-17
<PAGE> 71
SEEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(Information for September 30, 1995 and 1996 is Unaudited)
NOTE 15--COMMITMENTS AND CONTINGENCIES--CONTINUED
The executive employment/severance agreements provide for payments of up to
one year's compensation if there is a change of control in the Company, as
defined, and a termination of employment. The maximum contingent liability under
these agreements was approximately $228,000 at October 1, 1996.
NOTE 16--ADDITIONAL CAPITAL TRANSACTIONS
(a) On July 5, 1996 the Company's board of directors approved an increase
in the number of authorized shares of common stock to 20,000,000 shares.
(b) In July 1996 the Company sold, to an unrelated investor, 60,348 shares
of common stock at a purchase price of $3.31 per share, for an aggregate
purchase price of $200,000.
(c) Pursuant to a private placement stock purchase agreement dated August
15, 1996, the Company sold, to unrelated investors, 103,488 shares of common
stock at a value of $3.62 per share, for an aggregate purchase price of
$375,000.
(d) During September 1996, the Company sold 4,139 shares of common stock to
a director, and 43,450 shares to family members of a director at a value of
$3.62 per share, for an aggregate purchase price of $172,440.
(e) On September 30, 1996, the Board of Directors authorized the following:
- Preparation of a registration statement on Form S-1 with respect to the
Company's common stock for filing with the Securities and Exchange
Commission (SEC) under the Securities Act of 1933;
- The amendment of the Company's Articles of Incorporation, subject to
shareholder approval, to authorize the issuance of 10,000,000 shares of
preferred stock without par value, which are issuable in series, from time
to time by the Board of Directors; and,
- A reverse split of the Company's common stock, to be effective prior to
the time at which the registration statement is declared effective by the
SEC. See Note 1.
(f) On October 1, 1996, the Company granted a newly hired executive officer
an option to purchase 31,682 shares of common stock at an exercise price of
$3.62 per share.
F-18
<PAGE> 72
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
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 OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THE PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 6
The Company.......................... 13
Use of Proceeds...................... 13
Dividend Policy...................... 13
Dilution............................. 14
Capitalization....................... 15
Selected Financial Data.............. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
Business............................. 24
Management........................... 36
Certain Transactions................. 42
Principal Shareholders and Holdings
of Management...................... 45
Description of Capital Stock......... 46
Shares Eligible for Future Sale...... 48
Underwriting......................... 50
Legal Matters........................ 51
Experts.............................. 51
Additional Information............... 52
Index to Financial Statements........ F-1
</TABLE>
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,500,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
H.C. WAINWRIGHT & CO., INC.
CRUTTENDEN ROTH
INCORPORATED
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses which will be incurred in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions. All fees and
expenses are estimated other than the Securities and Exchange Commission
registration fee, NASD filing fee and Nasdaq filing fee.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Securities and Exchange Commission registration fee....................... $ 3,920
NASD filing fee........................................................... 1,000
Nasdaq filing fee......................................................... 10,000
Transfer agent fees....................................................... 10,000
Blue Sky fees and expenses................................................ 15,000
Printing and engraving expenses........................................... 75,000
Legal fees and expenses................................................... 125,000
Accounting fees and expenses.............................................. 175,000
Nonaccountable expense allowance.......................................... 253,125
Miscellaneous expenses.................................................... 31,955
--------
Total................................................................... $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1741 through 1750 of Subchapter D, Chapter 17, of the Pennsylvania
Business Corporation Law of 1988 (the "BCL") contain provisions for mandatory
and discretionary indemnification of a corporation's directors, officers and
other personnel, and related matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors and officers under certain prescribed circumstances
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with an action or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his being a representative, director or
officer of the corporation or serving at the request of the corporation as a
representative of another corporation, partnership, joint venture, trust or
other enterprise, 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 proceeding, had no reasonable cause to believe his
conduct was unlawful. Under Section 1743, indemnification is mandatory to the
extent that the officer or director has been successful on the merits or
otherwise in defense of any action or proceeding if the appropriate standards of
conduct are met.
Section 1742 provides for indemnification in derivative actions except in
respect of any claim, issue or matter as to which the person has been adjudged
to be liable to the corporation unless and only to the extent that the proper
court determines upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for the expenses that the court deems proper.
Section 1744 provides that, unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as authorized
in the specific case upon a determination that the representative met the
applicable standard of conduct, and such determination will be made (i) by the
board of directors by a majority vote of a quorum of directors not parties to
the action or proceeding; (ii) if a quorum is not obtainable, or if obtainable
and a majority of disinterested directors so directs, by independent legal
counsel; or (iii) by the shareholders.
II-1
<PAGE> 74
Section 1745 provides that expenses incurred by an officer, director,
employee or agent in defending a civil or criminal action or proceeding may be
paid by the corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation.
Section 1746 provides generally that, except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter 17D of the
BCL shall not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding that office.
Section 1747 also grants to a corporation the power to purchase and
maintain insurance on behalf of any director or officer against any liability
incurred by him or her in his or her capacity as officer or director, whether or
not the corporation would have the power to indemnify him or her against the
liability under Subchapter 17D of the BCL.
Sections 1748 and 1749 extend the indemnification and advancement of
expenses provisions contained in Subchapter 17D of the BCL to successor
corporations in fundamental changes and to representatives serving as
fiduciaries of employee benefit plans.
Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter 17D of the BCL, shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs and personal representative of such person.
Reference is made to Article VII of the Company's Amended and Restated
Bylaws, which provide in general for the indemnification of the Company's
officers and directors to the fullest extent authorized by law.
Section 1713 of Subchapter B, Chapter 17, of the BCL permits a corporation
to provide in its bylaws that, subject to certain exceptions, a director shall
not be personally liable, as such, for monetary damages for any action taken,
unless the director has breached or failed to perform the duties of his office
under Subchapter B and the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness. Article 7 of the Company's
Amended and Restated Articles of Incorporation and Section 3.10 of the Company's
Amended and Restated Bylaws provide in general that to the fullest extent that
the laws of the Commonwealth of Pennsylvania, as amended, permit elimination or
limitation of the liability of directors, a director of the Company shall not be
personally liable for monetary damages for any action taken or for failure to
take any action as a director.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information as of October 1, 1996 regarding all
sales of unregistered securities of the Registrant during the past three years.
All such sales were deemed exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), by reason of Section 4(2) or 3(b) of
the Securities Act. In connection with each of these transactions, the
securities were sold to a limited number of persons, such persons were provided
access to all relevant information regarding the Registrant and/or represented
to the Registrant that they were "accredited" investors, and such persons
represented to the Registrant that the securities were purchased for investment
purposes only and not with a view toward distribution.
(a) In January 1995, the Registrant sold 3,394 shares of Common Stock for
$.49 per share to one individual who was an existing shareholder and employee of
the Company, pursuant to the exercise of an incentive stock option issued under
the Stock Option Plan.
(b) In March 1996, the Registrant sold an aggregate of 91,474 shares of its
Common Stock upon exercise of outstanding warrants at a price of $.02 per share
to three individuals, each of whom was an existing shareholder of the Registrant
and a director and/or officer of the Registrant.
II-2
<PAGE> 75
(c) In March, 1996, the Registrant issued 226,305 shares of Common Stock to
ERA Software Systems Private Limited ("ERA"), an Indian company, in
consideration at ERA's transfer to the Registrant of its ownership interest in
certain jointly-owned products and technologies.
(d) In July 1996, the Registrant issued 30,184 shares of Common Stock to
its Chairman upon conversion of the principal and accrued interest on an
aggregate of $75,000 of loans made to the Registrant from August 1990 to
September 1992.
(e) In July 1996, the Registrant issued an aggregate of 206,841 shares of
its Common Stock for $3.31 per share to a total of 17 accredited investors, upon
the conversion of demand notes and 10% Subordinated Notes, previously issued by
the Company, and deferred salaries payable to two officers.
(f) In July 1996, the Registrant sold 60,348 shares of Common Stock to one
individual who is an accredited investor at a price of $3.31 per share.
(g) In August and September 1996, the Registrant sold 151,077 shares of
Common Stock to a total of 14 individuals, all of whom are accredited investors,
at a price of $3.62 per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ ---------------------------------------------------------------------------------
<S> <C>
1.1 Revised Form of Underwriting Agreement
3.1 The Registrant's Articles of Incorporation*
3.2 The Registrant's Bylaws*
3.3 Form of the Registrant's Amended and Restated Articles of Incorporation
3.4 Form of the Registrant's Amended and Restated Bylaws.*
4.1 Specimen Certificate for Common Stock of the Registrant
4.2 Form of Representative's Warrant
5.1 Opinion of Cohen & Grigsby, P.C. (including the consent of such firm) regarding
the legality of the shares of Common Stock being registered
10.1 SEEC, Inc. 1994 Stock Option Plan*
10.2 Cooperation and Project Financing Agreement dated June 1, 1990, as supplemented
and amended, among the Industrial Credit and Investment Corporation of India,
Limited, ("ICICI"), ERA and the Registrant*
10.3 Loan Agreement dated June 20, 1994 between ICICI and the Registrant, as amended*
10.4 International Software Marketing and License Agreement dated November 29, 1993
between VIASOFT, Inc. and the Registrant, as amended*
10.5 Product Purchase Agreement dated as of March 31, 1996 between the Registrant and
ERA*
10.6 Marketing Agreement dated as of March 1, 1996 between the Registrant and ERA*
10.7 Stock Purchase Agreement dated as of July 15, 1996 among the Registrant, Glen
Chatfield and certain former noteholders of the Registrant*
10.8 Stock Purchase Agreement dated as of August 15, 1996 among the Registrant and
certain purchasers of its Common Stock*
10.9 Registration Rights Agreement dated as of August 15, 1996 among the Registrant
and
certain of its shareholders*
10.10 Employment Agreement dated October 1, 1996 between the Registrant and Ravindra
Koka*
10.11 Employment Agreement dated October 1, 1996 between the Registrant and John D.
Godfrey*
</TABLE>
II-3
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ ---------------------------------------------------------------------------------
<S> <C>
10.12 Employment Agreement dated October 1, 1996 between the Registrant and Richard J.
Goldbach*
10.13 Agreement dated July 16, 1996 between the Registrant and Raj Reddy*
10.14 Trust Agreement dated August 4, 1992 among the Registrant, Ravindra Koka and
Dr. K. Buddhiraju*
11.1 Statement re computation of pro forma earnings per share*
23.1 Consent of Cohen & Grigsby, P.C. (included in legal opinion filed as Exhibit 5.1)
23.2 Consent of independent certified public accountants
24.1 Power of Attorney*
</TABLE>
- ---------
* Previously filed
(b) Schedules
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ITEM 17. UNDERTAKINGS
(a) 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the BCL, the Articles of Incorporation and Bylaws, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against 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 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 whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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) or 497(h) under the Securities Act 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, 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> 77
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 Pittsburgh, Commonwealth
of Pennsylvania, on January 16, 1997.
SEEC, INC.
/s/ RAVINDRA KOKA
By ___________________________
Ravindra Koka
President and Chief Executive
Officer
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
- ------------------------- -----------------------------------
<S> <C> <C>
Chairman and Director
- -------------------------
Raj Reddy
President, Chief Executive Officer
- ------------------------- and Director (Principal Executive
Ravindra Koka Officer)
Chief Financial Officer (Principal
- ------------------------- Financial and Accounting Officer)
Richard Goldbach
Vice President and Director
- -------------------------
John D. Godfrey
Director
- -------------------------
Stanley A. Young
Director
- -------------------------
Radha Ramaswami Basu
</TABLE>
I,1
/s/ RAVINDRA KOKA
By ____________________
Ravindra Koka
as Attorney-in-Fact
January 16, 1997
<PAGE> 78
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II
The audit referred to in our report to SEEC, Inc., dated August 30, 1996,
except for Notes 15 and 16(d), (e) and (f), as to which the date is October 1,
1996, and the recapitalization described in Note 1, as to which the date is
January 15, 1997, which is contained in the Prospectus constituting part of this
Registration Statement included the audit of the schedule listed under Item
16(b) for each of the three years in the period ended March 31, 1996. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based upon our audit.
In our opinion, such schedule presents fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Boston, Massachusetts
August 30, 1996
<PAGE> 79
SEEC, INC.
VALUATION AND QUALIFYING ACCOUNTS--SCHEDULE II
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C D COLUMN E COLUMN
- -------- -------- -------- -------- --------
ADDITIONS DEDUCTIONS
BALANCE AT CHARGED TO CREDITED TO BALANCE
BEGINNING COSTS AND ACCOUNTS AT END
DESCRIPTION OF YEAR EXPENSES RECEIVABLE OF YEAR
- --------------------------------------------- ---------- ---------- ----------- --------
<S> <C> <C>
MARCH 31, 1994
Allowance deducted from related balance
sheet account--Accounts receivable......... $ 6,760 $ -- $ 998 $5,762
======== ======= ======= ======
MARCH 31, 1995
Allowance deducted from related balance
sheet account--Accounts receivable......... $ 5,762 $ -- $ 1,827 $3,935
======== ======= ======= ======
MARCH 31, 1996
Allowance deducted from related balance
sheet account--Accounts receivable......... $ 3,935 $6,836 $ 2,995 $7,776
======== ======= ======= ======
</TABLE>
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ ---------------------------------------------------------------------------------
<S> <C>
1.1 Revised Form of Underwriting Agreement
3.1 The Registrant's Articles of Incorporation*
3.2 The Registrant's Bylaws*
3.3 Form of the Registrant's Amended and Restated Articles of Incorporation
3.4 Form of the Registrant's Amended and Restated Bylaws*
4.1 Specimen Certificate for Common Stock of the Registrant
4.2 Form of Representative's Warrant
5.1 Opinion of Cohen & Grigsby, P.C. (including the consent of such firm) regarding
the legality of the shares of Common Stock being registered
10.1 SEEC, Inc. 1994 Stock Option Plan*
10.2 Cooperation and Project Financing Agreement dated June 1, 1990, as supplemented
and amended, among the Industrial Credit and Investment Corporation of India,
Limited, ("ICICI"), Era Software Systems Private Limited ("ERA") and the
Registrant*
10.3 Loan Agreement dated June 20, 1994 between ICICI and the Registrant, as amended*
10.4 International Software Marketing and License Agreement dated November 29, 1993
between VIASOFT, Inc. and the Registrant, as amended*
10.5 Product Purchase Agreement dated as of March 31, 1996 between the Registrant and
ERA*
10.6 Marketing Agreement dated as of March 1, 1996 between the Registrant and ERA*
10.7 Stock Purchase Agreement dated as of July 15, 1996 among the Registrant, Glen
Chatfield and certain former noteholders of the Registrant*
10.8 Stock Purchase Agreement dated as of August 15, 1996 among the Registrant and
certain purchasers of its Common Stock*
10.9 Registration Rights Agreement dated as of August 15, 1996 among the Registrant
and
certain of its shareholders*
10.10 Employment Agreement dated October 1, 1996 between the Registrant and Ravindra
Koka*
10.11 Employment Agreement dated October 1, 1996 between the Registrant and John D.
Godfrey*
10.12 Employment Agreement dated October 1, 1996 between the Registrant and Richard J.
Goldbach*
10.13 Agreement dated July 16, 1996 between the Registrant and Raj Reddy*
10.14 Trust Agreement dated August 4, 1992 among the Registrant, Ravindra Koka and
Dr. K. Buddhiraju*
11.1 Statement re computation of pro forma earnings per share*
23.1 Consent of Cohen & Grigsby, P.C. (included in legal opinion filed as Exhibit 5.1)
23.2 Consent of independent certified public accountants
24.1 Power of Attorney*
</TABLE>
- ---------
* Previously filed
<PAGE> 1
Exhibit 1.1
1,500,000 SHARES(1)
SEEC, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
_______________, 1997
H.C. Wainwright & Co., Inc.
Cruttenden Roth Incorporated
c/o H.C. Wainwright & Co., Inc.
One Boston Place
Boston, Massachusetts 02108
as Representatives of the several
Underwriters named in Schedule 1
attached hereto
Gentlemen:
1. Introduction. SEEC, Inc., a Pennsylvania corporation (the "Company"),
proposes to sell to the several underwriters named in Schedule 1 attached
hereto (the "Underwriters"), for which H.C. Wainwright & Co., Inc. and
Cruttenden Roth Incorporated are acting as representatives (the
"Representatives"), an aggregate of 1,500,000 shares of the Company's Common
Stock, $.01 par value per share (the "Common Stock"). The 1,500,000 shares of
Common Stock to be sold by the Company are referred to as the "Firm Shares."
The respective amounts of the Firm Shares to be purchased by the several
Underwriters are set forth opposite their names in Schedule 1 hereto.
The Company also proposes to issue and sell an aggregate of not more than
225,000 additional shares of Common Stock if requested by the Representatives
in accordance with Section 9 hereof. Such additional shares are referred to as
the "Additional Shares." The Firm Shares and the Additional Shares are
collectively referred to herein as the "Shares." The words "you" and "your"
refer to the Representatives of the Underwriters.
The Company hereby confirms as follows its arrangements for the purchase
of the Shares by the Underwriters.
- --------
(1) Together with an option to purchase from the Company up to 225,000
additional shares to cover over allotments.
<PAGE> 2
2. Representations and Warranties.
(a) The Company represents, warrants and agrees with each of the
Underwriters that, except as disclosed in the Effective Prospectus and the
Final Prospectus (each as hereinafter defined):
(i) A registration statement on Form S-1 (File No. 333-14027) under
the Securities Act of 1933, as amended (the "Act"), with respect to the Shares,
including a preliminary form of prospectus, has been prepared by the Company in
conformity in all material respects with the requirements of the Act and the
Rules and Regulations (as hereinafter defined) of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed with the Commission
under the Act. Such registration statement, as amended and revised at the time
it becomes effective, or, if a post-effective amendment to such registration
statement has been or is filed, at the time such post-effective amendment
becomes effective, including financial statements and exhibits, is hereinafter
referred to as the "Registration Statement," and the prospectus included as
part of the Registration Statement on file with the Commission when it became
or shall become effective, or, if the procedure in Rule 430A of the Rules and
Regulations is followed, the prospectus that discloses all the information that
was omitted from the prospectus on the effective date of the Registration
Statement pursuant to such Rule and, in either case, together with any changes
contained in any prospectus filed with the Commission by the Company under Rule
424(b) of the Rules and Regulations with your consent after the effective date
of the Registration Statement, is referred to herein as the "Final Prospectus."
If the procedure in Rule 430A is followed, the prospectus included as part of
the Registration Statement on the date when the Registration Statement became
effective is referred to herein as the "Effective Prospectus." Any prospectus
included in the Registration Statement and in any amendments thereto prior to
the effective date of the Registration Statement is referred to herein as the
"Pre-Effective Prospectus." For purposes hereof, "Rules and Regulations" means
the rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934 (the "Exchange Act"), as applicable. For
purposes hereof, all references to the Registration Statement, the
Pre-Effective Prospectus, the Effective Prospectus or the Final Prospectus, or
any amendment or supplement to any of the foregoing, shall be deemed to include
the respective copies thereof filed with the Commission pursuant to the
Commission's Electronic Data Gathering, Analysis and Retrieval System
("EDGAR").
(ii) The Commission has not issued any order preventing or suspending
the use of any Pre-Effective Prospectus and has not instituted or, to the
knowledge of the Company, threatened to institute any proceedings with respect
to such an order (a "Stop Order"); each Pre-Effective Prospectus, when filed
with the Commission, conformed in all material respects to the requirements of
the Act and the Rules and Regulations; when the Registration Statement became
or shall become effective and at all times subsequent thereto up to and
including the Closing Date and the Option Closing Date (each as hereinafter
defined), the Registration Statement, the Effective Prospectus, the Final
Prospectus and each amendment and each supplement thereto, if any, will conform
in all material respects to the requirements of the Act and the Rules and
Regulations; any request of the Commission for additional information (to be
included in the
2
<PAGE> 3
Registration Statement, the Effective Prospectus, the Final Prospectus or
otherwise) has been complied with; no part of the Registration Statement, nor
any amendment thereto, included or will include any untrue statement of a
material fact or omitted or will omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
none of the Effective Prospectus, the Final Prospectus or any Pre-Effective
Prospectus (or any supplement thereto) as of their respective dates, and, in
the case of the Final Prospectus (or any supplement thereto) at all times
subsequent thereto up to and including the Closing Date and Option Closing
Date, included or will include any untrue statement of a material fact or
omitted or will omit to state any material fact required to be stated therein
or necessary 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 in or omissions
from any Pre-Effective Prospectus, the Registration Statement, the Effective
Prospectus or the Final Prospectus, or any such amendment or supplement, made
in reliance upon, and in conformity with, information furnished in writing to
the Company by or on behalf of the Underwriters expressly for use therein. As
used in this Agreement, the term "knowledge" means actual knowledge by any
officer or director of the Company after reasonable inquiry.
(iii) The Company (A) is a duly incorporated and validly existing
corporation in good standing under the laws of the Commonwealth of
Pennsylvania, with full power and authority (corporate and other), and all
necessary consents, authorizations, approvals, orders, licenses, certificates,
and permits of and from, and declarations and filings with, all federal, state,
local and other governmental authorities and all courts and other tribunals
(collectively, the "Consents") to own or lease its properties and to conduct
its business as described in the Effective Prospectus and the Final Prospectus;
and (B) is duly qualified to do business as a foreign corporation in each
jurisdiction (x) in which the conduct of its business or (y) in which the
character of the property owned or leased by it requires such qualification,
except for those jurisdictions in which the failure so to qualify has not had
and will not have in the aggregate a material and adverse effect on the
Company. As used in this Agreement, the phrase "material and adverse effect on
the Company" or similar phrase means any material and adverse effect, directly
or indirectly, currently or prospectively, on the Company's financial
condition, results of operations, properties or prospects or business in
general.
(iv) The Company has no subsidiaries.
(v) The Company has a duly authorized and validly outstanding
capitalization as set forth in the Effective Prospectus and the Final
Prospectus and will have the adjusted capitalization set forth therein on the
Closing Date, based on the assumptions set forth therein; the capital stock of
the Company conforms to the descriptions thereof contained in the Effective
Prospectus and the Final Prospectus; the outstanding shares of capital stock
have been duly authorized and validly issued by the Company and are fully paid
and nonassessable, without any personal liability attaching to the ownership
thereof; the outstanding shares of capital stock have been issued in compliance
with all applicable federal and state securities laws; and the Company has duly
authorized the issuance and sale of the Shares to be issued and sold by the
Company in accordance with this Agreement. Except as created hereby or referred
to in the Registration Statement, the Effective Prospectus and the Final
Prospectus, there are no outstanding options,
3
<PAGE> 4
warrants, rights or other arrangements (including without limitation preemptive
rights) requiring the Company at any time to issue any capital stock. The
Shares are not and will not be subject to any preemptive or other similar
rights of any shareholder, which have not been waived, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof will be validly issued, fully paid and non-assessable and have
been issued in compliance with all applicable federal and state securities
laws; and the holders thereof will not be subject to any liability solely as
such holders. Upon the issuance and delivery pursuant to the terms hereof of
the Shares, the Underwriters will acquire good and marketable title to such
Shares free and clear of any lien, encumbrance, equity, claim, security
interest, or other restriction whatsoever.
(vi) The financial statements and the related notes and schedules
thereto filed with and as part of the Registration Statement, the Effective
Prospectus and the Final Prospectus (collectively, the "Financial Statements")
fairly present the financial condition, results of operations, stockholders'
equity and cash flows of the Company at the respective dates of such
statements, notes and schedules and for the respective periods to which they
apply. The Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, are correct and complete and are in accordance with the books and
records of the Company. Certain of the Financial Statements have been audited
by BDO Seidman, LLP, who are independent public accountants within the meaning
of the Act and the Rules and Regulations, as indicated in their reports filed
therewith. No other financial statements are required by Form S-1 or otherwise
to be included in the Registration Statement, the Effective Prospectus or the
Final Prospectus. The financial information and statistical data set forth in
the Effective Prospectus and the Final Prospectus under the captions
"Prospectus Summary -- Summary Financial Data," Capitalization," "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" have been prepared on a basis consistent
with the Financial Statements.
(vii) The Company has filed all necessary federal and state income and
franchise tax returns and has paid all taxes shown as due thereunder, and the
Company has no knowledge of any tax deficiency which might be assessed against
the Company which, if so assessed, might have a material and adverse effect on
the Company.
(viii) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are, in the
opinion of the Company's management, customary and adequate for the businesses
in which it is engaged, including, but not limited to, general liability
insurance and insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against by any company that is comparable to the
Company in terms of its financial condition, all of which insurance is in full
force and effect. The Company has no reason to believe that it will not be able
to renew existing insurance coverage with respect to the Company as and when
such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would not now have,
individually or in the aggregate, a material and adverse effect on the Company.
4
<PAGE> 5
(ix) Except as disclosed in the Effective Prospectus and the Final
Prospectus, there is no pending or, to the knowledge of the Company, threatened
action, suit, proceeding or investigation before or by any court, regulatory
body or administrative agency or any other governmental agency or body,
domestic or foreign, which (A) questions the validity of the capital stock of
the Company or this Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement, (B) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement, if any, are
accurately summarized in all respects), or (C) would have a material and
adverse effect on the Company.
(x) The Company has full legal right, power and authority to enter
into this Agreement and to consummate the transactions provided for herein; and
this Agreement has been duly authorized by the Company's Board of Directors and
executed and delivered by the Company. This Agreement, assuming it is a binding
agreement of yours, constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws relating to creditors' rights generally,
and general equitable principles relating to the availability of remedies, and
as rights to indemnity or contribution may be limited by state or federal
securities laws and the public policy underlying such laws), and none of the
Company's execution or delivery of this Agreement, its performance hereunder,
or its consummation of the transactions contemplated herein, conflicts or will
conflict with, or results or will result, in any breach or violation of any of
the terms or provisions of, or constitutes or will constitute a default under,
or result in the creation or imposition of any lien, charge, or encumbrance
upon, any property or assets of the Company pursuant to the terms of (A) the
articles of organization or by-laws of the Company, (B) any contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note agreement or other agreement or instrument to which the Company
is a party or by which it may be bound or to which any of its properties is or
may be subject, or any indebtedness, or (C) any statute, judgment, decree,
order, rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of their
activities or properties.
(xi) All executed agreements or copies of executed agreements filed as
exhibits to the Registration Statement to which the Company is a party or by
which it may be bound or to which any of its assets, properties or business may
be subject have been duly and validly authorized, executed and delivered by the
Company, constitute the legal, valid and binding agreements of the Company,
enforceable against it in accordance with their respective terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to enforcement of creditors'
rights generally, and general equitable principles relating to the availability
of remedies, and as rights to indemnity or contribution may be limited by state
or federal securities laws and the public policy underlying such laws) and, to
the knowledge of the Company, no default has occurred under such agreements by
the parties with whom the Company has entered into such agreements. The
descriptions in the Registration Statement of contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form S-1, and there
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<PAGE> 6
are no contracts or other documents which are required by the Act or the Rules
and Regulations to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies. Each transaction
with ERA Software Systems Private Limited ("ERA") is on terms comparable to
those in an arm's length transaction and has been evidenced by a formal
agreement.
(xii) Subsequent to the most recent respective dates as of which
information is given in the Effective Prospectus and the Final Prospectus and
except as expressly contemplated in the Effective Prospectus and the Final
Prospectus, the Company has not incurred, other than in the ordinary course of
its business, any material liabilities or obligations, direct or contingent,
paid or declared any dividends or other distributions on its capital stock or
entered into any material transactions not in the ordinary course of business,
and there has been no material change in capital stock or debt or any material
adverse change in the condition (financial or other), net worth or results of
operations of the Company. The Company is not in breach or violation of, or in
default under, any term or provision of (A) its articles of organization or
by-laws, (B) any contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders agreement, note agreement or other agreement or
instrument to which the Company is a party or by which it is bound or to which
any of its property is subject, or any indebtedness, which breach, violation or
default would have a material and adverse effect on the Company, or (C) any
statute, judgment, decree, order, rule or regulation applicable to the Company
of any arbitrator, court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its activities or properties and the effect of which breach
or default would be material and adverse to the Company.
(xiii) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent which could reasonably be expected
to have a material and adverse effect on the Company.
(xiv) Since its inception, the Company has not incurred any material
liability arising under or as a result of the application of the provisions of
the Act or applicable state securities laws.
(xv) The Company does not maintain an "employee pension benefit plan"
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")).
(xvi) The Company owns or possesses adequate rights to use, license
and sublicense all material patents, patent applications, trademarks, service
marks, trade names, licenses, copyrights and proprietary or other confidential
information (together, "Proprietary Rights") currently employed by it in
connection with its business. The Company has all Proprietary Rights necessary
to carry out the Company's current, former and anticipated future activities,
including without limitation, rights to make, use, exclude others from using,
reproduce, modify, adapt, create derivative works based on, translate,
distribute (directly and indirectly), transmit, display and perform publicly,
license, rent, lease, assign, and sell the
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<PAGE> 7
Proprietary Rights, and to sublicense any or all such rights to third parties,
including the right to grant further sublicenses. The Company is not, nor as a
result of the execution and delivery of this Agreement, or performance of the
Company's obligations hereunder, will the Company be, in material violation of
any license, sublicense or agreement to which the Company is a party or
otherwise bound. The Company has not received any notice of infringement,
misuse or misappropriation of or conflict with asserted rights of any third
party with respect to any of the foregoing which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would result in a
material and adverse effect on the Company. There is no pending or, to the
knowledge of the Company, threatened or potential claim, challenge or
proceeding by the Company against any third party for infringement, misuse or
misappropriation or interference with any Proprietary Right owned, licensed or
controlled by the Company. The Company has not disclosed any material
confidential information developed or utilized by the Company to any third
party except on a confidential basis and pursuant to a confidentiality
agreement and with no intention to entitle such third party to use such
information other than for the purposes set forth in such confidentiality
agreement, nor, to the knowledge of the Company, has any third party disclosed
confidential information developed or utilized by the Company to any person not
an employee of the Company or of the third party. The Company has nondisclosure
and confidentiality agreements with respect to the Proprietary Information with
all employees of the Company.
(xvii) The Company is not in violation of any laws, ordinances or
governmental rules or regulations to which it or its property is subject, which
violation would have a material and adverse effect on the Company and, without
limiting the generality of the foregoing, the Company has not violated any
applicable safety or similar law applicable to the business of the Company (or
to its respective properties, whether owned or leased), or any federal or state
law relating to discrimination in the hiring, promotion, or pay of employees,
or any applicable federal or state wages and hours law, or any provisions of
ERISA or the rules and regulations promulgated thereunder, which violation
would have a material and adverse effect on the Company.
(xviii) No consent, approval, authorization or order of any court,
regulatory body, administrative agency or any other governmental agency or
body, domestic or foreign, is required for the performance by the Company of
this Agreement or the consummation by the Company of the transactions
contemplated hereby, except such as have been or may be obtained under the Act
or may be required under state securities or Blue Sky laws in connection with
the Underwriters' purchase and distribution of the Shares to be sold hereunder.
(xix) There are no holders of securities of the Company having rights
(exercisable currently or in the future) to the registration of such securities
under the Registration Statement who have not waived such rights with respect
to the Registration Statement and the transactions provided for herein.
(xx) Neither the Company nor, to the knowledge of the Company, any of
its officers, directors or affiliates (within the meaning of the Rules and
Regulations) has taken or will take, directly or indirectly, any action
designed to stabilize or manipulate the price of any
7
<PAGE> 8
security of the Company, or which might in the future reasonably be expected to
cause or result in stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of the Shares or otherwise.
(xxi) The Company has good and marketable title to all properties and
assets owned by it free and clear of all liens, encumbrances, restrictions,
equity, claims and defects, except such as are described in the Registration
Statement, the Effective Prospectus and the Final Prospectus or such as do not
materially adversely affect the value of any of such properties or assets taken
as a whole and do not interfere with the use made and proposed to be made of
any of such properties or assets; all of the material leases and subleases of
the Company, and under which the Company holds properties or assets as lessee
or sublessee, constitute the binding obligations of the Company free and clear
of any lien, encumbrance, claim or defect, are in full force and effect, and
the Company is not in default in respect of any of the material terms or
provisions of any of such leases or subleases, and the Company has not received
notice of any material claim which has been asserted by anyone adverse to the
rights of the Company as lessee or sublessee under any of such leases or
subleases, or affecting or questioning the right of the Company to the
continued possession of the leased or subleased premises or property under any
such material lease or sublease, which would have a material and adverse effect
on the Company; and the Company owns or leases all such premises and properties
as are necessary to its operations as now conducted, and as proposed to be
conducted as set forth in the Registration Statement and the Effective
Prospectus and the Final Prospectus; and the properties and business of the
Company conform to the descriptions thereof contained in the Registration
Statement, the Effective Prospectus and the Final Prospectus.
(xxii) The Company holds all franchises, licenses, governmental
approvals, permits, certificates and other authorizations from state, federal
and other regulatory authorities necessary to the ownership, leasing and
operation of its properties or required for the present conduct of its
business, and such franchises, licenses, governmental approvals, permits,
certificates and other authorizations are in full force and effect and the
Company is in all material respects in compliance therewith except where the
failure so to obtain, maintain or comply with would not have a material and
adverse effect on the Company.
(xxiii) The Company maintains books, records and accounts which in
reasonable detail accurately and fairly reflect the transactions and
dispositions of its assets, and maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific authorization; (B)
transactions are executed as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and to
maintain accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxiv) The Company has filed a registration statement pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to register the Common Stock, has filed an application to list the
Securities on the National Association of
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<PAGE> 9
Securities Dealers, Inc. Automated Quotation Small-Cap Market (the "Nasdaq
Small-Cap Market"), and has received notification that the listing has been
approved, subject to notice of issuance of the Shares.
(xxv) Neither the Company nor, to the knowledge of the Company, any
director, officer, agent, employee or other person associated with, or acting
on behalf of, the Company has, directly or indirectly at any time since the
inception of the Company: used any Company funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government officials
or employees or to foreign or domestic political parties or campaigns from
Company funds; violated any provision of the Foreign Corrupt Practices Act of
1977 (the "FCPA"), as amended; or made any unlawful payment. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Exchange Act and the FCPA.
(xxvi) The Company has obtained from each of its directors and
officers (as defined in the Rules and Regulations), and from substantially all
shareholders, who hold in the aggregate approximately ___________ shares of
Common Stock, options to purchase approximately __________ shares of Common
Stock and warrants to purchase approximately ____________ shares of Common
Stock, his, her or its enforceable written agreement, in form and substance
satisfactory to the Representatives and their counsel, that for a period of 270
days from the date of the Final Prospectus he, she or it will not, without your
prior written consent, directly or indirectly, register, issue, offer, sell,
offer to sell, contract to sell, hypothecate, pledge or otherwise dispose of
any shares of Common Stock (or any security or other instrument which by its
terms is convertible into, exercisable for, or exchangeable for, shares of
Common Stock, including, without limitation, any shares of Common Stock
issuable under any employee or director stock options).
(xxvii) The Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment company" as
defined in Section 3(a) of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(xxviii) Except as described in the Final Prospectus, the Company has
not incurred any liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(xxix) The Company is in compliance with any and all applicable
federal, state and local environmental laws, rules, regulations, treaties,
statutes and codes promulgated by all governmental authorities relating to the
protection of human health and safety, the environment or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"). The Company has
received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business. The Company is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, license or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
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<PAGE> 10
individually or in the aggregate, have a material and adverse effect on the
Company. No action, proceeding, revocation proceeding, writ, injunction or
claim is pending or threatened (nor, to the knowledge of the Company, is there
any basis therefor) relating to the Environmental Laws or to the Company's
activities involving Hazardous Material. "Hazardous Material" means any
material or substance that is prohibited or regulated by any Environmental Law,
or that has been designated or regulated by any governmental authority as
radioactive, toxic, hazardous or otherwise a danger to health, reproduction or
the environment. There have been no costs or liabilities, to the knowledge of
the Company, associated with the effect of or compliance with the Environment
Laws on the business, operations, properties or assets of the Company that
would, individually or in the aggregate, have a material and adverse effect on
the Company.
(xxx) To the knowledge of the Company, no officer, director or
stockholder of the Company other than Adam D. Young, David A. Smith, Thomas L.
Dwyer and Gerald R. Appel, has any affiliation or association with the National
Association of Securities Dealers, Inc. (the "NASD") or any member thereof,
except as described in the Prospectus.
(xxxi) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offer and sale of
the Shares, other than any Pre-Effective Prospectus, the Effective Prospectus
or the Final Prospectus or other materials permitted by the Act and the Rules
and Regulations to be distributed.
(xxxii) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of doing Business with Cuba, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported or incorporated by
reference in the Prospectus, if any, concerning the Company's business with
Cuba or with any person or affiliate located in Cuba changes in any material
way, the Company will provide the Department notice of such business or change,
as appropriate, in a form acceptable to the Department.
(b) Each Underwriter hereby represents and warrants to the Company as
follows:
(i) Such Underwriter is registered as a broker dealer with the
Commission and is registered with and holds all required authorizations from
any jurisdiction in which such Underwriter's activities in connection with this
Agreement require such registration or authorization.
(ii) There is not now pending or, to the knowledge of such
Underwriter, threatened against such Underwriter any action or proceeding of
which such Underwriter has been advised, either in any court of competent
jurisdiction, before the Commission or before any state securities commission,
concerning such Underwriter's activities as a broker or dealer, nor has such
Underwriter been named in any action or proceeding which may be expected to
have a material adverse effect upon such Underwriter's ability to act as
contemplated herein.
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<PAGE> 11
3. Purchase, Sale and Delivery of the Shares. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to
sell to the several Underwriters, and each Underwriter, severally and not
jointly, agrees to purchase from the Company at $_____ per share (the "Purchase
Price"), the number of Shares set forth opposite the respective name of such
Underwriter on Schedule 1 hereto (and such number of Additional Shares as set
forth in Section 9 hereof), subject to such adjustments to eliminate any
fractional shares as the Representatives in their sole discretion shall make.
Delivery of certificates for the Shares, and payment of the purchase price
for the Shares, shall be made at the offices of H.C. Wainwright & Co., Inc.,
One Boston Place, Boston, Massachusetts 02108, or such other location as the
Representatives shall determine and advise the Company by at least two full
business days' notice in writing. Such delivery and payment shall be made at
10:00 a.m., Boston time, on the third business day following the Effective Date
(as defined in Section 11) unless postponed in accordance with the provisions
of Section 13, or at such other time as shall be agreed upon between you and
the Company. The time and date of such delivery and payment are herein called
the "Closing Date." Delivery of the certificates for the Shares shall be made
to the Representatives for the respective accounts of the several Underwriters
against payment in Boston Clearing House Funds by the several Underwriters
through the Representatives to the order of the Company for the Shares. The
certificates for the Shares to be so delivered will be in definitive, fully
registered form, will bear no restrictive legends and will be in such
denominations and registered in such names as the Representatives shall
request, not less than two full business days prior to the Closing Date. The
certificates for the Shares will be made available to the Representatives at
such office or such other place as the Representatives may designate for
inspection, checking and packaging not later than 9:30 a.m., Boston time on the
business day prior to the Closing Date. The Company shall not be obligated to
sell any Firm Shares, unless all Firm Shares to be sold pursuant to this
Agreement are purchased hereunder.
4. Public Offering of the Shares. As soon after the Registration Statement
becomes effective as the Representatives deem advisable, it is understood that
the Underwriters propose to make a public offering (the "Offering") of the
Shares (other than to residents of or in any jurisdiction in which
qualification of the Shares is required and has not become effective) at $____
per share (the "Public Offering Price") and upon the other terms set forth in
the Effective Prospectus and the Final Prospectus relating to the Shares.
5. Covenants of the Company.
(a) The Company covenants and agrees with each of the Underwriters that:
(i) The Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and, if the procedure in Rule 430A of the Rules and Regulations is
followed, to comply with the provisions of and make all requisite filings with
the Commission pursuant to such Rule and to notify you promptly
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<PAGE> 12
of all such filings. The Company will not at any time, whether before or after
the effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Effective Prospectus or the Final
Prospectus before termination of the offering of the Shares by the Underwriters
of which the Representatives shall not previously have been advised and
furnished with a copy, or to which the Representatives shall have reasonably
objected or which is not in compliance with the Act or the Rules and
Regulations.
(ii) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representatives (x) when the Registration
Statement, as amended, has become effective, if the provisions of Rule 430A
will be relied upon, when the Final Prospectus has been filed in accordance
with said Rule 430A and when any post-effective amendment to the Registration
Statement becomes effective, (y) of any request made by the Commission for
amending the Registration Statement, for supplementing any Pre-Effective
Prospectus, the Effective Prospectus or the Final Prospectus or for additional
information, or (z) of the issuance by the Commission of any Stop Order or the
institution or threat of any investigation or proceeding for that purpose, and
will use its best efforts to prevent the issuance of any such Stop Order and,
if issued, to obtain the lifting thereof as soon as possible.
(iii) The Company will cooperate with the Representatives to qualify
the Shares for offer and sale under the state securities or Blue Sky laws of
such jurisdictions as the Representatives may reasonably request and will make
such applications, file such documents and furnish such information as may be
required for such purpose; provided, however, that the Company shall not be
required to qualify as a foreign corporation or file a general or unlimited
consent to service of process in any such jurisdiction.
(iv) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of which
the Effective Prospectus, the Final Prospectus, or the Effective Prospectus or
the Final Prospectus as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein not misleading, or if it becomes necessary at any time
to amend or supplement the Effective Prospectus or the Final Prospectus to
comply with the Act or the Rules and Regulations, the Company promptly will so
notify the Representatives and prepare and file with the Commission an
amendment or supplement which will correct such statement or omission or an
amendment or supplement which will effect such compliance, each such amendment
or supplement to be reasonably satisfactory to Morse, Barnes-Brown & Pendleton,
P.C. (the "Underwriters' Counsel").
(v) As soon as practicable, but in any event not later than 45 days
after the end of the 12 month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company will make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representatives, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the
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<PAGE> 13
Act, covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(vi) During a period of five years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants and
prepared in accordance with generally accepted accounting principles) and
unaudited quarterly reports of earnings, and will deliver to the
Representatives:
(A) concurrently with furnishing such quarterly reports to its
stockholders, a copy thereof in the form furnished to the Company's
stockholders;
(B) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for the fiscal year then ended, accompanied by a copy
of the report thereon of independent public accountants;
(C) concurrently with mailing, copies of all reports (financial or
other) mailed to stockholders;
(D) concurrently with mailing, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(E) every press release and every material news item or article of
interest to the financial community in respect of the Company or its affairs
which was released or prepared by the Company; and
(F) any additional information of a public nature concerning the
Company or its business which the Representatives may reasonably request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company as its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(vii) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same as the Transfer Agent) for its Common Stock.
(viii) The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the Representatives
may designate, copies of each Pre-Effective Prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto (two of
which copies will be signed and will include all financial statements and
exhibits), the Effective Prospectus and the Final Prospectus, and all
amendments and supplements thereto, including any prospectus
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<PAGE> 14
prepared after the effective date of the Registration Statement, in each case
as soon as available and in such quantities as the Representatives may
reasonably request. To the extent applicable, the printed copies of the
Registration Statement and each amendment thereto (including all exhibits filed
therewith), any Pre-Effective Prospectus, Effective Prospectus or Final
Prospectus (in each case, as amended or supplemented) furnished to the
Representatives will be identical to the electronic copies filed with the
Commission pursuant to EDGAR except to the extent permitted by Regulation S-T.
(ix) The Company will not, directly or indirectly, without the prior
written consent of the Representatives, offer, sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of any option
to purchase or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of 270 days after the date hereof, except pursuant to
this Agreement and except for (a) grants of stock options at exercise prices
equal to the fair market value of the Common Stock under the Stock Option Plan
described in the Effective Prospectus and the Final Prospectus or (b) issuances
pursuant to the exercise of stock options and warrants outstanding on the date
hereof and described in the Effective Prospectus and the Final Prospectus.
(x) Neither the Company nor any of its officers or directors, nor
affiliates of any of them (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(xi) As soon as the Company is advised or obtains knowledge thereof,
the Company will promptly advise the Representatives of any change in the
information set forth in the certificate delivered by the Company pursuant to
Section 7(vii) below.
(xii) The Company will apply the net proceeds of the offering
substantially in the manner set forth under the caption "Use of Proceeds" in
the Effective Prospectus and the Final Prospectus.
(xiii) The Company will timely file all such reports, forms or other
documents as may be required, from time to time, under the Act, the Exchange
Act, or the Rules and Regulations, and all such reports, forms and documents
filed will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(xiv) The Company will cause the Shares to be duly included for
quotation on the NASDAQ Small-Cap Market prior to the Closing Date. The Company
will use its best efforts to ensure that the Shares remain included for
quotation on the NASDAQ Small-Cap Market following the Closing Date.
(xv) The Company will not, without the prior written consent of the
Representatives, (i) grant to any holder of securities of the Company any right
to request registration of his securities under the Act or any related rights
unless such registration rights
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<PAGE> 15
may be exercised only after nine months following the effective date of the
Registration Statement or (ii) file with the Commission any Registration
Statements covering any equity securities of the Company within nine months
following the effective date of the Registration Statement, except that the
Company, at any time, may file a Registration Statement on Form S-8 to register
options and shares of Common Stock issuable under the plans described in the
Effective Prospectus and the Final Prospectus.
(xvi) The Company will not, without the prior written consent of the
Representatives, grant to any person who is not subject to an agreement
described in Section 7(x) below any stock options or other rights to acquire
Common Stock which would be exercisable within six months following the
effective date of the Registration Statement.
(xvii) The Company will comply with all provisions of all undertakings
contained in the Registration Statement.
(xviii) Prior to the Closing Date, the Company will not issue any
press release or other communication, directly or indirectly, or hold any press
conference with respect to the Company, the financial conditions, results of
operations, business, properties, assets or liabilities thereof, or this
offering, without the Representatives' prior written consent, which consent
will not be unreasonably withheld.
(xix) The Company will file timely with the Commission accurate
reports on Form SR in accordance with Rule 463 of the Rules and Regulations or
any successor provision.
(xx) The Company will deliver to you, without charge, within a
reasonable period after the expiration of the period in which the Underwriters
may exercise the over-allotment option (but in no event later than six months
from the date of the Prospectus), such bound volumes of the Registration
Statement and all related materials as you may reasonably request.
(xxi) The Company will execute a letter addressed to the transfer
agent for the Company which instructs the transfer agent to note stop transfer
instructions with respect to all of the shares of Common Stock which are
subject to lock up agreements.
(xxii) The Company will do and perform all things reasonably required
or necessary to be done and performed under this Agreement by it prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Shares.
(xxiii) All material transactions (or similar transactions which,
collectively, are material) to be entered into by the Company with ERA shall be
at arm's length and shall be approved by an independent committee of the Board
of Directors of the Company.
6. Fees and Expenses.
(a) Regardless of whether the transactions contemplated in this Agreement
are consummated, and regardless of whether for any reason this Agreement is
terminated, the
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Company will pay and hereby agrees to indemnify each Underwriter against, all
fees and expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, (i) the fees and expenses
of accountants and counsel for the Company, (ii) all costs and expenses
incurred in connection with the preparation, duplication, printing, filing,
delivery, shipping and mailing of copies of the Registration Statement and any
pre-effective or post-effective amendments thereto, each Pre-Effective
Prospectus, the Effective Prospectus and the Final Prospectus and any
amendments or supplements thereto (including postage costs related to the
delivery by the Underwriters of any Pre-Effective Prospectus, the Effective
Prospectus or the Final Prospectus, or any amendment or supplement thereto),
this Agreement and all other documents in connection with the transactions
contemplated herein, including the cost of all copies thereof, (iii) fees and
expenses relating to qualification of the Shares under state securities or Blue
Sky laws, including the cost of preparing and mailing the preliminary and final
"Blue Sky Memorandum" and disbursements and reasonable fees of counsel in
connection therewith, (iv) fees and expenses relating to all filings and
negotiations with the NASD, including disbursements and reasonable fees of
counsel in connection therewith, (v) the filing fees payable to the Commission,
the NASD and state securities authorities, (vi) all expenses (including any
applicable transfer taxes) incurred in connection with the issuance and
delivery to the Underwriters of the Shares to be sold in accordance with the
Agreement, (vii) any costs or fees incurred in connection with the quotation of
the Shares on the Nasdaq Small-Cap Market, and (viii) all other costs and
expenses incident to the performance of the Company's obligations hereunder
which are not specifically provided for in this Section.
(b) If the Firm Shares are purchased and sold on the Closing Date, then
the Company shall pay to the Representatives an amount equal to 7 1/2% of the
aggregate Public Offering Price of all Firm Shares sold in the Offering, which
amount shall represent the underwriting discount. If any Additional Shares are
purchased and sold on the Option Closing Date, then the Company shall pay to
the Representatives an additional amount equal to 7 1/2% of the aggregate
Public Offering Price of all Additional Shares sold in the Offering, which
amount shall represent an additional underwriting discount as aforesaid.
(c) If the Firm Shares are purchased and sold on the Closing Date, then
the Company shall pay to the Representatives an amount equal to 2 1/2% of the
aggregate Public Offering Price of all Firm Shares sold in the Offering, which
amount shall represent a non-accountable allowance for the expenses incurred by
the Representatives in connection with their duties and activities under this
Agreement. If any Additional Shares are purchased and sold on the Option
Closing Date, then the Company shall pay to the Representatives an additional
amount equal to 2 1/2% of the aggregate Public Offering Price of all Additional
Shares sold in the Offering, which amount shall represent an additional
non-accountable allowance for the expenses incurred by the Representatives as
aforesaid.
(d) The Company agrees that if the Firm Shares are purchased and sold on
the Closing Date then it will issue to the Representatives individually, and
not in their capacities as Representatives, a warrant to purchase up to ten
percent (10%) of the number of Shares of Common Stock offered by the Company at
a price per share equal to
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<PAGE> 17
120% of the Public Offering Price (the "Representatives' Warrants"). The
Representatives' Warrants shall not be exercisable for a period of one year
from the date of issuance thereof and shall be exercisable thereafter for a
period of four years. The Representatives' Warrants shall be evidenced by a
certificate in the form and contain the terms and conditions as set forth in
the exhibits to the Registration Statement. The Representatives' Warrants
certificate shall be delivered in such denominations and in such names as may
be requested by the Representatives.
(e) If the purchase of the Shares as herein contemplated is not
consummated because this Agreement is terminated pursuant to Sections 12(a) or
12(b) hereof or because of the failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder other than by reason of a default by any of
the Underwriters, the Company shall reimburse the several Underwriters for
their documented out-of-pocket expenses, including counsel fees and
disbursements, up to a maximum of $100,000 in connection with any investigation
made by them, and any preparation made by them in respect of marketing of the
Shares or in contemplation of the performance by them of their obligations
hereunder. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
(f) In the event that the Company abandons the offering contemplated by
the Registration Statement because (i) the Company is acquired by merger,
purchase of assets or otherwise; or (ii) the Company reorganizes with another
entity; or (ii) the Company completes a financing (other than normal bank
debt), then the Company shall hire the Representatives under the provisions of
Section 6(g). Any such fees payable under Section 6(g) shall be in addition to
the reimbursement of expenses described in paragraph (e) above.
(g) During the Exclusivity Period (as defined below), if the Company
determines to engage a financial advisor or investment bank to advise the
Company with respect to (i) the issuance and public sale of equity securities
of the Company, the Representatives shall have the right, but not the
obligation, to act as placement agents or managing underwriters, as the case
may be, or (ii) the sale or disposition of the Company or any of its assets or
the acquisition by the Company of any securities or assets of any other
business entity, the Representatives shall have the right, but not the
obligation, to act as the Company's exclusive financial advisors. In connection
with any such engagements, the Company and the Representatives shall enter into
agreements, appropriate under the circumstances, containing provisions for
compensation, indemnification, and other matters that are usual and customary
for other similar circumstances in which the Representatives are engaged. The
"Exclusivity Period" refers to the two year period commencing from the date of
this agreement regardless of whether or not the offering is consummated,
provided, however, that in the event that the Representatives abandon the
offering for any reason, the Exclusivity Period shall terminate as of the date
of any such abandonment.
7. Conditions of the Underwriters' Obligations. The obligation of each
Underwriter to purchase and pay for the Shares to be purchased by such
Underwriter hereunder is subject to the continuing accuracy of the
representations and warranties of the Company herein as of the
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<PAGE> 18
date hereof and as of the Closing Date as if they had been made on and as of
the Closing Date; the accuracy on and as of the Closing Date of the statements
of officers of the Company made pursuant to the provisions hereof; the
performance by the Company on and as of the Closing Date of its covenants and
agreements hereunder, and the following additional conditions:
(i) The Registration Statement has become effective and any and all
filings required by Rule 424 and Rule 430A of the Rules and Regulations have
been made; no Stop Order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the knowledge of the Company or to the Representatives'
knowledge, have been threatened or are contemplated by the Commission; and any
request of the Commission for additional information to be included in the
Registration Statement or the Effective Prospectus or the Final Prospectus or
otherwise has been complied with or otherwise satisfied.
(ii) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state
a fact which, in the Representatives' opinion, is material and is required to
be stated therein or is necessary to make the statements therein not
misleading, or that the Effective Prospectus or the Final Prospectus, or any
amendment or supplement thereto, contains an untrue statement of fact which, in
the Representatives' opinion, is material, or omits to state a fact which, in
the Representatives' opinion, is material and is required to be stated therein
or is necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(iii) On or prior to the Closing Date, the Representatives shall have
received from Underwriters' Counsel such opinion or opinions with respect to
the issuance and sale of the Shares, the Registration Statement, the Effective
Prospectus and the Final Prospectus and other related matters as the
Representatives reasonably may request and such counsel shall have received
such papers and information as they request to enable them to pass upon such
matters.
(iv) On the Closing Date and the Option Closing Date, as the case may
be, the Underwriters shall have received the opinion, dated at the Closing
Date, of Cohen & Grigsby, P.C., counsel to the Company to the effect set forth
below:
(A) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the Commonwealth of
Pennsylvania and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of all other jurisdictions
where the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified would
not have a material and adverse effect on the Company;
(B) The Company has corporate power and authority to own or lease
its properties and conduct its business as described in the Registration
Statement, the Effective Prospectus and the Final Prospectus, and the Company
has the power to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it;
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<PAGE> 19
(C) To the knowledge of such counsel, there are no holders of
securities of the Company, who, by reason of the filing of the Registration
Statement, have the right (and have not waived such right) to request the
Company to register under the Act, or to include in the Registration Statement,
securities held by them;
(D) To the knowledge of such counsel, no default exists, and no
event has occurred which, with notice or lapse of time or both, would
constitute a default by the Company in the due performance and observance of
any term, covenant or condition of any contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note agreement or other
agreement or instrument to which the Company is a party or by which the Company
is bound or to which any of its property is subject;
(E) The Company has an authorized capitalization as set forth in
the Effective Prospectus and the Final Prospectus; all of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities (provided that such counsel's opinion as to any agreements that
might confer any such rights shall be based upon such counsel's knowledge); the
Shares have been duly authorized by all necessary corporate action of the
Company and, when issued and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be validly issued fully paid and
nonassessable; the Shares have been duly authorized for quotation on the Nasdaq
Small-Cap Market; and no holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to subscribe for
any of the Shares (provided that such counsel's opinion as to any agreements
that might confer any such rights shall be based upon such counsel's
knowledge);
(F) The statements set forth under the heading "Description of
Securities" in the Effective Prospectus and the Final Prospectus, insofar as
such statements purport to summarize certain provisions of the capital stock of
the Company, provide a fair summary of such provisions;
(G) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary corporate action of the Company and this
Agreement has been duly executed and delivered by the Company; and this
Agreement, assuming it is a binding agreement of the Underwriters, constitutes
a legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, or other similar
laws relating to creditors' rights generally, and general equitable principles
relating to the availability of remedies, and as rights to indemnity or
contribution may be limited by state or federal securities laws and the public
policy underlying such laws);
(H) (i) To the knowledge of such counsel, no legal or governmental
proceedings are pending to which the Company is a party or to which the
property of the Company is subject that are required to be described in the
Registration Statement, the Effective
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<PAGE> 20
Prospectus or the Final Prospectus and are not described therein, and no such
proceedings have been threatened against the Company or with respect to any of
its properties; and (ii) no contract or other document known to counsel is
required to be described in the Registration Statement, the Effective
Prospectus or the Final Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required;
(I) The issuance, offering and sale of the Shares to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (A) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained and such as may be
required under state securities or Blue Sky laws, or (B) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument, known to such counsel, to which the Company is a
party or by which the Company or any of its properties are bound, or the
charter documents or by-laws of the Company, or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental authority
or any arbitrator known to such counsel and applicable to the Company
(assuming, for purposes of this paragraph, the due qualification of the Shares
for public offering by the Underwriters under state securities laws, and
compliance with all applicable federal and state securities laws);
(J) The Registration Statement is effective under the Act; any
required filing of the Final Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and, to such
counsel's knowledge, no Stop Order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the
knowledge of such counsel, are contemplated by the Commission; and
(K) The registration statement originally filed with respect to the
Shares and each amendment thereto and the Effective Prospectus and the Final
Prospectus (in each case, other than the financial statements and other
financial and statistical information contained therein, as to which such
counsel need express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the Rules and Regulations;
(L) The Company is not now an "investment company" as defined in
Section 3(a) of the Investment Company Act; and
(M) All issuances and sales of currently issued and outstanding
securities by the Company that were issued when such counsel was counsel to the
Company were exempt from registration under the Act and complied in all
respects with the provisions of all applicable federal and state securities
laws. To the knowledge of such counsel and after appropriate inquiry, all
issuances and sales of currently issued and outstanding securities by the
Company that were issued prior to when such counsel became counsel to the
Company were exempt from registration under the Act and such counsel has, after
appropriate inquiry, no reason to believe that such issuances did not comply
in all respects with all other provisions of all applicable federal and state
securities laws.
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In addition to the matters set forth above, the opinion shall also include
a statement to the effect that such counsel has participated in conferences
with representatives of the Company, counsel to the Underwriters,
representatives of the independent public accountants for the Company and
representatives of the Underwriters at which the contents of the Registration
Statement and any Pre-Effective Prospectus and related matters were discussed,
and that no facts have come to such counsel's attention which would cause such
counsel to believe that the Registration Statement at the time it became
effective contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that, on the Closing Date, the Effective
Prospectus, the Final Prospectus and the Registration Statement contained any
untrue statement of material fact or omitted 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 (except that such counsel need express no
comment as to the information provided by the Underwriters, the financial
statements and schedules or other financial or statistical data included
therein). With respect to such statement, such counsel may state that their
belief is based on the procedures set forth therein, but is without independent
check and verification except as otherwise expressly stated.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials. References to the Registration
Statement, Effective Prospectus and the Final Prospectus in this subparagraph
(iv) of Section 7 shall include any amendment or supplement thereto at the date
of such opinion.
(v) On or prior to the Closing Date, Underwriters' Counsel shall have been
furnished such documents, certificates and opinions as they may reasonably
require for the purposes of enabling them to review or pass upon the matters
referred to in paragraph (iii) of this Section 7, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations or
warranties of the Company, or conditions herein contained.
(vi) At the time that this Agreement is executed by the Company, the
Underwriters shall have received from BDO Seidman, LLP a letter as of the date
of this Agreement in form and substance satisfactory to you (the "Original
Letter"), and on the Closing Date, the Underwriters shall have received from
BDO Seidman, LLP a letter dated the Closing Date stating that, as of a
specified date not earlier than five (5) days prior to the Closing Date,
nothing has come to the attention of BDO Seidman, LLP to suggest that the
statements made in the Original Letter are not true and correct.
(vii) On the Closing Date, the Underwriters shall have received a
certificate, dated the Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the effect that
each of such persons has carefully examined the Registration Statement, the
Effective Prospectus and the Final Prospectus, and any amendments or
supplements thereto and this Agreement, and that:
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(A) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date, and
the Company has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or satisfied
at or prior to the Closing Date;
(B) No Stop Order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the each such person's knowledge, are
contemplated or threatened under the Act, and any and all filings required by
Rule 424 and Rule 430A of the Rules and Regulations have been timely made;
(C) The Registration Statement, the Effective Prospectus and the
Final Prospectus and, if any, each amendment and each supplement thereto,
contain all statements and information required to be included therein, and
neither the Registration Statement nor any amendment thereto includes any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading and none of the Effective Prospectus or the Final Prospectus or any
Pre-Effective Prospectus (or any amendment or supplement thereto) included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
(D) Subsequent to the respective dates as of which information is
given in the Registration Statement, the Effective Prospectus and the Final
Prospectus, the Company has not incurred, up to and including the Closing Date,
other than in the ordinary course of its business or as contemplated in the
Effective Prospectus and the Final Prospectus, any material liabilities or
obligations, direct or contingent; the Company has not paid or declared any
dividends or other distributions on its capital stock; the Company has not
entered into any transactions not in the ordinary course of business or as
contemplated in the Effective Prospectus and the Final Prospectus, and there
has not been any change in the capital stock (other than change resulting from
the grant or exercise of options under stock option plans or agreements in
effect as of the date of this Agreement) or long-term debt or any increase in
the short-term borrowings (other than as disclosed in the Effective Prospectus
and the Final Prospectus or any increase in short-term borrowings in the
ordinary course of business) of the Company or any material adverse change in
the present or prospective business condition (financial or other), net worth
or results of operations of the Company; the Company has not sustained any
material loss or damage to its property or assets, whether or not insured;
there is no litigation which is pending or, to each such person's knowledge,
threatened against the Company which is required to be set forth in the
Effective Prospectus or Final Prospectus which has not been so set forth; and
there has occurred no event required to be set forth in an amended or
supplemented Effective Prospectus or Final Prospectus which has not been so set
forth.
References to the Registration Statement, the Effective Prospectus and the
Final Prospectus in this paragraph (vii) are to such documents as amended and
supplemented at the date of the certificate.
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(viii) Subsequent to the respective dates as of which information is
given in the Registration Statement, the Effective Prospectus and the Final
Prospectus up to and including the Closing Date there has not been any material
adverse change, or any development involving a prospective material adverse
change, in the business or properties of the Company which change or
development makes it impractical or inadvisable in the Representatives'
judgment to proceed with the public offering or the delivery of the Shares as
contemplated by the Effective Prospectus and the Final Prospectus.
(ix) No order suspending the sale of the Shares prior to the Closing
Date in any jurisdiction designated by you pursuant to Section 5(iii) hereof
has been issued on or prior to the Closing Date and no proceedings for that
purpose have been instituted or, to your knowledge or that of the Company, have
been or are contemplated.
(x) The Representatives shall have received from each of the Company's
directors and officers and from substantially all shareholders, who hold in the
aggregate approximately __________ shares of Common Stock, options to purchase
approximately ___________ shares of Common Stock and warrants to purchase
approximately ___________ shares of Common Stock, an agreement to the effect
that such person will not, directly or indirectly, without the prior written
consent of the Representatives, offer, sell, grant, any portion to purchase or
otherwise dispose (or announce any offer, sale, grant of an option to purchase
or other disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock
for a period of 270 days after the date of this Agreement.
(xi) The Company shall have furnished the Underwriters with such
further opinions, letters, certificates and documents as the Representatives or
Underwriters' Counsel may reasonably request in order to effectuate the
provisions of this Agreement. All opinions, certificates, letters and documents
to be furnished by the Company will comply with the provisions hereof only if
they are reasonably satisfactory in all material respects to the
Representatives and to the Underwriters' Counsel. The Company shall furnish the
Underwriters with conformed copies of such opinions, certificates, letters and
documents in such quantities as you reasonably request. The certificates
delivered under subsections (vii) and (xi) of this Section 7 shall constitute
representations, warranties and agreements of the Company, as to all matters
set forth therein as fully and effectively as if such matters had been set
forth in Section 2 of this Agreement.
(xii) The NASD, upon review of the terms of the public offering of the
Shares, shall not have objected to the Underwriters' participation in such
offering.
(xiii) Prior to or on the Closing Date, the Company shall have
provided to the Representatives copies of the agreements referred to in Section
2(a)(xvi).
8. Indemnification and Contribution.
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(a) The Company agrees to indemnify and hold harmless each Underwriter,
its officers, directors, partners, employees, agents and counsel, and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any and all losses,
claims, damages, expenses or liabilities whatsoever (which shall include, for
all purposes of this Section 8, but not limited to, attorneys' fees and any and
all expense whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever
whether or not in connection with any litigation in which an indemnified party
is a party and whether or not involving a third party claim and any and all
amounts paid in settlement of any claim or litigation), joint or several (and
actions in respect thereof), to which such Underwriter or such persons may
become subject, under the Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, the Effective Prospectus or the Final Prospectus
or any Pre-Effective Prospectus, or any amendment or supplement thereto, or any
Blue Sky application or other document executed by the Company specifically for
that purpose or based upon written information furnished by the Company filed
in any state or other jurisdiction in order to qualify any or all of the Shares
under the state securities or Blue Sky laws thereof (any such application,
document or information being hereinafter called a "Blue Sky Application"), or
arise out of or are based upon 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, and will reimburse each such Underwriter or
person for any legal or other expenses incurred by such Underwriter or person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to any such Underwriter, to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in any of such
document in reliance upon and in conformity with written information furnished
to the Company by such Underwriter expressly for use therein, and provided,
further, that such indemnity with respect to any Pre-Effective Prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) from whom the person asserting any such loss,
claim, damage or liability purchased Shares which are the subject thereof if
such Underwriter failed to send or give a copy of the Effective Prospectus or
the Final Prospectus (or the Effective Prospectus or the Final Prospectus as
amended or supplemented) to such person at or prior to confirmation of the sale
of such Shares to such person in any case where such delivery is required by
the Act and the untrue statement or omission of a material fact contained in
such Pre-Effective Prospectus was corrected in the Effective Prospectus or
Final Prospectus (or the Effective Prospectus or the Final Prospectus as
amended and supplemented); or (ii) any breach of any representation, warranty,
covenant or agreement of the Company contained in this Agreement. The indemnity
agreement in this subparagraph shall be in addition to any liability which the
Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act against any and all losses, claims, damages,
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expenses or liabilities whatsoever (which shall include, for all purposes of
this Section 8, but not limited to, attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever whether or not in
connection with any litigation in which an indemnified party is a party and
whether or not involving a third party claim and any and all amounts paid in
settlement of any claim or litigation), joint or several (and actions in
respect thereof), to which the Company or any such director, officer, or
controlling person may become subject, under the Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or the Effective Prospectus or the
Final Prospectus or any Pre-Effective Prospectus, or an amendment or supplement
thereto or any Blue Sky Application, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished by that
Underwriter expressly for use therein; and will reimburse all legal or other
expenses reasonably incurred by the Company or any such director, officer, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; or (ii) any breach of any representation,
warranty, covenant or agreement of any Underwriter contained in this Agreement;
provided, however, that any obligation of any Underwriter to provide
indemnification under the provisions of this Section 8(b) shall not be in
excess of the underwriting discount and commission applicable to the Shares
purchased by such Underwriter hereunder. The Company acknowledges that the
statements with respect to the public offering of the Shares set forth under
the heading "Underwriting" and the stabilization legend in the Prospectus have
been furnished by the Underwriters expressly for use therein and constitute the
only information furnished in writing by or on behalf of the Underwriters for
inclusion in the Effective Prospectus and the Final Prospectus. The indemnity
agreement in this subparagraph (b) shall be in addition to any liability which
each of the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 8, notify such indemnifying party or parties of the
commencement thereof; but the omission so to notify an indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8 or to the extent that the indemnifying
party was not adversely affected by such omission. In case any such action is
brought against an indemnified party and it notifies an indemnifying party or
parties of the commencement thereof, the indemnifying party or parties against
which a claim is to be made will be entitled to participate therein and, to the
extent that it or they may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, that if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party has reasonably concluded that
there may be legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnified
25
<PAGE> 26
party or parties shall have the right to select separate counsel to assume such
legal defenses and otherwise to participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from any
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party has employed such counsel in connection with the assumption
of such different or additional legal defenses in accordance with the proviso
to the immediately preceding sentence, (ii) the indemnifying party has not
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement of
the action, or (iii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying party. The indemnifying party, in defense of any action assumed
by it, shall not, without the consent of the indemnified party, consent to
entry of any judgment or enter into any settlement of such action which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such action. The indemnified party shall not agree to settle any action or
claim for which it intends to seek indemnification hereunder without the prior
written consent of the indemnifying party.
(d) If the indemnification provided for in this Section 8 is unavailable
to hold harmless an indemnified party under subparagraphs (a) or (b) above in
respect of any losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid as a result of such losses, claims, damages,
expenses or liabilities (or actions in respect thereof) (i) in such proportion
as is appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the Shares 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 of the contributing parties, on
the one hand, and the party to be indemnified on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand, and the Underwriters on the other, shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Shares (before deducting expenses) bear to the total underwriting discounts
received by the Underwriters hereunder, in each case as set forth in the table
on the Cover Page of the Final Prospectus. 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 the Company on the one hand,
or by the Underwriters on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to above in this subparagraph (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subparagraph (d), the
Underwriters shall not be required
26
<PAGE> 27
to contribute any amount in excess of the underwriting discount applicable to
the Shares purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to this subparagraph (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have hereunder or otherwise than under this
subparagraph (d), or to the extent that such party or parties were not
adversely affected by such omission. Anything in this Section 8(d) to the
contrary notwithstanding, no party shall be liable for contribution with
respect to the settlement of any claim or action effected without its written
consent. This Section 8(d) is intended to supersede any right to contribution
under the Act, the Exchange Act or otherwise. The contribution agreement set
forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
9. Right to Increase Offering. At any time and from time to time during a
period of 30 days from the effective date of the Final Prospectus, the
Representatives, by no less than two business days' prior notice to the
Company, may designate a closing (which may be concurrent with, and part of,
the closing on the Closing Date with respect to the Firm Shares or may be a
second closing and which shall be referred to as the "Option Closing Date") at
which the Underwriters shall purchase from the Company in the manner described
below, for the sole purpose of covering over-allotments by the Underwriters
during the public offering, such number of Additional Shares as are specified
in the notice. The maximum number of Additional Shares to be sold by the
Company is 225,000 shares of Common Stock. Except to the extent waived by the
Underwriters, all the provisions of this Agreement applicable with respect to
the transactions contemplated on the Closing Date shall apply to such later
closing (with such changes as are necessary) and the Additional Shares
purchased at such closing hereunder shall be deemed Shares for all purposes of
this Agreement.
If any Additional Shares are to be purchased, each Underwriter, severally
and not jointly, agrees to purchase from the Company, at the Purchase Price,
the respective number of Additional Shares which bears the same proportion to
the number of Additional Shares to be sold by the Company as the total number
of Firm Shares set forth opposite the name of such Underwriter in Schedule 1
hereto bears to the total number of Firm Shares to be sold hereunder, subject
to such adjustments to eliminate any fractional shares as the Representatives
in their sole discretion shall make.
27
<PAGE> 28
10. Representations, etc. to Survive Delivery. The respective representations,
warranties, agreements, covenants, indemnities and statements of, and on behalf
of, the Company and its officers, and the Underwriters, respectively, set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Underwriters, and
will survive delivery of and payment for the Shares. Any successors to the
Underwriters shall be entitled to the indemnity, reimbursement and contribution
agreements contained in this Agreement.
11. Effective Date. This Agreement shall become effective at the later of (i)
9:30 a.m., Boston time, on the next full business day following the date on
which the Registration Statement becomes effective under the Act or (ii) the
execution of this Agreement.
28
<PAGE> 29
12. Termination.
(a) This Agreement (except for the provisions of Sections 6 and 8 hereof)
may be terminated by the Company at any time before this Agreement becomes
effective in accordance with Section 11 hereof, by notice to the
Representatives.
(b) This Agreement (except for the provisions of Sections 6 and 8 hereof)
may also be terminated by the Representatives by notice to the Company (i) in
the event that the Company terminates this Agreement under Section 12(a)
hereof; (ii) in the event that the Company has failed to comply in any material
respect with any of the provisions of this Agreement on its part to be
performed at or prior to the Closing Date or the Option Closing Date, or if any
of the representations or warranties herein or therein are not accurate, or if
the covenants, agreements or conditions of, or applicable to, the Company
herein or therein contained have not been complied with in any material respect
or satisfied within the time specified; (iii) if prior to the Closing Date or
the Option Closing Date, the Company has sustained a loss by strike, fire,
flood, accident or other calamity of such a character as to interfere
materially with the conduct of the business and operations of the Company; (iv)
if prior to the Closing Date or the Option Closing Date, trading in securities
in the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock
Market is suspended or a general banking moratorium has been declared by
federal or state authorities; (v) if there has been a declaration of war by the
United States, or if the United States has become engaged in a major outbreak
of armed hostilities with a foreign government; or (vi) if there has been such
a material adverse change in general economic, political or financial
conditions or if there has been a material and adverse change to the Company
as, in the Representatives' judgment, makes it impracticable or inadvisable to
make or consummate a public offering of the Shares on the terms and in the
manner contemplated in the Final Prospectus and in the Registration Statement.
(c) Termination of this Agreement shall be without liability of any party
to any other party other than as provided in Sections 6 and 8 hereof.
13. Substitution of Underwriters. If one or more of the Underwriters shall fail
or refuse (otherwise than pursuant to Section 7 or for a reason sufficient to
justify the termination of this Agreement under the provisions of Section 12
hereof) to purchase and pay for the number of Shares agreed to be purchased by
such Underwriter or Underwriters upon tender to you of such Shares in
accordance with the terms hereof, and the number of such Shares shall not
exceed 10% of the Shares, then each of the non-defaulting Underwriters shall
purchase and pay for (in addition to the number of such Shares which it has
severally agreed to purchase hereunder) that proportion of the number of Shares
which the defaulting Underwriter or Underwriters shall have so failed or
refused to purchase which the number of Shares agreed to be purchased by such
non-defaulting Underwriter bears to the aggregate number of Shares so agreed to
be purchased by all such non-defaulting Underwriters. In such case, you shall
have the right to postpone each Closing Date specified in Sections 3 and 9
hereof to a date not exceeding seven full business days after the date
originally fixed as such Closing Date pursuant to said Sections 3 and 9 in
29
<PAGE> 30
order that any necessary changes in the Registration Statement, the Final
Prospectus or any other documents or arrangement may be made.
If one or more of the Underwriters shall fail or refuse (otherwise than
pursuant to Section 7 or for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 12 hereof) to purchase and pay
for the number of Shares agreed to be purchased by such Underwriter or
Underwriters upon tender to you of such Shares in accordance with the terms
hereof and the number of such Shares shall exceed 10% of the total Shares, then
(unless within 48 hours after such default arrangements to your satisfaction
shall have been made for the purchase of the defaulted Shares by an Underwriter
or Underwriters) this Agreement will terminate without liability on the part of
any non-defaulting Underwriter or on the part of the Company or the Selling
Shareholders except as otherwise provided in this Agreement. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this paragraph. Nothing in this Section 13, and no action
taken hereunder, shall relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
14. Notices. All communications hereunder shall be in writing and if sent to
the Representatives shall be mailed or delivered or telecopied and confirmed to
care of H.C. Wainwright & Co., Inc., One Boston Place, Boston, Massachusetts
02108, Attention: Corporate Finance Department, with a copy to Morse,
Barnes-Brown & Pendleton, P.C., 1601 Trapelo Road, Waltham, Massachusetts
02154, Attention: Jeffrey P. Somers, Esq., or, if sent to the Company, shall be
mailed or delivered or telecopied and confirmed to the Company at 5001 Baum
Boulevard, Pittsburgh, Pennsylvania 15213, Attention: President, with a copy to
Cohen & Grigsby, P.C., 2900 CNG Tower, 625 Liberty Avenue, Pittsburgh,
Pennsylvania 15222, Attention: Daniel L. Wessels, Esq.
15. Successors. This Agreement shall inure to the benefit of and be binding
upon the Company and each Underwriter and their respective successors, legal
representatives, heirs and assigns, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person, except that the
representations, warranties, indemnities and contribution agreements of the
Company contained in this Agreement shall also be for the benefit of each
Underwriter's officers, directors, partners, employees, agents and counsel and
any person or persons who control any Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, and except that the
Underwriters' indemnity and contribution agreements shall also be for the
benefit of the directors of the Company, the officers of the Company who have
signed the Registration Statement, and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act. No purchaser of Shares from the Underwriters will be deemed a
successor because of such purchase.
30
<PAGE> 31
16. Applicable Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to the conflict of law principles thereof.
17. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which together
shall be deemed to be one and the same instrument.
18. Partial Unenforceability. The invalidity or unenforceability of any
section, paragraph or provision of this Agreement shall not effect the validity
or enforceability of any other section, paragraph or provision hereof. If any
section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as is necessary to make it valid and
enforceable.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
31
<PAGE> 32
If the foregoing correctly sets forth our understanding, please indicate
the Underwriters' acceptance thereof in the space provided below for the
purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
SEEC, Inc.
By: __________________________
Name:
Title:
The foregoing Underwriting
Agreement is confirmed and accepted as of
the date first above written:
H.C. Wainwright & Co., Inc. and Cruttenden Roth
Incorporated, acting on their own behalf and as
the Representatives of the several Underwriters
referred to in the foregoing Agreement
By H.C. Wainwright & Co., Inc.
By:
---------------------------
Name:
Title:
By Cruttenden Roth Incorporated
By:
---------------------------
Name:
Title:
32
<PAGE> 33
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
H.C. Wainwright & Co., Inc......................
Cruttenden Roth Incorporated....................
---------
Total 1,500,000
</TABLE>
33
<PAGE> 1
Exhibit 3.3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SEEC, INC.
1. CORPORATE NAME. The name of the Corporation is SEEC, Inc.
2. REGISTERED OFFICE. The address of the
Corporation's registered office in this Commonwealth (which is located in
Allegheny County) is 5001 Baum Boulevard, Pittsburgh, Pennsylvania 15213.
3. ORIGINAL INCORPORATION. The Corporation was
domesticated in Pennsylvania under the Pennsylvania Business Corporation
Law of 1988, Act of December 21, 1988 (P.L. 1444 No. 177), as amended, on April
23, 1992.
4. AUTHORIZED CAPITAL STOCK.
(a) The Corporation shall have the authority to issue a total
of thirty million (30,000,000) shares of capital stock which shall be divided
into twenty million (20,000,000) shares of common stock, par value $.01 per
share, and ten million (10,000,000) shares of preferred stock, without par
value.
(b) The holders of common stock shall have one vote per share
and shall not have any right of cumulative voting in the election of directors.
The common stock shall be subject to the prior rights of holders of any one or
more series of preferred stock outstanding, according to the rights and
preferences, if any, of such series.
(c) The preferred stock shall be divided into one or more
series as the Board of Directors may determine as hereinafter provided. Each
series of preferred stock may have full, limited, multiple, fractional or no
voting rights, and such designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights and other special or
relative rights as determined by the Board of Directors. The division of the
preferred stock into series, the determination of the designation and the
number of shares of each such series and the determination of the voting
rights, preferences, qualifications, privileges, limitations, restrictions,
options, conversion rights and other special or relative rights of the shares
of each such series may be accomplished by an amendment to this Article 4
solely by action of the Board of Directors which shall have the full authority
permitted by law to make such divisions and determinations.
(d) Unless otherwise required by law or in a resolution or
resolutions establishing any particular series of preferred stock, the
aggregate number of authorized shares of preferred stock may be increased by an
amendment to the Articles of Incorporation approved solely by the holders of
common stock and
<PAGE> 2
any preferred stock entitled pursuant to its voting rights designated by the
Board to vote thereon, voting together as a class.
5. TERM. The term of the existence of the Corporation shall be
perpetual.
6. POWER. The Corporation shall have unlimited
power to engage in and do any lawful business for which corporations may be
incorporated under the Business Corporation Law of 1933 and the Business
Corporation Law of 1988, each as amended.
7. PERSONAL LIABILITY OF DIRECTORS. To the fullest extent
permitted by law, a director of the Corporation shall not be personally liable,
as such, for monetary damages (including, without limitation, any judgment,
amount paid in settlement, penalty, punitive damages or expense of any nature
(including, without limitation, attorneys' fees and disbursements)) for any
action taken, or any failure to take any action, unless (a) the director has
breached or failed to perform the duties of his or her office under these
Articles of Incorporation, the bylaws of the Corporation or applicable
provisions of law and (b) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
8. BCL PROVISIONS. Subchapters G, H, I and J of Chapter 25 of the
Business Corporation Law of 1988, as amended, 15 Pa. C.S.A. Sections 2561-2567,
2571-2575, 2581-2583 and 2585-2588 shall not be applicable to the Corporation
or its shareholders.
-2-
<PAGE> 1
Exhibit 4.1
SEEC, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
COMMON STOCK
SHARES
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 784110 10 8
THIS CERTIFICATE IS
TRANSFERABLE IN NEW YORK, NY
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
SEEC, INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the seal of the Corporation and the signatures of its duly authorized
officers.
Dated:
[SEAL]
- ------------------------------- -------------------------------
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
-------------------------------------------------
AMERICAN BANK NOTE COMPANY JAN 15, 1997 dw
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 048477fc
(310) 989-2333
(FAX) (310) 426-7450 400-19X proof___ NEW
--------------------------------------------------
(BACK)
Upon written request, the Company shall furnish without charge to the
holder of the shares represented by this certificate a copy of the powers,
designations, preferences and relative, participating, optional or other special
rights, and any qualifications, limitations or restrictions of such preferences
or rights of each class of stock or series thereof of the Company.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT-______Custodian_______
(Cust) (Minor)
TEN ENT -as tenants by the under Uniform Gifts to Minors
entireties Act__________________________
(State)
JT TEN -as joint tenants with
right of survivorship
and not as tenants
in common UNIF TRF MIN ACT-_____Custodian (until age___)
(Cust)
____________under Uniform Transfers
(Minor)
to Minors Act______________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_____________________________________________________________________________
_____________________________________________________________________________
_______________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_______________________
X _______________________________________________
X _______________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By___________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM,
PURSUANT TO S.E.C. RULE 17Ad-15.
- -------------------------------------------------
AMERICAN BANK NOTE COMPANY JAN 15, 1997 dw
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 048477bk
(310) 989-2333
(FAX) (310) 426-7450 proof___ NEW
- -------------------------------------------------
<PAGE> 1
Exhibit 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT,
(ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, STATING THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THIS WARRANT IS RESTRICTED AS PROVIDED HEREIN.
EXERCISABLE ON OR BEFORE 5:00 P.M., BOSTON TIME, January __, 2002
Warrant to Purchase
_________ Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
SEEC, INC.
THIS WARRANT, dated as of ___________, 1997, is by and between SEEC, Inc.,
a Pennsylvania corporation (the "Company"), and H.C. Wainwright & Co., Inc.
(hereinafter referred to as the "Holder" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative a warrant
(the "Warrant") to purchase up to _________ shares (the "Shares") of common
stock of the Company, $.01 par value per share (the "Common Shares");
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement"), dated as of the date hereof, among
the Representative, Cruttenden Roth Incorporated and the Company, to act as an
underwriter and representative of several other underwriters in connection with
the Company's proposed initial public offering (the "Public Offering") of
1,500,000 Common Shares (with an over-allotment option of the underwriters for
the issuance and sale of an additional 225,000 Common Shares) at an initial
public offering price of $____ per Common Share; and
<PAGE> 2
WHEREAS, this Warrant is being issued by the Company to the
Representative, in consideration for, and as part of the Representative's
compensation in connection with, the Representative acting as an underwriter
and representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of ONE HUNDRED DOLLARS ($100.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant. The Holder is hereby granted the right to purchase, subject to
the provisions of this Warrant, at any time on or after January __, 1998 until
5:00 P.M., Boston time, on January __, 2002 (the "Warrant Exercise Term"), up
to __________ Shares at an initial exercise price (subject to adjustment as
provided in Article 7 hereof) of $___ per Share (the "Initial Exercise Price").
2. Exercise of Warrants.
2.1. Warrant Exercise Term. This Warrant is exercisable by payment of the
Exercise Price (as hereinafter defined) in the form of, at the option of the
Holder, (i) cash or a check payable to the order of the Company in an amount
equal to the Exercise Price, or any combination of cash or check, (ii) Common
Shares of the Company owned by the Holder (including such Shares issued pursuant
to the exercise of this Warrant which the Company shall withhold as payment of
the Exercise Price) having a fair market value equal in amount to the Exercise
Price (as hereinafter defined), or (iii) any combination of (i) and (ii). The
fair market value of the Common Shares which may be delivered upon exercise of
this Warrant shall be the average between the asking price and the bidding
price, if any, as reported in the National Association of Securities Dealers,
Inc. Automated Quotation Small-Cap Market System (the "Nasdaq Small-Cap
Market"), or a similar, reliable public market, at the close of the business day
immediately preceding the date of exercise. If the fair market value cannot be
determined under the preceding sentence, it shall be determined in good faith by
the Board of Directors of the Company. Upon surrender of this Warrant and Form
of Election to Purchase attached hereto duly executed, together with payment of
the Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal offices in Pittsburgh, Pennsylvania (presently located at
5001 Baum Boulevard, Pittsburgh, Pennsylvania 15213), the Holder shall be
entitled to receive a certificate or certificates for the Shares so purchased.
The purchase right represented by this Warrant is exercisable at the option of
the Holder hereof, in whole or in part (but not as to fractional shares of the
Common Shares). In the case of the purchase of less than all the Shares
purchasable under this Warrant, the Company shall cancel this Warrant upon the
surrender thereof and shall execute and deliver a new Warrant of like tenor for
the balance of the Shares purchasable thereunder. Upon receipt by the Company of
this Warrant at the office or agency of the Company, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the Common
Shares issuable upon such exercise, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates representing such
Common Shares shall not then be actually delivered to the Holder.
2
<PAGE> 3
2.2 Automatic Exercise. In the event that the Holder hereof has not
exercised its purchase right prior to the expiration of the Warrant Exercise
Term and the fair market value of the Common Shares as reported on the day
preceding the expiration of the Warrant Exercise Term on the Nasdaq Small-Cap
Market or a similar, reliable public market, is equal to or greater than the
Exercise Price, then the Holder shall be deemed to have exercised this Warrant
in full immediately prior to the expiration of the Warrant Exercise Term. Upon
surrender of this Warrant and Form of Election to Purchase attached hereto duly
executed, together with payment of the Exercise Price for the Shares purchased,
at the Company's principal offices in Pittsburgh, Pennsylvania (presently
located at 5001 Baum Boulevard, Pittsburgh, Pennsylvania 15213), the Holder
shall be entitled to receive a certificate or certificates for the Shares so
purchased.
3. Issuance of Certificates.
Upon the exercise of this Warrant, the issuance of certificates for the
Shares shall be made forthwith (and in any event within three business days
thereafter), provided that if payment of the Exercise Price (as hereinafter
defined) is made by personal check, the issuance of certificates shall be made
no later than one day after such check clears, without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance hereof, and such certificates shall (subject to the provisions
of Section 4 hereof) be issued in the name of, or in such names as may be
directed by, the Holder hereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.
This Warrant and the certificates representing the Shares shall be
executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company under its corporate seal reproduced
thereon, attested to by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company. This Warrant shall be
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer.
Upon exercise of this Warrant, in part or in whole, certificates
representing the Shares shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not be
offered or sold except (i) pursuant to an effective registration statement
under the Act, (ii) to the extent applicable, pursuant to Rule 144 under
the Act (or any similar rule under such Act relating to the disposition of
securities), or (iii) upon the delivery by the
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<PAGE> 4
holder to the Company of an opinion of counsel, reasonably satisfactory to
counsel to the issuer, stating that an exemption from registration under
such Act is available."
4. Restriction on Transfer of Warrant.The Holder of this Warrant, by its
acceptance hereof, covenants and agrees that this Warrant is being acquired as
an investment and not with a view to the distribution thereof, and that this
Warrant may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date
hereof, except to officers or partners of the Representative or to any member
of the selling group participating in the distribution to the public of the
Common Shares and/or their respective officers or partners.
5. Exercise Price.
5.1 Initial and Adjusted Exercise Price. The Initial Exercise Price of the
Shares shall be $___ per Share. The adjusted exercise price (the "Adjusted
Exercise Price") shall be the price which shall result from time to time from
any and all adjustments of the Initial Exercise Price in accordance with the
provisions of Article 7 hereof.
5.2 Exercise Price. The term "Exercise Price" herein shall mean the
Initial Exercise Price or the Adjusted Exercise Price, depending upon the
context.
6. Registration Rights.
6.1 Registration Under the Securities Act of 1933. This Warrant and the
Shares have not been registered for purposes of public distribution under the
Securities Act of 1933, as amended (the "Act").
6.2 Piggyback Registration. If, at any time during the seven years
following the date of this Warrant, the Company proposes to register any of its
securities under the Act (other than in connection with a merger, acquisition
or pursuant to Form S-8, Form 4 or successor forms), it will give written
notice by registered mail, at least thirty (30) business days prior to the
filing of each such registration statement, to the Holder or Holders of this
Warrant and/or the Shares of its intention to do so. If the Holder or Holders
of this Warrant and/or Shares notify the Company within twenty (20) business
days after receipt of any such notice of its or their desire to include any
such securities in such proposed registration statement, the Company shall use
its best efforts to cause to be included in such registration such securities
at the Company's sole cost and expense and at no cost or expense to the Holder
or Holders.
Notwithstanding the provisions of this Section 6.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 6.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect
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<PAGE> 5
not to file any such proposed registration statement, or to withdraw the same
after the filing but prior to the effective date thereof.
6.3 Demand Registration.
(a) At any time after 270 days of the date of this Warrant and within
seven years following the date of this Warrant, the Holder or Holders of the
Warrant and/or the Shares representing a majority of such securities (assuming
this Warrant is exercised for all of the Shares) shall have the right (which
right is in addition to the registration rights under Section 6.2 hereof),
exercisable by written notice to the Company, to have the Company prepare and
file with the Securities and Exchange Commission (the "Commission"), on one
occasion, at the sole expense of the Company, a registration statement and such
other documents, including a prospectus, as may be necessary in the opinion of
both counsel for the Company and counsel for the Holder or Holders, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale for nine (9) consecutive months by such Holder or Holders and by the
Holder or Holders of the Warrant and/or the Shares.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 6.3 by any Holder to all other
registered Holders of this Warrant and the Shares within ten (10) days from the
date of the receipt of any such registration request. After receiving notice
from the Company as provided in this Section 6.3(b), any Holder or Holders of
the Warrant and/or Shares may request the Company to include their respective
Warrants and/or Shares in the registration statement to be filed pursuant to
Section 6.3(a) hereof by notifying the Company of their decision to include
such securities within ten (10) days of their receipt of the Company notice.
6.4 Registration on Form S-3.
(a) If (i) a Holder or Holders request in writing (specifying that it
is being made pursuant to this Section 6.4) that the Company file under the Act
a registration statement on Form S-3 (or any successor registration form to
Form S-3 regardless of its designation) for a public offering of the Shares the
reasonably anticipated aggregate price to the public of which would exceed
$1,000,000 and (ii) the Company is a registrant entitled to use Form S-3 to
register such shares, then the Company shall use its best efforts to cause such
shares to be registered on Form S-3 (or any successor registration form to Form
S-3).
(b) The Holder's rights to registration under this Section 6.4 are in
addition to, and not in lieu of, the registration rights provided under
Sections 6.2 and 6.3.
6.5 Covenants of the Company With Respect to Registration. The Company
covenants and agrees as follows:
(a) In connection with any registration under Section 6.3 hereof, the
Company shall prepare and file with the Commission a registration statement
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<PAGE> 6
as soon as practicable after receipt of any demand therefor, shall use its best
efforts to have any registration statements declared effective at the earliest
possible time, and shall furnish each Holder such number of prospectuses as
shall reasonably be requested.
(b) The Company shall pay all costs, fees and expenses in connection
with all registration statements filed pursuant to Sections 6.2, 6.3(a) and 6.4
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses, and blue sky fees and expenses.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Warrant or the Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as are requested by the Holder or Holders.
(d) The Company shall indemnify any Holder of the Warrant or the
Shares to be sold pursuant to any registration statement and each person, if
any, who controls such Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act,
the Exchange Act or otherwise, arising from such registration statement to the
same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Representatives contained in Section 8 of
the Underwriting Agreement and to provide for just and equitable contribution
as set forth in Section 8 of the Underwriting Agreement.
(e) Any Holder of this Warrant or the Shares to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify, the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage
or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such Holder, or their
successors or assigns, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions contained in Section
8 of the Underwriting Agreement pursuant to which the Representatives have
agreed to indemnify the Company and to provide for just and equitable
contribution as set forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Warrant shall be construed as requiring
any Holder to exercise this Warrant prior to the initial filing of any
registration statement or the effectiveness thereof.
6.6 Priorities.
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<PAGE> 7
(a) If a registration under Section 6.2 is or includes an underwritten
primary registration on behalf of the Company, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold at the desired price in such offering, the Company will include in such
registration (i) first, the securities that the Company proposes to sell and
(ii) second, the Shares and other securities requested to be included in such
registration by the holders of such other securities requesting such
registration in such quantities as will not, in the opinion of the managing
underwriters, jeopardize the success of the offering, pro rata among the
holders thereof on the basis of the number of shares requested to be
registered. If a registration under Section 6.2 is an underwritten secondary
registration on behalf of holders of securities of the Company (and does not
include a primary offering) and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold at the desired price
in such offering, the Company will include in such registration, the securities
requested to be included therein by the Holder and the holders of such other
securities requesting such registration pro rata among the holders of such
securities on the basis of the number of shares requested to be included
therein.
(b) The Company will not include in any registration under Section 6.3
or 6.4 any securities that are not the Shares, except for securities as to
which registration rights have been granted pursuant to the Registration Rights
Agreement, dated as of August 15, 1996, by and among the Company and certain
stockholders listed therein, without the written consent of the Holder. If
other securities are permitted to be included in a registration under Section
6.3 or 6.4 which is an underwritten offering and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold at the desired price in such offering, the Company will include in such
registration, the securities requested to be included therein by the Holder and
the holders of such other securities requesting such registration pro rata
among the holders of such securities on the basis of the number of shares
requested to be registered.
7. Adjustments of Exercise Price and Number of Shares.
7.1 Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding Common Shares (other than a
change in par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in the case of any consolidation of
the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving
corporation and which does not result in any reclassification or change of the
outstanding Common Shares, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holder shall thereafter have the right to receive
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holder or Holders were the owner of the Common Shares
underlying this Warrant immediately prior to any such events at a price equal
to the product of (x) the number of shares issuable upon exercise of this
Warrant and (y)
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<PAGE> 8
the Exercise Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if such
Holder or Holders had exercised this Warrant.
Notwithstanding Section 1 hereof, such right shall not be limited to any
reclassification, change, consolidation, merger, sale or conveyance that occurs
during the Warrant Exercise Term, but shall also include any reclassification,
change, consolidation, merger, sale or conveyance that occurs after the date
hereof, but prior to the commencement of the Warrant Exercise Term.
7.2 No Adjustment for Small Amounts. Anything in this Section 7 to the
contrary notwithstanding, the Company shall not be required to give effect to
any adjustment in the Exercise Price unless and until the net effect of one or
more adjustments, determined as above provided, shall have required a change of
the Exercise Price by at least one cent, but when the cumulative net effect of
more than one adjustment so determined shall be to change the actual Exercise
Price by at least one cent, such change in the Exercise Price shall thereupon
be given effect.
7.3 Subscription Rights for Common Shares or Other Securities. In the case
the Company or an affiliate of the Company shall at any time after the date
hereof and prior to the exercise of all the Warrants issue any rights to
subscribe for Common Shares or any other securities of the Company or of such
affiliate to all the shareholders of the Company, the Holders of the
unexercised Warrants shall be entitled, in addition to the Common Shares or
other securities receivable upon the exercise of the Warrants, to receive such
rights at the time such rights are distributed to the other shareholders of the
Company.
8. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the surrender hereof by
the registered Holder at the principal executive office of the Company, for a
new Warrant of like tenor and date representing in the aggregate the right to
purchase the same number of Shares in such denominations as shall be designated
by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable
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<PAGE> 9
expenses incidental thereto, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu thereof.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of Common Shares and shall not be required to issue scrip or pay cash
in lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of Common Shares.
10. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized Common Shares, solely for the purpose of issuance upon the exercise
of this Warrant, such number of Common Shares as shall be issuable upon the
exercise thereof. The Company covenants and agrees that, upon exercise of this
Warrant and payment of the Exercise Price therefor, all Common Shares issuable
upon such exercise shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any shareholder. As long as this
Warrant shall be outstanding, the Company shall use its best efforts to cause
all Common Shares issuable upon the exercise of this Warrant to be listed on or
quoted by the Nasdaq Small-Cap Market or listed on such national securities
exchanges as requested by the Representative.
11. Notices to Warrant Holder. Nothing contained in this Agreement shall
be construed as conferring upon the Holder the right to vote or to consent or
to receive notice as a shareholder in respect of any meetings of shareholders
for the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of this Warrant and its exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its Common
Shares for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Shares
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then, in any one or more of said events, the Company shall give
written notice of such event at least fifteen (15) days prior to the date fixed
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<PAGE> 10
as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation,
winding up or sale. Such notice shall specify such record date or the date of
closing the transfer books, as the case may be. Failure to give such notice or
any defect therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such dividend or
distribution, or the issuance of any convertible or exchangeable securities or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
12. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made when delivered, or
mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the address of
such Holder as shown on the books of the Company; or (b) if to the Company, to
the address set forth in Section 2 of this Warrant or to such other address as
the Company may designate by notice to the Holder.
13. Supplements and Amendments.
The Company and the Representative may from time to time supplement or
amend this Warrant in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable.
14. Successors.
All the covenants and provisions of this Agreement by or for the benefit
of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
15. Termination.
This Warrant shall terminate at the close of business on January __, 2002.
Notwithstanding the foregoing, this Agreement will terminate on any earlier
date this Warrant has been exercised and all the Shares issuable upon exercise
of this Warrant have been resold to the public; provided, however, that the
provisions of Section 6.5 shall survive such termination until the close of
business on January __, 2007.
16. Governing Law.
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This Warrant shall be deemed to be a contract made under the laws of the
Commonwealth of Massachusetts and for all purposes shall be construed in
accordance with the laws of said Commonwealth.
17. Benefits of This Warrant.
Nothing in this Warrant shall be construed to give to any person or
corporation other than the Company and the Representative any legal or
equitable right, remedy or claim under this Warrant; and this Warrant shall be
for the sole and exclusive benefit of the Company and the Representative.
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<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal as of the date first written above.
SEEC, INC.
[SEAL]
By: _______________________
Name:
Title:
ATTEST:
- ------------------------------------
12
<PAGE> 13
EXHIBIT A
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase ________ Shares and herewith tenders
in payment for such Shares cash or a certified or official bank check payable
to the order of _________________ in the amount of $___________, all in
accordance with the terms hereof. The undersigned requests that a certificate
for such Shares be registered in the name of _________________, whose address
is _____________________________________, and that such Certificate be
delivered to _____________________, whose address is
__________________________________________.
Dated: Signature: ______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
-------------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
13
<PAGE> 14
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant.)
FOR VALUE RECEIVED _____________________________________________ hereby
sells, assigns and transfers unto
- ------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ____________________, Attorney, to
transfer the within Warrant on the books of the within-named Company, with full
power of substitution.
Dated: Signature: ______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
------------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
14
<PAGE> 1
Exhibit 5.1
COHEN & GRIGSBY, P.C.
Attorneys at Law
2900 CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3115
--------
Telephone (412) 394-4900
Fax (412) 391-3382
January 16, 1997
Board of Directors of
SEEC, Inc.
5001 Baum Boulevard
Pittsburgh, PA 15213
Ladies and Gentlemen:
We have acted as counsel to SEEC, Inc. (the "Company") in connection
with the preparation and filing with the Securities and Exchange Commission of
a Registration Statement on Form S-1 (the "Registration Statement") in order to
register under the Securities Act of 1933, as amended, 1,725,000 shares of the
Company's common stock, $0.01 par value (the "Common Stock") and the
contemplated issue and sale by the Company of such shares of Common Stock to
the Underwriters (as defined in the Registration Statement) in accordance with
the terms of an Underwriting Agreement (the "Agreement") to be entered into by
and among the Company and the Underwriters.
In connection with the foregoing, we have examined: (a) the
Registration Statement and all amendments thereto; (b) the Company's Amended
and Restated Articles of Incorporation and Bylaws, as amended; (c) resolutions
of the Board of Directors and shareholders of the Company; (d) the form of
Agreement; and (e) such other corporate records and documents as we consider
relevant, necessary or appropriate for purposes of this opinion.
In all such examinations, we have assumed the genuineness of all
signatures on originals and certified documents and the conformity to original
or certified documents of all copies submitted to us as conformed or
photocopies. With respect to various questions of fact material to this
opinion, we have made no independent investigations and have relied upon
statements and certificates of officers and directors of the Company and of
other appropriate persons.
We have also assumed that the shares of Common Stock will be issued and
sold in accordance with the terms of the Agreement and the Registration
Statement, including receipt by the Company of the full consideration for the
shares of Common Stock set forth therein. With respect to the Agreement, we have
assumed the execution and delivery of the Agreement by the parties thereto and
that the Agreement as executed and delivered will conform, as to the issuance
and sale of the Common Stock, in all material respects to the draft reviewed by
us.
<PAGE> 2
COHEN & GRIGSBY, P.C.
Board of Directors of
SEEC, Inc.
January 16, 1997
Page 2
Based upon such examination and assumptions, and subject to compliance
with applicable state securities and "Blue Sky" laws, in our opinion the shares
of Common Stock to be issued, when issued as contemplated by the Registration
Statement and the Agreement, will be validly issued, fully-paid and
non-assessable shares of Common Stock of the Company.
We hereby consent to the reference to us in the Prospectus of the
Company constituting part of the Registration Statement filed with the
Securities and Exchange Commission registering the Common Stock and to the
inclusion of this letter as an exhibit to the Registration Statement.
Very truly yours,
COHEN & GRIGSBY, P.C.
DLW:DL:JWE
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
SEEC, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated August 30, 1996, except for Notes 15
and 16(d), (e) and (f), as to which the date is October 1, 1996, and the
recapitalization described in Note 1, as to which the date is January 15, 1997,
relating to the financial statements of SEEC, Inc., which is contained in that
Prospectus, and of our report dated August 30, 1996, relating to the schedule,
which is contained in Part II of the Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
Boston, Massachusetts
January 17, 1997
