SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended March 31, 1997
_ Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number __0-26336_________________________________________
New Paradigm Software Corp.
(Name of Small Business Issuer in Its Charter)
NEW YORK 13-3725764
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
733 Third Avenue, New York, NY 10017
(Address of Principal Executive Offices) (zip code)
(212) 557-0933
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
(Title of Class)
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
Redeemable Warrants
(Title of Class)
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90 days.
Yes ___X___ No ______
Check if disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained within this form, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this form 10-KSB _
State the issuer's revenues for its most recent fiscal year. $64,976
The aggregate market value of Common Stock held by non-
affiliates of the Registrant based on the closing sale price
on the Nasdaq Bulletin Board on June 27, 1997 was $390,000
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Section 12, 13,
or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
Court.
Yes___________No____X______Not Applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
At June 28, 1997 there were an aggregate of 2,451,729 shares
of Common Stock of the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (check one)
Yes _______ No ___X___
TABLE OF CONTENTS
PART I
ITEM PAGE
1. Description of Business 4
2. Description of Property 15
3. Legal Proceedings 15
4. Submission of Matters to a Vote of 15
Security Holders
PART II
5. Market for Registrant's Common 16
Equity and Related Stockholder
Matters
6. Management's Discussion and 16
Analysis of Financial Condition and
Results of Operations
7. Financial Statements 22
8. Changes in and Disagreements with 22
Accountants On Accounting and
Financial Disclosure
PART III
9. Directors, Executive Officers, 23
Promoters and Control Persons;
Compliance with Section 16(a) of
the Exchange Act
10.Executive Compensation 24
11.Security Ownership of Certain 28
Beneficial Owners and Management
12.Certain Relationships and Related 31
Transactions
PART IV
13.Exhibits and Reports on Form 8-K 34
PART I
Item 1. Description of Business
General
New Paradigm intends to devote its efforts in future to the
development of its Internet business (see "Description of
Business - Internet"). However throughout the period which
is covered by this report, the Company was primarily focused
on its COPERNICUS(R) business which it has agreed to sell,
subject to shareholder approval, and its EDI business, which
has already been sold. (See "Description of Business -
General - COPERNICUS" and "Description of Business - General
- - EDI").
General - Sale of COPERNICUS - Circumstances and
Background
The intended sale of Copernicus and the New Paradigm
Architecture is the most significant recent development for
the Company. The Company's management and Board of Directors
have actively explored options for preserving shareholder
value while overcoming the liquidity problems which the
Company has experienced. Many potential transactions were
pursued and examined. In addition, the Company approached
many prospective investors in, and potential acquirers of,
the COPERNICUS asset. These included many investor groups and
large software companies both in the U.S. and overseas.
Summarized below are the steps taken by the Company in
arriving at the decision to seek to sell COPERNICUS.
September 1996
By September 1996 it was obvious to management that the
Company would need to raise significant additional funds in
order to proceed with its business plan. The direct sales
which had been expected had not materialized and revenues
were therefore below the Company's expectations. The Company
decided to reduce costs by eliminating its direct sales
force, all of whom were released at that time. The Company
was at the time negotiating with several parties with a view
to establishing U.S. and international distribution via third
party channels. Management decided to focus the Company's
activities on promoting and supporting these third party
distributors. In September 1996, the Company reached a verbal
agreement with International Business Machines Corporation
("IBM") to sign a distribution agreement (the "IBM
Agreement") whereby IBM would distribute the Company's
COPERNICUS product with IBM's MQ Series message-passing
middleware.
October 1996
In light of the verbal agreement with IBM, the Company
attempted to arrange a best efforts private placement with
its investment bankers, Josephthal, Lyon and Ross
Incorporated. At this time the Company's Common stock was
trading at a daily high of $2.00 or above, reaching a high of
$3 1/8 on October 18, 1996. The private placement was
intended to raise approximately $3 million and was
conditional upon the actual signing of the IBM Agreement.
The financing was documented and meetings with various other
investment banks who were interested in participating in the
private placement were held. Although the principal business
points of the IBM Agreement had been agreed, it took
considerably longer than either the Company or IBM expected
to complete the legal formalities and the agreement was not
finally signed until December 18, 1996.
September - December 1996
During this time, the Company's management pursued a number
of other alternatives to raising the funding necessary to
sustain the Company until the sales expected through IBM and
the other distributors materialized. It was considered
highly unlikely that significant revenues would arise from
these sources before the second half of 1997 at the earliest.
Discussions were held with a number of companies who
expressed an interest in merging with the Company. However,
none of the proposals which management was able to solicit
proved satisfactory (e.g., no immediate injection of funds,
extreme dilution to existing shareholders, minimal revenue
contribution by the other party). Discussions also took
place over a period of several months with a major vendor of
middleware about a possible acquisition of the Company or the
COPERNICUS product, but these were preempted when that vendor
acquired another company with a product which was perceived
by them to be competitive with COPERNICUS. During this
period the Company's total assets fell below $2 million,
raising concerns about the possible delisting of the
Company's Stock form the Nasdaq SmallCap market.
December 1996
The Company also investigated the possibility of a placement
to European investors under Regulation S of the Securities
Act. A presentation to relevant investors by a
representative of the Company's management took place in the
first week of December 1996, and appeared to generate
considerable interest. Nevertheless, during December the
Company's Common Stock price fell from a high of $2.00 on
December 5, 1996 to a low of $1.00 on December 31, 1996.
Management believes that a significant factor in the decline
of the price of the Company's Common Stock was investor
concern about the Company's liquidity problems and the
likelihood of a delisting from the Nasdaq SmallCap market.
Under these circumstances, the interest of overseas investors
disappeared and the Company's investment bankers advised that
a private placement with U.S. investors was now impossible.
Due to the Company's liquidity crisis, all employees not
absolutely essential to the maintenance of current business
and the relationship with IBM were terminated as of December
31, 1996.
January 1997
In January and February 1997, the Company engaged in lengthy
discussions with a high-net worth individual with
considerable experience in the enterprise software market.
The investor carried out certain due diligence on COPERNICUS
and an investment of $2 million in exchange for a 51%
interest in the Company was discussed. As the two parties
moved toward documenting the proposed transaction, the
investor withdrew, based on the investor's unwillingness to
invest in a small and troubled public company.
Loan from Mr. Robert Trump
In order to continue operating, the Company solicited a
$150,000 loan from Mr. Robert Trump which was received on
January 16, 1997. Mr. Trump is an investor, who together
with Midland Associates with whom he is affiliated, is the
Company's largest shareholder. Mr. Trump was approached by
management and requested to make the loan on the basis that
the negotiations and discussions in progress were likely to
lead to a significant investment in the Company in the near
future. The principal terms of this loan were as follows:
o Advance: $150,000.
o Term: 6 months (to expire July 14th, 1997).
o Interest Rate: To be paid in warrants, see below.
o Warrants: 150,000 three-year warrants with an
exercise price of $2.00 per share, in lieu of interest.
Other terms: The 180,000 Midland Warrants, held
by Midland Associates, an affiliate of Mr. Trump, were
amended as follows: The expiration date was changed from
August 11, 1998 to January 16, 2002 and the exercise price
reduced from $3.75 to $2.00 per share. See "Certain
Transactions".
The Loan was used to pay certain pressing payables, including
arrears of salary to all employees.
February 1997
During late January and early February 1997 the Company
reached an advanced stage of negotiating a transaction with
another public company whereby the other company would sell
to the Company a subsidiary with assets in excess of $1.5
million and inject $1 million cash into the Company in
exchange for 10 million shares of the common stock of the
Company. The effect of this transaction would have been to
increase the Company's assets to the point where the Company
would have fulfilled the requirements for continued listing
on the Nasdaq SmallCap market. However, during the due
diligence process, it was discovered that the resulting
combination would have had a significantly greater negative
cash flow than had originally been foreseen. There were also
some unresolved valuation questions relating to the
subsidiary which it was proposed the Company would acquire.
The parties therefore decided not to proceed with the
transaction.
The VIE transaction - preliminary negotiations
In mid-February of 1997, the Company began discussion with
representatives of the group of investors who eventually
formed VIE Systems, Inc. in order to offer to acquire
COPERNICUS. The group of investors included the high net
worth individual with whom the Company had been conducting
detailed discussions in January 1997. This investor group
(which is referred to hereafter as VIE notwithstanding that
VIE Systems, Inc. was not actually formed until some time
later) initially offered $1.6 million and a 5% equity stake
in VIE in order to acquire COPERNICUS and its related assets.
This offer was received in writing on February 20, 1997. In
light of other indications which had been received, it seemed
that a better price could be obtained, and this offer was
therefore declined. However, negotiations continued and the
terms of the offer were improved.
March 1997 - Delisting from Nasdaq SmallCap Market
As a result of the above circumstances, the Company had not
met the $2 million in total assets requirement for continued
listing on the Nasdaq SmallCap market since September 1996.
Accordingly on March 3, 1997 the Company's Common Stock and
Redeemable Warrants were delisted from the Nasdaq SmallCap
market. on the grounds that the Company failed to meet the $2
million in total assets requirement for continued listing.
The Common Stock is now trading on the Nasdaq Bulletin Board.
"Penny stock" rules now apply to the Company's stock. Listing
on the Nasdaq Bulletin Board may result in reduced liquidity
in trading in the Common Stock. Together these circumstances
will likely increase the costs and reduce the likelihood of
success in the event that the Company seeks to raise further
funds through the sale of equity securities.
Series C Redeemable Preferred Stock
On March 13, 1997, Mr. Robert Trump agreed to advance the
Company a further $50,000 which the Company urgently required
in order to continue its operations and meet its payroll
obligations. Management believed that employee morale was low
as a direct consequence of the Company being unable to meet
its payroll obligations, and that further resignations of
staff members would significantly reduce the value of the
Company's primary asset, COPERNICUS. The Company therefore
approached Mr. Trump to seek a further advance to cover
arrears of payroll while management pursued discussions with
Level 8 Systems, Inc., VIE, and other parties to secure the
best possible offer for the COPERNICUS assets.
In order to secure further funds at this time when the
Company was in severe financial difficulties it was agreed
that Mr. Trump would receive sufficient votes via the
creation of a new class of Preferred Stock in order to be
able to maximize the possibility of recovering both this
advance and the earlier advance of $150,000. As a result of
these negotiations the earlier $150,000 advance and the March
13, 1997 $50,000 advance were combined into $200,000 to be
used to subscribe for 800,000 shares of Series C Redeemable
Preferred Stock, $0.01 par value, with the following
principal terms:
o Each Series C Redeemable Preferred Share has four (4) votes
on any matter to be put to a vote of the Company's
shareholders.
o The Series C Redeemable Preferred Stock can be redeemed at
the Company's option at any time upon payment of $200,000.
o The Series C Redeemable Preferred Stock can be redeemed at
the holder's option following any investment in the Company
or a sale of any of the Company's assets where the proceeds
are $2,000,000 or more.
o The Series C Redeemable Preferred Stock will have
preference in the event of any liquidation of the Company
to the extent of $200,000.
The Company therefore intends to redeem the Series C
Redeemable Preferred Stock using $200,000 of the proceeds of
the sale in when the sale of COPERNICUS is approved.
Management Deliberations Concerning Creation of the
Series C Preferred Stock.
Management considered the creation of the Series C Preferred
Stock carefully. Among the factors taken into account were
the following:
o At that time, there were no other sources of funds actually
offered to the Company.
o If further members of staff left the Company's employment
because of the inability of the Company to meet its payroll
obligations, management believed that the value of
COPERNICUS would decrease as the Company would be unable to
service either its existing customers or the new prospects
being introduced by IBM.
o Management believes that these terms were the best it
could secure at that time, and these terms were arrived at
through arms-length negotiations with Mr. Trump.
o The level of four votes per share was required by the
lender in order to give him significant influence in the
approval of any potential sale of COPERNICUS to ensure that
the advance was repaid. The issuance of the Series C
Preferred Stock to Mr. Trump increased his proportion of
the votes on any matter to be put to a vote of the
Company's shareholders from 18% to 64%.
o Management believes that the Company was able to secure
both firm offers and improved terms from Level 8 and then
from VIE as a result of this transaction.
o The board determined that the Company was not required to
solicit proxies for this issuance as BCL paragraph 502 (c)
gives the board the authority to fix the terms of preferred
stock where such terms are not fixed in the charter of the
Company.
Level 8 Systems, Inc.
Throughout the negotiations with VIE, the Company continued
to aggressively pursue other potentially interested parties.
Several of them indicated strong interest, and one, Level 8
Systems Inc. ("Level 8") made a formal offer to the Company.
In order to move quickly, Level 8 verbally offered to make an
immediate advance of $550,000 to the Company to enable it to
make crucial payments to employees and creditors. After
further negotiation, a written offer was made early on March
19, 1997. At this point the Company had received a verbal
offer from VIE to acquire COPERNICUS and therefore sought a
better offer from Level 8. This was not immediately
forthcoming, however Level 8 did agree to improve the terms
of its offer, to include an immediate cash infusion. The
offer accepted by the Company was made later on the same day
(March 19, 1997) with the following principal terms:
o Advance: $550,000.
o Term: 120 days (expiring July 17, 1997).
o Interest Rate: 10% per annum.
o Collateral: Secured by the COPERNICUS product and
related assets.
o Additional Terms: The Company was free to continue to
negotiate with VIE and other third parties. In the event
that the Company were to sell COPERNICUS on or before the
repayment of the loan, a break-up fee would be payable to
Level 8 of $100,000. The proposed sale of COPERNICUS to
VIE as described herein would represent such a sale, and it
is therefore envisaged that the break-up fee will be paid
to Level 8 from the proceeds of the sale when the sale of
COPERNICUS is approved.
The Board of Directors of the Company believed that it was
imperative to receive a significant cash infusion of some
kind since many of the employees were actively seeking other
employment, as they had not received salary for some time.
It was considered necessary to retain at least certain key
employees in order to protect the value of COPERNICUS. This
value would erode swiftly in the event that no staff were
available to maintain the existing customers and to support
the IBM sales effort. Therefore, despite the risks of not
being able to achieve a satisfactory offer for COPERNICUS
during the 120 days, the Board decided to proceed with the
transaction and preserve the COPERNICUS business as a going
concern in order to have the best opportunity to achieve
maximum shareholder value from the COPERNICUS asset. Level 8
is not and has never been an affiliate of the Company, any
member of the Company's management, any of its principal
shareholders or any related parties. Certain employees of
the Company at that time were asked by the management to
consider offers of employment from Level 8 in order to
enhance the value of the sale to the Company's shareholders.
No employees accepted these offers.
The only other offer which the Company had managed to confirm
at the time was a verbal offer from an investor to invest
$500,000 in the Company in exchange for a 70% equity interest
in the Company. The advantage of this proposed transaction
was that it did not impose the same time constraint with
respect to negotiating a satisfactory offer as the Level 8
secured loan. The disadvantage was that it would produce
substantial dilution to existing shareholders so that an
offer for COPERNICUS more than three times as high as the
existing proposals would have been required in order to
obtain the same value for existing shareholders. In view of
the fact that employees had left for more secure employment
and that more were likely to do so, the ability of the
Company to maintain the value of the COPERNICUS asset over a
period longer than 120 days was limited, and it was thus
decided to proceed with the Level 8 proposal.
The VIE transaction - later negotiations
On March 20, 1997, after being advised of Level 8's serious
interest, VIE made a substantially increased offer to the
Company, with the following principal terms:
o VIE would acquire COPERNICUS and certain related assets for
$2 million in cash plus a 10% share in VIE. The parties
would immediately enter into a purchase agreement,
conditional upon shareholder approval, which would take
effect following shareholder approval.
o VIE would immediately advance $400,000 as a secured loan
while the Company sought shareholder approval for the sale.
This would represent a prepayment of the purchase price.
o The Company would provide undertakings from the required
majority of shareholders to vote in favor of the sale at
the shareholders meeting.
o Mr. John Brann, the Company's Vice President of technology,
and Mr. Diran Cholokian, the head of third party sales
would enter into employment agreements with VIE.
o The Company would obtain shareholder approval within 60
days of signing the proposed purchase agreement.
o Pending the shareholders meeting, VIE would immediately
receive a world-wide non-exclusive license for COPERNICUS
together with a perpetual exclusive license in the United
States for the health-care, financial services, food,
airline and hotel industries and an assignment of the IBM
contract. There would be a 5% royalty under this license
payable to the Company. Any payments under the license
prior to closing the purchase agreement would constitute
prepayments under the purchase agreement.
o If for any reason the sale was not approved by shareholders
or there was a change of control of the Company, or in
certain other circumstances defined as "Break-up events",
VIE would have received a break-up fee of the greater of
$250,000 and 50% of the difference in the value of the cash
components of the two competing offers.
While this offer appeared to be the most favorable yet
received from the point of view of shareholder value, the
Company had a number of concerns. Among other points, these
included the sweeping nature of the proposed interim license
(particularly the perpetual nature of the exclusive license
and the fact that it covered all areas where the Company had
experienced any success in licensing COPERNICUS), the lack of
any provision for the Company to continue to utilize
COPERNICUS in any fashion and the probability of the
Company's interest in VIE being diluted by the need for
further financing.
After further discussions with VIE it became apparent that
there was a willingness on both sides to negotiate a mutually
satisfactory transaction.
The Company therefore duly gave notice to Level 8 that it had
received a written offer. Level 8 declined to match the
terms of the offer and instead made the following offer,
which it termed "Final" on March 27, 1997:
Level 8 would acquire COPERNICUS and related assets, the
Company would receive $700,000 in cash and $300,000 in Level
8 Stock.
In view of Level 8's unwillingness to match the terms of the
VIE offer (the Company judged the value of Level 8's offer to
be significantly lower than that of the VIE offer) and VIE's
apparent readiness to negotiate an acceptable proposal, the
Company entered into a letter agreement to negotiate with VIE
on March 31, 1997. This agreement allowed the Company to
continue to solicit interest in COPERNICUS and investments in
the Company during the negotiations and if there were to be
such a sale or investment there would be a break-up fee
payable to VIE of $150,000, unless VIE had previously broken
off negotiations.
Through April and the first week of May negotiations with VIE
continued on both business points and on the most appropriate
legal language until the agreements described in "The VIE
Agreements" were entered into as of May 9, 1997.
Management Deliberations on VIE Offer
Without limitation, among the factors taken into account by
the Company's board of directors in deciding to accept the
offer from VIE were the following:(i) the Company had proven
unable to raise the funding necessary to continue developing
and marketing COPERNICUS, despite aggressively pursing
several different possible methods; (ii) the Company had
insufficient liquid resources to meet its existing and
ongoing liabilities;(iii) the Company was losing staff at a
rapid pace because of its inability to continue to finance
its business, which management believed was likely to reduce
the value of the assets; (iv) the Company had discussed a
sale of COPERNICUS widely among potentially interested
parties in the Middleware and related markets, both in the
United States and overseas, and this was the best offer
available; (v) the offer allows New Paradigm Shareholders to
continue to benefit from any success in sales of COPERNICUS
through the Royalty; (vi) management believed that a higher
value could be achieved from a sale of the COPERNICUS
business as a going concern than in the event the Company was
forced to cease operations.
The Board of Directors decided that a third party analysis of
the fairness of the transaction was not necessary in the
circumstances. Without limitation, some of the reasons why
this course of action was considered to be appropriate and
why management believes this offer to be fair and reasonable
are (i) the Company had solicited offers from a wide range of
potentially interested parties in the industry and related
markets, both within the United States and overseas; (ii) the
Company had serious competitive interest from different
unrelated parties throughout the process; (iii) Level 8, a
significant Company in the middleware market place with a
strong interest in COPERNICUS (as evidenced by the loan
advanced to the Company) declined to match the terms offered
by VIE; and (iv) the Company did not have the cash resources
to finance such a third-party analysis
Once it became apparent that VIE required Mr. John Brann to
agree to join their management as a condition precedent of
any transaction, Mr Brann declared a conflict of interest to
the Company's Board of Directors and abstained from all
further votes on the matter. From that point on, Mr Brann
abstained, with all the other directors voting unanimously in
favor of the decisions to negotiate and then conclude the
transaction with VIE. As soon as the decision to accept the
VIE offer was made, Mr. Brann resigned from the Company's
Board of Directors in order to avoid any conflict of
interest. Since the incorporation of the Company, the Board
of Directors has observed a policy that all potential
conflicts of interest should be declared to the Board before
a vote is taken on any matter.
General - COPERNICUS
Until May 9th 1997, New Paradigm was primarily engaged in the
development, marketing, licensing and support of its
COPERNICUS software product. As of May 9, 1997 the Company
entered into an agreement (the "Purchase Agreement"), to
sell, subject to shareholder approval, the rights to
COPERNICUS, the New Paradigm Architecture and certain related
assets to VIE Systems, Inc., a Delaware corporation ("VIE")
for $2,050,000 in cash and a 5% royalty on future COPERNICUS
related license fees payable commencing after the first 12
months. Subject to VIE's approval, the Company will have the
right to enter into OEM agreements with VIE on commercially
reasonable terms, to incorporate COPERNICUS within future
products which the Company may develop or acquire. Under the
Purchase Agreement the Company has appointed VIE as its
exclusive agent for the operation of all aspects of the
COPERNICUS related business and VIE is entitled to retain all
revenues received in connection therewith. This agreement
will terminate at the earlier of the closing of the sale or
180 days from May 9, 1997. VIE has entered into Voting
Agreements with the holders of 68.1% of the voting rights
entitled to vote at a meeting of New Paradigm Shareholders,
and the Company therefore expects the sale to be approved and
completed during July 1997. In the event that the sale is
not approved, the Company sells the COPERNICUS assets to a
third party, or in certain other circumstances VIE is
entitled to receive a break-up fee of $350,000.
As of May 9, 1997 the Company entered into a license
agreement (the "VIE License") to license certain rights to
its COPERNICUS product and to assign certain agreements to
VIE. The VIE License gives VIE a five year exclusive license
to market COPERNICUS to the financial services, healthcare,
food & government industries in US & Canada and a perpetual
non-exclusive worldwide license with respect to all
industries. Under the VIE license the Company is entitled to
receive a 5% royalty on all license fees received by VIE
relating to the COPERNICUS product. The license also permits
VIE to produce the product on additional platforms and
enhance the product as it sees fit. The source code for the
product may not be distributed to another party without the
prior written consent of the Company. Finally the Company has
assigned to VIE certain agreements, including a distribution
agreement with IBM. The VIE license will terminate upon the
closing of the sale under the Purchase Agreement and any
royalties payable thereunder shall be offset against the
purchase price payable at the closing.
Until the closing of the contemplated sale of COPERNICUS
pursuant to the Purchase Agreement, New Paradigm will
continue to be engaged, through its exclusive agent, VIE, in
the development, marketing, licensing and support of its
COPERNICUS software for large-scale computer users. Most
large organizations have many different computer systems. The
need to pass information among those often incompatible
systems is growing rapidly. Passing information among
disparate computer systems is called "systems integration."
COPERNICUS automates systems integration by converting the
data entered into or generated by one program or system into
the form needed by another program or system. The Company
believes that its customers can achieve systems integration
using COPERNICUS in a more timely and cost-effective way than
the traditional approach of writing custom software on a
case-by-case basis. An application for a United States patent
on COPERNICUS is pending.
COPERNICUS replaces the laborious construction of custom
systems integration programs with a method of systems
integration that is activated by pointing and clicking a
"mouse" in the same manner as with widely used consumer and
business software programs. The Company believes COPERNICUS
can bring improvements in productivity to systems integration
comparable to those produced by using a personal computer
spreadsheet to replace manual calculations.
General - EDI
Until April 1, 1997, through its wholly owned subsidiary, New
Paradigm Commerce ("NPC") (formerly New Paradigm Golden
Link), the Company operated a service bureau business
providing electronic data interchange ("EDI") services (the
conveying of business documents electronically). This EDI
business was not operating profitably, and the Company no
longer had the resources to invest in its further
development. Management therefore concluded that the best
course of action was to dispose of this business. As of April
1, 1997, the Company sold its EDI business to Custom
Information Systems Corp. of New York ("CIS") for $6,000 and
a note repayable monthly over three years with a face value
of $355,000 and a present value of approximately $300,000.
CIS operates a similar EDI service bureau in Manhattan. To
date (June 28th 1997), all payments due under the note have
been received in a timely fashion.
History - COPERNICUS
COPERNICUS was invented by John Brann, a former director and
former officer of the Company, prior to his employment with
the Company and prior to his earlier employment with
Management Technologies, Inc. ("MTI"). Mr. Brann assigned all
of his right, title and interest in and to COPERNICUS and the
method of constructing software which it employed (the "New
Paradigm Architecture") to Lancer Holdings Inc. ("Lancer"),
formerly called Mark Blundell & Associates, Inc., a New York
corporation controlled by John Brann and Mark Blundell, who
is a director and the principal executive officer of the
Company. Lancer was formed in July 1992. Pursuant to a
license agreement dated as of January 13, 1993, Lancer
granted to MTI, where both John Brann and Mark Blundell were
then employed, a license to distribute software incorporating
the New Paradigm Architecture to banks on an exclusive basis
and to distribute such software to other customers on a non-
exclusive basis. MTI funded the development of a prototype of
COPERNICUS and began conducting several pilot programs in the
banking industry.
The Company was organized in July 1993 to further develop
COPERNICUS and to develop and market products outside the
banking industry. The Company was initially capitalized by
MTI.
In connection with the formation of the Company both Lancer
and MTI transferred their licenses to the Company and the
Company granted to MTI a non-exclusive license to distribute
software incorporating the New Paradigm Architecture to
banks. John Brann and Mark Blundell became executive officers
of the Company and the infrastructure and the support for the
New Paradigm Architecture and all software applications
employing the New Paradigm Architecture ("the New Paradigm
Applications") were transferred from MTI to the Company. As a
part of a strategic shift in MTI's operations, MTI determined
in August 1994 to cease marketing products using the New
Paradigm Architecture and MTI's remaining license was
terminated. The Company acquired the New Paradigm
Architecture and COPERNICUS and related intellectual property
rights from Lancer as of March 22, 1995. Neither Lancer nor
MTI retains any rights to the New Paradigm Architecture or
COPERNICUS. See "Certain Relationships and Related
Transactions."
Following its initial public offering in August 1995, the
Company sought to market COPERNICUS to large-scale computer
users, both directly with its own sales force and indirectly
through systems integrators and other software vendors.
Systems integrators marketed COPERNICUS in connection with
their services, and software companies acted as value-added
resellers ("VARs") of COPERNICUS by incorporating it into
their own software products. Royalties from VARs are based on
sales of their products. COPERNICUS will allow a VAR's
software and its customers' software to work together. Prior
to signing the Purchase Agreement, the Company had entered
into the following agreements to license or distribute
COPERNICUS:
o License agreements with Marriott International, Inc.,
and its subsidiaries and affiliates (collectively
"Marriott"), New York Life Insurance Company,
Transquest Information Solutions ("Transquest"),
Massachusetts Institute of Technology ("MIT"), Bell
Atlantic and the Canadian Imperial Bank of Commerce
("CIBC"). These agreements permit the above named
entities to use COPERNICUS. The fees collected from
these licenses vary depending on the scope of the
license.
o An agreement with International Business Machines
Corporation ("IBM") whereby IBM would seek to
distribute COPERNICUS with IBM's MQSeries(tm) message-
passing middleware.
o An agreement to distribute COPERNICUS in Canada with
New Venture Technologies Ltd., a software reseller and
systems integration consulting company, an agreement
with EXEL to distribute COPERNICUS in the United
Kingdom and an agreement with Rivergate Technologies
to distribute COPERNICUS for the Company worldwide.
o A License with Praxis International, Inc. ("Praxis")
to incorporate COPERNICUS into its OmniReplicator(tm)
software product, which is designed to permit the
duplication of databases on different types of
computer systems.
These agreements have been assigned to VIE under the VIE
License.
History - New Paradigm Commerce
Beginning in May 1995, the Company worked to establish a
presence in the EDI service center business. As of April 1,
1997, at the time of the sale of this business, NPC had
connections to two dozen providers of retail goods and
services to the public ("Trading Partners") and had signed up
approximately 180 suppliers ("Suppliers") (41 at March 31,
1996) to those Trading Partners as customers.
Most Suppliers who used the Company's EDI services did so
because a Trading Partner required that all of its Suppliers
send all invoices for their products electronically if they
were to do business. These Trading Partners were primarily
large corporations seeking to have the maximum possible
number of their suppliers connected to them electronically to
avoid the expensive handling costs associated with paper
based systems. If the Supplier wished to create an EDI
capability internally, the Supplier would have to buy EDI
software, install that software on an existing or new
computer, learn the software, transmit the data generated
from the software (by modem or email), develop the proper EDI
format for the Trading Partner selected and test the
connection with the Trading Partner with which it was
connected. Many Suppliers were not able, or willing, to spend
the resources to make the connection to their Trading
Partners, particularly where they did business with several
different Trading Partners. As a result they often looked to
outsource their EDI functions. NPC took the information for
the EDI transaction via fax, letter or email and reformatted
that information and transmitted that information in the
appropriate EDI format.
NPC was not operating profitably, and the Company no longer
had the resources to invest in its further development, so as
of April 1, 1997 the business of NPC was sold for cash and a
note with a face value of $361,000 and a present value of
approximately $300,000. (see "Description of the Business -
General - EDI")
History - Netphone
On October 9, 1995 the Company acquired from Electric Magic
Company the Netphone product, which permits users of
Macintosh(R) computers to conduct worldwide long distance
telephone conversations over the Internet. While the
acquisition of Netphone was not part of the Company's
strategic goal of broadening the New Paradigm Architecture,
it represented an opportunity to acquire a functional product
in the expanding Internet market. The Company subsequently
received an offer from the Camelot Corporation ("Camelot") to
acquire these assets from the Company for a package of stock
and cash comparable to the acquisition price paid by the
Company and an agreement to pay the Company a royalty for
each unit sold by Camelot in the future. This allows the
Company to benefit from any success Netphone may experience
from the wider distribution of the product through Camelot's
existing retail marketing channels. To date the Company has
received no significant revenue from this royalty arrangement
and there can be no assurance that any such significant
revenues will arise.
Internet
Through its wholly owned subsidiary New Paradigm Inter-Link,
Inc. ("NPIL"), which began operations in December 1995, the
Company provides Internet services to corporations and other
organizations. Customers include Novartis and the Association
of the Bar of the City of New York. The Company intends to
develop this business by launching new products and services
connected with the Internet. There is no assurance that the
Company will be able to develop or acquire such products and
services or that if it does they will be acceptable to the
market. The Internet is a relatively new and rapidly
expanding market. Gartner Group ( a leading industry
analyst) estimates that by 2001, 60% of the US workforce will
have a justifiable business need for Internet access. By the
same date, they estimate that more than 8 million households
will access the Internet using ISDN lines (digital telephone
lines offered by principal telephone companies suitable for
accessing the Internet) and a further 3 million homes will
access the Internet using cable modems. World-wide Internet
use is currently estimated at 40 million users. With
potential access to such numbers, many corporations are
seeking to ensure that they have a presence on the Internet.
Such a presence is established through a collection of text,
graphics and small programs known as a "Web site" maintained
on a computer known as a Web server and viewed by users from
all over the world who are connected to the Internet through
the use of a Web browser such as Netscape Navigator or
Microsoft Explorer. The Company seeks to assist companies
with creating that Internet presence and also to exploit
other business opportunities which may arise in servicing the
Internet community.
Internet - Website services
NPIL provides organizations with the ability to utilize the
Company's expertise in creating a Web site. This expertise
includes assembling an appropriate team of independent design
consultants and, if necessary, programmers; designing the
site from both technical and aesthetic perspectives,
implementing the design, and then providing Web server
hosting services away from a customer's own internal network
to ensure security. NPIL specializes in providing custom
facilities to enable a customer's presence on the Internet to
be constantly evolving and interesting without adding to
their existing workload. For example, the site for the
Association of the Bar of the City of New York is remotely
updated by association staff. A small software program
("applet") created by NPIL staff in Java - the most common
computer programming language for the Internet today - allows
customers to utilize information in the format in which it
was created under existing word processor programs such as
Microsoft Word to automatically update their Web site from
their own offices. No translations or transitions are
required - the customer's staff member simply uses the common
"cut and paste" technique utilized within many programs to
move the required document into the NPIL applet. A typical
site brings in initial revenues of approximately $20,000 -
$30,000 on completion with continuing revenues for
maintenance and changes throughout the year which are
expected to amount to $1,000- $3,000 per annum. The Company
has created 5 Web sites for customers of this service to
date. Revenues in fiscal 1997 were $62,420 from 3 such
sites.
Examples of Web sites created by New Paradigm include:
o Novartis - site for its "Program" product:
www.programpet.com
o Association of the Bar of the City of New York:
www.abcny.org
o Nuway Corporation: Corporate Website, site for
moistmates product: www.nuwaycorp.com
o Smolin Lupin, accountants: corporate Website:
www.cpasmolinlupin.com
o Novartis - site for its "Sentinel" product:
www.petprotect.com
o New Paradigm: corporate Website: www.newparadigm.com
o Proballfan: NFL football site written by fans:
www.proballfan.com
Website services - marketing and distribution
The Company is marketing its services through a mix of direct
contact with prospective clients and indirect sales. One
member of staff is engaged full time in the direct sales
activity which accounts for approximately 50% of the current
customer list . Indirect sales, which account for the
remaining 50%, are primarily through advertising agencies
working on integrated media campaigns who subcontract the
Internet portion to NPIL.
Internet - Other products
The Company is also involved in research and development for
other products and services which can be effectively launched
and marketed through the Internet. The nature of the
Internet market is that the time to market from the formation
of a concept can be very short. The Company is currently
working on three projects which it expects to launch during
Fiscal 1998. These products have not been announced as this
could provide significant commercial advantage to the
Company's competitors. (The general areas for these three
projects are (i) intellectual property; (ii) the Internet
itself and (iii) education.) In each of two of the projects
the Company is working with a third party that is providing
product or market specific information and will be entitled
to a share of the revenues or a stake in a joint venture
between the Company and the third party for their efforts.
In neither case has the arrangement yet been finalized. The
Company expects to invest an aggregate of approximately
$200,000 in the launch of these three products, in addition
to the research and development work of the Company's staff.
There can be no assurance that the Company will be able to
reach satisfactory agreement with the third parties involved,
or that it will be able to complete the research and
development work needed to launch the products, or that if
they are launched such products will achieve any degree of
market success.
Research and Development
From its inception until the signing of the Purchase
Agreement, the Company focused its internal development
efforts on COPERNICUS and the New Paradigm Architecture. In
addition, the Company has employed independent consultants to
perform certain development functions. Research and
development expenses, which include salaries and other
employee costs of the Company's product development
personnel, for the fiscal year ended March 31, 1995 were
$331,821 (17% of total expenditures). Beginning July 1, 1995
the Company recognized technological feasibility of
COPERNICUS and began capitalizing the development costs of
COPERNICUS in accordance with Statement of Accounting
Standards ("FASB") No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased or Otherwise Marketed."
The Company capitalized $218,950 of development costs
relating to COPERNICUS and expended an additional $60,344 for
Research and Development expenses during the year ended March
31, 1996. The Company capitalized $495,696 of development
costs relating to COPERNICUS during the year ended March 31,
1997. There were no research and development expenses for
that year. For a discussion of the history of the
development of COPERNICUS and the New Paradigm Architecture,
see "Description of Business -- History."
Research and development will remain vital to the Company's
efforts to remain competitive in the Internet business. The
technology in that marketplace is evolving at a very rapid
pace, and new techniques must be learned constantly. The
Company currently has two staff involved in Research and
Development, and is seeking to recruit a third. The Company
is presently significantly dependent on the services of Mr.
Ali Faraji in this area. Mr. Faraji is not the subject of an
employment contract and their can be no assurance that he
will remain employed by the Company. There can also be no
assurance that the additional engineer can be recruited or if
any of the current Research and Development staff leave that
they can be replaced at a cost acceptable to the Company.
Competition
The Internet marketplace, while rapidly expanding, is
intensively competitive. There are hundreds or thousands of
companies competing for the Web-site creation and hosting
business. These range from college or even high-school
students working at low cost from their home, to the largest
providers of telecommunications services such as AT&T or MCI.
The Company will seek to compete by offering high quality
service at reasonable cost and by differentiating itself with
innovative products and services. Many of the Company's
competitors have much greater resources and name recognition
than the Company. There can be no assurance that the Company
will succeed in competing effectively in this marketplace, or
that if it does succeed in winning business that it will be
able to continue to do so.
Intellectual Property Rights
On March 23, 1995, the Company acquired the intellectual
property rights to COPERNICUS and the New Paradigm
Architecture from Lancer. See "Directors and Executive
Officers of the Registrant" and "Certain Relationships and
Related Transactions -- Acquisition of the New Paradigm
Architecture." The intellectual property rights acquired
from Lancer include one application for a United States
patent relating to COPERNICUS, which application is now
pending in the USPTO, and corresponding applications (or the
right to file corresponding applications) in 24 foreign
countries. Patents have been granted in Pakistan and France.
While there can be no assurance when or if a United States
patent will be granted, management believes that COPERNICUS
is patentable. These rights will be transferred to VIE on
the closing of the Purchase Agreement.
In the Internet field, the Company does not believe that any
of the software which it has developed to date is patentable.
The Company relies upon a combination of trade secret,
nondisclosure and other contractual arrangements, and patent,
copyright and trademark laws to protect its rights to
intellectual property. The Company generally enters into
confidentiality agreements with its employees, consultants,
distributors, value-added resellers and potential customers
and limits access to and distribution of proprietary
information to licensed users. There can be no assurance that
the steps taken by the Company will be adequate to deter
misappropriation of proprietary information, that the Company
will be able to detect unauthorized use of proprietary
information or that the Company can afford the high cost
required to enforce its intellectual property rights.
Further, no assurance can be given that nondisclosure and
other contractual arrangements to protect the Company's
proprietary rights will not be breached, that the Company
will have adequate remedies for any breach or that trade
secrets will not otherwise become known to or be
independently developed by competitors. The failure or
inability of the Company to protect proprietary information
could have a material adverse effect on the Company's
business, operating results and financial condition.
Employees
As of June 15, 1997, the Company employed 9 full-time
employees. None of the Company's employees is represented by
a labor union or is subject to a collective bargaining
agreement. The Company believes that its employee relations
are satisfactory. The number of the Company's employees
declined because the Company released 6 employees in its
Atlanta office as it withdrew from direct sales, and 10 more
in New York when staff reductions were made to reduce
expenses on December 31, 1996. In addition 6 employees
transferred to CIS or VIE as they began operating businesses
previously operated by the Company.
Item 2. Description of Property
The Company's corporate headquarters is located on the 7th
floor of 733 Third Avenue, New York, New York (the
"Premises"). The Premises are currently being sublet from Go
America Tours, Inc. Go America's master lease expires on
August 31, 1999. In view of the reduction in the number of
the Company's employees from a high of 44 to 9 at present,
the Company no longer needs the 12,500 square feet of space
it subleases and is seeking sub-tenants to occupy all or part
of the space. Based upon its preliminary discussions with
real estate brokers, the Company believes that it will be
able to secure such sub-lessees at approximately the same
rate as in its own sub-lease (presently approximately $23,000
per month). The Company anticipates that, in the event that
it is successful in sub-leasing all of the space it currently
occupies, it will experience no difficulty in obtaining
suitable space for the remaining 9 employees. It is
estimated the cost of such space would be approximately
$6,000 per month.
Item 3. Legal Proceedings
The Company is not involved in any material legal
proceedings.
Item 4. Submission of Matters to a Vote of Security
Holders
Not applicable
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
(a) Principal Market.
The Registrant's Common Stock and Redeemable Warrants are
quoted on the Nasdaq Bulletin Board.
(b) Approximate Number of Holders of Equity.
The number of record holders of the Common Stock was
approximately 86 and the number of record holders of
Redeemable Warrants was 46 as of March 31, 1997.
(c) Frequency and Amount of Dividends.
To date, the Company has not paid any cash dividends. The
Company does not anticipate paying any dividends in the
foreseeable future. The Company intends to retain any future
earnings to finance the growth and development of its
business. Any future determination as to the payment of
dividends will be at the discretion of the Board of Directors
of the Company and will depend on the Company's operating
results, financial condition, capital requirements and such
other factors as the Board of Directors may deem relevant.
(d) High and Low Sales Prices of Common Equity and Redeemable
Warrants
The following table sets forth, for the periods indicated,
the high and low closing prices for the Common Stock and
Redeemable Warrants as reported by the NASDAQ SmallCap Market
through March 3, 1997 and afterwards as reported on the
Nasdaq Bulletin Board:
<TABLE>
<S> <C> <C>
Common Stock Redeemable Warrants
1996 Fiscal Quarters High Low High Low
Second Quarter
(Commencing August
11, 1995)(1) $7.50 $5.00 $2.00 $0.75
Third Quarter 6.50 4.50 1.625 0.75
Fourth Quarter 6.125 4.75 1.625 1.125
1997 Fiscal Quarter
First Quarter 6.00 1.875 1.375 0.375
Second Quarter 3.00 1.125 0.875 0.25
Third Quarter 3.125 1.00 0.75 0.25
Fourth Quarter 1.813 0.50 0.25 0.063
<FN>
<F1> (1) The initial public offering of the Common Stock and
Redeemable Warrants commenced on August 11, 1995. The initial
public offering prices of the Common Stock and Redeemable
Warrants were $6.50 per share and $.10 per Redeemable
Warrant.
</TABLE>
The foregoing prices and quotations reflect inter-dealer
prices without retail mark-up, mark-down or commissions. The
foregoing quotations may not represent actual transactions.
(e) Issuances of Unregistered Securities in the year ended March 31, 1997
On September 25, 1996 the Company entered into a termination agreement
with a former officer of the Company in which he was granted 5,000
shares of Common Stock (together with $75,000) in respect of a termination
payment. The former officer is an Accredited Investor (as defined in Rule
501(a) of Regulation D under the Securities Act). These securities were
issued in reliance on the exemptions from registration provided by Section
4 (2) of the Securities Act and Rule 506 of Regulation D under the
Securities Act.
On March 17, 1997 the Company issued Mr. Robert Trump with 800,000 Series C
Redeemable Preferred Shares in exchange for $50,000 and a note for $150,000
previously issued by the Company. Mr. Trump is an Accredited Investor
(as defined in Rule 501(a) of Regulation D under the Securities
Act). These securities were issued in reliance on the
exemptions from registration provided by Section 4 (2) of the
Securities Act and Rule 506 of Regulation D under the Securities Act.
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The selected financial data of the Company presented below
for, and as of the end of, the fiscal years ended March 31,
1996 and 1997 have been derived from the financial statements
of the Company, which have been audited by BDO Seidman LLP,
independent certified public accountants. The Company was
incorporated in July 1993 and commenced operations in
November 1993. The data set forth below should be read in
conjunction with the Company's financial statements and
related notes thereto included elsewhere herein. The Company
has entered into agreements to sell two of its major
businesses - COPERNICUS and the EDI business. As a result
the statements of operations for the fiscal years ended March
31, 1997 and 1996 and the Balance Sheet as at March 31, 1997
have been prepared to reflect continuing operations. The
Loss for discontinued operations is shown in Note 14 to the
financial statements.
Statement of Operations Data
<TABLE>
<S> <C> <C>
Year Ended March 31, 1997 Year Ended March 31, 1996
Revenues $64,976 $ -
Expenses 1,627,163 1,316,332
----------- -----------
Loss from operations (1,562,187) (1,316,332)
Other income (expense) 25,099 (302,154)
----------- -----------
Loss from continuing
operations (1,537,088) (1,618,486)
Loss from discontinued
operations (1,438,319) (1,941,806)
----------- -----------
Net Loss $(2,975,407) $(3,560,292)
----------- -----------
Net Loss per common share
from continuing operations $(0.63) $(0.93)
----------- -----------
Net Loss per common share
from discontinued operations (0.58) (1.11)
----------- -----------
Net Loss per common share (1) $(1.21) ($2.04)
Weighted average common
shares outstanding (1) 1,743,472 2,449,428
Balance Sheet Data
March 31, 1997
--------------
Total assets $1,357,703
Total current assets 411,267
Assets held for sale 691,491
Total current liabilities 1,427,817
Long-term debt 0
Current liabilities 1,427,817
Redeemable Preferred Stock 200,000
Deficit (9,109,599)
Total capital deficit $(271,114)
<FN>
<F1>
(1) See Notes to Financial Statements for an explanation of
the determination of the number of shares and share
equivalents used in computing share amounts.
</FN>
</TABLE>
Overview
The Company has entered into agreements to sell two of its
major businesses - COPERNICUS and the EDI business. As a
result the statements of operations for the fiscal years
ended March 31, 1997 and 1996 and the Balance Sheet as at
March 31, 1997 have been prepared to reflect continuing
operations. The Loss for discontinued operations is shown in
Note 14 to the financial statements. The discussion and
analysis which follows therefore considers separately the
continuing and discontinued operations.
In its continuing operations the Company had net losses of
$1,537,088 for the year ended March 31, 1997 and $1,618,486
for the year ended March 31, 1996. The Company's revenues
from continuing operations for the fiscal years ended March
31, 1996 and 1997 were nil and $69,976, respectively. The
Company's subsidiary, NPIL had 3 customers for its Web site
creation and maintenance services as at March 31, 1997 and 5
as at June 30, 1997.
In its discontinued operations the Company had net losses of
$1,438,319 for the year ended March 31, 1997 and $1,941,806
for the year ended March 31, 1996. The Company's revenues for
the fiscal years ended March 31, 1997 and 1996 were $622,898
and $425,953, respectively. These revenues were primarily due
to the licensing of COPERNICUS in 1996. In 1997, $380,671 was
derived from COPERNICUS licensing and royalties and $234,048
was derived from EDI service bureau revenues. The Company's
subsidiary, NPC, had 41 EDI customers in the year ended March
31, 1996 and approximately 180 EDI customers in the year
ended March 31, 1997.
Following the Company's initial public offering ("IPO") in
August 1995, the Company significantly expanded its
operations and particularly its sales activity relating to
COPERNICUS. Five additional staff members were recruited and
the sales operation moved to Atlanta. The Company closed its
sales office in Atlanta in January, 1997.
The Company's revenues and profitability may vary
significantly both in the case of consecutive quarters and in
the case of a quarter compared to the corresponding quarter
of the preceding year. Such variations may result from, among
other factors, lengthy development time for the Company's
products and services, timing of new product and service
introductions by the Company and its competitors, changes in
levels of the Company's operating expenditures, including the
Company's expenditures on research and development, the size
and timing of customer orders, the amount and timing of
initial fees for creating Web sites, royalty payments and
license fees by licensees, as well as consulting, training
and maintenance fees, increased competition, reduced prices,
the effect of currency exchange rate fluctuations, delays in
the development of new products and services, the costs
associated with the introduction of new products and services
and the general state of national and global economies. The
Company expects to derive substantially all of its revenues
from initial fees for creating Web sites, and consulting,
training, service and maintenance fees. Accordingly, the
Company's revenues will vary with the demand for its products
and services. As a result of such factors, the Company's
revenues and profitability for any particular quarter are not
necessarily indicative of any future results. Fluctuations in
quarterly results may also result in volatility in the price
of the Company's securities.
Results of Operations
Revenues. Revenues from continuing operations during the
fiscal year ended March 31, 1997 increased from $0 to $64,976
as NPIL made its first sales during fiscal 1997.. These
revenues primarily consisted of revenue from the initial fees
for the creation of Web sites.
Revenues from discontinued operations during the fiscal year
ended March 31, 1997 increased by $196,945 (46%) to $622,898
over the year ended March 31, 1996. In 1996, these revenues
primarily consisted of revenue from the licensing of
COPERNICUS to direct end-users. In 1997, $380,671 was derived
from COPERNICUS license fees and royalties. In 1996, $19,421
of revenues arose in the NPC EDI service bureau business. In
1997 this increased by $214,627 (1,105%) to $234,048.
Expenses. The Company's expenses primarily comprise salaries
and related employee costs, research and development costs,
professional fees, marketing expenses, general and
administrative expenses, occupancy expenses and depreciation
and amortization.
Expenses relating to continuing operations during the fiscal
year ended March 31, 1997 increased by $310,831 (24%) over
the fiscal year ended March 31, 1996.
Expenses during the fiscal year ended March 31, 1997 relating
to discontinued operations decreased by $306,542 (13%) over
the fiscal year ended March 31, 1996.
For the continuing operations, employee costs increased by
21% to $630,616 in the fiscal year ended March 31, 1997,
compared to $520,356 in the fiscal year ended March 31, 1996.
This was due to the hiring of additional staff members for
NPIL and an increase in the number of staff members employed
by the Company in administrative and corporate positions to 9
as the overall staff of the corporation increased to 44.
However by March 31, 1997 the number of staff members
involved in such tasks had been reduced to 4, and the total
number of staff members to 9.
For the discontinued operations, employee costs increased
marginally by 4% to $1,047,606 in the fiscal year ended March
31, 1997, compared to $1,008,015 in the fiscal year ended
March 31, 1996.
The Company did not recognize any research and development
expenses in the fiscal year ended March 31, 1997, compared to
$60,344 in the fiscal year ended March 31, 1996. This
decrease is due to the fact that the Company recognized
technological feasibility of its COPERNICUS product on July
1, 1995. According to FASB No. 86, "Accounting for Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed,"
the Company believes it is now required to capitalize its
COPERNICUS research and development expenses. Capitalized
software expenses consist principally of salaries and certain
other expenses related to development and modifications of
COPERNICUS capitalized in accordance with the provisions of
FASB No. 86. Amortization of capitalized software costs is
provided at the greater of the ratio of current product
revenue to the total of current and anticipated product
revenue or on a straight-line basis over the estimated
economic life of the software, which is not more than five
years. $218,950 was capitalized during the year ended March
31, 1996 and $276,746 was capitalized during the year ended
March 31, 1997.
Professional fees relating to continuing operations decreased
by 4% to $244,731 in the fiscal year ended March 31, 1997,
compared to $256,148 in the period ended March 31, 1996. The
decrease is primarily due to the fact that there were costs
related but not directly attributable to the IPO in fiscal
1996. No such expenses arose in 1997.
Professional fees relating to the discontinued operations
deceased by 39% to $223,213 in the fiscal year ended March
31, 1997, compared to $364,050 in the period ended March 31,
1996. The decrease is primarily due to the fact that the
Company incurred legal fees during fiscal 1996 to derive
standardized licensing and maintenance agreements. The use
of these agreements as the basis for negotiations in fiscal
1997 produced a reduction in related legal fees.
Marketing expenses relating to continuing operations
increased by 86% to $164,238 in the fiscal year ended March
31, 1997 compared to $88,461 in the fiscal year ended March
31, 1996. This is principally due to increased fees from the
Company's public relations consultants as the Company engaged
in a marketing and promotional campaign. A proportion of the
costs of this campaign were allocated to developing the
corporate profile. The campaign was terminated in September
1996 and the Company no longer employs public relations
consultants.
Marketing expenses relating to discontinued operations
decreased by 38% to $323,725 in the fiscal year ended March
31, 1997 compared to $523,624 in the fiscal year ended March
31, 1996. This is principally due to the decision to
concentrate on indirect rather than direct channels and the
consequent termination of the Company's advertising campaign
in September 1996.
General and administrative expense relating to continuing
operations increased by 58% to $340,744 in the fiscal year
ended March 31, 1997, compared to $215,199 in the fiscal year
ended March 31, 1996. This was due to an increase in the
average number of staff employed by the Company in the year
ended March 31 1997 compared to the previous year.
General and administrative expense relating to discontinued
operations decreased by 8% to $265,087 in the fiscal year
ended March 31, 1997, compared to $288,756 in the fiscal year
ended March 31, 1996. This is principally due to the decision
to concentrate on indirect rather than direct channels and
the consequent reduction in the number of staff employed in
direct sales and other COPERNICUS related activities.
Occupancy costs did not change significantly. 1997 occupancy
costs for continuing operations were $197,230 and in 1996:
$198,356. For discontinued operations 1997 occupancy
expenses were $20,310 and 1996 occupancy expenses were
$20,000.
Depreciation and amortization expenses relating to continuing
operations increased by 31% to $49,604 in the fiscal year
ended March 31, 1997 compared to $37,803 in the fiscal year
ended March 31, 1996. Depreciation and amortization increased
because of an increase in fixed assets relating to continuing
operations from March 31, 1996 to March 31, 1997.
Depreciation and amortization expenses relating to
discontinued operations increased by 88% to $181,276 in the
fiscal year ended March 31, 1997 compared to $96,335 in the
fiscal year ended March 31, 1996. Depreciation and
amortization increased because of the amortization on the
capitalization of the COPERNICUS software product and an
increase in fixed assets relating to discontinued operations
from March 31, 1996 to March 31, 1997.
In December 1996, the Company entered into a sublease with
Go-America Tours in respect of approximately 12,500 square
feet of space at 733 Third Avenue, New York, New York to be
the Company's principal place of business. Payments under
this lease which runs until August 31, 1999 are expected to
total $694,000 of which $275,000 is due in fiscal
1998,$291,000 in fiscal 1999 and $128,000 in fiscal 2000.
The Company has made no other material capital commitments.
The Company's net operating loss carryforwards and deferred
tax asset account are approximately as follows:
<TABLE>
<S> <C> <C> <C>
Period or Year Net operating Net Deferred
ended March 31, Year of expiration loss carryforward tax asset
- ---------------------------------------------------------------------------
1994 2009 $589,000 $ -
1995 2010 1,954,000 -
1996 2011 3,542,000 -
1997 2012 2,958,000 -
---------
9,043,000 $ -
</TABLE>
The tax benefit of these losses (approximately $4,140,000 and
$2,786,000 at March 31, 1997 and 1996 respectively) is
subject to significant limitations due to the change in
control for income tax purposes resulting from the Company's
IPO in August 1995. The tax benefit of these losses has been
fully reserved by a valuation allowance of the same amount
due to the uncertainty of its realization.
Foreign Exchange. The Company currently has no exposure to
foreign currency exchange rate fluctuations. In the future
the Company may seek to minimize its exposure to foreign
currency exchange rate fluctuations by requesting that its
customers, distributors, including systems integrators, and
VARs located outside of the United States enter into
contracts denominated in United States dollars or by entering
into transactions to attempt to hedge some of the risks of
foreign currency exchange rate fluctuations.
Liquidity and Capital Resources
The Company has financed its operations to date primarily
through public and private sales of its debt and equity
securities. The Company has raised a total of approximately
$10.6 million from these activities. Of this total, $50,000
was raised in connection with the initial capitalization of
the Company, $1,141,000 was raised in a private placement of
equity securities in October 1993; $450,000 in a private
placement of equity securities and promissory notes in
October 1994 (the "1994 Financing"), $1,312,500 in a private
placement of equity securities and promissory notes in March
1995 and April 1995 (collectively, the "1995 Financing"),
$6,891,933 in the Company's IPO and $200,000 in the private
placement of Series C Redeemable Preferred Stock in March
1997. Of the funds raised in the 1994 Financing, $130,000 of
promissory notes were repaid out of the proceeds of the 1995
Financing, and the remaining principal of and interest on the
notes issued in the 1994 Financing and the 1995 Financing
were repaid from the net proceeds of the Company's IPO.
Additionally on March 19, 1997 the Company borrowed $550,000
from Level 8 Systems, Inc. by means of a loan secured by
COPERNICUS and related assets. Level 8 Systems, Inc. agreed
to make this advance as part of negotiations in which it
sought to acquire COPERNICUS and related assets from the
Company. This loan is due to be repaid on July 18th 1997.
On June 27 1997, the Company was received from VIE a loan of
$50,000 secured on all the assets of the Company and an
advance of $13,500 against royalties under the VIE License.
These amounts are to be deducted from the purchase price due
on closing of the transactions contemplated by the Purchase
Agreement.
In the fiscal years ended March 31, 1994 and March 31, 1995,
the Company borrowed $466,409 from a shareholder, MTI (MTI is
no longer a shareholder of the Company), pursuant to a
subordinated financing agreement. This subordinated debt was
canceled pursuant to a Settlement Agreement with MTI dated as
of May 26, 1995. This amount is not included in the $10.6
million figure set forth in the preceding paragraph.
Pursuant to a certain Accounts Receivable Purchase and Sale
Agreement between the Company and MTB Bank dated June 19,
1995 (the "Factoring Agreement"), the Company sold,
transferred and assigned all of its right, title and interest
in certain receivables due to the Company in consideration of
the payment of approximately $100,000 by MTB Bank to the
Company. The Company used the proceeds of this factoring
arrangement for working capital and other general corporate
purposes. This loan was repaid with interest from the
proceeds of the IPO.
Accounts payable and accrued expenses increased to $806,690
at March 31, 1997 from $220,341 at March 31, 1996. Such
decrease in accounts payable and accrued expenses is
primarily due to the inability of the Company to pay its
creditors in a timely manner at March 31, 1997 and a
consequential significant increase in accounts payable.. At
March 31, 1997, the Company had a working capital deficit of
approximately $1,017,000.
Of the proceeds of $2,050,000 due at the closing of the
Purchase Agreement, the Company expects to utilize $200,000
to redeem the Series C Redeemable Preferred Stock, $650,000
to repay the Secured Loan from Level 8 Systems, Inc. and
approximately $300,000 as immediate payments to be made
towards accounts payable and in settlement of employee
termination payments. A further $63,500 will be used to
repay the June 27, 1997 advance from VIE. This will leave a
balance of approximately $836,500 available for working
capital.
Based on the Company's current plan of operations, and
assuming that the Company is successful in securing a sub-
tenant for its space, it is anticipated that the net
proceeds from the intended sale of COPERNICUS pursuant to the
Purchase Agreement and the Company's expected operating
revenues will provide sufficient working capital until
approximately March 1998. The Company's total expenses from
the closing of the transactions contemplated under the
Purchase Agreement for the remainder of the fiscal year
ending March 31,1998 are expected to be below $100,000 per
month. The Company will need additional financing prior to
March 1998 and thereafter if demand for the Company's
products is sufficiently great to require expansion at a
faster rate than anticipated, or if research and development
expenditures or the extent of service and customer support
that the Company is required to provide are greater than
expected or other opportunities arise which require
significant investment, or if revenues are significantly
lower than expected. Additionally, the Company may require
significant additional financing to complete any acquisition.
If financing is required, such financing may be raised
through additional equity offerings, joint ventures or other
collaborative relationships, borrowings and other sources.
There can be no assurance that additional financing will be
available or, if it is available, that it will be available
on acceptable terms. If adequate funds are not available to
satisfy either short or long-term capital requirements, the
Company may be required to limit its operations significantly
and may be unable to carry out its plan of operation. See
Note 1 to the Company's financial statements and "Report of
Independent Certified Public Accountants on Audited Financial
Statements."
New Paradigm intends to seek to raise additional capital by
the issuance of further equity securities. Negotiations are
currently underway with investment bankers to this end.
However, there can be no assurances that any such financing
will be available or, if it is available, that it will be
available on acceptable terms. If additional funds are raised
through the issuance of equity securities, the percentage
ownership of the then current shareholders of the Company
will be reduced and such equity securities may have rights,
preferences or privileges senior to those of the holders of
the Common Stock. Unless the market price of the Company's
Common Stock increases significantly over its market price on
June 27, 1997 additional issuances of equity security could
cause significant dilution to purchasers of Common Stock in
the IPO.
Plan of Operation
During the fiscal year ending March 31, 1998, the Company
intends to continue to develop its Internet business, both by
bringing in new customers for its web-site services business
and by launching new Internet related products. (see
"Internet - other products"). The Internet marketplace,
while expanding rapidly is intensely competitive. Through
March 31, 1997, the Company's NPIL subsidiary had revenues of
$62,420.
None of these products has been completed and feasibility
studies in the likely commercial success of such products
will need to be carried out prior to their launch. The
Company will require additional capital resources to
successfully develop and market these and any other products
and will consequently seek to conclude additional financing
arrangements as soon as possible. Given the uncertainty of
the Company's financial position until the sale of the
COPERNICUS assets has been approved, management considers it
unlikely that any such financing arrangements can be
concluded prior to the Shareholders Meeting.
The Company also intends to seek acquisitions of or other
business combinations with other businesses in related
fields. The Company will have very limited financial
resources to offer to any such prospective partners and
unless there is a significant improvement in the Company's
stock price, will not have attractive stock to offer. The
Company therefore expects to be essentially opportunistic in
seeking business combinations which are available to it.
This means the Company may entertain proposals from
businesses not directly related to its intended area of
operations in order to seek the maximum value for
shareholders. The Company anticipates that any such
combination will require additional financing, and therefore
the attractiveness of any proposed combination to potential
investors will need to be considered.
Item 7. Financial Statements and Supplementary Data
Financial statements are included herein following Part IV,
Item 13.
Item 8. Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers Promoters and
Control Persons; Compliance with Section 16(a) of the
Exchange Act
There are currently three members of the Company's Board of
Directors. The Company's By-Laws authorize the Board of
Directors to fix the number of authorized directors. The By-
Laws also authorize the Board of Directors to fill any
vacancy on the Board of Directors.
The Company has agreed that Mr. Robert S. Trump, an investor
and the purchaser of the Company's Series C Redeemable
Preferred Stock in a private placement in March, 1997 may
nominate for election one person to serve on the Board of
Directors. Mr. Trump has orally advised the Company that he
does not currently intend to nominate anyone to serve on the
Board of Directors.
The following table sets forth the names, ages and positions
with the Company of the Company's directors, executive
officers and key employees:
Name Age Position
- --------------------------- -------- ----------------
Mark Blundell 39 Chief Executive Officer,
President, Chief Financial
Officer, and Director
Matthew Fludgate 25 Secretary, and Vice
President
Daniel A. Gordon 57 Chairman of the Board of
Directors
Michael Taylor 55 Director
Mark Blundell is the Chief Executive Officer, President,
Chief Financial Officer and a director of the Company and has
served in these capacities since the Company's inception.
From October 1991 until December 1993, Mr. Blundell was
initially the Chief Executive Officer of MTI's European
subsidiary and then the Chief Operating Officer and Chief
Financial Officer of MTI in New York. He was also a director
of MTI from December 1993 to March 1994. From May 1988 to
October 1991, Mr. Blundell was the Chief Executive Officer of
London Fox, the futures and options exchange, where he
introduced the first international electronic trading system.
He is also a director and President of Lancer, a company
initially formed to hold the intellectual property rights
relating to the New Paradigm Architecture and which currently
conducts no business. Lancer is a principal shareholder of
the Company. Mr. Blundell received an M.A. in Politics,
Philosophy and Economics from Pembroke College, Oxford.
Matthew Fludgate has been the Secretary and Vice President
of Administration for the Company since May 9, 1997. Prior to
this he was the Business Manager for the Company since
November, 1993. From June 1993 through October 1993 Mr.
Fludgate was an Executive Assistant at Management
Technologies, Inc. Mr. Fludgate received a B.S. in Business
Economics from the State University of New York at Oneonta.
Daniel A. Gordon, an attorney, has been a director and
Chairman of the Board of Directors of the Company since
November 1993. He has been a principal with Corporate Growth
Services since 1992. Corporate Growth Services provides
consulting support services to businesses in the early stages
of development. From 1989 to 1992, Mr. Gordon served as
President of COIN Banking Systems, Inc., which had been the
banking systems division of COIN Financial Systems Inc. Mr.
Gordon had served as Chairman and Chief Executive Officer of
COIN Financial Systems Inc. from 1984 to 1989. He received a
B.A. in English from Dartmouth College and an L.L.B. from
George Washington University.
Michael Taylor has been a director of the Company since
April 26, 1996. Since December 3, 1996 he has been a Senior
Vice President of Gilford Securities. Prior to that he was a
Managing Director of Investment Banking at Laidlaw Equities
from March 1996. He was Associate Director of Investment
Banking for Josephthal Lyon & Ross from June 1989 to March
1996. From early 1980 until joining Josephthal, he was
President of Mostel & Taylor Securities, Inc., a NASD-member
investment banking and brokerage firm. He has been involved
in the securities industry since 1966, when he joined Lehman
Brothers as an analyst. He has been a director of NDE
Environmental, Inc. since July 1992. He is also Chairman of
the Board of Jennifer Muller/The Works, a contemporary dance
company. He attended Amherst College and Columbia University.
In 1991, the Securities and Exchange Commission entered an
administrative order finding that, in 1988 and 1989, Mr.
Taylor aided Mostel & Taylor Securities, Inc. in connection
with certain violations of the net capital requirements for
securities broker-dealers imposed by the Securities Exchange
Act of 1934, and suspended him from associating with a
broker, dealer, investment company, investment adviser or
municipal securities dealer in any capacity for 90 days and
in a proprietary or supervisory capacity for an indefinite
period with the right to apply for removal of such suspension
after two years. He has applied to remove the suspension. Mr.
Taylor consented to the order without admitting or denying
its findings.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934
("Section 16(a)") requires the Company's directors, executive
officers, and persons who own more than 10% of a registered
class of the Company's equity securities, to file with the
Securities and Exchange Commission reports on Forms 3, 4 and
5 concerning their ownership of the Common Stock and other
equity securities of the Company.
Based solely on the Company's review of copies of such
reports and written representations that no other reports
were required, the Company believes that all its officers,
directors and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with
respect to transactions during the fiscal year ended March
31, 1997,
Item 10. Executive Compensation
The following table sets forth information concerning the
compensation of the Company's chief executive officer and
each of the other executive officers (the "Named Officers")
for services rendered in all capacities to the Company. The
Company has only four executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long Term Compensation
Name and Principal Position Fiscal Year Salary Bonus Other Securities Restricted All Other
Ended Annual underlying Stock Compensation
March 31, Compensation options Awards
Mark Blundell - Chief Exec- 1995 $150,000 $0 $45,000(1) 0 $0 $1,456(2)
utive Officer, Chief Finan- 1996 $150,000 $20,000 $57,000(1) 38,666 $0 $1,100(2)
cial Officer & President 1997 $150,000 $0 $57,000(1) 149,999 $0 $1,100(2)
John Brann - 1995 $100,000 $0 $0 0 $0 $0
Vice President - Technology(3) 1996 $75,000 $0 $25,000(4) 38,666 $0 $810(2)
1997 $100,000 $0 $0 149,999 $0 $810(2)
Philip V. Caltabiano - 1995 $100,000 $0 $0 0 $188(6) $0
Senior Vice President - 1996 $100,000 $0 $0 33,333 $188(6) $0
Sales and Marketing (5) 1997 $50,000 $0 $75,000(7) 100,000 $188(6) $0
Nicholas Field 1995 $70,000 $0 $0 0 $100(9) $0
Vice President - 1996 $80,000 $0 $0 22,500 $50(9) $0
Implementation (8) 1997 $80,000 $0 $0 66,000 $0(9) $0
Matthew Fludgate 1995 $33,000 $0 $0 0 $0 $0
Secretary and Vice President 1996 $35,000 $5,000 $0 8,667 $0 $0
- - Administration 1997 $42,000 $0 $0 15,000 $0 $0
<FN>
<F1> (1) Reflects a non-accountable expense allowance of $4,000
per month and a car allowance of $750 per month paid to Mr.
Blundell.
<F2> (2) Reflects the insurance premium paid by the Company for
term life insurance for Mr. Blundell and Mr. Brann.
<F3> (3) Resigned effective May 9, 1997.
<F4> (4) Reflects severance pay paid to Mr. Brann when his
employment terminated on March 18, 1996 upon expiration of
his visa to work in the United States. Mr. Brann was
reemployed by the Company upon being granted a new visa on
August 1,1996.
<F5> (5) Resigned effective September 25, 1996.
<F6> (6) Upon first joining the Company in 1993, the Company
awarded Mr. Caltabiano a stock grant of 20,000 shares of
Common Stock, 15,000 of which have vested. The amounts
included in the table reflects 5,000 shares of Common Stock
that vested in each of the fiscal years ended March 31, 1995
and March 31, 1996. These shares were awarded in connection
with the organization of the Company and have been valued at
par value ($.01 per share) before giving effect to a reverse
split of the Company's Common Stock that was approved by the
Company's shareholders on April 18, 1995.
<F7> (7) Reflects payment agreed to be paid in respect of a termination
agreement dated September 27, 1996.
<F8> (8) Resigned effective March 21, 1997.
<F9> (9) Upon first joining the Company in 1993, the Company
awarded Mr. Field a stock grant of 8,000 shares of Common
Stock, all of which have vested. The amount included in this
table reflects 2,667 shares that vested during the year ended
March 31, 1995 and 1,333 shares that vested during the year
ended March 31, 1996. These shares were awarded in connection
with the organization of the Company and have been valued at
par value ($.01 per share) before giving effect to a reverse
split of the Company's Common Stock that was approved by the
Company's shareholders on April 18, 1995.
</FN>
</TABLE>
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1997
The following table sets forth all grants of stock options
made during the fiscal year ended March 31, 1997 pursuant to
the Company's Stock Option Plan to the Named Officers:
Individual Grants
<TABLE>
<S> <C> <C> <C> <C>
Name Number of % of Total Average Expiration
Securities Options Granted Exercise or Date
Underlying to Employees in Base Price
Options Fiscal Year Per Share
Granted Ended March 31,
1997 (a)
Mark Blundell 149,999 21% $1.25 November 2000
John Brann (b) 149,999 21% $1.25 November 2000
Philip V. Caltabiano 100,000 14% $1.25 November 2000
Nicholas Field (b) 66,000 9% $1.25 November 2000
Matthew Fludgate 15,000 2% $1.625 November 2000
All Shareholders N/A N/A N/A N/A
All Optionees (a) 715,000 N/A $1.35 November 2000
<FN>
<F1> (a) Includes 30,000 shares of Common Stock issuable upon
exercise of options granted to outside directors.
<F2> (b) Mr Field resigned on March 21, 1997 and Mr. Brann
resigned on May 9, 1997. The terms of the Option Plan
provide that these options will expire 90 days after the date
of resignation unless exercised prior to such date. As at
June 31, 1997 none of these options have been exercised.
</FN>
</TABLE>
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED MARCH
31, 1997 AND YEAR-END OPTION VALUES
The following table sets forth information with respect to
options exercised by each of the Named Officers during the
fiscal year ended March 31, 1997 and the number and value of
unexercised options as of March 31, 1997:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Shares Value Number of Securities Value of Unexercised in-
Acquired Realized Underlying Unexercised -the-Money Options at
on Exercise Options at March March 31, 1997(a)
Name 31, 1997
Exercisable Unexercisable Exercisable Unexercisable
Mark Blundell 0 $0 38,666 149,999 $0 $0
John Brann 0 0 38,666 149,999 $0 $0
Philip V. Caltabiano 0 0 0 0 $0 $0
Nicholas Field 0 0 22,200 66,000 $0 $0
Matthew Fludgate 0 0 8,667 15,000 $0 $0
<FN>
<F1> (a) Based on the closing price of New Paradigm Software Corp.
Common Stock on March 31, 1997 of $0.50 as reported on NASDAQ
Bulletin Board.
</FN>
</TABLE>
Employment Contracts
The Company has entered into employment contracts with
Messrs. Blundell, Brann and Caltabiano. The employment
contracts of Messrs. Blundell, Brann and Caltabiano contain
the following principal features.
Mr. Blundell: Term: Five years with a remaining term of
approximately two years (1994-1999); Base Salary: $200,000
per annum (Mr. Blundell has waived $50,000 per annum of this
Base Salary (which is not being accrued) until such time as
the Company would otherwise be able to report a pre-tax
annual profit in excess of $75,000); Allowances: Mr.
Blundell receives a non-accountable expense allowance of
$4,000 per month and a car allowance of $750 per month.
Common Stock Award: Mr. Blundell received 26,667 shares of
Common Stock. If the Company achieves at least $2.5 million
in sales in any period of twelve consecutive months, Mr.
Blundell will be paid a bonus of $50,000. Mr. Blundell's
employment contract provides that if such bonus target is
achieved and such bonus paid, he and the Company will
negotiate a new bonus arrangement. Mr. Blundell is entitled
to receive a death benefit of $1,000,000 payable to a
beneficiary named by him. The Company has obtained a life
insurance policy to fund this benefit. Mr. Blundell's
employment agreement will renew automatically from year to
year unless Mr. Blundell or the Company gives notice of
termination to the other on or before May 1 of any year
beginning in 1999. In the event that the Company terminates
the contract other than for cause, or in the event of a
change of control or a sale of substantially all the assets
of the Company, Mr Blundell is entitled to receive a payment
equivalent to two year's benefits under the contract.
Mr. Brann: Term: Three years with a remaining term of
approximately one year(1995-1998); Base Salary: $125,000 per
annum (Mr. Brann has waived $25,000 per annum of this Base
Salary (which is not being accrued) until such time as the
Company would otherwise be able to report a pre-tax annual
profit in excess of $75,000); Common Stock Award: Mr. Brann
received 26,667 shares of Common Stock. Mr. Brann is entitled
to a death benefit of $1,000,000 payable to a beneficiary
named by him. The Company has obtained a life insurance
policy to fund this benefit. Mr. Brann's employment agreement
will renew automatically from year to year unless Mr. Brann
or the Company gives notice of termination to the other on or
before May 1 of any year beginning in 1999. Mr. Brann's
employment as Vice President of Technology was terminated on
March 21, 1996 when his visa to work in the United States
expired. On May 13, 1997 the Company entered into an
agreement with John Brann, the former Secretary and Vice
President of the Company, to terminate his employment with
the Company (the "Termination Agreement") pursuant to an
employment agreement dated June 14, 1993, as amended.
Termination of Mr. Brann's employment is a condition under
the purchase agreement with VIE. As consideration for the
termination under the Termination Agreement the Company
agreed to pay Mr. Brann a total of $50,000 on the earlier of
(i) the closing of the purchase agreement between the Company
and VIE, or (ii) Mr. Brann entering into employment with VIE.
The Company will receive a $30,000 loan from Mr. Brann to be
repaid under the following terms (a) 50% of all royalties due
to the Company under the purchase agreement with VIE up to a
total of $40,000, or (b) full payment of the principal of the
loan at any time including interest at 8% per annum. The
Company has been verbally informed by VIE that it intends to
employ Mr. Brann. The Company has also been informed that Mr.
Brann will be granted certain stock options in VIE in
connection with such employment.
Mr. Caltabiano: Term: Three years (but terminated as set
forth below); Base Salary: $100,000 per annum plus
commissions on sales; Common Stock Award: Mr. Caltabiano
received 20,000 shares of Common Stock, 15,000 of which have
vested.. On September 25, 1996, Mr. Caltabiano left the
Company and the employment agreement was terminated for 5,000
shares of Common Stock, a $50,000 termination fee and a
$25,000 consulting fee.
The directors of the Company currently receive a retainer of
$1,000 per quarter and a fee of $1,000 for each meeting of
the Board of Directors that they attend. They are also
reimbursed by the Company for their direct costs for
attending meetings. On December 8, 1993, Mr. Gordon and three
former directors were each granted, as remuneration for
service on the Board of Directors, an option ("Directors'
Options") to acquire, at a price of $5.00 per unit, 10,000
units, each unit consisting of one share of Common Stock and
one warrant to purchase one share of Common Stock at an
exercise price of $6.00 per share ("1993 Warrant"). These
options will expire on November 1, 1998. On April 26, 1995
Messrs. Blundell, Brann, Gordon and two former directors were
granted options under the Company's Stock Option Plan to
purchase 5,333 shares of Common Stock each at an exercise
price of $4.50 per share. These options became exercisable on
April 26, 1996 and expire on April 26, 2005. On November 30,
1995 Mr. Gordon and two former directors were each granted
options under the Company's Stock Option Plan to purchase
10,000 shares of Common Stock at an exercise price of $5.125
per share. Messrs. Blundell and Brann were granted options
under the Company's Stock Option Plan to purchase 20,000
shares of Common Stock at the same exercise price. These
options become exercisable on November 30, 1996 and expire on
November 30, 2000. On April 24, 1996, Mr. Taylor was granted
options under the Company's Stock Option Plan to purchase
10,000 shares of Common Stock at an exercise price of $5.125
per share. These options become exercisable on April 24, 1997
and expire on April 24, 2001.
Pursuant to an Underwriting Agreement dated August 11, 1995
(the "Underwriting Agreement") between the Company and First
Allied Securities, Inc., as representative (the
"Representative") of the underwriters in the Company's
initial public offering, the Company agreed that until
September 11, 1996 it would not issue any options to any
director or officer of the Company without the prior written
consent of the Representative. The Representative agreed to
the issuance of the options granted in November 1995.
Item 12. Security Ownership of Certain Beneficial
Owners And Management
The following table indicates the beneficial ownership of the
Company's Common Stock as of May 1, 1997, by (1) each of the
directors, (2) each of the executive officers of the Company,
(3) all directors, and executive officers of the Company as a
group and (4) each person or entity which beneficially owned
in excess of five percent of the Common Stock, based upon
information supplied by each of the directors, nominees,
executive officers and five percent beneficial owners:
Common Stock
<TABLE>
<S> <C> <C> <C> <C>
Name of Beneficial Owner(a) Right to Right to Total Number Percent of
Sole Voting Shared Voting of Shares Common Stock
and Investment and Investment Beneficially Beneficially
Power Power Owned Owned
Mark Blundell 220,665(b) 199,999(c) 420,664 16%
John Brann 219,332(d) 199,999(c) 419,331 16%
Matthew Fludgate 25,508(e) 0 25,508 1%
Daniel Gordon 35,333(f) 0 35,333 1%
Lancer Holdings 199,999(g) 0 199,999 8%
Midland Associates 619,999(h) 0 619,999 24%
Michael Taylor 10,000(i) 0 10,000 (j)
Robert Trump 350,000(k) 619,999(l) 969,999 34%
All Directors and
Executive
Officers of the
Company as a
group (a total of
5 persons) 510,838(m) 199,999(n) 710,837 23%
<FN>
<F1> (a) The shares of Common Stock beneficially owned by each
person or by all directors and executive officers as a group,
and the shares included in the total number of shares of
Common Stock outstanding used to determine the percentage of
shares of Common Stock beneficially owned by each person and
such group, have been adjusted in accordance with Rule 13d-3
under the Securities Exchange Act of 1934 to reflect the
ownership of shares issuable upon exercise of outstanding
options, warrants or other common stock equivalents which are
exercisable within 60 days. As provided in such Rule, such
shares issuable to any holder are deemed outstanding for the
purpose of calculating such holder's beneficial ownership but
not any other holder's beneficial ownership.
<F2> (b) Consists of (i) 26,667 shares of Common Stock, (ii) 5,333
shares of Common Stock issuable upon exercise of warrants
issued in a 1994 private placement of the Company's
securities (the "1994 Warrants"), (iii) 38,666 shares of
Common Stock issuable upon exercise of options granted under
the Company's Stock option Plan ("SOP") that are currently
exercisable, and (iv) up to 149,999 shares of Common Stock
underlying stock options be granted under the Executive
Stock Option Plan. .
<F3> (c) Represents the holdings of Lancer Holdings of which Mr.
Blundell and Mr. Brann are each 33% owners and directors and
officers. Consists of 166,666 shares of Common Stock and
33,333 shares of Common Stock issuable upon exercise of
warrants held by Lancer (the "MBA Warrants").
<F4> (d) Consists of (i) 26,667 shares of Common Stock, (ii) 4,000
shares of Common Stock issuable upon exercise of 1994
Warrants, (iii) 38,666 shares of Common Stock issuable upon
exercise of options granted under the SOP that are currently
exercisable and (iv) up to 149,999 shares of Common Stock
underlying stock options granted under the Executive Stock
Option Plan.
<F5> (e) Consists of (i) 534 shares of Common Stock, (ii) 1,307
shares of Common Stock issuable upon exercise of 1994
Warrants and (iii) 23,667 shares of Common Stock issuable
upon the exercise of options granted under the SOP
<F6> (f) Consists of (i) 10,000 shares of Common Stock and 10,000
shares of Common Stock underlying 1993 Warrants issuable upon
exercise of Directors' Options granted in 1993 to non-
employee directors of the Company and (ii) 15,333 shares of
Common Stock issuable upon exercise of options granted under
the SOP that are currently exercisable.
<F7> (g) Consists of 166,666 shares of Common Stock and 33,333
shares of Common Stock issuable upon exercise of the MBA
warrants held by Lancer Holdings.
<F8> (h) Consists of 439,999 shares of Common Stock and 180,000
shares of Common Stock issuable upon exercise of warrants.
These securities were previously owned by Management
Technologies, Inc. ("MTI") and transferred to Midland
Associates in satisfaction of a loan to MTI by Midland
Associates.
<F9> (i) Consists of 10,000 shares of Common Stock issuable upon
exercise of options granted under the SOP.
<F10> (j) Less than 1%.
<F11> (k) Consists of (i) 200,000 shares of Common Stock issuable
upon exercise of 1994 Warrants (ii) 150,000 shares of Common
Stock issuable upon exercise of warrants having an exercise
price of $2.00 per share issued by the Company in connection
with a loan by Mr. Trump that was subsequently canceled as
partial consideration for issuance of the Series C Redeemable
Preferred Stock (the "Trump Warrants").
<F12> (l) Represents the holdings of Midland Associates. Consists
of the securities listed in note h above.
<F13> (m) Consists of all of the securities in notes b-f above.
<F14> (n) Consists of the securities in note g above.
</FN>
</TABLE>
The following table indicates the beneficial ownership of the
Company's Preferred Stock as of May 1, 1997, by (1) each of
the directors, (2) each of the executive officers of the
Company, (3) all directors, and executive officers of the
Company as a group and (4) each person or entity which
beneficially owned in excess of five percent of the Preferred
Stock, based upon information supplied by each of the
directors, nominees, executive officers and five percent
beneficial owners:
Series C Redeemable Preferred Stock (a)
<TABLE>
<S> <C> <C> <C> <C>
Name of Beneficial Owner(a) Right to Right to Total Number Percent of
Sole Voting Shared Voting of Shares Common Stock
and Investment and Investment Beneficially Beneficially
Power Power Owned Owned
Mark Blundell 0 0 0 0%
John Brann 0 0 0 0%
Matthew Fludgate 0 0 0 0%
Daniel Gordon 0 0 0 0%
Lancer Holdings 0 0 0 0%
Midland Associates 0 0 0 0%
Michael Taylor 0 0 0 0%
Robert Trump 800,000 0 800,000 100%
All Directors and
Executive
Officers of the
Company as a
group (a total of
5 persons) 0 0 0 0%
<FN>
<F1> (a) The only preferred stock outstanding as at March 31, 1997
was the Series C Redeemable Preferred Stock. Each Series C
Redeemable Preferred Share has four (4) votes on any matter
to be put to a vote of the Company's shareholders. The
Series C Redeemable Preferred Shares therefore represent 56%
of the votes on any matter to be put to a vote of the
Company's shareholders.
<F2> (b) The shares of Preferred Stock beneficially owned by each
person or by all directors and executive officers as a group,
and the shares included in the total number of shares of
Preferred Stock outstanding used to determine the percentage
of shares of Preferred Stock beneficially owned by each
person and such group, have been adjusted in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934 to
reflect the ownership of shares issuable upon exercise of
outstanding options, warrants or other preferred stock
equivalents which are exercisable within 60 days. As provided
in such Rule, such shares issuable to any holder are deemed
outstanding for the purpose of calculating such holder's
beneficial ownership but not any other holder's beneficial
ownership.
Item 12. Certain Relationships and Related Transactions
General
The following is a discussion of certain transactions entered
into by the Company with officers, directors, security
holders and affiliates thereof. The Company believes that the
terms of these transactions were no less favorable to the
Company than would have been obtained from a non-affiliated
third party for similar transactions at the time of entering
into such transactions.
The Company has adopted a policy whereby any future
transactions, including loans, between the Company and its
directors, officers, principal shareholders and other
affiliates, will be on terms no less favorable to the Company
than could be obtained from unaffiliated third persons on an
arm's-length basis at the time that the transaction was
entered into and will be reviewed and approved by a majority
of the Company's directors, including a majority of the
Company's independent disinterested directors.
Issuance of Securities to Directors, Executive
Officers and Their Affiliates
In a private placement of the Company's securities for which
a closing was held on October 20, 1994 (the "1994
Financing"), Mr. Blundell purchased for $15,000 a fractional
unit comprised of (i) a two-year promissory note with an
increasing interest rate starting at 10% per annum (a "1994
Note") in the principal amount of $15,000 and (ii) 1994
Warrants exercisable for 12,000 shares of Common Stock; Mr.
Brann purchased for $5,000 a fractional unit comprised of (i)
a 1994 Note in the principal amount of $5,000 and (ii) 1994
Warrants exercisable for 4,000 shares of Common Stock; Mr.
Blundell subsequently transferred 1994 Warrants exercisable
for 6,667 shares of Common Stock. The shares of Common Stock
issuable upon exercise of the 1994 Warrants purchased in the
1994 Financing by the foregoing directors and executive
officers are registered for sale under the Securities Act of
1933.
On March 22, 1995, 33,333 shares of Common Stock and warrants
(the "MBA Warrants"), which are exercisable for 33,333 shares
of Common Stock at an exercise price of $5.63 per share,
subject to adjustment under certain circumstances, were
issued to Mark Blundell and Associates (now known as Lancer)
in connection with the Company's acquisition of the New
Paradigm Architecture. See "New Paradigm Architecture." The
MBA Warrants will expire on March 21, 2000 and are not
redeemable.
See "Executive Compensation - Directors Compensation" and
"Options Grants in Fiscal Year Ended March 31, 1997" with
respect to options granted to directors and executive
officers of the Company during the fiscal year ended March
31, 1997.
New Paradigm Architecture
The Company acquired the rights to its proprietary approach
to developing computer programs (the "New Paradigm
Architecture") used to develop its COPERNICUS software and
related intellectual property rights from Lancer as of March
22, 1995 for a consideration equal to 33,333 shares of Common
Stock and the MBA Warrants. Lancer no longer holds any right,
title or interest in COPERNICUS or the New Paradigm
Architecture. Prior to the acquisition of the New Paradigm
Architecture, the Company held an exclusive, perpetual
license to use the New Paradigm Architecture from Lancer. The
Company acquired the license pursuant to a license agreement
with Lancer dated as of July 20, 1993. Pursuant to the July
20, 1993 license agreement, the Company made a one-time
payment of 133,333 shares of Common Stock in 1993 and annual
license fee payments of $10,000 in 1993 and 1994.
The Company's Chief Executive Officer and President, Mark
Blundell, and its former director and Vice President of
Technology, John Brann, collectively own 66% of the voting
stock of Lancer. Messrs. Blundell and Brann have no direct or
indirect interest in the remaining 34% of the voting stock of
Lancer. Messrs. Blundell and Brann are the only directors of
Lancer Holdings and Mr. Blundell is a director of the
Company.
Other Transactions
Mr. Jeff Kahn, a former director, is the President of Kahn
Communications Group Inc.("KCG"), a division of Ruder Finn.
Kahn Communications Group provided public relations services
to the Company from its inception until December 1996 for
which it received a monthly fixed fee from the Company of
$5,000. KCG also provided special event related marketing
services to the Company for which it received additional fees
on a per engagement basis. In the fiscal year ended March 31,
1996, KCG received $88,589 and in the fiscal year ended
March 31, 1997, in such fees. The Company ceased using the
services of KCG in December 1996 following the termination of
the Company's marketing program.
On September 1, 1995 the Company entered into a consulting
contract with Corporate Growth Services, a corporation owned
by Mr. Gordon, Chairman of the Board of Directors. Corporate
Growth Services provides small development stage companies
with management consulting. Under the terms of the contract
Corporate Growth Services receives a consulting fee of $2,000
per month over and above any fees Mr. Gordon receives for
attending meetings of the Board of Directors. In the fiscal
year ended March 31, 1996 Corporate Growth Services received
$18,000 in such fees and in the fiscal year ended March 31,
1997, $24,000..
Effective March 31, 1996, the Company entered into a
five-year value added reseller agreement with Petra, Inc.
("Petra"). Petra's president, Mr. Barrington J Fludgate, is a
consultant to and a former director of the Company. The
Company granted to Petra the right to license and distribute
the Company's COPERNICUS software program integrated with
Petra's products. Petra never paid the license fee of
$100,000 due to the Company on September 30, 1996, and
consequently the Company terminated the agreement.
Loan from Mr. Robert Trump
In early January, 1997, in order to continue operating, the
Company solicited a $150,000 loan from Mr. Robert Trump which
was received on January 16, 1997. The principal terms of
this loan were as follows:
o Advance: $150,000.
o Term: 6 months (to expire July 14th, 1997).
o Interest Rate: To be paid in warrants, see below.
o Warrants: 150,000 three-year warrants with an
exercise price of $2.00 per share, in lieu
of interest.
Other terms: The 180,000 Midland Warrants, held by Midland
Associates, an affiliate of Mr. Trump, were amended as
follows: The expiration date was changed from August 11,
1998 to January 16, 2002 and the exercise price reduced from
$3.75 to $2.00 per share.
Series C Redeemable Preferred Stock
On March 13, 1997, Mr. Robert Trump agreed to advance the
Company a further $50,000 which the Company urgently required
in order to continue its operations and meet its payroll
obligations. The earlier $150,000 advance and the March 13,
1997 $50,000 advance were combined into $200,000 to be used
to subscribe for 800,000 shares of Series C Redeemable
Preferred Stock, $0.01 par value, with the following
principal terms:
o Each Series C Redeemable Preferred Share has four (4) votes
on any matter to be put to a vote of the Company's
shareholders.
o The Series C Redeemable Preferred Stock can be redeemed at
the Company's option at any time upon payment of $200,000.
o The Series C Redeemable Preferred Stock can be redeemed at
the holder's option following any investment in the Company
or a sale of any of the Company's assets where the proceeds
are $2,000,000 or more.
o The Series C Redeemable Preferred Stock will have
preference in the event of any liquidation of the Company
to the extent of $200,000.
The Company therefore intends to redeem the Series C
Redeemable Preferred Stock using $200,000 of the proceeds of
the closing of the transactions contemplated by the Purchase
Agreement. At that time, there were no other sources of
funds actually offered to the Company. Management believes
that these terms were the best it could secure at that time,
and these terms were arrived at through arms-length
negotiations with Mr. Trump. The level of four votes per
share was required by the Mr. Trump in order to give him
significant influence in the approval of any potential sale
of COPERNICUS to ensure that the advance was repaid. The
Series C Preferred Stock represent 56% of the votes on any
matter to be put to a vote of the Company's shareholders, and
increased the proportion of the vote on any such matter
exercisable by Mr. Trump, and Midland Associates, (with which
he is affiliated) from 18% to 64%.
Management believes that the Company was able to secure
improved terms from Level 8 and then from VIE as a result of
this transaction. Neither Mr. Trump nor Midland Associates
is affiliated with either Level 8 or VIE.
PART IV
Item 14. Exhibits, Financial Statements and Reports
on Form 8-K
A Exhibits
3.1
Restated Certificate of Incorporation of the Company, as
amended by a Certificate of Amendment dated August 14, 1995
and as corrected by a Certificate of Corrections dated
August 24, 1995 (incorporated by reference to Exhibit 2 to
Form 10-QSB for the Quarterly Period ended June 30, 1995
"the June 1995 Form 10-QSB"))
3.1.1
Certificate of Designation establishing Series C Redeemable
Preferred Stock
3.2
By-laws of the Company (incorporated by reference to Exhibit
3.2 to Amendment No. 1 to the Registration Statement on Form
SB-2 (File No. 33-92988NY (the "Registration Statement")).
4.1
Form of Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company (incorporated by
reference to Exhibit 4 to the June 1995 Form 10-QSB)
4.2
Form of Representative's Warrant Agreement (incorporated by
reference to Exhibit 4.2 to Amendment No. 1 to the
Registration Statement).
4.3
Form of 1993 Warrant (incorporated by reference to Exhibit
4.3 to Amendment No. 1 to the Registration Statement).
4.4
Letter dated December 8, 1993 from the Company to Barrington
J. Fludgate granting Directors Options to purchase shares of
Common Stock and 1993 Warrants. Substantially identical
grants were made to Anthony J. Cataldo, Daniel A. Gordon and
Jeff Kahn (incorporated by reference to Exhibit 4.4
Amendment to No. 1 to the Registration Statement).
4.5
Form of 1994 Warrant (incorporated by reference to Exhibit
4.5 to Amendment No. 1 to the Registration Statement).
4.6
Form of 1995 Warrant (incorporated by reference to Exhibit
4.6 to Amendment No. 1 to the Registration Statement).
4.7
Form of Lancer Warrant. (incorporated by reference to
Exhibit 4.7 to the Registration Statement).
4.8
Form of Financial Advisory and Investment Banking Agreement
with the Representative (incorporated by reference to
Exhibit 4.8 to Amendment No. 3 to the Registration
Statement).
4.9
Form of Midland Warrant (incorporated by reference to
Exhibit 4.9 to the Registration Statement).
4.10
Form of Agreement between the Company and Josephthal Lyon &
Ross incorporated regarding termination of certain warrants
(incorporated by reference to Exhibit 4.10 to Amendment No.
2 to the Registration Statement).
4.11
Option Agreement dated October 9, 1995 between the Company
and the Electric Magic Company (incorporated herein by
reference to Exhibit 4.11 to Form 10-QSB for the Quarterly
Period ended September 30, 1995 (the "September 1995 Form
10-QSB")).
4.12
Warrant issued to Omotsu Holdings Limited (incorporated by
reference to Exhibit 4.12 to the September 1995 Form 10-
QSB).
10.1.1
Blundell Employment Contract, as amended (incorporated by
reference to Exhibit 10.1.1 to the Registration Statement).
10.1.2
Brann Employment Contract, as amended (incorporated by
reference to Exhibit 10.1.2 to the Registration Statement).
10.1.3
Caltabiano Employment Contract, as amended (incorporated by
reference to Exhibit 10.1.3 to the Registration Statement).
10.2
MBA Rights Purchase Agreement dated March 22, 1995
(incorporated by reference to Exhibit 10.2 to the
Registration Statement).
10.3
Voting Trust Agreement (incorporated by reference to Exhibit
10.3 to Amendment No. 1 to the Registration Statement).
10.4
MTI Settlement Agreement dated as of May 26, 1995
(incorporated by reference to Exhibit 10.4 to the
Registration Statement).
10.5.1
Paxcell, Inc. Distribution Agreement dated March 31, 1994
(incorporated by reference to Exhibit 10.5.1 to the
Registration Statement).
10.5.2
Rivergate Systems, Inc. Distribution Agreement dated June
23, 1994 (incorporated by reference to Exhibit 10.5.2 to the
Registration Statement).
10.5.3
New Venture Technologies Distribution Agreement dated
January 11, 1995 (incorporated by reference to Exhibit
10.5.3 to Amendment No. 1 to the Registration Statement).
10.6.1
Financial Performance Corporation Value-Added Reseller
Agreement dated April 29, 1994 (incorporated by reference to
Exhibit 10.6.1 to the Registration Statement).
10.6.2
Benson Software Systems, Inc. Value-Added Reseller Agreement
dated October 25, 1994 (incorporated by reference to Exhibit
10.6.2 to the Registration Statement).
10.6.3
Praxis Value-Added Reseller Agreement dated January 9, 1995
(incorporated by reference to Exhibit 10.6.3 to the
Registration Statement).
10.7
Novell Inc. Co-Marketing Letter Agreement dated December 2,
1994 (incorporated by reference to Exhibit 10.7 to the
Registration Statement).
10.8
Publicitas Letter Agreement dated January 31, 1995
(incorporated by reference to Exhibit 10.8 to the
Registration Statement).
10.9
Stock Option Plan of the Company (incorporated by reference
to Exhibit 10.9 to the Registration Statement).
10.10
Accounts Receivable Purchase and Sale Agreement between the
Company and MTB Bank (incorporated by reference to Exhibit
10.10 to Amendment No. 1 to the Registration Statement).
10.11
Software License Agreement dated May 31, 1995 between the
Company and Marriott International, Inc. (incorporated by
reference to Exhibit 10.11 to Amendment No. 1 to the
Registration Statement).
10.13
Marriott Acceptance Certificate, dated June 8, 1995
(incorporated by reference to Exhibit 10.13 to Amendment No.
2 to the Registration Statement).
10.14
Agreement dated October 9, 1995 between the Company and
Electric Magic Company (incorporated by reference to Exhibit
10.14 to the September 1995 Form 10-QSB).
10.15
Agreement dated October 31, 1995 between the Company and
Camelot Corporation (incorporated by reference to Exhibit
10.15 to the September 1995 Form 10-QSB).
10.16
Note issued by the Company to Mr. Robert Trump dated January
15, 1997 (incorporated by reference to Form 8-K filed
January 16, 1997).
10.18
Lease dated October 31, 1997 between the Company and
GoAmerica Tours, Inc. (incorporated by reference to Exhibit
10.18 to the December 31, 1996 Form 10-QSB).
10.19
Agreement dated as of April 1, 1997 between the Company and
Custom Information Systems, Inc. (incorporated by reference
to Form 8-K filed May 2, 1997)
10.20
Letter Agreement dated March 19, 1997 between the Company
and Level 8 Systems, Inc.
10.21
Agreements dated as of May 9, 1997 between the Company and
VIE Systems, Inc. (incorporated by reference to Form 8K
filed May 16, 1997)
10.22
Agreement dated December 18, 1996 between the Company and
International Business Machines, Inc. ("IBM")
(incorporated by reference to Exhibit 10.22 to the March 31, 1997
Form 10-KSB/A).
11 Statement re: computation of per share earnings (losses)
24 Power of Attorney.
99 Financial data schedule
B. Reports on Form 8-K
The following reports have been filed on Form 8-K since
February 15, 1997.
1) March 17, 1997 New Paradigm Software Corp. Reports
Delisting from NASDAQ SmallCap Market
2) March 19, 1997 New Paradigm Software Corp. Reports
Financing - Preferred Stock Issue
3) April 17, 1997 New Paradigm Software Corp. Reports
Sale of EDI Business for $300,000
4) May 9, 1997 Mr. John Brann Resigns as Director and
Corporate Secretary of the Company
5) May 23, 1997 New Paradigm Software Corp. Announces
Sale of COPERNICUS
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NEW PARADIGM SOFTWARE CORP.
(Registrant)
Date: June 30, 1997 _/s/ Mark Blundell________________
Mark Blundell
President & Chief Executive
Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Mark Blundell
Mark Blundell Chief Executive Officer and
President (principal executive
officer, principal financial
officer and principal
accounting officer) and Director June 30, 1997
/s/Daniel A. Gordon
Daniel A. Gordon
By Arthur M. Mitchell
Attorney in fact Chairman of the Board of Directors June 30, 1997
/s/ Michael Taylor
Michael Taylor Director June 30, 1997
<PAGE>
AUDITED FINANCIAL STATEMENTS
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997 AND 1996
Report of independent certified public accountants F-2
Consolidated financial statements:
Balance sheet F-3
Statements of operations F-4
Statements of shareholders' equity (capital deficit) F-5 - F-6
Statements of cash flows F-7
Notes to consolidated financial statements F-8 - F-20
Report of Independent Certified Public Accountants
New Paradigm Software Corp.
and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet
of New Paradigm Software Corp. and Subsidiaries as of
March 31, 1997, and the related consolidated statements of
operations, shareholders' equity (capital deficit), and cash
flows for the two years in the period ended March 31, 1997. 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 consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of New Paradigm Software Corp. and
Subsidiaries at March 31, 1997, and the results of their
operations and their cash flows for the two years in the perios ended
March 31, 1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As disclosed in Note 1, the Company has incurred
significant losses since its inception and as discussed in
Note 14, the Company has entered into agreements to dispose
of its COPERNICUS and EDI businesses. At March 31, 1997 the
Company had deficiencies in working capital and equity.
These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 1. These consolidated
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
BDO Seidman, LLP
New York, New York
June 25, 1997
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Balance Sheet
</TABLE>
<TABLE>
<S> <C>
March 31, 1997
Assets
Current:
Cash and cash equivalents $328,168
Accounts receivable 50,612
Other receivables and prepayments 32,487
________
Total current assets 411,267
Property and equipment, less accumulated depreciation and
amortization (Note 3) 168,920
Investment in restricted common stock at market value
(Note 10) 14,759
Assets held for sale (Note 14) 691,491
Other assets, less accumulated amortization (Note 4) 71,266
------------
$1,357,703
Liabilities and Capital Deficit
Current:
Loan payable (Note 5) $550,000
Accounts payable and accrued expenses 806,690
Deferred rent payable (Note 7a) 71,127
------------
Total current liabilities 1,427,817
Redeemable Series C shares authorized and outstanding
800,000 200,000
___________
Commitments and contingencies (Note 7)
Capital deficit (Notes 2,8 and 10):
Preferred stock, $.01 par value - shares authorized
10,000,000:
Series A shares authorized, 1,000,000; none issued and
outstanding -
Series B shares authorized 2,000,000; none issued and
outstanding -
Common stock, $.01 par value - shares authorized
50,000,000; issued and outstanding 2,451,729 24,517
Additional paid-in capital 9,150,209
Unrealized loss on investment in restricted common
stock (335,241)
Deficit (9,109,599)
------------
Total Capital deficit (270,114)
------------
$1,357,703
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<S> <C> <C>
Year ended Year ended
March 31, 1997 March 31, 1996
Revenues:
Consulting $ 64,976 $ -
_________ __________
69,976 -
Expenses:
Employee costs 630,616 520,356
General and administrative (Note 12a) 340,744 215,199
Professional fees 244,731 256,148
Marketing (Note 12b) 164,238 88,461
Occupancy 197,230 198,365
Depreciation and amortization 49,604 37,803
_________ __________
1,627,163 1,316,332
_________ __________
Loss from operations (1,562,187) (1,316,332)
Other income (expense):
Interest income 25,099 112,251
Gain on sale of assets (Note 10) - 24,865
Interest expense - (63,724)
Amortization of debt discount and
deferred financing costs - (375,546)
_________ __________
25,099 (302,154)
Loss from continuing operations (1,537,088) (1,618,486)
Loss from discontinued operations (Note 14) (1,438,319) (1,941,806)
_________ __________
Net Loss $(2,975,407) $(3,560,292)
_________ __________
Loss per Common share from continuing
operations $(0.63) $(0.93)
Loss per Common share from discontinued
operations (0.58) (1.11)
Loss per Common share ($1.21) ($2.04)
_________ __________
Weighted average common shares
outstanding 2,449,428 1,743,472
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Capital Deficit)
Years ended March 31, 1997 and 1996 (Note 8)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock Additional Unrealized Total
Series A, B and C Common Stock Paid in Capital on investment Deficit Shareholders'
in restricted equity (capital
Shares Par Value Shares Par Value stock deficit)
- --------------------------------------------------------------------------------------------------------------------
Balance, April 1, 1995 1,240,500 $12,405 693,323 $6,933 $1,353,650 $ - $(2,573,900) $(1,200,912)
Issuance of Series B
preferred stock
and warrants in
private placement, net
of costs of $11,000,
April 1995 100,000 1,000 - - 12,400 - - 13,400
Conversion of MTI
debt to paid-in
capital, May 1995 - - - - 491,284 - - 491,284
Vesting of 1,333
shares issued to
an employee pursuant
to a restricted
grant, June 1995 - - 1,333 13 37 - - 50
Exercise of 1993
warrants at an
exercise price of
$.49 per share pursuant
to a special exercise
offer, July 1995 - - 29,250 293 14,040 - - 14,333
Conversion of Series A
preferred stock to
common, August 1995
(Note 8 (a)) (28,000) (280) 28,000 280 - - - -
Conversion of Series B
preferred stock to
common, August 1995
(Note 8(a)) (1,312,500) (13,125) 201,916 2,019 11,106 - - -
Sale of common
stock and warrants
in the Company's
initial public
offering, August
1995, @ $6.50 per
share, net of
underwriters' discount,
underwriters' expense
allowance and other
expenses of the offering
(Note 2) - - 1,200,000 12,000 5,813,703 - - 5,825,703
Issuance of common stock
upon exercise of the
underwriters' overallotment
option, September 1995,
net of underwriters'
discount and expenses
(Note 2) - - 180,000 1,800 1,064,430 - - 1,066,230
Issuance of common stock
for the purchase of Netphone,
November 1995 @ $3.00 per
share (Note 10) - - 80,000 800 239,200 - - 240,000
Issuance of options for the
purchase of Netphone,
November 1995 (Note 10) - - - - 500 - - 500
Issuance of common stock for
settlement of legal fees @
$5.38 per share, December
1995 (Note 8(d)) - - 27,907 279 149,721 - - 150,000
Vesting of 5,000 shares
issued to an employee pursuant
to a restricted grant,
December 1995 - - 5,000 50 138 - - 188
Unrealized loss on
investment in restricted
stock(Note 10) - - - - - (164,457) - (164,457)
Net loss for the year - - - - - - (3,560,292) (3,560,292)
- -----------------------------------------------------------------------------------------------------------------
Balance,March 31, 1996 - - 2,446,729 $24,467 $9,150,209 $(164,457) $(6,134,192) $2,876,027
See accompanying notes to consolidated financial statement
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Capital Deficit)
Years ended March 31, 1997 and 1996 (Note 8)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock Additional Unrealized Total
Series A, B and C Common Stock Paid in Capital on investment Deficit Shareholders'
in restricted equity (capital
Shares Par Value Shares Par Value stock deficit)
- --------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 - $ - 2,446,729 $24,467 $9,150,209 $(164,457) $(6,134,192) $2,876,027
Issuance of Series C
redeemable preferred
stock in March 1997
(Note 8a) 800,000 8,000 - - 192,000 - - 200,000
Reclassification of
Series C Redeemable
Preferred Stock (800,000) (8,000) - - (192,000) - - (200,000)
Issuance of Common
Stock to terminated
employee - - 5,000 50 - - - 50
Unrealized loss on
investment in restricted
stock (Note 10) - - - - - (170,784) - -
Net loss for the year - - - - - - (2,975,407) (2,975,407)
- --------------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1997 - $ - 2,451,729 $24,517 $9,150,209 $(335,241) $(9,109,599) $(270,114)
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Cash Flows (Note 9)
<TABLE>
<S> <C> <C>
Year ended Year ended
March 31, 1997 March 31, 1996
Cash flows from operating activities:
Net Loss $(2,975,407) $(3,560,292)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 230,880 134,138
Gain on sale of assets - (24,482)
Deferred rent payable 71,127 -
Issuance of Common Stock to
terminated employee 50 -
Issuance of common stock to employees
pursuant to a restricted grant - 238
Amortization of debt discount and
deferred financing costs - 375,546
Noncash interest expense - 3,110
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (22,116) (78,544)
Receivable from related party 50,000 (50,000)
Other receivables and prepayments 76,073 (108,560)
Other assets (61,281) (5,950)
Increase (decrease) in:
Accounts payable and accrued
expenses 589,748 (144,337)
Deferred revenue 27,500 17,500
------- -------
Total adjustments 961,981 118,659
Net cash used in operating
activities 2,013,426 (3,441,633)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (57,747) (324,940)
COPERNICUS development costs (276,746) (218,950)
Sale of property and equipment - 3,300
Purchase of Netphone software - (280,000)
Sale of Netphone software - 193,532
Patents, trademarks and organization
costs (91,385) (5,985)
------- -------
Net cash used in investing activities: (425,878) (633,043)
------- -------
Cash flows from financing activities:
Proceeds from sale of Redeemable Preferred
Class C stock 200,000 -
Proceeds from note payable 550,000 -
Proceeds from private placements - 100,000
Borrowings from shareholder - 107,283
Repayment of debt - (1,632,500)
Proceeds from bank loan - 100,000
Repayment of bank loan - (100,000)
Repayment of shareholder loans - (175,234)
Proceeds from exercise of 1993 warrants - 14,333
Proceeds from Initial Public Offering of common
stock and warrants - 7,283,973
------- -------
Net cash provided by financing activities 750,000 5,697,855
------- -------
Net increase (decrease) in cash and cash
equivalents (1,689,304) 1,623,179
Cash and cash equivalents, beginning of period 2,017,472 394,293
Cash and cash equivalents, end of period $328,168 $2,017,472
</TABLE>
See accompanying notes to consolidated financial statements
1. Organization and Summary of Accounting Policies
Organization
New Paradigm Software Corp. (the "Company")
a New York corporation, was founded in July
1993 and commenced operations on
November 1, 1993. The Company is engaged in
the research, development and marketing of
computer software based upon a software
architecture acquired from Lancer Holdings,
Inc. ("Lancer"), a related party (see
Note 7(c)).
In December 1995, the Company incorporated
two wholly-owned subsidiaries, New Paradigm
Commerce (formerly known as New Paradigm
Golden-Link, Inc.) (See Note 14),consisting
of its former electronic data interchange
("EDI") division, and New Paradigm
Inter-Link, Inc. ("NPIL") a subsidiary
created to research and develop commercial
applications for the Internet.
The Company had no significant revenues
through March 31, 1997 and its activities
had been limited to finalization of domestic
and foreign patent agreements,
organizational and initial capitalization
activities, research and development of
computer software products, initial
marketing activities and pilot projects.
Basis of Presentation
The accompanying consolidated financial
statements have been prepared on the basis that
the Company will continue as a going concern,
which contemplates the realization of assets
and the satisfaction of liabilities in the
normal course of business. At March 31,
1997 the Company had a deficit in working
capital approximating $1,017,000, a capital
deficit of approximately $270,000 and had incurred
significant losses since inception. As
discussed in Note 14, the Company has
entered into agreements to dispose of its
COPERNICUS and EDI businesses. General and
administrative expenses, employee costs,
professional fees and occupancy expenses
from continuing operations will be incurred which, in the
absence of significant income from new operations, will
produce continuing net losses and an increase in
capital deficit annually. Although there
can be no assurance of its success,
management intends to continue to develop
its Internet business (through its
subsidiary NPIL) and also intends to seek
acquisitions of or other business
combinations with other businesses in
related fields. The consolidated financial
statements do not include any adjustments
that might result from the outcome of this
uncertainty.
Principles of Consolidation
The consolidated financial statements
include the accounts of the Company and its
wholly-owned subsidiaries. All material
intercompany accounts and transactions are
eliminated.
Cash Equivalents
Cash equivalents are comprised of highly
liquid debt instruments with original
maturities of three months or less,
principally money market accounts.
Investment in Equity Securities
Investment in restricted common stock is
accounted for in accordance with Statement
of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt
and Equity Securities". Under Statement No.
115, debt and marketable equity securities
are required to be classified in one of
three categories: trading, available-for-
sale or held to maturity. The Company's
investment in restricted common stock
qualifies under the provisions of Statement
No. 115 as available-for-sale. Such
securities are recorded at fair value, and
unrealized holding gains and losses, net of
the related tax effect, are not reflected in
earnings but are reported as a separate
component of shareholders' equity until
realized.
Property, Equipment and Depreciation
Property and equipment are stated at cost.
Depreciation is computed using accelerated
methods over the estimated useful lives of
the assets, ranging from 5-7 years for
financial and tax reporting purposes.
Intangible Assets
Patents and related trademarks are amortized
using the straight-line method over 17
years, which is the estimated useful life of
the patents.
Software rights are amortized using the
straight-line method over 5 years.
Copernicus development costs are amortized
using the straight-line method over 5 years
(see Product Development).
Organization costs are amortized using the
straight-line method over 5 years.
Revenue Recognition
Revenue from software products is recognized
upon delivery to the customer. The Company's
contracts with its customers provide for
payment to be made on specified schedules
which may differ from the timing of
recognition of revenue. Customer advances
are recorded as cash payments received in
advance of delivery.
Maintenance fees are recognized
proportionately over the term of the
maintenance agreement. Customer service fees
represent fees charged to customers for
installation, configuration and modification
of standard software to customer
specifications. Revenue is recorded as work
is performed under the relevant arrangement.
Use of Estimates
The preparation of the 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.
Fair Value of Financial Instruments
The carrying amounts of cash, and cash equivalents accounts
receivable, other receivables, loans accounts payable and
redeemable preferred stock approximate fair value because
of the short maturity of these items.
Stock-Based Compensation
In October 1995, the Financial Accounting
Standards Board issued Statement of
Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123 requires
entities which have arrangements under which
employees receive shares of stock or other
equity instruments of the employer or the
employer incurs liabilities to employees in
amounts based upon the price of its stock to
either record the fair value of the
arrangements or disclose the pro forma
effects of the fair value of the
arrangements. During fiscal year ended
March 31, 1997, the Company has adopted the
disclosure method of SFAS No. 123. The
adoption of this method did not affect the
Company's financial position, operating
results or cash flows.
Product Development
Costs associated with product development
subsequent to establishment of technological
feasibility, including enhancements to
software products, are capitalized and
amortized as required by Statement of
Financial Accounting Standards No. 86,
"Accounting for the Cost of Computer
Software to Be Sold, Leased, or Otherwise
Marketed" ("SFAS No. 86"). Costs incurred
prior to achieving technological feasibility
are expensed as incurred. On July 1, 1995,
the Company established technological
feasibility for its COPERNICUS software
product and capitalized all enhancement and
upgrade costs since that date as provided by
SFAS No. 86.
Income Taxes
Income taxes are computed in accordance with
the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"), which
requires, among other things, a liability
approach to calculating deferred income
taxes. SFAS No. 109 requires a company to
recognize deferred tax liabilities and
assets for the expected future tax
consequences of temporary differences
between the carrying amounts of assets and
liabilities for financial reporting purposes
and the amounts used for income tax
purposes. Deferred tax assets must be
reduced by a valuation allowance to amounts
expected to be realized.
Net Loss Per Share
Net loss per share is based on the weighted
average number of common shares outstanding
and dilutive common stock equivalents during
the periods. For the years ended March 31,
1996 and 1997, common stock options and
warrants outstanding are not included in the
calculation of weighted average number of
common shares outstanding as their effect is
antidilutive.
A portion of the proceeds from the Company's
initial public offering ("IPO") of common
stock and redeemable warrants was used to
repay long-term debt. If such debt had been
repaid at the beginning of the fiscal year
ended March 31, 1996, with a portion of such
proceeds, the Company's loss per share would
have been $(1.76).
Recent Accounting Standards
1n 1997, the Financial Accounting Standards
Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128"). SFAS No. 128
specifies the computation, presentation, and
disclosure requirements for earnings per
share. SFAS No. 128 is effective for
periods ending after December 15, 1997. The
adoption of this statement is not expected
to have a material effect on the
consolidated financial statements.
2. Initial Public Offering
The registration statement for the Company's
IPO became effective on August 11, 1995. The
Company consummated the IPO on August 16,
1995 and issued 1,200,000 shares of common
stock and 1,200,000 redeemable warrants
("Redeemable Warrants"), each entitling the
holder to purchase one share of common stock
at an initial exercise price of $7.80 per
share. In September 1995, the underwriters
in the IPO exercised the overallotment
option granted to them by the Company and
purchased 180,000 additional shares of
common stock and 180,000 Redeemable Warrants
upon the same terms and conditions as listed
above. The Company raised proceeds of
$6,891,933, net of underwriters' discount,
underwriters' expense allowance and other
expenses of the IPO.
Each Redeemable Warrant entitles the holder
to purchase one share of common stock
(subsequently adjusted to 1.029 common
shares per Redeemable Warrant) at an
exercise price of $7.80 per Redeemable
Warrant (subsequently adjusted to $7.58 per
Redeemable Warrant) during a four-year
exercise period commencing on August 11,
1996, one year after the anniversary of the
IPO. The Redeemable Warrants may be redeemed
by the Company upon 30 days' prior written
notice, at a price of $.10 per warrant,
provided that the average closing bid
quotation of the common stock as reported on
the over-the-counter market or the closing
sale price, if listed on a national
securities exchange, during a period of 20
consecutive trading days ending within 10
days prior to the date of such notice shall
be not less than $9.75, subject to
adjustment in certain circumstances
(subsequently adjusted to $9.48). The
Company also issued to the representative of
the underwriters warrants to purchase
120,000 shares of common stock (subsequently
adjusted to 123,480 common shares) at an
exercise price of $7.80 per share
(subsequently adjusted to $7.58 per share)
and 120,000 Redeemable Warrants at an
exercise price of $.12 per Redeemable
Warrant.
3. Property and Equipment
Property and equipment consists of the following:
March 31, 1997
Computer equipment $ 225,396
Software 21,804
Furniture and fixtures 79,343
Telephone system 37,262
-------
363,805
Less: Accumulated depreciation and
amortization
194,885
-------
$168,920
4. Other Assets
Other assets are summarized as follows:
March 31, 1997
Trademarks 3,792
Organization costs 4,487
Security deposits 67,631
-------
75,910
Less: Accumulated
amortization 4,644
-------
71,266
5. Loan Payable
On March 20, 1997 a corporation Level 8
Systems, Inc., interested in purchasing the
COPERNICUS assets made a formal offer to the
Company to purchase COPERNICUS. In
connection with this offer, Level 8 Systems,
Inc. advanced the Company a loan for
$550,000. This loan matures on July 17,
1997, bears interest at 10% per annum and is
collateralized by the COPERNICUS product and
related assets. This offer stated that the
Company was free to negotiate with other
potential buyers of the COPERNICUS assets;
however, if the Company was to sell
COPERNICUS on or before the repayment of the
loan a break-up fee of $100,000 would be
payable to Level 8 Systems, Inc.. The
proposed sale of COPERNICUS to VIE discussed
in note 14 would represent such a sale and
the break-up fee would be paid if such sale
is approved by the shareholders.
6.
Income Taxes
The Company's net operating loss
carryforwards and deferred tax asset account
are approximately as follows:
<TABLE>
<S> <C> <C> <C>
Period or Year Net operating Net Deferred
ended March 31, Year of expiration loss carryforward tax asset
- ---------------------------------------------------------------------------
1994 2009 $589,000 $ -
1995 2010 1,954,000 -
1996 2011 3,542,000 -
1997 2012 2,958,000 -
---------
9,043,000 $ -
</TABLE>
The tax benefit of these losses
(approximately $4,140,000 at March 31, 1997) is
subject to significant limitations due to
the change in control for income tax
purposes resulting from the Company's IPO in
August 1995. The tax benefit of these losses
has been fully reserved by a valuation
allowance of the same amount due to the
uncertainty of its realization.
7. Commitments and Contingencies
(a) Leases
The Company was leasing its New York
sales and office space on a monthly basis
from Management Technologies, Inc.
("MTI"). Effective September 1, 1995, the
arrangement with MTI was terminated and
the Company leased this space on a month-
to-month basis through December 1996 when
the Company moved to a new location. The
Company's Atlanta sales office was leased
on a month-to-month basis through January
1997, when this sales office was closed.
The Company currently subleases sales and
office space from sublessors who have
entered into non-cancelable operating
lease obligations with the landlord. The
Company and the sublessors intend for the
Company to occupy the space for the
entire term of the lease agreement from
December 1, 1996 through August 31, 1999.
The lease agreement provides for
scheduled rent increases during the lease
term and for rental payments commencing
three months after the initial occupancy.
When significant, provision has been made
for the excess of average operating lease
rentals, computed on a straight-line
basis over the lease term, over cash
rentals. The deferred rent payable
balance of $71,127 at March 31, 1997
reflects such a provision.
The future minimum rental payments under
this sublease agreement are approximately
as follows:
Year ending March 31,
1998 $275,000
1999 291,000
2000 128,000
-------
$694,000
Rent expense for the years ended
March 31, 1997 and 1996 amounted to
approximately $195,000, and $202,000
respectively.
(b) Employment Agreements
The Company entered into employment
agreements with two of its executive
officers, including Mark Blundell, its
chief executive officer and John Brann, a
former director and Vice-President of
Technology. The agreements provide for
aggregate annual salaries of $325,000
through 1999 plus bonuses based on net
earnings of the Company. The executives
agreed to waive an aggregate of $75,000
of their annual base salaries (which is
not being accrued) until such time as the
Company is able to report a pre-tax
annual profit in excess of $75,000. In
connection with the employment
agreements, the Company issued certain
common stock and other options to the
officers). In addition, the Company has
agreed to pay death benefits aggregating
$2,000,000 to the beneficiaries of the
two officers. The Company has obtained
life insurance policies to fund these
death benefits. Further, the Company has
obtained "key man" insurance policies for
which it is the beneficiary aggregating
$2,500,000.
On May 13, 1997, the Company entered into
an agreement with John Brann, the former
Secretary/Treasurer and Vice President of
the Company, to terminate his employment
agreement with the Company (the
"Termination Agreement") pursuant to an
employment agreement dated June 14, 1993,
as amended. Termination of Mr. Brann's
employment is a condition under the
purchase agreement with VIE Systems, Inc.
("VIE") (see note 14). As consideration
for the termination under the Termination
Agreement the Company agreed to pay Mr.
Brann a total of $50,000 on the earlier
of (i) the closing of the purchase
agreement between the Company and VIE, or
(ii) Mr. Brann entering into employment
with VIE.
The Company has been verbally informed by
VIE that it intends to employ Mr. Brann.
The Company has also been informed that
Mr. Brann will be granted certain stock
options in VIE in connection with such
employment.
The Company had entered into an
employment agreement with another officer
to serve as Senior Vice President of
Sales and Marketing. The agreement
provided for a minimum annual
compensation of $100,000, plus
commissions through 1997. On September
25, 1996, this officer left the Company
and the employment agreement was
terminated for 5,000 shares of Common
Stock, a $50,000 termination fee and a
$25,000 consulting fee. As of March 31,
1997, $58,000 remained unpaid under the
terms of the termination agreement and
has been included in accounts payable and
accrued expenses.
The Company had entered into an
employment agreement with another
officer. The agreement provided for a
minimum annual compensation of $100,000,
plus commission through 1997. On March
21, 1997 this officer resigned his
position with the Company and this
employment agreement was terminated.
The Company had entered into an
employment agreement with an officer to
serve as president of a division of the
Company. The agreement provided for a
minimum annual compensation of $85,000
through 1999 and incentive compensation
dependent on achievement of gross revenue
levels for the division. Subsequent to
March 31, 1996, this officer left the
Company and the employment agreement was
terminated and a termination fee of
$50,000 was paid to this officer.
(c) License Agreement
In August 1993, the Company entered into
a licensing agreement with Lancer
Holdings, Inc. ("Lancer") (formerly known
as Mark Blundell & Associates), of which
Mark Blundell, the President and Chief
Executive Officer and a director, and
John Brann, a consultant and former
director and executive officer of the
Company are controlling shareholders. On
October 27, 1993, 133,333 shares of
common stock were issued to Lancer and
valued at Lancer's basis (nominal value)
and recorded at the par value of the
shares issued (500,000 common shares,
pre-split, at $0.01 per share). Lancer
was the owner of certain intellectual
property rights including rights relating
to certain computer software and
documentation (the "Lancer rights"). The
agreement granted the Company the
exclusive worldwide license to sublicense
the COPERNICUS software in return for
royalty payments to the licensor.
In March 1995, the Company acquired the
Lancer rights for 33,333 shares of common
stock and 33,333 noncallable,
transferable warrants to purchase shares
of common stock, subject to adjustment
under certain circumstances. The common
stock was valued at Lancer's basis
(nominal value) and recorded at the par
value of the shares issued (125,000
common shares pre-split, at $0.01 per
share). Such warrants will expire five
years after their issue date. These
warrants include a cashless exercise
provision which allows Lancer to
surrender warrants in payment for the
exercise thereof.
8. Capital Deficit
(a) Preferred Stock
The Company's Certificate of
Incorporation authorizes issuance of
10,000,000 shares of preferred stock. In
September 1994, the Board of Directors
subdivided the preferred stock to create
a Series A preferred stock with 1,000,000
shares authorized. On October 24, 1994,
105,000 shares of Series A convertible
preferred stock ("A Preferred"), each
convertible into one share of
common stock, were issued in connection
with the October 1994 private placement).
On April 18, 1995, the common
shareholders and the A Preferred
shareholders approved a 1-for-3.75
reverse stock split of the common stock
and the A Preferred. As a result of this
reverse stock split, the outstanding
shares of A Preferred were reduced to
28,000. Upon completion of the IPO, these
shares of A Preferred were converted into
shares of common stock on a one-for-one
basis and all of the shares of A
Preferred were retired and restored to
the status of authorized but unissued
shares of Preferred Stock.
In February 1995, the Board of Directors
subdivided the preferred stock to create
a Series B preferred stock with 2,000,000
shares authorized. On March 23, 1995,
1,212,500 shares of Series B preferred
stock ("B Preferred "), par value $.01
per share, were issued). On April 13,
1995, an additional 100,000 shares of
Series B Preferred were issued. The
shares of B Preferred were convertible
into a number of shares of common stock
equal to the number of shares of B
Preferred to be converted multiplied by
$1.00 divided by the price at which
common stock is sold by the Company in an
IPO. Upon completion of the IPO, these
shares of B Preferred were converted into
shares of common stock on a 1-for-3.75
basis and all of the shares of B
Preferred were retired and restored to
the status of authorized but unissued
shares of preferred stock.
In March 1997 the Board of Directors
subdivided the preferred stock to create
a Series C redeemable preferred stock ("C
Preferred"), $0.01 par value, with
800,000 shares authorized with the
following principal terms:
o Each C Preferred share has four votes
on any matter to be put to the vote of
the Company's Shareholders.
o The C Preferred shares can be redeemed
at the Company's option at any time
upon payment of $200,000.
o The C Preferred shares can be redeemed
at the holder's option following any
investment in the Company or a sale of
any of the Company's assets where the
proceeds are $2,000,000 or more.
o The C Preferred shares will have
preference in the event of any
liquidation to the extent of $200,000
On January a shareholder loaned the
Company $150,000 in exchange for a six-
month non interest bearing note. In
consideration for the note and interest
thereon the shareholder was to be paid
150,000 three-year warrants with an
exercise price of $2.00 per share and a
change in the Midland Warrants (see (b)
below). The 180,000 Midland warrants,
held by Midland Associates, an affiliate
of the shareholder were amended as
follows: the expiration date was changed
from August 11 1988 to January 16, 2002
and the exercise price reduced from $3.75
to $2.00 per share.
On March 15 1997, this shareholder
advanced the Company an additional
$50,000 and surrendered the $150,000 note
which he held. The combined $200,000 was
used to subscribe for the 800,000 C
Preferred shares described above.
(b) Warrants
At March 31, 1997, the Company has
outstanding warrants as follows:
<TABLE>
<S> <C> <C> <C>
Number of Exercise Price Expiration Date
common shares per share
issuable
March 31, 1997
--------------------------------------------------
October 1994 private
placement 310,668 $3.75 October 1999
March 1995 private placement 149,720 $7.58 August 11, 2000(i)
March 1995 software rights
acquisition 33,333 $5.63 March 2000
April 1995 private placement 12,348 $7.58 August 11, 2000(i)
May 1995 settlement
agreement with MTI ("Midland
Warrants") 180,000 $2.00 January 16, 2002(ii)
August 1995 initial public
offering Redeemable Warrants 1,234,000 $7.58 August 11, 2000
August 1995 representative
warrants 123,480 $7.58 August 11, 2000
August 1995 Redeemable
Warrants issuable upon
exercise of representative's
warrants 123,480 $7.58 August 11, 2000(iii)
September 1995 exercise of
underwriters' overallotment
option for Redeemable
Warrants 185,220 $7.58 August 11, 2000
October 1995 Electric Magic
Options 50,000 $6.00 October 9, 1998
October 1995 Omotsu Warrants 80,000 $7.80 August 11, 2000
January 1997 Shareholder
warrants 150,000 $2.00 January 16, 2002
(i) Effective upon completion of the
IPO, these warrants were exchanged by
the holders for Redeemable Warrants
exercisable for an equal number of
shares and the warrants will expire upon
the fifth anniversary of the IPO.
(ii) On January 16, 1997, in connection
with a loan to the Company by the holder
of these warrants, the expiration date
was extended to January 16, 2002 and the
exercise price was reduced to $2.00 per
share.
(iii) The representative's warrants
require payment of an exercise price of
$.12 per Redeemable Warrant issuable
upon exercise of the representative's
warrants.
(c) Common Stock
On incorporation (July 1993), the
Company granted employees rights to
stock at par value that would vest based
on future employment. The total number
of shares offered under such agreements
was 87,762, of which 64,201 were issued
during the period ended March 31, 1994,
12,228 were issued during the year ended
March 31, 1995, 6,333 were issued during
the year ended March 31, 1996 and 5,000
remain to be issued as of March 31,
1997.
On April 18, 1995, the shareholders of
the Company approved a 1-for-3.75
reverse stock split of the common stock.
This reverse stock split has been
retroactively reflected in the
accompanying consolidated financial
statements as of inception.
(d) Issuance of Common Stock for Legal Fees
On November 21, 1995, the Company
entered into an agreement with its
corporate counsel, Chadbourne & Parke
LLP ("C&P"), to settle its then
outstanding legal fees. The Company
settled $450,000 of the outstanding
balance to C&P by payment to C&P of
$300,000 in cash and 27,907 shares of
common stock valued at $150,000.
(e) Stock Option Plan
The Company adopted a stock option plan
(the "Option Plan"), effective April 8,
1994, which was approved by the
shareholders on September 3, 1994. The
Option Plan provides for the grant of
options to qualified employees
(including officers and directors) of
the Company to purchase up to an
aggregate of 266,667 shares of common
stock. The Option Plan is administered
by a committee (the "Committee")
appointed by the Board of Directors. The
Committee may, from time to time, grant
options under the Option Plan to such
key employees as the Committee may
determine, provided, however, that the
Committee may not grant incentive stock
options ("Incentive Options") to any key
employee who is not in the regular
full-time employment of the Company.
Options granted under the Option Plan
may or may not be "incentive stock
options" as defined in the Internal
Revenue Code, depending upon the terms
established by the Committee at the time
of grant. The exercise price shall not
be less than the fair market value of
the Company's common stock as of the
date of the grant (110% of the fair
market value if the grant is an
Incentive Option to an employee who owns
more than 10% of the total combined
voting power of all classes of stock of
the Company). Options granted under the
Option Plan are subject to a maximum
term of 10 years.
In April 1995, options to purchase
99,466 shares of common stock at an
exercise price of $4.50 per share were
granted and became exercisable in April
1996.
In November 1995, options to purchase
124,400 shares of common stock at an
exercise price of $5.125 per share were
granted. Such options vested and became
exercisable on November 30, 1996.
SFAS No. 123 requires the Company to
provide pro forma information regarding
net loss and loss per share as if
compensation cost for the Company's
stock option plans had been determined
in accordance with the fair value based
method prescribed in SFAS No. 123
The accounting provisions of SFAS No.
123 do not have a material effect on the
Company's pro forma net loss and loss
per share and thus have not been
presented.
(f) Directors' Stock Options
One current and three former directors
have received options to purchase 10,000
units, each at an exercise price of $5
per unit, each unit consisting of one
share of common stock and a warrant to
purchase one share of common stock at an
exercise price of $6 per share. The
options are outstanding and exercisable
at March 31, 1997.
In November 1995, the Company issued to
each of its outside directors options to
purchase 10,000 shares of common stock
at an exercise price of $5.125 per share
exercisable on or after November 30,
1996. These options expire on November
30, 2000.
In April 1996, the Company issued to a
current director options to purchase
10,000 shares of common stock at an
exercise price of $5.125 per share
exercisable on or after April 24, 1997.
(g) Stock Options Issued in Connection with
the Acquisition of
Netphone
Pursuant to the terms of the acquisition
agreement for Netphone, with Electric
Magic Co. on October 9, 1995. (see Note
10), the Company issued to Electric
Magic options to purchase 50,000 shares
of common stock at an exercise price of
$6.00 per share, expiring in October
1998. In addition, the Company issued to
a third party (Omotsu Holdings Limited),
in consideration of its surrender of
rights to acquire Netphone, warrants to
buy 80,000 shares of common stock at an
exercise price of $7.80 per share
expiring August 11, 2000. (See Note 10.)
9.Supplemental Disclosures of Cash Flow Information
Year ended March 31,
1997 1996
Cash paid during the
period for:
Interest - $60,614
=======================
Income taxes - -
=======================
Supplemental disclosures
of noncash investing
activities:
Conversion of MTI
debt to paid-in
capital - 491,284
Issuance of common
stock for the
purchase of Netphone - 240,000
Issuance of common
stock for legal
services - 150,000
10. Acquisition of Netphone
On October 9, 1995, the Company acquired
Netphone, a software package, from Electric
Magic Co. in exchange for $200,000 in cash
and options to acquire 50,000 shares of the
Company's common stock valued at the nominal
amount of $500. This product allows user of
Macintosh computers to conduct long distance
conversations over the Internet for the cost
of local Internet access. The Company paid a
third party (Omotsu Holdings Limited) $80,000
in cash and issued 80,000 shares of
restricted common stock and warrants to
acquire 80,000 shares of the Company's common
stock valued at $240,000 (market value
$520,000) for surrendering its rights to
acquire Netphone.
On October 31, 1995, the Company sold
Netphone to Camelot Corporation ("Camelot")
for $193,532 in cash, 67,470 shares of
Camelot's restricted common stock valued at
the market value of $350,000 and an agreement
by Camelot to pay the Company a fee for each
unit sold by Camelot in the future. This
resulted in a gain of $23,032 included in
gain on sale of assets in the consolidated
statements of operations. On March 31, 1997,
the market value of the Camelot restricted
stock had decreased to $14,759 resulting in
an unrealized loss of $335,241, which has
been reflected in the consolidated statement
of shareholders' equity (capital deficit).
11. Employee Benefit Plan
Effective February 15, 1996, the Company
implemented a 401(k) profit sharing plan
covering substantially all employees.
Contributions to the plan are at the
discretion of the Board of Directors. The
Board did not elect to make a contribution
for the years ended March 31, 1997 or 1996.
12. Related Party Transactions
(a) During the years ended March 31, 1997 and
1996, the Company incurred fees of
approximately $24,000 and $18,000 to a
consulting firm owned by the Company's
Chairman of the Board of Directors.
(b) During the years ended March 31, 1997 and
1996, the Company incurred marketing fees
of approximately $82,000 and $72,000 to
a firm where a former Company director is
employed.
13. Major Customers
Revenues from one major customer for the
year ended March 31, 1997 accounted for
approximately 37% of the Company's total
revenues. There were no receivables due
from this customer at March 31, 1997.
Revenues from four major customers for the
year ended March 31, 1996 accounted for
approximately 64% of the Company's total
revenues.
14. Assets Held for Sale/ Discontinued operations
(a) Sale of COPERNICUS
As of May 9, 1997 the Company entered into an
agreement (the "Purchase Agreement") to sell,
subject to shareholder approval, the rights
to COPERNICUS and certain related assets to
VIE Systems Inc., a Delaware corporation
("VIE") for $2,050,000 in cash and a 5%
royalty on future COPERNICUS related license
fees payable commencing after the first 12
months. Subject to VIE's approval, the
Company will have the right to enter into OEM
agreements with VIE on commercially
reasonable terms, to incorporate COPERNICUS
within future products which the Company may
develop or acquire. Under the Purchase
Agreement the Company has appointed VIE as
its exclusive agent for the operation of all
aspects of the COPERNICUS related business .
This agreement will terminate at the earlier
of the closing of the sale or 180 days from
May 9, 1997. VIE has entered into Voting
Agreements with the holders of 68.1% of the
voting rights entitled to vote at a meeting
of Company Shareholders, and the Company
therefore expects the sale to be approved and
completed during July 1997.
As of May 9, 1997 the Company entered into a
license agreement (the "VIE License") to
license certain rights to its COPERNICUS
product and to assign certain agreements to
VIE. The VIE License gives VIE a five year
exclusive right to market COPERNICUS to the
financial services, healthcare, food and
government industries in the US and Canada.
It also allows VIE to act as a non-exclusive
distributor to all other industries within
the United States and gives VIE worldwide
non-exclusive distribution rights for all
industries until termination of the license.
Under the VIE license the Company receives a
5% royalty on all license fees received by
VIE relating to the COPERNICUS product. The
license also permits VIE to produce the
product on additional platforms and enhance
the product as it sees fit. The source code
for the product may not be distributed to
another party without the prior written
consent of the Company. Finally the Company
has assigned to VIE certain agreements,
including a distribution agreement with IBM.
This license will terminate upon the closing
of the sale under the Purchase Agreement.
Until the closing of the contemplated sale of
COPERNICUS pursuant to the Purchase
Agreement, The Company will continue to be
engaged, through its exclusive agent VIE in
the development, marketing, licensing and
support of its COPERNICUS software for large-
scale computer users. An application for a
United States patent on COPERNICUS is
pending.
b) Sale of EDI business
Until April 1, 1997, through its wholly owned
subsidiary, New Paradigm Commerce ("NPC")
(formerly New Paradigm Golden Link), the
Company operated a service bureau business
providing electronic data interchange ("EDI")
services (the conveying of business documents
electronically). As of April 1, 1997, the
Company sold its EDI business to Custom
Information Systems Corp. of New York ("CIS")
for $6,000 and a note receivable monthly over
three years with a face value of $355,000 and
a present value of approximately $300,000.
c) Discontinued Operations
The proposed dispositions of the businesses
disclosed in (a) and (b) above have been
presented as discontinued operations and the
balance sheet at March 31, 1997 and
statements of operations for the two years
then ended have been restated to conform to
this presentation. The anticipated gain on
disposal of such businesses will be included
in the statement of operations for the year
ended March 31, 1998. Financial results of
the businesses included as discontinued
operations are as follows:
Operating Data for COPERNICUS and EDI combined:
</TABLE>
<TABLE>
<S> <C> <C>
Year ended March Year ended March
31, 1997 31, 1996
Revenues:
Software fees, royalties
and licensing fees $380,671 $392,541
Consulting, maintenance and other fees 242,227 33,412
----------------------------
622,898 425,953
Expenses:
Employee costs 1,047,606 1,008,015
General and administrative 265,087 288,756
Professional fees 223,213 364,050
Marketing 323,725 523,624
Research and development - 66,979
Occupancy 20,310 20,000
Depreciation and amortization 181,276 96,335
--------- ---------
2,061,217 2,367,759
Net Loss from discontinued operations (1,438,319) (1,941,806)
</TABLE>
Balance Sheet Data
[S] [C] [C] [C]
COPERNICUS EDI Total
Assets:
Accounts receivable - net $15,995 $60,173 $76,168
COPERNICUS development costs - net 404,863 - 404,863
Patents and trademarks - net 153,629 - 153,629
Software - net 53,949 5,303 59,252
Computer equipment - net 30,792 9,081 39,873
Software rights - net 2,706 - 2,706
--------------------------------
661,934 74,557 736,491
Liabilities:
Deferred revenues 45,000 - 45,000
--------------------------------
Net Assets held for sale $616,934 $74,557 $691,491
Exhibit 10.22
IBM Worldwide Software Vendor Agreement
Base Agreement
This is a Worldwide Software Vendor Agreement ("WSVA")
between New Paradigm Software Co. ("NPSC") and International
Business Machines Corporation ("IBM"). The parties sign this
Base Agreement only once. After that, separate IBM companies
that conduct business in a specific Territory may sign a
separate Territory Agreement with NPSC under which the
parties will agree to additional or replacement terms and
conditions applicable to the specific Territory.
This Base Agreement, the Territory Agreement, and any
applicable Attachment and Exhibits, or amendments thereto
(the "Agreement"), are the complete agreement between the
parties on this subject and replace all prior oral or written
communications between the parties about it. By signing
below, the parties agree to the terms of this Base Agreement.
Once signed, any reproduction of this Base Agreement
(including Territory Agreements) made by reliable means (for
example, photocopy or facsimile) is considered an original,
unless prohibited by local law. This Agreement may only be
modified by a writing signed by both parties.
AGREED TO:
AGREED TO:
Internatinal Business Machines
Corporation
New Paradigm Software Co.
By:___________________________
_____
By:___________________________
_____
____________________________
____
____________________________
____
Print Name
Vice-President, Solution
Provider Marketing
Print Name
Chief Executive Officer
Title
____________________________
____
Title
____________________________
____
Date
Date
1. Definitions
Capitalized terms in this Agreement have the following
meanings. An Attachment, Exhibit or Territory Agreement may
define additional terms. However, those terms apply only to
that Attachment, Exhibit or Territory Agreement.
Affiliates are wholesalers, dealers, distributors, agents
and other entities either party separately uses to perform
its obligations under this Agreement. For IBM, these may
also be called IBM Business Partners or Business Associates.
Code is computer programming code including both Object Code
and Source Code:
a) Object Code is the computer programming code
substantially in binary form. It is directly executable
by a computer after processing, but without compilation or
assembly.
b) Source Code is the computer programming code that may be
displayed in a form readable and understandable by a
programmer of ordinary skill. It includes related source
code level system documentation, comments and procedural
code and all its Maintenance Modifications and
Enhancements. Source Code does not include Object Code.
Derivative Work is work that is based on an underlying work
and that would be a copyright infringement if preparred
without the authorization of the copyright owner of the
underlying work. A Derivative Work is subject to the
ownership rights and licenses of others in the underlying
work.
Enhancements are changes or additions, other than
Maintenance Modifications, to the Products:
a) Basic Enhancements are incidental Enhancements that
support new releases of operating systems and devices.
They do not include Major Enhancements.
b) Major Enhancements are Enhancements that provide
substantial additional value that could be offered to
Prospects for an additional charge.
Error is a) any mistake, problem or defect that causes a
Product to malfunction or to fail to meet its specifications;
or b) any incorrect or incomplete statement or diagram in the
related documentation that causes a Product to be materially
inaccurate or inadequate.
IBM License Agreement is the license agreement under which
IBM may Sublicense NPSC's Products to Prospects in the
Territory.
IBM Licensees are Subsidiaries or other licensees of IBM or
its Subsidiaries who are authorized by IBM to Sublicense the
Products to Prospects.
Maintenance Level Service is the Service provided when a
customer identifies an Error.
a) Level 1 is the Service provided in response to the
customer's initial contact identifying an Error.
b) Level 2 is the Service provided to reproduce an attempt
to correct the Error, or to find that the Service provider
cannot reproduce the Error.
c) Level 3 is the Service provided to isolate the Error at
the component level of the Products. The Service provider
distributes the Error correction or circumvention or gives
notice if no correction or circumvention is found.
Maintenance Modifications are revisions that correct
Errors.
Marketing Activities is the effort undertaken by IBM and
its Affiliates or NPSC in marketing the Products and Services
to Prospects either alone or with other products and
services.
Marketing and Demonstation Materials arre Product
brochures, technical specification sheets, demonstration
presentations, Product education and training materials,
Product descriptions used in electronic online services, and
other marketing sales literature provided by NPSC to IBM, or
prepared by IBM and approved by NPSC, for IBM's use in
performance of Marketing Activities. IBM's use of Marketing
and Demonstration Materials may include transmission of them
through electronic, online services.
New Products are a) Enhancements and Maintenance
Modifications to NPSC's Products; b) any of NPSC's products
that render NPSC's existing Products downlevel or obsolete;
and c) any of NPSC's other software products which NPSC makes
generally available in the Territory that perform functions
similar to NPSC's existing Products.
Order is a duly authorized order submitted by IBM to NPSC for
Products or Services, and is subject to the terms of this
Agreement.
Products are NPSC's computer software products, including
Code, documentation, related materials, and any security
devices or "locks" that are listed in an Attachment or
Amendment to a signed Territory Agreement.
Prospect is a potential or actual IBM customer for the
Products that is or was a subject of Marketing Activities.
Prospects may include IBM, IBM customers, IBM employees, IBM
Affiliates and other parties.
Services are services associated with the Products, such as
Product maintenance and Product support. Services includes
all three levels of Maintenance Level Services unless staed
otherwise.
Sublicenses is the worldwide, non-exclusive, nontransferable
right granted by IBM under this Agreement to a Prospect for
use of the Products under an IBM License Agreement.
Subsidiary is an entity that is owned or controlled directly
or indirectly (by more than 50% of its voting stock, or if
not voting stock, decision-making power) by NPSC or IBM.
NPSC's License Agreement is the agreement under which NPSC
sells, leases or licenses the Products to end users.
2. Agreement Structure
This Agreement consists of the following documents:
o Base Agreement establishes the standard terms and
conditions of the relationship.
o Attachments and Exhibits establish the terms more
specific to the relationship.
o Territory Agreement identifies the applicable
Attachments, Exhibits and related agreements, and may
include additional or replacement terms and conditions.
Both parties accept the terms of the Territory Agreement and
identified Attachments and Exhibits by signing the Territory
Agreement. Related agreements require signatures of the
parties, and in some cases third parties.
If there is a conflict among the terms of the various
documents in this Agreement, those of an Attachment prevail
over those of the Base Agreement. The terms of a Territory
Agreement prevail over those of both of these documents.
3. License Grants
Patent License: NPSC grants IBM a worldwide, royalty-free
and non-exclusive license under any inventions, patents or
patent applications owned or licensable by NPSC during the
term of this Agreement, and required to make, have made, use,
have used, lease, sell, license or otherwise transfer the
Products and Derivative Works, either alone or in combination
with equipment and/or with other software.
Derivative Works License: NPSC grants IBM and its
Affiliates a worldwide, royalty-free, non-exclusive right and
license to make, have made, use, have used, execute,
reproduce, display, perform, prepare and distribute
Derivative Works based on the Products. IBM has all right,
title and interest (including ownership of copyright) in such
Derivative Works prepared by or on behalf of IBM.
Demonstration License: NPSC grants IBM and its
Affiliattes a worldwide, royalty-free, non-exclusive
demonstration license for the Products, including the right
to use, execute, display and copy the Products for training
and demonstration use.
Marketing and Demonstration Materials: NPSC grants IBM
and its Affiliates a worldwide, royalty-free, non-exclusive
right and license to use, display, copy, distribute, and to
create Derivative Works in tangible or electronic form, of
any copyrighted material (except the copyrighted portion of
the Product Code), including but not limited to Marketing and
Demonstration Materials, graphics, pictures, drrawings,
screen layouts, text, programing interfaces, icons and any
other related items owned or licensable by NPSC, for use by
IBM in performance of Marketing Activities for NPSC's
Products and Services, and for training of employees of IBM
and its Affiliates.
Trademarks and Trade Names: Except as otherwise provided
in this Agreement, NPSC authorizes IBM and its Affiliates to
use NPSC's trademarks, trade names and copyrighted materials
for the Product solely for Marketing Activities under this
Agreement. NPSC will not use IBM's trademarks or trade names
without IBM's prior written approval.
Trial License: NPSC grants IBM and its Affiliates a
worldwide, royalty-free, non-exclusive right to license
demonstration copies of NPSC's Products to Prospects free of
charge ("Trial License") under an appropriate Trial License
agreement between IBM or NPSC, and the Prospect. The Trial
License shall be for evaluation only and shall not exceed 60
days. On a case by case basis, IBM shall have the right to
request NPSC's consent to a longer trial period for a Trial
License and NPSC shall consider any such requests in good
faith and in a manner consistent with NPSC's business
policies and practices in effect at the time each such
request is made. NPSC's consent shall not be unreasonably
withheld or delayed. Upon expiration or termination of the
rial License Agreement, all demonstration copies will be
destroyed or returned to NPSC or IBM. NPSC agrees that IMB
will not have any payment obligation to NPSC unless and until
IBM licenses the Product to the Prospect for full productive
use, and invoices the Propsect and recognizes revenue for it.
Notwithstanding the foregoing, IBM may provide services to
Prospects and cause other products to operate with NPSC's
Products wihtout obligation or payment to NPSC.
Internal Use License: NPSC grants IBM a worldwide and
non-exclusive license to NPSC's Products for interenal use
and the IBM Rate specified in the Territory Agreement. This
license grant authorizes IBM to: (a) use, store, transmit,
execute, display or merge the Products with a computer
system; (b) use the documentation provided with the
Products in support of the use of the Products; and (c)
make a copy of the Products and documentation for archival
purposes. IBM's use of the Products shall be governed by the
terms of this Agreement; the terms of NPSC's License
Agreement are specifically excluded.
Except for the internal use license granted to IBM in the
preceding paragraph, these license grants include the right
for IBM to authorize others to do some or all of the
foregoing. This Agreement does not grant IBM any ownership to
any of the copyright rights in the Products.
4. Warranty: Each party warrants to the other that it has
the resources to perform its obligations under this
Agreement, and that it is not under and will not assume any
contractual obligation that conflicts with its obligations or
the rights granted in this Agreement, or with any applicable
laws, rules or regulations.
NPSC warrants that (1) the Products are in compliance with
all applicable laws, rules and regulations, (2) NPSC has
sufficient rights to the Products (including associated marks
and names) to grant IBM the rights specified in this
Agreement, and to grant Prospects the rights specified in
NPSC's License Agreement or IBM's License Agreement, (3) the
Products conform to their specifications and any
representations made by NPSC to IBM or Prospects, (4) the
Products (including but not limited to Marketing and
Demonstration Materials) do not infringe any patent,
copyright, trademark or trade secret or any other
intellectual property rights of any third party, and do not
contain any virus or other harmful code, and (5) all
information NPSC supplies regarding the Products and
Services, including the information NPSC provides in the
Marketing and Demonstration Materials is accurate.
THE FOREGOING WARRANTIES REPLACE ALL OTHER WARRANTIES
AND CONDITIONS, EXPRESS OR IMPLIED, INCLUDING THE
WARRANTIES OR CONDITIONS OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
5. Indemnification: In addition to damages for which NPSC
is liable under law and this Agreement, NPSC indemnifies IBM
(which includes its Subsidiaries), its Affiliates, Prospects
and its and their end users, for claims by others made
against them related to (1) the Products or Services and all
related materials, (including but not limited to Marketing
and Demonstration Materials), (2) NPSC's provision of them
to IBM and its use of them under this Agreement (particularly
regarding any claimed violation of an intellectual property
right, the performance of the Products, and statements,
representations or warranties about the Products NPSC makes)
or (3) NPSC's relations with anyone else. If a claim
appears likely or is made against IBM, its Affiliates or
Prospects, about a Product, NPSC will obtain the necessary
rights for IBM, its Affiliates and Prospects to continue
exercising all rights granted in the Product, or NPSC will
modify the Product so that it is non-infringing, or replace
it with a Product that is functionally equivalent. If IBM
concludes that none of these alternatives is reasonably
available, IBM may return the Products to NPSC, at NPSC's
expense, for a full refund of all monies paid by IBM.
NPSC will pay any settlement amounts it authorizes and all
costs, damages and attorneys' fees that a court finally
awards if IBM promptly NPSC notice of the claim, and allows
NPSC to control and cooperates with NPSC in the defense of
the claim and settlement negotiations. IBM may participate
in the proceedings at its option and expense.
6. Liability: In addition to damages and indemnification
for which NPSC is liable under law or this Agreement, NPSC is
responsible for (a) damages for bodily injury (including
death) and damage to real property and tangible personal
property, and (b) the amount of any other actual loss or
damage up to the greater of $100,000 or the charges for the
Products or Services that are the subject of the claim.
Except for claims arising under Section 5, entitled
"Indemnification," neither party shall be liable to the other
for any economic consequential damages (including lost
profits or savings) or incidental damages, even if advised of
their possibility. IBM will not be liable to NPSC for
amountsj in excess of amounts payable (if any) and unpaid in
accordance with the terms of this Agreement.
7. Term and Termination: This Agreement and any Terrority
Agreement shall be effective when executed pursuant to
Section 2 of this Base Agreement. The term of this Base
Agreement ends upon the termination or expiration of all
Territory Agreements.
Unless otherwise stated in the Territory Agreement, IBM may
terminate any Territory Agreement without cause by sending
NPSC 90 days prior written notification specifying the
termination date. In recognition of the efforts expended by
IBM relative to this Agreement, NPSC may not terminate any
Territory Agreement without cause during the first 24 months
afters its execution. After the first 24 months, NPSC may
terminate any Territory Agreement without cause with 90 days'
prior written notice. The effective date of termination will
be specified in the notice.
Either party may terminate any Territory Agreement if the
other materially breaches its obligations. The termination
notice to the party in breach must be in writing identifying
the breach and will become effective 90 days after the
notice, unless the breach is cured during the 90 days.
Termination of a Territory Agreement does not terminate this
Base Agreement while other Territory Agreements are in
effect.
Any terms of this Agreement or a Territory Agreement which by
their nature extend beyond the day this Agreement ends remain
in effect until fulfilled, and apply to respective successors
and assignees. Except as otherwise provided in a related
agreement, upon termination of this Agreement, all rights and
licenses granted by NPSC to IBM shall cease, except IBM shall
continue to have all necessary rights and licenses to perform
the following acitvities: (a) IBM and its Affiliates may
sell, lease, license, sublicense, and distribute any
inventory of Products (b) IBM and its Affiliates may
continue to exercise the rights and licenses granted under
this Agreement for up to six months after termination to fill
Prospect orders IBM receives before the termination date,
(c) for as long as necessary to provide maintenance and
support to customers, and (d) continue to use the Products
for internal use. Any payment obligations by either party
shall survive and continue. All rights and licenses granted
to Prospects shall survive and continue and shall in no way
be affected by the termination of this Agreement.
8. Error Correction NPSC will use commercially reasonable
efforts to correct reproducible Errors in the Products and
associated documentation. In the event NPSC is unable after
such efforts to correct the Products, NPSC shall, upon return
by IBM of such Products, replace the Products not meeting
NPSC's warranty, or if unable to deliver replacement Products
free of defects in material and workmanship, refund IBM all
monies paid for the Products.
9. Information: All information exchanged under this
Agreement is non-confidential. Neither party shall disclose
the terms of this Agreement to any third party without the
other party's prior written consent, except to the extent
necessary to establish each party's rights hereunder, or, as
required by applicable law or regulations. NPSC will not
issue press releases or other publicity regarding this
Agreement or the relationship under it without IBM's prior
written approval.
10. Taxes: Each party shall be responsible to collect,
report and pay to the relevant taxing authority all taxes
(inclduing, without limitation, sales and value add taxes)
imposed by the national government, including any political
subdivision thereof, applicable to the sale, lease, delivery,
license or sublicense of the Products by that party.
IBM is entitled to deduct from any payments to be made to
NPSC under this Agreement, any withholding tax which in IBM's
opinion it is legally obligated to withhold and pay to any
government body in relation to those payments. If IBM is
assessed withholding tax by any government body with respect
to any payments to NPSC, then NPSC will reimburse IBM for
such taxes and any related assessed interest and penalities
which are not due to IBM's negligence.
11. Notice: Any notice required or permitted under this
Agreement will be sent to the Contract Coordinators named
below, and shall be effective upon receipt as demonstrated by
reliable written confirmation (for example, certified mail
receipt, courier receipt or facsimile receipt confirmation
sheet.)
Contract Coordinators:
For IBM:
International Business
Machines Corporation
3200 Windy Hill Road, M/S
WG9A
Atlanta, GA 30339
Attention: Bernadette Jones
770-835-8449
For NPSC:
New Paradigm Software Co.
335 Madison Ave.
New York, NY 10017
Attention: Diran Cholakian
770-661-608
12. Most Favored Customer: NPSC agrees not to charge IBM
higher rates than those it charges to others who have a
similar relationship with NPSC. If during the Agreement
Period NPSC sells, leases, licenses, or otherwise makes
available the Products or any material part thereof, to any
party with whom NPSC has a similar relationship to the
relationship set forth herein for the purposes of licensing,
sublicensing, marketing, reselling or outsourcing under
similar terms and conditions which are more advantageous to
such third party than those specified in this Agreement, then
NPSC shall promptly notify IBM in writing. IBM shall have
the right within 30 days after receiving NPSC's notification
to substitute such different terms for those specified in
this Agreement, effective as of the date of availability of
such terms to the third party. NPSC shall return to IBM any
payments IBM made subsequent to such date which are in excess
of the payments required under the substituted terms.
13. General: Neither party guarantees the success of any
marketing effort it engages in for the Products. Each party
is free to enter into similar agreements with others, set its
own prices, and conducts its business in whatever way it
chooses, provided there is no interference with performing
its obligations unders this Agreement. IBM may independently
develop, acquire, and market materials, equipment, or
programs that may be competitive with (despite any similarity
to) the Products or Services. Each party is responsible for
its own costs, including all business, travel and living
expenses incurred by the performance of this Agreement.
Neither party has relied on any promises, inducements or
representations by the other, except those expressly stated
in this Agreement. This Agreement is not to be construed as
a commitment or obligation, express or implied, on the part
of IBM that IBM will market, sell, purchase, license or
Sublicense any Products under this Agreement.
NPSC may not assign, sell, transfer or subcontract any
obligations under this Agreement without IBM's permission.
Any act to do so is considered null and void. NPSC will
promptly notify IBM of any significant change to NPSC's
business structure or operating environment. Upon such
notification, IBM may terminate this Agreement immediately.
Neither party will bring a legal action against the other
more than two years after the cause of action arose. Each
party waives a jury trial in any dispute. Failure by either
party to demand strict performance or to exercise a right
does not prevent either party from doing so later.
The parties are independent contractors. Personnel NPSC
supplies are deemed its employees and are not for any purpose
considered employees or agents of IBM. Each party assumes
full responsibility for the actions of its personnel while
performancing its obligations under this Agreement and is
solely responsible for their direction and compensation. The
parties agree that use of the Products by IBM does not create
any obligations for IBM in any way limiting or restricting
the assignment of its employees. IBM and its employees are
free to use any information, processing ideas, concepts or
techniques disclosed in the Products for any purpose
whatsoever, subject to NPSC's statutory patent and copyright
rights.
Unless otherwise stated in a Territory Agreement which shall
only apply to that Territory, the laws of New York govern
this Agreement. The United Nations' Convention on the
International Sale of Goods does not apply
IBM Worldwide Software Vendor Agreement
Reseller Attachment
Reference: Territory Agreement T96642-00
This Reseller Attachment is invoked and thereby incorporated
by reference when a Territory Agreement is executed pursuant
to Section 2 of the Base Agreement. It establishes
additional terms under which IBM may license NPSC's Products
and Services for marketing and reselling to Prospects in a
Territory under NPSC's License Agreement at prices
established by IBM. Once a Territory Agreement referencing
this Attachment is executed, IBM or its Affiliates may order
NPSC's Products and Services listed in the Territory
Agreement by sending NPSC an Order by mail, fax or electronic
means.
1. License Grant: NPSC grants IBM and its Affiliates a
worldwide, royalty-free, non-exclusive right and license to
use, execute, reproduce, display, perform, market and
distribute, in tangible and electronic form, the Products
delivered to IBM hereunder subject only to IBM's payment
obligations specified in the Territory Agreement for
licensing of Products to Prospects for productive use. The
Products, Marketing and Demonstration Materials and
Derivative Works thereof, may be distributed externally under
this Agreement by IBM and its Affiliates for purposes of,
including but not limited t: reselling, licensing,
demonstration, evaluation, promotional activities, education
of IBM employees, its Affiliates and Prospects, limited trial
use or preview by Prospects, developing and delivering proof
of concept demonstrations and implementation services, or
providing maintenance and support. These license grants
include the right for IBM to authorize others to do some or
all of the foregoing.
2. Delivery: NPSC will deliver the Products specified in
each IBM Order, and will use its best efforts to meet IBM's
requested delivery dates and quantities. NPSC will notify
IBM within 5 working days of its receipt of IBM's Order if
NPSC can not meet IBM's request, and will include a proposed
delivery schedule that NPSC agrees to meet. IBM may then
accept NPSC's proposed delivery schedule or cancel the Order
without liability. NPSC will pay all transportation charges
required for the shipment of the Products to the location IBM
specifies.
3. Market Support: NPSC will provide the following market
support activities to IBM and its Affiliates at no additional
charge during the term of this Agreement. All of NPSC's
personnel providing market support will have sufficient
Product knowledge and skills to adequately perform the
support services requested. Such personnel will have at
least the same level of Product knowledge and skills as
NPSC's personnel providing similar services to its customers.
Marketing Events: NPSC will participate in trade
shows, executive conferences, and other marketing
events, on dates and at locations mutually agreed to by
the parties.
Telephone Support: NPSC will provide telephone
consulting services durings its normal business hours to
address technical questions related to demonstration,
marketing, operation, use and installation of the
Products.
Pre-sales Support: NPSC will provide pre-sales
technical support services and demonstration assistance
for the Products to Prospects on dates and at locations
mutually agreed to by the parties.
Training: NPSC will provide the training and education
classes for its Products and Services as specified in
the Territory Agreement.
IBM's obligations for Marketing Activities are described in
the Territory Agreement.
4. Marketing and Demonstration Materials: NPSC will
provide to IBM and its Affiliates the Marketing and
Demonstration Materials specified in the Territory Agreement.
NPSC authorizes IBM to alter the Marketing and Demonstration
Materials to indicate that IBM has the authority to market,
price, license and provide Services for the Products. IBM
shall submit for NPSC's prior written approval all Marketing
and Demonstration Materials which IBM prepares for marketing
NPSC's Products and Services to Prospects. NPSC's consent to
use all information included in such Marketing and
Demonstration Materials, including but not limited to,
content, descriptions, technical information and usage of
trademarks, trade names and copyrighted materials shall not
be unreasonably withheld. NPSC shall respond in a timely
manner to the IBM Contract Coordinator for all such
submissions.
5. Product Support: During the term of the Territory
Agreement and for at least one year after delivery of each
Product sold to an IBM Prospect, NPSC will offer warranty,
maintenance, and support Services for the Products to
Prospects that are no less favorable than those NPSC
generally offers to its customers for the Products in the
Territory. If during a period of one year from the date of
delivery the Products do not comply with NPSC's warranties,
NPSC agrees to correct the deficiency without charge and
provide to IBM and Prospects such corrections in a timely
manner. IBM may o ffer additional services for NPSC's
Products to Prospects.
6. Returns, Upgrades and New Products: IBM may return
to NPSC at NPSC's expense for a full refund any Product that
contains an Error that in IBM's reasonable judgment renders
it unsuitable for marketing. NPSC represents that the
Products available to IBM under this Agreement are always the
most current release or version that NPSC makes available in
the Territory. If NPSC creates any New Products, IBM may
offer such New Products to Prospects at a reasonable upgrade
charge that the parties agreed to. NPSC will notify IBM at
least 90 days prior to offering New Products to Prospects in
the Territory. NPSC will make available to IBM at no
additional charge all new releases and versions for which
NPSC does not require an additional charge from its
customers. NPSC will offer all New Products to IBM for
marketing under this Agreement as replacement for, or in
addition to, NPSC's Products already under this Agreement.
NPSC will give IBM at least six months' notice prior to
withdrawing any Products (including any version) from
marketing or support.
7. NPSC's License Agreement: NPSC will include a copy of
its License Agreement with each Product. It must be packaged
so that the Prospect agrees to it before use of the Product.
IBM will obtain the Prospect's signature on NPSC's License
Agreement, if required. NPSC authroizes IBM to accept and
execute NPSC's License Agreement on NPSC's behalf. IBM will
periodically forward a signedcopyof NPSC's License
Agreementto NPSC for its records. IBM is not a party to the
NPSC License Agreement and does not assume any obligation for
violations of it.
8. IBM Rate: NPSC will provide the Products to IBM at the
rate stated in the Territory Agreement ("IBM Rate"). IBM is
not obligated to license any minimum quantities. NPSC will
give IBM the benefit of any price decreases NPSC offers for
Products not yet purchased by Prospects from the date a price
decrease becomes effective. IBM payments to NPSC will be at
the IBM Rate stated in the Territory Agreement subject to any
withholding tax requirement and/or any applicable transaction
based taxes (including, without limitation, sales and value-
add taxes). With the exception of theibm Rate (subject to
anywithholding requirements plus any applicable transaction
based taxes), IBM will not pay NPSC any other payments
related to the Prodcuts (for example, under any IBM Business
Party Agreeement). IBM shall have full freedom and
flexibility in pricing NPSC's Products under the Territory
Agreement and in establishing the terms and conditions under
which they are offered to Prospects. IBM is not required to
pay NPSC, and NPSC agrees not to charge IBM for, taxes for
the Products which are licensed by IBM in the United States
and Puerto Rico.
9. Payment to NPSC: Unless otherwise stated in a Territory
Agreement, all payments shall be made to NPSC within 30 days
after the close of each calendar quarter in which IBM
licenses a Product to a Prospect for productive use, and
invoices the Prospect and recognizes revenue for it. All
payments to NPSC shall be net of refunds, adjustments, and if
applicable, taxes. Payments will be accompanied by a summary
of the bases for determining its amount. IBM will maintain
records to support the payment amount. Payment will be made
by either elecronic funds transfer, or by mail. Payment is
deemed to be made on the date of electronic funds transfer,
or on the date of mailing, as applicable
IBM Worldwide Software Vendor Agreement
Sublicensing Attachment
Reference: Territory Agreement T96642-00
This Sublicensing Attachment is invoked and thereby
incorporated by reference when a Territory Agreement is
executed pursuant to Section 2 of the Base Agreement. It
establishes additional terms under which IBM may market and
Sublicense NPSC's Products to Prospects in a Territory.
1. SublicenseGrant: NPSC grants IBM and its Affiliates a
worldwide, non-exclusive right to market and Sublicense
(including the right to use, copy, reproduce, translate,
execute, display, perform, lease, and distribute, in tangible
or electronic form) NPSC's Products under the NPSC trademark
or trade names, and all related documentation, to Prospects
in the Territory under the terms of an IBM License Agreement.
Each copy of the Products Sublicensed to a Prospect shall be
for the Prospect's internal business use and shall not be
used for purposes of further distribution. Notwithstanding
any provision to the contrary, these license grants include
the right of IBM tosublicense others to do some or all of the
foregoing.
2. Delivery: NPSC will deliver the Products specified on
each IBM Order, and will use its best efforts to meet IBM's
requested delivery dates and quantities. NPSC will notify
IBM within 5 working days of receipt of an Order if it cannot
meet IBM's request, and will include a proposed delivery
schedule that NPSC agrees to meet. IBM may then accept
NPSC's proposed delivery schedule or cancel the Order without
liability. NPSC will pay all transportation charges required
for the shipment of the Products to the location IBM
specifies.
3. Market Support: NPSC will provide the following market
support activities to IBM and its Affiliates at no additional
charge during the term of this Territory Agreement:
Marketing Events: NPSC will participate in trade
shows, executive conferences, and other marketing
events, on dates and locations mutually agreed to by the
parties.
Telephone Support: NPSC will provide no-charge
telephone consulting services via a toll-free number
during its normal business hours to address technical
questions related to demonstration, marketing,
operation, use and installation of the Products.
Pre-sales Support: NPSC will provide no-charge, pre-
sales technical support services and demonstration
assistance for the Products to Prospects on dates and
locations mutually agreed to by the parties.
Training: NPSC will provide the training and education
classes for its Products and Services as specified in
the Territory Agreement.
IBM's obligations for Marketing Activities are described in
the Territory Agreement.
4. Marketing and Demonstration Materials: NPSC will
provide to IBM and its Affiliates the Marketing and
Demonstration Materials specified in the Territory Agreement.
NPSC authorizes IBM to alter the Marketing and Demonstration
Materials to indicate that IBM has the authority to market,
price, Sublicense, and provide Services for the Products.
IBM shall submit for NPSC's prior written approval all
Marketing and Demonstration Materials which IBM prepares for
marketing NPSC's Products and Services to Prospects. NPSC's
consent to use all inforamtion included in such Marketing and
Demonstration Materials, including but not limited to,
content, descriptions, technical information and usage of
trademarks, trade names and copyrighted materials shall not
be unreasonably withheld. NPSC shall respond in a timely
manner to the IBM Contract Coordinator for all such
submissions.
5. Product Support: IBM will offer Services for the
Products to Prospects in accordance with the IBM License
Agreement. NPSC agrees to provide maintenance and support
Services for the Products to IBM during the term of the
Territory Agreement, and continuing for two years after
termination of the Territory Agreement, to enable IBM to
continue to offer Services to Prospects. NPSC also agrees to
provide telephone consulting services to IBM during NPSC's
normal business hours to address technical questions related
to demonstration, marketing, operations, use and installation
of the Products IBM Sublicenses to Prospects.
6. Returns, Upgrades and New Products: IBM may return
to NPSC at NPSC's expense for a full refund any Product that
contains an Error that in IBM's reasonable judgment renders
it unsuitable for marketing or Sublicensing. NPSC represents
that the Products available to IBM under this Agreement are
always the most current release or version that NPSC makes
available in the Territory. If NPSC creates any New
Products, IBM may Sublicense such New Products to Prospects
at a reasonable upgrade charge that the parties agree to.
NPSC will make available to IBM at no additional charge all
new releases and versions for which NPSC does not require an
additional charge from NPSC's customers. NPSC will offer all
New Products to IBM for Sublicensing under this Agreement as
replacement for, or in addition to, the Products already
covered by Agreement. NPSC will give IBM at least six
months' notice prior to withdrawing any Products (including
any version) from marketing or support.
7. IBM License Agreement: IBM will provide a copy of the
IBM License Agreement to each Prospect. IBM will maintain
records of accepted IBM License Agreements.
8. IBM Rate: NPSC will provide the Products to IBM at the
rate stated in the Territory Agreement ("IBM Rate"). IBM is
not obligated to Sublicense any minimum quantities. NPSC
will give IBM the benefit of any price decreases NPSC offers
for Products not yet installed from the date a price decrease
becomes effective. IBM payments to NPSC will be at the IBM
Rate stated in the Terriroty Agreement subject to any
withholding tax requirement plus any applicable transaction
based taxes (including, without limitation, sales and value-
add taxes). With the exception of the IBM Rate (subject to
any withholding requirements plus any applicable transaction
based taxes), IBM will not pay NPSC any other payments
related to the Products (for example, under any IBM Business
Partner Agreement). IBM shall have full freedom and
flexibility in pricing NPSC's Products under the Territory
Agreements and in establishing the terms and conditions under
which they are Sublicensed to Prospects. IBM is not required
to pay NPSC, and NPSC agrees not to charge IBM for, taxes for
the Products which are Sublicensed by IBM in the United
States and Puerto Rico.
9. Payment to NPSC: Unless otherwise stated in a Territory
Agreement, all payments shall be made to NPSC within 30 days
after the close of the calendar quarter in which IBM
Sublicenses a Product to a Prospect for productive use, and
invoices the Prospect and recognizes revenue for it. Alll
payments to NPSC shall be net of refunds, adjustments, and if
applicable, taxes. Payment will be accompanied by a summary
of the basis for determining its amount. IBM will maintain
records to support the payment amount. Payment will be made
by either electronic funds transfer, or by mail. Payment is
deemed to be made on the date of electronic funds transfer,
or on the date of mailing, as applicable.
10. Certificate of Originality: NPSC will provide to IBM
a completed Certificate of Originality (attached Exhibit) for
each Product within 30 days of signing the Territory
Agreement or within 30 days of adding a new Product to the
Territory Agreement. NPSC warrants the accuracy of all
statements in each completed Certificate of Originality
IBM Worldwide Software Vendor Agreement
Outstanding Attachment
Reference Territory Agreement Number: T96642-00
This Outsourcing Attachment is invoked when NPSC and
Integrated Systems Solutions Corporation ("(ISCC-like name),"
a wholly-owned IBM Subsidiary and any related Integrated
Systems Solutions organizations worldwide, including IBM and
its Subsidiearies), sign a Territory Agreement which
incorporates it by reference. It sets forth the terms and
conditions governing the licensing from time to time by NPSC
to (ISSC-like name) of the Products for (ISSC-like name)'s
use in providing Outsourcing Services to Prospects. The
provisions of this Attachment will supersede and replace the
provisions of NPSC's License Agreement that would otherwise
be appliable for licenses obtained after the date the parties
sign a Territory Agreement referencing this Attachment
regarding the Products, irrespective of whether the Products
are obtained directly or indirectly (e.g., through a
distributor) from NPSC. However, the provisions of this
Attachment shall not supersede the provisions of individually
negotiated, signed agreements entered into between NPSC and
(ISSC-like name) regarding the Products.
1. Definitions: In addition to the terms defined in the
Base Agreement, the capitalized terms in this Attachment have
the following meanings:
o Outsourcing Services are the services (ISSC-like
name) provides involving acquisition, installation and
operation of NPSC's products on computer systems at
(ISSC-like name), IBM, Prospect or third party
locations for (ISSC-like name)'s use in support of
IBM's or a Prospect's facilities management or data
processing requirements.
o (ISSC-like name) License Agreement is the license
agreement under which ((ISSC-like name) may Sublicense
NPSC's Products to Prospects in the Territory.
o Certificate of Originality NPSC will provide to
(ISSC-like name) a completed Certificate of
Originality (attached Exhibit) for each Product within
30 days of signing this Agreement or within 30 days of
adding a new Product to the Territory Agreement. NPSC
warrants the accuracy of all statements in each
completed Certificate of Originality.
o Support for Sublicensed Products: In the event
(ISSC-like name) elects to Sublicense the Products to
Prospects as described herein, (ISSC-like name) may,
on a case-by-case basis, provide Services on NPSC's
behalf to Prospects in the Territory.
2. Sublicense Grant: NPSC grants to (ISSC-like name) a
worldwide, non-exclusive right to market and Sublicense
(including the right to use, copy, reproduce, translate,
execute, display, lease and distribute, in tangible or
electronic form) NPSC's Products, and all related
documentation, to Prospects in the Territory under the terms
of an (ISSC-like name) License. Each copy of the Products
Sublicensed to a Prospect shall be for Prospect's internal
business use and shall not be used for purposes of further
distribution. Notwithstanding any provision to the contrary,
these license grants include the right of (ISSC-like name) to
authorize others to do some or all of the foregoing.
In addition, NPSC grant (ISSC-like name) a worldwide,
royalty-free, non-exclusive right to Sublicense demonstration
copies of NPSC's Products to Prospects free of charge ("Trial
License") under an appropriate Trial License agreement
between (ISSC-like name) or NPSC, and the Prospect. The
Trial License shall be for evaluation only and shall not
exceed 60 days. On a case by case basis, (ISSC-like name)
shall have the right to request NPSC's consent to a longer
trial period for a Trial License and NPSC shall consider any
such requests in good faith and in a manner consistent iwth
NPSC's business policies and practices in effect at the time
each such request is made. NPSC's consent shall not be
unreasonably withheld or delayed. Upon expiration or
termination of the Trial Sublicense, all demonstration copies
will be returned to NPSC or (ISSC-like name). NPSC agrees
that (ISSC-like name) will not have any payment obligation to
NPSC unless and until (ISSC-like name) licenses the Product
to the Prospect for full productive use and recognizes
revenue for it.
3. Delivery: NPSC will deliver the Products specified on an
(ISSC-like name) Order, and will use its best efforts to meet
(ISSC-like name)'s requested delivery dates and quantities.
NPSC will notify (ISSC-like name) within 5 working days of
receipt of an Order if it cannot meet (ISSC-like name)'s
request, and will include a proposed delivery schedule that
NPSC agrees to meet. (ISSC-like name) may then accept NPSC's
proposed delivery schedule or cancel the Order without
liability. NPSC will pay all transportation charges required
for the shipment of the Products to the location (ISSC-like
name) specifies.
4. Support:
Technical Support: (ISSC-like name) may request that
NPSC provide technical support to (ISSC-like name) for
Products which (ISSC-like name) licenses for use in
providing Outsourcing Services to Prospects. The rates
for such support shall be established in the Territory
Agreement. (ISSC-like name) shall be entitled to
terminate any arrangement for technical support on 30
days' written notice to NPSC.
Product Education: NPSC will offer to (ISSC-like
name) education courses on the installation and use of
the Products in accordance with the education fees set
forth in the Territory Agreement.
5. (ISSC-like name) Rate: NPSC will provide the Products
to (ISSC-like name) at the rate stated in the Territory
Agreement "Outsourcing Rate"). Minimum order quantities do
not apply. (ISSC-like name) payments to NPSC will be at the
Outsourcing Rate stated in the Territory Agreement subject to
any withholding tax requirement plus any applicalbe
transaction based taxes (including, without limitation, sales
and value-add taxes). With the exception of the Outsourcing
Rate (subject to any withholding requirements plus any
applicable transaction based taxes), (ISSC-like name) will
not pay NPSC any other payments related to the Products (for
example, under any IBM Business Partner Agreement). (ISSC-
like name) is not required to pay NPSC, and NPSC agrees not
to charge (ISSC-like name) for, taxes for the Products which
are licensed and/or Sublicensed by (ISSC-like name) in the
United States and Puerto Rico.
6. Outsourcing Services: NPSC acknowledges that IBM,
Prospects, (ISSC-like name) licensees, and NPSC's licensees
may retain (ISSC-like name) to perform Outsourcing Services
on their behalf. Notwithstanding any other provision of the
Agreement or of any license agreement, IBM, and each (ISSC-
like name) licensee or any of NPSC's other licensees, shall
have the right to grant access to the Products it has
acquired to (ISSC-like name) solely for the purpose of
providing Outsourcing Services. (ISSC-like name) shall have
the right to install such Products on computer systems owned
by, leased to, or under the control of IBM, the (ISSC-like
name) licensee or any of NPSC's other licensees. The
foregoing rights are subject to: (1) (ISSC-like name) giving
NPSC notice of such Products to be managed by (ISSC-like
name), and (2) (ISSC-like name) not copying the Products or
receiving general development use access to the Products
unless prior written notice has been provided to NPSC. NPSC
agrees that there will be no fee to transfer assignment of
licensing rights in the Products by a licensee of NPSC's
Products to (ISSC-like name), or by (ISSC-like name) to the
Prospect. Further, there will be no fee to transfer the
Products to an (ISSC-like name) computer system located in
the Territory which is of like configuration as the computer
system for which such Products were licensed by NPSC. (ISSC-
like name) may elect to acquire licensing rights in the
Products under the terms of this Attachment for its use in
providing Outsourcing Services to Prospects.
In those instances where the Prospect has the licensing
rights to the Products, (ISSC-like name) agrees that its use
of the Products shall only be used on behalf of and for the
benefit of the Prospect. Access to the Products shall be
limited to those (ISSC-like name) employees or its
contractors needed to provide Outsourcing Services. Upon
termination of (ISSC-like name)'s contract to provide
Outsourcing Services to a Prospect, (ISSC-like name)'s rights
under this Agreement to use the Products licensed to the
Prospect shall also termiante. The rights of IBM, (ISSC-like
name) licensees or any of NPSC's other licensees to continue
to use NPSC's Products for their own business purposes shall
be governed by the terms of NPSC's License Agreement.
(ISSC-like name) shall have the right to assign the Products
for which it has acquired licensing rights from NPSC
hereunder to its Prospect for use on the same or different
machine at the same or different location, but for use of
essentially the same purpose, at no additional cost, provided
that (ISSC-like name) gives NPSC 30 days' prior written
notice of its intent to assign such rights, and provided
further that (ISSC-like name)'s Prospect signs NPSC's License
Agreement, or its equivalent. At the conclusion of (ISSC-
like name)'s contract with its Prospect to provide
Outsourcing Services, (ISSC-like name) shall retain all
license rights it has previously acquired from NPSC for the
Products, and shall be free to continue to use such Products
in support of its business needs, including in support of the
provision of Outsourcing Services to other Prospects, at no
additional fee, subject to continued compliance with the
terms of NPSC's License Agreement.
7. Payment to NPSC: Unless otherwise stated in a
Territory Agreement, all payments shall be made to NPSC
within 30 days after the close of the calendar quarter in
which IBM licenses a Product to a Prospect, and invoices the
Prospect and recognizes revenue for it. All payments shall
be net of refunds and adjustments, and if applicable, taxes.
Payment will be accompanied by a summary of the basis for
determining its amount. (ISSC-like name) will maintain
records to support the payment amount. Payment will be made
by either electronic funds transfer, or by mail. Payment is
deemed to be made on the date of electronic funds transfer,
or on the date of mailing, as applicable.
8. Information: (ISSC-like name) acknowledges that NPSC's
Products may be protected by copyright law. (ISSC-like name)
will reproduce copyright notices incorporated in or marked on
or fixed to the Products on all copies of all or any part of
the Products that (ISSC-like name) makes. A copyright notice
on the Products does not, by itself, constitute evidence of
publication or public disclosure
IBM Worldwide Software Vendor Agreement
Territory Agreement
Reference: Base Agreement T96642-00
This Territory Agreement is in addition to the referenced
Base Agreement. Each party agrees that the complete
agreement between the parties consists of the Base Agreement,
this Territory Agreement, and the below Attachments and
Exhibits, and replace all prior oral or written
communications between the parties about it.
o the Worldwide Software Vendor Base Agreement
o the Reseller Attachment
o the Sublicensing Attachment
o the Outsourcing Attachment
o Exhibit Certificate of Originality (COO)
o Appendix COO
o Exhibit NPSC's License Agreement
The following are related agreements between the parties:
o the Confidentiality Agreement
o the Escrow Agreement
AGREED TO:
AGREED TO:
Internatinal Business Machines
Corporation
New Paradigm Software Co.
By:___________________________
_____
By:___________________________
_____
John G. Schwarz
_________________
Mark Blundell____
________________
Print Name
Vice-President, Solution
Provider Marketing
Print Name
Chief Executive Officer
Title
____________________________
____
Title
____________________________
____
Date
Date
1. Terms Amending the Base Agreement: The following
terms and conditions amend those contained in the Base
Agreement:
Section 1. "Definitions"
Add the following definition:
"Additional Method" is Code and/or any Enhancement of Code
(Additoinal Methods typically contain only a few lines of
Code) created by or on behalf of IBM which is used by the
Product or (New Product) under the control of data stored in
the Product's (or New Product's) database by means of the
Product's (or New Product's) control program. Additional
Methods do not include any data stored in the database or the
configuration of any database which is used during the run
time of any Product or New Product. For example, an
Additional Method may be written to allow the Product to
access or call a hardware card."
In the definiton of "Products", add the word "Object" before
the word "Code".
Section 3. "License Grants"
Under the paragraph entitled "Patent License", delte the word
"sell" from the third line.
Replace the last sentence of the "Derivative Works License"
paragraph with the following:
"For all Derivative Works which are Additional Methods, IBM
hereby grants NPSC a worldwide, royalty-free, non-exclusive
right and license to make, have made, use, have used,
execute, reproduce, display, perform, prepare and distribute
Derivative Works based on the Additional Methods."
In the seventh sentence of the paragraph entitled "Trial
License", add the words "during the term of the Trial License
only," before the word "IBM".
Section 4. "Warranty"
Add the words "in all material respects" at the end of the
last sentence of paragraph 2, after the word "accurate."
Section 7. "Term and Termination"
In subparagraph (a) of paragraph 4, delete the word "sell"
and add the words "purchased by IBM from NPSC" at the end of
the sentence.
Section 9. "Information"
Add the words "except as required by law or by regulation
having the force of law" at the end of the last sentence.
2. Terms Amending the Attachments: The following terms
and conditions amend those contained in the Reseller and
Sublicensing Attachments:
Section 3. "Market Support"
Revise the paragraph entitled "Pre-sales Support" as follows:
Pre-sales Support: NPSC will provide pre-sales technical
support services and demonstration assistance for the
Products on dates and locations mutually agreed to by the
parties. IBM agrees to reimburse NPSC for out-of-pocket
expenses related to said pre-sales support, provided the
expenses are approved by IBM in advance, in accordance with
the terms and conditions of the IBM travel guide.
3. Territory: The Territory for this Agreement shall
consist of the following countries:
United States, Puerto Rico
4. IBM Rate for NPSC's Products and Services: The IBM
Rate payable to NPSC for Reselling and Outsourcing of NPSC's
Products and Services under this Agreement are stated in the
following tables, and shall be net of refunds and adjustments
granted to Prospects.
When the IBM Rate is calculated as a percentage of IBM
revenue, the percentage level of IBM revenue for any New
Products and upgrades shall not be greater than the
percentage of IBM revenue paid to NPSC for NPSC's existing
Products described in the Territory Agreement.
When the IBM Rate is not calculated as a percentage of IBM
revenue, the IBM Rate for New Products or upgrades will be
set at the same percentage of NPSC's New Product published
list price in the Territory as the percentage which
previously existed between the IBM Rate and NPSC's list price
for the Products in the Territory.
RESELLER RATES
Product Type
Product Name
IBM Rate
IBM Rate
Products
COPERNICUS
35% of IBM
Revenue
thru
12/31/97
40% of IBM
Revenue 1
after
12/31/97
Services
Maintenance/Wa
rranty
75% of IBM
Revenue
70% of IBM
Revenue 2
if sold in
conjunction
with the
Product
OUTSOURCING RATES
Product Type
Product Name
IBM Rate
IBM Rate
Products
COPERNICUS
35% of IBM
Revenue 1
thru
12/31/97
40% of IBM
Revenue 1
after
12/31/97
Services
Maintenance/Wa
rranty
75% of IBM
Revenue 2
70% of IBM
Revenue 2
if sold in
conjunction
with the
Product
A "site" is defined as one building or central location which
may house one or more departmetns dedicated to one company.
As this relationship between IBM and NPSC develops, this
definition may be revised, from time to time, at IBM's sole
discretion. NPSC will be notified of such revision.
Annually, three months following the end of the prior
calendar year, IBM will calcuate the aggregate amount of all
license fees that would have been payable to NPSC in such
prior calendar year if the applicable Minimum IBM Rate (i.e.,
floor) per platform, per site license had been used to
calculate quarterly payments, instead of the applicable
percent of IBM revenue specified in the Territory Agreement.
If the aggregate amount of percent of IBM revenue license
fees paid to NPSC for such calendar year was less than the
Minimum IBM Rate, as set forth above, IBM will pay NPSC the
difference, as an annual minimum license fee adjustment, with
the next scheduled payment.
In the event IBM finds it necessary to offer a Prospect a
special discount, then on a case by case basis IBM may
request a lower IBM Rate for such transaction. If NPSC
agrees to such lower IBM Rate, the parties will sign an
amendment specifying the lower amount.
5. IBM Respnsibilities:
5.1 Marketing Activities: IBM will use reasonable
efforts to develop and implement a market support plan for
the Products. The market support plan may include, at IBM's
sole discretion, the following Marketing Activities for the
Products:
o identify and qualify Prospects for the Products;
o as appropriate, demonstrate the Products to Prospects;]
o develop sales proposals;
o advertise NPSC's Products in various trade magazines and
other publications;
o include NPSC's Products in trade shows, executive
conferences, and other marketing events;
o implement telemarketing or direct mail campaigns.
5.2 Other Activities: IBM is responsible for ordering,
billing and accounts receivable activities related to the
Products it licenses to Prospects.
6. NPSC's Responsibilities:
6.1 Training: NPSC agrees to provide the following
training to IBM and its Affiliates, or an equivalent level of
training as IBM deems adequate, at no charge to IBM or its
Affiliates, on a quarterly basis:
o two (2) 1-day marketing classes which relate to the
demonstration and marketing of the Products; and
o two (2) 1-day technical classes which relate to the
installation and use of the Products.
6.2 NPSC's Delivery of Materials: NPSC will deliver
the following materials to IBM at no charge:
Within seven (7) days after the effective date of this
Territory Agreement, NPSC will deliver to IBM two (2) master
copies of NPSC's License Agreement. IBM may make unlimited
copies of NPSC's License Agreement to provide to Prospects.
Within seven (7) days after the effective date of this
Territory Agreement, NPSC will deliver to IBM two (2) copies
of each of NPSC's Products for demonstration purposes, as
provided for in the Base Agreement. IBM agrees not to
reverse assemble, reverse compile, or otherwise attempt to
derive the Source Code for the Products.
Within seven (7) days after the effective date of this
Territory Agreement, NPSC will deliver to IBM one master copy
of NPSC's Marketing and Demonstration Materials for IBM's use
in Marketing Activities. IBM may make unlimited copies of
NPSC's Marketing and Demonstration Materials to provide to
Prospects. NPSC agrees to provide additional reasonable
quantities of NPSC's Marketing and Demonstration Materials at
no charge to IBM upon IBM's request.
6.3 End User Support: NPSC will provide Level 1, Level 2
and Level 3 End User Support to IBM and our customers of the
Product. If it is determined that an Error exists, NPSC will
investigate and track the problem, correct the Error and
provide corrections to IBM and our customers covered by a
NPSC License Agreement.
NPSC will make support available to the IBM Customer Support
Center during normal business hours to answer questions
related to the use and installation of the Products.
6.4 Billable Services: In the event IBM requests that
NPSC provide other services above and beyond those specified
in this Agreement, and NPSC agrees to provide such services
("Billable Services") NPSC will furnish such services in a
workmanlike manner in accordance with the terms and
conditions of a separate IBM Agreement to be negotiated in
good faith by the parties. Payment by IBM for Billable
Services will be made to NPSC in accordance with the separate
IBM Agreement or IBM purchase order authorizing such Billable
Services
IBM Worldwide Software Vendor Agreement
Exhibit Certificate of Originality (COO)
Reference: Territory Agreement T96642-00
NPSC agrees to sign and provide this Certificate of
Originality ("COO") to IBM when the parties sign a
Territory Agreement(s) which incorporate this COO.
If NPSC provides IBM any Product(s), related
documentation, microcode or other software material,
(collectively, "Product Material") NPSC must complete
this questionnaire and send it to IBM's Contract
Coordinator for this transaction. NPSC will provide IBM
with any additional information needed for copyright
registration or enforcement of legal rights relating to
the Product Material.
One questionnaire can cover one complete Product even if
that Product includes multiple modules. A separate
questionnaire must be completed for Code and another for
its related documentation. Significant changes to the
Product Material will require completion of a new
questionnaire.
Please do not leave any questions blank. Write "not
applicable" or "N/A" if a question is not relevant to
the Product Material. If additional space is needed to
complete any question, please attach a separate sheet of
paper that identifies the question number.
1. QUESTIONNAIRE
1.1 Identify the Territory Agreement number under which
NPSC provides Product Material to IBM:
o Territory Agreement No.: T96642-00
o Date: December '96
1.2 Name of the Product Material (provide complete
identificaton including version, release and
modification numbers for Product(s) and
documentation):
Copernicus U2.0 and U2.1
1.3 Was the Product Material or any portion of it:
o (A) written by any third parties other than NPSC
or its employees working within their job
assignments?
Yes X No ___ (If YES, answer the following.
If NO, skip to 1.4)
- - How did NPSC acquire title to the Product
Material or the right to grant licenses to
IBM?
- - How did NPSC acquire title to the Product
Material or the right to grant licenses to
IBM?
- - Did the third parties write ALL or PART of the
Product Material?
ALL __ PART X
If PART, state the percentage written by the
third parties 2%
o (B) Were the third parties that provided the
Product Material to NPSC COMPANIES, INDIVIDUALS
or both?
COMPANIES X (complete (C) below) INDIVIDUALS
___ (complete (D) below) BOTH ___ (complete (C)
and (D) below)
o (C) For each COMPANY, provide the following
information:
- - Name: Neuron Data
- - Address: Mountain View, CA.
- - How did the COMPANY acquire title to the
Product Material? (For example, the Product
Material was written by the COMPANY's
employees as part of their job assignment):
Produce material written by Newron Data
Employees as part of their Job Assignment
- - Did the COMPANY have each non-US contributor
to the Software Material sign a waiver of
their moral rights?
YES X NO__
o D) For each INDIVIDUAL provide the following
information:
- - Name:
- - Citizenship:
- - Address:
- - Did the INDIVIDUALS create the Product
Material while employed by, or under a
contractual relationship with, another party?
YES ___ NO ___ (If YES, provide name and
address of the other party below)
- - Name:
- - Address:
- - Did the INDIVIDUALS create or first publish
the Software Material in a country other than
the US?
YES ___ NO ___
- - If YES, did the INDIVIDUALS sign a waiver of
moral rights?
YES ___ NO ___ (If YES, please attach a copy)
1.4 Was any part of the Product Material registered at
any copyright office?
- - YES __NO _X_
o Claimant Name:
o Registration Number:
Date of Registration:
o Title of Work:
1.5 Was any part of the Product Material published?
- - YES ___ NO _X_
a) When and where was it published?
b) Was there a copyright notice on the
published materials?
- - YES ___ NO___ (If YES, provide the copyright
notice below)
1.6 Was any part of the Product Material distributed by
NPSC to any outside person or company other than IBM?
- - YES _X_NO __
o When and where was the Product Material
distributed?
Under not-eclusive advises license agreements
o To whom was the Product Material distributed?
Customer of New Paradign
o Why was the Product Material distributed?
Normal course of business
o Under what conditions was the Product Material
distributed (for example, under a contract)?
Under adviser license agreements
1.7 Was any part of the Product Material derived from
preexisting materials?
- - YES __ NO X (If YES, provide the information
in (a) through (f) below for each of the
preexisting materials)
If the Product Materials contain any object-
oriented software, are any objects derived
from or inherited from other objects or
classes ("parent classes")?
- - YES ___ NO X (If YES, provide the information
in (a) through (f) below for each of the
parent classes)
o (a) Name of the preexisting material or
parent class
o (b) Author (if known):
o (c) Owner (if known):
o (d) Copyright notice appearing on the
preexisting material or parent class (if any):
o (e) Was any new function added to the
preexisting material or parent class?
YES ___ NO __ (If YES, answer the following)
Briefly describe the new functions below:
___% of preexisting material or parent class
used
___% of preexisting material or parent class
modified
___% of new material consisting of or deriving
from preexisting materials or parent classes
o (f) Briefly describe how the preexisting
materials or parent classes have been used:
1.8 Were any part of the display screens, data formats,
instruction or command formats, operator messages,
interfaces etc. (collectively called "External
Characteristics") of the Software Material copied or
derived from the External Characteristics of another
program or product of NPSC's or a third party?
- - YES __ NO X (If YES, provide the information)
o Name of NPSC's or third party's Product:
o Author (if known):
o Owner (if known):
o Copyright notice relating to the preexisting
External Characteristice (if any):
o Have the preexisting External Characteristics
been modified?
- - YES __ NO __ (If YES, discribe how they have
been modified below)
1.9 Identify below any other circumstances that may
affect IBM's ability to reporduce and market the
Product Material including:
o confidentiality or trade secrecy of preexisting
materials:
o known or expected royalty obligatins to others:
o preexisting materials developed for another
party or customer (including government) where
NPSC may not have retained full rights to the
materials:
o materials acquired from a person or company
possibly having no title to them:
o agreements under which NPSC grants rights to
others uder all or some of the Product Materials
or documentation:
1.10 Employee Identificaitn. NPSC recognize that, for
purposes of copyright registration or enforcement
of legal rights relating to the Product Material,
IBM may need t know the names, addresses and
citizenships of all persons who wrote or
contributed to the writing of the Product
Materials. NPSC agrees to keep accurate records of
all such information and to provide them to IBM on
its request.
1.11 ICON. An "ICON" is generally defined as a symbol
on a display screen that a user can point to with a
device such as a mouse in order to select a
particular operaion or software application. Ecept
for ICONs that have been used in other IBM
products, NPSC will have the creator of each ICON
contained in the Software Materials complete an
ICON IDENTIFICATION FORM and submit them as
appendices to this COO.
2. CERTIFICATION
By signing below, NPSC certifies that except for those
portions of the Product Materials identified in Par 1.3
of this COO, the Product Materials are original and NPSC
is the author of them. NPSC further certifies that all
information contained in this Certificate of Oriinality,
including any attachments or appendices to it, are
accurate and complete.
A. ICON REPRESENTATION
Words, function or thing represented by the ICON:
B. CREATOR OF ICON
1) Name:
2) Job Title:
3) Business Address:
4) Business Telephone:
5) Citizenship:
C. ICON DEVELOPMENT
1) Date the ICON was created in tangible form:
2) Was the attached ICON created as an assigned work
task?
YES ___ NO ___
3) Was the attached ICON created without reference to
any preexisting ICON's or other works authored or
owned by another?
YES ___ NO ___ (If NO, identify the preexisting
ICON's or other works that were referenced and attach
copies)
4) If the ICON was created for inclusion in a specific
product, identify the product in which it will be (or
was) used and provide the planned availability date
and country of first publication:
5) Identify or describe any known preexisting ICON's
that represent the same word or function or that are
similare in appearancet the ICON (attach copies)
6) Attach a copy of the ICON and, for identification
purposes, include on the drawing the information
provided in response to B above.
Signature: ______________________________________
______________________________________
(Creator Name)
Date: ______________________________________
IBM Worldwide Software Vendor Agreement
Escrow Agreement
Reference: Territory Agreement Number T96642-00
This Escrow Agreement is a related agreement to the Base
Agreement. It establishes the additional terms under which
IBM may exercise certain rightts an licenses granted to IBM
by NPSC to access and use the Code (in both Object and Source
Code form) subject to the occurrence of certain events as set
forth in this Escrow Agreement, or until the applicable terms
of the Agreement are fulfilled.
The signatures of all three parties to this Agreement are
required. By signing below, the parties agree to the terms
of this Escrow Agreement. Once signed, 1) all parties agree
any reproduction of this Escrow Agreement made by reliable
means (for example, photocopy or facsimile) is an original
unles prohibited by local law, and 2) all Code deposits are
subject to it.
AGREED TO: AGREED TO
International Business Machines Corporation New
Paradigm Software Co.
By:
_________________________________________
By:
_________________________________________
_________________________________________
_________________________________________
Print Name Print Name
_________________________________________
_________________________________________
Title Title
_________________________________________
_________________________________________
Date Date
AGREED TO
Custodian
By: _________________________________________
_________________________________________
Print Name
_________________________________________
Title
_________________________________________
Date
1. NPSC's Responsibilities
IBM shall identify a third party who shall be responsible for
the custody of the Code ("Custodian"). NPSC shall deliver
within 30 days after signing this Escrow Agreement two copies
of the Code for each of the Products, as well as all related
documentation, to the Custodian. Each of NPSC's deposits
with the Custodian shall be in good condition in sealed
containers, and shall include all comments, source listings,
schematics, flow charts, design specifications, notes and
other related materials necessary for a third party
programmer with ordinary skill to be able to maintain,
support and modify the Source Code without assistance from
any other third party or materials. Any additions,
deletions, corrections or other modifications NPSC makes to
the Code or related materials shall be provided to the
Custodian within five business days of their release or
availability. In the event NPSC makes available New Products
or Derivative Works, NPSC shall deliver the New Products and
Derivative Works to the Custodian on a timely basis to ensure
that the Products in the account remain current. NPSC will
replace all lost or damaged Code within three business days
of notice from Custodian. NPSC will notify the IBM Contract
Coordinator of all deposits. All of NPSC's deposits will be
labeled for identification purposes, and will include a non-
confidential list of items included in the deposit for
verification purposes. NPSC agrees that IBM may, at it sole
option, inspect each deposit, including updates, to ensure it
conforms to the terms of this Escrow Agreement. IBM may
request the Custodian to perform inspections on IBM's behalf.
NPSC represents and warrants that: (a) it has all rights
necessary for IBM to maintain, support and modify the
Products; (b) it has the authority to deliver the Code to the
Custodian; 9c) the Source Code is sufficient to allow a
programmer of ordinary skill to understand, maintain and
prepare Derivative Works using the Source Code; and (d) its
deposits are current, accurate and complete.
2. Custodian's Responsibilities
The Custodian will accept each of NPSC's deposits and notify
IBM of its receipt within three business days, and match each
item on the non-confidential list to the labels on the sealed
containers. The Custodian will retain the original Code
deposit and any updates to it, and will take all reasonable
steps to protect and store the Code in appropriate containers
and atmospheric conditions, segregated from other materials.
The Custodian will promptly notify IBM in the event the Code
is lost or damaged. If IBM provides Custodian notice to
return to NPSC or destroy certain portions of the Code or
certain deposits, Custodian will do so and provide notice to
NPSC and IBM when complete.
3. IBM's Responsibilities
IBM may only exercise its rights under this Escrow Agreement,
including access to the Code in the account, if any of the
following "Release Events" occurs: (a) in the event or
termination of the agreement or Escrow Agreement for uncured
breach; (b) NPSC, for whatever reason, discontinues or ceases
providing support for the Products for which IBM provides
written notice to that effect and NPSC fails to cure such
delinquency within 90 days of the receipt of such notice;
(c) NPSC files for, or has been declared, insolvent. In the
event a Release Event occurs and IBM obtains access to the
Code; IBM will use the Code to support the rights and
licenses granted under the Escrow Agreement and the
Agreement, and will treat the Code in accordance with the IBM
Confidentiality Agreement between NPSC and IBM.
4. Code Verification
Unless IBM and Custodian agree in writing, the Custodian is
not responsible for technical verification that the Code is
current, accurate and complete. IBM may, at its expense,
hire a third party qualifier to do the verification. NPSC
will reimburse IBM's expense if the Code does not comply with
the requirements of this Escrow Agreement. Verification
includes generating Object Code from Source Code for each
Product. The verifier will witness the transfer of the
verified Source Code to deposited media. NPSC will supervise
the verification which will be conducted at NPSC's facility
unless IBM advises otherwise. One technical IBM employee may
witness verification. To the extent possible, verification
will be done in a way that does not expose the Source Code to
the IBM employee. If this is not possible, the IBM employee
will treat the Source Code according to the IBM
Confidentiality Agreement between NPSC and IBM.
5. Access to Code
If any of the Release Events occurs, IBM may demand delivery
of the Code by providing the Custodian with written notice,
copying NPSC. The Custodian will deliver the Code according
to the notice. The Custodian will not independently verify
that any of the Release Events has occurred or refuse to
deliver the Code. If IBM determines that it does not have a
complete set of the Code, IBM may request them from NPSC.
NPSC agrees to provide the materials required within three
business days of IBM's request.
6. Grant of License
NPSC grants IBM, its successors and assigns, the following
rights and licenses: (a) all right and title to the media
containing the Code; (b) a worldwide, non-exclusive,
irrevocable license to use, execute, reproduce, display,
perform, distribute (internally and externally) and to
prepare Derivative Works of the Products; 9c) a worldwide,
non-exclusive, irrevocable and royalty free license under any
patent, patent applications owned or licensable by NPSC to
make, have made, use, have used, and otherwise transfer the
Products including Derivative Works thereof, either alone or
in combination with equipment or software. These license
grants include the right and license for IBM to Sublicense,
sell, lease, otherwise transfer, and distribute copies of the
Products and Derivative Works thereof. This license also
applies to associated audio and visual works.
IBM may authorize others to do any of the above, including
the right to further sublicense others. IBM will own any
Derivative Works of the Products that it creates.
7. Payment to Custodian
IBM will pay Custodian for services provided under this
Escrow Agreement within 30 days after receipt of an
acceptable invoice. The attached Appendix provides a
description of the Code, and identifies the specified period
of Custodian's services and the fir fees for that period.
Custodian will invoice IBM for all service to be performed
under this Escrow Agreement for one year, and renewal of this
Escrow Agreement 60 days before its anniversary date. All
invoices will reference this Escrow Agreement, the Contract
Coordinator, the IBM purchase order number (if applicable),
and the services invoiced plus the associated fee(s). If
Custodian does not receive the renewal fees within 30 days
after IBM's receipt of the invoice, it will notify the
Contract Coordinator. If IBM does not pay the fees by the
anniversary date, this Escrow Agreement will be considered
terminated by IBM and all obligations concerning the Code
will be carried out in accordance with the Section called
"Term and Termination."
8. Term and Termination
This Escrow Agreement begins when all parties sign it and
continues until terminated. IBM may, for its convenience,
terminate this Escrow Agreement on notice to NPSC and the
Custodian. Otherwise, this Escrow Agreement remains in
effect until all obligations under this Escrow Agreement and
the applicable terms of the Agreement are fulfilled. Release
Events are not authorization for rejection or termination of
this Escrow Agreement. Enforcement of this Escrow Agreement
is not an adequate remedy for such rejection or termination.
The Custodian will destroy any remaining Code 30 days after
the termination of this Escrow Agreement unless IBM provides
notice otherwise.
9. Contract Coordinators
For IBM: For NPSC:
International Business Machines Corporation New Paradigm
Software Co.
3200 Windy Hill Road 335 Madison Ave.
Atlanta, GA 30339 Suite 1
M/S WG9A New York, NY 10017
Attention: Bernadette Jones Attention: Diran
Cholakian
770-835-8449 770-661-6080
For Custodian:
Attention:
( ) ____-_____
10. Liability and Indemnification
Custodian will take all reasonable precautions to prevent
disclosure of the Code to unauthorized third parties, and is
liable only for willful misconduct, gross negligence and
fraud in performing its duties under this Escrow Agreement.
The Custodian is not liable if NPSC or IBM fails to comply
with any provision of the Agreement, or this Escrow
Agreement. The Custodian is not liable for acting on any
notice that it in good faith believes to be genuine and
legitimate.
If a third party makes a claim against the Custodian, NPSC
will indemnify the Custodian for claims based on NPSC's
failure to comply with this Escrow Agreement, and IBM will
indemnify the Custodian for claims based on IBM's failure to
comply with this Escrow Agreement. These indemnities do not
apply where it is found that the Custodian acted with willful
misconduct, gross negligence or fraud.
The indemnifying party will pay any settlement amount that it
authorizes and all costs, damages and attorney's fees that a
court finally awards if the Custodian promptly provides the
indemnifying party notice of the claim, and allows the
indemnifying party to control and cooperates with it in the
defense of the claim and settlement negotiations. The
Custodian may participate in the proceedings at its option
and expense.
11. General
Each party will comply with all applicable laws and
regulations as its expense.
None of the parties may assign or transfer this Escrow
Agreement or its rights under it or delegate or subcontract
its obligations without the prior written approval of the
other parties. Any attempt to do so is void.
If any provision of this Escrow Agreement is unenforceable at
law, the rest of the provisions remain in effect. The
headings are for reference only. They will not affect the
meaning or interpretation of this Escrow Agreement.
No party will bring a legal action against another party more
than two years after the cause of action arose. All parties
will act in good faith to resolve disputes. All parties
waive their rights to a jury trial in any resulting
litigation.
All notices must be in writing. Except as provided in this
Escrow Agreement, for a change to this Agreement to be valid,
IBM and NPSC must sign it. Except for Release Events which
cause IBM to demand access to the Code, the Custodian must
also sign changes that affect its rights or obligations under
this Escrow Agreement. IBM will provide Custodian with
copies of all changes that Custodian is not required to sign.
No approval, consent or waiver will be enforceable unless
signed by the granting party. Failure to insist on strict
performance or to exercise a right when entitled does not
prevent a party from doing so later for that breach or a
future one.
The laws of ___________ shall govern this Escrow Agreement
APPENDIX: Code Description and Payment
1. DESCRIPTION
1.1 The Code includes the Object Code and Source Code for
the Products listed in the Territory Agreement, including all
documentation and related written materials.
1.2 The Code associated with the Products and required for
deposit with Custodian are:
List items with the Products by
nomenclature, part number, version
number, etc.
2. PAYMENT
2.1 Custodian will send its original invoices to IBM at the
following address in accordance with the terms of this Escrow
Agreement:
Internation Business Machines Corporation
3200 Windy Hill Road
Atlanta, GA 30339
M/S WG9A
One copy of each invoice will be sent by mail or facsimile to
the IBM Contract Coordinator specified in the Excrow
Agreement. The address and IBM title above are subject to
change based on whether the agreement is worldwise or
Territory specific.
IBM Worldwide Software Vendor Agreement
Escrow Agreement
The attached Confidentiality Agreement is a related
agreement.
IBM Worldwide Software Vendor Agreement
Exhibit - NPSC's License Agreement
A sample copy of NPSC's License Agreement is attached.
STANDARD SOFTWARE LICENSE AGREEMENT
NEW PARADIGM SOFTWARE
CORPORATION (herein "NEW
PARADIGM"), with its
principal offices at 335
Madison Avenue, New York,
New York, grants to:
Customer Name:
Adress:
(hereinafter the
"LICENSEE"), and LICENSEE
accepts on the terms and
conditions set forth herein,
a perpetual,
nontransferable, and non-
exclusive license to use at
the specified site and for
the LICENSE FEE set forth
below, the following
software programs in machine
readable form and related
manuals and forms (herein
collectively referred to as
the "SOFTWARE SYSTEM"):
"COPERNICUS TM"
Specified Site:
A. TERM; BINDING
EFFECT: This Agreement
shall be effective and
binding upon NEW PARADIGM
and LICENSEE upon written
acceptance by NEW PARADIGM.
The term of this Agreement
shall commence on the date
of acceptance by NEW
PARADIGM and shall continue
indefinetely if LICENSEE
remains in compliance wih\th
all the terms and conditions
set forth herein.
B. LICENSE FEE:
The LICENSE FEE specified
above shall be paid in full
by LICENSEE upon delivery of
the SOFTWARE SYSTEM in
accordance with 1 of the
General Terms and
Conditions.
C. ENTIRE
AGREEMENT: LICENSEE and
NEW PARADIGM acknowledge
that they have read this
entire Agreement, including
the attached GENERAL TERMS
AND CONDITIONS which are
part of this Agreement, and
that this Agreement
constitutes the entire
understanding and contract
between the parties and
supersedes any and all prior
or contemporaneous oral and
written communications
regarding the subject
matter, all of which
communications are merged
herein. It is expressly
understood and agreed that
no employee, agent, or other
representative of NEW
PARADIGM or any independent
sales representative or
distributor has any
authority to bind NEW
PARADIGM as to any
statement, representation,
warranty, or other
expression unless the
statement, representation,
warranty, or other
expression is specifically
included within the express
terms of this Agreement.
Nothing contained in this
Agreement shall be construed
as creating a joint venture,
partnership, or employment
relationship between the
parties, nor shall either
party have the right, power,
or authority to create any
obligation or duty, express
or implied, on behalf of the
other. It is further
expressly understood and
agreed that, there being no
expectations to the contrary
between the parties, no
usage of trade or other
regualr practice or method
of dealing either within the
computer software industry,
the accounting industry or
between the parties shall be
used to modify, interpret,
supplement, or alter in any
manner the express terms of
this Agreement or any part
thereof. This Agreement
shall not be modified,
amended or in any way
altered except by an
instrument in writing signed
by both of the parties.
IN WITNESS WHEREOF, each
party has caused this
Agreement to be executed
by thier duly authorized
officers.
NEW PARADIGM SOFTWARE
CORPORATION
By:
(Name of Person Signing)
Signed:
(Signature of Person
Signing)
Title:
(Title of Person
Signing)
LICENSEE:
By:
(Name of Person Signing)
Signed:
(Signature of Person
Signing)
Title:
(Title of Person
Signing)
Date:
GENERAL TERMS AND
CONDITIONS
1. PAYMENT: Payment of
all charges invoiced to
LICENSEE in addition to the
License Fee shall be paid by
LICENSEE within ten (10)
days after the date of each
such invoice. Should
default be made in the
payment of any sums due,
such defaulted sum shall
bear interest at the maximum
legal rate permitted by law.
2. ADDITIONAL
SERVICES: Any programming
or other services provided
to LICENSEE by NEW PARADIGM
including, without
limitation, any
modifications to the
SOFTWARE SYSTEM necessitated
by LICENSEE's particular
computer configuration,
shall be invoiced to
LICENSEE at time and
material charges and travel
and lodging reimbursement
rates in effect at the time
such services are rendered
to LICENSEE. The current
charges for such assistance
are set for the on Schedule
"A" attached, but such
charges may be modified from
time-to-time in NEW
PARADIGM's sole discretion.
All assistance requested by
LICENSEE shall be provided
by NEW PARADIGM during
normal business hours after
reasonable written notice by
LICENSEE and subject to NEW
PARADIGM's availability as
determined by NEW PARADIGM
in its sole discretion.
3. TAXES: In addition
to any license fee or other
amounts charged, LICENSEE
shall pay to or reimburse
NEW PARADIGM for amounts
equal to any sales and/or
use tax, excise tax, tariff
duty, withholding tax,
property tax, or assessment
or similar levies, taxes, or
charges (other than any tax
based upon NEW PARADIGM's
net income) and related
interest and penalties
imposed by any governmental
authority (hereinafter
referred to as "charges") at
any time regarding the
license or use of the
SOFTWARE SYSTEM or the
services provided by NEW
PARADIGM or any of its sales
representatives or
distributors. Such amounts
shall be invoiced to
LICENSEE by NEW PARADIGM and
LICENSEE shall promptly pay
or reimburse NEW PARADIGM
for such amounts.
4. SCOPE OF LICENSE:
The license granted is
absolutely restricted to
LICENSEE, solely for its own
internal use at the site
specified above (hereafter
"SPECIFIED site") and may
not be used to render
services to any third party.
A separate license is
required for each additional
site where the SOFTWARE
SYSTEM will be used,
provided, however, that the
license granted for the
SPECIFIED site shall, upon
written notice to NEW
PARADIGM, be temporarily
transferred to one back-up
site, should the SPECIFIED
site become inoperative due
to malfunction. Any
transfer of the license
granted to a back-up site
shall be permissible under
this Agreement only until
such time as the SPECIFIED
site is restored to
operative status. LICENSEE
agrees, either through
control of the back-up use
or by obtaining appropriate
covenants, to protect the
valuable confidential,
secret, and proprietary
nature of the SOFTWARE
SYSTEM or any part thereof,
and to insure that 9 below
is not breached by the
limited right to back-up use
granted in this paragraph.
For the purpose of this
Agreement, use shall be
deemed to include, but shall
not be limited to, the
copying, transfer, or
manipulation of any portion
of the SOFTWARE SYSTEM for
any purpose and on or to any
media.
5. ASSIGNMENT: The
rights granted to LICENSEE
by this Agreement shall not
be assigned, subleased,
sublicensed, franchised,
sold, offered for sale,
encumbered, or otherwise
disposed of by LICENSEE,
either voluntarily or by
operation of law, without
the prior written consent of
NEW PARADIGM, nor shall
LICENSEE's duties be
delegated without prior
written consent of NEW
PARADIGM.
6. MODIFICATIONS: The
license granted is for use
of the SOFTWARE SYSTEM as
developed and owned by NEW
PARADIGM at the effective
date of this Agreement. No
alteration, modification,
addition, enhancement or
improvement made by NEW
PARADIGM to the SOFTWARE
SYSTEM after the effective
date of this Agreement (with
the exception of any
alteration made pursuant to
2, 7 and 8) shall be the
subject of this Agreement,
and any use thereof by
LICENSEE shall require an
additional license.
Notwithstanding the
foregoing, NEW PARADIGM will
offer to provide LICENSEE
with use of any such
alteration, modification,
enhancement, or improvement
generally made available to
other licensees of the
SOFTWARE SYSTEM at the
prevailing price charged to
other existing LICENSEES, in
which event LICENSEE shall
only utilize the SOFTWARE
SYSTEM as so enhanced,
modified, altered, or
improved.
7. LICENSEE'S CHANGES:
LICENSEE shall obtain NEW
PARADIGM's prior written
consent, which NEW PARADIGM
may exercise in its sole
discretion, before making
any alterations, variations,
modifications, additions,
corrections, or improvements
to the SOFTWARE SYSTEM
("LICENSEE'S CHANGES").
LICENSEE agrees that any
LICENSEE'S CHANGES including
rights in know-how,
copyrights, patents, patent
applications (including
reissues, renewals,
continuations,
continuations-in-part, or
divisions of any patent or
patent applications), trade
secrets, instructions,
improvements, modifications,
suggestions, proposals,
programs, ideas, writings,
and the like of any sort
whatsoever, and any
embodiment thereof including
but not limited to, computer
programs, documentation of
programs, assembly and
detailed drawings, plans,
specifications, results of
technical investigations and
research assembly, and parts
manuals, and any other
proprietary information
("INTELLECTUAL PROPERTY
RIGHTS") shall be the
property of NEW PARADIGM and
subject to all terms and
conditions of this
Agreement. LICENSEE shall,
however, be solely
responsible for any and all
maintenance of LICENSEE'S
CHANGES as required for its
own use of the SOFTWARE
SYSTEM and for assuring
program compatibility with
any future modifications
made to the SOFTWARE SYSTEM
by NEW PARADIGM. LICENSEE
agrees to disclose to NEW
PARADIGM all LICENSEE'S
CHANGES and to allow NEW
PARADIGM reasonable access
to any such changes for the
purposes of copying or
otherwise reproducing such
changes. LICENSEE warrants
that it shall, without
compensation, promptly do
such acts and execute,
acknowledge, and deliver all
such papers, including,
without limitation,
recordable assignments, as
may be necessary or
desirable, in the reasonable
discretion of NEW PARADIGM,
to obtain, maintain, protect
and vest in NEW PARADIGM the
entire right, title, and
interest in and to the
INTELLECTUAL PROPERTY RIGHTS
in LICENSEE'S CHANGES and to
the SOFTWARE SYSTEM to be
assigned herein by LICENSEE
including rendering such
assistance as NEW PARADIGM
may reasonably request in
any contemplated or pending
litigation, and any
Copyright Office, Patent and
Trademark Office, or other
proceeding.
8. CONFORMITY TO
SPECIFICATIONS: NEW
PARADIGM agrees to use its
reasonable efforts to
correct any failure of the
SOFTWARE SYSTEM to
substantially conform to NEW
PARADIGM 's published
technical specifications for
the SOFTWARE SYSTEM which is
reported to NEW PARADIGM in
writing within ninety (90)
days after delivery provided
such failure can be
recreated with NEW
PARADIGM's then current
version of the SOFTWARE
SYSTEM. Methods and
techniques of correcting and
implementing corrections
shall be at the sole
discretion of NEW PARADIGM.
The cost for such
maintenances shall be borne
by NEW PARADIGM, except that
any and all costs and
expenses of identifying and
correcting reported failures
shall be borne by LICENSEE,
at NEW PARADIGM's then
prevailing time and material
charges and travel and
lodging reimbursement rates,
if caused by computer
equipment or other software
malfunction; LICENSEE's
negligence or fault;
LICENSEE's failure to follow
instructions set forth in
NEW PARADIGM's instruction
or training manual or
related materials;
modifications or changes
made by LICENSEE; hardware
or other software changes;
or changes in the SOFTWARE
SYSTEM not provided by NEW
PARADIGM. any alterations,
variations, modification,
additions, corrections,
enhancements, or
improvements of the SOFTWARE
SYSTEM mad by NEW PARADIGM
pursuant to this paragraph
or any other paragraphs
shall be property of NEW
PARADIGM and subject to the
terms and conditions of this
Agreement.
9. PROPRIETARY
INFORMATION;
NON-EXCLUSIVITY: It is
expressly understood and
agreed that the SOFTWARE
SYSTEM constitutes a
valuable proprietary product
and trace secret of NEW
PARADIGM embodying
substantial creative efforts
and confidential
information, ideas, and
expressions. The definition
of 'trade secrets" includes
the definition set forth in
the Restatement of Torts.
LICENSEE agrees to observe
complete confidentiality as
to all aspects of the
SOFTWARE SYSTEM, including,
without limitation, agreeing
not to disclose or otherwise
permit any other person or
entity access to, in any
manner, the SOFTWARE SYSTEM
or any part of it in any
form whatsoever, except that
such disclosure or access
shall be permitted to an
employee of LICENSEE
requiring access to the
SOFTWARE SYSTEM during the
term of his or her
employment; to insure that
LICENSEE's employees,
agents, representatives,
independent contractors, and
guests are advised of the
confidential nature of the
SOFTWARE SYSTEM and to
insure by agreement of
otherwise that they are
prohibited from copying or
revealing, for any purpose
whatsoever, the contents of
the SOFTWARE SYSTEM, or any
part thereof, of from taking
any action otherwise
prohibited to the LICENSEE
under this paragraph; not to
use the SOFTWARE SYSTEM or
any part of it in the
performance of services, nor
provide, otherwise make
available, or permit the use
of the SOFTWARE SYSTEM, or
any part thereof, in any
form whatsoever, whether
gratuitously or for valuable
consideration, to or for the
benefit of any other person
or entity except as
permitted by 4 above,; not
to alter to remove any
copyright or proprietary
rights notice of
identification which
indicates NEW PARADIGM's or
any other entity's rights in
any part of the SOFTWARE
SYSTEM, it being expressly
understood and agreed that
the existence of any such
copyright notice shall not
be construed as an admission
or presumption that
publication of the SOFTWARE
SYSTEM has occurred; to
notify NEW PARADIGM promptly
and in writing of the
circumstances surrounding
any possession, use, or
knowledge of the SOFTWARE
SYSTEM or any part thereof
by any person or entity
other than those authorized
by this paragraph; to take
at LICENSEE's expense, but
at NEW PARADIGM's option,
and, in any event, under NEW
PARADIGM's control, any
legal action necessary to
prevent unauthorized use of
the SOFTWARE SYSTEM by any
third person or entity which
has gained access to the
SOFTWARE SYSTEM due, at
least in part, to the fault
of LICENSEE; to take any and
all other actions necessary
or desirable to insure
continued confidentiality
and protection of the
SOFTWARE SYSTEM and to
prevent access to the
SOFTWARE SYSTEM by any
person or entity not
authorized by this
paragraph; and to establish
specific procedures designed
to meet the obligations of
this paragraph. LICENSEE
shall make not attempt to
gain access to the source
code of the SOFTWARE SYSTEM
or any part thereof and also
agrees not to allow any
machine-readable version of
the SOFTWARE SYSTEM to be
printed, listed, decompiled,
or reverse engineered.
10. ESCROW OF SOFTWARE
: To afford
protection to LICENSEE, NEW
PARADIGM maintains the
source code for the SOFTWARE
SYSTEM in escrow with an
established independent
escrow agent.
11. TITLE: Title to all
copies of the SOFTWARE
SYSTEM shall remain
exclusively with NEW
PARADIGM, and LICENSEE is
entitled solely to a
nonexclusive use within the
terms and conditions of this
Agreement. LICENSEE agrees
not to take any actions
which might encumber or
expose the SOFTWARE SYSTEM
to any claims, liens, or
other form of encumbrance.
LICENSEE may not make any
copies of similar versions
of the SOFTWARE SYSTEM, or
any part of it, without the
prior written consent of NEW
PARADIGM. Upon termination
of this Agreement for any
reason, LICENSEE's right to
use the SOFTWARE SYSTEM or
any part thereof shall end
immediately and LICENSEE
agrees to return to NEW
PARADIGM all copies of the
SOFTWARE SYSTEM and any
other documents, data,
information, or materials
furnished by NEW PARADIGM at
the time of this Agreement,
as well as any copies and
versions made by LICENSEE
thereafter. LICENSEE shall
also certify in writing to
NEW PARADIGM that all copies
and versions of the SOFTWARE
SYSTEM and related material
have been either returned to
NEW PARADIGM or destroyed.
LICENSEE further agrees
that, notwithstanding any
certification required by
this paragraph, 9 above
shall, upon termination of
this Agreement for any
reason, continue in full
force and effect and shall
be binding upon LICENSEE
following such termination.
12. EMPLOYEES OF OTHER
PARTY: LICENSEE agrees not
to solicit the services of
NEW PARADIGM's employees
without the prior written
consent of NEW PARADIGM.
13. INDEMNITY FOR
INFRINGEMENT: NEW
PARADIGM agrees to hold
LICENSEE harmless from
patent or copyright
infringement based upon the
SOFTWARE SYSTEM in the form
delivered by NEW PARADIGM,
provided that NEW PARADIGM
is given prompt written
notice of and detailed
information as to any such
claim, suit, or proceeding.
NEW PARADIGM shall have the
option to participate in the
defense of any such claim or
action, and LICENSEE shall
not settle any such claim or
action without NEW
PARADIGM's prior written
consent. The foregoing
represents the entire
warranty by NEW PARADIGM and
the exclusive remedy of the
LICENSEE as to any claimed
infringement arising out of
or based upon the SOFTWARE
SYSTEM used by LICENSEE, and
is subject to the
limitations upon NEW
PARADIGM's liability set
forth in 19 below.
14. DEFAULT: Upon
default by LICENSEE, NEW
PARADIGM shall be entitled
to terminate this agreement
and to pursue any remedy
available to it at law or
equity or otherwise in
addition to any specific
rights or remedies set forth
herein. LICENSEE shall not
be entitled to a rebate of
the LICENSE FEE, or any part
thereof, upon termination of
this Agreement pursuant to
this paragraph. A default
shall, for the purposes of
this Agreement, be defined
to include: LICENSEE's
failure to pay any amount
due within ten (10) days
after notice to LICENSEE
that the same is delinquent;
any assignment, sublease,
sublicense, sale, offer to
sell, franchise,
encumbrance, disposition, or
other exploitation of the
SOFTWARE SYSTEM or any part
thereof not specifically
permitted; the insolvency of
LICENSEE; the initiation of
bankruptcy or receivership
proceedings by or against
LICENSEE; the assignment of
LICENSEE's assets for the
benefit of creditors; or
breach of any other term or
condition of this Agreement,
including the protection of
NEW PARADIGM's continuing
proprietary interest in the
SOFTWARE SYSTEM and every
part thereof. Upon default,
LICENSEE agrees to pay the
costs of any action or
proceeding instituted as a
result thereof, including
collection costs, costs of
any such action or
proceeding and attorneys'
fees.
15. EQUITABLE RELIEF:
Because of the unique and
proprietary nature of the
SOFTWARE SYSTEM, NEW
PARADIGM's remedies at law
may be inadequate and NEW
PARADIGM shall be entitled
to equitable relief,
including, without
limitation, injunctive
relief, specific
performance, or other
equitable remedies in
addition to all other
remedies provided or
available to NEW PARADIGM at
law or equity.
16. REMEDIES NOT
EXCLUSIVE: No remedy made
available to NEW PARADIGM by
this Agreement is intended
to be exclusive of any other
remedy, and each and every
remedy shall be cumulative
and shall be in addition to
every other remedy given or
now or hereafter existing at
law or in equity or by
statute or otherwise.
17. FORCE MAJEURE: If
either party shall be
delayed in its performance
of any obligation or be
prevented entirely from
performing any such
obligation due to causes or
events beyond its control,
including, without
limitation, any Act of God,
fire, strike or other labor
problem, legal action,
present or future law,
government order, rule, or
regulation, such delay or
nonperformance shall be
excused and the time for
performance shall be
extended to include the
period of such delay or
nonperformance.
18. GOVERNING LAW: This
Agreement shall be deemed
entered into in the State of
New York and shall be
construed and governed
solely by the laws of the
State of New York. The
parties hereto shall
restrict themselves
exclusively to the
jurisdiction of the courts
within the State of New York
for any controversy between
them and arising out of this
Agreement. NEW PARADIGM's
liability arising out of or
based upon this Agreement,
regardless of the form in
which any legal or equitable
action may be brought,
including without limitation
any action in tort or
contract, shall not exceed
the License Fee paid by
LICENSEE to NEW PARADIGM.
NEW PARADIGM shall not be
responsible for the results
obtained by LICENSEE in the
use of such SOFTWARE SYSTEM,
either alone or in
combination with other
programs or systems. NEW
PARADIGM's sole
responsibility regarding the
performance of the SOFTWARE
SYSTEM shall be to correct
any programming errors in
the SOFTWARE SYSTEM as
provided in 8 above. Such
PROGRAM CORRECTION shall be
LICENSEE's sole and
exclusive remedy, except
that if repeated efforts
fail to correct such errors,
then LICENSEE shall be
entitled to recover its
actual damages up to the
dollar limit of the amount
actually paid by LICENSEE to
NEW PARADIGM under this
Agreement. THE FOREGOING
WARRANTIES ARE IN LIEU OF
ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION
THE IMPLIED WARRANTIES OR
MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED
HEREIN, LICENSOR SHALL NOT,
UNDER ANY CIRCUMSTANCES, BE
LIABLE TO CUSTOMER FOR
CONSEQUENTIAL, INCIDENTAL,
INDIRECT OR SPECIAL DAMAGE,
INCLUDING, WITHOUT
LIMITATION, DAMAGES ARISING
OUT OF OR IN ANY
MALFUNCTIONS, DELAYS, LOSS
OF DATA, LOSS OF PROFIT,
INTERRUPTION OF SERVICE, OR
LOSS OF BUSINESS OR
ANTICIPATORY PROFITS, EVEN
IF LICENSOR OR LICENSOR'S
AUTHORIZED REPRESENTATIVE
HAS BEEN APPRISED OF THE
LIKELIHOOD OF SUCH DAMAGES
OCCURRING.
19. GENERAL INDEMNITY:
LICENSEE agrees to defend,
indemnify, and hold NEW
PARADIGM harmless from and
against any and all claims,
demands, liabilities,
obligations, cost, and
expenses of any nature
whatsoever arising out of or
based upon the use of the
SOFTWARE SYSTEM by LICENSEE,
except for any claims of
patent or copyright
infringement under 13
above.
20. LICENSEE'S
RESPONSIBILITIES:
LICENSEE shall be
responsible at all times for
the entire supervision,
management and control of
the SOFTWARE SYSTEM,
including without limitation
all responsibility for
design and maintenance of
proper machine
configuration, audit
controls, operating methods,
back-up plans, security,
insurance, maintenance, and
all other activities
necessary to enable LICENSEE
to utilize the Software
System.
21. NOTICES: All
notices, requests, or other
communications required
shall be in writing and
shall be deemed to have been
duly given if delivered
personally or mailed by
United States certified or
registered mail, prepaid,
return receipt requested, to
the parties or their
permitted assignees at the
addresses indicated above
(or at such other address as
shall be given in writing by
either of the parties to the
other).
22. AGREEMENT COPIES:
This Agreement may be
executed in one or more
counterparts, each of which
shall be deemed an original,
but all of which together
shall constitute one and the
same instrument.
23. ENFORCEMENT OF
RIGHTS: The failure to
enforce any to the terms and
conditions of this Agreement
by either of the parties
hereto shall not be deemed a
waiver of any other right or
privilege under this
Agreement or a waiver of the
right to thereafter claim
damages for any deficiencies
resulting from any
misrepresentation, breach of
warranty, or nonfulfillment
of any obligation of any
other party hereto. In
order for there to be a
waiver of any term or
condition of this Agreement,
such waiver must be in
writing and signed by the
party making such waiver.
24. BINDING EFFECT:
This Agreement shall be
binding upon the parties and
their successors and
permitted assigns.
SCHEDULE 'A'
Current charges for
additional services
$1,250 per person day plus
the costs of all materials,
travel and lodging.
Minimum IBM Rate is $30,000 per platform per site.
Minimum IBM Rate is $10,000 annually, per platform per site.
Exhibit 11
Weighted Average Share Calculations
Common Stock at 4/1/1996 2,446,729
Common Stock at 3/31/1997 2,451,729
Weighted Avg 2,449,428
Exhibit 24
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities stated
opposite their respective names below, hereby constitute and
appoint ARTHUR M. MITCHELL and PETER K. INGERMAN, and each
of them, singularly, attorneys-in-fact of the undersigned
with full power to each of them to sign for and in the name
of the undersigned in the capacities indicated below (a) the
Annual Report on Form 10-KSB under the Securities Exchange
Act of 1934, as amended, of New Paradigm Software Corp. (the
"Company") and (b) any and all amendments thereto, and to
give any certification which may be required in connection
therewith .
Signature Title Date
July 1, 1996
/s/ Daniel A. CHAIRMAN OF THE BOARD OF
Gordon DIRECTORS
Daniel A. Gordon
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<PERIOD-END> MAR-31-1997
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