-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pr13wO3hmO0rIX3Ih7AGLVPYud+6oyp9ZP6V8u5CJlXGcxgA5GARFZ3KK4RGLXQx IjKnu4JQDfy7YeGiF5xjKQ== 0000950134-01-002975.txt : 20010409 0000950134-01-002975.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950134-01-002975 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USDATA CORP CENTRAL INDEX KEY: 0000943895 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 752405152 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25936 FILM NUMBER: 1588650 BUSINESS ADDRESS: STREET 1: 2435 NORTH CENTRAL EXPRESSWAY CITY: RICHARDSON STATE: TX ZIP: 75080 BUSINESS PHONE: 9726809700 10-K 1 d85696e10-k.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 ----------------- Commission file number 0-25936 -------- USDATA CORPORATION ------------------ (Exact name of registrant as specified in its charter) Delaware 75-2405152 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2435 N. Central Expressway, Richardson, TX 75080 ------------------------------------------ -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (972) 680-9700 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of March 16, 2001, was approximately $4,189,706 based on the sale price of the Common Stock on March 16, 2001, of $0.75 as reported by the NASDAQ National Market System. As of March 16, 2001, the registrant had outstanding 14,007,182 shares of its Common Stock, par value $.01 per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders to be filed within 120 days after the end of the year covered by this Form 10K are incorporated herein by reference in Part III, Items 10, 11, 12 and 13. 1 2 PART I. ITEM 1. BUSINESS GENERAL USDATA Corporation (the "Company") is a global supplier of real-time component-based application software tools for automation and application software products for manufacturing. These products and services are designed to help customers manage their business in real time, reduce operating costs, shorten cycle times and improve quality in their manufacturing operations. The Company was reincorporated in the state of Delaware in 1992. The Company has a strong global presence with more than 45,000 installs located in more than 60 countries throughout the world, channel support locations worldwide and a global network of distribution and support partners. Customers include original equipment manufacturers ("OEMs"), strategic accounts, integrators and end customers, and 17 of the 25 largest global manufacturers use the Company's software. The Company's software enables manufacturers to access more accurate and timely information - whether they are on the plant floor, in the office, or around the globe. The Company's solutions span a wide range of manufacturing processes, from monitoring equipment to tracking product flow, and are designed to integrate with customers' existing manufacturing and business software. This combination of product breadth and ease of integration is intended to provide a total plant solution that defines new levels of manufacturing performance and gives customers a distinct competitive advantage. The Company is committed to solving customer problems and increasing productivity in the manufacturing and production environments through technological innovation. The Company's customers are in a wide variety of industries including; chemical, oil and gas, food, beverage, automotive, aerospace, telecommunications, electronics, transportation and other industries. The Company's family of software provide a powerful set of software tools and applications designed for users who are technically competent but who may not be experienced software programmers. The Company's subsidiary eMake Corporation ("eMake") was dedicated to Internet applications for manufacturing. eMake's services and products were designed for make-to-order manufacturers responding to changing orders, demanding customers, shorter production cycles and increasing technology needs. eMake offered solutions for Enterprise Resource Planning ("ERP"), business production system, to the small to medium sized manufacturing community. eMake's services and products were intended to provide a cost-effective, easy-to-implement business solution with secure, real-time visibility through the Internet to customers, suppliers and partners. eMake was formed by combining the Company's 1999 acquired Smart Shop Software Inc.'s ("Smart Shop") operations with a team of the Company's personnel with expertise in real time production and Internet technologies. The Company had three key initiatives in 2000: (1) Position the Company to benefit from the rapid (predicted two to four year) adoption cycle of new technology to support anticipated eBusiness needs for internet based infrastructure in manufacturing. o Launch a new subsidiary, eMake, with products and services focused on small manufacturers o Significant investment in marketing, sales, and infrastructure for growth (2) Invest in the FactoryLink(R) product line and expand our market reach in automation (3) Introduce a new product suite built around Xfactory(R) to support collaborative manufacturing In February 2001, management of the Company determined that the market adoption rate of the technology around eMake was not progressing in a manner to support the necessary resources needed to continue eMake's newly developed operating plan. As a result, the Company's Board of Directors approved a plan to terminate the operations of eMake as part of a strategy to commit the Company's resources to its core business. The Company recorded an estimate of loss on disposal of $1.2 million in the 2000 Consolidated Financial Statements, including estimated operating losses of $360 thousand expected to be incurred through the disposal date of March 31, 2001. eMake has been reported as a discontinued operation, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. See Note 2 in the Notes to the Consolidated Financial Statements for details regarding eMake's operating results. With respect to the other two initiatives, the Company maintained the course with a major product release of FactoryLink and the launch of the Xfactory Production Suite in 2000. Although FactoryLink's revenue declined steeply in the first quarter, revenue grew every quarter since then and Xfactory revenue grew 31% in 2000. In the fall of 2000, the primary focus was returning the Company to profitability as quickly as possible so a number of actions were implemented in the fourth quarter to sharpen execution, reduce complexity and increase efficiencies. These included aligning our resources against the highest value opportunities, consolidating the Company's corporate infrastructure, and re- 2 3 deploying the Company's marketing and channel resources to align them with the highest growth opportunities. The restructuring actions have been completed in the Company's core business and the Company's new plan is aligned with market conditions. The Company has developed a 2001 plan based on reduced revenues and operating expenses. The Company has secured the cash that is expected to be needed to fund operations and the USDATA community is focused on the future. See Note 14 in the Notes to the Consolidated Financial Statements. PRODUCTS AND SERVICES OVERVIEW The Company develops, markets and supports component-based software products for customers requiring enterprise-wide, open systems solutions for the manufacturing and production markets. These software products provide customers real-time component-based computer applications that provide interactive, dynamic and graphical interfaces to manufacturing and production operations. These applications collect, consolidate and communicate information about an automated manufacturing process, typically drawn from complex operating sources or from multiple sites throughout an enterprise, and enable the user to interact with and control plant-wide processes. The real-time information provided by the Company's products enables customers to reduce operating costs, improve product quality and increase overall throughput and productivity. The Company's software product, FactoryLink, is a process and control solution used to develop custom supervisory control and data acquisition ("SCADA") and human machine interfaces ("HMI") for the supervision and control of a broad range of automated processes. FactoryLink is a horizontal application tool set used by system integrators and end customers to build automation and control applications for a wide variety of industrial markets such as electronics assembly, semiconductor, automotive, building automation, food and beverage, pharmaceuticals, metals, mining, cement, oil and gas, electricity generation, transmission and distribution, and water and waste water transport. System and in-house integrators use the FactoryLink product line to build applications for SCADA, building automation, distributed control systems, electrical substation monitoring, pipeline monitoring and control, batch process monitoring and control, continuous process monitoring and control, heating, ventilation, and air conditioning, statistical process control, and telecommunications. In mid-1998, the Company introduced Xfactory, a manufacturing production execution software product that enables customers to leverage their existing business and planning systems with enterprise-wide, open systems solutions for production management. In mid-2000, the Company introduced the Xfactory Production Suite software enabling production, execution and tracking for eManufacturing integration with business and supply chain systems. The Company's solutions span a wide range of manufacturing processes, from monitoring equipment to tracking product flow, and are designed to integrate with customers' existing manufacturing and business software. The Xfactory Production Suite consists of four modules: 1) Connector for information exchange with business systems; 2) Tracker for production tracking of customer orders and products; 3) Analyzer for performance monitoring, genealogy, and data analysis and; 4) FactoryLink for data acquisition and process management. The target market for the Xfactory Production Suite is production and visibility management for build/configure to order discrete manufacturing. System integrators, consultants, and in-house IT use the Xfactory Production Suite to support online Business-to-Business eCommerce by creating applications for order status and change order management, visibility into manufacturing, product tracking & genealogy, and collection and analysis for product line development. The Xfactory Production Suite now has over 50 customers utilizing over 3,000 seats. BACKGROUND AND MARKET DEMAND Traditional Enterprise Resource Planning ("ERP") systems have product-centric views of the manufacturing enterprise. These business systems provide decision-makers with an excellent understanding of product attributes including material costs, bill of materials, labor costs and other attributes. However, these business systems generally have no concept of the target process parameters for actually producing finished goods or the actual process parameters and conditions that occurred to generate specific lots of finished goods. Traditional process control systems have an excellent process-centric view of manufacturing. They understand how things are made, target process parameters and material movement. However, process control systems generally do not have any concept of the actual product made - lot numbers, yield, quality attributes, costing information, etc. To make effective and efficient production decisions, both types of information - product and process - must be used. This integration raises a fundamental issue of how to create communication between the disparate nature of business and process control systems. The Company's products are designed to integrate business and process control systems for any production focused enterprise. 3 4 FACTORYLINK(R) FactoryLink is a collection of software tools used to build a variety of SCADA/HMI applications in the manufacturing and process industries. It allows customers to collect and monitor data from disparate process control systems. FactoryLink acts as hub for real-time information that may be used by various decision makers interested in the real-time status of the production process. In 2000, the Company released its latest version, FactoryLink 7, which is designed to have a lower total cost of ownership than other SCADA/HMI products on the market. To simplify connecting to plant floor devices, the Company includes support for Object Linking and Embedding ("OLE") for Process Control ("OPC") in FactoryLink, making it an interoperable server that can collect and distribute data throughout a multi-vendor manufacturing environment. FactoryLink's extensive database connectivity and interfaces to MES and ERP products allow it to function as the automation system hub, much broader than just HMI. Customers can now leverage their existing investments in various HMIs and build an integrated system, thereby eliminating existing islands of automation. The FactoryLink software enables a customer to: o Create easy to use, real-time supervisory control applications that provide dynamic graphical representations of manufacturing and other automated processes; o Design, test and build an automation application without computer programming knowledge through the use of an interactive graphical interface, pull-down menus, mouse-driven, point-and-click commands and fill-in-the-blank configuration tables; o Develop automation applications that are portable and scaleable from low-end to high-end systems; o Deploy completed applications easily and economically throughout an enterprise that may use different types of computer hardware and operating systems; o Provide an upgrade path by allowing easy modification of applications in response to customers' changing business needs; and o Maintain completed applications in an efficient and cost effective manner. FactoryLink's architecture permits the user to pick and choose the functionality required for a particular application. It allows the user to design high performance, real-time systems capable of handling large amounts of data. Techniques for exception processing, message compression and high-speed data transfer achieve optimal functionality under this architectural arrangement. In 1998, the Company released Year 2000 ready versions on all major FactoryLink platforms historically supported by the Company, including DOS, UNIX, OS/2, Microsoft Windows, NT and Windows 95. To provide the Company's customers with a convenient means to obtain information regarding Year 2000 readiness of its products, the Company has maintained a web site (www.usdata.com) with the latest information regarding Year 2000 readiness for its products, including a statement of what it means when a product is designated as Year 2000 ready. No significant Year 2000 related problems have been reported with the Company's software products with the transition from 1999 into early 2001. Xfactory(R) The key component of enabling a collaborative manufacturing strategy is the use of software solutions that enable manufacturers to create, accumulate, access, and share both product information and manufacturing process information across the extended enterprise and plant to-plant. The Company believes the manufacturing industry will change its application infrastructure over the next 10 to 15 years as it moves from supporting a traditional business approach with largely custom integration to collaborative supply chain manufacturing supported by packaged software implementation. The Company believes that manufacturers will integrate the plant into the business process, specification, costing, planning, manufacturing, and delivery process. In addition to traditional manufacturing investment to improve overall equipment efficiency and equipment/operator ratio, and maximize plant assets, investments will also be made to create faster time to market (volume), production visibility to the supply chain and build to customer order. In 2000, the Company launched the Xfactory Production Suite which now has over 50 customers and over 3,000 seats installed. The Xfactory Production Suite is designed to support traditional applications and the developing supply chain collaboration applications. The Xfactory Production Suite consists of four modules: 1) Connector for information exchange with business systems; 2) Tracker for production tracking of customer orders and products; 3) Analyzer for performance monitoring, genealogy, and data analysis and; 4) FactoryLink for data acquisition and process management. 4 5 The Xfactory software product enables customers to develop versatile and flexible collaborative manufacturing applications for production management, product tracking, product scheduling, and genealogy tracking for supply chain manufacturing and production processes. The information provided by the Company's products enables customers to reduce operating costs, improve product quality and increase overall supply chain throughput and productivity. MARKETING, SALES AND DISTRIBUTION The Company's sales and support organization includes channel management personnel, a corporate business development group for lead generation, a technical resource group and a network of authorized worldwide distributors that acquire licenses for the Company's products at a discount and remarket and provide training, customer support and consulting services to end-users. The Company's sales and support organization combines its internal resources with the resources, expertise and customer base of qualified third party distributors, remarketers and integrators. The Company's internal sales and marketing organization consisted of approximately 20 persons as of December 31, 2000 and is based in Richardson, Texas. The Company has field sales locations in other cities in the United States and Western Europe. The Company goes to market via a network of distributors, referred to as tier one partners ("TOPs") which collectively have approximately 50 sales people making 65% of the Company's sales. An additional 25% of the Company's sales are made through an OEM private label arrangement with Schneider Automation. The remaining 10% is sold directly to key accounts. The Company has over 100 certified integration partners around the world ranging from global automation companies to small companies that do work with specific plants. The Company is a Business-to-Business company with almost 100% of its business conducted over the web. In addition to ordering and quoting, the Company's PartnerNet is a web site utilized by its extended community for sales support, product support, and marketing. This indirect strategy is critical to the Company's success and future growth because each TOP functions as a virtual extension of the Company's sales, service and support. Typically, the business model of TOPs is primarily driven by industrial software revenues and related products. TOPs generally have value-added products and services that are additive to the Company's core products, and TOPs generally work cooperatively with a community of local system integrators that actually perform project work for the end-user. The Company regularly improves the TOP channel by monitoring performance against a comprehensive set of metrics and upgrading distributors as appropriate. In addition, the Company is planning to expand the number of U.S. based TOPs to increase sales performance. The TOP distribution channel has historically focused more on the market with the FactoryLink product line and the Company intends to complement this with direct sales activity to sell the Xfactory Production Suite and Xcelerate services. In addition to increasing Xfactory Production Suite software sales for the collaborative manufacturing market, the Company intends to increase related consulting and implementation service revenue. CUSTOMER SERVICE The Company believes a high level of customer service and technical support is critical to customer satisfaction, especially since many of the Company's customers use its products to develop complex, large-scale applications on which the success of their organizations may depend. The Company has established, and intends to continue to enhance and expand, an integrated, highly skilled channel service and technical support organization. The Company provides first level, localized support through its highly qualified and experienced TOPs. Support engineers are networked utilizing a single knowledge based system that is intended to enable quick and efficient transfer of data, software corrections and up to date technical information. In addition to frequent interaction between the Company's support personnel and the TOPs engineers, the Company also conducts regular training sessions to enhance the technical knowledge and working relationship in this support community. Annual software support agreements are available to customers in various forms. The Company also provides customer support for its products via the web, allowing users access to the latest software fixes, FAQ's (frequently asked questions), detailed examples and on-line trouble shooting/problem submission. The Company also maintains a FactoryLink Certified Integration Partner Program. Members of this program have access to specific vertical market and industry expertise and established relationships with prominent hardware and software. The Company offers comprehensive training classes to customers and third-party remarketers. Training classes are offered through in-house training facilities in Richardson, Texas and through its authorized training TOPs throughout the world. The training curriculum is a comprehensive program of application development training in a hands-on, lab-based training environment. The Company is also able to provide on-site training when required by customers. During 2000, the Company introduced PartnerNet, which is a password protected extranet available to the Company's key partners and customers. PartnerNet, provides information to assist the Company's key partners and TOPs with selling, supporting and training the Company's software products. 5 6 CUSTOMERS Since the introduction of the FactoryLink software product in 1986, the Company has licensed more than 45,000 copies of the product worldwide for use in the chemical, oil and gas, food, beverage, public utility, pharmaceutical, pulp and paper, automotive, aerospace, electronics, telecommunications, water treatment, transportation and numerous other industries. Established end users include Anheuser-Busch Companies, Inc., Ford Motor Company, Goodyear Tire & Rubber Company, Hewlett-Packard Company, JT International, Michelin Tire Corporation and Nestle Food Company. In the year ended December 31, 2000, no single end user of the Company's products accounted for more than 10% of the Company's total revenues. The target market for the Xfactory Production Suite is production and visibility management for build/configure to order discrete manufacturing. System integrators, consultants, and in-house IT use the Xfactory Production Suite to support online Business-to-Business eCommerce by creating applications for order status and change order management, visibility into manufacturing, product tracking & genealogy, and collection and analysis for product line development. The Xfactory Production Suite now has over 50 customers including recent sales to Flextronics (formerly JIT Electronics Pte Ltd), Kingston Technology Company, DRS Technologies, Micro Systems Engineering, Inc., Philips Assembly Centre Hungary Ltd, Bookham Technology, Crossroads Systems, Inc., Tower Automotive, Inc., Magna International, Inc., Filtronics Compound Semiconductors Ltd, DuPont Photomasks, Inc., Teksid Aluminio de Mexico S.A. de C.V. and Simple Technology. Sales to foreign clients (primarily in Europe) continue to be a significant source of revenue for the Company. For the year ended December 31, 2000, 1999 and 1998, the Company realized revenues from its international operations of $10.8 million (67% of revenues), $15.1 million (59% of revenues) and $15.1 million (66% of revenues), respectively. Most of the Company's international revenues were derived from sales and services related to FactoryLink software products. See also Note 13 to Notes to Consolidated Financial Statements for additional information on foreign revenues. The Company has maintained a long-term partner relationship with Schneider Automation. Schneider Automation and its predecessors have been purchasing for resale a private label, OEM version of FactoryLink from the Company since 1989 and accounted for $3.8 million and $4.9 million or 24% and 19%, respectively, of total revenues for the years ended December 31, 2000 and 1999, respectively. PRODUCT INNOVATION AND DEVELOPMENT The Company's product development efforts are focused on expanding the Company's portfolio of software products as well as maintaining the competitiveness of its current products, including development of future releases, improvements in the ease of use of its products and creation of new application modules and development tools as well as the development of new products that enable manufacturing performance improvement. The independence of its products from underlying hardware platforms, Graphical User Interfaces, Relational Database Management Systems, networks and other technologies and standards gives the Company the flexibility to evaluate a wide range of new opportunities to expand the current scope of its products. The Company's development activities generally are driven by market requirements and to the extent possible leverage known technologies and architectures. During the years ended December 31, 2000, 1999 and 1998, the Company invested approximately $12.3 million, $5.0 and $5.2 million, respectively, in product development including $4.1 million, $2.5 million and $2.5 million of capitalized software development costs in 2000, 1999 and 1998, respectively. In the years ended December 31, 2000, 1999 and 1998 the Company expended 77%, 20% and 23%, respectively, of its total revenues on product development. The Company anticipates that it will continue to commit resources to product development in the future. COMPETITION The software markets in which the Company participates are intensely competitive and are subject to rapid changes in technology and frequent introductions of new computer platforms and software standards. As a result, the Company must continue to enhance its current products and to develop new products in a timely fashion to maintain and improve its position in this industry. The Company competes generally on the basis of product features and functions, product architecture, the ability to run on a variety of computer platforms and operating systems, technical support and other related services, ease of product integration with third party applications software, price and performance. The Company's FactoryLink product competes with a number of software suppliers, including Intellution, owned by Emerson Electric, GEF Automation, owned by FEF-Fuanuc, Rockwell Software, owned by Rockwell Automation and Wonderware Corporation, owned by Invensys Software Systems, as well as large PLC and DCS manufacturers that provide similar software along with their hardware products. 6 7 The Company's Xfactory product competes with a number of software suppliers, including GR Software, owned by Genrad Corporation, Consilium owned by Applied Materials, Promis Systems owned by Brooks Automation, Camstar Systems Inc., RWT Corporation, as well as smaller software companies that provide similar software. Additionally, certain businesses develop these types of systems internally. Many of the Company's existing and potential competitors have longer operating histories and significantly greater financial, technical, sales, marketing and other resources than the Company. Certain of these organizations also have greater name recognition and a larger installed product base than the Company. The Company's competitors could introduce products in the future with more features and lower prices than the Company's product offerings. These organizations could also bundle existing or new products with other products or systems to compete with the Company. As the market for industrial automation and process control software products develops, a number of companies with significantly greater resources than the Company could attempt to increase their presence in this market by acquiring or forming strategic alliances with competitors of the Company. Any of these events could have a material adverse effect on the Company's business, prospects, operations and financial condition. BACKLOG The Company typically ships software products within a short period of time after acceptance of purchase orders. Accordingly, the Company typically does not have a material backlog of unfilled orders for its software products, and revenues in any quarter are substantially dependent on orders booked in the quarter. Any significant weakening in customer demand would therefore have an almost immediate adverse impact on the Company's operating results and on the Company's ability to maintain profitability. INTELLECTUAL PROPERTY The Company holds patents in the United States covering control systems that employ the features embodied in its FactoryLink product. The Company has registered its "USDATA," "FactoryLink" and "Xfactory" trademarks with the U.S. Patent and Trademark Office, as well as in several foreign countries. The Company has applied for a U.S. and European trademark for its eMake product. The Company regards its software as proprietary and attempts to protect it with a combination of patent, copyright, trademark and trade secret law, license agreements, nondisclosure and other contractual provisions and technical measures. The Company requires employees to sign an agreement not to disclose trade secrets and other proprietary information. The Company's software products generally are licensed to end-users under a perpetual, non-transferable, nonexclusive license that stipulates which modules can be used and how many concurrent controllers may use them. The Company relies primarily on "shrink wrap" licenses for the protection of its products. A shrink wrap license agreement is a printed and/or electronic license agreement included with the packaged software that sets forth the terms and conditions under which the purchaser can use the product and binds the purchaser by its acceptance and purchase of the software to such terms and conditions. In addition, in some instances the Company licenses its products under agreements that give licensees limited access to the source code of the Company's products. The Company believes that existing intellectual property laws and other protective measures afford only limited practical protection for the Company's software. Furthermore, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. Shrink-wrap licenses typically are not signed by the licensee and therefore may be unenforceable under the laws of certain jurisdictions. Accordingly, despite precautions taken by the Company, it may be possible for unauthorized third parties to copy or reverse-engineer certain portions of the Company's products or to obtain and use information that the Company regards as proprietary. While the Company's competitive position could be threatened by its inability to protect its proprietary information, the Company believes that, because of the rapid pace of innovation within its industry, factors such as the technological and creative skills of the Company's personnel are more important to establishing and maintaining a technology leadership position within the industry than are the various legal protections available for its technology. As the number of software products in the industry increases and the functionality of these products further overlaps, the Company believes that software programs could increasingly become the subject of infringement claims. Although the Company's products have not been the subject of an infringement claim, there can be no assurance that third parties will not assert infringement claims against the Company in the future or that any such assertion will not result in costly litigation or require the Company to obtain a license to use the intellectual property rights of such parties. In addition, there can be no assurance that such a license would be available on reasonable terms or at all. 7 8 EMPLOYEES As of December 31, 2000, the Company had approximately 90 full-time employees. None of the Company's employees are subject to a collective bargaining agreement, and the Company has not experienced any work stoppage. The Company believes that its relations with its employees are good. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are elected annually by the Board of Directors and hold office until their successors are elected and qualified. The following person was an executive officer of the Company at December 31, 2000:
Name Age Position - ---- --- -------- Robert A. Merry 51 President and Chief Executive Officer
Robert A. Merry - Mr. Merry joined the Company in July of 1997 as President and Chief Executive Officer. From 1992 through 1997, Mr. Merry served as President, Process Manufacturing SBU of EDS Corporation. Prior to his service at EDS, Mr. Merry served as Vice President, Sales and Marketing for DTM Corporation, from 1991 to 1992 and as Vice President, North American Operations for Execucom Systems Corporation from 1985 to 1991. ITEM 2. PROPERTIES The Company leases approximately 65,000 square feet of office space in Richardson, Texas. The lease agreement for this office space was due to expire in 2000. In February 2000, the Company amended the lease to extend the lease term to 2010 and increase leased office space by approximately 30,000 square feet in equal increments by mid-2000 and 2001. The first installment was completed by December 31, 2000 and the second installment was completed in February 2001 for a total of approximately 80,000 square feet of leased office space by February 2001. As a result of the fourth quarter 2000 restructuring plan, approximately 40,000 square feet of this office space is deemed to be excess lease capacity that the Company is attempting to sub lease. See further discussion in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company leases additional office space for its eMake subsidiary in Post Falls, Idaho and for its channel support locations in Europe. The Company believes that suitable additional or alternative space will be available as needed to accommodate the corporate operations and sales offices. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal actions incidental to the normal conduct of its business. The Company does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock, par value $.01 per share (the "Common Stock"), has been listed on the Nasdaq National Market since June 16, 1995, under the symbol "USDC." The following table sets forth, on a per share basis for the periods shown, the range of high and low closing prices of the Company's Common Stock compiled from published sources:
High Low ---- --- 2000: Fourth Quarter 4.75 0.50 Third Quarter 8.50 4.00 Second Quarter 13.00 4.63 First Quarter 19.13 11.13 1999: Fourth Quarter 14.94 3.13 Third Quarter 5.56 3.19 Second Quarter 4.13 2.13 First Quarter 4.38 1.94
As of December 31, 2000, there were approximately 2,820 beneficial holders of record of the Company's common stock (which amounts do not include the number of stockholders whose shares are held of record by brokerage houses or clearing agencies but include each such brokerage house or clearing agency as one stockholder). RECENT SALES OF UNREGISTERED SECURITIES On September 12, 2000, SCP Private Equity Partners, L.P. ("SCP") and Safeguard Capital 2000, L.P. ("Safeguard") purchased through a private placement 5,300,000 shares each, for a total of 10,600,000 shares, of eMake Corporation Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred Stock (collectively referred to as the "Series A Preferred") and warrants to purchase up to an additional 5,300,000 shares each of eMake Corporation Series A-1 and Series A-2 preferred stock, respectively. The aggregate purchase price of $26,500,000 was comprised of $6,936,754 in cash and cancellation of $19,250,000 of the notes payable described in Note 10 and the related accrued interest of $313,246. The eMake Series A-1 Preferred Stock is convertible into shares of eMake Corporation Class A common stock at a conversion rate of $2.50 per share of common stock or into shares of the Company's Series B Preferred Stock at the rate of one preferred share of the Company for each 40 shares of eMake Series A-1 preferred stock owned. The eMake Series A-2 Preferred Stock is convertible into shares of eMake Corporation Class B common stock at a conversion rate of $2.50 per share of common stock or into shares of the Company's Series B Preferred Stock at the rate of one preferred share of the Company for each 40 shares of eMake Series A-2 preferred stock owned. During the first quarter 2001, SCP and Safeguard each elected to exercise their right to convert their eMake Series A preferred stock into shares of the Company's Series B preferred stock. See Note 14 to the Consolidated Financial Statements. On March 30, 2001, the Company secured an equity infusion of $1.5 million from SCP through the issuance of 37,500 shares of Series C-1 Preferred Stock of the Company and a warrant to purchase up to 75,000 shares of Series C-2 Preferred Stock ("Series C Preferred"). In addition, SCP has committed to purchase an additional 37,500 shares of Series C Preferred ("Option Stock") at the purchase price of $40 per share or $1.5 million. The Company may exercise its right to sell the Option Stock on or before the expiration of nine months after March 30, 2001 ("Closing Date"), but not before two months after the Closing Date, and the Company must be in compliance with specified monthly targets as defined in the Series C Preferred Stock Agreement. The Series C Preferred has a par value of $.01 per share and a liquidation preference of $80 per share plus cumulative dividends and interest. The preferred stock is convertible into the Company's common stock at a conversion rate of 100 shares of common stock for each share of preferred stock and the cumulative dividends are payable at $4.00 per share per annum in the form of additional shares of Series C Preferred and in preference to any dividends on the Company's common stock. As an additional condition to this equity financing, SCP and Safeguard both agreed not to exercise their right to convert their Series A-1 and A-2, respectively, warrants, issued by eMake. The excess of the liquidation preference over the purchase price of the preferred stock will be accounted for similar to a beneficial conversion feature which will be reflected as a $1.5 million dividend on preferred stock, increasing the loss applicable to common stockholders for the first quarter of 2001. In 1994, the Company issued warrants to Safeguard and a director of the Company to purchase common stock of the Company. The warrants entitled Safeguard and the director to purchase 698,238 and 77,582 shares, respectively, of common stock of the Company at an exercise price of $3.02 per share. In December 1999, the director exercised his warrant to purchase 77,582 shares of the Company's common stock and in June 2000 Safeguard exercised its warrant to purchase 698,238 shares of the Company's common stock for $2.1 million in cash. All of the above referenced shares were issued pursuant to an exemption by reason of Section 4(2) of the Securities Act of 1933. The sales were made without general solicitation or advertising. Each purchaser represented that he, she, or it was acquiring the shares without a view to distribute and was afforded an opportunity to review all documents and ask questions of the Company's officers pertaining to matters they deemed material to an investment in the Company's securities. DIVIDEND POLICY To date, the Company has not paid any cash dividends on its Common Stock. The Company currently intends to retain future earnings for use in its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. Future dividends, if any, will depend on, among other things, the Company's results of operations, capital requirements, restrictions in loan agreements and financial condition and on such other factors as the Company's Board of Directors may, at its discretion, consider relevant. 9 10 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial information relating to the financial condition and results of operations of the Company and should be read in conjunction with the consolidated financial statements and notes included herein.
Years Ended December 31, ---------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA (in thousands, except per share data) Revenues $ 16,034 $ 25,634 $ 22,861 $ 22,381 $ 23,885 Income (loss) from continuing operations $ (14,916) $ 2,767 $ (2,094) $ (3,907) $ (2,650) Net loss applicable to common stockholders $ (44,834) $ (2,583) $ (3,813) $ (3,690) $ (1,056) Net income (loss) per common share from continuing operations: Basic $ (1.12) $ 0.22 $ (0.19) $ (0.35) $ (0.24) Diluted $ (1.12) $ 0.19 $ (0.19) $ (0.35) $ (0.24) BALANCE SHEET DATA (in thousands) Total assets $ 16,354 $ 26,162 $ 16,401 $ 19,254 $ 21,717 Long term debt, including current portion $ 1,719 $ 450 -- -- -- Stockholders' equity (deficit) $ (21,212) $ 14,087 $ 10,295 $ 13,873 $ 16,648
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW USDATA Corporation (the "Company") is a global supplier of real-time component-based application software tools for automation and application software products for manufacturing. These products and services are designed to help customers manage their business in real time, reduce operating costs, shorten cycle times and improve quality in their manufacturing operations. The Company has a strong global presence with more than 45,000 installs located in more than 60 countries throughout the world, channel support locations worldwide and a global network of distribution and support partners. The Company's software enables manufacturers to access more accurate and timely information - whether they are on the plant floor, in the office, or around the globe. The Company's solutions span a wide range of manufacturing processes, from monitoring equipment to tracking product flow, and are designed to integrate with customers' existing manufacturing and business software. This combination of product breadth and ease of integration is intended to provide a total plant solution intended to improve manufacturing performance and give customers a competitive advantage. Revenues have been generated primarily from licenses of the Company's FactoryLink and Xfactory software and secondarily from technical support and service agreements, training classes and product related services. The support and service agreements are generally one-year, renewable contracts entitling a customer to certain software upgrades and technical support. Revenue from services represented approximately 19%, 13% and 15% of revenues during the years ended December 31, 2000, 1999, and 1998, respectively. 10 11 Included in the FactoryLink family of products are versions 6.5 and 6.6, real-time information Windows NT and Windows 98/95 platforms, supporting powerful client access environments and technologies and providing Year 2000 ("Y2K") readiness. In addition, the Company offers FactoryLink WebClient, which provides the ability to view and control any FactoryLink server running Microsoft Windows NT using a simple web browser. In late June 2000, the Company released FactoryLink 7, a multi-user, real-time SCADA product, developed to run on the Windows 2000 and Windows NT operating systems. FactoryLink 7 was designed specifically to give businesses access to a solution with the lowest total cost of integration, installation, and support. In mid-1998, the Company introduced Xfactory, a manufacturing production execution software product that enables customers to leverage their existing business and planning systems with enterprise-wide, open systems solutions for production management. In mid-2000, the Company introduced the Xfactory Production Suite software enabling production, execution and tracking for eManufacturing integration with business and supply chain systems. The Xfactory Production Suite consists of four modules: 1) Connector for information exchange with business systems; 2) Tracker for production tracking of customer orders and products; 3) Analyzer for performance monitoring, genealogy, and data analysis; and 4) FactoryLink for data acquisition and process management. The Company focuses its sales efforts through selected distributors capable of providing the level of support and expertise required in the real-time manufacturing and process control application market. The division currently has channel support locations in the United States and Europe. The Company's distributors have sales locations throughout North and South America, Europe, the Far East and the Middle East. Effective July 1, 1998, the Company sold its Auto ID hardware integration and servicing business. In conjunction therewith, during the first quarter of 1998, the Company reported a loss of $1.5 million related to the disposal thereof and $219 thousand related to operations through the date of disposal. During the fourth quarter 2000, the Company implemented a restructuring plan designed to significantly reduce the Company's cost structure by reducing its workforce and other operating costs. A revised operating plan was developed to restructure and stabilize the business. See further discussion in the Liquidity and Capital Resources section. In February 2001, management of the Company determined that the market adoption rate of the technology around eMake was not progressing in a manner to support the necessary resources needed to continue eMake's newly developed operating plan. As a result, the Company's Board of Directors approved a plan to terminate the operations of eMake as part of a strategy to commit the Company's resources to its core business. The Company recorded an estimate of loss on disposal of $1.2 million in the 2000 consolidated financial statements, including estimated operating losses of $360 thousand expected to be incurred through the disposal date of March 31, 2001. eMake is reported as a discontinued operation, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. See Note 2 in the Notes to the Consolidated Financial Statements for details regarding eMake's operating results. FORWARD LOOKING STATEMENTS This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 regarding revenues, margins, operating expenses, earnings, growth rates and certain business trends that are subject to risks and uncertainties that could cause actual results to differ materially from the results described herein. Specifically, the ability to grow product and service revenues may not continue and the Company may not be successful in developing new products, product enhancements or services on a timely basis or in a manner that satisfies customers needs or achieves market acceptance. Other factors that could cause actual results to differ materially are: competitive pricing and supply, market acceptance and success for service offerings, short-term interest rate fluctuations, general economic conditions, employee turnover, possible future litigation, the impact of Y2K and the related uncertainties may have on future revenue and earnings as well as the risks and uncertainties set forth from time to time in the Company's other public reports and filings and public statements. Recipients of this document are cautioned to consider these risks and uncertainties and to not place undue reliance on these forward-looking statements. See "Business" in Part I, Item 1 of this report for a discussion of other important factors that could affect the validity of any such forward-looking statement. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. 11 12 RESULTS OF OPERATIONS The following table presents selected financial information relating to the financial condition and results of operations of the Company and should be read in conjunction with the consolidated financial statements and notes included herein. The table sets forth, for the periods indicated, the Company's statement of operations as a percentage of revenues.
YEARS ENDED DECEMBER 31, ------------------------------------------- 2000 1999 1998 --------- --------- --------- Revenues: Product license 81% 87% 85% Services 19% 13% 15% --------- --------- --------- Total revenues 100% 100% 100% --------- --------- --------- Operating expenses: Selling and product materials 80% 58% 72% Product development 51% 9% 12% General and administrative 41% 19% 26% Severance and other charges 15% 0% 0% --------- --------- --------- Total operating expenses 187% 86% 110% --------- --------- --------- Loss from operations (87)% 14% (10)% Other income (expense), net 1% 0% 1% Interest expense (2)% 0% 0% --------- --------- --------- Loss from continuing operations before income taxes and preferred stock dividends of subsidiary (88)% 14% (9)% Income tax (provision) benefit 0% (3)% 0% Preferred stock dividends of subsidiary (4)% 0% 0% --------- --------- --------- Loss from continuing operations (92)% 11% (9)% Discontinued operation: Loss from discontinued operations (177)% (20)% (1)% Loss on disposal of discontinued operations, including operating losses of $360,000 for 2000 and $250,000 for 1998 (7)% 0% (7)% --------- --------- --------- Net loss (276)% (9)% (17)% Dividends on preferred stock (3)% (1)% 0% --------- --------- --------- Net loss applicable to common stockholders (279)% (10)% (17)% --------- --------- ---------
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999 Total revenues for the year ended 2000 were $16.0 million, a decrease of $9.6 million or 37% compared to the same period in 1999. The decrease was primarily a result of $9.4 million in lower software licensing revenue. The decrease in software licensing revenue is primarily related to the Company's FactoryLink product, partially offset by a 31% increase in software licensing of Xfactory during 2000. The Company believes that the decrease in software licensing revenues was primarily due to a major industry-wide decline in the first quarter of 2000. Although the market did not deteriorate further throughout the remainder of 2000, it did not recover to the same levels the Company experienced in 1999. Additionally, while FactoryLink 7 was released on June 30, 2000, it was substantially later than originally planned and has adversely affected revenues during 2000. Since the first quarter of 2000, revenues have shown steady growth quarter over quarter and it is anticipated that this growth rate will continue at the same modest pace in 2001. While the Company anticipates an improvement in revenues going forward, these market dynamics could affect future buying decisions, making revenues and operating results more difficult to forecast. Selling and product materials expenses decreased $2.0 million from $14.8 million in 1999 to $12.8 million for the same period in 2000. The Company attributes the decrease to its cost reduction efforts under the revised operating plan developed to restructure and stabilize the business. Selling and product materials expenses as a percentage of revenues increased to 80% for the year ended December 31, 2000 from 58% for the same period in 1999 primarily resulting from the decrease in revenues from 1999. Product development expenses, which consisted primarily of labor costs, increased $5.7 million from $2.5 million in 1999 to $8.2 million for the same period in 2000, net of amounts capitalizable. Compared to 1999, the Company increased its engineering development activities related to the FactoryLink and Xfactory product lines. The Company capitalized $2.3 million 12 13 and $2.5 million of software development costs for the twelve months ended December 31, 2000 and 1999, respectively, primarily related to the next major version of the FactoryLink product line during 2000. General and administrative expenses increased $1.5 million from $5.0 million in 1999 to $6.5 million for the same period in 2000. The increase is primarily due to incremental consulting fees associated with refining the Company's longer-term business plan. Also, during the second quarter 2000, the Company appointed a Chief Operating Officer. This newly staffed position contributed to the increase in general and administrative expenses during 2000. General and administrative expenses as a percentage of revenues increased to 41% for the twelve months ended December 31, 2000 from 19% for the same period in 1999, primarily due to the decrease in revenues in 2000 combined with the fixed cost nature of a majority of general and administrative costs. During the year 2000, the Company implemented a restructuring plan designed to reduce the cost structure by reducing its workforce and other operating expenses. The Company recorded a one-time charge of $2.5 million primarily consisting of employee severance and other employee related costs of $1.1 million. The reduction in workforce included approximately 56 employees and affected all functions of the Company. Other charges included in the $2.5 million are early lease termination and facility shutdown costs of $200 thousand, write-downs of redundant property and equipment of $81 thousand, lease costs associated with vacated office space of $1.0 million and $91 thousand for legal and other related costs. These one-time charges provide for future streamlining of operations related to cost reduction initiatives. Of the total amount expensed in 2000, approximately $827 thousand was paid through December 31, 2000 and approximately $1.4 million was paid through March 30, 2001. The remaining obligations will be paid by December 31, 2001. As a result of the factors discussed above, the Company recorded a net loss from continuing operations of $14.9 million for the twelve months ended December 31, 2000, compared net income from continuing operations of $2.8 million for the same period in 1999. DISCONTINUED OPERATION In February 2001, the Company implemented a plan to terminate the operations of eMake as part of a strategy to commit the Company's resources to its core business. As a result, for the year ended 2000, the Company recorded an estimated loss of $1.2 million related to the disposal of eMake, including $360 thousand in estimated operating losses to be incurred through the disposal date of March 31, 2001. eMake is reported as a discontinued operation, and the Consolidated Financial Statements have been reclassified to segregate the net assets and operating results of the business. For the twelve months ended December 31, 2000, loss from discontinued operations was $28.3 million compared to $5.2 million for the same period in 1999. The primary elements of the increase in loss from discontinued operations are set forth below. Total revenues for eMake were $1.1 million for the year ended 2000 compared to $1.4 million for the period ended December 31, 1999. The decrease is primarily related to the market adoption rate of the technology around eMake's products and services not progressing as quickly as anticipated. Selling and product materials, product development and general and administrative expenses for the discontinued operation increased $9.9 million, $1.4 million and $1.9 million, respectively, compared to the same period in 1999. The increases are primarily attributable to incremental expenses associated with developing technology, building the infrastructure, start-up and launching of eMake. During the year 2000, the Company implemented a restructuring plan designed to reduce eMake's cost structure by reducing its workforce and other operating expenses. The Company recorded a charge for eMake of $1.9 million primarily consisting of employee severance and other employee-related costs of $1.2 million. The reduction in workforce included approximately 93 employees and affected all functions of eMake. Other charges included in the $1.9 million are early lease termination and facility shutdown costs of $112 thousand, write-downs of redundant property, plant and equipment of $308 thousand, lease costs associated with vacated office space of $242 thousand and $10 thousand for legal and other related costs. Of the total amount expensed in 2000, approximately $667 thousand was paid through December 31, 2000 and approximately $1.1 million was paid through March 31, 2001. The remaining obligation will be paid by December 31, 2001. Also, included in loss from discontinued operations are $2.4 million in charges related to non-cash compensation and amortization of acquired intangible assets compared to $1.3 million for the same period in 1999. In addition, during 1999 the Company recorded a $476 thousand charge to write off acquired in process research and development costs. These charges are in connection with the acquisition of Smart Shop Software, Inc. in 1999. During the fourth quarter 2000, the Company developed a revised operating plan to restructure and stabilize eMake's operations. Accordingly, certain business activities were abandoned or curtailed that required significant operating and capital expenditures over the past 12 months. Based on the forecasted undiscounted cash flows from the revised operating plan, the Company deemed that the acquired intangible assets were impaired and recorded an asset impairment charge of $7.1 million, which is included in loss from discontinued operations. These intangible assets were deemed to be impaired due to the Smart Shop element of eMake being significantly curtailed as a result of the revised operating plan. The asset impairment charge includes a write-off of goodwill and intangible assets of $4.0 million, net and $1.5 million, net, respectively. Also included in the impairment charge are capitalized website development costs and 13 14 capitalized software costs of $1.2 million, net and $365 thousand, net, respectively. These costs were deemed to be impaired due to the curtailment of the eMake portal project as a result of the revised operating plan. COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998 Total revenues for 1999 were $25.6 million, an increase of $2.8 million or 12%, compared to 1998. The increase was a result of a $3.1 million increase in software licensing revenue, offset by a $0.3 million decrease in services revenue. North American and international revenues were 47% and 53%, respectively, of total revenues during 1999. North American and international revenues increased 20% and 6%, respectively, in 1999 compared to 1998. Selling and product materials expenses decreased $1.8 million or 11% in 1999 compared to 1998. This decrease was a result of decreased sales expenses of $1.3 million, decreased marketing expenses of $0.2 million and decreased support services of $0.3 million. These decreases were a result of the Company's own cost reduction efforts. Selling and product materials expenses as a percentage of revenues decreased to 58% for the year ended December 31, 1999 from 72% for the same period in 1998. Product development expenses (net of capitalized software development costs), which consisted primarily of labor costs, decreased $200 thousand in 1999 compared to 1998. The decrease was attributable to a decrease in contract engineering development activities related to the FactoryLink product line, partially offset by development efforts for the Xfactory product line. The Company capitalized $2.5 million of development expenses in both 1999 and 1998, primarily related to the next major version of the FactoryLink product. General and administrative expenses decreased $1.0 million or 16% for the year ended December 31, 1999. General and administrative expenses as a percentage of revenues decreased to 19% for the year ended December 31, 1999 from 26% for the same period in 1998, as a significant portion of general and administrative expenses were fixed in nature. In connection with the acquisition of Smart Shop, the Company recorded $1.7 million in charges, including non-cash compensation of $659 thousand, amortization of acquired intangible assets of $595 thousand and a charge of $476 thousand to write-off acquired in-process research and development. Such charges are included in discontinued operations. As a result of the factors discussed above, the Company experienced income from continuing operations of $2.8 million in 1999 versus a loss from continuing operations of $2.1 million in 1998. As discussed above, eMake is reported as a discontinued operation, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. For the twelve months ended December 31, 1999, loss from discontinued operations was $5.2 million. The primary elements of the loss from discontinued operations are set forth below. Selling and product materials, product development and general and administrative expenses for the discontinued operation for the year ended 1999 were $3.0 million, $0.4 million and $1.5 million, respectively. Also, included in loss from discontinued operations for 1999 are $1.3 million in charges related to non-cash compensation and amortization of acquired intangible assets, as well as a $476 thousand charge to write off acquired in process research and development costs. These charges are in connection with the acquisition of Smart Shop Software, Inc. in 1999. Revenues of $1.4 million offset the aforementioned charges. LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities used $23.5 million of cash for the year ended December 31, 2000 compared to $5.8 million for the same period in 1999, primarily due to a net loss of $44.4 million in 2000, partially offset by improved collections on accounts receivable in 2000 and an increase in accounts payable and other accrued liabilities from 1999. Cash used in investing activities was $8.0 million for the year ended December 31, 2000 resulting from capital expenditures of $1.1 million and software development costs of $4.1 million. The capital expenditures were primarily attributable to computer equipment, software and other equipment. Cash provided by financing activities are as follows: In June 2000, Safeguard exercised its warrant to purchase 698,238 shares of the Company's common stock for $2.1 million in cash. On February 8, 2000 and March 24, 2000, the Company, through its wholly-owned subsidiary eMake, entered into two convertible promissory note agreements with a subsidiary of Safeguard Scientifics, Inc. ("Safeguard"), the Company's primary 14 15 stockholder, for $2.5 million each, totaling $5.0 million in borrowings. The promissory notes had an interest rate of 12% per annum and were due in full on February 8, 2001 and March 24, 2001, respectively. If the notes payable were paid in full at maturity, interest would be forgiven. The notes were paid in full on September 12, 2000, as described below, and accrued interest of $322 thousand was forgiven. At various times throughout 2000, a subsidiary of Safeguard provided $10.75 million in financings to the Company or to eMake in exchange for four demand notes ranging from $1.5 million to $5.0 million. Each demand note was due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The notes had an interest rate based on a specified bank prime rate plus one percent. On August 14, 2000, SCP Private Equity Partners II, L.P. ("SCP") provided $6.0 million in financing to the Company's subsidiary eMake in exchange for a demand note due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The note had an interest rate based on a specified bank prime rate plus one percent. Concurrently, the Company repaid the $2.5 million demand note dated July 28, 2000 to Safeguard plus accrued interest of $13 thousand with proceeds from this demand note payable. On September 12, 2000, the Company and eMake secured $26.5 million in financing from a subsidiary of Safeguard and SCP through the issuance of preferred stock. See Note 7 of the Consolidated Financial Statements for further discussion. In connection with this transaction, the Company received $6,936,754 in cash and Safeguard and SCP cancelled the then outstanding notes payable balance due them of $19,250,000 plus accrued interest of $313,246. In December 2000, two wholly-owned subsidiaries of the Company entered into a Note Agreement with Chase Manhattan Bank that provides for a $3.0 million revolving credit availability through January 15, 2002. The Note Agreement bears interest at prime rate plus 1.5%, or 11% at December 31, 2000, and has a commitment fee of 1.25% per annum on the total commitment of $3.0 million. At December 31, 2000, $750 thousand was drawn under to Note Agreement. As a result of the loss from operations and resulting negative cash flow, the Company implemented a restructuring plan to reduce its cost structure by reducing its workforce and other operating expenses. Included in the Company's revised operating plan were the operations of the Company's subsidiary eMake. The revised operating plan included curtailing or abandoning certain business activities of eMake and the Company as of the fourth quarter of 2000. The Company recorded a one time charge of $2.5 million for the Company and $1.9 million for eMake, which is included in loss from discontinued operations. The development and launch of eMake, in addition to the lower revenues and increased expenses of the Company, significantly increased the Company's operating expenses and cash requirements. In order for the Company to continue its operations under its current business plan, additional public or private debt or equity financing will be required. The Company has obtained additional financing to provide the cash required under its restructured plan (see equity infusion discussed below). If necessary, the Company will delay certain operations and capital expenditures until adequate financing is obtained. In the event the Company is unable to secure sufficient debt or equity financing, the Company's operations would be significantly curtailed. There can be no assurance that the Company will be able to obtain sufficient financing or obtain such financing on terms acceptable to the Company. On January 31, 2001, SCP elected to exercise the right to acquire shares of Series B Convertible Preferred Stock of the Company in exchange for Series A-1 Convertible Preferred Stock of eMake Corporation. In addition, a subsidiary of Safeguard elected to exercise its right to acquire shares of Series B Convertible Preferred Stock of the Company in exchange for Series A-2 Convertible Preferred Stock of eMake Corporation. On March 30, 2001, the Company secured an equity infusion of $1.5 million from SCP through the issuance of 37,500 shares of Series C-1 Preferred Stock of the Company and a warrant to purchase up to 75,000 shares of Series C-2 Preferred Stock ("Series C Preferred"). In addition, SCP has committed to purchase an additional 37,500 shares of Series C Preferred ("Option Stock") at the purchase price of $40 per share or $1.5 million. For more information see Note 14 to the Consolidated Financial Statements. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board released Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 137, which is effective for USDATA beginning January 1, 2000. Earlier application for certain provisions of this standard is permitted. SFAS 133 establishes accounting and reporting standards for derivative instruments. The Statement requires that an entity recognize all derivatives as either assets or liabilities in the financial statements and measure those instruments at fair value, and it defines the accounting for changes in the fair value of the derivatives depending on the intended use of the derivative. SFAS 133 is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows. 15 16 In December 1999, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of the staff's views in applying generally accepted accounting principles to revenue transactions and accounting for deferred costs in the financial statements. The Company adopted the provisions of SAB 101 in the quarter ended December 31, 2000. Based on our current revenue recognition policies, the adoption of SAB 101 did not impact our financial position, results of operations, or cash flows. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk associated with changes in interest rates relates to its variable rate bank note payable of $218 thousand and its revolving line of credit of $750 thousand. Interest rate risk is estimated as the potential impact on the Company's results of operations or financial position due to a hypothetical change of 50 basis points in quoted market prices. This hypothetical change would not have a material effect on the Company's results of operations and financial position. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data of the Company begins on page F-1 of this report. Such information is hereby incorporated by reference into this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On November 11, 1999, we dismissed PricewaterhouseCoopers LLP as our independent accountants and engaged KPMG LLP as our independent accountants. We have retained KPMG LLP for the current year ended December 31, 2000. Our Audit Committee participated in and approved the decision to change independent accountants. The reports of PricewaterhouseCoopers LLP on the financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits for the two most recent fiscal years and through November 11, 1999, we have had no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make reference thereto in their report on the financial statements for such years. PricewaterhouseCoopers LLP furnished us with a letter addressed to the Securities and Exchange Commission stating that it agreed with the above statements. A copy of the letter, dated November 15, 1999, is filed as Exhibit 16 to our Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 11, 1999. A representative of KPMG LLP is expected to be present at the annual meeting and will have an opportunity at the meeting to make a statement if he or she desires to do so, and will be available to respond to appropriate questions. 16 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by Item 10, Directors and Executive Officers of the Registrant (except for the information regarding executive officers called for by Item 401 of Regulation S-K which is included in Part I in accordance with General Instruction G(3)), is hereby incorporated by reference from the Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders presently scheduled to be held in May 2001, which shall be filed with the Securities and Exchange Commission within 120 days of the end of the Registrant's last fiscal year (the "Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information concerning executive compensation and transactions with management is set forth in the Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information concerning security ownership of certain beneficial owners and management is set forth in the Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS The information concerning relationships and related transactions is set forth in the Proxy Statement, which information is incorporated herein by reference. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS Independent Auditors' Report for the Years Ended December 31, 2000 and 1999 F-1 Report of Independent Accountants for the Year Ended December 31, 1998 F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2000, 1999 and 1998 F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2000, 1999 and 1998 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 F-6 Notes to Consolidated Financial Statements F-7 (a) (2) FINANCIAL STATEMENT SCHEDULES Schedule II - Valuation and Qualifying Accounts F-21 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the last quarter of the period covered by this report. 17 18 (C) EXHIBITS Exhibit No. Description 3.1 Certificate of Incorporation of the Company, as amended.******* 3.2 By-laws of the Company.* 4.1 Specimen stock certificate representing the Common Stock.*** 4.2 Specimen stock certificate representing the Preferred Stock.******** 10.1 1982 Incentive Stock Option Plan.* 10.2 1992 Incentive and Nonstatutory Option Plan.* 10.3 1994 Equity Compensation Plan, as amended.* 10.4 Office Lease Agreement dated as of June 1992, by and between Carter - Crowley Properties, Inc. and the Company.* 10.8 Administrative Services Agreement between Safeguard Scientifics, Inc. and the Company.*** 10.9 First Amendment to Office Lease Agreement, dated as of June 1992 by and between Carter-Crowley Properties, Inc. and the Company.**** 10.10 Stock Purchase Agreement, dated August 6, 1999, by and between the Company and Safeguard Delaware, Inc.***** 10.11 Investors' Rights Agreement, dated August 6, 1999, by and among the Company, Safeguard Delaware, Inc. and Safeguard Scientifics, Inc.***** 10.12 Convertible Promissory Note dated February 8, 2000.****** 10.13 Convertible Promissory Note dated March 24, 2000.****** 10.14 Demand Note dated April 26, 2000.****** 10.15 Demand Note dated June 29, 2000.******* 10.16 Demand Note dated July 13, 2000.******** 10.17 Demand Note dated July 28, 2000.******** 10.18 Demand Noted dated August 14, 2000.******** 10.19 Securities Purchase Agreement, dated as of August 4, 2000, by and among eMake Corporation, USDATA Corporation, Safeguard 2000 Capital, L.P. and SCP Private Equity Partners II, L.P.******** 10.20 Amended and Restated Investors' Rights Agreement, dated as of September 12, 2000, by and amoung USDATA Corporation, Safeguard Delaware, Inc., Safeguard 2000 Capital, L.P., SCP Private Equity Partners II, L.P. and Safeguard Scientifics, Inc.******** 10.21 Exchange Agreement, dated as of September 12, 2000, by and between USDATA Corporation and SCP Private Equity Partners II, L.P.******** 10.22 Export Loan Agreement.# 10.23 Guaranty.# 21.1 Subsidiaries of the Registrant.* 23.1 Consent of KPMG LLP.# 23.2 Consent of PricewaterhouseCoopers LLP.# 24.1 Power of Attorney (included on signature page). ------------ # Filed herewith * Filed on April 12, 1995 as an exhibit to the Company's Registration Statement on Form S-1 (File No. 33-91124) and incorporated by reference herein. ** Filed on June 1, 1995 as an exhibit to Amendment No. 1 to the Company's Registration Statement on Form S-1 (File No. 33-91124) and incorporated by reference herein. *** Filed on June 15, 1995 as an exhibit to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 33-91124) and incorporated by reference herein. **** Filed on March 31, 1998 as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. ***** Filed on March 29, 2000 as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. ****** Filed on May 15, 2000 as an exhibit to the Company's Form 10-Q for the quarterly period ended March 31, 2000. ******* Filed on August 14, 2000 as an exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 2000. ******** Filed on November 14, 2000 as an exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 2000. ********* Filed on March 31, 2000 as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. 18 19 INDEPENDENT AUDITORS' REPORT THE STOCKHOLDERS AND BOARD OF DIRECTORS OF USDATA CORPORATION: We have audited the accompanying consolidated balance sheets of USDATA Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive loss, and cash flows for the years then ended. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. The consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 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 USDATA Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Dallas, Texas February 2, 2001, except for Note 2, which is as of February 26, 2001, and Note 14, which is as of March 30, 2001 F1 20 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF USDATA CORPORATION In our opinion, the consolidated statement of operations, of stockholders' equity and of cash flows listed in the index appearing under Item 14 (a) (1) and (2) on page 17 present fairly, in all material respects, the results of operations and of cash flows for USDATA Corporation and its subsidiaries (the "Company") for the year ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Dallas, Texas February 12, 1999 F2 21 USDATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 673 $ 2,848 Accounts receivable, net of allowance for doubtful accounts of $224 and $453, respectively 4,073 6,207 Other current assets 678 689 ------------ ------------ Total current assets 5,424 9,744 ------------ ------------ Property and equipment, net 2,216 1,791 Computer software development costs, net 7,848 6,645 Software held for resale, net 824 1,079 Other assets 42 64 Net assets of discontinued operation -- 6,839 ------------ ------------ Total assets $ 16,354 $ 26,162 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 1,511 $ 1,373 Deferred revenue 1,218 1,854 Accrued compensation and benefits 808 2,234 Current portion of long-term debt 1,165 62 Other accrued liabilities 2,755 997 Net liabilities of discontinued operation 2,413 -- ------------ ------------ Total current liabilities 9,870 6,520 ------------ ------------ Long-term debt, less current portion 554 388 ------------ ------------ Total liabilities 10,424 6,908 ------------ ------------ Commitments and contingencies Preferred stock, $.01 par value, 2,200,000 shares authorized: Series A cumulative convertible redeemable preferred stock; 100,000 shares authorized; 50,000 shares issued and outstanding in 1999 -- 5,167 Redeemable convertible preferred stock, Series A-1 and Series A-2, $.01 par value, with a redemption and liquidation value of $2.56 per share in 2000; 16,000,000 shares authorized for Series A-1 and 16,000,000 shares for Series A-2; 5,300,000 shares issued and outstanding for each series of preferred stock 27,142 -- Stockholders' equity (deficit): Preferred stock, $.01 par value, 2,200,000 shares authorized: Series A cumulative convertible preferred stock; 100,000 shares authorized; 50,000 shares issued and outstanding in 2000 5,568 -- Common stock, $.01 par value, 40,000,000 shares authorized; 16,324,189 issued in 2000 and 15,625,951 issued in 1999 163 156 Additional paid-in capital 23,892 21,952 Deferred stock compensation -- (1,278) Retained earnings (accumulated deficit) (41,910) 2,523 Treasury stock at cost, 2,317,008 shares in 2000 and 2,452,316 shares in 1999 (7,961) (8,434) Accumulated other comprehensive loss (964) (832) ------------ ------------ Total stockholders' equity (deficit) (21,212) 14,087 ------------ ------------ Total liabilities and stockholders' equity (deficit) $ 16,354 $ 26,162 ------------ ------------
See accompanying notes to consolidated financial statements. F3 22 USDATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
YEAR ENDED DECEMBER 31, -------------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Revenues: Product license $ 13,019 $ 22,408 $ 19,330 Services 3,015 3,226 3,531 ------------ ------------ ------------ Total revenues 16,034 25,634 22,861 ------------ ------------ ------------ Operating expenses: Selling and product materials 12,812 14,776 16,574 Product development 8,183 2,496 2,684 General and administrative 6,521 5,001 5,962 Severance and other restructuring charges 2,518 -- -- ------------ ------------ ------------ Total operating expenses 30,034 22,273 25,220 ------------ ------------ ------------ Income (loss) from operations (14,000) 3,361 (2,359) Interest expense (388) (14) -- Other income, net 114 128 198 ------------ ------------ ------------ Income (loss) from continuing operations before income taxes and preferred stock dividends of subsidiary (14,274) 3,475 (2,161) Income tax (provision) benefit -- (708) 67 Preferred stock dividends of subsidiary (642) -- -- ------------ ------------ ------------ Income (loss) from continuing operations (14,916) 2,767 (2,094) Discontinued operations: Loss from discontinued operations (28,324) (5,183) (219) Loss on disposal of discontinued operations, including operating losses of $360 for 2001 and $250 for 1998 (1,193) -- (1,500) ------------ ------------ ------------ Net loss (44,433) (2,416) (3,813) Dividends on preferred stock (401) (167) -- ------------ ------------ ------------ Net loss applicable to common stockholders $ (44,834) $ (2,583) $ (3,813) ------------ ------------ ------------ Net loss per common share: Basic: Income (loss) from continuing operations $ (1.12) $ 0.22 $ (0.19) Loss from discontinued operations (2.16) (0.44) (0.15) ------------ ------------ ------------ Net loss per common share - basic $ (3.28) $ (0.22) $ (0.34) ------------ ------------ ------------ Diluted: Income (loss) from continuing operations $ (1.12) $ 0.19 $ (0.19) Loss from discontinued operations (2.16) (0.38) (0.15) ------------ ------------ ------------ Net loss per common share - diluted $ (3.28) $ (0.19) $ (0.34) ------------ ------------ ------------ Weighted average shares outstanding: Basic 13,677 11,849 11,196 Diluted 13,677 13,492 11,196 ------------ ------------ ------------
See accompanying notes to consolidated financial statements. F4 23 USDATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS (In thousands)
Additional Deferred Preferred Common Paid-in Stock Retained Stock Stock Capital Compensation Earnings ---------- ---------- ---------- ------------- ---------- Balance, at December 31, 1997 $ -- $ 143 $ 16,365 $ -- $ 8,919 Exercise of stock options 169 Comprehensive loss: Net loss (3,813) Foreign currency translation adjustment Total comprehensive loss ---------- ---------- ---------- ---------- ---------- Balance, at December 31, 1998 -- 143 16,534 -- 5,106 Exercise of stock options 12 Exercise of common stock warrants 1 77 Issuance of common stock 12 5,173 Issuance of restricted stock (1,937) Amortization of deferred compensation 659 Preferred stock dividends (167) Acquisition of common stock 156 Comprehensive loss: Net loss (2,416) Foreign currency translation adjustment Total comprehensive loss ---------- ---------- ---------- ---------- ---------- Balance, at December 31, 1999 -- 156 21,952 (1,278) 2,523 Exercise of stock options 56 Exercise of common stock warrants 7 2,102 Issuance of common stock 206 Amortization of deferred compensation 1,278 Acquisition of common stock 116 Preferred stock (Note 7) 5,167 (164) Preferred stock dividends 401 (401) Acceleration of stock option vesting 25 Comprehensive loss: Net loss (44,433) Foreign currency translation adjustment Total comprehensive loss ---------- ---------- ---------- ---------- ---------- Balance, at December 31, 2000 $ 5,568 $ 163 $ 23,892 $ -- $ (41,910) ========== ========== ========== ========== ========== Accumulated Other Total Tresury Comprehensive Stockholders' Stock loss Equity ---------- -------------- ------------- Balance, at December 31, 1997 $ (11,554) $ -- $ 13,873 Exercise of stock options 625 794 Comprehensive loss: Net loss (3,813) Foreign currency translation -- adjustment (559) (559) ---------- Total comprehensive loss (4,372) ---------- ---------- ---------- Balance, at December 31, 1998 (10,929) (559) 10,295 Exercise of stock options 184 196 Exercise of common stock warrants (78) -- Issuance of common stock 608 5,793 Issuance of restricted stock 1,937 -- Amortization of deferred compensation 659 Preferred stock dividends (167) Acquisition of common stock (156) -- Comprehensive loss: Net loss (2,416) Foreign currency translation -- adjustment (273) (273) ---------- Total comprehensive loss (2,689) ---------- ---------- ---------- Balance, at December 31, 1999 (8,434) (832) 14,087 Exercise of stock options 330 386 Exercise of common stock warrants 2,109 Issuance of common stock 259 465 Amortization of deferred compensation 1,278 Acquisition of common stock (116) -- Preferred stock (Note 7) 5,003 Preferred stock dividends -- Acceleration of stock option vesting 25 Comprehensive loss: Net loss (44,433) Foreign currency translation -- adjustment (132) (132) ---------- Total comprehensive loss (44,565) ---------- ---------- ---------- Balance, at December 31, 2000 $ (7,961) $ (964) $ (21,212) ========== ========== ==========
See accompanying notes to the consolidated financial statements. F5 24 USDATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEAR ENDED DECEMBER 31, ----------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Cash flows from operating activities: Net loss $ (44,433) $ (2,416) $ (3,813) Adjustments to reconcile net loss to net cash used in operating activities: Loss from discontinued operations 28,324 5,183 219 Loss on disposal of discontinued operations 1,193 -- 1,500 Depreciation and amortization 2,527 1,045 1,448 Write off of fixed assets 81 -- -- Write off of capitalized software development costs 1,781 Loss on disposal -- -- Non-cash interest expense 313 -- -- Preferred stock dividends of subsidiary 642 -- -- Deferred income taxes -- 533 1,083 Changes in operating assets and liabilities: Accounts receivable, net 2,134 (112) (1,522) Other assets, net (51) (72) 74 Accounts payable and other accrued liabilities 1,977 (87) (172) Accrued compensation and benefits (1,112) 960 319 Deferred revenue (636) (151) 748 ----------- ----------- ----------- Net cash provided by (used in) continuing operations (7,260) 4,883 (116) Net cash used in discontinued operations (16,204) (10,635) -- ----------- ----------- ----------- Net cash used in operating activities (23,464) (5,752) (116) ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures (1,114) (780) (536) Capitalized software development costs (4,120) (2,518) (2,549) Software held for resale -- -- (1,345) Proceeds from sale of discontinued operation -- -- 300 ----------- ----------- ----------- Net cash used in continuing operations (5,234) (3,298) (4,130) Net cash used in discontinued operations (2,783) (263) -- ----------- ----------- ----------- Net cash used in investing activities (8,017) (3,561) (4,130) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from stock warrant exercise 2,109 -- -- Proceeds from stock option exercises 386 -- -- Proceeds from issuance of common stock -- 5,196 794 Proceeds from issuance of preferred stock 6,937 5,000 -- Proceeds from issuance of demand notes payable 26,750 -- -- Payments on demand notes payable (7,500) -- -- Borrowing of revolver debt 750 -- -- Payments on long-term debt (126) (15) (5) ----------- ----------- ----------- Net cash provided by financing activities 29,306 10,181 789 ----------- ----------- ----------- Cash flows from discontinued operations -- -- 233 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (2,175) 868 (3,224) Cash and cash equivalents, beginning of period 2,848 1,980 5,204 ----------- ----------- ----------- Cash and cash equivalents, end of period $ 673 $ 2,848 $ 1,980 =========== =========== =========== Non-cash investing and financing activities: Conversion of notes payable and accrued interest to preferred stock $ 19,563 $ -- $ -- Property and equipment acquired by capital lease $ 645 $ -- $ --
See Notes 2, 4, 6 and 7 for other non-cash financing activities See accompanying notes to consolidated financial statements. F6 25 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS USDATA Corporation (the "Company") is a global supplier of real-time component-based application software tools for automation and application software products for manufacturing. These products and services are designed to help customers manage their business in real time, reduce operating costs, shorten cycle times and improve quality in their manufacturing operations. The Company provides this knowledge through software products and services and delivers it through a community of business partners. The Company has channel support locations in the United States and Europe. The Company's distributors have sales locations throughout North and South America, Europe, the Far East and the Middle East. The Company's family of software products provide a powerful set of software tools and applications designed for users who are technically competent but who may not be experienced software programmers. LIQUIDITY As a result of the loss from operations and resulting negative cash flow, the Company implemented a restructuring plan to reduce its cost structure by reducing its workforce and other operating expenses. Included in the Company's revised operating plan were the operations of the Company's subsidiary eMake Corporation, Inc. ("eMake"). The revised operating plan included curtailing or abandoning certain business activities of eMake and USDATA as of the fourth quarter of 2000. In February 2001, the Company adopted a plan to terminate the operations of eMake due to the market adoption rate of the technology around eMake not progressing in a manner to support the resources needed to continue eMakes's revised operating plan (see Note 2). The Company continues to seek additional debt or equity financing necessary to execute USDATA's revised operating plan. In the event the Company is unable to secure sufficient debt or equity financing, the Company's operations would be further curtailed. There can be no assurance that the Company will be able to obtain sufficient financing or obtain such financing on terms acceptable to the Company (See Note 14). USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities in preparation of these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with maturities of three months or less at the time of purchase to be cash equivalents. PROPERTY AND EQUIPMENT Property and equipment are stated at original cost. Maintenance and repairs are charged to expense as incurred, and the costs of additions and major betterments and replacements are capitalized. Depreciation is provided in amounts which amortize costs over the estimated useful lives of the related assets, generally three to five years, utilizing the straight-line method. Leasehold improvements are amortized over the lesser of the term of the respective leases or estimated useful life of the improvement. CAPITALIZED SOFTWARE Software development costs incurred prior to establishing technological feasibility are charged to operations and included in product development costs. Software development costs incurred after establishing technological feasibility, and purchased software costs, are capitalized and amortized on a product-by-product basis when the product F7 26 is available for general release to customers. Annual amortization, charged to cost of sales, is the greater of the amount computed using the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product, or the straight-line method over the remaining estimated economic life of the product. The total computer software development costs capitalized for 2000, 1999 and 1998 were $2.3 million (net of a write-off of $1.8 million), $2.5 million, and $2.5 million, respectively. The total costs amortized and charged to operations for 2000, 1999 and 1998 were $1.1 million, $0, and $.4 million, respectively. Accumulated amortization at December 31, 2000 and 1999 was $3.1 million and $2.0 million, respectively. SOFTWARE HELD FOR RESALE In 1998, the Company purchased the underlying source code for a certain software product, which is held for resale in the ordinary course of business. The original purchase costs of such software were capitalized and are being amortized utilizing the straight-line method over the estimated economic life of five years. Total costs amortized and charged to operations for 2000, 1999 and 1998 were $236 thousand, $237 thousand and $59 thousand, respectively. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. REVENUE RECOGNITION Revenue from the licensing of software products is generally recognized when the following criteria have been met: (a) a written contract for the license of software has been executed, (b) the Company has delivered the product to the customer, (c) the license fee is fixed or determinable, and (d) collectibility of the resulting receivable is deemed probable. Revenue from software support maintenance agreements is recognized ratably over the contract term, generally not exceeding one year. Sales return rights are provided to certain customers, under specified conditions. Revenues are presented net of estimated returns, which historically have not been significant. STOCK-BASED COMPENSATION The Company applies the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations, in accounting for stock options and other stock based awards under its stock option plan. INCOME TAXES Income taxes are accounted for under the asset and liability method. This method results in the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. FINANCIAL INSTRUMENTS The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value due to their short maturities. The carrying value of the Company's bank note payable and revolving line of credit at December 31, 2000 and 1999 approximates fair value as these notes payable bear interest at market rates. NET LOSS PER SHARE OF COMMON STOCK Net loss per share of common stock is presented in accordance with the provisions of SFAS No. 128, "Earnings Per Share." Under SFAS No. 128, basic loss per share excludes dilution for potentially dilutive securities and is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted earnings (loss) per share when their inclusion would be antidilutive to the results of continuing operations. Options to purchase 1.5 million and 1.2 million shares of common stock for 2000 and 1998, respectively, and warrants to acquire 0.8 million shares of common stock for 1998 were not included in the computation of diluted earnings per share as their impact would be antidilutive. F8 27 FOREIGN CURRENCY TRANSLATION The Company translates the balance sheets of its foreign subsidiaries using year-end exchange rates and translates statement of operations amounts using the average exchange rates in effect during the year. The gains and losses resulting from the change in exchange rates from year to year have been reported separately as a component of accumulated other comprehensive loss in stockholders' equity. Gains and losses resulting from foreign currency transactions are included in the statements of operations. CONCENTRATION OF CREDIT RISK The Company licenses software and provides services to established companies. The Company performs credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for estimated credit losses. At December 31, 2000, the Company had two customers with outstanding accounts receivable balances of approximately $0.7 million and $0.6 million, respectively. These customers represented approximately 24% and 6%, respectively, of the Company's revenues for 2000. At December 31, 1999, the Company had two customers with outstanding accounts receivable balances of approximately $1.3 million and $1.7 million, respectively. These customers represented approximately 19% and 7%, respectively, of the Company's revenues for 1999. 2. DISCONTINUED OPERATIONS In February 2001, management of the Company determined that the market adoption rate of the technology around the Company's subsidiary eMake was not progressing in a manner to support the resources needed to continue eMake's newly developed operating plan. As a result, the Company's Board of Directors approved a plan on February 26, 2001 to terminate the operations of eMake as of March 31, 2001 as part of a strategy to commit the Company's resources to its core business. At December 31, 2000, the Company recorded an estimated loss on disposal of $1.2 million, including estimated operating losses of $360 thousand expected to be incurred through the disposal date of March 31, 2001. eMake is reported as a discontinued operation, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. Prior year consolidated financial statements have been restated to present eMake as a discontinued operation. Summarized financial data of the discontinued operation as follows:
(in thousands) 2000 1999 - -------------- ---------- ---------- Financial position: Current assets $ 26 $ 571 Property and equipment, net -- 371 Cost in excess of fair value of tangible net assets purchased (a) (c) -- 4,742 Intangible and other assets (a) (c) -- 1,860 Total liabilities (2,439) (705) ---------- ---------- Net assets (liabilities) of discontinued operation $ (2,413) $ 6,839 ========== ==========
(in thousands) 2000 1999 - -------------- ---------- ---------- Discontinued operation: Revenues $ 1,075 $ 1,411 ---------- ---------- Operating expenses before severance and other restructuring and acquisition related charges 18,087 4,864 Severance and other restructuring charges (b) 1,861 -- Non-cash stock compensation (a) 1,278 659 Amortization of intangible assets (a) 1,078 595 Asset impairment charge (c) 7,095 -- Purchased in process research and development (a) -- 476 ---------- ---------- Loss from discontinued operation $ (28,324) $ (5,183) ========== ==========
F9 28 (a) Acquisition of Smart Shop On August 6, 1999, the Company completed its acquisition of substantially all of the assets and certain liabilities of Smart Shop Software, Inc. ("Smart Shop") for $6.4 million in cash, plus transaction costs of $0.2 million. The eMake segment operations were built around the Smart Shop operations and assets acquired. This acquisition was accounted for under the purchase method of accounting. The excess purchase price over the estimated fair value of net tangible assets was allocated to various intangible assets, consisting of developed technology of $1.8 million, assembled work force of $251 thousand and goodwill of $5.2 million, all of which were being amortized to expense on a straight-line basis over 5 years. Accumulated amortization at December 31, 1999 was $147 thousand, $21 thousand and $427 thousand, respectively. In addition, $476 thousand of the purchase price was allocated to in-process research and development costs. In-process research and development relates to several of Smart Shop's research and development projects at various stages of development related to Smart Manager 7.0, on which version Smart Shop began development in March 1999. The value assigned to in-process research and development was determined based on management's estimates of the percentage of completion of the underlying development efforts, resulting net cash flows from Smart Manager 7.0 and the discounting of such cash flows back to their present value. The results of the acquired business have been included in the consolidated financial statements since the date of acquisition of August 6, 1999. The acquired intangible assets were written off in 2000 (See (c) below). In connection with the acquisition, the Company also issued 500,000 shares of common stock to certain former shareholders of Smart Shop who became employees of the Company. The shares of common stock were held in escrow as collateral for performance under the purchase agreement to be released from escrow to the shareholders in six tranches each six months following the closing date of August 6, 1999. In connection with these shares, deferred stock compensation of $1.9 million was recorded in stockholders' equity in 1999. The deferred stock compensation is being recognized as compensation expense over 36 months, as the restrictions lapse. The Company recorded a non-cash stock compensation charge of $659 thousand for the period ended December 31, 1999 related to the initial amortization of this compensation charge. During 2000, the remaining shares were released from escrow due to the severance arrangements described in (b) below. As a result, the Company accelerated the amortization of the compensation charge in full and recorded a non-cash stock compensation charge of $1.3 million for the period ended December 31, 2000. (b) Severance and Other Restructuring Charges During the year 2000, the Company implemented a restructuring plan designed to reduce the Company's and eMake's cost structure by reducing its workforce and other operating expenses. The Company recorded a one time charge for eMake of $1.9 million primarily consisting of employee severance and other employee-related costs of $1.2 million. Other charges included in the $1.9 million are early lease termination and facility shutdown costs of $112 thousand, write-downs of redundant property and equipment of $308 thousand, lease costs associated with vacated office space of $242 thousand and $10 thousand for legal and other related costs. Severance costs were determined based upon employees' years of service as well as level within the organization. The reduction in workforce included approximately 93 employees, or approximately 67%, and affected all functions of eMake. Of the total amount charged to expense for the year ended December 31, 2000, approximately $603 thousand has been paid through December 31, 2000. All affected employees were terminated as of December 31, 2000. Of the total lease termination and facility shutdown costs charged to expense for the year 2000, approximately $54 thousand has been paid through December 31, 2000 and approximately $10 thousand has been paid related to legal and other costs through December 31, 2000. In addition, as a result of the restructuring plan, the Company released shares from escrow, in accordance with the Smart Shop Software, Inc. purchase agreement, which were held as collateral for certain employment-related performance requirements. $610 thousand in non-cash compensation related to this accelerated release of shares is included in loss from discontinued operations. At December 31, 2000, $563 thousand in employee severance costs and other employee related costs, $58 thousand in early lease termination and facility shutdown costs and $242 thousand in vacated office space costs are included in accrued liabilities. All severance and other restructuring costs will be paid in full by December 31, 2001. (c) Asset Impairment Charge In conjunction with the Company's restructuring plan described above and in Note 6, the Company re-evaluated eMake's business model during the fourth quarter of 2000. A revised operating plan was developed to F10 29 restructure and stabilize the business. Based on the forecasted undiscounted cash flows from the revised operating plan, the Company deemed that certain intangible assets of eMake were impaired and recorded an asset impairment charge of $7.1 million. The amount of the impairment was measured based upon projected discounted future cash flows from the revised operating plan. The asset impairment charge includes a write-off of goodwill and intangible assets of $4.0 million, net and $1.5 million, net, respectively. Also included in the impairment charge are capitalized website development costs and capitalized software costs of $1.2 million, net and $365 thousand, net, respectively. (d) 1998 Discontinued Operation Effective July 1, 1998, the Company sold its Auto ID hardware integration and servicing business ("Systems Operations"). In conjunction therewith, during the first quarter of 1998, the Company reported a loss of $1.5 million related to the disposal thereof and $219 thousand related to operations through the date of disposal. As a result of this action, the Company's revenues and operating expenses for the periods presented herein reflect only the Software Operations with the net results of the Systems Operations reported on its statements of operations under the caption "Discontinued Operations". Revenues related to the Systems Operations were $3.1 million for the year ended December 31, 1998. 3. PROPERTY AND EQUIPMENT The components of property and equipment at December 31, 2000 and 1999 were as follows:
(in thousands) 2000 1999 - -------------- ------------ ------------ Equipment $ 2,183 $ 6,292 Purchased software 1,245 1,120 Furniture and fixtures 130 390 Leasehold improvements 84 26 Vehicles 16 16 Assets under capital leases 1,014 -- ------------ ------------ 4,672 7,844 Accumulated depreciation and amortization (2,456) (6,053) ------------ ------------ Net property and equipment $ 2,216 $ 1,791 ============ ============
4. DEBT The Company's borrowings at December 31, 2000 and 1999 consisted of:
(in thousands) 2000 1999 - -------------- ------------ ------------ Revolving line of credit $ 750 $ -- Bank promissory note 218 276 Non-interest bearing note payable 174 174 Capital leases 577 -- ------------ ------------ Total debt 1,719 450 Less current portion 1,165 62 ------------ ------------ $ 554 $ 388 ============ ============
In December 2000, two wholly-owned subsidiaries of the Company entered into a Note Agreement ("Note") with Chase Manhattan Bank that provides for a $3.0 million revolving credit availability through January 15, 2002. The Note bears interest at prime rate plus 1.5%, or 11% at December 31, 2000, and has a commitment fee of 1.25% per annum on the total commitment of up to $3.0 million. The Note is collateralized by certain foreign accounts receivable of the Company's and is guaranteed by the Company, a wholly-owned subsidiary of the Company and Export-Import Bank of the United States for 90% of principal and interest. At December 31, 2000, $750 thousand was drawn under the Note Agreement and is included in current liabilities. Based on the qualifying borrowing base arrangement under the Note, total availability at December 31, 2000 was $924 thousand. Due to the nature of the qualifying borrowing base arrangement, the Company's borrowing capability varies each month depending on billings and cash collections. F11 30 In conjunction with the Smart Shop acquisition, the Company, through its wholly owned subsidiary, assumed a promissory note with a bank in the amount of $297 thousand of which $218 thousand and $276 thousand was outstanding at December 31, 2000 and 1999, respectively. The note agreement requires monthly installments of $7 thousand including interest at the bank prime rate plus 1.5%, or 11% at December 31, 2000. The note is collateralized by all accounts receivable, inventory, general intangibles, equipment and fixtures of the wholly-owned subsidiary. The promissory note is guaranteed by the Company and the final payment of the outstanding balance is due in August 2003. Interest paid in 2000 and 1999 totaled $24 thousand and $10 thousand, respectively. Also, in connection with the 1999 Smart Shop acquisition, the Company assumed a $174 thousand noninterest-bearing note payable to a former Smart Shop shareholder. The note is due in its entirety on August 5, 2002. 5. INCOME TAXES The components of loss before income taxes including discontinued operations for the years ended December 31, 2000, 1999 and 1998 included the following:
(in thousands) 2000 1999 1998 - -------------- ------------ ------------ ------------ United States $ (44,433) $ (1,708) $ (3,888) Foreign -- -- 8 ------------ ------------ ------------ $ (44,433) $ (1,708) $ (3,880) ============ ============ ============
The components of income tax benefit (expense) for the years ended December 31, 2000, 1999 and 1998 are as follows:
(in thousands) 2000 1999 1998 - -------------- ------------ ------------ ------------ Current: Federal $ -- $ -- $ 1,482 State -- -- 174 Foreign -- (175) -- ------------ ------------ ------------ -- (175) 1,656 ------------ ------------ ------------ Deferred: Federal -- (484) (1,518) State -- (49) (71) ------------ ------------ ------------ -- (533) (1,589) ------------ ------------ ------------ Income tax (expense) benefit $ -- $ (708) $ 67 ============ ============ ============
Benefit (provision) for income taxes differed from the amounts computed by applying the U.S. Federal statutory income tax rate of 34% to income (loss) before taxes as a result of the following for the years ended December 31, 2000, 1999 and 1998:
(in thousands) 2000 1999 1998 - -------------- ------------ ------------ ------------ Expected tax benefit (expense) $ 5,071 $ (1,181) $ 712 Research and development credit -- -- 201 State taxes, net of federal benefit -- -- 68 Change in valuation allowance (15,323) (1,024) (1,521) Change in prior year estimate -- (175) -- Discontinued operations 10,036 1,762 584 Other 216 (90) 23 ------------ ------------ ------------ Income tax (provision) benefit $ -- $ (708) $ 67 ============ ============ ============
F12 31 The components of deferred taxes at December 31, 2000 and 1999 were as follows:
(in thousands) 2000 1999 - -------------- ------------ ------------ Deferred tax assets: Net operating loss $ 16,053 $ 4,160 Impairment and restructuring 3,733 -- Allowance for doubtful accounts 84 169 Accrued benefits 40 40 Credits 506 506 Intangible assets 559 321 Compensation 725 247 Other 525 137 Valuation allowance (17,868) (2,545) ------------ ------------ $ 4,357 $ 3,035 ============ ============ Deferred tax liabilities: Depreciation 649 308 Capitalized software 3,646 2,622 Other 62 105 ------------ ------------ $ 4,357 $ 3,035 ============ ============
At December 31, 2000, the Company had net operating loss carryforwards of approximately $43 million, which will expire beginning in 2018. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon these considerations, the Company has fully reserved all deferred tax assets to the extent such assets exceed deferred tax liabilities. 6. SEVERANCE AND OTHER RESTRUCTURING CHARGES During the year 2000, the Company implemented a restructuring plan designed to reduce the Company's and its subsidiary eMake Corporation's ("eMake") cost structure by reducing its workforce and other operating expenses (See Note 2 for discussion on eMake). The Company recorded a charge of $2.5 million primarily consisting of employee severance and other employee-related costs of $1.1 million. Other charges included in the $2.5 million are early lease termination and facility shutdown costs of $200 thousand, write-downs of redundant property, plant and equipment of $81 thousand, lease costs associated with vacated office space of $1.0 million and $91 thousand for legal and other related costs. These charges provide for future streamlining of operations related to cost reduction initiatives. Severance costs were determined based upon employees' years of service as well as level within the organization. The reduction in workforce included approximately 56 employees, or approximately 41% of the workforce, and affected all functions of the Company. Of the total amount charged to expense for the year ended December 31, 2000, approximately $691 thousand has been paid through December 31, 2000. All affected employees were terminated as of December 31, 2000. Of the total lease termination and facility shutdown costs, vacated office space and legal and other costs charged to expense for the year 2000, approximately $59 thousand, $54 thousand and $23 thousand, respectively, has been paid through December 31, 2000. At December 31, 2000, $410 thousand in employee severance costs, $141 thousand in early lease termination and facility shutdown costs, $988 thousand in lease costs associated with vacated office space and $68 thousand in legal and other remaining costs are included in accrued liabilities. All severance and other restructuring costs will be paid in full by December 31, 2001. F13 32 7. STOCKHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK The board of directors is authorized, subject to certain limitations and without stockholder approval, to issue up to 2.2 million shares of preferred stock in one or more series and to fix the rights and preferences of each series. In 1999, the board of directors designated 100,000 shares of authorized preferred stock as Series A convertible Preferred Stock, of which 50,000 shares are issued and outstanding at December 31, 2000 and 1999. In September 2000, the Company executed an amendment to the Certificate of Designation for the Company's Preferred Stock which changed the terms of the Series A Preferred Stock and designated 800,000 shares of authorized but unissued preferred stock as Series B convertible Preferred Stock. The amended terms included that neither the Series A Preferred Stock or Series B Preferred Stock are redeemable and that the cumulative dividends are no longer interest bearing. SERIES A CONVERTIBLE PREFERRED STOCK On August 6, 1999, the Company issued through a private placement 50,000 shares of the Company's Series A convertible Preferred Stock for $5.0 million to a wholly-owned subsidiary of Safeguard Scientifics, Inc. ("Safeguard"), the Company's primary stockholder. The Series A Preferred Stock has a par value of $.01 per share and a liquidation preference of $100 per share plus cumulative dividends and interest. Dividends on the Series A Preferred Stock are cumulative and payable at a rate of $8.00 per share per annum and preference to any dividends on the Company's common stock. The preferred stock is convertible at any time into shares of common stock of the Company at a conversion rate of $4.65 per share of common stock. The preferred stock is also convertible into shares of common stock of any majority owned subsidiary of the Company through the earliest of the following events: (a) June 1, 2006; (b) the commencement of the liquidation or winding up of the business of eMake; (c) the sale of all or substantially all of the assets and properties of eMake; (d) a merger, consolidation or other similar transaction involving eMake in which eMake is not the surviving entity or eMake is the surviving entity but after which the holders of the outstanding voting securities of eMake before the transaction hold less than 50% of eMake's outstanding voting securities after the transaction; (e) the sale by eMake of its securities in a public offering; or (f) a decrease in the ownership percentage of the Company's voting securities of eMake to the extent that eMake would cease to be a consolidated subsidiary of the Company. The Series A Preferred Stock was mandatorily redeemable according to the original terms, however in September 2000, the Series A designation was amended to remove the mandatory redemption provision. At December 31, 2000 and 1999, the aggregate liquidation preference was $5,568 thousand and $5,167 thousand based on cumulative dividends and interest of $568 thousand and $167 thousand, respectively. SERIES A-1 AND A-2 REDEEMABLE CONVERTIBLE PREFERRED STOCK OF eMAKE On August 7, 2000, the Company and eMake executed a Securities Purchase Agreement to provide $26.5 million in financing in the form of eMake preferred stock. The transaction was approved by the Company's stockholders on September 11, 2000 and the transaction was completed on September 12, 2000. On September 12, 2000, SCP Private Equity Partners, L.P. ("SCP") and Safeguard purchased through a private placement 5,300,000 shares each, for a total of 10,600,000 shares, of eMake Corporation Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred Stock (collectively referred to as the "Series A Preferred") and warrants to purchase up to an additional 5,300,000 shares each of eMake Corporation Series A-1 and Series A-2 preferred stock, respectively. The aggregate purchase price of $26,500,000 was comprised of $6,936,754 in cash and cancellation of $19,250,000 of the notes payable described in Note 10 and the related accrued interest of $313,246. The Series A Preferred Stock has a par value of $.01 per share and a liquidation preference of $2.50 per share plus cumulative dividends. The holders of at least two-thirds of the outstanding shares of the Series A preferred stock can require eMake to redeem all the shares at $2.50, plus unpaid dividends, per share at any time after September 12, 2005. Dividends on the eMake Series A Preferred Stock are cumulative and payable at a rate of $.05 per share per calendar quarter and in preference to any dividends on eMake's common stock. The dividends are payable, with respect to the eMake Series A-1 Preferred Stock, in additional shares of eMake Series A-1 preferred stock and with respect to the eMake Series A-2 Preferred Stock, in additional shares of eMake Series A-2 preferred stock. The eMake Series A-1 Preferred Stock is convertible into shares of eMake Corporation Class A common stock at a conversion rate of $2.50 per share of common stock or into shares of the Company's Series B preferred stock at the rate of one USDATA preferred share for each 40 shares of eMake Series A-1 preferred share owned. The eMake Series A-2 Preferred Stock is convertible into shares of eMake Corporation Class B common stock at a conversion rate of $2.50 per share of common stock or into shares of the Company's Series B preferred stock at the rate of one USDATA preferred share for each 40 shares of eMake Series A-2 preferred share owned. On January 31, 2001, SCP and Safeguard each elected to exercise their right to convert their eMake Series A preferred stock into shares of the Company's Series B preferred stock (See Note 14). F14 33 WARRANTS TO PURCHASE COMMON STOCK In 1994, the Company issued warrants to Safeguard and a director of the Company to purchase common stock of the Company. The warrants entitled Safeguard and the director to purchase 698,238 and 77,582 shares, respectively, of common stock of the Company at an exercise price of $3.02 per share. In December 1999, the director exercised his warrant to purchase 77,582 shares of the Company's common stock and in June 2000 Safeguard exercised its warrant to purchase 698,238 shares of the Company's common stock for $2.1 million in cash. WARRANTS TO PURCHASE SERIES A-1 AND A-2 PREFERRED STOCK The eMake Series A-1 and eMake Series A-2 preferred stock warrants issued to SCP and Safeguard, respectively, grant to the holders the right to purchase up to an additional 5,300,000 shares of eMake Series A-1 convertible preferred stock and up to an additional 5,300,000 shares of eMake Series A-2 convertible preferred stock, respectively, at an exercise price of $.01 per share. The amount of eMake Series A Preferred Stock that can be acquired upon exercise is based on the number of users licensed to use eMake's software from a server or client workstation as of June 30, 2001 and varies from zero to a total of 5,300,000 shares of eMake Series A-1 Preferred Stock and 5,300,000 shares of eMake Series A-2 Preferred Stock. The warrants are exercisable anytime after June 30, 2001 through the earliest of the following events: (a) June 1, 2006; (b) the commencement of the liquidation or winding up of the business of eMake; (c) the sale of all or substantially all of the assets and properties of eMake; (d) a merger, consolidation or other similar transaction involving eMake in which eMake is not the surviving entity or eMake is the surviving entity but after which the holders of the outstanding voting securities of eMake before the transaction hold less than 50% of eMake's outstanding voting securities after the transaction; (e) the sale by eMake of its securities in a public offering; (f) a decrease in the ownership percentage of the Company's voting securities of eMake to the extent that eMake would cease to be a consolidated subsidiary of the Company; or (g) the exercise by SCP or Safeguard of its right to exchange the last outstanding Series A share for shares of USDATA's Series B preferred stock. These warrants expire on June 30, 2006. See Note 14. The changes in the number of issued and outstanding shares of the Company's preferred and common stock are summarized as follows:
Common Stock ----------------------------------------------- Preferred Held In Stock Issued Issued Treasury Outstanding ------------ ------------ ------------ ------------ BALANCE AT DECEMBER 31, 1997 -- 14,343,550 3,321,894 11,021,656 Common shares issued or purchased -- -- (215,710) 215,710 ------------ ------------ ------------ ------------ BALANCE AT DECEMBER 31, 1998 -- 14,343,550 3,106,184 11,237,366 Common shares issued or purchased -- 1,282,401 (653,868) 1,936,269 ------------ ------------ ------------ ------------ BALANCE AT DECEMBER 31, 1999 -- 15,625,951 2,452,316 13,173,635 Series A Preferred Stock 50,000 -- -- -- Common shares issued or purchased -- 698,238 (135,308) 833,546 ------------ ------------ ------------ ------------ BALANCE AT DECEMBER 31, 2000 50,000 16,324,189 2,317,008 14,007,181 ============ ============ ============ ============
8. EQUITY COMPENSATION PLAN In 1994, the Company adopted the 1994 Equity Compensation Plan (the 1994 Plan), which provides for stock options to be granted to employees, independent contractors and directors. The 1994 Plan was amended in 2000 to provide for the issuance of up to 3,000,000 shares of common stock pursuant to the grant of incentive stock options (ISO), non-qualified stock options (NSO), stock appreciation rights (SARs) and restricted stock awards. Options issued under the 1994 Plan generally vest over a four-year period and are exercisable up to eight years from the date of grant at a price per share equal to the fair market value of the underlying stock on the date of grant. The 1994 Plan also authorizes an automatic grant of options to purchase 15,000 shares of common stock to certain eligible directors upon initial election to the board of directors and a further grant of options to purchase 3,000 shares of common stock following the completion of each two-year period of service. Options granted to directors have a eight-year term and vest over four years. At December 31, 2000, there were 804,000 shares available for future grant under the 1994 Plan. F15 34 The Company applies APB Opinion No. 25 in accounting for its stock option grants under these plans, which are described above. Accordingly, no compensation cost has been recognized for its stock option plans. If compensation cost for the Company's stock option plans had been determined based on the fair market value of the options at the grant dates for awards under those plans consistent with the method provided by SFAS 123, the Company's net loss and related per share amounts would have been reflected by the following pro forma amounts for the years ended December 31, 2000, 1999 and 1998:
(in thousands, except per share data) 2000 1999 1998 - ------------------------------------- ---------- ---------- ---------- Net loss applicable to common stockholders As reported $ (44,834) $ (2,583) $ (3,813) Pro forma (45,990) (3,405) (4,536) Basic net loss per common share As reported (3.28) (0.22) (0.34) Pro forma (3.36) (0.29) (0.40) Diluted net loss per common share As reported (3.28) (0.19) (0.34) Pro forma (3.36) (0.25) (0.40)
The grant date per share weighted average fair value of stock options granted by the Company during the years ended December 31, 2000, 1999 and 1998 was $4.89, $4.02 and $3.07, respectively. The following assumptions were used by the Company to determine the fair value of stock options granted using the Black Scholes option-pricing model:
2000 1999 1998 ------------ ------------ ------------ Dividend yield 0 0 0 Expected volatility 121% 95% 75% Risk-free rate of return 5.0% to 6.3% 5.3% to 6.6% 4.4% to 5.8% Expected option life 5 years 5 years 5 years
Option activity under the Company's Plans is summarized as follows:
(in thousands, except share prices) 2000 1999 1998 - ----------------------------------- -------------------------- -------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at beginning of period 1,652 $ 3.97 1,162 $ 4.23 1,233 $ 4.37 Options granted 425 10.79 573 3.57 404 4.72 Options exercised (94) 4.13 (52) 3.77 Options forfeited (476) 7.12 (31) 5.05 (475) 4.80 ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at end of period 1,507 $ 4.89 1,652 $ 4.02 1,162 $ 4.23 ---------- ---------- ---------- ---------- ---------- ---------- Options exercisable at year-end 830 $ 4.03 504 $ 4.14 296 Shares available for future grant 804 253 295
F16 35 The following summarizes information about the Company's stock options outstanding at December 31, 2000 (in thousands, except share prices):
Options Outstanding Options Exercisable ----------------------------------------------- ----------------------------- Weighted Avg. Remaining Number Contractural Life Weighted Avg. Number Weighted Avg. Range of Exercise Prices Outstanding (in years) Exercise Price Exercisable Exercise Price - ------------------------ ----------- ----------------- -------------- ----------- -------------- $ 2.50 - $3.50 353 5.3 $ 3.03 167 $ 3.21 $ 3.63 - $3.94 555 5.4 3.88 384 3.86 $ 4.00 - $4.63 328 5.6 4.45 232 4.45 $ 5.00 - $8.88 150 6.1 6.12 47 6.20 $ 11.00 - $17.00 121 7.1 14.64 -- 11.64 ---------- ---------- 1,507 5.7 $ 4.89 830 $ 4.03 ========== ==========
9. RETIREMENT PLAN The Company maintains a discretionary defined contribution plan covering substantially all employees. During the years ended December 31, 2000, 1999 and 1998, the Company made contributions of approximately $0.2 million, $0.1 million and $89 thousand, respectively, to this plan. 10. RELATED PARTY TRANSACTIONS Safeguard owns approximately 43% of the Company's outstanding common stock, on a fully diluted basis. Effective January 1, 1995, the Company and Safeguard entered into an administrative service agreement whereby Safeguard provides the Company with business and organizational strategy, legal and investment management, and merchant and investment banking services. The agreement provides for the payment of an administrative service fee of $30 thousand per month. The initial agreement expired on December 31, 1995, and was renewed annually on a year to year basis. The agreement was terminated as of March 31, 2000. General and administrative expense on the consolidated statements of operations includes $0.1 million, $0.4 million and $0.4 million of such administrative service fees for the years ended December 31, 2000, 1999 and 1998. Additionally, in 1999 the Company paid $48 thousand for legal fees and in 1998 the Company paid $75 thousand for consulting services to Safeguard, which were not covered by this agreement. On February 8, 2000 and March 24, 2000, the Company, through its wholly-owned subsidiary eMake, entered into two convertible promissory note agreements with a subsidiary of Safeguard for $2.5 million each, totaling $5.0 million in borrowings. The promissory notes had an interest rate of 12% per annum and were due in full on February 8, 2001 and March 24, 2001, respectively. The terms of the notes payable included a clause that if the notes payable were paid in full at maturity, interest would be forgiven. The notes were paid in full on September 12, 2000, as described below, and accrued interest of $322 thousand was forgiven. At various times throughout 2000, a subsidiary of Safeguard provided $10.75 million in financings to the Company or to eMake in exchange for four demand notes ranging from $1.5 million to $5.0 million. Each demand note was due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The notes had an interest rate based on a specified bank prime rate plus one percent. On August 14, 2000, SCP provided $6.0 million in financing to the Company's subsidiary eMake in exchange for a demand note due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The note had an interest rate based on a specified bank prime rate plus one percent. Concurrently, the Company repaid the $2.5 million demand note dated July 28, 2000 to Safeguard plus accrued interest of $13 thousand with proceeds from this demand note payable. On September 12, 2000, the Company and eMake secured $26.5 million in financing from Safeguard and SCP through the issuance of preferred stock (See Note 7). In connection with this transaction, the Company received $6,936,754 in cash and Safeguard and SCP cancelled the then outstanding notes payable balance due them of $19,250,000 plus accrued interest of $313,246. In March 2000, the Company, through its wholly-owned subsidiary eMake, entered into a master agreement F17 36 with CompuCom Systems, Inc. ("CompuCom"), a Safeguard partnership company. The master agreement engaged Compucom to assist the Company with the planning, development, implementation and support of eMake. This agreement was subsequently terminated in December 2000 due to the Company's restructuring. Total payments to CompuCom during 2000 were approximately $1.0 million. In August 1999, the Company issued through a private placement 1,204,819 shares of the Company's common stock for $5.0 million and 50,000 shares of the Company's Series A convertible preferred stock for $5.0 million to a wholly owned subsidiary of Safeguard. The manager of the Company's European operations was also the managing director of the Company's largest distributor in the United Kingdom for the first six months of 2000 and for the twelve months ended 1999 and 1998. Effective February 1996, the Company entered into a distribution agreement with this distributor to which, in general, the Company sells products at discounts from list price representative of discounts given to similar distributors. Consolidated revenues includes approximately $1.4 million, $1.3 million and $1.1 million of sales to this distributor for the years ended December 31, 2000, 1999 and 1998, respectively. Accounts receivable from this customer were $223 thousand and $291 thousand at December 31, 2000 and 1999, respectively. The Company has also entered into a shared facility arrangement, in which certain office space and equipment are shared between the distributor and the Company's European Headquarters. The shared facility arrangement was terminated in September 2000. 11. COMMITMENTS AND CONTINGENCIES LEASES The Company leases office space, office furniture, equipment and automobiles under non-cancelable capital and operating lease agreements which expire at various dates through the year 2010. Assets recorded under capital leases were $1.1 million at December 31, 2000 and the related accumulated amortization was $98 thousand at December 31, 2000. Amortization of capital lease assets of $73 thousand and $8 thousand was included in depreciation expense for the years ended December 31, 2000 and 1998, respectively. Future minimum lease payments at December 31, 2000 under capital and operating leases were as follows (in thousands):
Capital Operating Leases Leases ------------ ------------ 2001 $ 198 $ 1,833 2002 198 1,829 2003 138 1,808 2004 67 1,634 2005 44 1,607 2006 and thereafter -- 7,502 ------------ ------------ Total minimum lease commitments 645 $ 16,213 ============ ============ Less amounts representing interest 68 ------------ Present value of net minimum lease payments 577 Less current portion 162 ------------ $ 415 ============
Total rent expense was approximately $1.1 million, $1.1 million and $1.0 million during the years ended December 31, 2000, 1999 and 1998, respectively. OTHER The Company has other contingent liabilities resulting from litigation, claims and commitments incident to the ordinary course of business. Management believes that the ultimate resolution of such contingencies will not have a materially adverse effect on the financial position or results of operations of the Company. F18 37 12. OTHER ACCRUED LIABILITIES Other accrued liabilities were comprised of the following components at December 31, 2000 and 1999:
(in thousands) 2000 1999 - -------------- ---------- ---------- Accrued severance and other restructuring charges (see Note 6) $ 1,197 $ -- Professional services 672 214 Other accrued expenses 886 783 ---------- ---------- $ 2,755 $ 997 ========== ==========
13. SEGMENT AND GEOGRAPHIC DATA The Company operates predominantly in one line of business, that being development, marketing and supporting component-based software products for customers requiring enterprise-wide, open systems solutions for the manufacturing and production markets. The following table presents the pertinent data relating to foreign operations:
Year Ended December 31, ------------------------------------------ (in thousands) 2000 1999 1998 - -------------- ---------- ---------- ---------- Revenues to external customers: United States $ 5,230 $ 10,494 $ 7,792 Canada 703 1,430 2,134 France 3,235 3,916 4,219 United Kingdom 1,450 1,512 1,244 Italy 802 1,299 1,598 Others 4,614 6,983 5,874 ---------- ---------- ---------- $ 16,034 $ 25,634 $ 22,861 ========== ========== ==========
The basis for grouping revenues from external customers is based on the physical location of the customer. Long-lived assets, primarily property and equipment, are principally located in the United States. 14. SUBSEQUENT EVENTS On March 30, 2001, the Company secured an equity infusion of $1.5 million from SCP through the issuance of 37,500 shares of Series C-1 Preferred Stock of the Company and a warrant to purchase up to 75,000 shares of Series C-2 Preferred Stock ("Series C Preferred"). In addition, SCP has committed to purchase an additional 37,500 shares of Series C Preferred ("Option Stock") at the purchase price of $40 per share or $1.5 million. The Company may exercise its right to sell the Option Stock on or before the expiration of nine months after March 30, 2001 ("Closing Date"), but not before two months after the Closing Date, and the Company must be in compliance with specified monthly targets as defined in the Series C Preferred Stock Agreement. The Series C Preferred has a par value of $.01 per share and a liquidation preference of $80 per share plus cumulative dividends and interest. The preferred stock is convertible into the Company's common stock at a conversion rate of 100 shares of common stock for each share of preferred stock and the cumulative dividends are payable at $4.00 per share per annum in the form of additional shares of Series C Preferred and in preference to any dividends on the Company's common stock. As an additional condition to this equity financing, SCP and Safeguard both agreed not to exercise their right to convert their Series A-1 and A-2, respectively, warrants, issued by eMake. The excess of the liquidation preference over the purchase price of the preferred stock will be accounted for similar to a beneficial conversion feature which will be reflected as a $1.5 million dividend on preferred stock, increasing the loss applicable to common stockholders for the first quarter of 2001. On January 31, 2001, SCP elected to exercise the right to acquire shares of Series B Convertible Preferred Stock of the Company in exchange for Series A-1 Convertible Preferred Stock of eMake Corporation. In addition, a subsidiary of Safeguard elected to exercise their right to acquire shares of Series B Convertible Preferred Stock of the Company in exchange for Series A-2 Convertible Preferred Stock of eMake Corporation. F19 38 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (in thousands, except per share data)
First Second Third Fourth 2000 Quarter Quarter Quarter Quarter - -------- ------------ ------------ ------------ ------------ Revenues $ 3,545 $ 3,761 $ 4,275 $ 4,453 ------------ ------------ ------------ ------------ Loss from continuing operations (2,626) (5,321) (3,583) (3,386) Loss from discontinued operations (4,438) (7,254) (5,848) (10,784) Loss on disposal of discontinued operation -- -- -- (1,193) ------------ ------------ ------------ ------------ Net loss (7,064) (12,575) (9,431) (15,363) Dividends on preferred stock (108) (108) (108) (77) ------------ ------------ ------------ ------------ Net loss applicable to common stockholders $ (7,172) $ (12,683) $ (9,539) $ (15,440) ============ ============ ============ ============ Net loss per common share (Basic and Diluted): Loss from continuing operations $ (0.21) $ (0.41) $ (0.26) $ (0.24) Loss from discontinued operation (0.35) (0.55) (0.43) (0.86) ------------ ------------ ------------ ------------ Net loss per common share $ (0.56) $ (0.96) $ (0.68) $ (1.09) ============ ============ ============ ============ Weighted average shares outstanding: Basic 12,789 13,154 13,734 14,007 Diluted 12,789 13,154 13,734 14,007
First Second Third Fourth 1999 Quarter Quarter Quarter Quarter - ---- ------------ ------------ ------------ ------------ Revenues $ 6,278 $ 6,494 $ 6,074 $ 6,788 ------------ ------------ ------------ ------------ Income from continuing operations 401 473 1,163 730 Loss from discontinued operations -- -- (2,017) (3,166) ------------ ------------ ------------ ------------ Net income (loss) 401 473 (854) (2,436) Dividends on preferred stock -- -- (63) (104) ------------ ------------ ------------ ------------ Net income (loss) applicable to common stockholders $ 401 $ 473 $ (917) $ (2,540) ============ ============ ============ ============ Net income (loss) per common share: Basic Income from continuing operations $ 0.04 $ 0.04 $ 0.09 $ 0.05 Loss from discontinued operation -- -- (0.17) (0.25) ------------ ------------ ------------ ------------ Net income (loss) per common share - basic $ 0.04 $ 0.04 $ (0.08) $ (0.20) ============ ============ ============ ============ Diluted Income from continuing operations $ 0.04 $ 0.04 $ 0.08 $ 0.04 Loss from discontinued operation -- -- (0.15) (0.21) ------------ ------------ ------------ ------------ Net income (loss) per common share - diluted $ 0.04 $ 0.04 $ (0.07) $ (0.17) ============ ============ ============ ============ Weighted average shares outstanding: Basic 11,261 11,402 12,098 12,615 Diluted 11,327 11,511 13,780 15,134
Earnings per share calculations are based on the weighted average number of shares outstanding in each period; therefore, the sum of the earnings per share amounts for the quarters does not necessarily equal the year-to-date earnings per share. F20 39 USDATA Corporation and Subsidiaries Schedule II - Valuation and Qualifying Accounts For the Years Ended December 31, 2000, 1999 and 1998
Balance at beginning of Charged to Accounts Balance at end Description year expense Written Off of year - ----------- ------------ ------------ ------------ -------------- December 31, 2000 Allowance for doubtful accounts $ 453,000 $ 6,000 $ (235,000) $ 224,000 December 31, 1999 Allowance for doubtful accounts $ 1,150,000 $ 36,000 $ (733,000) $ 453,000 December 31, 1998 Allowance for doubtful accounts $ 1,158,000 $ 252,000 $ (260,000) $ 1,150,000
F21 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Richardson, State of Texas, on the 30th day of March, 2001. USDATA Corporation By: /s/ Robert A. Merry -------------------------------- Robert A. Merry President, Chief Financial Officer and Director POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of USDATA Corporation, hereby severally constitute and appoint Robert A. Merry, as our true and lawful attorney, with full power to him singly, to sign for us in our names in the capacities indicated below, amendments to this report, and generally to do all things in our names and on our behalf in such capacities to enable USDATA Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signature /s/ Robert A. Merry President, Chief Executive March 30, 2001 - ------------------------- Officer (Principal Executive Officer) Robert A. Merry and Director /s/ Winston Churchill Chairman of the Board March 30, 2001 - ------------------------- Winston Churchill /s/ Chris Davis Director March 30, 2001 - ------------------------- Chris Davis /s/ James W. Dixon Director March 30, 2001 - ------------------------- James W. Dixon /s/ Jack L. Messman Director March 30, 2001 - ------------------------- Jack L. Messman /s/ Arthur R. Spector Director March 30, 2001 - ------------------------- Arthur R. Spector
F22 41 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Certificate of Incorporation of the Company, as amended.******* 3.2 By-laws of the Company.* 4.1 Specimen stock certificate representing the Common Stock.*** 4.2 Specimen stock certificate representing the Preferred Stock.******** 10.1 1982 Incentive Stock Option Plan.* 10.2 1992 Incentive and Nonstatutory Option Plan.* 10.3 1994 Equity Compensation Plan, as amended.* 10.4 Office Lease Agreement dated as of June 1992, by and between Carter - Crowley Properties, Inc. and the Company.* 10.8 Administrative Services Agreement between Safeguard Scientifics, Inc. and the Company.*** 10.9 First Amendment to Office Lease Agreement, dated as of June 1992 by and between Carter-Crowley Properties, Inc. and the Company.**** 10.10 Stock Purchase Agreement, dated August 6, 1999, by and between the Company and Safeguard Delaware, Inc.***** 10.11 Investors' Rights Agreement, dated August 6, 1999, by and among the Company, Safeguard Delaware, Inc. and Safeguard Scientifics, Inc.***** 10.12 Convertible Promissory Note dated February 8, 2000.****** 10.13 Convertible Promissory Note dated March 24, 2000.****** 10.14 Demand Note dated April 26, 2000.****** 10.15 Demand Note dated June 29, 2000.******* 10.16 Demand Note dated July 13, 2000.******** 10.17 Demand Note dated July 28, 2000.******** 10.18 Demand Noted dated August 14, 2000.******** 10.19 Securities Purchase Agreement, dated as of August 4, 2000, by and among eMake Corporation, USDATA Corporation, Safeguard 2000 Capital, L.P. and SCP Private Equity Partners II, L.P.******** 10.20 Amended and Restated Investors' Rights Agreement, dated as of September 12, 2000, by and among USDATA Corporation, Safeguard Delaware, Inc., Safeguard 2000 Capital, L.P., SCP Private Equity Partners II, L.P. and Safeguard Scientifics, Inc.******** 10.21 Exchange Agreement, dated as of September 12, 2000, by and between USDATA Corporation and SCP Private Equity Partners II, L.P.******** 10.22 Export Loan Agreement.# 10.23 Guaranty.# 21.1 Subsidiaries of the Registrant.* 23.1 Consent of KPMG LLP.# 23.2 Consent of PricewaterhouseCoopers LLP.# 24.1 Power of Attorney (included on signature page).
- ---------- # Filed herewith * Filed on April 12, 1995 as an exhibit to the Company's Registration Statement on Form S-1 (File No. 33-91124) and incorporated by reference herein. ** Filed on June 1, 1995 as an exhibit to Amendment No. 1 to the Company's Registration Statement on Form S-1 (File No. 33-91124) and incorporated by reference herein. *** Filed on June 15, 1995 as an exhibit to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 33-91124) and incorporated by reference herein. **** Filed on March 31, 1998 as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. ***** Filed on March 29, 2000 as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. ****** Filed on May 15, 2000 as an exhibit to the Company's Form 10-Q for the quarterly period ended March 31, 2000. ******* Filed on August 14, 2000 as an exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 2000. ******** Filed on November 14, 2000 as an exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 2000. ********* Filed on March 31, 2000 as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. EX-10.22 2 d85696ex10-22.txt EXPORT LOAN AGREEMENT 1 EXHIBIT 10.22 EXPORT LOAN AGREEMENT THIS EXPORT LOAN AGREEMENT among The Chase Manhattan Bank ("Lender"), United States Data Corporation, a Delaware corporation ("US Data"), and eMake Corporation, a Delaware corporation ("eMake," and together with US Data, herein called "Borrowers"), is made and executed as of December 15, 2000. This Agreement governs the Credit Accommodations described herein. Borrowers understand and agree that: (a) in granting, issuing, renewing, or extending such Credit Accommodations, Lender is relying upon each Borrower's representations, warranties, and agreements set forth in this Agreement and the other Financing Documents; and (b) such Credit Accommodations shall be and remain subject to the following terms and conditions of this Agreement until all Borrowers' Obligations hereunder have been paid and performed in full. ARTICLE I CERTAIN DEFINED TERMS Section 1.1 Definitions. Capitalized terms used but not defined in this Agreement shall have the meanings assigned those terms in the Borrower Agreement. As used herein, the following terms shall have the following meanings unless the context requires otherwise: "Affiliate" means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person; (b) that directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of such Person; or (c) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Person in question. The term "control" means to possess, directly or indirectly, the power to direct the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Bank is not under any circumstances to be deemed an Affiliate of either Borrower or any of their respective subsidiaries. "Agreement" shall mean this Export Loan Agreement, as it may be amended, modified, restated, renewed and extended from time to time, together with all exhibits and schedules attached hereto from time to time. This Agreement is the Loan Agreement, as referred to in the Borrower Agreement. "Borrowers" shall mean United States Data Corporation and eMake Corporation, and "Borrower" means either of them, and their respective successors and assigns. "Borrower Agreement" shall mean the Borrower Agreement relating to the Loan executed by Borrowers for the benefit of Lender and Ex-Im Bank, in the form prescribed by Ex-Im Bank attached hereto as Exhibit A. "Borrower's Obligations" shall mean all loans, advances, debts, expenses, fees, liabilities, and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or such amounts are liquidated or determinable) owing by Borrowers to Lender, of any kind or nature, present or future, arising in connection with the Loan. Borrowers' Obligations are Loan Facility Obligations, as defined in the Borrower Agreement, and are included in the Indebtedness, as defined in the Security Agreement and the Guaranty. "Collateral" shall mean all property and interests in property in and upon which Lender has been granted a Lien, including the Security Interest, as security for the payment and performance of Borrowers' Obligations, including the Collateral identified in Section 6 of the Loan Authorization Notice and all Proceeds thereof. The Collateral is included in the Collateral as defined in the Security Agreement. "Commitment" shall mean the commitment of Lender to extend to Borrowers the Loan in accordance with the terms and conditions of this Agreement. "Commitment Period" shall be the period commencing on the Effective Date (as defined in the Borrower Agreement) and ending on the Commitment Termination Date. "Commitment Termination Date" shall be the Final Disbursement Date for the Loan, unless the Commitment Termination Date is accelerated in accordance with Section 8.2 of this Agreement. "Dollars" and the sign "$" shall mean dollars in lawful money of the United States of America and, in relation to all payments in Dollars hereunder, (i) same day funds paid through the Regional Clearing House Interbank Payments system, or (ii) immediately available funds paid through the Regional Federal Reserve Bank, or (iii) such other funds as may then be required by the customary procedure of member banks of the Regional Clearing House Association for the settlement of payments. "Event of Default" shall have the meaning assigned them in the Section 8.1 of this Agreement. "Ex-Im Bank" shall mean the Export-Import Bank of the United States, its successors and assigns. "Ex-Im Bank Guarantee" shall mean the Master Guarantee Agreement between Lender and Ex-Im Bank, together with (i) the Super Delegated Authority Letter Agreement between Lender and Ex-Im Bank, (ii) the Affiliate Guarantee Authorization Agreement between Lender and Ex-Im Bank, and (iii) the Loan Authorization Notice. "Export-related Collateral" shall mean all Export-related Inventory, Export-related Accounts Receivable, Export-related General Intangibles, and all Proceeds. "Financing Documents" shall mean, collectively, this Agreement, the Note, the Security Agreement, the Guaranty, the Borrower Agreement, the Ex-Im Bank Guarantee, the Letter of Credit Application(s), all Letters of Credit issued pursuant hereto, and any other documents, certificates and agreements which are executed and delivered by Borrowers, any Guarantor or any other Person evidencing, securing, guaranteeing or otherwise relating to Borrowers' Obligations. The Financing Documents are the Loan Documents, as defined in the Borrower Agreement, and are included in the Related Documents, as defined in the Security Agreement and the Guaranty. "Guarantor" shall mean each of US Data Corporation and eMake Solutions Inc. and "Guarantors" shall mean all of them, collectively. "Guaranty" shall mean the guaranty of even date herewith executed and delivered by the Guarantors to Lender guaranteeing the payment and performance of all Borrowers' Obligations. "Highest Lawful Rate" shall mean the maximum nonusurious rate of interest permitted to be charged by applicable Federal or Texas law (whichever permits the higher lawful rate) from time to time in effect. To the extent that Texas law determines the Highest Lawful Rate, the Highest Lawful Rate is the weekly rate ceiling as defined in the Texas Finance Code Chapter 303. "Lender" mean The Chase Manhattan Bank its successors and assigns. "Letter of Credit Application" shall mean an Application and Agreement for Irrevocable Standby Letter of Credit or an Application and Agreement for Irrevocable Commercial Letter of Credit, as the case may be, in such form as is provided by Lender to a Borrower and which is 2 executed by such Borrower and delivered to Lender in connection with a request for the issuance of a Standby Letter of Credit or a Commercial Letter of Credit, respectively, pursuant to this Agreement. "Loan" means the credit facility described in the Section 2.1. The Loan is the Loan Facility, as defined in the Borrower Agreement. "Loan Authorization Notice" shall mean the Loan Authorization Notice executed by Lender and delivered to and acknowledged by Ex-Im Bank setting forth the terms and conditions of the Loan, a copy of which is attached hereto as Exhibit B. The Loan Authorization Notice is the Loan Authorization Notice, as defined in the Borrower Agreement. "Maturity Date" shall mean the first Business Day following the Stated Final Disbursement Date; provided, however, that with regard to Letter of Credit Obligations outstanding on the Stated Final Disbursement Date, the Maturity Date for any Disbursement under the Letter(s) of Credit related thereto shall be the first Business Day following the date of such Disbursement. "Note" shall mean the promissory note of even date herewith in the original principal amount of Three Million and No/100 Dollars ($3,000,000) executed by Borrowers and payable to Lender evidencing the outstanding principal balance of Disbursements, together with all renewals, extensions, modifications, refinancings and consolidations of and substitutions for such promissory note. "Proceeds" or "proceeds" shall mean, when used with respect to any of the Collateral, all products and proceeds, cash and non-cash, within the meaning of the UCC and shall include the proceeds of any and all contracts, letters of credit and insurance policies. "Security Agreement" shall mean the commercial security agreement of even date herewith, executed by Borrowers in favor of Lender creating the Security Interest in the Collateral, together with all amendments, modifications and extensions thereof. "Security Interest" is the Security Interest, as defined by the Security Agreement. "Subordinated Debt" shall mean any and all Borrowers' Obligations to Lender on terms and conditions satisfactorily to Lender. "Stated Final Disbursement Date" means the date stipulated as the Final Disbursement Date in Section 10 of the Loan Authorization Notice. "Tangible Net Worth" shall mean, as of the date of determination, the tangible net worth of Borrower determined in accordance with GAAP (i) increased by debt subordinated to the Loan, and (ii) decreased by the following intangible assets: patents, licenses, goodwill, subscription lists, capitalized software, organization expenses, covenants not to compete, investment in and Accounts Receivable and other moneys due from Affiliates (including, without limitation, officers and directors) of Borrower, and all other intangible assets of Borrower. "Working Capital" shall mean, as of the date of determination, the amount by which a Borrower's current assets exceed its current liabilities, determined as to classification of items and as to amounts in accordance with GAAP, except that there shall be excluded from current assets (i) all prepaid expenses and (ii) all amounts due from Affiliates (including, without limitation, officers and directors) of such Borrower. Section 1.2 Accounting Terms. All accounting terms used but not defined in this Agreement or the Borrower Agreement shall be construed in accordance and conformity with GAAP applied on a consistent basis. Except as expressly provided herein, terms used herein that are defined in the UCC and are not otherwise defined in this Agreement or the Borrower Agreement shall have the meanings assigned to such terms in the UCC. Section 1.3 Miscellaneous. The words "hereof", "herein" and "hereunder" and words of similar import, when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section and Exhibit references are to Articles, Sections and Exhibits to this Agreement, unless otherwise specified. ARTICLE II TERMS AND CONDITIONS Section 2.1 Advances and Letters of Credit (a) Subject to the provisions of this Agreement, including without limitation the satisfaction of the conditions described in Article III, Lender agrees to establish a Revolving Loan Facility and make and incur Credit Accommodations in support of Export Orders as hereinafter provided, provided the aggregate Credit Accommodation Amount outstanding at any time shall not exceed at such time the lesser of (a) the Export-related Borrowing Base and (b) the Maximum Amount. All Disbursements hereunder shall be made in Dollars. (b) Lender agrees to make advances directly to a Borrower or for such Borrower's account during the Commitment Period. A Borrower shall request each advance under the Loan by delivering to Lender a written request therefor, an Export-related Borrowing Base Certificate, a copy of the Export Order(s) against which such Borrower is requesting an advance or, at Lender's discretion, the summaries thereof pursuant to Section 4.3, and such other information and documentation as Lender may require, in accordance with Section 6.10 of this Agreement. Upon receipt of the above described information and documents by Lender, Lender shall make such advance within one Business Days following Lender's determination that all conditions to the making of such advance have been satisfied. Lender shall be under no obligation to make advances based on Export-related Borrowing Base Certificate not issued within five Business Days of the date of each such Borrowers' request. Each advance shall be conclusively deemed to have been made at the request of and for the benefit of the requesting Borrower (a) when credited to any deposit account of such Borrower maintained with Lender, or (b) when advanced in accordance with the instructions of an authorized Person. Lender, at its option, may set a cutoff time, after which all requests for advances under the Loan will be treated as having been requested on the next succeeding Business Day. (c) Lender agrees to issue Letters of Credit on behalf of a Borrower or for such Borrower's account from time to time during the Commitment Period. Standby Letters of Credit shall be issued for a borrower's account, for use as bid bonds, performance bonds or payment guarantees, which Standby Letters of Credit can be drawn upon by Buyers only if such Borrower fails to perform its obligations with respect to the relevant Export Order(s). Each Disbursement to fund a drawing under a Letter of Credit shall conclusively be deemed to have been made when advanced in accordance with a draw request or instructions of an authorized Person. Each Letter of Credit will be in form and substance satisfactory to Lender and will be issued by Lender as soon as practicable following (a) Lender's receipt of a completed Letter of Credit Application, an Export-related Borrowing Base Certificate, a copy of the Export Order(s) with respect to which a Borrower is requesting a Letter of Credit, and such other information and documentation as Lender may require, in accordance with Section 6.10 of this Agreement; and (b) Lender's determination that all conditions to issuing such Letter of Credit have been satisfied. Lender shall reserve from the applicable Export-related Borrowing Base an amount equal to at least 100% of the outstanding face amount of each Letter of Credit issued hereunder. In no event shall the expiry date of any Letter of Credit be later than (i) 12 months from the date of issuance of the Letter of Credit or (ii) the Stated Final Disbursement Date. If the Loan is a Revolving Loan Facility (including a Transaction Specific Revolving Loan Facility), Lender shall not be obligated to issue during the last 60 days of the Commitment Period (for this purpose the Commitment Period is deemed to end on the Stated Final Disbursement Date) any Letter of Credit which will expire after the Stated Final Disbursement Date unless Lender agrees in writing to a Renewal of the Loan, or Ex-Im Bank's prior written approval of the issuance of such Letter of Credit is obtained. -2- 3 (d) The terms and conditions of each Letter of Credit Application delivered by a Borrower and accepted by Lender hereunder, including without limitation terms related to reimbursement of amounts drawn and the payment of fees and interest, are incorporated herein by this reference; provided, however, that (a) no provisions subjecting Lender and such Borrower to arbitration or other dispute resolution provisions contained in any Letter of Credit Application shall be incorporated into this Agreement or applicable to Letters of Credit issued pursuant to this Agreement, and (b) to the extent that there is any conflict between the terms and conditions of any Letter of Credit Application and this Agreement, the terms of this Agreement shall prevail, except for (i) definitions contained in any Letter of Credit Application, and (ii) if there is any provision contained in any Letter of Credit Application which subjects the Letter of Credit issued pursuant thereto to the UCP, the UCP shall prevail. (c) The outstanding principal balance of Disbursements hereunder shall be evidenced by, and shall bear interest and be payable as provided in, the Note: Section 2.2 Credit Accommodations. (a) The amount of the Credit Accommodations available to be made or incurred hereunder at any particular time from time to time for the benefit of a Borrower shall be equal to the difference between (a) the lesser at such time of (i) the Maximum Amount, or (ii) the Export related Borrowing Base; and (b) the Credit Accommodation Amount at such time. The Export-related Borrowing Base shall be determined in accordance with this Agreement, the Borrower Agreement and the Export-related Borrowing Base Certificate. (i) Any Eligible Export-related Account Receivable or Eligible Export-related Inventory included in the Export-related Borrowing Base which subsequently fails to satisfy any of the applicable eligibility criteria shall immediately cease to be included in the Export-related Borrowing Base. (ii) Upon the sale, shipment, delivery to and acceptance by Buyer of any Item of Eligible Export-related Inventory, such Item shall cease to be included in the Export-related Borrowing Base as Export-related Inventory; however, the resulting Export-related Account Receivable shall be included in the Export-related Borrowing Base provided that it otherwise satisfies all of the eligibility criteria for Eligible Export-related Accounts Receivable. (b) Notwithstanding anything contained in this Agreement to the contrary; (i) Lender shall not undertake any new Credit Accommodation under this Agreement for any Borrower: (A) after the Final Disbursement Date; (B) during the continuance of an Event of Default hereunder; (C) if the Credit Accommodation has been or will be used in a manner prohibited by the Borrower Agreement; or (D) if no outstanding Export Order(s) exist with respect to such Borrower. (ii) No Warranty Letters of Credit shall be issued by Lender under this Agreement without the prior written approval of Lender and Ex-Im Bank; and if such approval is obtained, any Warranty Letter of Credit so approved shall be issued only upon the satisfaction of all conditions to such issuance, including reserves from the Export-Related Borrowing Base, established by Lender and Ex-Im Bank. Section 2.3 Payments and Prepayment of Borrowers' Obligations (a) Borrowers' Obligations shall be paid (and may be prepaid) in accordance with the provisions of this Agreement, the Borrower Agreement and the Note. Unless sooner due and payable or paid pursuant to the other provisions of this Agreement, the Borrower Agreement and the Note, Borrowers shall pay to Lender in full on the Maturity Date all outstanding Borrowers' Obligations, including, without limitation, the aggregate principal amount of all Disbursements then outstanding and all accrued but unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid. If the Loan is a Revolving Loan Facility, Disbursements made to a Borrower or for such Borrower's account and repaid by Borrower during the Commitment Period shall be available on a continuous basis until the Final Disbursement Date to fund Credit Accommodations made or incurred under the Loan in accordance with the terms of this Agreement and the Borrower Agreement. (b) In accordance with the Borrower Agreement, upon demand by Lender, Borrowers shall provide additional Collateral or make additional payment(s) to Lender to ensure that at all times (i) the Export-related Borrowing Base equals or exceeds the Credit Accommodation Amount; and (ii) if the Loan is a Revolving Loan Facility (other than a Transaction Specific Revolving Loan Facility), the outstanding principal balance of the Credit Accommodations that is supported by Export-Related Inventory does not exceed 60% of the sum of (y) the outstanding principal balance of the Disbursement(s), and (z) the undrawn face amount of all outstanding Commercial Letters of Credit hereunder. (c) All payments made by or received from a Borrower or for such Borrower's account in respect of Borrowers' Obligations (including prepayments by a Borrower and Proceeds received by Lender) shall be applied by Lender first to the payment of accrued and unpaid interest, second to the payment of the principal amount of Borrowers' Obligations, and third to any unpaid costs, fees and expenses due under this Agreement and the other Financing Documents. Section 2.4 Reliance by Lender on Communications and Authorizations from Borrowers. In making or incurring any Credit Accommodation pursuant to this Agreement and the other Financing Documents, Lender shall be authorized to rely on any Export-related Borrowing Base Certificate, Letter of Credit Application, or other information, documentation, notice or communication which appears to have been executed and delivered by any of the authorized representatives of a Borrower who are designated in the general certificate delivered by such Borrower to Lender. In the event that the Person(s) authorized to execute and deliver such documents or to take action hereunder on behalf of a Borrower become(s) unavailable or unable to do so, such Borrower promptly shall appoint one or more successor representative(s) and shall furnish Lender with a certificate satisfactory to Lender which shall contain a copy of the resolutions or other actions taken by such Borrower to authorize such appointment(s) and the specimen signature of each Person so appointed to act on behalf of such Borrower pursuant to this Agreement. Section 2.5 Past Due Amounts. Each amount due to Lender in connection with the Loan Documents will bear interest from its due date until paid at the Highest Lawful Rate unless the applicable Loan Document provides otherwise. ARTICLE III CONDITIONS PRECEDENT AND SUBSEQUENT Section 3.1 Conditions to Credit Accommodation. The obligation of Lender to make or incur any Credit Accommodation in each case is subject to satisfaction of the following conditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender: -3- 4 (a) Lender shall have received evidence that this Agreement and all other Financing Documents have been duly authorized, executed, and delivered by the parties thereto and shall be and remain valid and enforceable. (b) To the extent not previously received by Lender, Lender shall have received a general certificate of the Secretary of each Borrower, dated no later than the date of the execution and delivery of this Agreement, certifying (i) that attached thereto is a true, complete and correct copy of the Certificate of Incorporation of such Borrower as in effect on the date of such certification and a true, complete and correct copy of the By-laws of such Borrower, (ii) that attached thereto is a true, complete and correct copy of resolutions adopted by the directors of such Borrower authorizing the execution and delivery of this Agreement and each of the other Financing Documents and authorizing Borrower to incur Borrower's Obligations and to perform all other covenants and agreements of such Borrower contained in this Agreement and in the other Financing Documents, and (iii) as to the incumbency and specimen signature of each officer of such Borrower who is authorized to execute and deliver this Agreement, all Export-related Borrowing Base Certificates and Letter of Credit Applications to be delivered pursuant hereto, and any other Financing Documents and other instruments, certificates and documents to be executed and delivered by such Borrower hereunder. (c) Lender shall have received satisfactory evidence that the insurance which Borrowers are required to maintain pursuant to this Agreement is in full force and effect. (d) Borrowers shall have paid all of the fees, costs and expenses which are due and payable under this Agreement and any other Financing Document. (e) Ex-Im Bank shall have acknowledged receipt of the Loan Authorization Notice to Lender to effect the coverage of Borrowers' Obligations under the Ex-Im Bank Guarantee. (f) All conditions set forth in the Loan Authorization Notice that were to be satisfied as of the date of Lender's making or incurring the requested Credit Accommodation shall have been satisfied, and Lender otherwise shall be permitted under the Ex-Im Bank Guarantee to make and incur Credit Accommodations hereunder. (g) All legal matters incident to the Loan and all documents necessary in the opinion of Lender to the making or incurring of Credit Accommodations shall be satisfactory in all respects to counsel for Lender. (h) All Liens, including the Security Interest, in and upon the Collateral shall have been duly authorized, created and perfected, (i) with first priority, with respect to the Collateral described in Section 6(A) of the Loan Authorization Notice, and (ii) with the priorities set forth in Sections 6(E) and (F) of the Loan Authorization Notice with respect to other Collateral, in each case subject only to Permitted Liens, and shall be valid and enforceable. (i) Lender, at its option and for its sole benefit, shall have conducted an audit of each Borrower's Export-related Collateral, books, records, and operations, and Lender shall be satisfied as to their condition. (j) Lender shall have received a completed and executed Export-related Borrowing Base Certificate and any other information and documentation that Lender may require, in accordance with the Subsection titled "Export-related Borrowing Base Certificates." (k) (i) Borrowers shall have complied with, and shall then be in compliance with, all the terms, covenants, and conditions of this Agreement, the Borrower Agreement, and all other Financing Documents which are binding upon it, (ii) there shall exist no Event of Default under this Agreement, and (iii) all representations and warranties of Borrowers contained in this Agreement and all other Financing Documents shall be true and correct. (l) Borrowers shall have complied with, and shall then be in compliance with, all the terms, covenants, and conditions of any other agreement now existing or hereafter arising between Lender and Borrowers, and there shall exist no default or event of default thereunder. (m) Borrowers shall have complied with applicable laws, and regulations in each instance in which Borrowers shall have generated, handled, used, stored or disposed of any hazardous or toxic waste or substance, on or off its premises (whether or not owned by Borrowers). Borrowers shall have no material contingent liability for non-compliance with environmental or hazardous waste laws. Borrowers shall have not received any notice that it or any of its property or operations does not comply with, or that any governmental authority is investigating its compliance with any environmental or hazardous waste laws. Section 3.2 Condition Subsequent. The obligation of Lender to make or incur any Credit Accommodation hereunder is conditioned upon Lender's receipt (at Borrower's expense) of a post closing lien search confirming that all UCC financing statements and other documents necessary to perfect the Liens in the Collateral in favor of Lender in the priorities required hereunder have been filed among all appropriate records. ARTICLE IV SECURITY Section 4.1 Collateral. To secure payment and performance of all Borrower's Obligations, Borrowers shall grant to Lender valid, enforceable and duly perfected Liens, including the Security Interest on all Collateral. The Liens shall be of first priority with respect to the Collateral described in Section 6(A) of the Loan Authorization Notice, and the Liens shall have the priorities set forth in Sections 6(E) and (F) of the Loan Authorization Notice with respect to the other Collateral, in each case subject only to Permitted Liens. Borrowers agree that Lender shall have in respect of all Collateral that is subject to the UCC all of the rights and remedies of a secured party under the UCC in all states in which any portion of the Collateral may be located, as well as those provided in this Agreement. In the event Lender has extended or extends a loan or other credit accommodation to Borrowers in addition to the Loan and receives a Lien on any assets or property, the Lien on such assets and property shall also secure Borrowers' Obligations, and Borrowers agree to execute such documents and instruments as Lender requires to extend such security to Borrower's Obligations. Section 4.2 Perfection of Security Interests. Borrowers agree to execute such financing statements and other documents and to take whatever other actions are requested by Lender to perfect and continue Lender's Liens upon the Collateral. Each Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any financing statements and other documents necessary to perfect or to continue its Liens. Lender may at any time and without further authorization from such Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrowers will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's Liens upon the Collateral. Each Borrower will promptly notify Lender of any change in such Borrower's name including any change to the assumed business names of such Borrower. Each Borrower also will promptly notify Lender of any change in such Borrower's social security number or employer identification number. Lender's Security Interest in any Export-related Accounts Receivable shall be further perfected by the respective Borrower's execution and delivery to Lender of any instruments, the giving of any notices and the taking of any additional steps that may be required under foreign law in order to ensure the effectiveness of the assignment of such Export-related Accounts Receivable against the Buyer. -4- 5 Section 4.3 Collateral Records and Reports. Each Borrower does now, and at all times hereafter shall keep correct and accurate books and records of the Collateral, all of which books and records shall be available to Lender or Lender's representative upon demand for inspection and copying at any reasonable time. In this connection, each Borrower acknowledges that Lender is required by Ex-Im Bank to perform (or contract to perform) a field examination of such Borrower and the Collateral in accordance with Lender's customary procedures but in no event less than every six months. Such field examination shall include without limitation an inspection and valuation of Inventory and Other Assets, a book audit of Accounts Receivable and a review of the Accounts Receivable aging report. For Revolving Loan Facilities, if Lender elects in its sole discretion to make Credit Accommodations based upon summaries of Export Orders, than at least once each quarter, Lender shall review a sampling selected by Lender of those Export Orders representing at least 10% of the aggregate Dollar volume of Export Orders and 10% of the number of Export Orders supporting Credit Accommodations made or incurred during the past quarter. Specifically with respect to Export-related Collateral, each Borrower agrees to keep and maintain such books and records as Lender may require, including, without limitation, information concerning the eligibility of Export-related Collateral for Export-related Borrowing Base purposes, Export-related Accounts Receivable balances and number of days outstanding, descriptions and itemizations of the kind, type, quality, and quantity of Export-related Inventory, Inventory costs and selling prices, and records of daily withdrawals and additions to Export-related Inventory. Each Borrower shall submit to Lender in writing from time to time upon Lender's request and in any event no later than the 30th day of each month (a) an Inventory schedule for the immediately preceding month, which schedule shall include the location of each Item of Inventory, (b) an Accounts Receivable aging report for the immediately preceding month, which report shall include the customer name, Dollar amount due and number of days outstanding for each Export-related Account Receivable, (c) information concerning the status of completion of Export Orders, and (d) such other information, reports, contracts, invoices and other data relating to the Collateral as Lender may request. Section 4.4 Payments under Letters of Credit in favor of Borrowers (a) Each Borrower shall require that each commercial letter of credit issued for its benefit for the account of a Buyer with respect to any Export-related Account Receivable or Export-related Inventory shall provide that all payments of drawings thereunder shall be paid for the account of such Borrower directly to such Borrowers account with Lender (US Data No. 08805166947 and eMake No. 08806253784), or alternatively, that payment shall be made only to Lender's account. Section 4.5 Assignment of Foreign Credit Insurance Policy Proceeds and Buyer/Supplier Financing. Each Borrower shall, simultaneously with the execution of this Agreement and as and when such policies are put into effect or financing is obtained by such Borrower for the benefit of any Buyer, at any time prior to the payment and performance in full of Borrowers' Obligations, assign to Lender the proceeds of all foreign credit insurance policies maintained by such Borrower and any financing obtained by such Borrower for the benefit of any Buyer, including, without limitation, any financing the repayment of which is guaranteed or insured by Ex-Im Bank, such assignment to provide for payment to be made directly into such Borrower's account with Lender or to Lender. Section 4.6 Loss of Collateral. Lender shall not be liable for the loss of any Collateral in its possession, nor shall such loss diminish Borrowers' Obligations. ARTICLE V REPRESENTATIONS AND WARRANTIES Each Borrower represents and warrants the following to Lender and Ex-Im Bank, as of the Effective Date, as of the date each Credit Accommodation is made or incurred hereunder, as of the date of any Renewal, extension or modification of the Loan, and at all times any of Borrowers' Obligations are outstanding, and it is the affirmative obligation of such Borrower to notify Lender in writing promptly, but in any event within five (5) Business Days, of any occurrence, circumstance or fact which would affect its ability to make the representations and warranties contained herein: Section 5.1 Organization and Authority. Each Borrower is a C corporation, duly organized, validly existing, and in good standing under the laws of the state of Delaware and is duly qualified and in good standing in all other states in which such Borrower is doing business. Each Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Each Borrower has not been suspended or debarred from doing business with the United States government. The execution, delivery, and performance of this Agreement and all other Financing Documents to which each Borrower is a party have been duly authorized by all necessary action by such Borrower, do not require the consent or approval of any other Person; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its certificate of incorporation bylaws, or any other agreement or instrument binding upon such Borrower, or (b) any law, governmental regulation, court decree, or order applicable to such Borrower. Each Borrower has all requisite power and authority to execute and deliver this Agreement and all other Financing Documents to which such Borrower is a party. Section 5.2 Financial Condition. Each financial statement of such Borrower supplied to Lender fairly presents financial condition of such Borrower as of the date of the statement, and there has been no change in such Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender, which has had or could reasonably be expected to have a Material Adverse Effect. Such Borrower has no material contingent obligations required to be disclosed by GAAP except as disclosed in such financial statements. Section 5.3 Legal Effect. This Agreement and all other Financing Documents to which each Borrower is a party constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms. Section 5.4 Properties. Each Borrower is the sole owner of, and has good title to, all of such Borrower's properties free and clear of all security interests except for liens and security interests in favor of Lender, and has not executed any security documents or financing statements relating to such properties. Title to all of such Borrower's properties are in such Borrower's legal name, and such Borrower has not used, or filed a UCC financing statement under, any other name for at least the last six (6) years. Each Borrower and each Subsidiary of such Borrower possesses all permits, licenses, patents, trademarks, and copyrights required to conduct its business. All material easements, rights-of-way and other rights necessary to maintain and operate such Borrower's property have been obtained and are in full force and effect. Section 5.5 Compliance. Except as disclosed to and acknowledged by Lender in writing, (a) each Borrower is conducting such Borrower's businesses in material compliance with all applicable federal, state and local laws, statutes, ordinances, rules, regulations, orders, determinations and court decisions, including, without limitation, those pertaining to health or environmental matters, and (b) each Borrower otherwise does not have any contingent liability in connection with the release into the environment, disposal or the improper storage of any toxic or hazardous substance or solid waste which has had or could reasonably be expected to have a Material Adverse Effect. Section 5.6 Licenses. All necessary licenses, permits and authorizations required for the exporting of the Export-related Inventory have been or will be timely obtained by each Borrower, and to the best of such Borrower's knowledge, all required necessary licenses, permits and authorizations have been or will be timely obtained by each importer. Section 5.7 Performance. Each Borrower has an operating history of at least one year. Such Borrower has sufficient financial resources with which to perform its Export Orders and to pay any costs of completing its Export Orders which are not paid from the proceeds of the Loan. -5- 6 Section 5.8 Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against such Borrower is pending or threatened, and no other event has occurred which has had or could reasonably be expected to have a Material Adverse Effect other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Section 5.9 Taxes. All tax returns and reports of such Borrower that are or were required to be filed have been filed in a timely manner, and all taxes, assessments and other governmental charges have been paid in full, except those that have been disclosed in writing to Lender which are presently being or to be contested by such Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Section 5.10 Lien Priority. Unless otherwise previously disclosed to and approved by Lender in writing, such Borrower has not entered into any security agreements, granted a Lien or permitted the filing or attachment of any Lien (other than Permitted Liens) on or affecting any of the Collateral, except in favor of Lender. Section 5.11 Employee Benefit Plans. Each employee benefit plan as to which such Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (a) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (b) such Borrower has not withdrawn from any such plan or initiated steps to do so, (c) no steps have been taken to terminate any such plan, and (d) there are no unfunded liabilities other than those previously disclosed to Lender in writing. Section 5.12 Location of Borrower's Offices and Records. Such Borrower's place of business, or such Borrower's chief executive office if Borrower has more than one place of business, is located at the address for notices to such Borrower set forth in the Subsection titled "Notices". Unless such Borrower has notified Lender and Lender has acknowledged in writing to the contrary, said address is also the location of such Borrower's books and records concerning the Collateral. Section 5.13 Export-related Accounts Receivable. (a) All Export-related Accounts Receivable represented by such Borrower to constitute Eligible Export-related Accounts Receivable satisfy all relevant eligibility criteria. (b) All Export-related Receivables information contained in Export-related Borrowing Base Certificates and related reports delivered to Lender will be true and correct, subject to immaterial variance. (c) Lender shall have the right at any time during normal business hours and at such Borrower's expense to confirm with Buyers the accuracy of such Export-related Accounts Receivable information. Section 5.15 Guarantors. US Data Corporation owns 100% of the voting share capital of US Data. US Data Corporation owns 55% of the voting share capital of eMake. The Guarantors are the only Persons, other than venture capital companies, owning or otherwise controlling more than 20% of the voting share capital of eMake, or having the power to direct Borrower's policies and/or management whether by contract or otherwise. Section 5.16 Information. All information heretofore or contemporaneously herewith furnished by each Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of such Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. Such Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending the Loan to Borrowers. Each Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect as long as any of Borrowers' Obligations remain outstanding. ARTICLE VI AFFIRMATIVE COVENANTS Each Borrower covenants and agrees with Lender that, while this Agreement is in effect and until all of Borrowers' Obligations are fully paid and performed, such Borrower shall: Section 6.1 Additional Liabilities. Promptly, but in any event within five (5) Business Days, inform Lender in writing (a) in the event any litigation, claim, investigation, administrative proceeding or similar action affecting such Borrower or any Guarantor which could reasonably be expected to have a Material Adverse Effect is filed or threatened against such Borrower or any Guarantor, and (b) of the creation, occurrence or assumption by such Borrower of any actual or contingent liabilities not permitted under this Agreement. Section 6.2 Financial Records. Maintain or cause to be maintained books and records in accordance with GAAP, and permit Lender and Ex-Im Bank or their representatives to examine, review, audit and make and take away copies or reproductions of such Borrower's books and records at all reasonable times. If any books and records, including, without limitation, computer generated records and computer software programs for the generation of such records, now or hereafter are maintained in the possession of a third party, such Borrower, upon request of Lender, shall instruct such party to permit Lender and Ex-Im Bank or their representatives free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at such Borrower's expense. Section 6.3 Reporting Requirements. Furnish to Lender: (a) As soon as available and in any event not later than 30 days after the end of each month the unaudited financial statements of each Borrower, as of the end of such month and the related unaudited statements of income, members' equity and cash flows for the period commencing at the end of the previous year and ending with the end of such month and the corresponding figures as at the end of, and for, the corresponding period in the preceding fiscal year, all in reasonable detail and duly certified with respect to such statements (subject to year-end audit adjustments) by an authorized financial officer of such Borrower as having been prepared in accordance with GAAP. (b) As soon as available and in any event not later than 90 days after the end of each fiscal year of such Borrower, a copy of the audited annual financial statement for such year for such Borrower, including therein audited balance sheets of such Borrower as of the end of such fiscal year and the related statements of income, members' equity and cash flows for such fiscal year, and the corresponding figures as at the end of, and for, the preceding fiscal year, in each case audited and certified by a firm of independent certified public accountants of recognized standing acceptable to Lender and including any management letters delivered by such accounting firm to such Borrower in connection with such audit together with a certificate of such accounting firm to Lender stating that, in the course of the regular review of the business of such Borrower which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that an Event of Default has occurred and is continuing, or if, in the opinion of such accounting firm, an Event of Default has occurred and is continuing, a statement as to the nature thereof; (c) Within 30 days after filing with the Internal Revenue Service and in any event not later than May 15 of each year, copies of each Borrower's corporate income tax return and each Guarantor's signed federal income tax returns for the prior year; and -6- 7 (d) To the extent not hereinabove described, the financial statements of such Borrower and each Guarantor deliverable pursuant to the Loan Authorization Notice by the dates set forth therein. Section 6.4 Taxes, Charges and Liens. (a) Pay and discharge when due and prior to the date on which penalties would attach, all of each Borrower's indebtedness and obligations, including, without limitation, all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon such Borrower or its properties, income, or profits, and all lawful claims that, if unpaid, might become a lien or charge upon any of such Borrower's properties, income, or profits; provided, however, Borrowers will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (i) the legality of the same shall be contested in good faith by appropriate proceedings, and (ii) Borrowers shall have established or caused to have been established adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP. (b) Each Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against such Borrower's properties, income, or profits. Section 6.5 Additional Information. Furnish to Lender such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, financial information on principal suppliers of each Borrower, and other reports with respect to such Borrower's financial condition and business operations as Lender may request from time to time, including, without limitation, reports with respect to such Borrower's accounts payable within 30 days after the end of each calendar month. Section 6.6 Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to such Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. If such Borrower fails to provide any required insurance or fails to continue such insurance in force, Lender may, but shall not be required to, obtain such insurance at such Borrower's expense, and the cost of such insurance will be added to Borrowers' Obligations. Each Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form and substance satisfactory to Lender, including stipulations that coverages will not be canceled or changed without at least 10 days' prior written notice to Lender. In connection with all policies covering any of the Collateral, each Borrower will provide Lender with such loss payable or other endorsements as Lender may require; and each such policy in any event shall contain a standard non-contributing, non-reporting mortgagee or loss payee clause naming Lender as mortgagee and loss payee. Each liability insurance policy shall name Lender as additional insured. At Lender's request each Borrower shall furnish to Lender from time to time reports on each existing insurance policy including, without limitation, the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; (f) the expiration date of the policy; and (g) such additional information as Lender may request. Section 6.7 Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between such Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Section 6.8 Performance. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the other Financing Documents and in all Export Orders (including, without limitation, the delivery of the goods required thereby free and clear of defects and prior to the deadline specified therein) in a timely manner, and promptly notify Lender (including, without limitation, providing such notice of events as is required pursuant to the Borrower Agreement) of the occurrence of any event which constitutes or may constitute an Event of Default under this Agreement or a default under any of the other Financing Documents or Export Orders. Such Borrower shall, as soon as possible, take all actions necessary to entitle such Borrower to receive any payments due under all Export Orders, including, without limitation, the timely drawing of drafts under any letters of credit issued for the benefit of such Borrower in connection therewith and the timely presentation of any claims under any insurance policy issued by, or financing guaranteed by, Ex-Im Bank or any other insurer or guarantor. Section 6.9 Operations. Conduct its business affairs in a reasonable and prudent manner and in material compliance with all applicable federal, state, municipal, and foreign laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans with Disabilities Act, all applicable environmental statutes, rules, regulations and ordinances and with all minimum funding standards and other requirements of ERISA and other laws applicable to such Borrower's employee benefit plans. Section 6.10 Export-Related Borrowing Base Certificates. In addition to deliveries at the time each request for a Credit Accommodation is made by such Borrower (if required by Lender) or as otherwise required by Lender and Ex-Im Bank, and so long as there are any Credit Accommodations outstanding under the Loan, deliver to Lender no later than the 20th day of each calendar month an Exported-Related Borrowing Base Certificate, along with such supporting documentation as Lender may request. Without limiting the generality of the foregoing, each Export-Related Borrowing Base Certificate shall include or be accompanied by (a) in the event such Borrower is requesting Credit Accommodations, a copy of the Export Order(s) (or, for Revolving Loan Facilities, if permitted in writing by Lender, a written summary of the Export Orders) and related invoice(s) against which such Borrower is requesting Credit Accommodations, and copies of all other documentation pursuant to which the Buyer's obligations in respect of the Export Order(s) are evidenced, secured or guaranteed, and (b) in all cases, an Accounts Receivable aging report and Inventory schedule as described in the Subsection titled "Collateral Records and Reports," reconciled directly to such Borrower's month-end Accounts Receivable report, its month-end Inventory schedule, and its general ledger, adjusted for intra-month sales, receipts, credits and other adjustments. Section 6.11 Additional Assurances. Execute, acknowledge and deliver, or cause to be executed, acknowledged or delivered, to Lender and Ex-Im Bank such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or Ex-Im Bank may reasonably request to evidence and secure the Loan, to perfect the Liens or otherwise facilitate the performance of this Agreement and any of the other Financing Documents. Section 6.12 Compliance Certificate. Unless waived in writing by Lender, provide Lender within 30 days after the end of each month with a certificate substantially in the form of Exhibit C hereto, executed by such Borrower's chief financial officer or other officer or person acceptable to Lender (a) certifying that the representations and warranties set forth in this Agreement and the other Financing Documents are true and correct as of the date of the certificate and that, as of the date of the certificate, no Event of Default exists under this Agreement, and (b) demonstrating compliance with all financial covenants and ratios set forth in this Agreement. ARTICLE VII NEGATIVE COVENANTS Section 7.1 Financial Covenants. The Borrowers covenant and agree with Lender that while this Agreement is in effect and until all Borrowers' Obligations are fully paid and performed, each Borrower shall not, without the prior written consent of Lender and, to the extent required, Ex-Im Bank: (a) Permit its Tangible Net Worth as of the last day of each fiscal quarter to be in an amount less than [$(200,000)]; and (b) (i) For the period commencing on October 1, 2000 and ending on December 31, 2000, permit its EBITDA to be less than minus $5,000,000; (ii) For the period commencing on January 1, 2001 and ending on March 31, 2001, permit its EBITDA to be less than $400,000; (iii) For - 7 - 8 the period commencing on April 1, 2001 and ending on June 30, 2001, permit its EBITDA to be less than $500,000; (iv) For the period commencing on July 1, 2001 and ending on September 30, 2001, permit its EBITDA to be less than $500,000. Section 7.2 Maintain Basic Business. Engage in any business activities substantially different than those in which such Borrower is presently engaged. Section 7.3 Continuity of Operations. Cease operations, liquidate, dissolve or merge or consolidate with or into any other entity or make any material change in its corporate structure or identity, or enter into any agreement to do any of the following. Section 7.4 Indebtedness. Create, incur or assume additional indebtedness for borrowed money, including capital leases, or guarantee any indebtedness owing by others, other than (a) current unsecured trade debt incurred in the ordinary course of business, (b) indebtedness owing to Lender, (c) borrowings outstanding as of the Effective Date and disclosed to Lender in writing, and (d) any borrowings otherwise approved by Lender in writing. Section 7.5 Transfer of Assets and Liens. Transfer, sell or otherwise dispose of any of such Borrower's assets other than in the ordinary course of business, or mortgage, assign, pledge, or grant a security interest in or otherwise encumber such Borrower's assets. Section 7.6 Change in Management. Permit a change in the senior executive or management personnel of such Borrower. Section 7.7 Transfer of Ownership. Permit the sale, pledge or other transfer of any ownership interest in such Borrower. Section 7.8 Other Corporate Change: (a) liquidate and dissolve, (b) sell or dispose of any interest in any of its subsidiaries, or permit any of its subsidiaries to issue additional equity other than to such Borrower, or (c) be a party to any merger or consolidation. Section 7.9 Investments and Loans. Make any substantial investment in or loan to, or purchase, create, form or acquire any substantial interest in, any other Person or enterprise including, without limitation, any Affiliate (including, without limitation, an officer or director) of such Borrower other than loans to Affiliates outstanding as of the Effective Date and disclosed to and acknowledged by Lender in writing. Section 7.10 Dividends. Pay any dividends of such Borrower's capital stock or purchase, redeem, retire or otherwise acquire any of Borrower's capital stock or alter or amend such Borrower's capital structure; provided, however, if such Borrower is and becomes a Subchapter S corporation, such Borrower may make distributions to each of its shareholders equal to each shareholder's additional federal and state income tax liability attributable to such shareholder's ownership of capital stock in such Borrower. Section 7.11 Affiliates. Enter into any transaction, including, without limitation, the purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate (including, without limitation, any officer or director) of such Borrower, except in the ordinary course of and pursuant to the reasonable requirements of such Borrower's business and upon fair and reasonable terms no less favorable than would be obtained in a comparable arm's length transaction with a Person not an Affiliate of such Borrower. Section 5.11 Use of Proceeds. Use any Loan proceeds for (i) the purchasing of fixed assets, (ii) capital expenditures or, (iii) the purchasing or carrying of "margin stock" as defined in Regulation U issued by the Board of Governors of the Federal Reserve System. ARTICLE VIII REMEDIES Section 8.1 Events of Default. Each of the following shall constitute an Event of Default under this Agreement: (a) Failure of Borrowers to make any payment within five (5) days after the date when due on any of Borrowers' Obligations, including, without limitation, any mandatory prepayments of Borrowers' Obligations from the Proceeds of or comprising Export-related Accounts Receivable and Export-related Inventory; (b) Failure of any Borrower or Guarantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement, the Note, the Borrower Agreement or in any of the other Financing Documents, and such failure remains uncured or uncorrected for a period of five (5) days; (c) Failure of any Borrower or Guarantor to pay when due any amount payable to Lender under any other loan or credit accommodation to such Borrower or Guarantor; (d) The occurrence of any default or event of default under any other agreement now existing or hereafter arising between Lender and any Borrower or Guarantor; (e) Any warranty, representation or statement made in or furnished to Lender under this Agreement or the other Financing Documents is false or misleading in any material respect when made or furnished, or becomes false or misleading at any time thereafter; (f) The occurrence of any event which permits the acceleration of the maturity of any indebtedness owing by any Borrower or Guarantor to any third party under any agreement or undertaking, or any such indebtedness shall not be paid as and when due; (g) Any Borrower or Guarantor (i) applies for, consents to or suffers the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of such Borrower or Guarantor, or of all or a substantial part of such Borrower's or Guarantor's property or calls a meeting of such Borrower's or Guarantor's creditors, (ii) admits in writing such Borrower's or Guarantor's inability, or is generally unable, to pay such Borrower's or Guarantor's debts as they become due or ceases operations of such Borrower's or Guarantor's present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces to, or fails to have dismissed within 30 days, any petition filed against it in any involuntary case under such bankruptcy laws, (viii) is the subject of any proceeding for the liquidation of its assets or dissolution, or (ix) takes any action for the purpose of effecting any of the foregoing. (h) Any change in ownership of 25% or more of the capital stock of either Borrower, or either Borrower becomes the subject of any merger or consolidation. (i) Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of a Borrower or Guarantor, or by any governmental agency; or the issuance of any levy, assessment, attachment, seizure or Lien, other than a Permitted Lien, against any of the Collateral which is not stayed or lifted within 15 days. (j) The occurrence of any event of default under the Ex-Im Bank Guarantee or the Ex-Im Bank Guarantee ceases to be in effect for any reason whatsoever without Lender's prior written consent, including, without limitation, Borrowers failure to pay all fees due Ex-Im Bank. -8- 9 (k) Any material delay occurs in any Borrower's performance of its obligations under any Export Order, unless such delay is due to force majeure and such Borrower is able to satisfy Lender that the delay will not cause a default under the applicable Export Order or diminish the Buyer's payment obligations thereunder; or a material adverse change occurs in the financial condition of any supplier to such Borrower. (l) An event occurs which has had or could reasonably be expected to have a Material Adverse Effect. (m) Any Lien in any of the Collateral granted or intended by the Financing Documents to be granted to Lender ceases to be a valid, enforceable, perfected, first priority Lien (or a lesser priority if expressly permitted pursuant to Section 6 of the Loan Authorization Notice) subject only to Permitted Liens. (n) Any material provision of any Financing Document for any reason ceases to be valid, binding and enforceable in accordance with its terms. (o) Any litigation is filed against any Borrower or Guarantor which has had or could reasonably be expected to have a Material Adverse Effect and such litigation is not withdrawn or dismissed within 30 days of the filing thereof. Section 8.2 Effect of an Event of Default. If any Event of Default shall occur, and unless such Event of Default shall be cured to the satisfaction of Lender and Ex-Im Bank, Lender may, at its option, without further notice or demand, (a) accelerate the Commitment Termination Date, whereupon the Commitment shall terminate as of the accelerated Commitment Termination Date; (b) terminate all other commitments and obligations of Lender to make loans or other credit accommodations to Borrowers, if any; (c) declare the Loan and any other indebtedness of Borrowers (contingent or otherwise) to Lender immediately due and payable; (d) refuse to make or incur any additional Credit Accommodations under this Agreement or the Note; (e) assemble, sell, lease, buy, transfer or otherwise dispose of the Collateral or the Proceeds thereof; and (f) exercise all the rights and remedies provided in this Agreement, the Note or in any of the other Financing Documents or available at law, in equity, or otherwise; provided, however, that if any Event of Default of the type described in the Subsection 8.1(g) shall occur, the Loan and any other indebtedness of Borrowers to Lender shall automatically become fully due and payable, without any notice, demand or action by Lender. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of any Borrower or Guarantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. ARTICLE IX MISCELLANEOUS Section 9.1 Amendments. This Agreement, together with the other Financing Documents, constitute the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. This Agreement and the other Financing Documents supersede all existing agreements, oral or written, previously entered into between Borrowers and Lender with respect to the Loan unless Borrowers and Lender agree in writing to the contrary. Section 9.2 Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Section 9.3 Consent to Loan Participation. Borrowers agree and consent to Lender's sale or transfer, at Lender's sole discretion, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, potential purchasers, or affiliates of Lender, any information or knowledge Lender may have about Borrowers or about any other matter relating to the Loan, and Borrowers hereby waive any rights to privacy it may have with respect to such matters. Borrowers additionally waive any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Section 9.4 Notices. All communications and notices required to be given under this Agreement shall be hand delivered or sent by nationally recognized overnight courier or United States mail, certified or registered, postage prepaid, addressed to the party to whom the notice is to be given at the address shown below. All such communications and notices shall be effective upon delivery. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, notice to any Borrower will constitute notice to all Borrowers: if to US Data: 2435 North Central Expressway Richardson, Texas 75080 ATTN: Mr. Jennifer Dooley if to eMake: 2435 North Central Expressway Richardson, Texas 75080 ATTN: Mr. Jennifer Dooley if to Lender: The Chase Manhattan Bank 2200 Ross Avenue Dallas, Texas 75201 ATTN: Ms. Mae Reeves -9- 10 with copy to: Bracewell & Patterson, L.L.P. 2000 K Street, N.W., Suite 500 Washington, D.C. 20006-1872 ATTN: Stephen F. Hogwood if to Ex-Im Bank: Export-Import Bank of the United States 811 Vermont Avenue, N.W. Washington, D.C. 20571 ATTN: Vice President, Business Credit Division Section 9.5 Survival. All covenants, agreements, representations and warranties of Borrowers and any Guarantor made herein and in the other Financing Documents and in the certificates, instruments and other documents delivered pursuant hereto or thereto shall survive the making or incurring of Credit Accommodations hereunder, and shall continue in full force and effect until all of Borrowers' Obligations have been paid and performed in full. Section 9.6 Successor and Assigns. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements by or on behalf of Borrower which are contained in this Agreement or in the other Financing Documents shall inure to the benefit of the successors and assigns of Lender and Ex-Im Bank, which is a third-party beneficiary of this Agreement and each of the other Financing Documents to which it is not a direct party. Borrowers may not assign any interest that it may have under this Agreement, including, without limitation, the right to receive the benefit of the Loan to be extended hereunder, without the prior written consent of Lender and Ex-Im Bank. Any assignment made or attempted by Borrowers without the prior written consent of Lender and Ex-Im Bank shall be void and of no effect. No consent by Lender and Ex-Im Bank to an assignment by any Borrower shall release such Borrower as the party primarily obligated and liable under the terms of this Agreement unless such Borrower shall be released specifically by Lender and Ex-Im Bank in writing. No consent by Lender and Ex-Im Bank to an assignment shall be deemed to be a waiver of the requirement of prior written consent by Lender and Ex-Im Bank with respect to each and every further assignment and as a condition precedent to the effectiveness of such assignment. Lender may assign its interest in any or all of the Financing Documents to any Person, including Ex-Im Bank, without the consent of or notice to Borrowers, any Guarantor, or any other Person, upon such terms as Lender in its sole discretion deems appropriate. Section 9.7 Payment of Fees and Expenses. At Lender's discretion, Borrowers will pay all out-of-pocket expenses, including, without limitation, the fees and disbursements of legal counsel employed by Lender, incurred by Lender in connection with (a) the preparation and negotiation of this Agreement and the other Financing Documents, (b) the making or incurring of Credit Accommodations by Lender, (c) the protection of the Collateral and any other security for the repayment of Borrowers' Obligations, and (d) the enforcement and protection of the rights of Lender in connection with this Agreement or any of the other Financing Documents. Prior to Lender's making or incurring any Credit Accommodations hereunder, Borrowers shall pay to Lender, in consideration for the establishment of the Commitment and as an additional condition precedent to the making or incurring of Credit Accommodations, the Ex-Im Bank facility fee determined in accordance with the Loan Authorization Notice and all other fees and expenses due Lender. Without limiting the generality of the foregoing, Borrowers shall pay or cause to be paid to the Lender the following fees: (i) a facility fee in the amount of $37,500, payable on the Effective Date and at each renewal hereof; and (ii) a fee for the issuance of each Letter of Credit under this Agreement which shall be the greater of (a) one and one half of one percent (1.5%) per annum, calculated on the face amount of such Letter of Credit, or (b) $1,000, together with all of Lender's out-of-pocket expenses related to the issuance of each such Letter of Credit, payable upon submission of each such Letter of Credit Application. Section 9.8 Applicable Law; Jurisdiction; Consent to Service of Process. Except as hereinafter expressly provided, this Agreement is governed by and shall be construed in accordance with the laws of the State of Texas; provided, however, that Chapter 346 of the Texas Finance Code, which regulates certain revolving credit loan accounts, shall not apply to the transactions contemplated by this Agreement and the Note executed in connection herewith. The Ex-Im Bank Guarantee is governed by New York law. Accordingly, notwithstanding any provision to the contrary contained herein or in any of the other Financing Documents, to the extent, but only to the extent, necessary to assure full satisfaction of and compliance with all terms and conditions of Ex-Im Bank's guaranty of Borrower's Obligations under the Ex-Im Bank Guarantee and to preserve Lender's rights thereunder, this Agreement and each of the other Financing Documents shall be governed by and construed in accordance with the laws of the State of New York. Lender and Borrowers hereby submit to the non-exclusive jurisdiction of any New York court or federal court sitting in New York City over any suit, action or proceeding arising out of or relating to this Agreement. Final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon each Borrower and may be enforced in any court to the jurisdiction of which such Borrower is subject, by a suit upon the judgment. Section 9.9 No Liability of Lender. Neither Lender nor Ex-Im Bank shall be liable for any act or omission by it pursuant to the provisions of this Agreement, in the absence of fraud or gross negligence. Borrowers hereby agree that neither Lender nor Ex-Im Bank shall be chargeable for any negligence, mistake, act or omission of any accountant, examiner, agency or attorney employed by it in making examinations, investigations or collections, or otherwise in perfecting, maintaining, protecting or realizing upon any lien or Security Interest in the Collateral or any other interest in any security for Borrowers' Obligations. Neither Lender nor Ex-Im Bank shall incur any liability to Borrower or to any other party in connection with the acts or omissions of Lender or Ex-Im Bank in reliance upon any certificate or other paper believed by Lender or Ex-Im Bank to be genuine or with respect to any other thing which Lender or Ex-Im Bank may do or refrain from doing, unless such act or omission amounts to fraud or gross negligence. Section 9.10 Indemnification. Borrowers agrees to protect, indemnify, defend and hold harmless Lender and Ex-Im Bank from and against any and all claims, damages, losses, liabilities, costs or expenses (including, without limitation, attorneys' fees) whatsoever which Lender and Ex-Im Bank may, at any time, sustain or incur by reason of or in consequence of or arising out of extending the Loan to Borrowers, the making or incurring of Credit Accommodations, or the issuance of a guaranty of Borrowers' Obligations, as the case may be; it being the intention of the parties that this Agreement shall be construed and applied to protect, indemnify, defend and hold harmless Lender and Ex-Im Bank against any and all risks involved in the transactions contemplated by this Agreement and the other Financing Documents, all of which risks are hereby assumed by Borrower. The provisions of this Section shall survive the expiration or termination of this Agreement, the other Financing Documents, and the Commitment and the payment and performance of Borrowers' Obligations. Section 9.11 No Partnership. Nothing contained in this Agreement shall be construed in a manner to create any relationship among Borrowers, Lender and Ex-Im Bank other than the relationship of borrower, lender and credit enhancement provider, and Borrowers. Lender and Ex-Im Bank shall not be considered partners or co-venturers for any purpose on account of this Agreement. Section 9.12 Controlling Agreement. Borrowers acknowledge and agree that (a) the Borrower Agreement contains additional representations, terms, covenants and conditions related to Borrowers and the Loan, and (b) as between Lender and Borrowers this Agreement and the Borrower Agreement together govern the establishment of the Loan as a Loan Facility guaranteed pursuant to the Ex-Im Bank Guarantee and the -10- 11 making and incurring of Credit Accommodations under the Loan. In the event any of the representations, terms, covenants, or conditions contained in this Agreement conflict with those contained in the Borrower Agreement, then as between Lender and Borrowers, the more stringent provisions of each with respect to Borrowers shall govern and prevail. Section 9.13 Waiver of Trial by Jury. EACH BORROWER AND LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH BORROWERS AND LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER FINANCING DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH BORROWER AND LENDER, AND EACH BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH BORROWER FURTHER REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO BE REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL. SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. Section 9.14 Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity, however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respect shall remain valid and enforceable. Section 9.15 Rules of Construction. For purposes of this Agreement, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context if appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (b) the term "or" is not exclusive; (c) the term "including" (or any form thereof) shall not be limiting or exclusive; (d) all references to statues and related regulations shall include any amendments of same and any successor statues and regulations; (e) the words "this Agreement", "herein", "hereof", "hereunder" or other words of similar import refer to this Agreement as a whole including the exhibits hereto as the same may be amended, modified or supplemented; (f) all references in this Agreement to sections, subsections, paragraphs and exhibits shall refer to the corresponding sections, subsections, paragraphs and exhibits of or to this Agreement; and (g) all references to any instruments or agreements, including references to any of the Financing Documents, shall include any and all modifications, amendments and supplements thereto and any and all restatements, extensions or renewals thereof to the extent permitted under this Agreement. Section 9.16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed and original and all of which together shall constitute the same document. Signature pages may be detached from the counterparts to a single copy of this Agreement to physically form one document. Section 9.17. Time is of the Essence. Time is of the essence in the performance of this Agreement. Section 9.18 Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and any Borrower, or between Lender and any Guarantor, shall constitute a waiver of any of Lender's rights or of any obligations of such Borrower or Guarantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. Section 9.19. Usury not intended. Borrowers and Lender intend to conform strictly to applicable usury laws. Therefore, the total amount of interest (as defined under applicable law) contracted for, charged or collected under this Agreement or any other Loan Document will never exceed the Highest Lawful Rate. If Bank contracts for, charges or receives any excess interest, it will be deemed a mistake. Bank will automatically reform the Loan Document or charge to conform to applicable law, and if excess interest has been received, Bank will either refund the excess to Borrowers or credit the excess on any unpaid principal amount of the Note or any other Loan Document. All amounts constituting interest will be spread throughout the full term of the Loan Document or applicable Note in determining whether interest exceeds lawful amounts. SECTION 9.20 ENTIRE AGREEMENT. PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCIAL CODE, A LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED IN THE LOAN AGREEMENT EXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE LOAN AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE BOUND OR THAT PARTY'S AUTHORIZED REPRESENTATIVE. THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO THE PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN AGREEMENT, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THE LOAN AGREEMENT. THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. -11- 12 EXECUTED as of the 15th day of December, 2000. BORROWERS: UNITED STATES DATA CORPORATION By: /s/ ROBERT A. MERRY ------------------------------------------ Name: Robert A. Merry ---------------------------------------- Title: President and Chief Executive Officer --------------------------------------- eMAKE CORPORATION By: /s/ ROBERT A. MERRY ------------------------------------------ Name: Robert A. Merry ---------------------------------------- Title: Chairman --------------------------------------- LENDER: THE CHASE MANHATTAN BANK By: /s/ MAE KEENES ------------------------------------------ Authorized Officer Vice President 13 EXHIBIT A BORROWER AGREEMENT -14- 14 EXHIBIT B LOAN AUTHORIZATION NOTICE -15- 15 EXHIBIT C FORM OF COMPLIANCE CERTIFICATE -16- 16 FORM OF COMPLIANCE CERTIFICATE THE CHASE MANHATTAN BANK ("LENDER"), UNITED STATES DATA CORPORATION ("US DATA"), AND eMAKE CORPORATION ("EMAKE," AND TOGETHER WITH US DATA, "BORROWERS" AND EACH A "BORROWER"), EXECUTED AS OF DECEMBER 15, 2000 (THE "AGREEMENT"), AS AMENDED, RESTATED AND SUPPLEMENTED. REPORTING REQUIREMENTS, FINANCIAL COVENANTS AND COMPLIANCE CERTIFICATE FOR CURRENT REPORTING PERIOD ENDING _________ ("END DATE") A. REPORTING PERIOD. THIS EXHIBIT WILL BE IN PROPER FORM AND SUBMITTED WITHIN 30 DAYS AFTER THE END OF EACH CALENDAR MONTH INCLUDING THE LAST REPORTING PERIOD OF THE FISCAL YEAR AND WITH THE FISCAL YEAR END FINANCIAL STATEMENT, BORROWERS' FISCAL YEAR ENDS ON 12/31/00. - -------------------------------------------------------------------------------------------------------------------- ------------- B. Financial Reporting. Borrower will provide the following financial information within the times indicated: Compliance Certificate (Circle) - ----------------------- ------------------------------------ ----------------------------------------------------- ------------- WHO WHEN DUE WHAT - ----------------------- ------------------------------------ ----------------------------------------------------- ------------- BORROWER (i) Within 90 days of fiscal year Annual audited financial statements (balance sheet, Yes No end income statement, cash flow statement) by independent certified public accountants satisfactory to Bank, accompanied by Compliance Certificate - ----------------------- ------------------------------------ ----------------------------------------------------- ------------- (ii) Within 30 days of end of each Unaudited interim financial statements accompanied by Yes No month, including final period of Compliance Certificate fiscal year. - ----------------------- ------------------------------------ ----------------------------------------------------- ------------- (iii) Within 30 days after filing Copy of corporate income tax return Yes No with the IRS, but no later than May 15 of each year - ----------------------- ------------------------------------ ----------------------------------------------------- ------------- (iv) no later than the 20th day of Borrowing Base Certificate Yes No each calendar month - ----------------------- ------------------------------------ ----------------------------------------------------- ------------- (v) Until the 30th day of each month (a) Accounts Receivable aging report for the Yes No immediately preceding month, (b) information regarding status of completion of Export Orders and (c) such other information, reports, contracts, invoices and other data relating to the Collateral as Lender may request. - ----------------------- ------------------------------------ ----------------------------------------------------- ------------- GUARANTOR (vi) Within 30 days after filing Copy of corporate income tax return with IRS, but no later than May 15 of each year. - ----------------------- ------------------------------------ ----------------------------------------------------- ------------- - ------------------------------------------------------------- ----------------------------------------------------- ------------- C. FINANCIAL COVENANTS. Borrowers will comply with the COMPLIANCE CERTIFICATE following financial covenants, defined in accordance with GAAP and the definitions in the Agreement, and incorporating the calculation adjustments indicated on the Compliance Certificate: - ------------------------------------------------------------- ----------------------------------------------------- ------------- REQUIRED ACTUAL REPORTED Compliance Except as specified otherwise, each covenant will be (circle) maintained at all times and reported for each Reporting For Current Reporting Period/as of the End Date Period or as of each Reporting Period End Date, as Yes No appropriate: - ------------------------------------------------------------- ----------------------------------------------------- ------------- 1. Maintain a Tangible Net Worth, as adjusted of at least Stockholders' Equity $___________ $(200,000) [ILLEGIBLE] Minus: Goodwill $___________ Yes No Other Intangible Assets $___________ Loans Advances to Equity holders $___________ Loans to Affiliates $___________ Plus: Subordinated Debt $___________ = Tangible Net Worth $___________ - ------------------------------------------------------------- ----------------------------------------------------- ------------- 2. Have a minimum EBITDA (Cash Flow before interest Net Income $___________ and income tax expense) for the 3 months ending at each (after interest & tax expense) Yes No End Date listed below of at least the following amounts: Plus: Depreciation $___________ 12/31/2000 (5,000,000) Amortization $___________ 3/31/2001 400,000 Minus: Nonrecurring items $___________ 6/30/2001 500,000 Equals: Cash Flow $___________ 9/30/2001 500,000 Cash Flow $___________ Plus: Tax Expense $___________ Interest Expense $___________ Equals: EBIDTA of $___________ - ------------------------------------------------------------- ----------------------------------------------------- -------------
The above summary represents some of the covenants and agreements contained in the Agreement and does not in any way restrict or modify the terms and conditions of the Agreement. In case of conflict between this Exhibit C and the Agreement, the agreement shall control. The undersigned hereby certifies that the above information and computations are true and correct and not misleading as of the date hereof and that since the date of Borrower's most recent Compliance Certificate (if any): -17- 17 1. Events of Default No default or Event of Default has occurred or been discovered since the date of the most recent Compliance Certificate. Since the date of the most recent Compliance Certificate, a default or Event of Default (as described below) has occurred or has been discovered: was cured on ____________________. was waived by Lender in writing on._____________. is continuing. Description of Event of Default: -------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- 2. Representations and Warranties The representations and warranties set forth in the Agreement and the other Financing Documents are true and correct as of the date hereof. Executed this ___ day of ______________ 200_. BORROWERS: UNITED STATES DATA CORPORATION eMAKE CORPORATION By: By: ---------------------------------- ------------------------------- Name: Name: -------------------------------- ----------------------------- Title: [Chief Financial Officer] Title: [Chief Financial Officer] By: By: ---------------------------------- ------------------------------- Name: Name: -------------------------------- ----------------------------- Title: Title: ------------------------------- ---------------------------- Address: 2435 North Central Expressway Richardson, Texas 75080 -18- EX-10.23 3 d85696ex10-23.txt GUARANTY 1 EXHIBIT 10.23 GUARANTY (this "Guaranty") 1. Guaranty. The undersigned Guarantors, jointly and severally, agree to pay THE CHASE MANHATTAN BANK, herein called "Lender" at 2200 Ross Avenue, Dallas, Texas 75201, or such other address as Lender designates, when due or declared due, the Guaranteed Indebtedness. This Guaranty is an unconditional, absolute and continuing guaranty of payment and performance and not of collection. "Guaranteed Indebtedness" means all debts, obligations, and liabilities of every kind and character, whether joint or several, contingent or otherwise, of UNITED STATES DATA CORPORATION and eMAKE CORPORATION (together with their respective successors, "Borrowers") now or hereafter existing in favor of Lender, including without limitation all liabilities arising under or from any note, open account, overdraft, letter of credit application, endorsement, surety agreement, guaranty, interest rate swap or other derivative product, acceptance, foreign exchange contract, or depository service contract, whether payable to Lender or to a third party and subsequently acquired by Lender. Guarantor and Lender specifically contemplate that Borrowers may hereafter become further indebted to Lender. Guaranteed Indebtedness includes any post-petition Interest and expenses (including, but not limited to, attorneys' fees) whether or not allowed as a claim against Borrower under any bankruptcy, insolvency, or other similar law. All Guaranteed Indebtedness is conclusively presumed to have been made or acquired in reliance on this Guaranty. This Guaranty does not in any way cancel, amend, discharge or limit any other guaranty executed by any Guarantor in favor of Lender. "Loan Documents" means any document or instrument evidencing, securing or executed in connection with Guaranteed Indebtedness. 2. Termination of Guaranty. This Guaranty will continue to be in effect until final payment in full of the Guaranteed Indebtedness. Any of the Guarantors may terminate its liability for Guaranteed Indebtedness not in existence (whether by advance, commitment or otherwise) by delivering written notice to Lender, to be effective 5 business days after received under written receipt by Lender. After termination of this Guaranty, Guarantors will continue to be liable for all Guaranteed Indebtedness existing on the effective date of termination, and for all Guaranteed Indebtedness arising under any written agreement to make loans or extensions of credit entered into between Lender and Borrowers prior to the effective date of termination (whether or not Lender is contractually obligated to make the loans or extensions of credit). 3. Continuation and Reinstatement of Guaranty. If any petition or other action is filed by or against any Borrower under the Bankruptcy Code or any other law relating to liquidation, insolvency or reorganization of debtors, or any other proceeding involving the estate or assets of the Guarantors, this Guaranty will remain effective or be reinstated, as the case may be (even if the Guaranteed Indebtedness has been paid in full), with respect to any payments or transfer of assets with respect to Guaranteed Indebtedness, to the extent such payment or transfers are or may be voidable or otherwise subject to rescission or return as preferential transfer, fraudulent conveyance or otherwise. 4. Changes to Guaranteed Indebtedness. Guarantors authorized Lender, without notice, consent or demand, before and after termination of this Guaranty, without affecting Guarantors' liability hereunder: to take and hold security for the payment of this Guaranty and/or the Guaranteed Indebtedness, and exchange, enforce, foreclose, waive and release any security and to apply the proceeds of such security as Lender in its discretion determines; to obtain a guaranty of the indebtedness from any one or more other persons or entities whomsoever and at any time or times to enforce, waive, rearrange, modify, limit or release such other persons or entities from their obligations under such guaranties; and to extend, rearrange, supplement, modify, settle, compromise, discharge or subordinate any of the Guaranteed Indebtedness. 5. Unenforceability or Uncollectibility of the Guaranteed Indebtedness. Guarantors will remain liable for the Guaranteed Indebtedness even though the Guaranteed Indebtedness may be unenforceable against or uncollectible from the Borrowers or any other person due to incapacity, lack of power or authority, discharge, or for any reason whatsoever. 6. Guarantors Reporting. Guarantors will furnish to Lender such financial statements and other information relating to the financial condition, properties and affairs of Guarantors as Lender requests from time to time. 7. Right of Offset. Guarantors grant to Lender a right of setoff against every deposit account and all personal property in Lender's possession, whether tangible or intangible, and any claim of Guarantors (whether individual, joint, several or otherwise) against Lender, now or hereafter existing. This right of setoff is not exclusive. In addition to Lender's right of setoff and as further security for this Guaranty and the Guaranteed Indebtedness, Guarantors hereby grant Lender a security interest in all deposits and all other accounts and property of Guarantors now or hereafter on deposit with or held by Lender and all other sums at any time credited by or owing from Lender to Guarantors. These rights and remedies of Lender are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Lender may have. 8. Automatic Acceleration. Guarantors agree that if the maturity of any Guaranteed Indebtedness is accelerated by bankruptcy or otherwise, such maturity shall also be deemed accelerated for the purpose of this Guaranty without demand on or notice to Guarantors. 9. Waivers of Guarantors. Guarantors waive (i) diligence and promptness in preserving liability of any person on Guaranteed Indebtedness, and in collecting or bringing suit to collect Guaranteed Indebtedness; (ii) all rights of Guarantors under Rule 31, Texas Rules of Civil Procedure, or Chapter 34 of the Texas Business and Commerce Code, or Section 17.001 of the Texas Civil Practice and Remedies Code; (iii) to the extent each of the Guarantors is subject to the Texas Revised Partnership Act ("TRPA"), compliance by Lender with Section 3.05(d) of TRPA; (iv) protest; (v) notice of extensions, renewals, modifications, rearrangements and substitutions of Guaranteed Indebtedness; (vi) notice of acceptance of this agreement, creation of Guaranteed Indebtedness, failure to pay Guaranteed Indebtedness as it matures, any other default, adverse change in Borrowers' financial condition, release of substitution of collateral, subordination of Lender's rights in any collateral, and every other notice of every kind. If any part of the Guaranteed Indebtedness is secured by an interest in real property ("Real Property"), and such interest is foreclosed upon pursuant to a judicial or nonjudicial foreclosure sale, each of the Guarantors agrees that notwithstanding the provisions of Section 51.003, 51.004, and 51.005 of the Texas Property Code (as amended from time to time), and to the extent permitted by law, Lender may seek a deficiency judgment from each of the Guarantors and any other party obligated on the Guaranteed Indebtedness equal to the difference between the amount owing the Guaranteed Indebtedness and the amount for which the Real Property was sold at judicial or nonjudicial foreclosure sale. Guarantors irrevocably waive and shall not seek to enforce or collect upon any rights which each of the Guarantors now has or may acquire against the Borrowers, either by way of subrogation, indemnity, reimbursement or contribution, for any amount paid under this Guaranty or by way of any other obligations of the Borrowers to Guarantors until 91 days after the Guaranteed Indebtedness is paid in full. 10. Representations and Agreements. This Guaranty constitutes a legal, valid, binding obligation of and is enforceable against Guarantors. Each of the Guarantors has filed all federal and state tax returns which are required to be filed, and has paid all due and payable taxes and assessments against the property and income of Guarantors. Guarantors have determined that this Guaranty will benefit each of the Guarantors directly or indirectly. The value of the consideration received by Guarantors is reasonably worth at least as much as its liability hereunder and is fair and reasonably equivalent value for this Guaranty. No material adverse change has occurred in Guarantors' financial condition reflected in the last financial statement and application for credit provided to Lender. Guarantors have not relied and are not relying on Lender to provide to Guarantors information regarding Borrowers' assets or financial condition and Lender has no duty to provide such information. Page 1 2 11. Applicable Law and Venue. This Guaranty is governed by Texas law. If any provision of this Guaranty is illegal or unenforceable, that illegality or unenforceability will not affect the remaining provisions of the Guaranty. GUARANTORS AND LENDER AGREE THAT THIS GUARANTY WILL BE PERFORMED IN THE COUNTY IN WHICH LENDER'S PRINCIPAL OFFICE IN TEXAS IS LOCATED, AND THAT SUCH COUNTY IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY THE GUARANTOR OR LENDER, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST GUARANTORS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW GUARANTORS HEREBY IRREVOCABLY (A) SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVE ANY OBJECTION MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH OF THE GUARANTORS AGREES THAT SERVICE OR PROCESS UPON HE/SHE MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT HIS/HER ADDRESS SPECIFIED BELOW. LENDER MAY SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST GUARANTORS OR WITH RESPECT TO ANY OF HIS PROPERTY IN COURTS IN OTHER PROPER JURISDICTIONS OR VENUES. 12. Notice. Any notice required or permitted under this Guaranty must be given in writing by United States mail, by hand delivery service, or by telegraphic, telex, telecopy or cable communications, sent to the intended addressee at the address shown in this Guaranty, or to such different address as the addressee designates by 10 days notice. Notice by United States mail will be effective when mailed. All other notices will be effective when received. Written confirmation of receipt will be conclusive. Notice of termination, as provided in Section 2, will not be deemed given until actually received by a commercial lending officer with the rank of Vice President or above at the address of Lender shown in this Guaranty. 13. Costs and Expenses. To the extent permitted by applicable law, Guarantors will pay on demand all attorney's fees and all other costs and expenses incurred by Leader in connection with the preparation, administration, enforcement, or collection of this Guaranty including but not limited to Lender's standard Documentation Preparation and Processing fees. 14. Miscellaneous. This Guaranty binds each of the Guarantors and their respective successors and assigns and benefits Lender. The term "Lender" also includes all successors and assigns of Lender. Guarantors may not assign their obligations under this Guaranty without the prior written consent of Lender. This Guaranty may be executed in multiple counterparts, and each counterpart will be deemed an original, without the need to produce any counterpart other than the one to be enforced. Any gender designation used herein includes all genders and the singular number includes the plural. Lender's delay or failure to exercise its rights is not a waiver of those rights. This Guaranty may not be amended except in writing signed by an authorized officer of Lender and no waiver will be effective unless it is in writing. Any waiver is applicable only for the specific situation for which it is given. THIS GUARANTY IS executed as of December 15, 2000. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO GUARANTORS' GUARANTY OF GUARANTEED INDEBTEDNESS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. NO COURSE OF DEALING BETWEEN GUARANTORS AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE USED TO CONTRADICT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTORS AND LENDER. GUARANTORS: US DATA CORPORATION EMAKE SOLUTIONS INC. By: /s/ ROBERT A. MERRY By: /s/ ROBERT A. MERRY ----------------------- ----------------------- Name: Robert A. Merry Name: Robert A. Merry ----------------------- ----------------------- Title: President and CEO Title: Chairman ----------------------- ----------------------- ADDRESS OF GUARANTORS: 2435 North Central Expressway Richardson, Texas 75080 LENDER: (Lender's signature is provided as its acknowledgement of the above as the final written agreement between the parties.) THE CHASE MANHATTAN BANK By: /s/ MAE REEVES ----------------------- Name: Mae Reeves ----------------------- Title: Vice President ----------------------- Page 2 EX-23.1 4 d85696ex23-1.txt CONSENT OF KPMG LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors USDATA Corporation: We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 333-65505 and 333-82927) of USDATA Corporation of our report dated February 2, 2001, except for note 2, which is as of February 26, 2001 and note 14, which is as of March 30, 2001, relating to the consolidated balance sheets of USDATA Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive loss and cash flows for the years then ended, and the related financial statement schedule, which report appears in the December 31, 2000 annual report on Form 10-K of USDATA Corporation. KPMG LLP Dallas, Texas March 30, 2001 EX-23.2 5 d85696ex23-2.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-65505 and 333-82927) of USDATA Corporation of our report dated February 12, 1999 relating to the financial statements and financial statement schedules, which appears in this Form 10-K. PricewaterhouseCoopers LLP Dallas, TX March 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----