<PAGE>
PROXY STATEMENT OF CORAL SYSTEMS, INC.
PROSPECTUS OF LIGHTBRIDGE, INC.
This Proxy Statement/Prospectus constitutes a proxy statement of Coral
Systems, Inc., a Delaware corporation ("Coral"), being furnished to the
stockholders of Coral in connection with the solicitation of proxies by the
Board of Directors of Coral for use at a Special Meeting of Stockholders of
Coral to be held at the offices of Cooley Godward LLP, 2595 Canyon Boulevard,
Suite 250, Boulder, Colorado on November 6, 1997 at 10 A.M. (local time) and at
any and all adjournments or postponements thereof (the "Special Meeting"). At
the Special Meeting, the stockholders of Coral will consider a proposal to
approve both (i) the Agreement and Plan of Reorganization dated as of September
9, 1997 (the "Reorganization Agreement") among Lightbridge, Inc., a Delaware
corporation ("Lightbridge"), SeeCross Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of Lightbridge ("Acquisition Corp."), and Coral and
(ii) a merger pursuant to the Reorganization Agreement in which Acquisition
Corp. would merge with and into Coral and the surviving corporation would become
a wholly owned subsidiary of Lightbridge (the "Merger"). This Proxy
Statement/Prospectus and the accompanying form of proxy are first being mailed
to stockholders of Coral on or about October 9, 1997. CERTAIN CURRENT AND FORMER
DIRECTORS AND OTHER AFFILIATES OF CORAL HAVE PREVIOUSLY DELIVERED TO
REPRESENTATIVES OF LIGHTBRIDGE IRREVOCABLE PROXIES SUFFICIENT TO APPROVE THE
REORGANIZATION AGREEMENT AND THE MERGER.
This Proxy Statement/Prospectus also constitutes a prospectus of
Lightbridge with respect to shares of its common stock, $.01 par value
("Lightbridge Common"), proposed to be issued to Coral stockholders in
connection with the Merger. Lightbridge Common is traded on the Nasdaq National
Market under the symbol "LTBG." On October 6, 1997, the last reported sale price
per share of Lightbridge Common on the Nasdaq National Market was $15.875.
Pursuant to the Merger, each of the outstanding shares of Coral's common
stock, $.001 par value ("Coral Common"), Series A preferred stock, $.001 par
value ("Coral Series A"), Series B preferred stock, $.001 par value ("Coral
Series B"), and Series C preferred stock, $.001 par value ("Coral Series C"),
other than duly qualified dissenting shares, would convert into a fraction of a
share of Lightbridge Common determined as set forth in the Reorganization
Agreement, which determination will be (i) based in part on the average of the
last reported sale prices per share of Lightbridge Common on the Nasdaq National
Market over the ten trading days preceding the date on which Lightbridge
publicly announces its operating results for the quarter ended September 30,
1997 (the "Calculation Price") and (ii)subject to decrease as described herein
for certain expenses incurred by Coral in connection with the Merger and for
certain changes in the amount of working capital of Coral occuring prior to such
closing date (collectively, the "Adjustment Amount"). If the Calculation Price
is between $10.8375 and $14.6625, Lightbridge would issue (and reserve for
issuance upon exercise of outstanding Coral options and warrants) an aggregate
of 1,286,863 shares of Lightbridge Common, subject to decrease for the
Adjustment Amount. If the Calculation Price is less than $10.8375 or greater
than $14.6625, the aggregate number of shares of Lightbridge Common issued (and
reserved for issuance) would equal the quotient of $13,946,375 or $18,868,625,
respectively, in each case divided by the Calculation Price and subject to
decrease for the Adjustment Amount. See "The Merger Proposal--Calculation of
Merger Consideration." SHARES OF LIGHTBRIDGE COMMON ISSUABLE TO CORAL
STOCKHOLDERS IN CONNECTION WITH THE MERGER WILL BE SUBJECT TO SIGNIFICANT
INDEMNIFICATION AND ESCROW OBLIGATIONS AND WILL BE DELIVERED BETWEEN SIX AND
EIGHTEEN MONTHS AFTER THE CONSUMMATION OF THE MERGER. In addition, as a result
of the Merger, all options and warrants to purchase shares of Coral Common would
become exercisable, when vested, to purchase shares of Lightbridge Common.
All information herein with respect to Lightbridge has been furnished by
Lightbridge, and all information herein with respect to Coral has been furnished
by Coral. SEE "RISK FACTORS" BEGINNING AT PAGE 13 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED CAREFULLY BY CORAL STOCKHOLDERS IN EVALUATING
THE ACQUISITION OF THE SHARES OF LIGHTBRIDGE COMMON OFFERED HEREBY.
NEITHER THIS TRANSACTION NOR THE SHARES OF LIGHTBRIDGE COMMON OFFERED
HEREBY HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is October 7, 1997.
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement/Prospectus constitute "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21B of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. Furthermore,
any statements contained herein that are not statements of historical fact may
be considered to be forward-looking statements. There are a number of important
factors that could cause the results of Lightbridge to differ materially from
those indicated by forward-looking statements contained herein, including those
set forth in this Proxy Statement/Prospectus under the caption "Risk Factors."
Neither Lightbridge nor Coral undertakes any obligation to update any forward-
looking statements contained herein.
AVAILABLE INFORMATION
Lightbridge is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports and other
information filed by Lightbridge can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices of
the Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and 7 World Trade Center, Thirteenth Floor, New York, New York 10048. Copies
also may be obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a site on the World Wide Web
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the
Commission. Lightbridge Common is traded on the Nasdaq National Market, and such
reports, statements and other information can be inspected at the offices of the
Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement on Form S-4, including the exhibits thereto,
which Lightbridge has filed with the Commission under the Securities Act (as it
may be amended and including such exhibits, the "Registration Statement") and of
which this Proxy Statement/Prospectus is a part. Reference is made to the
Registration Statement for further information with respect to Lightbridge and
the shares of Lightbridge Common offered hereby. Statements contained herein
concerning the provisions of any document necessarily present a summary of the
terms of such document and are qualified in their entirety by reference to any
copy of such document attached as an annex hereto or filed with the Commission
as an exhibit to the Registration Statement.
___________________
NO PERSON IS AUTHORIZED IN CONNECTION WITH THIS SOLICITATION AND OFFERING
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY LIGHTBRIDGE
OR CORAL. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
LIGHTBRIDGE COMMON OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO ACQUIRE, ANY OF THE SHARES OF LIGHTBRIDGE COMMON
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF LIGHTBRIDGE COMMON MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
2
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
Lightbridge hereby incorporates by reference the following documents
previously filed with the Commission pursuant to the Exchange Act:
(1) Lightbridge's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(2) Lightbridge's definitive Proxy Statement dated April 21, 1997 used in
connection with its Annual Meeting of Stockholders held on May 22,
1997;
(3) Lightbridge's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1997 and June 30, 1997; and
(4) the description of Lightbridge Common contained in Lightbridge's
Registration Statement on Form 8-A (File No. 0-21319), dated September
6, 1996.
All reports and other documents subsequently filed by Lightbridge
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Proxy Statement/Prospectus and prior to the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of the filing of such reports and documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (EXCEPT FOR
EXHIBITS TO SUCH DOCUMENTS NOT EXPRESSLY INCORPORATED BY REFERENCE HEREIN) ARE
AVAILABLE UPON WRITTEN REQUEST TO INVESTOR RELATIONS, LIGHTBRIDGE, INC., 67
SOUTH BEDFORD STREET, BURLINGTON, MASSACHUSETTS 01803 OR ORAL REQUEST TO
LIGHTBRIDGE'S INVESTOR RELATIONS AT TELEPHONE NUMBER (617) 359-4790. IN ORDER TO
ENSURE TIMELY DELIVERY OF ANY SUCH DOCUMENTS, REQUESTS SHOULD BE MADE BY NO
LATER THAN OCTOBER 30, 1997.
______________
PROFILE is a registered trademark of Lightbridge, and ALLEGRO, CAS__COMM,
CHANNEL WIZARD, CHURN PROPHET, CREDIT DECISION SYSTEM, CUSTOMER ACQUISITION
SYSTEM, 800-FOR-CREDIT, FRAUD SENTINEL, INSIGHT, IRIS, LIGHTBRIDGE, POPS,
POSTALPRO, RETAIL MANAGEMENT SYSTEM, SAMS, TELECOMMUNICATIONS INTELLIGENCE,
TELESTO and WIRELESS INTELLIGENCE are trademarks of Lightbridge. FRAUDBUSTER and
CHURNALERT are registered trademarks of Coral. All other trademarks or trade
names appearing in this Proxy Statement/Prospectus are the property of their
respective owners.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
FORWARD-LOOKING STATEMENTS........................................................................................ 2
AVAILABLE INFORMATION............................................................................................. 2
INFORMATION INCORPORATED BY REFERENCE............................................................................. 3
SUMMARY........................................................................................................... 5
RISK FACTORS...................................................................................................... 13
INDEX OF DEFINED TERMS............................................................................................ 22
[REGARDING THE SPECIAL MEETING]
THE SPECIAL MEETING............................................................................................... 23
THE MERGER PROPOSAL............................................................................................... 25
THE REORGANIZATION AGREEMENT...................................................................................... 40
OTHER AGREEMENTS.................................................................................................. 49
OTHER MATTERS..................................................................................................... 51
[REGARDING LIGHTBRIDGE]
PRICE RANGE OF LIGHTBRIDGE COMMON................................................................................. 51
SELECTED CONSOLIDATED FINANCIAL DATA OF LIGHTBRIDGE............................................................... 52
LIGHTBRIDGE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................................. 53
BUSINESS OF LIGHTBRIDGE........................................................................................... 62
MANAGEMENT OF LIGHTBRIDGE......................................................................................... 71
PRINCIPAL STOCKHOLDERS OF LIGHTBRIDGE............................................................................. 75
DESCRIPTION OF LIGHTBRIDGE CAPITAL STOCK.......................................................................... 77
{REGARDING CORAL]
SELECTED FINANCIAL DATA OF CORAL.................................................................................. 80
CORAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................................. 81
BUSINESS OF CORAL................................................................................................. 87
PRINCIPAL STOCKHOLDERS OF CORAL................................................................................... 92
[REGARDING LIGHTBRIDGE AND CORAL]
LIGHTBRIDGE, INC. UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET AND STATEMENTS
OF OPERATIONS.................................................................................................. 94
COMPARISON OF STOCKHOLDERS' RIGHTS................................................................................ 100
LEGAL MATTERS..................................................................................................... 104
EXPERTS........................................................................................................... 104
INDEX TO FINANCIAL STATEMENTS..................................................................................... F-1
ANNEX A. REORGANIZATION AGREEMENT
ANNEX B. DELAWARE GENERAL CORPORATION LAW SECTION 262 ("Appraisal Rights")
</TABLE>
4
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Proxy Statement/Prospectus and by the annexes hereto. Each Coral
stockholder should read carefully the entire Proxy Statement/Prospectus,
including the annexes, before voting on the proposal discussed herein.
THE COMPANIES
LIGHTBRIDGE develops, markets and supports a network of integrated products
and services that enable wireless telecommunications carriers to improve their
customer acquisition and retention processes. Lightbridge's comprehensive
software-based solutions are delivered primarily on an outsourcing and service
bureau basis, which allows wireless carriers to focus internal resources on
their core business activities. Lightbridge's solutions combine the advantages
of distributed access and workflow management, centrally managed client-
specified business policies and links to carrier and third-party systems. The
open architecture underlying Lightbridge's software applications supports the
development of flexible, integrated solutions, regardless of the type of
wireless service provided by a client and independent of the client's computing
environment.
Lightbridge offers on-line, real-time transaction processing and call
center support solutions to aid carriers in qualifying and activating applicants
for wireless service, as well as software-based sales support services for
traditional distribution channels, such as dealers, agents and direct mobile
sales forces, and emerging distribution channels, such as mass market retail
stores, home shopping and stand-alone kiosks. Lightbridge develops and
implements interfaces that fully integrate its acquisition system with carrier
and third-party systems, such as those for billing, point-of-sale, activation
and order fulfillment. Lightbridge recently introduced software-based decision
support tools and services that enable carriers to reduce subscriber churn and
to make more informed business decisions about their subscribers, markets and
distribution channels.
Lightbridge was incorporated in Delaware in June 1989. Lightbridge's
principal executive offices are located at 67 South Bedford Street, Burlington,
Massachusetts 01803, and its telephone number is (781) 359-4000.
ACQUISITION CORP. was incorporated in Delaware in September 1997 for the
purpose of effecting the Merger. Acquisition Corp. is a wholly owned subsidiary
of Lightbridge, and it has no material assets and has not engaged in any
activities except in connection with the proposed Merger. Acquisition Corp.'s
principal executive offices are located at the same address, and it has the same
telephone number, as Lightbridge.
CORAL provides client-server software products for the wireless
telecommunications industry to enable carriers to reduce fraud and customer
turnover, or "churn," and increase operating efficiencies. Coral's products are
based upon its core technology, which provides several key advantages, including
rapid product development, portability, technology independence and enhanced
scalability. Coral's fraud management software, FraudBuster, incorporates a
fraud profiler and subscription fraud monitoring functionality and is designed
to combat most currently identified types of wireless fraud. Unlike many other
fraud prevention techniques, which address specific types of fraud, FraudBuster
detects multiple types of existing and emerging fraud, including cloning,
subscription fraud, tumbling fraud and cellular telephone theft. Coral's churn
prevention product, ChurnAlert, allows carriers to analyze and identify
potential churn candidates before they seek customer service assistance or
deactivate service.
Coral was incorporated in Colorado in August 1991 and reincorporated in
Delaware in April 1995. Coral's executive offices are located at 1500 Kansas
Avenue, Suite 2E, Longmont, Colorado 80501, and its telephone number is (303)
772-5800.
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5
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SPECIAL MEETING
TIME, PLACE AND DATE. The Special Meeting will be held on November 6,
1997 at 10 A.M. (local time) at the offices of Cooley Godward LLP, 2595 Canyon
Boulevard, Suite 250, Boulder, Colorado.
PURPOSE OF THE SPECIAL MEETING. At the Special Meeting, the stockholders of
Coral will consider and vote upon a single proposal to approve the
Reorganization Agreement and the Merger (the "Merger Proposal"). THE BOARD OF
DIRECTORS OF CORAL HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND THE
MERGER AND UNANIMOUSLY RECOMMENDS THAT CORAL STOCKHOLDERS VOTE FOR THE MERGER
PROPOSAL. See "The Merger Proposal--Background of the Merger," "--Coral's
Reasons for the Merger; Recommendation of the Board of Directors of Coral" and
"--Interests of Certain Persons in the Merger."
VOTES REQUIRED; RECORD DATE. The close of business on October 8, 1997
has been fixed as the record date for the determination of Coral stockholders
entitled to notice of and to vote at the Special Meeting, including at any
adjournment or postponement thereof (the "Record Date"). The presence, in person
or by proxy, of the holders of one-third of the outstanding shares of Coral
Common and of holders of one-third of the outstanding shares of Coral Series A,
Coral Series B and Coral Series C (on an as-converted basis) will constitute a
quorum at the Special Meeting. Abstentions will be included as present or
represented for purposes of establishing a quorum for the transaction of
business.
Under Coral's Amended and Restated Certificate of Incorporation, as amended
(the "Coral Charter"), approval of the Merger Proposal requires both (i) the
affirmative vote of the holders of a majority of the outstanding shares of Coral
Common entitled to vote at the Special Meeting and (ii) the affirmative vote of
the holders of a majority of the outstanding Coral Series A, Coral Series B and
Coral Series C, voting as a single class on an as-converted basis, entitled to
vote at the Special Meeting. As of the Record Date, there are expected to be
issued and outstanding 3,276,134 shares of Coral Common, entitling each holder
thereof to one vote. In addition, there are expected to be issued and
outstanding 2,000,000 shares of Coral Series A, 2,083,333 shares of Coral Series
B and 1,824,920 shares of Coral Series C, each of which would entitle the holder
thereof (on an as-converted basis) to one-half vote, one vote and one-half vote,
respectively.
CERTAIN CURRENT AND FORMER DIRECTORS AND OTHER AFFILIATES OF CORAL, WHO
HOLD IN THE AGGREGATE A MAJORITY OF THE OUTSTANDING SHARES OF CORAL COMMON AND A
MAJORITY OF THE OUTSTANDING SHARES OF CORAL SERIES A, CORAL SERIES B AND CORAL
SERIES C (ON AN AS-CONVERTED BASIS), HAVE EXECUTED VOTING AGREEMENTS WITH
LIGHTBRIDGE PURSUANT TO WHICH THEY HAVE AGREED TO VOTE IN FAVOR OF THE MERGER
PROPOSAL AND HAVE DELIVERED TO LIGHTBRIDGE IRREVOCABLE LIMITED PROXIES WITH
RESPECT TO THE MERGER PROPOSAL. ACCORDINGLY, THOSE VOTING AGREEMENTS AND
IRREVOCABLE LIMITED PROXIES ARE SUFFICIENT TO EFFECT THE APPROVAL OF THE MERGER
PROPOSAL. See "Other Agreements--Voting Agreements."
CHANGE OF VOTE. Holders of shares of Coral Common, Coral Series A, Coral
Series B and Coral Series C (collectively, "Coral Capital Stock") who execute a
proxy in the enclosed form may revoke the proxy at any time before it is
exercised by (i) delivering to the Secretary of Coral at Coral's headquarters,
1500 Kansas Avenue, Suite 2E, Longmont, Colorado 80501, a written notice of
revocation prior to the voting of the proxy at the Special Meeting, (ii) signing
and returning a later dated proxy to the Secretary of Coral prior to the Special
Meeting, or (iii) attending the Special Meeting and informing the Secretary of
Coral in writing that such holder wishes to vote the shares in person.
Accordingly, stockholders of Coral who execute and return proxy cards in advance
of the Special Meeting may change their votes at any time prior to or at the
Special Meeting. The foregoing revocation procedures do not apply to directors
and other affiliates of Coral who have executed voting agreements with
Lightbridge, as described in the preceding paragraph.
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6
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THE MERGER
THE MERGER. Pursuant to the Reorganization Agreement, Acquisition Corp.
will be merged with and into Coral and the surviving corporation, which will be
known as Coral Systems, Inc., will become a wholly owned subsidiary of
Lightbridge (the "Surviving Corporation"). See "The Merger Proposal."
MERGER CONSIDERATION. Pursuant to the Merger, each of the outstanding
shares of Coral Capital Stock, other than any duly qualified dissenting share,
would convert into a fraction of a share of Lightbridge Common determined as set
forth in the Reorganization Agreement, which determination will be (i) based in
part on the Calculation Price and (ii) subject to decrease for the Adjustment
Amount. If the Calculation Price is between $10.8375 and $14.6625, Lightbridge
would issue (and reserve for issuance upon exercise of outstanding Coral options
and warrants) an aggregate of 1,286,863 shares of Lightbridge Common, subject to
decrease for the Adjustment Amount. If the Calculation Price is less than
$10.8375 or greater than $14.6625, the aggregate number of shares of Lightbridge
Common issued (or reserved for issuance) would equal the quotient of $13,946,375
or $18,868,625, respectively, divided by the Calculation Price, in each case
subject to decrease for the Adjustment Amount. See "The Merger Proposal--
Calculation of Merger Consideration."
ESCROW AND RELEASE OF SHARES. Upon consummation of the Merger, each holder
of Coral Capital Stock would be entitled to receive approximately one-third of
the shares of Lightbridge Common into which those shares of Coral Capital Stock
converted. Such shares will be delivered to the Exchange Agent (as defined
below) for delivery to the former Coral stockholders approximately six months
after the closing of the Merger. The balance of the shares of Lightbridge Common
would be held in escrow by American Stock Transfer & Trust Company, as escrow
agent (the "Escrow Agent"), in support of the indemnification obligations of the
Coral stockholders under the Reorganization Agreement and the escrow agreement
(the "Escrow Agreement") to be entered into as of the date of the closing under
the Reorganization Agreement (the "Closing"). See "The Reorganization
Agreement--Indemnification" and "Other Agreements--Escrow Agreement." Subject to
the resolution of unsatisfied claims of Lightbridge, (i) one-half of the
escrowed shares, less any shares canceled in satisfaction of indemnified claims,
would be released from escrow one year after the Effective Time and (ii) any
balance of escrowed shares would be released from escrow eighteen months after
the Effective Time.
BY APPROVING THE REORGANIZATION AGREEMENT, CORAL STOCKHOLDERS WILL BE
DEEMED TO HAVE CONSENTED TO THE APPOINTMENT OF R.D. "PETE" BLOOMER, A
STOCKHOLDER AND FORMER DIRECTOR OF CORAL, TO ACT AS THE "HOLDERS' AGENT" ON
BEHALF OF CORAL STOCKHOLDERS IN CONNECTION WITH THE DETERMINATION OF THE
ADJUSTMENT AMOUNT, THE INDEMNIFICATION OBLIGATIONS OF THE CORAL STOCKHOLDERS
UNDER THE REORGANIZATION AGREEMENT, AND THE DEPOSIT AND RELEASE OF SHARES
PURSUANT TO THE REORGANIZATION AGREEMENT AND THE ESCROW AGREEMENT.
EXCHANGE OF CERTIFICATES. As soon as reasonably practicable after the
Effective Time, and upon each release of Lightbridge Common in accordance with
the terms of the escrow arrangements, American Stock Transfer & Trust Company,
in its capacity as exchange agent for the Merger (the "Exchange Agent"), will
send to each Coral stockholder a letter of transmittal and instructions to
effect the surrender of certificates representing shares of Coral Capital Stock,
in exchange for certificates representing shares of Lightbridge Common. Coral
stockholders, however, will not receive any shares of Lightbridge Common until
approximately six months following the closing of the Merger, when approximately
one-third of Lightbridge Common issuable to them in respect of the Merger will
be delivered by the Exchange Agent. See "The Merger Proposal--Conversion of
Shares; Procedures for Exchange of Certificates." CORAL STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY AND SHOULD NOT FORWARD THEIR
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS.
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CONDITIONS TO THE MERGER. The consummation of the Merger is subject to
various conditions, including approval of the Merger Proposal by the
stockholders of Coral, the absence of any legal restraints or prohibitions
preventing the consummation of the Merger, the absence of any material adverse
changes in the business of Coral or Lightbridge, and other customary conditions.
See "The Reorganization Agreement--Conditions to the Merger."
TERMINATION. The Reorganization Agreement may be terminated at any time
prior to the Closing: (i) by mutual written consent of Coral and Lightbridge
(ii) by Coral or Lightbridge if the stockholders of Coral vote not to approve
the Merger Proposal; (iii) by Coral or Lightbridge if the Closing does not occur
on or before December 31, 1997; (iv) by Coral or Lightbridge if (a) there has
been a final nonappealable order of a federal or state court in effect
preventing consummation of the transactions contemplated by the Reorganization
Agreement or (b) there has been any action taken, or any statute, rule,
regulation or order erected, promulgated or issued or deemed applicable to the
transactions contemplated by the Reorganization Agreement by any governmental
entity that would make consummation of the transactions contemplated by the
Reorganization Agreement illegal; (v) by Coral if there has been a material
breach of any representation, warranty, covenant or agreement contained in the
Reorganization Agreement on the part of Lightbridge or Acquisition Corp. and, if
such breach is curable, such breach has not been promptly cured after written
notice of such breach; (vi) by Lightbridge if there has been a material breach
of any representation, warranty, covenant or agreement contained in the
Reorganization Agreement on the part of Coral and, if such breach is curable,
such breach has not been promptly cured after written notice of such breach;
(vii) by Lightbridge if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
transactions contemplated by the Reorganization Agreement by any governmental
entity that would (a) prohibit Lightbridge's or Coral's ownership or operation
of all or a material portion of the business or assets of Coral or Lightbridge
and its subsidiaries taken as a whole, or compel Lightbridge or Coral to dispose
of or hold separate all or a material portion of the business or assets of Coral
or Lightbridge, as a result of the transactions contemplated by the
Reorganization Agreement or (b) render Lightbridge or Coral unable to consummate
the transactions contemplated by the Reorganization Agreement; (viii) by
Lightbridge if any condition to the obligation of Lightbridge and Acquisition
Corp. to complete the transactions contemplated by the Reorganization Agreement
has not been satisfied by Coral or waived by Lightbridge; (ix) by Coral if any
condition to the obligation of Coral to complete the transactions contemplated
by the Reorganization Agreement has not been satisfied by Lightbridge or
Acquisition Corp. or waived by Coral; (x) by Lightbridge if the Calculation
Price is less than $9.5625; or (xi) by Coral if (a) the Calculation Price is
less than $9.5625 and, following the date of the Reorganization Agreement, an
event has occurred that has had a material adverse effect on the business,
financial condition or results of operations of Lightbridge or (b) the
Calculation Price is more than $15.9375. CORAL STOCKHOLDER APPROVAL OF THE
MERGER PROPOSAL WILL CONFER UPON THE BOARD OF DIRECTORS OF CORAL THE POWER,
CONSISTENT WITH ITS FIDUCIARY DUTIES, TO CONSUMMATE THE MERGER IN THE EVENT THAT
THE CALCULATION PRICE OF THE LIGHTBRIDGE COMMON IS LESS THAN $9.5625 OR MORE
THAN $15.9375. See "The Reorganization Agreement--Termination."
NASDAQ LISTING. Lightbridge will use its reasonable efforts to cause all of
the shares of Lightbridge Common issuable in the Merger, or upon exercise of
Coral options and warrants outstanding as of the Effective Time, to be approved
for quotation on the Nasdaq National Market. See "The Merger Proposal--Nasdaq
Listing."
APPRAISAL RIGHTS. Any holder of shares of Coral Capital Stock as of the
Record Date who elects to dissent from the approval of the Merger Proposal and
who follows the procedures set forth in Section 262 of the Delaware General
Corporation Law ("Delaware Law"), will be entitled, as an alternative to
receiving Lightbridge Common in exchange for those shares of Coral Capital
Stock, to a judicial determination of the fair value in cash of those shares. A
copy of Section 262 of the Delaware Law is attached as ANNEX B to this Proxy
Statement/Prospectus. See "The Merger Proposal--Appraisal Rights."
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8
<PAGE>
- --------------------------------------------------------------------------------
OPTIONS AND WARRANTS. Each outstanding option to purchase shares of Coral
Common previously issued under Coral's Amended and Restated Stock Option Plan
(each an "Option" and collectively the "Options") and each outstanding
warrant of Coral to purchase shares of Coral Common (each a "Warrant" and
collectively the "Warrants"), whether vested or unvested, would entitle its
holder, upon exercise (if and when vested) following the Effective Time, to
receive that number of whole shares of Lightbridge Common equal to the product
of the number of shares of Coral Common that were issuable upon exercise of such
Option or Warrant immediately prior to the Effective Time (without regard to
vesting) multiplied by the conversion rate for a single share of Coral Common,
rounded down to the nearest whole number of shares of Lightbridge Common. In
addition, following the Effective Time, the per share exercise price for the
Lightbridge Common issuable upon exercise of each Option and Warrant
would be equal to the per share exercise price thereof immediately prior to the
Effective Time divided by the conversion rate for a single share of Coral
Common. See "The Merger Proposal--Calculation of Merger Consideration."
MARKET PRICE DATA. Lightbridge Common is traded on the Nasdaq National
Market under the symbol "LTBG." The last sale price per share of Lightbridge
Common was $14.75 on September 9, 1997, the day that the Reorganization
Agreement was signed and the last trading day preceding the public announcement
of the proposed Merger, and was $15.875 on October 6, 1997, the last trading day
preceding the date of this Proxy Statement/Prospectus. Because there is no
established trading market for any class of Coral Capital Stock, information
with respect to the market price thereof on an historical and equivalent per
share basis has been omitted.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of October 1, 1997, the directors and executive officers of Coral as a
group beneficially owned an aggregate of 837,542 shares of Coral Common
(including shares purchasable upon the exercise of outstanding Options and
Warrants within 60 days of September 1, 1997), 125,000 shares of Coral Series A
and 522,500 shares of Coral Series B. All of those shares will be treated in
the Merger in the same manner as the shares of Coral stock held by other
stockholders of Coral. Certain current and former directors and other
affiliates of Coral, who hold in the aggregate a majority of the outstanding
Coral Common and a majority of the outstanding Coral Series A, Coral Series B
and Coral Series C (on an as-converted basis), have executed voting agreements
with Lightbridge pursuant to which they have agreed to vote in favor of the
Merger Proposal and have delivered to Lightbridge irrevocable limited proxies
with respect to the Merger Proposal. Accordingly, those voting agreements and
irrevocable limited proxies are sufficient to approve the Merger Proposal. See
"Other Agreements--Voting Agreements" and "Principal Stockholders of Coral." To
the best of Coral's knowledge, each of the other Coral directors and executive
officers who owns shares of Coral stock intends to vote those shares in favor of
the Merger Proposal.
On September 8, 1997, the Board of Directors of Coral adopted a Management
Bonus Plan pursuant to which five of Coral's key employees will receive staying
bonuses in an aggregate amount of $220,000 for their continued employment with
Coral through the Closing. The Management Bonus Plan was adopted to provide an
incentive to those key employees whom the Board of Directors of Coral determined
to be integral to the consummation of the Merger. The bonuses will be payable
within ten days of the Closing.
Pursuant to the Reorganization Agreement, two of Coral's executive officers
will enter into employment agreements with Coral providing for their continued
employment with Coral.
Persons identified by Coral as "affiliates" (as that term is defined for
purposes of Rule 145 under the Securities Act) of Coral will enter into
agreements restricting sales, dispositions or other transactions reducing their
risk of investment with respect to shares of Coral Capital Stock held by them
prior to the Merger and the shares of Lightbridge Common received by them in the
Merger so as to comply with the requirements of applicable federal securities
laws.
See "The Merger Proposal--Interests of Certain Persons in the Merger."
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9
<PAGE>
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EXPENSES
In the event the Merger is completed, (a) Lightbridge and Acquisition Corp.
will be and remain responsible for their costs and expenses and (b) the Coral
stockholders will be and remain responsible for their costs and expenses, as
well as the costs and expenses of Coral arising prior to the Closing in
connection with the Merger, except that Lightbridge will be responsible for (i)
a total of $500,000 of fees of Coral's financial advisor, Broadview Associates
LLC ("Broadview"), incurred by Coral in connection with the Merger and (ii) a
total of $220,000 payable to five of Coral's key employees under the Management
Bonus Plan described in "The Merger Proposal--Interests of Certain Persons in
the Merger." Any obligations of the Coral stockholders described in clause (b)
above shall be part of the Adjustment Amount and shall be deemed to be paid by a
decrease in the number of shares of Lightbridge Common otherwise issuable in
connection with the Merger. See "The Merger Proposal--Calculation of Merger
Consideration."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Merger is intended to be a tax-free reorganization so that no gain or
loss will be recognized by Coral stockholders for federal income tax purposes,
except for holders of dissenting shares. The qualification of the Merger as a
reorganization, however, depends on a number of factual matters, and accordingly
no assurance can be given that the Merger will qualify as a tax-free
reorganization for federal income tax purposes. See "The Merger Proposal--
Certain Federal Income Tax Considerations."
RESTRICTION ON RESALE OF SHARES OF LIGHTBRIDGE COMMON ISSUED IN THE MERGER
Shares of Lightbridge Common issued in the Merger will be, when delivered
to Coral stockholders in accordance with the Reorganization Agreement and the
Escrow Agreement, freely transferable, except for shares issued to persons who
are "affiliates" of Lightbridge or Coral, which shares will be subject to
certain restrictions on resale under Rule 145 promulgated under the Securities
Act. See "The Merger Proposal--Federal Securities Law Consequences."
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10
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY CONSOLIDATED FINANCIAL DATA OF LIGHTBRIDGE
<TABLE>
<CAPTION>
THREE TWELVE
MONTHS MONTHS YEAR
ENDED ENDED ENDED SIX MONTHS
YEARS ENDED SEPTEMBER 30, DEC. 31, DEC. 31, DEC. 31, ENDED JUNE 30,
--------------------------------- --------------- ----------------
1992 1993 1994 1995 1994 1995 1995(1) 1996 1996 1997
----- ------ ------- -------- ------ -------- ---------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.......................... $2,988 $6,986 $13,398 $19,350 $5,515 $ 6,512 $20,347 $29,545 $13,263 $17,831
Income (loss) from
operations........................ (623) 130 1,207 (1,607) 586 387 (1,806) 2,737 692 2,101
Net income (loss)................. (753) (125) 950 (2,433) 412 72 (2,773) 2,272 303 2,666
Net income per common share....... $ 0.16
Weighted average number of
common and common equivalent
shares outstanding........... 16,341
Pro forma net income (loss) per
common share(2)............... $ (0.19) $ 0.01 $ 0.16 $ 0.02
Pro forma weighted average number
of common and common equivalent
shares outstanding(2)......... 12,662 13,162 14,434 13,794
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,1997
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 23,299
Working capital..................... 30,122
Total assets........................ 42,245
Long-term obligations,
less current portion............... 1,673
Stockholders' equity................ 36,222
</TABLE>
_________________________
(1) Lightbridge changed its fiscal year end from September 30 to December 31,
effective with the fiscal year ending December 31, 1996.
(2) Gives effect to the conversion of all previously outstanding shares of
Lightbridge's convertible preferred stock into 5,247,324 shares of
Lightbridge Common, as effected on October 2, 1996 in connection with
Lightbridge's initial public offering.
SUMMARY FINANCIAL DATA OF CORAL
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- -------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 699 $ 504 $ 1,417 $ 3,890 $ 8,692 $ 2,586 $ 3,710
Loss from operations............................. (505) (989) (1,195) (3,400) (2,883) (1,863) (2,180)
Net loss before extraordinary item............... (502) (1,050) (1,228) (3,391) (2,868) (1,915) (2,182)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 62
Working capital deficiency....................... (1,590)
Total assets..................................... 3,730
Long-term obligations, less current portion...... 146
Stockholders' deficit............................ (568)
</TABLE>
11
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<PAGE>
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COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
Lightbridge and Coral and unaudited pro forma consolidated condensed per share
data based upon the assumptions that (i) the Merger was consummated as of
January 1, 1996, (ii) the Merger was accounted for as a purchase and (iii) each
outstanding share of Coral Common, Coral Series A, Coral Series B and Coral
Series C was converted into .0682, .0755, .1609 and .1563 shares of Lightbridge
Common, respectively. The actual numbers of shares of Lightbridge Common that
will be issued upon conversion of outstanding shares of each class of Coral
Capital Stock will be determined in part by the Calculation Price and in part by
the amount of the Adjustment Amount. These conversion ratios assume that the
Calculation Price will be $16.175, as if the Closing were held on September 26,
1997 (the latest practicable date before the initial filing of this Proxy
Statement/Prospectus with the Commission), and that the Adjustment Amount will
be $400,000, consisting principally of legal and accounting fees and other
expenses expected to be incurred by Coral and paid by Lightbridge in connection
with the Merger. THE ACTUAL CONVERSION RATES APPLICABLE TO CORAL CAPITAL STOCK
MAY DIFFER MATERIALLY FROM THESE PRELIMINARY ESTIMATES. See "The Merger
Proposal--Calculation of Merger Consideration" and "Lightbridge, Inc. Unaudited
Pro Forma Condensed Consolidated Balance Sheet and Statements of Operations."
The unaudited pro forma consolidated condensed per share data are not
necessarily indicative of the operating results that would have been achieved
had the Merger been consummated as of January 1, 1996 and should not be
construed as representative of future operations. The following data should be
read in conjunction with "Selected Consolidated Financial Data of Lightbridge,"
"Selected Financial Data of Coral," "Unaudited Pro Forma Condensed Consolidated
Balance Sheet and Statements of Operations of Lightbridge" and the separate
historical financial statements of Lightbridge and Coral included elsewhere in
this Proxy Statement/Prospectus.
Neither Lightbridge nor Coral has ever declared or paid any cash dividends
on shares of its capital stock.
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER SHARE BOOK VALUE PER SHARE
--------------------------------- -------------------------------
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997 DECEMBER 31, 1996 JUNE 30,1997
----------------- ------------- ------------------- --------------
<S> <C> <C> <C> <C>
Historical:
Lightbridge Common............................... $0.16(1) $0.16 $2.31 $2.47
Coral Common..................................... (0.40)(2) (0.30) 0.22 (0.08)
Coral Series A (3)............................... (0.20)(2) (0.15) 0.11 (0.04)
Coral Series B (3)............................... (0.40)(2) (0.30) 0.22 (0.08)
Coral Series C (3)............................... (0.20)(2) (0.15) 0.11 (0.04)
Pro forma:
Lightbridge Common............................... (0.09) (0.01) 2.58 2.32
Equivalent pro forma per Coral share:
Coral Common..................................... (0.01) 0.00 0.18 0.16
Coral Series A................................... (0.01) 0.00 0.19 0.18
Coral Series B................................... (0.01) 0.00 0.42 0.37
Coral Series C................................... (0.01) 0.00 0.40 0.36
</TABLE>
_____________
(1) Pro forma to give effect to the conversion of all previously outstanding
shares of Lightbridge's convertible preferred stock into 5,247,324 shares of
Lightbridge Common, as effected on October 2, 1996 in connection with
Lightbridge's initial public offering.
(2) Computed using loss before extraordinary item.
(3) Pro forma to give effect to the conversion of all outstanding shares of
Coral preferred stock into Coral Common.
12
<PAGE>
RISK FACTORS
In addition to the other information presented in this Proxy
Statement/Prospectus, the following risk factors should be considered carefully
in evaluating the Merger Proposal and the resulting acquisition of the shares of
Lightbridge Common offered hereby. For periods following the Merger, references
to the products, business, operations, financial results or financial condition
of Lightbridge should be considered to refer to Lightbridge and Coral, unless
the context otherwise requires.
DEPENDENCE ON LIMITED NUMBER OF CLIENTS. A limited number of clients
historically have accounted for a substantial portion of Lightbridge's revenues
in each fiscal year. Revenues attributable to Lightbridge's 10 largest clients
accounted for approximately 90%, 90% and 81% of Lightbridge's total revenues in
the years ended September 30, 1994 and 1995 and December 31, 1996, respectively.
During the years ended September 30, 1994 and 1995, each of Lightbridge's four
largest clients, and during the year ended December 31, 1996 each of
Lightbridge's two largest clients, accounted for more than 10% of Lightbridge's
total revenues, representing an aggregate of 64%, 63% and 44% of total revenues
in those periods, respectively. GTE Mobile Communications Service Corporation
("GTE Mobile"), which accounted for 31% and 15% of Lightbridge's revenues in the
years ended September 30, 1995 and December 31, 1996, respectively, changed the
way it accessed Lightbridge's Customer Acquisition System during the year ended
December 31, 1996, and then terminated its client relationship with Lightbridge
as of June 30, 1997. As a result, Lightbridge's revenues from GTE Mobile
decreased significantly during the year ended December 31, 1996 and the first
half of 1997, before being curtailed completely as of June 30, 1997. The
concentration of Lightbridge's revenues can cause Lightbridge's revenues and
earnings to fluctuate significantly from quarter to quarter, based on the volume
of qualification and activation transactions generated through its significant
clients. Moreover, recent consolidation among established participants in the
wireless telecommunications industry may result in further concentration of
Lightbridge's revenues from a limited number of clients. Lightbridge expects
that revenues attributable to a relatively small number of clients will continue
to represent a significant percentage of its total revenues for the foreseeable
future. Lightbridge's contracts with its clients generally extend for terms of
one or more years and do not typically require the clients to purchase any
particular type or quantity of Lightbridge's products or services or to pay any
minimum amount for products or services. Therefore, there can be no assurance
that any of Lightbridge's clients, including its significant clients, will
continue to utilize Lightbridge's services at levels similar to previous years
or at all. The loss of, or a significant curtailment of purchases by, one or
more of Lightbridge's significant clients, including a loss or curtailment due
to factors outside of Lightbridge's control, could have a material adverse
effect on Lightbridge's business, financial condition, results of operations and
cash flow. In addition, delays in collection or uncollectability of accounts
receivable from any of Lightbridge's significant clients could have a material
adverse effect on Lightbridge's liquidity and working capital position. See
"Lightbridge Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business of Lightbridge-- Clients."
INTEGRATION OF CORAL INTO LIGHTBRIDGE. The Merger involves the combination
of two companies that have previously operated independently. The achievement
of the anticipated benefits of the Merger will involve significant integration
of the two companies' businesses, and no assurance can be given that the
integration will be achieved in an efficient and effective manner. The
integration of the companies's businesses will require that Lightbridge, among
other things, integrate the companies' software products and technologies,
retain key Coral employees, assimilate diverse corporate cultures, integrate the
companies' management information systems, consolidate Coral's operations, and
manage the companies' geographically dispersed operations, each of which could
pose significant challenges. The difficulty of combining the companies may be
increased by the need to integrate personnel, and changes effected in the
combination may cause key employees to leave. The diversion of the attention of
management created by the integration process, and any disruptions or other
difficulties encountered in the transition process, could temporarily distract
attention from the day-to-day business of Lightbridge. There can be no
assurance that Lightbridge will be able to integrate the operations of Coral
successfully, and any failure to do so could have a material adverse effect on
Lightbridge's business, financial condition, results of operations and cash
flow. Furthermore, Lightbridge's issuance of shares of Lightbridge Common, its
write-off of in-process research and development expenses, and its amortization
of goodwill and acquired technology in connection with the Merger will have the
effect of reducing Lightbridge's earnings per
13
<PAGE>
share and may reduce the market price of Lightbridge Common unless and until
revenue growth or cost savings and other business synergies sufficient to offset
the effect of such issuance can be achieved. There can be no assurance that such
cost savings or other synergies will be achieved. See "The Merger Proposal--
Background of the Merger."
PARTIALLY FIXED CONVERSION RATIO DESPITE POTENTIAL CHANGES IN STOCK PRICES.
The respective ratios at which the Coral Common, Coral Series A, Coral Series B
and Coral Series C will be converted into Lightbridge Common are fixed within a
range of Calculation Prices, and within that range, those ratios will not be
adjusted in the event of any increases or decreases in the market price of
Lightbridge Common. Even if the Calculation Price falls outside of that range,
the number of shares of Lightbridge Common to be issued (and reserved for
issuance upon subsequent exercises of outstanding Options and Warrants) in
connection with the Merger will be adjusted only to the extent necessary to
cause the aggregate value of the issued (and reserved for issuance) shares of
Lightbridge Common to equal the aggregate value of Lightbridge Common that would
have been issued (and reserved for issuance) if the Calculation Price were at
the top or bottom of the range. As a result, if the Calculation Price is less
than $10.8375, the aggregate number of shares of Lightbridge Common issued (and
reserved for issuance) would be equal to the quotient of $13,946,375 divided by
the Calculation Price, subject to adjustment for the Adjustment Amount; while
the number of shares of Lightbridge Common would be increased to the extent the
Calculation Price is less than $10.8375, the aggregate value of the shares,
based on the Calculation Price, would be limited to $13,946,375. Alternatively,
if the Calculation Price is greater than $14.6625, the aggregate number of
shares of Lightbridge Common issued (and reserved for issuance) would be equal
to the quotient of $18,868,625 divided by the Calculation Price, subject to
adjustment for the Adjustment Amount; the aggregate number of shares of
Lightbridge Common would be decreased to the extent the Calculation Price is
greater than $14.6625. The market price of Lightbridge Common at the Effective
Time may vary from its price on the date of this Proxy Statement/Prospectus and
on the date of the Special Meeting. Such variation may be the result of changes
in the business, operations or prospects of Lightbridge, the timing of the
Merger, the prospects of the Merger and post-Merger operations, regulatory
considerations, general market and economic conditions, and other factors.
Stockholders of Coral are urged to obtain current market quotations for
Lightbridge Common. See "The Merger Proposal--Calculation of the Merger
Consideration."
FLUCTUATIONS IN QUARTERLY PERFORMANCE MAY ADVERSELY AFFECT MARKET PRICE OF
LIGHTBRIDGE COMMON. Lightbridge has experienced fluctuations in its quarterly
operating results and anticipates that such fluctuations will continue and could
intensify. Lightbridge's quarterly operating results may vary significantly
depending on a number of factors, including the timing of the introduction or
acceptance of new products and services offered by Lightbridge or its
competitors, changes in the mix of products and services provided by
Lightbridge, the nature and timing of changes in Lightbridge's clients or their
use of Lightbridge's products and services, consolidation among participants and
other changes in the wireless telecommunications industry, changes in the client
markets served by Lightbridge, changes in regulations affecting the wireless
industry, changes in Lightbridge's operating expenses, changes in personnel and
changes in general economic conditions. Historically, Lightbridge's quarterly
revenues have been highest in the fourth quarter of each calendar year and have
been particularly concentrated in the holiday shopping season between
Thanksgiving and Christmas. Lightbridge's transaction revenues, which
historically have represented the majority of Lightbridge's total revenues, are
affected by the volume of use of Lightbridge's services, which is influenced by
seasonal and retail trends, the success of the carriers utilizing Lightbridge's
services in attracting subscribers and the markets served by Lightbridge for its
clients. Software and consulting revenues, which include software license
revenues and related consulting revenues, have recently represented an
increasing proportion of Lightbridge's total revenues. Software license
revenues are principally recognized at the time the licensed products are
delivered and significant obligations are completed, and therefore may result in
further fluctuations in Lightbridge's quarterly operating results. Consulting
revenues may be influenced by the requirements of one or more of Lightbridge's
significant clients, including engagement of Lightbridge for implementing or
assisting in implementing special projects of limited duration. There can be no
assurance that Lightbridge will be able to achieve or maintain profitability in
the future or that its levels of profitability will not vary significantly among
quarterly periods. Fluctuations in operating results may result in volatility
in the market price of Lightbridge Common.
14
<PAGE>
Although Lightbridge's existing clients typically provide forecasts of
future activity levels, these forecasts have not always proved accurate. In
addition, the sales cycles for Lightbridge's services are typically lengthy and
subject to a number of significant risks over which Lightbridge has little or no
control, including clients' budget constraints and internal authorization
reviews. As a result, Lightbridge may not be able to make accurate estimates of
future sales levels. A significant portion of Lightbridge's expenses are fixed
and difficult to reduce in the event revenues do not meet Lightbridge's
expectations, thus magnifying the adverse effect of any revenue shortfall.
Furthermore, announcements by Lightbridge or its competitors of new products,
services or technologies could cause clients to defer or cancel purchases of
Lightbridge's products and services; any such deferral or cancellation could
have a material adverse effect on Lightbridge's business, financial condition,
results of operations and cash flow. Accordingly, revenue shortfalls can cause
significant variations in operating results from quarter to quarter and could
have a material adverse effect on Lightbridge's results of operations. If demand
for Lightbridge's services significantly exceeds Lightbridge's estimates at a
time when its systems are used at or near capacity, however, Lightbridge may be
unable to meet contractually required service levels. Lightbridge's failure to
meet such service levels could permit clients to terminate their agreements with
Lightbridge or give rise to liability for damages or penalties, either of which
could have a material adverse effect on Lightbridge's business, financial
condition, results of operations and cash flow. In addition, Lightbridge has
hired a significant number of employees since January 1995 and this significant
increase in its workforce may negatively impact Lightbridge's operating margins
in the future, particularly if Lightbridge's commercial introduction of new
products and services is not as successful as planned.
Due to all of the foregoing factors, it is possible that in some future
quarter Lightbridge's results of operations will be below prior results or the
expectations of market analysts and investors. In such an event, the market
price of Lightbridge Common would likely be materially adversely affected.
INCURRENCE OF SIGNIFICANT TRANSACTION CHARGES. Lightbridge expects to incur
charges to operations currently estimated to be between $17.0 million and $18.0
million in the quarter ending December 31, 1997, the quarter in which the Merger
is expected to be consummated, to reflect the write-off of in-process research
and development, the amortization of goodwill and acquired technology, and costs
associated with combining the operations of the two companies. This amount is a
preliminary estimate and is therefore subject to change. Additional
unanticipated expenses may be incurred relating to the integration of the
businesses of Lightbridge and Coral. Although Lightbridge expects that the
elimination of duplicative expenses as well as other efficiencies related to the
integration of the business of Coral may offset additional expenses over time,
there can be no assurance that such net benefit will be achieved in the near
term or at all.
HISTORY OF LOSSES; CAPITAL REQUIREMENTS. Lightbridge was founded in 1989
and has incurred net losses in each of its fiscal years other than the years
ended September 30, 1994 and December 31, 1996. No assurance can be given that
Lightbridge will be profitable on either a quarterly or annual basis in the
future or that Lightbridge will not need to raise funds through public or
private financings. Moreover, no assurance can be given that Coral will be
profitable on either a quarterly or annual basis in the future or that
Lightbridge will not need to raise additional funds to support the operations of
Coral. Further expansion of Lightbridge's business, including the acquisition of
additional computer and network equipment and the expansion of its teleservices
call center capacity, will require Lightbridge to make significant capital
expenditures. Lightbridge believes that the net proceeds of its initial public
offering received in October 1996, together with existing cash balances and
funds available under existing lines of credit, will be sufficient to finance
Lightbridge's operations and capital expenditures through at least the next
twelve months. In the event that Lightbridge's plans change or available cash
resources otherwise prove to be insufficient (due to unanticipated expenses or
otherwise), Lightbridge may be required to seek additional financing or curtail
its expansion activities. Lightbridge may determine, depending upon the
opportunities available to it, to seek additional debt or equity financing to
fund the cost of continuing expansion. To the extent that Lightbridge obtains
equity financing or finances an acquisition with equity securities, any such
issuance of equity securities could result in dilution to the interests of
Lightbridge's stockholders. There can be no assurance that additional financing
will be available to Lightbridge on acceptable terms, or at all. See
"Lightbridge Management's Discussion and Analysis of Financial Condition and
Results of Operations."
15
<PAGE>
RAPID INDUSTRY CHANGE REQUIRES ONGOING PRODUCT DEVELOPMENT EFFORTS. The
wireless telecommunications industry has been changing rapidly as a result of
increasing competition, technological advances and evolving industry practices
and standards, and Lightbridge expects these changes to continue. Carriers in
the wireless market have also been changing quickly, as the result of
consolidation amoung established carriers and the rapid entrance of new carriers
into the market. Lightbridge's future success will depend on the continued use
of its existing products and services, market acceptance of its new products and
services and Lightbridge's ability to develop and market new offerings or adapt
existing offerings to keep pace with changes in the wireless telecommunications
industry. A rapid shift away from the use of cellular in favor of other
telecommunications services could affect demand for Lightbridge's product and
service offerings, since different business practices might evolve with respect
to the offering and sale of new telecommunications services and could require
Lightbridge to develop modified or alternate offerings addressing the particular
needs of providers of the new telecommunications services. In addition, as the
cost of wireless communication services declines and the number of subscribers
increases, carriers may elect to forego credit verification of new customers,
and it is unclear what means of customer screening, if any, carriers will employ
if they do not use credit verification.
Due to rapid changes in the wireless telecommunications industry,
Lightbridge intends to continue to devote substantial financial, managerial and
personnel resources to product development efforts for the foreseeable future.
The development of Lightbridge's product and service offerings is based on a
complex process requiring high levels of innovation and the accurate
anticipation of technological and market trends. There can be no assurance that
Lightbridge will be successful in developing or marketing its existing or future
product and service offerings in a timely manner, or at all. If Lightbridge is
unable, due to resource, technical or other constraints to anticipate or respond
adequately to changing market, client or technological requirements,
Lightbridge's business, financial condition, results of operations and cash flow
will be materially adversely affected. There can be no assurance that products
or services developed by others will not render Lightbridge's products or
services non-competitive or obsolete. See "Business of Lightbridge--
Competition."
RISKS ASSOCIATED WITH MANAGING A CHANGING BUSINESS. Lightbridge has
expanded its operations rapidly, and this expansion has created significant
demands on Lightbridge's executive, operational, development and financial
personnel and other resources. Additional expansion by Lightbridge, including
geographic expansion in connection with the acquisition of Coral or otherwise,
may further strain Lightbridge's management, financial and other resources.
There can be no assurance that Lightbridge's systems, procedures, controls and
existing space will be adequate to support expansion of Lightbridge's
operations. Lightbridge's future operating results will depend on the ability
of its officers and key employees to manage changing business conditions and to
continue to improve its operational and financial control and reporting systems.
If Lightbridge's management is unable to manage growth effectively, its
business, financial condition, results of operations and cash flow could be
materially and adversely affected. See "Business of Lightbridge--Employees" and
"Management of Lightbridge."
The success of Lightbridge's business depends in part upon Lightbridge's
ability to attract, train and retain a sufficient number of qualified personnel
to meet its needs. Lightbridge's teleservices call center is labor intensive;
consequently, an increase in the turnover rate among Lightbridge's teleservices
employees would increase Lightbridge's recruiting and training costs, and if
Lightbridge were unable to recruit and retain a sufficient number of these
employees, it could be forced to limit its growth or possibly curtail its
operations. There can be no assurance that Lightbridge will be successful in
attracting, training and retaining the required number of employees to support
Lightbridge's business in the future. See "Business of Lightbridge--Products
and Services."
DEPENDENCE ON KEY PERSONNEL. Lightbridge's success to date has depended to
a significant extent on Pamela D.A. Reeve, its President and Chief Executive
Officer, and a number of other key personnel. With the exception of Ms. Reeve,
none of Lightbridge's personnel is a party to an employment agreement with
Lightbridge. The loss of the services of Ms. Reeve or any of Lightbridge's other
key personnel could have a material adverse effect on Lightbridge's business,
financial condition, results of operations and cash flow. Lightbridge believes
that its future success will depend in large part on its ability to attract and
retain highly qualified management, engineering, research and development, sales
and operational personnel. In particular, Lightbridge will need to hire
additional software developers in order to support and increase its software
licensing activities. Competition
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<PAGE>
for all of these personnel is intense and there can be no assurance that
Lightbridge will be successful in attracting and retaining key personnel. The
failure of Lightbridge to hire and retain qualified personnel could have a
material adverse effect upon Lightbridge's business, financial condition,
results of operations and cash flow. Lightbridge does not maintain key person
life insurance policies on any of its employees other than Ms. Reeve. See
"Business of Lightbridge--Employees" and "Management of Lightbridge."
DEPENDENCE ON CELLULAR MARKET AND EMERGING WIRELESS MARKETS. Lightbridge
historically has provided its products and services predominantly to cellular
carriers. Although the cellular market has experienced
and may reduce the market price of Lightbridge Common unless and until revenue
growth or cost savings significant growth in recent years, there can be no
assurance that such growth will continue at similar rates, or at all, or that
cellular carriers will continue to use Lightbridge's products and services.
Further growth in Lightbridge's revenues from use of Lightbridge's Customer
Acquisition System by cellular carriers is more likely to result from expansion
into additional geographic markets for its existing clients and from general
growth of the cellular market, if any, than from the addition of new cellular
carrier clients. Declines in demand for Lightbridge's products and services,
whether as a result of competition, technological change, industry change,
general economic conditions or other factors, could have a material adverse
effect on Lightbridge's business, financial condition, results of operations and
cash flow.
Lightbridge's future operating results will depend in part on the emergence
of the PCS market and other wireless telecommunications markets and the use of
Lightbridge's products and services by PCS and other wireless carriers. The PCS
market is in its initial stages of development. If the growth of the PCS market
or other new wireless markets does not meet expectations or is significantly
delayed for any reason, or if carriers in these markets do not use Lightbridge's
products and services, Lightbridge's business, financial condition, results of
operations and cash flow could be materially and adversely affected. See
"Business of Lightbridge--Products and Services."
HIGHLY COMPETITIVE INDUSTRY. The market for products and services provided
to wireless carriers is highly competitive and subject to rapid change. The
market is fragmented, and a number of companies currently offer one or more
products or services competitive with those offered by Lightbridge. In
addition, many wireless carriers are providing or can provide, internally,
products and services competitive with those Lightbridge offers. Trends in the
wireless telecommunications industry, including greater consolidation and
technological or other developments that make it simpler or more cost-effective
for wireless carriers to provide certain services themselves, could affect
demand for Lightbridge's services and could make it more difficult for
Lightbridge to offer a cost-effective alternative to a wireless carrier's own
capabilities. In addition, Lightbridge anticipates continued growth in the
wireless carrier services industry and, consequently, the entrance of new
competitors in the future.
Lightbridge believes that the principal competitive factors in the wireless
carrier services industry include the ability to identify and respond to
subscriber needs, quality and breadth of service offerings, price and technical
expertise. Lightbridge believes that its ability to compete also depends in
part on a number of competitive factors outside its control, including the
ability to hire and retain employees, the development by others of products and
services that are competitive with Lightbridge's products and services, the
price at which others offer comparable products and services and the extent of
its competitors' responsiveness to customer needs.
Many of Lightbridge's current and potential competitors have significantly
greater financial, marketing, technical and other competitive resources than
Lightbridge. As a result, Lightbridge's competitors may be able to adapt more
quickly to new or emerging technologies and changes in customer requirements or
may be able to devote greater resources to the promotion and sale of their
products and services. There can be no assurance that Lightbridge will be able
to compete successfully with its existing competitors or with new competitors.
In addition, competition could increase if new companies enter the market or if
existing competitors expand their service offerings. An increase in competition
could result in price reductions or the loss of market share by Lightbridge and
could have a material adverse effect on Lightbridge's business, financial
condition, results of operations and cash flow.
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<PAGE>
To remain competitive in the wireless carrier services industry,
Lightbridge will need to continue to invest in engineering, research and
developement, and sales and marketing. There can be no assurance that
Lightbridge will be able tyo make the technological advances necessary to remain
competitive. In addition, current and potential competitors have established or
may in the future establish collaborative relationships amoung themselves or
with third parties, including third parties with whom Lightbridge has a
relationship, to increase the visibility and utility of their products and
services. Accordingly, it is possible that new competitors or alliances may
emerge and rapidly acquire a significant market share. If this were to occur,
Lightbridge's business, financial condition, results of operations and cash flow
could be materially and adversely affected. See "Business of
Lightbridge--Competition."
RISK OF SYSTEM FAILURE. Lightbridge's operations are dependent upon its
ability to maintain its computer and telecommunications equipment and systems in
effective working order and to protect its systems against damage from fire,
natural disaster, power loss, telecommunications failure or similar events.
Substantially all of Lightbridge's computer and telecommunications equipment is
located at its sites in Burlington and Waltham, Massachusetts, and, as a result,
may be vulnerable to a natural disaster. Lightbridge has taken precautions to
protect itself and its clients from events that could interrupt delivery of
Lightbridge's services. These precautions include physical security systems,
back-up and off-site data storage, back-up telephone lines, service arrangements
with multiple long-distance telephone carriers and on-site power generators.
Notwithstanding such precautions, there can be no assurance that a fire, natural
disaster, power loss, telecommunications failure or similar event would not
result in an interruption of Lightbridge's services. From time to time,
Lightbridge has experienced delays in the delivery of services to some clients
as a result of failures of certain of Lightbridge's systems. Lightbridge
recently relocated its corporate headquarters from Waltham to its current,
larger facilities in Burlington, and this relocation may result in delays and
interruptions as Lightbridge seeks to build its marketing infrastructure and
relationships and to develop new products and significant new versions of its
existing products. In addition, the growth of Lightbridge's client base, a
significant increase in transaction volume or an expansion of Lightbridge's
facilities may strain the capacity of its computers and telecommunications
systems and lead to degradations in performance or system failure. Many of
Lightbridge's agreements with carriers contain level of service commitments
which Lightbridge might be unable to fulfill in the event of a natural disaster
or major system failure. Any damage, failure or delay that causes interruptions
in Lightbridge's operations could have a material adverse effect on
Lightbridge's business, financial condition, results of operations and cash
flow. Further, any future addition or expansion of Lightbridge's facilities to
increase capacity could increase Lightbridge's exposure to damage from fire,
natural disaster, power loss, telecommunications failure or similar events.
There can be no assurance that Lightbridge's property and business interruption
insurance will be adequate to compensate Lightbridge for any losses that may
occur in the event of a system failure or that such insurance will continue to
be available to Lightbridge at all or, if available, that it will be available
on commercially reasonable terms. See "Business of Lightbridge--Products and
Services."
In addition to its own systems, Lightbridge relies on certain equipment,
systems and services from third parties that are also subject to risks,
including risks of system failure or inadequacy. For example, in providing its
credit verification service, Lightbridge is dependent on access to various
credit information data bases. Similarly, delivery of Lightbridge's activation
services is often dependent on the availability and performance of third-party
billing systems. If, for any reason, Lightbridge were unable to access any such
data bases or third-party billing systems, Lightbridge's ability to process
credit verification transactions could be impaired. In addition, Lightbridge's
business is materially dependent on service provided by various local and long
distance telephone companies. A significant increase in the cost of telephone
services that is not recoverable through an increase in the price of
Lightbridge's services, or any significant interruption in telephone services,
could have a material adverse effect on Lightbridge's business, financial
condition, results of operations and cash flow.
RISK OF SOFTWARE DEFECTS; DEPENDENCE ON THIRD-PARTY SOFTWARE. The software
developed and utilized by Lightbridge in providing its products and services may
contain errors. Although Lightbridge engages in extensive testing of its
software before it is used to provide services to clients, there can be no
assurance that errors will not be found in software after commencement of the
use of such software. Any such error may result in Lightbridge's partial or
total inability to provide services to its clients, additional and unexpected
expenses to fund further
18
<PAGE>
product development or to add programming personnel to complete a development
project, or loss of revenue because of the inability of clients to use
Lightbridge's products or services or the termination by clients of their
arrangements with Lightbridge. Any of these results could have a material
adverse effect on Lightbridge's business, financial condition, results of
operations and cash flow. In particular, certain of the software developed or
used by Lightbridge currently may be unable to interpret properly dates for the
year 2000 and beyond. Any failure by Lightbridge to identify such a "year 2000"
problem in such software could cause errors that materially impair the utility
of one or more of Lightbridge's products and services. Even if such a problem is
defined, resolution of the problem may require significant expenditures and may
not be achievable by January 1, 2000. As a result, any such problem may have a
material adverse effect on Lightbridge's business, financial condition, results
of operations and cash flow.
Certain software used in Lightbridge's software products and to support
Lightbridge's qualification and activation services is licensed by Lightbridge
from third parties. Lightbridge licenses software from Pilot Software, Inc.
under a license agreement that will expire in December 2000 and licenses
software from Trans Union Corporation under a three-year agreement. There can
be no assurance that these suppliers will continue to license this software to
Lightbridge or, if any supplier terminates its agreement with Lightbridge, that
Lightbridge will be able to develop or otherwise procure software from another
supplier on a timely basis or on commercially reasonable terms. Even if
Lightbridge succeeds in developing or procuring such software in such
circumstances, there can be no assurance that Lightbridge will be able to do so
in a timely fashion. See "Business of Lightbridge--Proprietary Rights."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. Lightbridge may in the future
pursue additional acquisitions of companies, technologies or assets that
complement Lightbridge's business. Future acquisitions may result in the
potentially dilutive issuance of equity securities, the incurrence of additional
debt, the write-off of in-process research and development or software
acquisition and development costs, and the amortization of expenses related to
goodwill and other intangible assets, any of which could have a material adverse
effect on Lightbridge's business, financial condition, results of operations and
cash flow. Future acquisitions would involve numerous additional risks,
including difficulties in the assimilation of the operations, services, products
and personnel of the acquired company, the diversion of management's attention
from other business concerns, entering markets in which Lightbridge has little
or no direct prior experience, and the potential loss of key employees of the
acquired company.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The wireless carriers that
constitute Lightbridge's clients are regulated at both the federal and state
levels. Federal and state regulation may decrease the growth of the wireless
telecommunications industry, affect the development of the PCS or other wireless
markets, limit the number of potential clients for Lightbridge's services,
impede Lightbridge's ability to offer competitive services to the wireless
telecommunications market, or otherwise have a material adverse effect on
Lightbridge's business, financial condition, results of operations and cash
flow. The Telecommunications Act of 1996, which in large measure deregulated
the telecommunications industry, has caused, and is likely to continue to cause,
significant changes in the industry, including the entrance of new competitors,
consolidation of industry participants and the introduction of bundled wireless
and wireline services. Those changes could in turn subject Lightbridge to
increased pricing pressures, decrease the demand for Lightbridge's products and
services, increase Lightbridge's cost of doing business or otherwise have a
material adverse effect on Lightbridge's business, financial condition, results
of operations and cash flow.
As the result of offering its ProFile product, Lightbridge is subject to
the requirements of the Fair Credit Reporting Act and certain state laws.
Although Lightbridge's business activities are not otherwise within the scope of
federal or state regulations applicable to credit bureaus and financial
institutions, Lightbridge must take into account such regulations in order to
provide products and services that help its clients comply with such
regulations. Lightbridge monitors regulatory changes and implements changes to
its products and services as appropriate. Although Lightbridge attempts to
protect itself by written agreements with its clients, failure to reflect the
provisions of such regulations in a timely or accurate manner could possibly
subject Lightbridge to liabilities
19
<PAGE>
that could have a material adverse effect on Lightbridge's business, financial
condition, results of operations and cash flow. See "Business of Lightbridge--
Government Regulation."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY CLAIMS.
Lightbridge's success is dependent upon proprietary technology. Lightbridge
currently has no patents and protects its property rights in its technology
primarily through copyrights, the law of trademarks, trade secrets and employee
and third-party non-disclosure agreements. There can be no assurance that the
steps taken by Lightbridge to protect its proprietary rights will be adequate to
prevent misappropriation of its technology or independent development by others
of similar technology. In addition, the laws of some foreign countries do not
protect Lightbridge's proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that these protections will be
adequate.
Although Lightbridge believes that its products and technology do not
infringe on any existing proprietary rights of others, there can be no assurance
that third parties will not assert claims of infringement against Lightbridge in
the future or that any such future claims will not be successful. Lightbridge
could incur substantial costs and diversion of management resources with respect
to the defense of any claims relating to proprietary rights, which could have a
material adverse effect on Lightbridge's business, financial condition, results
of operations and cash flow. Furthermore, parties making such claims could
secure a judgment awarding substantial damages, as well as injunctive or other
equitable relief, which could effectively block Lightbridge's ability to make,
use, sell, distribute or market its products and services in the United States
or abroad. Such a judgment could have a material adverse effect on Lightbridge's
business, financial condition, results of operations and cash flow. In the event
a claim relating to proprietary technology or information is asserted against
Lightbridge, Lightbridge may seek licenses to such intellectual property. There
can be no assurance, however, that such a license could be obtained on
commercially reasonable terms, if at all, or that the terms of any offered
licenses will be acceptable to Lightbridge. The failure to obtain the necessary
licenses or other rights could preclude the sale, manufacture or distribution of
Lightbridge's products and, therefore, could have a material adverse effect on
Lightbridge's business, financial condition, results of operations and cash
flow. The cost of responding to any such claim may be material, whether or not
the assertion of such claim is valid. See "Business of Lightbridge--Proprietary
Rights."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. As part of its business
strategy, Lightbridge may seek opportunities to expand its offerings into
international markets. Lightbridge does not currently derive any significant
revenues from international markets, although a material portion of Coral's
revenues are derived from international sales. See "Business of Coral--Sales,
Marketing and Distribution." Lightbridge believes that expansion of its
offerings into international markets is important to Lightbridge's ability to
continue to grow and to market its products and services. In particular, some
domestic wireless carriers expanding into international markets may seek single,
global solutions from Lightbridge and its competitors, and as a result, the
inability of Lightbridge to offer its products and services internationally may
have an adverse effect on Lightbridge's ability to market its products and
services to those carriers for use in the United States. In marketing its
products and services internationally, however, Lightbridge will face new
competitors, some of whom may have established strong relationships with
carriers. There can be no assurance that Lightbridge will be successful in
marketing or distributing its services abroad or that, if Lightbridge is
successful, its international revenues will be adequate to offset the expense of
establishing and maintaining international operations. To date, Lightbridge has
limited experience in marketing and distributing its services internationally.
In addition to the uncertainty as to Lightbridge's ability to establish an
international presence, there are certain difficulties and risks inherent in
doing business on an international level, such as compliance with regulatory
requirements and changes in these requirements, export restrictions, export
controls relating to technology, tariffs and other trade barriers, difficulties
in staffing and managing international operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates, seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world and potentially
adverse tax consequences. There can be no assurance that one or more of such
factors will not have a material adverse effect on any international operations
established by Lightbridge and, consequently, on Lightbridge's business,
financial condition, results of operations and cash flow.
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<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE. Factors such as announcements of
technological innovations or new products by Lightbridge, its competitors and
other third parties, as well as quarterly variations in Lightbridge's results of
operations and market conditions in the industry, may cause the market price of
Lightbridge Common to fluctuate significantly. In addition, the stock market in
general has experienced substantial price and volume fluctuations, which have
particularly affected the market prices of many technology companies and which
have often been unrelated to the operating performance of such companies. These
broad market fluctuations may adversely affect the market price of Lightbridge
Common.
ANTI-TAKEOVER EFFECT OF PROVISIONS OF CHARTER, BY-LAWS AND DELAWARE LAW.
Lightbridge's Amended and Restated Certificate of Incorporation (the
"Lightbridge Charter") and its Amended and Restated By-Laws (the "Lightbridge
By-Laws") contain provisions that could discourage a proxy contest or make more
difficult the acquisition of a substantial block of Lightbridge Common. The
Lightbridge Charter requires that any action required or permitted to be taken
by stockholders of Lightbridge must be effected at a duly called annual or
special meeting of stockholders and may not be effected by any consent in
writing. The Lightbridge By-Laws require specified advance notice by a
stockholder of a proposal or director nomination which such stockholder desires
to present at any annual or special meeting of stockholders. Special meetings of
stockholders may be called only by the President or a majority of the Board of
Directors. The Lightbridge By-Laws provide for a classified Board of Directors,
and members of the Board of Directors may be removed only for cause upon the
affirmative vote of holders of at least two-thirds of the shares of capital
stock of Lightbridge issued and outstanding and entitled to vote. The
affirmative vote of the holders of at least 75% of the shares of capital stock
of Lightbridge issued and outstanding and entitled to vote is required to amend
or repeal these provisions. In addition, the Board of Directors is authorized to
issue shares of Lightbridge Common and preferred stock that, if issued, could
dilute and adversely affect various rights of the holders of Lightbridge Common
and, in addition, could be used to discourage an unsolicited attempt to acquire
control of Lightbridge.
Lightbridge is subject to the anti-takeover provisions of Section 203 of
the Delaware Law, which prohibit Lightbridge from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 may limit the ability of stockholders to approve
a transaction that they deem to be in their best interests. The foregoing and
other provisions of the Lightbridge Charter, the Lightbridge By-Laws and
Delaware Law could have the effect of deterring certain takeovers or delaying or
preventing certain changes in control or management of Lightbridge, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices.
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<PAGE>
INDEX OF DEFINED TERMS
The following terms used herein are defined at the indicated pages:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Acquisition Corp.................................................... 1
Adjustment Amount................................................... 1
Approving Holder.................................................... 49
AT&T Wireless....................................................... 66
Broadview........................................................... 10
Calculation Price................................................... 1
CAS................................................................. 63
CDS................................................................. 63
Certificate of Merger............................................... 25
Charter Amendment................................................... 29
Closing............................................................. 7
Code................................................................ 35
Commission.......................................................... 2
Coral............................................................... 1
Coral Capital Stock................................................. 6
Coral Charter....................................................... 6
Coral Common........................................................ 1
Coral Series A...................................................... 1
Coral Series B...................................................... 1
Coral Series C...................................................... 1
Delaware Law........................................................ 8
Effective Time...................................................... 25
Escrow Agent........................................................ 7
Escrow Agreement.................................................... 7
Exchange Act........................................................ 2
Exchange Agent...................................................... 7
GTE Mobile.......................................................... 13
Holders' Agent...................................................... 48
Initial Share Number................................................ 26
Interference........................................................ 86
IRS................................................................. 35
Lightbridge......................................................... 1
Lightbridge By-Laws................................................. 21
Lightbridge Charter................................................. 21
Lightbridge Common.................................................. 1
Lightbridge Named Executive Officers................................ 72
Lightbridge Preferred............................................... 77
Merger.............................................................. 1
Merger Consideration................................................ 30
Merger Proposal..................................................... 6
Option and Options.................................................. 9
Proxy............................................................... 49
Record Date......................................................... 6
Registration Statement.............................................. 2
Reorganization Agreement............................................ 1
RMS................................................................. 65
Securities Act...................................................... 2
Special Meeting..................................................... 1
Surviving Corporation............................................... 7
Voting Agreement.................................................... 49
Warrant and Warrants................................................ 9
</TABLE>
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THE SPECIAL MEETING
At the Special Meeting, holders of Coral Common, as a class, and holders of
Coral Series A, Coral Series B and Coral Series C, voting as a single class on
an as-converted basis, will consider and vote upon the Merger Proposal, which
proposes to approve both (i) the Reorganization Agreement, which was entered
into among Lightbridge, Acquisition Corp. and Coral as of September 9, 1997, and
(ii) the Merger, in which Acquisition Corp. would merge with and into Coral and
the Surviving Corporation would become a wholly owned subsidiary of Lightbridge,
all in accordance with the provisions of the Reorganization Agreement.
THE BOARD OF DIRECTORS OF CORAL HAS UNANIMOUSLY APPROVED THE REORGANIZATION
AGREEMENT AND THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT CORAL STOCKHOLDERS
VOTE FOR THE MERGER PROPOSAL. See "The Merger Proposal--Background of the
Merger" and "--Coral's Reasons for the Merger; Recommendation of the Board of
Directors of Coral."
RECORD DATE; QUORUM
The Coral Board of Directors has fixed the close of business on October 8,
1997 as the Record Date for determining holders of Coral Capital Stock entitled
to notice of and to vote at the Special Meeting, including any adjournment or
postponement thereof. The presence, in person or by duly authorized proxy, of
the holders of one-third of the outstanding shares of Coral Common and of the
holders of one-third of the outstanding shares of the Coral Series A, Coral
Series B and Coral Series C (on an as-converted basis) is necessary to
constitute a quorum at the Special Meeting. Abstentions will be included as
present or represented for purposes of establishing a quorum for the transaction
of business.
REQUIRED VOTES
Holders of Coral Common are entitled to cast one vote per share of Coral
Common. Holders of Coral Series A, Coral Series B and Coral Series C are
entitled to cast the number of shares of Coral Common into which such shares of
Coral Series A, Coral Series B or Coral Series C, as the case may be, are
convertible as of the date of the Special Meeting.
Approval of the Merger Proposal requires both (i) the affirmative vote of
the holders of a majority of the outstanding shares of Coral Common entitled to
vote at the Special Meeting and (ii) the affirmative vote of the holders of a
majority of the outstanding shares of Coral Series A, Coral Series B and Coral
Series C, voting as a single class on an as-converted basis, entitled to vote at
the Special Meeting. Accordingly, abstentions will have the same practical
effect as a vote against the Merger Proposal.
CERTAIN CURRENT AND FORMER DIRECTORS AND OTHER AFFILIATES OF CORAL, WHO OWN
AS A GROUP APPROXIMATELY 69.9% OF THE OUTSTANDING SHARES OF CORAL COMMON AND
50.1% OF THE CORAL SERIES A, CORAL SERIES B AND CORAL SERIES C (ON AN AS-
CONVERTED BASIS), HAVE EXECUTED VOTING AGREEMENTS WITH LIGHTBRIDGE PURSUANT TO
WHICH THEY HAVE AGREED TO VOTE IN FAVOR OF THE MERGER PROPOSAL AND HAVE
DELIVERED TO LIGHTBRIDGE IRREVOCABLE LIMITED PROXIES WITH RESPECT TO THE MERGER
PROPOSAL. ACCORDINGLY, THOSE VOTING AGREEMENTS AND IRREVOCABLE LIMITED PROXIES
ARE SUFFICIENT TO EFFECT THE APPROVAL OF THE MERGER PROPOSAL. See "Other
Agreements--Voting Agreements."
VOTING RIGHTS; PROXIES
As of the Record Date, there are expected to be issued and outstanding
3,276,134 shares of Coral Common, entitling each holder thereof to one vote. In
addition, there are expected to be issued and outstanding 2,000,000 shares of
Coral Series A, 2,083,333 shares of Coral Series B and 1,824,920 shares of Coral
Series C, each of which would entitle the holder thereof (on an as-converted
basis) to one-half vote, one vote and one-half vote, respectively. All shares of
Coral Capital Stock represented by properly executed proxies will be voted,
unless such proxies have been previously revoked, in accordance with the
instructions indicated in such proxies. IF NO
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<PAGE>
INSTRUCTIONS ARE INDICATED, SUCH SHARES OF CORAL CAPITAL STOCK WILL BE VOTED IN
FAVOR OF APPROVAL OF THE MERGER PROPOSAL. Coral does not know of any matters
other than the Merger Proposal that are to come before the Special Meeting. If
any other matter or matters are properly presented for action at the Special
Meeting, the persons named in the enclosed form of proxy and acting thereunder
will have the discretion to vote on such matters in accordance with their best
judgment, unless such authorization is withheld. A holder of shares of Coral
Capital Stock giving a proxy pursuant to this proxy solicitation may revoke the
proxy at any time before it is exercised by delivering to the Secretary of Coral
a written notice of revocation prior to the voting of the proxy at the Special
Meeting, by signing and returning a later dated proxy or by attending the
Special Meeting and informing the Secretary of Coral in writing that such
stockholder wishes to vote those shares in person. Mere attendance at the
Special Meeting will not in and of itself have the effect of revoking the proxy.
SOLICITATION OF PROXIES
Coral will bear the cost of soliciting proxies. In addition to the
solicitation by mail, the directors, officers and certain employees of Coral may
solicit proxies, without additional remuneration, by telephone, facsimile,
telegraph and in person. It is expected that the expense of such special
solicitation will be nominal.
DISSENTERS' RIGHTS
Any holder of shares of Coral Common, Coral Series A, Coral Series B or
Coral Series C may dissent from the Merger and demand appraisal of those shares
by following the procedures set forth in Section 262 of the Delaware Law. See
"The Merger Proposal--Appraisal Rights" and Annex B hereto.
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<PAGE>
THE MERGER PROPOSAL
This section of this Proxy Statement/Prospectus, as well as the next two
sections of this Proxy Statement/Prospectus entitled "The Reorganization
Agreement" and "Other Agreements," describe certain aspects of the proposed
Merger. To the extent that they relate to the Reorganization Agreement, or the
other agreements described under "Other Agreements," the following
descriptions do not purport to be complete and are qualified in their entirety
by reference to the Reorganization Agreement, which is attached as Annex A to
this Proxy Statement/Prospectus and is incorporated herein by reference, and
such other agreements, which are filed as exhibits to the Registration Statement
and are incorporated herein by reference. All Coral stockholders are urged to
read the Reorganization Agreement and such other agreements in their entireties.
GENERAL
The Reorganization Agreement provides that the Merger will be consummated
if the required approvals of the Coral stockholders are obtained and all other
conditions to the Merger are satisfied or waived. Upon consummation of the
Merger, Acquisition Corp. will be merged with and into Coral, and the Surviving
Corporation will become a wholly owned subsidiary of Lightbridge.
Pursuant to the Merger, each of the outstanding shares of Coral Common,
Coral Series A, Coral Series B and Coral Series C, other than duly qualified
dissenting shares, would convert into a fraction of a share of Lightbridge
Common determined as set forth in the Reorganization Agreement, as described
under "--Calculation of Merger Consideration." Pursuant to Section 1.4.2 of the
Reorganization Agreement, all outstanding Options and Warrants to purchase Coral
Common will become exercisable to purchase shares of Lightbridge Common.
Upon consummation of the Merger, holders of Coral stock will cease to have
any direct equity interest in Coral. The Lightbridge Common to be received by
holders of Coral Shares upon consummation of the Merger will provide those
holders with an opportunity to have a continuing equity interest in the combined
operations of Lightbridge and Coral.
EFFECTIVE DATE AND TIME OF THE MERGER
Consummation of the Merger will occur at the Effective Time, upon the
filing of a certificate of merger with the Secretary of State of the State of
Delaware in the form required by, and executed in accordance with, Delaware Law
(the "Certificate of Merger"). The term "Effective Time" means the particular
time at which the parties to the Reorganization Agreement cause the Merger to be
consummated by filing with the Secretary of State of the State of Delaware. The
filing of the Certificate of Merger will occur as soon as practicable after the
satisfaction or waiver of all conditions to the closing of the transactions
contemplated by the Reorganization Agreement, which is anticipated to be on or
about the business day following the date of the Special Meeting. The
Reorganization Agreement may be terminated, under certain circumstances, by
either party if the Merger shall not have been consummated on or before December
31, 1997. The Reorganization Agreement also may be terminated under certain
other circumstances. See "The Reorganization Agreement--Conditions to the
Merger" and "--Termination."
CALCULATION OF MERGER CONSIDERATION
Pursuant to the terms of the Reorganization Agreement, shares of
Lightbridge Common will be (i) issued upon conversion of all of the outstanding
shares of Coral Capital Stock (other than duly qualified dissenting shares) and
(ii) reserved for issuance upon the exercise of all unexpired and unexercised
Options and Warrants. Under the Reorganization Agreement, the rate at which any
share of Coral Capital Stock will be converted into Lightbridge Common will be
computed in three steps.
25
<PAGE>
. First, the maximum number of shares of Lightbridge Common to be issued
upon conversion of outstanding shares of Coral Capital Stock or
reserved for issuance upon the exercise of Options and Warrants (the
"Initial Share Number") will be computed, based upon the Calculation
Price. The Calculation Price will be the average of the last reported
sale prices per share of Lightbridge Common on the Nasdaq National
Market over the ten trading days prior to the date on which
Lightbridge publicly announces its operating results for the quarter
ended September 30,1997. The Initial Share Number will be determined
as follows:
(a) if the Calculation Price is between $10.8375 and $14.6625, the
Initial Share Number will be 1,286,863;
(b) if the Calculation Price is less than $10.8375, the Initial Share
Number will be the quotient of $13,946,375 divided by the
Calculation Price, rounded down to the nearest whole number of
shares of Lightbridge Common; and
(c) if the Calculation Price is greater than $14.6625, the Initial
Share Number will be the quotient of $18,868,625 divided by the
Calculation Price, rounded down to the nearest whole number of
shares of Lightbridge Common.
. Second, the Initial Share Number will be decreased by a number of
shares equal to the Adjustment Amount divided by the Calculation
Price. The Adjustment Amount will equal the dollar amount of certain
expenses attributable to the Coral stockholders in connection with the
Merger, as provided for in Section 5.11 of the Reorganization
Agreement, plus (or minus) the amount by which Coral's working capital
(total current assets less total current liabilities) as of the date
of the Closing, as determined pursuant to a post-closing audit, is
less (or greater) than negative $1,245,500. The stockholder expenses
to be included in the Adjustment Amount will include, among other
things, fees and disbursements of Coral's legal counsel and
independent accountants, disbursements of Coral's financial advisor,
expenses of Coral in connection with the proxy solicitation being made
by this Proxy Statement/Prospectus, and other costs and expenses of
Coral arising in connection with the Merger prior to the Closing. The
Adjustment Amount will not include a total of $500,000 of fees of
Coral's financial advisor or $220,000 of bonus payments due to certain
officers of Coral as a result of the consummation of the Merger (see
"-- Interests of Certain Persons in the Merger"). No adjustment will
be made in the number of shares of Lightbridge Common issued in the
Merger as a result of any cash proceeds received by Coral from the
date of the Reorganization Agreement to the Effective Time pursuant to
the exercise of Options or Warrants to acquire Coral Capital Stock.
. Third, the Initial Share Number, less the number of shares equal to
the Adjustment Amount divided by the Calculation Price of Lightbridge
Common, will be allocated among the shares of the different classes of
Coral Capital Stock. As described below, the conversion rates for each
class of Coral Capital Stock generally will (i) treat as outstanding
the shares of Coral Common issuable upon exercise of Options and
Warrants (whether or not vested) and (ii) allocate the shares of
Lightbridge Common issuable upon the Merger to each class of Coral
Capital Stock based upon the liquidation preferences set forth in the
Coral Charter. Specifically:
(a) Each outstanding share of Coral Capital Stock (other than any
duly qualified dissenting shares) will be converted into the
right to receive:
(i) the number of shares of Lightbridge Common that, when
divided by the Calculation Price, equals the
liquidation preference of such class of Coral Capital
Stock, plus
(ii) such share's pro rata portion, on an as-converted
basis, of the Initial Share Number, less the number of
shares reflecting the Adjustment Amount, that remains
unallocated
26
<PAGE>
after shares of Lightbridge Common have been allocated to
each share of Coral Capital Stock in accordance with the
foregoing clause (i) and shares of Lightbridge Common have
been reserved for the exercise of all unexpired and
unexercised Options and Warrants outstanding at the
Effective Time (as described in clause (b) below).
(b) Each Option and Warrant outstanding at the Effective Time,
whether vested or unvested, will entitle its holder, upon
exercise (if and when vested) following the Effective Time,
to receive that number of whole shares of Lightbridge Common
equal to the product of the number of shares of Coral Common
that were issuable upon exercise of such Option or Warrant
immediately prior to the Effective Time (without regard to
vesting) multiplied by the conversion rate for a single
share of Coral Common, rounded down to the nearest whole
number of shares of Lightbridge Common. In addition,
following the Effective Time, the per share exercise price
for the Lightbridge Common issuable upon exercise of each
Option and Warrant would be equal to the per share exercise
price thereof immediately prior to the Effective Time
divided by the conversion rate for a single share of Coral
Common.
Because the Calculation Price is not currently known and the Adjustment
Amount cannot currently be determined, the precise conversion rate for each
class of Coral Capital Stock cannot currently be calculated. The following
examples are provided for purposes of illustration only. For purposes of these
examples, (a) the stockholder expenses to be included in the Adjustment Amount
are assumed to total $400,000, based on a preliminary estimate made by the
management of Coral and Lightbridge as of the date hereof, and (b) the working
capital adjustment to be included in the Adjustment Amount is assumed to be
either $0 (that is, Coral's working capital as of the date of the Closing is
assumed to equal negative $1,245,500) or $1,462,100, based on Coral's estimate
of its working capital of negative $2,707,600 as of August 31, 1997. THE ACTUAL
NUMBER OF SHARES OF LIGHTBRIDGE COMMON ISSUED (AND RESERVED FOR ISSUANCE) IN THE
MERGER AND THE RELATED CONVERSION RATES MAY DIFFER MATERIALLY FROM THESE
EXAMPLES.
. Assuming a Calculation Price of $12.75 (the last reported price per
share of Lightbridge Common on the date as of which a nonbinding oral
agreement was initially reached between Coral and Lightbridge), (i) if
the Adjustment Amount totalled $400,000, an aggregate of 1,255,490
shares of Lightbridge Common would be issuable to Coral stockholders
(and reserved for issuance upon exercises of Options and Warrants) and
(ii) if the Adjustment Amount totalled $1,862,100, an aggregate of
1,140,816 shares of Lightbridge Common would be issuable to Coral
stockholders (and reserved for issuance upon exercises of Options and
Warrants). Based upon those assumptions, each share of Coral Capital
Stock would be converted into a fraction of a share of Lightbridge
Common as follows:
<TABLE>
<CAPTION>
CONVERSION RATE INTO LIGHTBRIDGE COMMON,
ASSUMING ADJUSTMENT AMOUNT OF:
----------------------------------------
<S> <C> <C>
$400,000 $1,862,100
-------- ----------
Coral Common............ .0661 .0539
Coral Class A........... .0856 .0795
Coral Class B........... .1837 .1715
Coral Class C........... .1881 .1820
</TABLE>
Based on the number of shares of Lightbridge Common issued and
outstanding as of September 1, 1997 and assuming the issuance (and
reservation) of such 1,255,490 and 1,140,816 shares of Lightbridge
Common pursuant to the Reorganization Agreement, former holders of
Coral Capital Stock, Options and Warrants would hold as a group
(assuming exercise of all Options and Warrants) approximately 7.5% and
6.8%, respectively, of the total issued and outstanding shares of
Lightbridge Common immediately following the Merger.
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<PAGE>
. Assuming a Calculation Price of $15.875 (the last reported sale prices
per share of Lightbridge Common on the Nasdaq National Market on
October 6, 1997, the trading day preceding the date hereof), (i) if
the Adjustment Amount totalled $400,000, an aggregate of 1,163,378
shares of Lightbridge Common would be issuable to Coral stockholders
(and reserved for issuance upon exercises of Options and Warrants) and
(ii) if the Adjustment Amount totalled $1,862,100, an aggregate of
1,071,277 shares of Lightbridge Common would be issuable to Coral
stockholders (and reserved for issuance upon exercises of Options and
Warrants). Based upon those assumptions, each share of Coral Capital
Stock would be converted into a fraction of a share of Lightbridge
Common as follows:
<TABLE>
<CAPTION>
CONVERSION RATE INTO LIGHTBRIDGE COMMON,
ASSUMING ADJUSTMENT AMOUNT OF:
----------------------------------------
<S> <C> <C>
$400,000 $1,862,100
-------- ----------
Coral Common............ .0695 .0597
Coral Class A........... .0770 .0721
Coral Class B........... .1640 .1542
Coral Class C........... .1593 .1544
</TABLE>
Based on the number of shares of Lightbridge Common issued and
outstanding as of September 1, 1997 and assuming the issuance (and
reservation) of such 1,163,378 and 1,071,277 shares of Lightbridge
Common pursuant to the Reorganization Agreement, former holders of
Coral Capital Stock, Options and Warrants would hold as a group
(assuming exercise of all Options and Warrants) approximately 7.0% and
6.4%, respectively, of the total issued and outstanding shares of
Lightbridge Common immediately following the Merger.
. Assuming a Calculation Price of $16.675 (the average of the last
reported sale prices per share of Lightbridge Common on the Nasdaq
National Market over the ten trading days preceding the date hereof),
(i) if the Adjustment Amount totalled $400,000, an aggregate of
1,107,564 shares of Lightbridge Common would be issuable to Coral
stockholders (and reserved for issuance upon exercises of Options and
Warrants) and (ii) if the Adjustment Amount totalled $1,862,100, an
aggregate of 1,019,862 shares of Lightbridge Common would be issuable
to Coral stockholders (and reserved for issuance upon exercises of
Options and Warrants). Based upon those assumptions, each share of
Coral Capital Stock would be converted into a fraction of a share of
Lightbridge Common as follows:
<TABLE>
<CAPTION>
CONVERSION RATE INTO LIGHTBRIDGE COMMON,
ASSUMING ADJUSTMENT AMOUNT OF:
----------------------------------------
<S> <C> <C>
$400,000 $1,862,100
-------- ----------
Coral Common............ .0662 .0569
Coral Class A........... .0733 .0686
Coral Class B........... .1561 .1468
Coral Class C........... .1516 .1470
</TABLE>
Based on the number of shares of Lightbridge Common issued and
outstanding as of September 1, 1997 and assuming the issuance (and
reservation) of such 1,107,564 and 1,019,862 shares of Lightbridge
Common pursuant to the Reorganization Agreement, former holders of
Coral Capital Stock, Options and Warrants would hold as a group
(assuming exercise of all Options and Warrants) approximately 6.7% and
6.2%, respectively, of the total issued and outstanding shares of
Lightbridge Common immediately following the Merger. If the
Calculation Price is greater than $15.9375, Coral will have the right
to terminate the Reorganization Agreement. CORAL STOCKHOLDER APPROVAL
OF THE MERGER PROPOSAL WILL CONFER UPON THE BOARD OF DIRECTORS OF
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<PAGE>
CORAL THE POWER, CONSISTENT WITH ITS FIDUCIARY DUTIES, TO CONSUMMATE
THE MERGER IN THE EVENT THAT THE CALCULATION PRICE OF THE LIGHTBRIDGE
COMMON IS LESS THAN $9.5625 OR MORE THAN $15.9375. See "The
Reorganization Agreement--Termination."
The shares of Lightbridge Common issued in connection with the Merger will
be subject to indemnification and escrow provisions of the Reorganization
Agreement and the Escrow Agreement. See "Description of Reorganization
Agreement-- Indemnification" and "Other Agreements--Escrow Agreement."
In addition to the rights provided to holders of Coral stock under the
Reorganization Agreement, prior to the filing of the Charter Amendment (as
described below), the Merger would have triggered certain additional rights of
the holders of Coral Series A, Coral Series B and Coral Series C. Pursuant to
the terms of Article IV, Section C.4.k. of the Coral Charter, any such holder
could have elected, on an individual basis, either (i) to treat the Merger as a
liquidation pursuant to Article IV, Section C.2.c. of the Coral Charter or (ii)
to have such holder's preferred stock remain outstanding and become exercisable
for Lightbridge Common. Lightbridge determined that it would be untenable for it
to, in effect, assume all or any portion of the Coral Series A, Coral Series B
or Coral Series C.
To address the foregoing issues, concurrently with the execution of the
Reorganization Agreement, the holders of a majority of the outstanding shares of
each class of Coral Capital Stock delivered to Coral a written action by consent
of stockholders, pursuant to which such holders duly approved and adopted a
certificate of amendment to the Coral Charter that was filed with the Secretary
of State of the State of Delaware and became effective on September 17, 1997
(the "Charter Amendment"). The Charter Amendment provides that the Merger will
not be subject to the foregoing provisions of the Coral Charter. Although the
holders of Coral preferred stock will not have the right to elect to treat the
Merger as a deemed liquidation, the portion of the Merger Consideration to be
allocated to a share of a particular class of Coral Capital Stock was made
dependent on the liquidation preference for that class under the Coral Charter,
as described above.
No fractional shares of Lightbridge Common shall be issuable in connection
with the Merger. The number of shares of Lightbridge Common to be issued upon
conversion of all outstanding shares of Coral Capital Stock and to be reserved
for exercise of all Options and Warrants shall equal the Initial Share Number
less the number of shares reflecting the Adjustment Amount, and, to the extent
the calculations pursuant to Section 1.4.2 of the Reorganization Agreement
produce fractional shares or an aggregate number greater or less than such
number, the number of shares of Lightbridge Common allocable to individual
holders of Coral Capital Stock, Options and Warrants shall be appropriately
adjusted.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of Coral Shares into Lightbridge Common and the conversion
of Options and Warrants into the right to purchase Lightbridge Common will occur
automatically at the Effective Time.
As soon as reasonably practicable after the Effective Time, Lightbridge
will instruct the Exchange Agent to mail to each holder of record of shares of
Coral Capital Stock a letter of transmittal and instructions to effect the
surrender of the certificates representing shares of Coral Capital Stock, in
exchange for certificates representing the shares of Lightbridge Common issuable
therefor in connection with the Merger. Approximately one-third of such shares
of Lightbridge Common will be issued and delivered to the Exchange Agent
promptly after the Effective Time, for delivery to the former Coral holders six
months after the date of the Closing. The balance of such shares will be issued
and delivered to the escrow agent under the Escrow Agreement and will become
deliverable to former holders of Coral Capital Stock in accordance with the
terms of the Escrow Agreement. See "Other Agreements--Escrow Agreement."
Upon surrender of a certificate representing Coral shares for cancellation
to the Exchange Agent, together with a duly executed letter of transmittal and
any other documents as may be required pursuant to such instructions, the holder
of such certificate will be entitled to receive in exchange therefor (i) a
certificate
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<PAGE>
evidencing that number of whole shares of Lightbridge Common which such holder
has the right to receive in the Merger, subject to the limitations on delivery
described in the preceding paragraph, (ii) any dividends or other distributions
on the shares of Lightbridge Common which such holder is entitled to receive and
(iii) cash in respect of fractional shares of Lightbridge Common (the shares of
Lightbridge Common, distributions and cash described in clauses (i), (ii) and
(iii) being, collectively, the "Merger Consideration"), and the certificate
representing Coral shares so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of Coral shares that is not registered in the
transfer records of Coral as of the Effective Time, the Merger Consideration may
be issued and paid to a transferee if the certificate evidencing such Coral
shares is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until so surrendered, each outstanding
certificate that, prior to the Effective Time, represented Coral shares will be
deemed from and after the Effective Time, for all corporate purposes (other than
payment of dividends or a described below under "-- Appraisal Rights'), to
evidence the ownership of the number of full shares of Lightbridge Common into
which such Coral shares shall have been so converted, subject to the delivery
and escrow provisions of the Reorganization Agreement and Escrow Agreement.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED OR ESCROWED CORAL SHARES. No
dividends or other distributions declared or made after the Effective Time with
respect to Lightbridge Common with a record date after the Effective Time will
be paid to the holder of an unsurrendered certificate representing Coral shares
with respect to the shares of Lightbridge Common such holder is entitled to
receive until the holder surrenders such certificate. Further, any such
dividends or other distributions with respect to shares of Lightbridge Common
held in escrow under the Escrow Agreement shall be delivered to the Escrow Agent
and shall be subject to the escrow provisions of the Escrow Agreement. Subject
to applicable law, following surrender of any certificate representing Coral
shares, there shall be paid to the record holder of the certificates
representing whole shares of Lightbridge Common issued in exchange therefor,
without interest, at the time of surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Lightbridge Common.
TRANSFERS OF OWNERSHIP. If any certificate for Lightbridge Common is to be
issued in a name other than that in which the certificate representing Coral
shares surrendered in exchange therefor is registered, it will be a condition of
the issuance thereof that the certificate so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Lightbridge or any designated agent
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Lightbridge Common in any other name other than that of the
registered holder of the certificate surrendered, or established to the
satisfaction of Lightbridge (or any designated agent) that such tax has been
paid or is not payable.
WITHHOLDING RIGHTS. Lightbridge or the Exchange Agent will be entitled to
deduct and withhold from the Merger Consideration otherwise payable to any Coral
stockholder pursuant to the Reorganization Agreement such amounts as Lightbridge
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under any provision of federal, state or local tax law.
To the extent that amounts are so withheld by Lightbridge or the Exchange Agent,
such withheld amounts shall be treated for purposes of the Reorganization
Agreement as having been paid to the holder of the shares of Lightbridge Common
in respect of which such deduction and withholding was made by Lightbridge or
the Exchange Agent.
LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any certificates
representing shares or Coral Capital Stock have been lost, stolen or destroyed,
the Exchange Agent will issued shares of Lightbridge Common in exchange for such
lost, stolen or destroyed certificates upon the making of any affidavit of that
fact by the owner of such certificates and, at the request of Lightbridge, upon
delivery of a bond in such a sum as Lightbridge may reasonably direct as
indemnity against any claim that may be made against Lightbridge or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
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<PAGE>
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO CORAL
STOCKHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME AS TO THE METHOD FOR
EXCHANGING THEIR CERTIFICATES. HOLDERS OF SHARES OF CORAL STOCK SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY, AND THEY SHOULD NOT FORWARD
STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL
LETTERS.
BACKGROUND OF THE MERGER
Coral was initially founded in 1991. From early 1994 through early 1996,
Coral raised approximately $11 million in capital from venture capital and other
outside investors. Coral experienced substantial growth in this period, with
annual revenue reaching $8.7 million for 1996. Despite this revenue growth,
however, Coral has been unable to reach sustained profitability, sustaining
losses in 1992 through 1996 as well as for the six months ended June 30, 1997.
During the second half of 1996, Coral commenced an initial public offering
of its common stock. Due to market conditions as well as Coral's inability to
report profitable results of operations for the quarter ended December 31,
1996, the offering could not be completed and was withdrawn early in 1997.
During early 1997, Coral's board of directors considered recommencing the
withdrawn initial public offering. Based upon conversations with the proposed
lead underwriter, the board determined that it was unlikely that the offering
would be completed in the foreseeable future. In particular, it was unlikely
that the initial public offering process would be recommenced until Coral
reported several quarters of profitable results. Coral reported net losses in
the quarters ended December 31, 1996, March 31, 1997 and June 30, 1997.
In February 1997, the Coral board met to consider Coral's strategic
alternatives, including pursuing potential business combinations with other
telecommunications software companies. Among other things, the Coral board
considered that substantial additional financing would have to be obtained if a
business combination were not pursued. At the meeting, the Board decided to
proceed to explore the possibility of a business combination involving
Coral.
Thereafter, on April 18, 1997, certain members of the Coral management,
including Mr. Eric Johnson, President and Chief Executive Officer, Mr. Kyle
Hubbart, Chief Financial Officer, and Mr. Howard Kaushansky, Vice President and
General Counsel, visited Lightbridge and met with Ms. Pamela Reeve, President
and Chief Executive Officer of Lightbridge, and Mr. William Brown, Chief
Financial Officer of Lightbridge, to discuss possible financing
opportunities.
Between April 18 and April 25, 1997, there were a number of telephone
conferences between Messrs. Johnson, Hubbart and Kaushansky and Ms. Reeve and
Mr. Brown regarding merger possibilities between the two companies. During this
time, the two companies exchanged confidentiality agreements. In addition,
financial and business information (including financial projections) was
provided by Coral to Lightbridge and to their boards of directors.
On May 15, 1997, Ms. Reeve, Mr. Brown and Mr. Richard Antell, Vice
President of Software Development of Lightbridge, met with Messrs. Johnson,
Hubbart and Kaushansky and Mr. Timothy Hayes, Chief Technical Officer of Coral,
at Coral's offices in Longmont, Colorado. Also present were representatives of
Cowen & Company, investment advisor to Lightbridge.
On May 20, 1997, Coral retained Broadview to act as Coral's financial
advisor in connection with exploring potential business combinations. Following
its engagement, Broadview contacted a number of companies (including
Lightbridge) that had already expressed interest in a potential business
combination with Coral, as well as a number of companies that were likely to be
interested in such a combination. Several of these companies met with Coral
management to discuss possible transactions.
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<PAGE>
During the period from May 15 to June 12, 1997, there were several
telephone conferences between the management of Lightbridge and Coral,
particularly regarding existing and potential contracts. On June 13, Lightbridge
made an offer to acquire all outstanding Coral Capital Stock, Options and
Warrants for shares of Lightbridge Common having a market value at that time of
$16.4 million. This original offer expired in accordance with its terms and was
not extended by Lightbridge.
By the end of June 1997, Coral's available cash resources had been
substantially depleted. Coral began to arrange for a short-term bridge loan that
was to be followed by another round of venture capital financing. It was
anticipated that the shares to be issued in such financing round would be
substantially below the price at which shares had been issued in previous
rounds, and that the proposed financing would result in substantial dilution to
Coral's existing stockholders. The proposed financing was not consummated
because Coral was able to obtain additional accounts receivable financing from
its bank lender.
On July 21, 1997, the Lightbridge board of directors held a meeting via
teleconference to discuss the Merger. On July 23, Lightbridge made an offer to
the Coral board of directors to purchase all outstanding Coral Capital Stock,
Options and Warrants for shares of Lightbridge Common having a market value of
$19.1 million. On July 25, Mr. John Fraser, the President of Coral, and a
representative of Broadview, investment advisor to Coral, met with Ms. Reeve,
Mr. Brown and a representative of Cowen & Company to discuss the Merger. On July
25, a letter of intent was signed by both companies, outlining the general terms
of the Reorganization Agreement.
Between August 4 and August 6, 1997, Mr. Kevin Collins, Controller of
Lightbridge, and Mr. Joseph Pignato, Assistant Controller of Lightbridge, with
representatives of Cowen & Company and Foley, Hoag & Eliot LLP, visited the
offices of Coral in Longmont, Colorado, for the purposes of financial,
accounting and legal due diligence.
Between August 5 and August 7, 1997, a number of members of Coral's
management, including Messrs. Fraser and Hayes, attended various meetings at
Lightbridge to discuss various sales, marketing, technical and organizational
issues.
During the week of August 15, 1997, Messrs. Brown, Collins and Pignato and
Ms. Reeve and representatives of Foley, Hoag & Eliot LLP met with various
members of Coral's management to continue the financial and legal due diligence.
Between August 15 and September 9, 1997, financial advisors and legal
counsel were in frequent contact to negotiate the terms of the Reorganization
Agreement. On September 2, the Lightbridge board of directors met to discuss
the proposed merger. Also attending the meeting were representatives of Foley,
Hoag & Eliot LLP and Cowen & Company. The representatives of Cowen & Company
discussed the proposed Merger, providing a transaction overview and summarizing
the due diligence that they had performed, the transaction consideration and
rationale, and the valuation of Coral. After the presentation by Cowen &
Company, the Lightbridge board of directors approved the Reorganization
Agreement and the Merger.
On September 8, 1997, the Coral board of directors met to consider the
proposed transaction. Also attending the meeting were representatives of
Broadview and Cooley Godward LLP, Coral's outside legal counsel. After a review
and discussion of the proposed transaction, Coral's board of directors approved
the Reorganization Agreement and the Merger.
On September 9, 1997, Lightbridge, Coral and Acquisition Corp. executed and
delivered the Reorganization Agreement. On September 10, 1997, Lightbridge
issued a press release announcing the Merger.
32
<PAGE>
CORAL'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF
CORAL
On September 8, 1997, the Board of Directors of Coral met and deemed it to
be in the best interests of Coral and its stockholders to enter into the
Reorganization Agreement. In reaching its decision to approve the terms of the
Reorganization Agreement and the Merger, the Board of Directors of Coral
consulted with management of Lightbridge, as well as with its financial and
legal advisors, and considered a number of factors, including the following:
. Information concerning Coral's and Lightbridge's respective
businesses, financial position, historical and prospective results of
operations, market position, product development plans and technical
capabilities.
. With the assistance of Broadview, information concerning historical
price and trading volume data for Lightbridge Common and the
investment attributes of Lightbridge Common.
. The results of efforts by Broadview to solicit acquisition offers from
potential purchasers other than Lightbridge. Based upon these efforts,
Coral's Board did not believe that it was likely that additional
competitive offers from potential acquirors would emerge at that time.
. The Coral Board's conclusion that the terms of the Merger were fair,
from a financial point of view, to the Coral stockholders based upon
the present financial condition and business prospects of Coral.
. The Coral's Board's consideration of its strategic and financial
options, including remaining independent and pursuing Coral's initial
public offering which was withdrawn early in 1997. In particular, the
Coral Board considered that Coral would need significant additional
financing if a merger partner were not obtained and that there was no
assurance that such additional financing could be obtained by Coral on
acceptable terms, if at all. The Coral Board also concluded that it
was unlikely that Coral would be able to complete an initial public
offering in the foreseeable future.
. The importance of market position, scope of product offerings and
scale of financial resources needed by a company to compete in the
rapidly consolidating and changing industry environment for wireless
telecommunications carriers. The Coral Board concluded that an
affiliation with Lightbridge would provide Coral with increased
financial, technical, product and managerial resources that will
become increasingly important in such an industry environment.
. The Coral Board's conclusion that the terms of the Merger would
provide a substantial increase in the liquidity of the investment of
Coral's stockholders, particularly in light of the Coral Board's
conclusion that completion of an initial public offering was unlikely.
. The fact that the Merger is structured to qualify as a tax-free
exchange for federal income tax purposes.
. A review with Coral's legal counsel of the terms of the Reorganization
Agreement and related agreements, particularly the share escrow and
indemnification provisions of the Reorganization Agreement and the
Escrow Agreement. As a negative factor, the Coral Board considered the
fact that a substantial portion of the Merger Consideration would be
held in escrow following the Closing and, therefore, might not
eventually be received by the Coral stockholders.
The Board of Directors of Coral also considered a number of potential risks
relating to the Merger, including (i) the difficulty and management distraction
inherent in integrating the combined company, (ii) the substantial charges
expected to be incurred by Lightbridge in connection with the Merger, including
costs of
33
<PAGE>
integrating the business and transaction expenses arising from the Merger,
(iii) the risk that the trading price of Lightbridge Common might be adversely
affected by the announcement of the Merger, (iv) the risk that the benefits
sought in the Merger would not be fully achieved, (v) the risk that the Merger
would not be consummated following the public announcement thereof and (vi) the
risks of Coral suffering employee attrition and failing to attract key personnel
due to uncertainties associated with the pending Merger. See "Risk Factors."
The foregoing discussion of the information and factors considered by the
Board of Directors of Coral is not intended to be exhaustive but is believed to
include all material factors considered by the Board of Directors of Coral. In
view of the wide variety of information and factors, both positive and negative,
considered, the Board of Directors of Coral did not find it practical to, and
did not, quantify or otherwise assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights to
different factors.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Coral Board with respect to the
Reorganization Agreement and the transactions contemplated thereby, Coral
stockholders should be aware that certain directors and executive officers of
Coral have certain interests in the Merger.
As of October 1, 1997, the directors and executive officers of Coral as a
group beneficially owned an aggregate of 837,542 shares of Coral Common
(including shares purchasable upon the exercise of outstanding Options and
Warrants within 60 days of October 1, 1997), 125,000 shares of Coral Series A
and 522,500 shares of Coral Series B. All of those shares will be treated in the
Merger in the same manner as the shares of Coral stock held by other
stockholders of Coral. Certain current and former directors of Coral and their
affiliates, who in the aggregate hold a majority of the outstanding Coral Common
and a majority of the outstanding Coral Series A, Coral Series B and Coral
Series C (on an as-converted basis), have executed voting agreements with
Lightbridge pursuant to which they have agreed to vote in favor of the Merger
Proposal and have delivered to Lightbridge irrevocable limited proxies with
respect to the Merger Proposal. Accordingly, those voting agreements and
irrevocable limited proxies are sufficient to effect the approval of the Merger
Proposal. See "Other Matters Related to the Merger--Voting Agreements." To the
best of Coral's knowledge, each of the other Coral directors and executive
officers who owns shares of Coral stock intends to vote those shares in favor of
both the Merger Proposal.
On September 8, 1997, the Board of Directors of Coral adopted a Management
Bonus Plan pursuant to which certain of Coral's key employees will receive
staying bonuses in an aggregate amount of $220,000 for their continued
employment with Coral through the Closing. The Management Bonus Plan was
adopted to provide an incentive to those key employees whom the Board of
Directors of Coral believes are integral to the consummation of the Merger. The
bonuses will be payable within ten days of the Closing. The key employees
eligible to receive bonuses under the Management Bonus Plan are Anita Filip,
John Fraser, Timothy Hayes, Kyle Hubbart and Howard Kaushansky.
Pursuant to the Reorganization Agreement, two of Coral's executive
officers, John Fraser and Timothy Hayes, will enter into employment agreements
with Coral providing for their continued employment with Coral. Under the
employment agreements, each officer's employment, with Coral may be terminated
by (i) either Coral or Lightbridge, upon sixty days' prior written notice to the
employee; or (ii) the employee, upon written notice to both Coral and
Lightbridge. Neither Mr. Fraser nor Mr. Hayes is entitled to receive
compensation in the event that Coral or Lightbridge terminates his employment
with Coral. The form of the employment agreements is filed as an exhibit to the
Registration Statement and is incorporated herein by reference.
Persons identified by Coral as "affiliates" (as that term is defined for
purposes of Rule 145 under the Securities Act) of Coral will enter into
agreements restricting sales, dispositions or other transactions reducing their
risk of investment with respect to shares of Coral stock held by them prior to
the Merger and the shares of Lightbridge Common received by them in the Merger
so as to comply with the requirements of applicable federal securities laws.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the anticipated material United States
federal income tax consequences of the Merger that are generally applicable to
Lightbridge, Coral and holders of Coral stock under the United States Internal
Revenue Code of 1986, as amended (the "Code"). Coral stockholders should be
aware that this discussion does not deal with all federal income tax
considerations that may be relevant to particular Coral stockholders in light of
their particular circumstances, such as stockholders owning, directly or
indirectly, five percent of more of either the total voting power of the total
value of Lightbridge stock following the Merger; stockholders who are dealers in
securities; stockholders who are subject to the alternative minimum tax
provisions of the Code; and stockholders who are foreign persons, who acquired
their shares in connection with stock option or stock purchase plans or in other
compensatory transactions, or who otherwise hold convertible securities,
warrants or options. In addition, the following discussion does not address the
tax consequences of transactions effectuated prior to or after the Merger
(whether or not such transactions are or were undertaken in connection with the
Merger), including transactions in which shares of Coral Capital Stock were or
are acquired or transactions in which shares of Lightbridge Common are disposed
of. Furthermore, no foreign, state or local tax considerations are addressed
herein.
CORAL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based on the Code, applicable United States
Treasury regulations, judicial authority, and administrative rulings and
practice, all as of the date hereof. The Internal Revenue Service (the "IRS")
is not precluded from adopting a contrary position. In addition, there can be
no assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger to
Lightbridge, Coral and their respective stockholders.
At the Closing, as a condition to the obligations of Coral and Lightbridge
to consummate the Merger, Coral stockholders and Lightbridge will receive
opinions from their respective legal counsel, Cooley Godward LLP and Foley, Hoag
& Eliot LLP, to the effect that, while the matter is not wholly free from doubt,
for federal income tax purposes, the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code. The opinions will be based on
certain assumptions and representations and will be subject to limitations and
qualifications as provided in the opinions. As a reorganization, the Merger will
generally result in the following consequences:
(a) No gain or loss will be recognized by holders of Coral Capital
Stock upon their receipt in the Merger of Lightbridge Common solely in
exchange for Coral Capital Stock.
(b) The aggregate tax basis of the Lightbridge Common received in the
Merger will be the same as the aggregate tax basis of Coral Capital Stock
surrendered in exchange therefor.
(c) The holding period of the Lightbridge Common received in the
Merger will include the period for which the Coral Capital Stock
surrendered in exchange therefor was held, provided that the Coral Capital
Stock is held as a capital asset at the time of the Merger.
(d) A Coral stockholder who exercises dissenters' rights with respect
to a share of Coral Capital Stock and receives payment for such share in
cash will generally recognize gain or loss for federal income tax purposes,
measured by the difference between the holder's basis in such share and the
amount of cash received, provided that the payment is neither essentially
equivalent to a dividend within the meaning of Section 302 of the Code nor
has the effect of a distribution of a dividend within the meaning of
Section 356(a)(2) of the Code (collectively, a "Dividend Equivalent
Transaction"). Such gain or loss generally will be capital gain or loss,
provided that the Coral Capital Stock is held as a capital asset at the
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time of the Merger. Specifically, it will be long-term capital gain or loss
if the Coral Capital Stock has been held for more than eighteen months at
the Effective Time and mid-term capital gain or loss if the Coral Capital
Stock has been held for more than twelve months but not more than eighteen
months at the Effective Time. A sale of Coral Capital Stock pursuant to an
exercise of dissenters' rights will generally not be a Dividend Equivalent
Transaction if, as a result of such exercise, the stockholder exercising
dissenters' rights owns no shares of Lightbridge Common (either actually or
constructively within the meaning of Section 318 of the Code). If, however,
a stockholder's sale for cash of Coral Capital Stock pursuant to an
exercise of dissenters' rights is a Dividend Equivalent Transaction, then
such stockholder may recognize dividend income for federal income tax
purposes in an amount up to the entire amount of cash so received.
(e) None of Lightbridge, Acquisition Corp. and Coral will recognize
material amounts of gain or loss solely as a result of the Merger.
The parties have not requested and will not request a ruling from the IRS
in connection with the Merger. The opinions of legal counsel referred to herein
neither bind the IRS nor preclude the IRS from adopting a contrary position. The
opinions are subject to certain assumptions and qualifications and the accuracy
of certain representations made by Lightbridge, Acquisition Corp., Coral and
stockholders of Coral, including representations in certificates to be delivered
to counsel by the respective managements of Lightbridge, Acquisition Corp.,
Coral and by stockholders of Coral. A successful IRS challenge to the
"reorganization" status of the Merger would result in each Coral stockholder
recognizing gain or loss, with respect to each share of Coral Capital Stock
surrendered, equal to the difference between the stockholder's basis in such
share and the fair market value, as of the Effective Time, of the Lightbridge
Common received in exchange therefor. Such gain or loss would be treated as
capital gain or loss for each such stockholder if the Coral Capital Stock was
held as a capital asset at the time of the Merger. In such event, a
stockholder's aggregate basis in the Lightbridge Common so received would equal
its fair market value as of the Effective Time and the stockholder's holding
period for such stock would begin the day after the Merger.
Even if the Merger qualifies as a "reorganization" within the meaning of
Section 368(a) of the Code, a recipient of shares of Lightbridge Common may
recognize income or gain to the extent that such shares were considered to be
received in exchange for services or property (other than solely Coral Capital
Stock). All or a portion of such income or gain may be taxable as ordinary
income. In addition, gain or loss would be recognized to the extent that a Coral
stockholder was treated as receiving (directly or indirectly) consideration
other than Lightbridge Common in exchange for the stockholder's Coral Capital
Stock.
In connection with the Merger, Lightbridge will deposit the escrowed shares
in an escrow account on behalf of the Coral stockholders. See "Other
Agreements--Escrow Agreement." Pursuant to the Reorganization Agreement,
escrowed shares will be held to satisfy claims arising out of any
misrepresentation or inaccuracy in, or breach of, any representation, covenant,
agreement, warranty, or obligation of Coral contained in the Reorganization
Agreement, claims for certain monetary payments required to be made by the
Surviving Corporation after the date of the Closing that arise out of certain
specified contracts and relate to events occurring or facts existing on or prior
to the date of the Closing, and claims arising out of certain intellectual
property matters.
Escrowed shares should be deemed to be owned by the former Coral
stockholders for federal income tax purposes. Accordingly, any distribution of
escrowed shares from the escrow to the former Coral stockholders should not be a
taxable event to such stockholders, but they will be taxed on dividends paid, if
any, in respect of the escrowed shares.
Assuming the Merger is respected as a reorganization, federal income tax
law is unclear as to the treatment of former Coral stockholders in the event
that any escrowed shares are used to satisfy any claims under the Reorganization
Agreement. It is possible that satisfaction of such claims with escrowed shares
will be treated for federal income tax purposes as an adjustment to the
consideration received by former Coral stockholders in
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the Merger, with the result that no gain or loss would be recognized by such
stockholders upon the return of such escrowed shares to Lightbridge.
There is a risk, however, that the former Coral stockholders will be deemed
to have disposed of such escrowed shares on a proportionate basis and will
recognize gain or loss on such deemed disposition. In that event, each such
stockholder would be deemed to have made a payment to Coral in the amount of the
value of such escrowed shares. Such deemed payment could be treated as a cost of
acquiring the shares of Lightbridge Common received in the Merger, which will
increase the tax basis of such shares.
Nevertheless, there are also arguments that each former Coral stockholder
should be allowed a capital loss in an amount equal to the value of the escrowed
shares allocable to such stockholder that are used to satisfy any such claim,
which loss would be allowable against gain realized on the deemed disposition of
such shares. Coral stockholders should consult their tax advisors on the
treatment of the use of escrowed shares to satisfy claims under the
Reorganization Agreement.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase for financial reporting purposes,
in accordance with generally accepted accounting principles.
FEDERAL SECURITIES LAW CONSEQUENCES
All of the Lightbridge Common issued or issuable in connection with the
Merger, when delivered to Coral stockholders in accordance with the
Reorganization Agreement and the Escrow Agreement, will be freely transferable,
except that any Lightbridge Common received by persons who are "affiliates" (as
such term is defined under the Securities Act) of Coral or Lightbridge prior to
the Merger may be sold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act with respect to affiliates of
Coral or Rule 144 under the Securities Act with respect to persons who are or
become affiliates of Lightbridge, or as otherwise permitted under the Securities
Act. Persons who may be deemed to be affiliates of Coral or Lightbridge
generally include individuals or entities that control, are controlled by, or
are under common control with, such corporation and may include certain officers
and directors of such corporation as well as principal stockholders of such
corporation.
Affiliates of Coral or Lightbridge may not sell their shares of Lightbridge
Common acquired in connection with the Merger, except pursuant to an effective
registration under the Securities Act covering such shares or in compliance with
Rule 145 (or Rule 144 under the Securities Act in the case of persons who are or
become affiliates of Lightbridge) or another applicable exemption from the
registration requirements of the Securities Act. In general, under Rule 145,
for one year following the Effective Time an affiliate (together with certain
related persons) would be entitled to sell shares of Lightbridge Common acquired
in connection with the Merger only through unsolicited "brokers' transactions"
or in transactions directly with a "market maker," as such terms are defined in
Rule 145. Additionally, the number of shares to be sold by an affiliate
(together with certain related persons and certain persons acting in concert)
within any three-month period for purposes of Rule 145 may not exceed the
greater of one percent of the outstanding shares of Lightbridge Common or the
average weekly trading volume of such stock during the four calendar weeks
preceding such sale. Rule 145 would only remain available, however, to
affiliates if Lightbridge remained current with its informational filings under
the Exchange Act. One year after the Effective Time, an affiliate would be able
to sell such Lightbridge Common without such manner of sale or volume
limitations, provided that Lightbridge was current with its Exchange Act
informational filings and such affiliate was not then an affiliate of
Lightbridge. Two years after the Effective Time, an affiliate would be able to
sell such shares of Lightbridge Common without any restrictions so long as such
affiliate had not been an affiliate of Lightbridge for at least three months
prior thereto.
Under the Reorganization Agreement, Lightbridge is obligated to file, on
the date of the Closing, a registration statement on Form S-8 with the
Commission covering the shares of Lightbridge Common issuable
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upon exercises of the Options and to use its commercially reasonable efforts to
maintain the effectiveness of such registration statement (or file and maintain
the effectiveness of a successor registration statement covering such shares)
for so long as any of the Options remain outstanding.
NASDAQ LISTING
After the Effective Time, Lightbridge will use all reasonable efforts to
cause the shares of the Lightbridge Common to be issued in the Merger, or
issuable upon the exercise of Options and Warrants, to be approved for quotation
on the Nasdaq National Market.
APPRAISAL RIGHTS
Any holder of Coral shares who objects to the adoption of the
Reorganization Agreement may elect to be paid the fair value of those shares as
determined by the Delaware Court of Chancery. The rights of dissenting holders
of Coral Stock are governed by Section 262 of the Delaware Law. The following
description summarizes the material applicable provisions of Section 262 of the
Delaware Law. The following description is not intended to be a complete
statement of such provisions and is qualified in its entirety by reference to
the full text of Section 262, which is set forth in ANNEX B to this Proxy
Statement/Prospectus.
If any holder of Coral shares wishes to elect to dissent from the Merger
and demand appraisal, such holder must satisfy each of the following conditions:
(i) Such holder must deliver a written demand for appraisal of his,
her or its shares to Coral, before the taking of the vote with respect to
the Merger Proposal. This written demand for appraisal must be in addition
to and separate from any proxy or vote against the Merger Proposal. Merely
voting against or not voting for the Merger Proposal will not constitute a
demand for appraisal within the meaning of Section 262.
(ii) Such holder must not vote in favor of the Merger Proposal. A
failure to vote will satisfy this requirement, but a vote in favor of the
Merger Proposal, by proxy or in person, will constitute a waiver of such
holder's right of appraisal and will nullify any previously filed written
demand for appraisal. If any holder of Coral shares fails to comply with
either of these conditions and the Merger becomes effective, such holder
will have no appraisal rights with respect to such stock.
All written demands for appraisal by holders of Coral shares should be
delivered to Coral before the taking of the vote on the Reorganization Agreement
at the Special Meeting, and should be executed by, or on behalf of, the holder
of record. Such demand must reasonably inform Coral of the identity of the
holder and of the intention of the holder to demand the appraisal of such
holder's shares.
Within ten days after the date of the Merger, the Surviving Corporation
must give written notice that the Merger has become effective to each
stockholder who has filed a written demand for appraisal and who did not vote in
favor of the Merger. Within 120 days after the date of the Merger, either the
Surviving Corporation or any stockholder entitled to appraisal rights under
Section 262 may file a petition in the Delaware Court of Chancery demanding a
determination of the value of the stock of all stockholders entitled to
appraisal. Coral does not presently intend to file such a petition. Inasmuch as
Coral has no obligation to file such a petition, unless at least one dissenting
holder of Coral shares files such a petition within the period specified, the
previous written demands for appraisal of all holders of Coral shares could be
nullified. In any event, at any time within sixty days after the date of the
Merger, any holder who has demanded appraisal of Coral Stock has the right to
withdraw such holder's demand for appraisal.
Within 120 days after the date of the Merger, any stockholder entitled to
appraisal rights under Section 262 shall be entitled, upon written request, to
receive from the Surviving Corporation a statement setting forth (a) the
aggregate number of shares not voted in favor of the Reorganization Agreement
and with respect to which
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demands for appraisal have been received and (b) the aggregate number of holders
of such shares. The Surviving Corporation is required to mail such written
statement to such stockholder within ten days after receipt of the written
request therefor.
If a petition for appraisal described above is duly filed by a holder of
Coral shares and a copy thereof is served upon the Surviving Corporation, the
Surviving Corporation then will be obligated within twenty days to provide the
Delaware Court of Chancery Register with a duly verified list containing the
names and addresses of all holders of dissenting shares with whom agreement as
to the value of their shares has not been reached. After notice to such
stockholders, the Court of Chancery is empowered to conduct a hearing upon the
petition in order to determine those stockholders who have complied with Section
262 and who have become entitled to appraisal rights thereunder. The Court may
require the stockholders who demanded payment for their shares to submit their
stock certificates to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings. If any stockholder fails to comply with
such direction, the Court may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to an appraisal, the Court
of Chancery shall appraise the shares, determining their fair value, exclusive
of any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining the fair value of the
shares, the Court is to take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest the Surviving Corporation would have to pay to
borrow money during the pendency of the proceedings. When the fair value is
determined, the Court will direct the payment by the Surviving Corporation of
such value, with interest thereon, if any, to the stockholders entitled to
receive the same, upon surrender to the Surviving Corporation by such
stockholders of the certificates representing such stock.
The costs of the appraisal proceedings may be charged to the parties
thereto (i.e., the Surviving Corporation and the stockholders participating in
the proceeding) by the Court as it deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including reasonable attorneys' fees and the fees and expenses for
experts, to be charged pro rata against the value of all shares entitled to
appraisal. From and after the Effective Time, no stockholder who has demanded
appraisal rights is entitled to vote his shares for any purpose or to receive
payment of dividends or other distributions on his shares (other than with
respect to payment as of a record date prior to the Effective Time), provided,
however, that if no petition for appraisal is filed within 120 days after the
date of the Merger, as provided above, or if such stockholder shall deliver a
written withdrawal of such demand for an appraisal and an acceptance of the
Merger, either within 60 days after the date of the Merger, as provided above,
or thereafter with the written approval of the Surviving Corporation, then the
right of such stockholder to appraisal shall cease.
EXPENSES
In the event the Merger is completed, (a) Lightbridge and Acquisition Corp.
will be and remain responsible for their costs and expenses and (b) the Coral
stockholders will be and remain responsible for their costs and expenses, as
well as the costs and expenses of Coral arising prior to the Closing in
connection with the Merger, except that Lightbridge will be responsible for (i)
a total of $500,000 of fees of Broadview incurred by Coral in connection with
the Merger and (ii) a total of $220,000 payable to five of Coral's key employees
under the Management Bonus Plan described in "The Merger Proposal--Interests of
Certain Persons in the Merger." Any obligations of the Coral stockholders
described in clause (b) above shall be part of the Adjustment Amount and shall
be deemed to be paid by a decrease in the Initial Share Number. See "--
Calculation of Merger Consideration." If the Merger is not consummated,
Lightbridge and Coral will be and remain responsible for their own costs and
expenses, including fees and disbursements of consultants, investment bankers
and other financial advisors, counsel and accountants, and the costs incurred in
seeking necessary consents, in connection with the proposed acquisition of Coral
by Lightbridge.
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THE REORGANIZATION AGREEMENT
The following description summarizes the material terms and provisions of
the Reorganization Agreement. The following description does not purport to be
complete and is qualified in its entirety by reference to the Reorganization
Agreement, which is attached as ANNEX A to this Proxy Statement/Prospectus and
is incorporated herein by reference. All Coral stockholders are urged to read
the Reorganization Agreement in its entirety.
TERMS OF THE MERGER
THE MERGER. The Reorganization Agreement provides that, at the Effective
Time and subject to and upon the terms and conditions of the Reorganization
Agreement and the applicable provisions of Delaware Law, Acquisition Corp. shall
be merged with and into Coral, the separate corporate existence of Acquisition
Corp. shall cease, and the Surviving Corporation shall continue as a wholly
owned subsidiary of Lightbridge.
EFFECTIVE TIME. Subject to the provisions of the Reorganization Agreement
and the Certificate of Merger, the Certificate of Merger, together with the
required related certificates, will be filed in accordance with the applicable
provisions of Delaware Law as soon as practicable on or after the Closing. The
Merger shall become effective as of the Effective Time.
CERTIFICATE OF INCORPORATION AND BY-LAWS. The Reorganization Agreement
provides that the certificate of incorporation and by-laws of Acquisition Corp.,
as in effect immediately prior to the Effective Time, will become the
certificate of incorporation and by-laws of the Surviving Corporation, except
that the name of the Surviving Corporation will be "Coral Systems, Inc."
DIRECTORS AND OFFICERS. The directors and officers of Acquisition Corp.
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the certificate of incorporation and by-laws of the Surviving Corporation.
CONVERSION OF CORAL SHARES. Each share of Coral Capital Stock (other than
any duly qualified dissenting share) issued and outstanding immediately prior to
the Effective time shall be converted into a fraction of a share of Lightbridge
Common. See "Terms of the Merger Proposal--Calculation of Merger Consideration"
for a discussion of the manner in which the conversion rate of each class of
Coral Capital Stock will be calculated.
CONVERSION OF CAPITAL STOCK OF ACQUISITION CORP. IN THE MERGER. Each share
of common stock, $.01 par value, of Acquisition Corp. issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of common stock, $.01
par value, of the Surviving Corporation.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains customary representations and
warranties made by Coral, in respect of itself, in favor of Lightbridge and
Acquisition Corp., relating to, among other things, the following matters: (i)
corporate organization, standing, qualification and similar matters; (ii) the
force and effect of the Coral Charter and the Coral Bylaws; (iii) the capital
structure of Coral; (iv) the authorization, execution, delivery and
enforceability of the Reorganization Agreement and certain related agreements;
(v) the absence of any conflict of the Reorganization Agreement with charter
documents, laws or other agreements; (vi) the absence of any direct or indirect
equity ownership, equity interest or equity investment of Coral in any other
individual, corporation or other entity; (vii) the fair presentation of
financial statements of Coral in accordance with generally accepted accounting
principles; (viii) the compliance by Coral with applicable laws; (ix) the
absence of any litigation involving Coral, except as described therein; (x) the
ownership, leasing rights to use and absence of violations or claims or
restrictions with respect to personal property; (xi) the provision of certain
contracts and the validity and enforceability thereof; (xii) the payment of
taxes and certain other tax matters; (xiii) employment benefit matters; (xiv)
the conduct of business in the ordinary course and the absence of certain
changes; (xv) wage and
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salary information for officers, directors and key employees; (xvi) the absence
of certain conflicts of interest; (xvii) the absence of brokerage or finder's
fees, agent's commission and financial advisory fees (other than fees and
expenses owed to Broadview); (xviii) bank accounts; (xix) environmental matters;
(xx) a list and the status of insurance policies; (xxi) the status of employee
relations; (xxii) the rights and obligations of Coral with respect to certain
proprietary rights; (xxiii) the absence of certain loans to affiliates of Coral;
(xxiv) significant customers supplies and sales agents of Coral; (xxv)
compliance with warranties and indemnities; and (xxvi) the existence of business
activity restrictions.
The Reorganization Agreement contains customary representations and
warranties made by Lightbridge and Acquisition Corp., in respect of Lightbridge
and its subsidiaries, in favor Coral, relating, among other things, to the
following matters: (i) corporate organization, standing, qualification and
similar matters; (ii) the capital structure of Lightbridge; (iii) the
authorization, execution, delivery and enforceability of the Reorganization
Agreement and certain related agreements; (iv) the absence of any conflict of
the Reorganization Agreement with charter documents, laws or other agreements;
(v) reports and other documents filed with the Commission and the fair
presentation of financial statements of Lightbridge in accordance with generally
accepted accounting principles; (vi) the absence of dividends or other
distributions since June 30, 1997; (vii) the absence of any litigation involving
Lightbridge with respect to the proposed Merger; (viii) the absence of brokerage
or finder's fees, agent's commission and financial advisory fees (other than
fees and expenses owed to Cowen & Company); and (ix) this Registration
Statement.
CONDUCT OF CORAL'S BUSINESS PENDING THE MERGER
The Reorganization Agreement provides that, prior to the Effective Time,
unless Lightbridge otherwise agrees in writing and except as otherwise
contemplated by the Reorganization Agreement or otherwise agreed upon, Coral
will carry on its business in the ordinary course consistent with its prior
practice, including the payment of all debts and taxes owed by Coral in
substantially the same manner as theretofore. Except as contemplated by the
Reorganization Agreement or as agreed to by Lightbridge, Coral has agreed that
until the Effective Time:
(1) Coral will not amend the Coral Charter or Coral Bylaws, except as
contemplated by the Charter Amendment;
(2) Coral will not (a) declare or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of Coral Capital Stock, (b) issue, deliver or sell, or
authorize the issuance, delivery or sale of, any shares of Coral
Capital Stock, any Voting Debt (as defined in the Reorganization
Agreement) or any options, warrants, calls, rights or agreements that
obligate Coral to issue, deliver or sell additional shares of Coral
Capital Stock or Voting Debt or to grant, extend or enter into any
such option, warrant, call, right or agreement, (c) split, combine or
reclassify any Coral Capital Stock, (d) purchase, redeem or otherwise
acquire, directly or indirectly, any securities of Coral or (e)
otherwise effect any reorganization, recapitalization or similar
change with respect to Coral Capital Stock, provided that Coral may
(i) repurchase shares pursuant to existing stock repurchase agreements
from persons leaving the employment of Coral, (ii) cancel, with the
consent of the holder without payment of any consideration, any Option
held by a person who is a non-employee director of Coral, to the
extent that such Option will terminate as of the Effective Time
without having vested and (iii) cancel, with the consent of the
holder, any Option initially issued at an exercise price of $6.00 or
more, in exchange for a new Option having an exercise price of $1.50
per share and being exercisable for a number of shares calculated to
cause the replacement Option to have the same value as the canceled
Option;
(3) Coral will duly comply in all material respects with all applicable
laws, ordinances and regulations and all applicable orders, judgments,
injunctions, awards and decrees of governmental entities;
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(4) Coral will not (a) acquire any equity interest or investment exceeding
five percent of the equity capital of any entity, (b) acquire by
merging or consolidating with, by purchasing a substantial portion of
the assets of, or by any other manner, any entity, (c) otherwise
acquire or license any assets that are material to Coral except in the
ordinary course of business consistent with prior practice or (d)
enter into any partnership, joint venture, voluntary association,
cooperative or business trust agreement or arrangement, other than in
the ordinary course of business consistent with prior practice;
(5) Coral will not, and will not propose to, incur any indebtedness for
borrowed money, incur any other indebtedness except in the ordinary
course of business, or guarantee any indebtedness of others. Coral
will not pay, discharge or satisfy, in an amount in excess of $10,000
(in the aggregate), any claims, liabilities or obligations reflected
or reserved against in its balance sheet as of June 30, 1997, except
in the ordinary course of business consistent with past practice;
(6) Coral will not commence any litigation, will cooperate and consult
with Lightbridge with respect to any matters regarding any proceeding
disclosed in the Reorganization Agreement, and will not take any
significant actions with respect to such proceedings without the prior
approval of Lightbridge, which approval shall not be unreasonably
withheld;
(7) Coral will not lease or otherwise dispose of any of its property,
except in the ordinary course of business consistent with prior
practice;
(8) Coral will not enter into or amend certain contracts except in the
ordinary course of business consistent with past practice, and will
cooperate and consult with Lightbridge with respect to actions with
respect to Cincinnati Bell Information Systems Inc. and AirTouch
Communications;
(9) Coral will not make or change any material election in respect of
taxes, adopt or change any accounting method in respect of taxes,
enter into any closing agreement, settle any claim or assessment in
respect of taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of
taxes;
(10) Coral will not adopt any benefit plan or amend any benefit plan in any
material respect;
(11) Coral will maintain insurance consistent with past business practice;
(12) Coral will not (a) adopt any collective bargaining agreement, (b)
grant any severance or termination pay to any director, officer or
other employee of Coral, (c) grant any general or uniform increase in
the rates of pay of employees of Coral, (d) increase the compensation
payable or to become payable to any officer or key salaried employee
or (e) grant any increase in the benefits under any bonus plan or
similar compensation arrangements, and will use all reasonable efforts
to notify Lightbridge in the event Coral learns that an officer or
other employee of Coral proposes to terminate his or her employment
with Coral;
(13) Coral will not transfer to any person any rights to Coral's material
proprietary rights, except in the ordinary course of business
consistent with past practice; and
(14) Coral will not take, propose to take, or agree in writing or otherwise
to take any of the actions described in paragraphs (1) through (13)
above or any other action that would prevent Coral from performing, or
cause Coral not to perform, its covenants and other obligations
hereunder.
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ADDITIONAL COVENANTS
NO SOLICITATION. Coral has agreed that it will not, nor will it permit any
of its representatives to, directly or indirectly, (a) solicit, initiate or
participate in discussions or negotiations or otherwise cooperate in any way
with, or provide any information to, any person (other than Lightbridge) or
group of persons concerning any tender offer, exchange offer, merger, business
combination, sale of substantial assets, sale of shares of capital stock or
similar transaction involving such party or (b) enter into any agreement to
effect, or effect, any such transaction (other than the transactions
contemplated hereby). In addition, Coral immediately will notify Lightbridge in
writing of any such proposed transaction.
ACCESS TO INFORMATION; CONFIDENTIALITY. Prior to the Effective Time, Coral
will afford to Lightbridge, and will cause its independent accountants to afford
to Lightbridge and Lightbridge's accountants, counsel and other representatives,
reasonable access during normal business hours to all of Coral's properties,
books, contracts, commitments and records, as well as all other information
concerning the business, properties and personnel of Coral as Lightbridge may
reasonably request. Lightbridge, Coral and Acquisition Corp. shall treat as
confidential, and shall cause its accountants, counsel and other representatives
to treat as confidential, all documents and information concerning the other
party furnished by the other party to such party (including documents and
information furnished prior to the date hereof) in connection with the
transactions contemplated by the Reorganization Agreement.
PUBLIC ANNOUNCEMENTS. Lightbridge and Coral have agreed that any press
release or other public disclosure of information regarding the transactions
contemplated by the Reorganization Agreement (including the existence and terms
of the Reorganization Agreement) shall be developed by Lightbridge, subject to
the approval of Coral, which approval shall not be unreasonably withheld, and
subject to the obligations of the parties to comply with applicable law.
OPTIONS AND WARRANTS. On the date of the Closing, Lightbridge shall file a
registration statement on Form S-8 with the Commission covering the shares of
Lightbridge Common issuable upon exercises of the Options and shall use
commercially reasonable efforts to maintain the effectiveness of such
registration statement (or file and maintain the effectiveness of a successor
registration statement covering such shares) for so long as any of such Options
remain outstanding. Within fifteen days after the date of the Closing,
Lightbridge will send to each record holder of a Warrant (a) a notice stating
that Lightbridge has assumed the obligations of Coral under such Warrant and
that, as of the Effective Time, such Warrant is exercisable to purchase
Lightbridge Common and (b) an agreement providing that, to the extent not
already contemplated by the terms of such Warrant, as of the Effective Time the
purchase price payable upon any exercise of such Warrant may, at the election of
the record holder of such Warrant, be paid pursuant to a "cashless" exercise, on
the terms set forth in such agreement.
AGREEMENTS WITH RESPECT TO AFFILIATES. Coral will identify all persons who,
in Coral's reasonable judgment are "affiliates" of Coral within the meaning of
Rule 145 under the Securities Act. Coral shall use all reasonable efforts to
cause each person identified as an "affiliate" to enter into written Affiliate's
Agreements (as defined in the Reorganization Agreement) on or before the
Closing.
NASDAQ LISTING. Lightbridge will use its reasonable efforts to cause all of
the shares of Lightbridge Common issuable in the Merger or upon exercise of the
Options and the Warrants after the Effective Time to be approved for quotation
on the Nasdaq National Market.
INDEMNIFICATION OF CORAL'S OFFICERS AND DIRECTORS. After the Effective
Time, Lightbridge will take no action that would impair any rights to
indemnification that Coral's officers and directors may have under the Coral
Charter or the Coral Bylaws with respect to stockholder claims arising out of
events prior to the Effective Time.
PATENT INTERFERENCE PROCEEDING. Coral expects to proceed to pursue its
rights in the Interference (as defined below). Lightbridge will have the right
to identify the counsel responsible for prosecuting the
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Interference on behalf of Coral, subject to the approval of Coral, which
approval shall not be unreasonably withheld. Lightbridge and such counsel will
be responsible for determining the manner in which to proceed in the
Interference, provided, however, that (a) Lightbridge and such counsel will
consult with Coral from time to time and as reasonably requested by Coral and
shall advise Coral of the progress of the Interference and (b) the final form of
the filing with respect to the Interference shall be subject to the approval of
Coral, which consent shall not be unreasonably withheld or delayed. In
connection with the Interference, Coral will (i) render to the Interference
counsel such assistance as such counsel may reasonably request, (ii) make
Coral's attorneys and other representatives available to the Interference
Counsel and (iii) provide the Interference Counsel with copies of all books,
records and other information relating to the patents that are the subject of
the Interference.
CONSENTS; APPROVALS. Lightbridge and Coral each will use all commercially
reasonable efforts to obtain any consent, authorization, order or approval of,
or any exemption by, any governmental entity, or other third party, required to
be obtained or made by such party in connection with the taking of any action
contemplated by the Reorganization Agreement. Neither Lightbridge nor Coral
will take any action that would, or is reasonably likely to, result in any of
its representations and warranties set forth in the Reorganization Agreement
being untrue or in any of the conditions precedent set forth in the
Reorganization Agreement not being satisfied. At any time and from time to time
after the closing, Lightbridge and Coral agree to cooperate with each other to
execute and deliver such other documents, instruments or transfer or
assignment, files, books and records, and to do all such further acts and
things, as may be reasonably required to carry out the transactions
contemplated by the Reorganization Agreement.
CONDITIONS TO THE MERGER
The obligations of Coral, Lightbridge and Acquisition Corp. to consummate
the Merger and the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction of certain conditions at or prior to the closing,
including the conditions that:
(1) the Merger Proposal shall have been approved by the requisite vote of
the Coral stockholders under Delaware Law;
(2) the Commission shall have declared the Registration Statement
effective; and no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened
in writing by the Commission;
(3) all authorizations, consents, orders or approvals of, or declarations
or filings with, or expiration of waiting periods imposed by, any
governmental entity necessary for the consummation of the transactions
contemplated by the Reorganization Agreement shall have been filed,
occurred or been obtained;
(4) this Proxy Statement/Prospectus shall not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, as of the date of the Closing;
(5) no temporary restraining order, preliminary injunction or permanent
injunction or other order preventing the consummation of the
transactions contemplated by the Reorganization Agreement shall have
been issued by any federal or state court and remain in effect, and no
litigation seeking the issuance of such an order or injunction, shall
be pending which, in the good faith judgment of Coral's or
Lightbridge's board of directors, has a reasonable probability of
resulting in such order, injunction or damages;
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(6) no statute, rule or regulation shall have been enacted by any
governmental entity that (a) makes the consummation of the
transactions contemplated by the Reorganization Agreement illegal, (b)
prohibits Lightbridge's ownership or operation of all or a material
portion of the business or assets of Coral, or compels Lightbridge to
dispose of or hold separate all or a material portion of the business
or assets of Coral, as a result of the transactions contemplated by
the Reorganization Agreement, or (c) renders Lightbridge or Coral
unable to consummate the transactions contemplated by the
Reorganization Agreement; and
(7) there shall have been obtained consents or approvals required from
third parties relating to material contracts, agreements, licenses,
leases and other instruments to which Coral or Lightbridge is a party
or by which it is bound.
The obligations of Lightbridge and Acquisition Corp. to consummate the
Merger and the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction of the following additional conditions, at or prior
to the closing:
(1) the representations and warranties of Coral contained in the
Reorganization Agreement shall have been true and correct in all
material respects as of the date of the Closing; in addition, Coral
shall have performed in all material respects all obligations required
to be performed by it under the Reorganization Agreement prior to the
date of the Closing; and since June 30, 1997, there shall have been no
changes that, in the aggregate, have had or could reasonably be
expected to have a materially adverse effect to Coral's business,
results of operations, properties, assets, liabilities, prospects or
condition (financial or otherwise); and the closing, itself, will not
cause any default under any material contract to which Coral is a
party or otherwise have such a materially adverse effect;
(2) each of the parties thereto, other than Lightbridge and Acquisition
Corp., shall have entered into the Certificate of Merger, the several
Affiliate's Agreements, employment agreements with John Fraser and
Timothy Hayes, a non-competition agreement with Eric A. Johnson, and
the Escrow Agreement;
(3) there shall have been obtained all consents or agreements necessary to
terminate, effective no later than the date of the Closing, each of
the existing Coral stockholder agreements;
(4) Lightbridge shall have received opinions dated as of the date of the
Closing of Howard Kaushansky, the General Counsel of Coral; Cooley
Godward LLP, special counsel for Coral; and Foley, Hoag & Eliot LLP,
counsel for Lightbridge and Acquisition Corp.;
(5) holders of no more than five percent of the outstanding shares of
Coral Capital Stock, computed on an as-converted basis, shall have
exercised, nor shall they have any continued right to exercise,
appraisal or similar rights under Delaware Law with respect to their
shares by virtue of the Merger;
(6) all loans payable to Coral from any of its officers, directors or
employees shall have been repaid in full; and
(7) Coral and Cincinnati Bell Information Systems Inc. shall have amended
their existing agreements in a manner reasonably satisfactory to
Lightbridge.
The obligations of Coral to consummate the Merger and the transactions
contemplated by the Reorganization Agreement are subject to the satisfaction of
the following additional conditions, at or prior to the closing:
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(1) the representations and warranties of Lightbridge contained in the
Reorganization Agreement shall have been true and correct in all
material respects as of the date of the Closing; in addition,
Lightbridge shall have performed in all material respects all
obligations required to be performed by it under the Reorganization
Agreement prior to the date of the Closing; and since June 30, 1997,
there shall have been no changes that, in the aggregate, have had or
could reasonably be expected to have a materially adverse effect to
Lightbridge's business, results of operations, properties, assets,
liabilities, prospects or condition (financial or otherwise); and the
closing, itself, will not cause any default under any material
contract to which Lightbridge is a party or otherwise have such a
materially adverse effect;
(2) Lightbridge shall have entered into the Escrow Agreement; and
(3) Coral shall have received opinions dated as of the date of the Closing
of Foley, Hoag & Eliot LLP, counsel for Lightbridge and Acquisition
Corp.; Cooley Godward LLP, special counsel for Coral; and Holme
Roberts & Owen LLP, patent counsel for Coral, which patent opinion
shall be in a form satisfactory to Lightbridge.
TERMINATION
The Reorganization Agreement may be terminated at any time prior to the
Closing:
(1) by mutual written consent of Coral and Lightbridge;
(2) by Coral or Lightbridge if the stockholders of Coral vote not to
approve the Merger Proposal;
(3) by Coral or Lightbridge if such closing shall not have been occurred
on or before December 31, 1997;
(4) by Coral or Lightbridge if (i) there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of
the transactions contemplated by the Reorganization Agreement or (ii)
there shall be any action taken, or any statute, rule, regulation or
order erected, promulgated or issued or deemed applicable to the
transactions contemplated by the Reorganization Agreement by any
governmental entity that would make consummation of the transactions
contemplated by the Reorganization Agreement illegal;
(5) by Coral if there has been a material breach of any representation,
warranty, covenant or agreement contained in the Reorganization
Agreement on the part of or Acquisition Corp. and, if such breach is
curable, such breach has not been promptly cured after written notice
of such breach;
(6) by Lightbridge if there has been a material breach of any
representation, warranty, covenant or agreement contained in the
Reorganization Agreement on the part of Coral and, if such breach is
curable, such breach has not been promptly cured after written notice
of such breach;
(7) by Lightbridge if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed
applicable to the transactions contemplated by the Reorganization
Agreement by any governmental entity that would (i) prohibit
Lightbridge's or Coral's ownership or operation of all or a material
portion of the business or assets of Coral or Lightbridge and its
subsidiaries taken as a whole, or compel Lightbridge or Coral to
dispose of or hold separate all or a material portion of the business
or assets of Coral or Lightbridge, as a result of the transactions
contemplated by the Reorganization Agreement or (ii) render
Lightbridge or Coral unable to consummate the transactions
contemplated by the Reorganization Agreement;
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(8) by Lightbridge if any condition to the obligation of Lightbridge and
Acquisition Corp. to complete the transactions contemplated by the
Reorganization Agreement has not been satisfied by Coral or waived by
Lightbridge;
(9) by Coral if any condition to the obligation of Coral to complete the
transactions contemplated by the Reorganization Agreement has not been
satisfied by Lightbridge or Acquisition Corp. or waived by Coral;
(10) by Lightbridge if the Calculation Price is less than $9.5625; or
(11) by Coral if (a) the Calculation Price is less than $9.5625 and,
following the date of the Reorganization Agreement, an event has
occurred that has had a material adverse effect on the business,
financial condition or results of operations of Lightbridge or (b) the
Calculation Price is more than $15.9375.
CORAL STOCKHOLDER APPROVAL OF THE REORGANIZATION AGREEMENT AT THE SPECIAL
MEETING WILL CONFER UPON THE BOARD OF DIRECTORS OF CORAL THE POWER, CONSISTENT
WITH ITS FIDUCIARY DUTIES, TO CONSUMMATE THE MERGER
IN THE EVENT THAT THE CALCULATION PRICE OF THE LIGHTBRIDGE COMMON IS LESS THAN
$9.5625 OR MORE THAN $15.9375.
INDEMNIFICATION
Under the Reorganization Agreement, subject to the limitations described
below, the Coral stockholders jointly and severally indemnify and agree to
defend and hold harmless Lightbridge and the Surviving Corporation (and their
respective affiliates, officers, directors, employees, representatives and
agents) against and in respect of any and all Damages (as defined in the
Reorganization Agreement) that Lightbridge or the Surviving Corporation (or such
affiliates, officers, directors, employees, representatives and agents) shall
suffer or incur, whether liquidated or unliquidated, accrued or contingent, by
reason of or otherwise arising out of:
(a) any misrepresentation or inaccuracy in, or breach of, any
representation or warranty contained in the Reorganization Agreement,
in each case as each such representation or warranty would read if all
qualifications as to materiality were deleted therefrom;
(b) any breach of any covenant, agreement or obligation of Coral contained
in the Reorganization Agreement;
(c) certain monetary payments required to be made by the Surviving
Corporation after the date of the Closing that arise out of certain
specified contracts and relate to events occurring or facts in
existence on or prior to the date of the Closing; or
(d) certain intellectual property matters.
The indemnification obligations of the Coral stockholders described in
clauses (a), (b) and (c) above shall survive the Closing and continue for all
Damages as to which Lightbridge has given written notice thereof to the Holder's
Agent, on or prior to the date one year from the date of the Closing; provided,
however, that indemnification obligations of the Coral stockholders for breach
of tax and environmental representations and warranties shall continue until the
expiration of the applicable statutes of limitation and the confidentiality
covenants shall continue until September 9, 2002. The indemnification
obligations of the Coral stockholders described in clause (d) above shall
survive the Closing and continue for all Damages as to which Lightbridge has
given written notice thereof to the Holders' Agent, on or prior to the date
eighteen month from the date of the Closing.
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At the Closing, Lightbridge, Coral, R.D. "Pete" Bloomer, a stockholder and
former director of Coral, as agent for the Coral stockholders (the "'Holders'
Agent"), and the Escrow Agent shall enter into the Escrow Agreement pursuant to
which Lightbridge shall issue to the Escrow Agent the shares of Lightbridge
Common subject to escrow. To the extent any of the indemnified parties may be
entitled to indemnification under the Reorganization Agreement as a result of
any Damages, Lightbridge shall be entitled to set off and apply against such
Damages such escrowed shares in accordance with the terms of the Reorganization
Agreement and the Escrow Agreement. Pursuant to the terms of the Escrow
Agreement, the escrowed shares shall be valued at any time, for purposes of set
off against any Damages, at the Calculation Price. See "Other Agreements--Escrow
Agreement."
BY APPROVING THE REORGANIZATION AGREEMENT, CORAL STOCKHOLDERS WILL BE
DEEMED TO HAVE CONSENTED TO THE APPOINTMENT OF R.D. "PETE" BLOOMER TO ACT AS THE
"HOLDER'S AGENT" ON BEHALF OF CORAL STOCKHOLDERS IN CONNECTION WITH THE
DETERMINATION OF THE ADJUSTMENT AMOUNT, THE INDEMNIFICATION OBLIGATIONS OF THE
CORAL STOCKHOLDERS UNDER THE REORGANIZATION AGREEMENT, AND THE DEPOSIT AND
RELEASE OF SHARES PURSUANT TO THE REORGANIZATION AGREEMENT AND THE ESCROW
AGREEMENT.
Notwithstanding the foregoing, the Coral stockholders shall have no
obligation to indemnify Lightbridge or the Surviving Corporation with respect to
the matters described in clauses (a), (b) and (c) above except to the extent
that the aggregate cumulative amount of any Damages with respect to those
matters exceeds $150,000. The Coral stockholders' liability for indemnification
under the Reorganization Agreement or otherwise by reason of or arising out of
any breach by Coral of any covenant that does not survive the Closing or of any
representation or warranty shall be limited as follows: (i) recovery under the
Escrow Agreement with respect to matters described in clauses (a), (b) and (c)
above shall be limited to an aggregate dollar amount equal to ten percent of the
number of escrowed shares, multiplied by the Calculation Price, (ii) recovery
under the Escrow Agreement with respect to matters described in clause (d) above
shall be limited to an aggregate dollar amount equal to the number of escrowed
shares multiplied by the Calculation Price, less the aggregate dollar amount of
any recoveries under the Escrow Agreement with respect to matters described in
clauses (a), (b) and (c) above, and (iii) recovery with respect to any Coral
stockholder shall be limited to an aggregate of the product of the Calculation
Price multiplied by the aggregate number of shares of Lightbridge Common which
such Coral stockholder receives in connection with the Merger.
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OTHER AGREEMENTS
Each of the descriptions of the agreements set forth below does not purport
to be complete and is qualified in its entirety by reference to such agreements,
forms of which are filed as exhibits to the Registration Statement and are
incorporated herein by reference.
AFFILIATE AGREEMENTS
Rule 145 under the Securities Act imposes additional restrictions on the
manner in which persons who are "affiliates" of Lightbridge or Coral within the
meaning of Rules 144 and 145 under the Securities Act may resell securities and
also on the quantity of securities that such affiliates and others with whom
they might act in concert may resell within any three-month period.
As a condition to the Merger, prior to the Effective Time, each person who
has been identified by Coral as an affiliate of Coral is required to have
entered into an agreement with Lightbridge providing that such person will not
offer to sell or otherwise dispose of any Lightbridge Common obtained as a
result of the Merger except in compliance with the Securities Act and the rules
and regulations thereunder. Generally, this will require that such sales be
made in accordance with Rule 145(d) under the Securities Act, which in turn
requires that, for specified periods, such sales be made in compliance with the
volume limitations, manner of sale provisions and current information
requirements of Rule 144 under the Securities Act. The volume limitations
should not pose any material limitations on any Lightbridge stockholder who owns
less than one percent of the outstanding shares of Lightbridge Common after the
Merger unless, pursuant to Rule 144, such stockholder's shares are required to
be aggregated with those of another stockholder.
VOTING AGREEMENTS
Certain stockholders of Coral (each, an "Approving Holder"), have entered
into voting agreements (each, a "Voting Agreement") with Lightbridge pursuant to
which they have agreed to vote in favor of the Merger Proposal and have
delivered to Lightbridge irrevocable limited proxies with respect to the Merger
Proposal (each, a "Proxy"). Each Proxy provides for the appointment of
representatives of Lightbridge as attorneys and proxy holders of the Approving
Holder with respect to all shares of Coral stock held of record or beneficially
by the Approving Holder. Each of the proxy holders is empowered at any time
prior to the termination of the Reorganization Agreement to exercise all voting
rights of the Approving Holder in favor of approval of the Reorganization
Agreement and the Merger Proposal at every meeting of Coral stockholders. Each
of the proxy holders is empowered only to exercise the Proxy to vote the shares
subject thereto in favor of the Reorganization Agreement and the Merger
Proposal. The Approving Holder is entitled to vote the shares subject thereto on
all other matters. Voting Agreements and Proxies have been delivered by each of
the following persons: (i) Bessemer Venture Partners III, L.P., a principal
stockholder of Coral having a representative, David Cowan, on Coral's Board of
Directors; (ii) Cincinnati Bell Information Systems, Inc., a principal
stockholder of Coral having a representative, Robert Marino, on Coral's Board of
Directors; (iii) CVM Equity Fund III, Ltd.,the holder of 34% of the outstanding
shares of Coral Common; (iv) Eric A. Johnson, the former Chairman of the Board
of Directors and Chief Executive Officer of Coral, who delivered his Voting
Agreement and Proxy prior to his resignation from those positions on September
10, 1997; and (v) Vertex Investment (II), Ltd., a principal stockholder of Coral
having a representative, Bruce Graham, on Coral's Board of Directors. See
"Principal Stockholders of Coral."
The Approving Holders hold, in the aggregate, a majority of the outstanding
Coral Common and a majority of the outstanding Coral Series A, Coral Series B
and Coral Series C (on an as-converted basis). Accordingly, the Voting
Agreements and Proxies are sufficient to effect the approval of the Merger
Proposal. See "Other Agreements--Voting Agreements."
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ESCROW AGREEMENT
Under the Reorganization Agreement, subject to the limitations described
below, the Coral stockholders jointly and severally indemnify and agree to
defend and hold harmless Lightbridge and the Surviving Corporation (and their
respective affiliates, officers, directors, employees, representatives and
agents) against and in respect of any and all Damages that Lightbridge or the
Surviving Corporation (or such affiliates, officers, directors, employees,
representatives and agents) shall suffer or incur, whether liquidated or
unliquidated, accrued or contingent, by reason of or otherwise arising out of:
(a) any misrepresentation or inaccuracy in, or breach of, any
representation or warranty contained in the Reorganization Agreement,
in each case as each such representation or warranty would read if all
qualifications as to materiality were deleted therefrom;
(b) any breach of any covenant, agreement or obligation of Coral contained
in the Reorganization Agreement;
(c) certain monetary payments required to be made by the Surviving
Corporation after the date of the Closing that arise out of certain
specified contracts and relate to events occurring or facts in
existence on or prior to the date of the Closing; or
(d) certain intellectual property matters.
At the Closing, Lightbridge, Coral, the Holders' Agent and the Escrow Agent
shall enter into the Escrow Agreement pursuant to which Lightbridge shall issue
to the Escrow Agent the shares of Lightbridge Common subject to escrow. The
number of escrowed shares shall equal approximately two-thirds of the Initial
Share Number. To the extent any of the indemnified parties may be entitled to
indemnification under the Reorganization Agreement as a result of any Damages,
Lightbridge shall be entitled to set off and apply against such Damages such
escrowed shares in accordance with the terms of the Reorganization Agreement and
the Escrow Agreement. Pursuant to the terms of the Escrow Agreement, the
escrowed shares shall be valued at any time, for purposes of set off against any
Damages, at the Calculation Price.
The indemnification obligations of the Coral stockholders described in
clauses (a), (b) and (c) above shall survive the Closing and continue for all
Damages as to which Lightbridge has given written notice thereof to the Holders'
Agent on or prior to the date one year from the date of the Closing; provided,
however, that indemnification obligations of the Coral stockholders for breach
of tax and environmental representations and warranties shall continue until the
expiration of the applicable statutes of limitation and the confidentiality
covenants shall continue until September 9, 2002. The right of indemnified
parties to receive payments under the Escrow Agreement to set off and apply
against any Damages with respect to the matters described in clauses (a), (b) or
(c) above shall be limited to an aggregate dollar amount equal to ten percent of
the Initial Share Number, less the number of shares equal to the Adjustment
Amount divided by the Calculation Price, multiplied by the Calculation Price.
The Coral stockholders shall have no obligation to indemnify Lightbridge or the
Surviving Corporation with respect to the matters described in clauses (a), (b)
or (c) above except to the extent that the aggregate cumulative amount of any
Damages with respect to those matters exceeds $150,000.
The indemnification obligations of the Coral stockholders described in
clause (d) above shall survive the Closing and continue for all Damages as to
which Lightbridge has given written notice thereof to the Holders' Agent on or
prior to the date eighteen month from the date of the Closing. The right of
indemnified parties to receive payments under the Escrow Agreement to set off
and apply against any Damages with respect to the matters described in clause
(d) above shall be limited to an aggregate dollar amount equal to the number of
escrowed shares multiplied by the Calculation Price.
Lightbridge will have the right to control the defense or settlement of
claims for indemnification arising in connection with the matters described in
clause (d) above. The Holders' Agent will be entitled to participate in
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the defense of those claims, and his consent (which may not be unreasonably
withheld) would be required for any proposed settlement in an amount exceeding
(i) 7.5% of the number of shares of Lightbridge Common issuable in respect of
the outstanding shares of Coral Capital Stock multiplied by (ii) the Calculation
Price.
Within fifteen days after the first anniversary of the Closing Date, the
Escrow Agent shall distribute to the Coral stockholders a number of shares of
Lightbridge Common equal to (i) fifty percent of the number of escrowed shares
multiplied by the Calculation Price, less an amount equal to the dollar amount
of all claims as to which a distribution has occurred under the Escrow Agreement
and all pending claims as to which the Holders' Agent has received notice,
divided by the Calculation Price (as adjusted to reflect any reclassification,
recapitalization, split up, combination, exchange of shares, readjustment or
similar action with respect to Lightbridge Common occurring after the Closing
Date). Within fifteen days after the eighteen-month anniversary of the Closing
Date, the Escrow Agent shall distribute the remaining escrowed shares to the
Coral stockholders, less an amount equal to the dollar amount of all pending
claims as to which the Holders' Agent has received notice. After such date, any
retained escrowed shares remaining after all pending claims have been resolved
shall be distributed to the Coral stockholders.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the management of Coral
does not know of any matters to be presented for consideration at the Special
Meeting, other than the Merger Proposal. If any other matters properly come
before the Special Meeting, the persons named in the accompanying proxy intend
to vote their proxies to the extent entitled in accordance with their best
judgment.
PRICE RANGE OF LIGHTBRIDGE COMMON
Since September 27, 1996, Lightbridge Common has traded on the Nasdaq
National Market under the symbol "LTBG." The following table sets forth, for the
periods indicated, the high and low sale prices per share of Lightbridge Common
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- --------
<S> <C> <C>
1996
----
Third Quarter (commencing September 27, 1996)................... $ 12.00 $ 11.25
Fourth Quarter.................................................. 13.00 7.25
1997
----
First Quarter................................................... 12.125 6.125
Second Quarter.................................................. 9.25 6.75
Third Quarter................................................... 18.50 7.625
Fourth Quarter (through October 6, 1997)........................ 18.50 15.375
</TABLE>
The last sale price per share of Lightbridge Common, as reported by the Nasdaq
National Market, was $14.75 on September 9, 1997, the day that the
Reorganization Agreement was signed and the last trading day preceding the
public announcement of the proposed Merger. On September 1, 1997, there were
15,541,251 shares of Lightbridge Common issued and outstanding, held of record
by 183 stockholders. On October 6, 1997, the last reported sale price per
share of Lightbridge Common on the Nasdaq National Market was $15.875.
51
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF LIGHTBRIDGE
The following selected consolidated financial data of Lightbridge for the
four years ended September 30, 1995, the three months ended December 31, 1995
and the year ended December 31, 1996 have been derived from Lightbridge's
audited Consolidated Financial Statements, certain of which are included
elsewhere in this Proxy Statement/Prospectus. Selected consolidated financial
data for the twelve months ended December 31, 1995 and the six months ended June
30, 1996 and 1997 have been derived from Lightbridge's unaudited Consolidated
Condensed Financial Statements, certain of which are included elsewhere in this
Proxy Statement/Prospectus. In the opinion of Lightbridge's management, the
unaudited financial information presented reflects all adjustments, consisting
only of normal, recurring adjustments, necessary for a fair presentation of the
consolidated financial information for each such period. Operating results for
the six months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for any other interim period or for the year ending
December 31, 1997. This data should be read in conjunction with the Consolidated
Financial Statements of Lightbridge and Notes thereto and the other financial
information of Lightbridge included elsewhere in this Proxy
Statement/Prospectus. See "Lightbridge Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE TWELVE
MONTHS MONTHS YEAR
ENDED ENDED ENDED
YEAR ENDED SEPTEMBER 30, DEC. 31, DEC. 31, DEC. 31,
----------------------------------- ----------------
1992 1993 1994 1995 1994 1995 1995(1) 1996
------ ------ ------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA
Revenues.................................. $2,988 $6,986 $13,398 $19,350 $5,515 $ 6,512 $20,347 $29,545
Cost of revenues.......................... 1,703 3,554 7,415 12,607 3,016 3,484 13,075 15,434
------ ------ ------- ------- ------ ------- ------- -------
Gross profit.............................. 1,285 3,432 5,983 6,743 $2,499 3,028 7,272 14,111
------ ------ ------- ------- ------ ------- ------- -------
Operating expenses:
Development.......................... 790 1,164 2,317 3,864 850 1,145 4,159 4,380
Sales and marketing.................. 241 829 815 1,902 433 795 2,264 4,225
General and administrative.......... 877 1,309 1,644 2,584 630 701 2,655 2,769
------ ------ ------- ------- ------ ------- ------- -------
Total operating expenses.................. 1,908 3,302 4,776 8,350 1,913 2,641 9,078 11,374
------ ------ ------- ------- ------ ------- ------- -------
Income (loss) from operations............. (623) 130 1,207 (1,607) 586 387 (1,806) 2,737
Other income (expense)(2)................. (130) (255) (234) (826) (174) (313) (965) (305)
------ ------ ------- ------- ------ ------- ------- -------
Income (loss) before income taxes......... (753) (125) 973 (2,433) 412 74 (2,771) 2,432
Provision for (benefit from) income taxes. -- -- 23 -- -- 2 2 160
------ ------ ------- ------- ------ ------- ------- -------
Net income (loss)......................... $ (753) $ (125) $ 950 $(2,433) $ 412 $ 72 $(2,773) $ 2,272
====== ====== ======= ======= ====== ======= ======= =======
Net income (loss) per common share........ $ 0.16
=======
Weighted average number of common and
common equivalent shares outstanding.... 14,434
=======
Pro forma net income (loss) per
common share(3)....................... $(0.19) $ 0.01
======= =======
Pro forma weighted average number of
common and common equivalent
shares outstanding(3)................. 12,662 13,162
======= =======
<CAPTION>
SIX MONTHS
ENDED
ENDED JUNE 30,
------------------
1996 1997
------- -------
<C> <C>
(IN THOUSAND, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA
Revenues.................................. $13,263 $17,831
Cost of revenues.......................... 7,762 8,320
------- -------
Gross profit.............................. 5,501 9,511
------- -------
Operating expenses:
Development.......................... 1,971 2,682
Sales and marketing.................. 1,666 2,605
General and administrative.......... 1,172 2,123
------- -------
Total operating expenses.................. 4,809 7,410
------- -------
Income (loss) from operations............. 692 2,101
Other income (expense)(2)................. (370) 471
------- -------
Income (loss) before income taxes......... 322 2,572
Provision for (benefit from) income taxes. 20 (94)
------- -------
Net income (loss)......................... $ 303 $ 2,666
======= =======
Net income (loss) per common share........ $ 0.16
=======
Weighted average number of common and
common equivalent shares outstanding.... 16,341
=======
Pro forma net income (loss) per
common share(3)....................... $ 0.02
=======
Pro forma weighted average number of
common and common equivalent
shares outstanding(3)................. 13,794
=======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, JUNE 30,
-------------------------------------------- -------------------
1992 1993 1994 1995 1995 1996 1997
-------- ------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Cash and cash equivalents................... $ 182 $ 192 $ 1,832 $ 539 $ 58 $ 27,901 $23,299
Working capital (deficiency)................ (1,030) (292) 1,715 (3,280) (1,967) 30,457 30,122
Total assets............... 2,390 3,396 9,181 10,214 11,055 41,766 42,245
Long-term obligations, less current portion. 624 554 4,197 3,796 4,515 2,221 1,673
Redeemable convertible preferred stock...... 2,198 2,933 2,948 3,131 3,177 -- --
Stockholders' equity (deficit).............. (2,292) (2,132) (1,093) (3,564) (3,522) 33,599 36,222
</TABLE>
_______________
(1) Lightbridge changed its fiscal year end from September 30 to December 31,
effective with the fiscal year ending December 31, 1996.
(2) Consists principally of interest expense, except consists principally of
interest income for the six months ended June 30, 1997.
(3) Gives effect to the conversion of all previously outstanding shares of
Lightbridge's convertible preferred stock into 5,247,324 shares of
Lightbridge Common, as effected on October 2, 1996 in connection with
Lightbridge's initial public offering. Lightbridge has never declared or
paid any cash dividends on Lightbridge Common.
52
<PAGE>
LIGHTBRIDGE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data of Lightbridge" and the Consolidated
Financial Statements of Lightbridge and Notes thereto included elsewhere in this
Proxy Statement/Prospectus. The following discussion contains forward-looking
statements that involve risks and uncertainties, such as statements of
Lightbridge's plans, objectives, expectations and intentions. In evaluating
such statements, Coral stockholders should consider specifically the risk
factors set forth below and identified elsewhere in this Proxy
Statement/Prospectus, particularly the matters set forth under the caption "Risk
Factors," which could cause Lightbridge's actual results to differ materially
from those indicated by such forward-looking statements. See "Forward-Looking
Statements."
OVERVIEW
Lightbridge develops, markets and supports a suite of integrated products and
services that enable wireless telecommunications carriers to improve their
customer acquisition and retention processes. Lightbridge changed its fiscal
year end from September 30 to December 31, effective with the fiscal year ended
December 31, 1996. The financial statements for the period ended December 31,
1995 reflect Lightbridge's results of operations for the three months then
ended. References to fiscal years are to years ended September 30, except that
references to fiscal 1996 are to the year ended December 31, 1996.
Lightbridge's total revenues increased by 323% from $7.0 million in fiscal
1993 to $29.5 million in fiscal 1996. Total revenues for the first six months
of 1997 were $17.8 million. The increase in revenues since 1993 has been driven
primarily by increases in volume of wireless customer qualification and
activation transactions processed for wireless carrier clients and in the
utilization of Lightbridge's products and services by carriers. Lightbridge's
revenues consist of transaction revenues and software and consulting revenues.
Historically, transaction revenues have accounted for substantially all of
Lightbridge's revenues, although software and consulting revenues have increased
during recent periods primarily as a result of the licensing of certain software
products and the demand for Lightbridge's Business Integration Group's
consulting services. Software and consulting revenues, which represented no
more than 6.0% of total revenues in each of fiscal 1993, 1994 and 1995,
increased to 25.0% and 32.7% of total revenues in fiscal 1996 and the six months
ended June 30, 1997, respectively. There can be no assurance that Lightbridge's
software products will achieve market acceptance or that the mix of
Lightbridge's revenues will remain constant.
Lightbridge's transaction revenues are derived primarily from the processing
of applications of subscribers for wireless telecommunications services and the
activation of service for those subscribers. Lightbridge has expanded its
offerings from credit evaluation services to include screening for subscriber
fraud, evaluating carriers' existing accounts, interfacing with carrier and
third-party systems, and providing teleservices call center services. These
services are provided pursuant to contracts with carriers that specify the
services to be utilized and the markets to be served. Lightbridge's clients are
charged on a per transaction basis. Pricing varies depending primarily on the
volume of transactions, the type and number of other products and services
selected for integration with the services, and the term of the contract under
which services are provided. The volume of processed transactions varies,
depending on seasonal and retail trends, the success of the carriers utilizing
Lightbridge's services in attracting subscribers, and the markets served by
Lightbridge for its clients. Revenues are recognized in the period in which the
services are performed.
Lightbridge's software and consulting revenues have been derived primarily
from developing customized software and providing Business Integration
consulting services. Lightbridge also began licensing its Channel Solutions
software with the introduction of its POPS and Iris products in fiscal 1995, its
SAMS software in 1996 and its Retail Management Software in 1997. Lightbridge's
Channel Solutions products and services are designed to assist customers in
interfacing with Lightbridge's systems and are being marketed primarily to
wireless telecommunications carriers that utilize Lightbridge's transaction
processing services. Lightbridge's Telecommunications Intelligence, formerly
known as Wireless Intelligence, products are being designed to help
53
<PAGE>
carriers analyze the marketplace to improve their business operations. While its
Channel Solutions products and Telecommunications Intelligence products are
licensed as packaged software products, each of these products requires
customization and integration with other products and systems to varying
degrees. Revenues derived from consulting and other projects are recognized
throughout the performance period of the contracts. Revenues from licensing
software are recognized upon the later of delivery of the licensed product or
satisfaction of acceptance criteria. Lightbridge's software and consulting
revenues depend substantially on the continuing need for integration of
disparate systems and acceptance of Lightbridge's software products by
Lightbridge's existing and new clients.
During fiscal 1994, fiscal 1995 and the three months ended December 31, 1995,
each of Lightbridge's four largest clients, and during fiscal 1996 each of
Lightbridge's two largest clients, accounted for more than 10% of Lightbridge's
total revenues, representing an aggregate of 64%, 63%, 61% and 44% of total
revenues in those periods, respectively. GTE Mobile, which accounted for 31% and
15% of Lightbridge's revenues in fiscal 1995 and fiscal 1996, respectively,
changed the way it accessed Lightbridge's Customer Acquisition System during
fiscal 1996 and terminated its client relationship with Lightbridge as of June
30, 1997. Lightbridge's revenues from GTE Mobile have decreased significantly in
fiscal 1997 as a result of this change. See "Risk Factors--Dependence on Limited
Number of Clients."
Lightbridge's revenues historically have been derived primarily from sales of
products and services in the United States.
Beginning in fiscal 1995, Lightbridge increased its sales and marketing
efforts to renew contracts with existing cellular carrier clients and to add new
wireless telecommunications carrier clients, including PCS service providers.
In addition, beginning in fiscal 1995, Lightbridge increased its development
efforts to continue to enhance its existing software and to develop and acquire
new software products and services, including its Channel Solutions and
Telecommunications Intelligence software products and services. Lightbridge
currently intends to continue to increase its development, sales and marketing
efforts in pursuit of these goals.
Prior to fiscal 1995, Lightbridge's development activities were focused on
creating software for its outsourcing and service bureau operations. All
development costs related to these activities were expensed when incurred. In
fiscal 1995, Lightbridge began developing certain software products to be
licensed as separate products. In connection with these development efforts,
Lightbridge acquired rights to certain pen-based technology for $400,000, which
has been incorporated in Lightbridge's SAMS product, and certain multimedia
software technology, which has been incorporated in Lightbridge's Iris product.
The multimedia technology was purchased for $45,000 in cash plus an obligation
to pay certain royalties. In fiscal 1995, Lightbridge capitalized approximately
$980,000 of software costs representing the aggregate of internally developed
products and for the purchase of the aforementioned technology. Since the
general release of the SAMS and Iris products in fiscal 1995, capitalized
software development costs have been amortized using the straight-line method
over a two-year period.
54
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE TWELVE
MONTHS MONTHS YEAR
YEARS ENDED ENDED ENDED ENDED SIX MONTHS ENDED
SEPTEMBER 30, DEC. 31, DEC. 31, DEC. 31, JUNE 30,
--------------- ---- ------ ------ ----------------
1994 1995 1995 1995 1996 1996 1997
---- ---- ---- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Transaction........................ 96.3% 95.1% 93.0% 94.0% 75.0% 80.3% 67.3%
Software and consulting............ 3.7 4.9 7.0 6.0 25.0 19.7 32.7
----- ------ ----- ------ ----- ----- -----
100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues...................... 55.3 65.2 53.5 64.3 52.2 58.5 46.7
----- ------ ----- ------ ----- ----- -----
Gross profit.......................... 44.7 34.8 46.5 35.7 47.8 41.5 53.3
----- ------ ----- ------ ----- ----- -----
Operating expenses:
Development........................ 17.3 20.0 17.6 20.4 14.8 14.9 15.0
Sales and marketing................ 6.1 9.8 12.2 11.1 14.3 12.6 14.6
General and administrative......... 12.3 13.3 10.8 13.1 9.4 8.8 11.9
----- ------ ----- ------ ----- ----- -----
Total operating expenses..... 35.7 43.1 40.6 44.6 38.5 36.3 41.5
----- ------ ----- ------ ----- ----- -----
Income (loss) from operations......... 9.0 (8.3) 5.9 (8.9) 9.3 5.2 11.8
Other income (expense), net........... (1.7) (4.3) (4.8) (4.7) (1.1) (2.8) 2.6
----- ------ ----- ------ ----- ----- -----
Income (loss) before income taxes..... 7.3 (12.6) 1.1 (13.6) 8.2 2.4 14.4
Provision for (benefit from) income
taxes................................. 0.2 -- -- -- 0.5 0.1 (0.6)
----- ------ ----- ------ ----- ----- -----
Net income (loss)..................... 7.1% (12.6)% 1.1% (13.6)% 7.7% 2.3% 15.0%
===== ====== ===== ====== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased by 34.4% to $17.8 million in the six months
ended June 30, 1997 from $13.3 million in the six months ended June 30, 1996.
Transaction revenues increased by 12.7% to $12.0 million in the six months ended
June 30, 1997 from $10.7 million in the six months ended June 30, 1996. The
increase in transaction revenues for the six months ended June 30, 1997 was
primarily due to increased volume of wireless customer qualification and
activation transactions processed for existing carrier clients and additional
new carrier clients. Software and consulting revenues increased by 123.3% to
$5.8 million in the six months ended June 30, 1997 from $2.6 million in the six
months ended June 30, 1996. The increase in software and consulting revenues
for the six months ended June 30, 1997 was principally a result of the increase
in revenues attributable to customized software integration services.
COST OF REVENUES. Cost of revenues consists primarily of personnel costs,
costs of maintaining systems and networks used in processing subscriber
qualification and activation transactions (including depreciation and
amortization of those systems and networks), and amortization of capitalized
software. Cost of revenues may vary as a percentage of total revenues in the
future as a result of a number of factors, including changes in the mix of
transaction revenues between revenues from on-line transaction processing and
revenues from processing transactions through Lightbridge's Teleservices Group,
and changes in the mix of total revenues between transaction revenues and
software and consulting revenues. Cost of revenues increased by 7.2% to $8.3
million in the six months ended June 30, 1997 from $7.8 million in the six
months ended June 30, 1996, while decreasing as a percentage of total revenues
to 46.7% from 58.5%. The dollar increase in costs for the six months ended June
30, 1997 resulted principally from increases in transaction volume and costs
attributable to expansion of Lightbridge's staff and systems capacity. The
decrease in cost of revenues as a percentage of total revenues for the six
months ended June 30, 1997 resulted primarily from a higher percentage of
transaction revenues from on-line processing, a higher percentage of revenues
from customized software integration services and licensed software, and
increased utilization of Lightbridge's operating and networking systems.
DEVELOPMENT. Development expenses consist primarily of personnel and outside
technical services costs related to developing new products and services,
enhancing existing products and services, and implementing and maintaining new
and existing products and services. Development expenses increased by 36.1% to
$2.7 million in the six months ended June 30, 1997, from $2.0 million in the six
months ended June 30, 1996, increasing as
55
<PAGE>
a percentage of total revenues to 15.0% from 14.9%. Both the dollar increase and
the increase as a percentage of total revenues for the six months ended June 30,
1997 resulted primarily from the addition of engineering personnel necessary to
support Lightbridge's development programs.
Lightbridge expects to continue to increase its engineering and development
efforts in order to continue enhancing its existing products and services,
including its Customer Acquisition System, Telecommunications Intelligence,
Business Integration and Channel Solutions products, as well as to develop new
products and services.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and travel expenses of direct sales and marketing
personnel, as well as costs associated with advertising, trade shows and
conferences. Sales and marketing expenses increased by 56.4% to $2.6 million in
the six months ended June 30, 1997 from $1.7 million in the six months ended
June 30, 1996, and increased as a percentage of total revenues to 14.6% from
12.6%. Both the dollar increase and the increase as a percentage of total
revenues for the six months ended June 30, 1997 were due to the addition of
direct sales and product marketing personnel, increased commissions resulting
from the higher level of revenues and increased use of marketing programs.
Lightbridge continues to invest in sales and marketing efforts in order to
increase its penetration of existing accounts and to add new clients and
markets.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of salaries of administrative, executive, finance and human
resources personnel, as well as outside professional fees. General and
administrative expenses increased by 81.1% to $2.1 million in the six months
ended June 30, 1997 from $1.2 million in the six months ended June 30, 1996, and
increased as a percentage of total revenues to 11.9% from 8.8%. Both the dollar
increase and the increase as a percentage of total revenues for the six months
ended June 30, 1997 resulted primarily from increased recruiting fees associated
with the hiring of company personnel and the addition of finance and human
resource personnel. Lightbridge expects that general and administrative
expenses for the remainder of fiscal 1997 will continue to be incurred at a
higher percentage of total revenues than in the comparable period of fiscal
1996.
OTHER INCOME (EXPENSE), NET. Other income (expense) historically has
consisted predominantly of interest income and expense. Interest expense
consists of interest expense, commitment fees and other similar fees payable
with respect to Lightbridge's bank line of credit, subordinated notes and
capital leases. Other income (expense) in the six months ended June 30, 1997
consisted predominantly of interest income and expense. Interest expense
decreased by 53.9% to $0.2 million in the six months ended June 30, 1997 from
$0.4 million in the six months ended June 30, 1996. Interest income, which
historically had not been significant, increased to $0.6 million during the six
months ended June 30, 1997, as a result of the investment of the proceeds from
Lightbridge's initial public offering in October 1996.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. During the six months ended June
30, 1997, a net income tax benefit of $94,000 was derived from the reversal of
Lightbridge's deferred tax asset valuation allowance of $0.7 million, the
utilization of the tax credits, which aggregated $0.4 million, offset by a
provision of $1.0 million. No significant provision for or benefit from income
taxes was recorded in the six months ended June 30, 1996.
SUPPLEMENTAL DISCUSSION OF FISCAL YEAR ENDED DECEMBER 31, 1996
COMPARED WITH THE TWELVE MONTHS ENDED DECEMBER 31, 1995
REVENUES. Total revenues increased by 45.2% to $29.5 million in the year
ended December 31, 1996 from $20.3 million in the twelve months ended December
31, 1995. Transaction revenues increased by 17.1% to $22.2 million in the year
ended December 31, 1996 from $18.9 million in the twelve months ended December
31, 1995, primarily due to increased volume of wireless customer qualification
and activation transactions processed for existing carrier clients and, to a
lesser extent, new carrier clients. Software and consulting revenues increased
to $7.4 million in the year ended December 31, 1996 from $1.4 million in the
twelve months ended December 31, 1995. This increase was attributable to
increased consulting and customized software integration services
56
<PAGE>
provided to both existing and new clients and revenues from Lightbridge's
Channel Solutions products and services. The increase in revenues from
consulting services and customized software integration services in 1996
resulted primarily from projects undertaken for one client, which projects
Lightbridge currently expects will continue at least through the end of 1997.
COST OF REVENUES. Cost of revenues increased by 18.0% to $15.4 million in
the year ended December 31, 1996 from $13.1 million in the twelve months ended
December 31, 1995, while decreasing as a percentage of total revenues to 52.2%
from 64.3%. The dollar increase in costs resulted principally from increases in
transaction volume, costs attributable to expansion of Lightbridge's staff and
systems capacity, and amortization of capitalized software. The decrease in
cost of revenues as a percentage of total revenues primarily reflected a higher
percentage of transaction revenues from on-line processing than teleservices
operations, a higher percentage of revenues from customized software integration
services and software licenses, and increased utilization of Lightbridge's
operating and networking systems.
DEVELOPMENT. Development expenses increased by 5.3% to $4.4 million in the
year ended December 31, 1996 from $4.2 million in the twelve months ended
December 31, 1995, while decreasing as a percentage of total revenues to 14.8%
from 20.4%. The dollar increase in costs resulted principally from the hiring
of additional personnel to support the continued enhancement of products and
services and the development of new products and services including customized
software integration services, as well as the initial two modules in the
Telecommunications Intelligence suite. The decrease in development expenses as
a percentage of total revenues reflected the significant growth in Lightbridge's
total revenues. Lightbridge did not capitalize any software development costs
during the year ended December 31, 1996 and capitalized $535,000 of internally
developed software development costs during the twelve months ended December 31,
1995.
SALES AND MARKETING. Sales and marketing expenses increased by 86.7% to $4.2
million in the year ended December 31, 1996 from $2.3 million in the twelve
months ended December 31, 1995, and increased as a percentage of total revenues
to 14.3% from 11.1%. The increase in costs was due to the addition of direct
sales personnel, increased commissions resulting from the higher level of
revenues, the addition of marketing personnel and increased use of marketing
programs, including trade shows.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
4.3% to $2.8 million in the year ended December 31, 1996 from $2.7 million in
the twelve months ended December 31, 1995, and decreased as a percentage of
total revenues to 9.4% from 13.1%. The dollar increase in general and
administrative expenses resulted from the addition of general and administrative
headcount and other outside services, offset in part by a decrease in legal
costs associated with certain litigation settled in 1996.
OTHER INCOME (EXPENSE), NET. Other expense (net) decreased 68.4% to $305,000
in the year ended December 31, 1996 from $965,000 in the twelve months ended
December 31, 1995, principally due to decreased interest expense and increased
interest income. Interest expense decreased to $754,000 in the year ended
December 31, 1996 from $985,000 in the twelve months ended December 31, 1995.
Interest income, which historically had not been significant, increased to
$422,000 in the year ended December 31, 1996 from $2,000 in the twelve months
ended December 31, 1995 as a result of the investment of proceeds received from
the issuance of Series D convertible preferred stock in April 1996 and
Lightbridge's initial public offering in October 1996.
PROVISION FOR INCOME TAXES. The income tax provision was $160,000 for the
year ended December 31, 1996. Lightbridge had an effective tax rate of 6.6% for
the year ended December 31, 1996, principally due to the application of net
operating loss carryforwards from previous years. Lightbridge incurred a net
loss for the twelve months ended December 31, 1995 and did not record a benefit
for income tax for the period. At December 31, 1996, Lightbridge had no
remaining net operating loss carryforwards for federal income tax purposes.
57
<PAGE>
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1995
REVENUES. Total revenues increased by 52.7% to $29.5 million in the year
ended December 31, 1996 from $19.4 million in the year ended September 30, 1995.
Transaction revenues increased by 20.4% to $22.2 million in the year ended
December 31, 1996 from $18.4 million in the year ended September 30, 1995,
primarily due to increased volume of wireless customer qualification and
activation transactions processed for existing carrier clients and, to a lesser
extent, new carrier clients. Software and consulting revenues increased to $7.4
million in the year ended December 31, 1996 from $0.9 million in the year ended
September 30, 1995. This increase was attributable to increased consulting and
customized software integration services provided to both existing and new
clients and revenues from Lightbridge's Channel Solutions products and services.
The increase in revenues from customized software integration services in 1996
resulted primarily from projects undertaken for one client, which projects
Lightbridge currently expects will continue at least through the end of 1997.
COST OF REVENUES. Cost of revenues increased by 22.4% to $15.4 million in
the year ended December 31, 1996 from $12.6 million in the year ended September
30, 1995, while decreasing as a percentage of total revenues to 52.2% from
65.2%. The dollar increase in costs resulted principally from increases in
transaction volume, costs attributable to expansion of Lightbridge's staff and
systems capacity and amortization of capitalized software. The decrease in cost
of revenues as a percentage of total revenues primarily reflected a higher
percentage of transaction revenues from on-line processing than teleservices
operations, a higher percentage of revenues from customized software integration
services and software licenses and increased utilization of Lightbridge's
operating and networking systems.
DEVELOPMENT. Development expenses increased by 13.4% to $4.4 million in the
year ended December 31, 1996 from $3.9 million in the year ended September 30,
1995, while decreasing as a percentage of total revenues to 14.8% from 20.0%.
The increase in dollar costs resulted principally from the hiring of additional
personnel to support the continued enhancement of products and services and the
development of new products and services including customized software
integration services, as well as the initial two modules in the
Telecommunications Intelligence suite. The decrease in development expenses as
a percentage of total revenues reflected the significant growth in Lightbridge's
total revenues. Lightbridge did not capitalize any software development costs
during the year ended December 31, 1996 and capitalized $597,000 of internally
developed software development costs during the year ended September 30, 1995.
SALES AND MARKETING. Sales and marketing expenses increased by 122.2% to
$4.2 million in the year ended December 31, 1996 from $1.9 million in the year
ended September 30, 1995, and increased as a percentage of total revenues to
14.3% from 9.8%. The increase in costs was due to the addition of direct sales
personnel, increased commissions resulting from the higher level of revenues,
the addition of marketing personnel and increased use of marketing programs,
including trade shows.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
7.1% to $2.8 million in the year ended December 31, 1996 from $2.6 million in
the year ended September 30, 1995, and decreased as a percentage of total
revenues to 9.4% from 13.3%. The dollar increase in general and administrative
expenses resulted from the addition of general and administrative personnel and
other outside services, offset in part by a decrease in legal costs associated
with certain litigation which was settled in 1996.
OTHER INCOME (EXPENSE), NET. Other expense (net) decreased 63.1% to $305,000
in the year ended December 31, 1996 from $826,000 in the year ended September
30, 1995. Interest expense decreased by 12.7% to $754,000 in the year ended
December 31, 1996 from $864,000 in the year ended September 30, 1995. Interest
income, which historically had not been significant, increased to $422,000 in
the year ended December 31, 1996 from $38,000 in the year ended September 30,
1995 as a result of the investment of proceeds received from the issuance of
Series D redeemable convertible preferred stock in April 1996 and Lightbridge's
initial public offering of Lightbridge Common in October 1996.
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PROVISION FOR INCOME TAXES. The income tax provision was $160,000 for the
year ended December 31, 1996. Lightbridge had an effective tax rate of 6.6% for
the year ended December 31, 1996, principally due to the application of net
operating loss carryforwards from previous years. Lightbridge incurred a net
loss for the year ended September 30, 1995 and did not record a benefit for
income tax for the period.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1994
REVENUES. Total revenues increased by 44.4% to $19.4 million in fiscal 1995
from $13.4 million in fiscal 1994. Transaction revenues increased by 42.6% to
$18.4 million in fiscal 1995 from $12.9 million in fiscal 1994, principally from
increased volume of wireless customer qualification and activation transactions
processed for existing carrier clients. Software and consulting revenues
increased by 91.3% to $947,000 in fiscal 1995 from $496,000 in fiscal 1994,
primarily due to an increase in customized software development for existing
clients.
COST OF REVENUES. Cost of revenues increased by 70% to $12.6 million in
fiscal 1995 from $7.4 million in fiscal 1994, and increased as a percentage of
total revenues to 65.2% from 55.3%. The increase in costs resulted primarily
from increases in transaction volume and increases in personnel costs
attributable to Lightbridge's Teleservices Group and other business operations.
In fiscal 1995, Lightbridge relocated its Teleservices Group to a larger
facility, resulting in increased facilities costs. Lightbridge made significant
investments in fiscal 1995 in its computing platform, as well as in increased
networking and systems capacity. The increase in cost of revenues as a
percentage of total revenues reflected continued investment in Lightbridge's
service delivery infrastructure.
DEVELOPMENT. Development expenses increased by 66.7% to $3.9 million in
fiscal 1995 from $2.3 million in fiscal 1994, and increased as a percentage of
total revenues to 20% from 17.3%. The increase in costs was principally
attributable to the hiring of additional personnel to support the continued
enhancement of Lightbridge's existing products and services and the development
of new products and services, including Channel Solutions and Telecommunications
Intelligence products and services. This increase was offset in part by the
capitalization of $980,000 of software development costs for internally
developed products and for certain purchased technology. Lightbridge did not
capitalize any software development costs in fiscal 1994.
SALES AND MARKETING. Sales and marketing expenses increased by 133.4% to
$1.9 million in fiscal 1995 from $0.8 million in fiscal 1994, and increased as a
percentage of total revenues to 9.8% from 6.1%. The increase in costs was due
principally to increased commissions resulting from the higher level of
transaction revenues, an increase in sales and marketing personnel and an
increase in recruiting, training and other expenses related to the expansion of
Lightbridge's sales and marketing organization. The increase was also
attributable to Lightbridge's increased participation in trade shows and
conferences and additional advertising in trade publications.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
57.2% to $2.6 million in fiscal 1995 from $1.6 million in fiscal 1994, and
increased as a percentage of total revenues to 13.3% from 12.3%. The increase
in costs was principally due to hiring of additional personnel to support
Lightbridge's growth and, to a lesser extent, legal costs associated with
certain litigation settled in 1996.
OTHER INCOME (EXPENSE), NET. Interest expense increased by 252% to $864,000
in fiscal 1995 from $246,000 in fiscal 1994. This increase principally
consisted of interest attributable to the issuance of subordinated notes in
August 1995, as well as a higher level of borrowings for working capital
purposes under Lightbridge's bank line of credit. In addition, interest on
capital leases increased as the result of significant investments in
Lightbridge's infrastructure, which were financed primarily through the leasing
of equipment accounted for as capital leases.
PROVISION FOR INCOME TAXES. Lightbridge recorded a net loss in fiscal 1995
and did not record a provision for or benefit from income taxes. As a result of
Lightbridge's net operating loss carryforwards from previous years, the
provision for income taxes in fiscal 1994 consisted of alternative minimum
taxes.
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LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, Lightbridge funded its operations
primarily through private placements of equity and debt securities, cash
generated from operations, bank borrowings and equipment financings.
In October 1996, Lightbridge consummated an initial public offering in which
4,370,000 shares of Lightbridge Common were sold at an initial public offering
price of $10.00 per share. The total shares consisted of 3,021,868 shares sold
by Lightbridge and 1,348,132 shares sold by certain stockholders of Lightbridge.
Proceeds to Lightbridge, net of underwriting discounts and commissions and
associated costs, were approximately $27.1 million. These proceeds were used to
repay certain debt obligations of Lightbridge, to repurchase certain shares of
Lightbridge Common, and to fund working capital and other general corporate
purposes.
Prior to its initial public offering, Lightbridge financed its operations in
part with the proceeds of four offerings of convertible preferred stock and two
offerings of subordinated debt. Lightbridge sold shares of its Series A
redeemable convertible preferred stock in February 1991 for an aggregate
purchase price of $1.0 million, shares of its Series B redeemable convertible
preferred stock in December 1991 for an aggregate purchase price of $1.1 million
and shares of its Series C redeemable convertible preferred stock in June, July
and August of 1993 for an aggregate purchase price of $0.6 million. In August
1994, Lightbridge sold $2.1 million in principal amount of its 8% subordinated
notes, together with warrants exercisable to purchase up to 525,000 shares of
Lightbridge Common. In August 1995, Lightbridge sold $1.2 million in principal
amount of its 16% subordinated notes, together with warrants exercisable to
purchase up to 287,750 shares of Lightbridge Common. Lightbridge sold shares of
its Series D redeemable convertible preferred stock in April 1996 for an
aggregate purchase price of $6.0 million. A portion of the proceeds of the
Series D redeemable convertible preferred stock was applied to repay the 16%
subordinated notes.
Lightbridge's capital expenditures in the years ended September 30, 1994 and
1995, the three months ended December 31, 1995, the year ended December 31, 1996
and the six months ended June 30, 1997 aggregated $3.6 million, $3.7 million,
$0.3 million, $2.5 million and $3.5 million, respectively. The capital
expenditures consisted of purchases of fixed assets, principally for
Lightbridge's services delivery infrastructure, and teleservices call center and
computer equipment for development activities. Lightbridge leases its
facilities and certain equipment under non-cancelable capital and operating
lease agreements that expire at various dates through December 2004.
Lightbridge has a $4.0 million working capital line of credit and a $2.0
million equipment line of credit with Silicon Valley Bank. The working capital
line of credit is secured by a pledge of Lightbridge's accounts receivable,
equipment and intangible assets, and borrowing availability (approximately $3.3
million at June 30, 1997) is based on the amount of qualifying accounts
receivable. Advances under the working capital line of credit bear interest at
Silicon Valley Bank's prime rate plus .25% (8.50% at December 31, 1996 and 8.75%
at June 30, 1997) and advances under the equipment line of credit bear interest
at Silicon Valley Bank's prime rate plus .75% (9.0% at December 31, 1996 and
9.25% at June 30, 1997). The working capital line of credit also provides for
the issuance of letters of credit, which reduce the amount Lightbridge may
borrow under the line of credit and are limited to $1,250,000 in the aggregate.
At December 31, 1996 and June 30, 1997, there were no borrowings outstanding
under the working capital line of credit and borrowings of $763,000 and
$611,000, respectively, were outstanding under the equipment line of credit.
The agreements contain covenants that, among other things, prohibit the
declaration or payment of dividends and require Lightbridge to maintain certain
financial ratios which Lightbridge believes are not restrictive to the business
operations. The working capital line of credit expires in June 1998, and the
equipment line of credit expires in June 1999.
As of June 30, 1997, Lightbridge had cash and cash equivalents of $23.3
million, short-term investments of $1.0 million and working capital of $30.1
million. Lightbridge believes that its current cash balances and the funds
available under its existing lines of credit will be sufficient to fund its cash
obligations in connection with the Merger and to finance Lightbridge's
operations and capital expenditures for at least the next twelve months.
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INFLATION
Although certain of Lightbridge's expenses increase with general inflation in
the economy, inflation has not had a material impact on Lightbridge's financial
results to date.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128),
which is effective for fiscal 1997. SFAS 128 will require Lightbridge to
restate amounts previously reported as earnings per share to comply with the
requirements of SFAS 128. Lightbridge will adopt SFAS 128 in the fourth quarter
of 1997. See Note 2 to the Unaudited Condensed Consolidated Financial
Statements of Lightbridge included elsewhere herein.
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which is effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for the reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general purpose financial statements.
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131), which is effective for periods
beginning after December 15, 1997. SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders.
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BUSINESS OF LIGHTBRIDGE
Lightbridge develops, markets and supports a network of integrated products
and services that enable wireless telecommunications carriers to improve their
customer acquisition and retention processes. Lightbridge's comprehensive
software-based solutions are delivered primarily on an outsourcing and service
bureau basis, which allows wireless carriers to focus internal resources on
their core business activities. Lightbridge's solutions combine the advantages
of distributed access and workflow management, centrally managed client-
specified business policies, and links to carrier and third-party systems. The
open architecture underlying Lightbridge's software applications supports the
development of flexible, integrated solutions, regardless of the type of
wireless service provided by a client and independent of the client's computing
environment.
Lightbridge offers on-line, real-time transaction processing and call center
support solutions to aid carriers in qualifying and activating applicants for
wireless service, as well as software-based sales support services for
traditional distribution channels, such as dealers, agents and direct mobile
sales forces, and emerging distribution channels, such as mass market retail
stores, home shopping and stand-alone kiosks. Lightbridge develops and
implements interfaces that fully integrate its acquisition system with carrier
and third-party systems, such as those for billing, point-of-sale, activation
and order fulfillment. Lightbridge recently introduced software-based decision
support tools and services that enable carriers to reduce subscriber churn and
to make more informed business decisions about their subscribers, markets and
distribution channels.
Lightbridge was incorporated in Delaware in June 1989 under the name Credit
Technologies, Inc. Effective November 1, 1994, Lightbridge changed its name to
Lightbridge, Inc. In September 1996, Lightbridge organized a wholly owned
subsidiary, Lightbridge Security Corporation, as a Massachusetts securities
corporation to buy, hold and sell securities.
PRODUCTS AND SERVICES
Telesto, Lightbridge's network of software-based acquisition and retention
products and services permits a wireless carrier to select applications and
functions to create an integrated, customized solution addressing the carrier's
particular needs. Lightbridge's products and services are provided by five
solutions groups:
<TABLE>
<CAPTION>
GROUP FUNCTIONS
- ---- ---------
<S> <C>
Customer Acquisition System On-line, real-time transaction processing services to aid wireless carriers in
qualifying and activating applicants for wireless service, including
proprietary databases and processing modules to evaluate existing subscribers
and detect potential subscription fraud.
Teleservices Call center support services to assist wireless carriers in acquiring and
activating applicants for wireless service, including qualification and
activation, analyst reviews, telemarketing to existing and new subscribers,
back-up and disaster recovery for acquisition and activation services, and
customer care.
Channel Solutions Software products and services and consulting services to support a variety
of distribution channels, including software applications for in-store use,
laptop applications for mobile sales professionals and an interactive
multimedia kiosk.
Telecommunications Software-based decision support tools and related consulting services to
Intelligence allow wireless carriers to access data and analyze the marketplace in order
to make more informed business decisions about their customers, markets and
distribution channels.
Business Integration Consulting services, software and tools to link wireless carrier legacy
systems and third-party systems to Lightbridge's systems, as well as other
consulting services to help wireless carriers improve business processes.
</TABLE>
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CUSTOMER ACQUISITION SYSTEM
Lightbridge's Customer Acquisition System ("CAS") includes on-line, real-time
transaction processing services for the qualification and activation of
applicants for wireless service.
CAS accepts applicant information on-line from a variety of carrier
distribution points, such as retail stores. Upon receipt of information, the
system begins a series of steps required to determine the applicant's
qualification for the carrier's service through inquiry into Lightbridge
proprietary databases, such as ProFile, and external sources, such as credit
bureaus. The complete applicant file is evaluated by the system and a
determination regarding the applicant's creditworthiness is made based on
centrally managed client-specified business policies. If an issue is raised
regarding qualification of an applicant, the system electronically routes the
application to a Lightbridge or carrier credit analyst for review and action.
The point-of-sale is then notified when a determination is made. If service is
to be activated at that time, the system receives, verifies and translates the
information necessary to establish the billing account and activate service,
transmitting data to the carrier's billing and activation systems. Throughout
the process, Lightbridge's client/server system manages the routing of the
application and the flow of information, both within the system and, as
necessary, to appropriate individuals for their involvement, all in a secure,
controlled environment.
Introduced in 1989 and enhanced over time, CAS typically enables carriers to
qualify applicants and activate service in five to ten minutes while screening
for subscriber fraud, thereby assisting the carriers to close sales at the time
when the customer is ready to purchase. Although CAS typically requires no
human intervention beyond the initial data entry, it permits a carrier to
implement policies requiring analyst intervention in carrier-specified
situations. When intervention is required, CAS facilitates the on-line handling
of exceptions by, among other things, queuing exceptions to manage workflow.
CAS includes the following modules, all of which are fully integrated:
. Credit Decision System ("CDS") is an integrated qualification system for
carriers to acquire qualified applicants rapidly. Using redundant, high-
speed data lines to five major credit bureaus, CDS typically provides
consumer and business credit decisions in under 20 seconds, based on
automated analysis of credit information using a credit policy specified
by the carrier. CDS can be integrated with a carrier's existing customer
acquisition and billing systems and can be modified quickly to reflect
changes in a carrier's credit policies.
. Fraud Sentinel is a suite of fraud management tools, available separately
or together. Lightbridge believes that Fraud Sentinel is the only pre-
screening tool for detection and prevention of subscription fraud
available in the wireless industry today. The components of Fraud Sentinel
are:
ProFile, a proprietary intercarrier database of accounts receivable
write-offs and service shut-offs, provides on-line pre-screening of
applicants, on-going screening of existing subscribers, and
notification if an application is processed for a subscriber whose
account has been previously written off by a carrier.
Fraud Detect, a multifaceted fraud detection tool provided under
agreement with Trans Union Corporation, analyzes data such as an
applicant's Social Security Number, date of birth, address, telephone
number and driver's license information and identifies any
discrepancies. Fraud Detect became commercially available through
Lightbridge in the second quarter of 1996.
Postalpro, a tool to validate addresses, enables a carrier to detect
false addresses, incorrect ZIP codes and contradictions between
addresses and ZIP codes before a potential subscriber's service is
activated. Postalpro became commercially available during the first
quarter of 1997.
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. InSight is a proprietary database containing information about existing
accounts and previous applicants. InSight also evaluates existing
subscribers who apply for additional services on the basis of their
payment histories. InSight can decrease costs for carriers by reducing the
number of credit bureau inquiries and the number of applications requiring
manual review.
59
. Workstation offerings present data electronically to the appropriate
person for decision or action and then automatically route data to the
next step in the process. Workstation offerings are:
Credit workstation allows a carrier's credit analyst to enter
information or to evaluate applications that were entered at a remote
location.
Activation workstation allows the user to review, correct or reprocess
activation requests returned from the billing system due to an error.
Fulfillment workstation provides the information necessary to fulfill
orders for wireless handsets and accessories at a remote or third-
party fulfillment operation.
Pricing of CAS is on a per qualification or activation basis and varies
substantially with the term of the contract under which services are provided,
the volume of transactions, and the other products and services selected and
integrated with the services.
Teleservices
Lightbridge's Teleservices Group provides a range of call center support
solutions for the subscriber acquisition and activation process. Lightbridge
first offered a Teleservices call center solution to the wireless marketplace in
1990 with its 800-FOR-CREDIT service. Since that time, Lightbridge's
Teleservices offerings have expanded to include not only credit decisions and
activations, but also analyst reviews, telemarketing to existing and new
subscribers, back-up and disaster recovery for acquisition and activation
services, and customer care. Teleservices solutions can be provided using CAS
or a carrier's own customer acquisition system. Lightbridge's clients typically
utilize Teleservices solutions as part of an overall sales and distribution
strategy to expand or engage in special projects without incurring the overhead
associated with building and maintaining a call center. Pricing of Teleservices
solutions is on a per transaction basis and varies with the term of the contract
under which services are provided, the volume of transactions processed and the
other products and services selected and integrated with the services.
Channel Solutions
Lightbridge's Channel Solutions consist of products and services that support
a growing range of distribution channels. The components of Channel Solutions
include:
. POPS, a Windows-based application typically used in carrier-owned or
dealer/agent store locations, features a graphical user interface that
allows even inexperienced sales staff to conduct qualification and
activation transactions quickly via a dial-up or network connection to
CAS. POPS is being marketed both as a new solution and as a replacement to
Lightbridge's DOS-based application.
. SAMS, a laptop application, provides a "virtual office" for carriers'
mobile sales professionals. The SAMS suite contains a number of tools
needed by sales staff, such as coverage maps and product catalogs, as well
as the ability to handle qualification and activation transactions via
landline, cellular or wireless data connection to CAS. Third-party modules
can be integrated into SAMS to provide additional functionality.
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. Iris, an interactive multimedia kiosk, uses touch screen technology to
provide potential subscribers with educational information ranging from
the basic operation of a cellular telephone to the form of monthly bills,
display the carrier's coverage area and provide information about
available services and telephone models. Iris incorporates a credit card
reader for payments and allows a customer to purchase a telephone and
complete an application for service, which can then be processed
automatically. Iris can dispense a telephone itself or can provide for
delivery or in-store pick-up.
. Retail Management System ("RMS") is a point-of-sale client/server
application designed to help telecommunications retailers manage the sale
of telecommunications products more efficiently. RMS
handles credit screening, transaction and payment processing, service
activation, cash drawer management, inventory and purchasing management
and management reporting. RMS became commercially available in the first
quarter of 1997.
POPS, SAMS, Iris and RMS are licensed to clients and require customization
and integration with other products and systems to varying degrees. Pricing of
POPS, SAMS, Iris and RMS varies with the configurations selected, the number of
locations licensed and the degree of customization required.
Telecommunications Intelligence
Lightbridge's Telecommunications Intelligence Group provides software-based
decision support tools to help carriers analyze their marketplace to improve
business operations. As carriers encounter increasing competition and a growing
and changing market, Lightbridge believes that the ability to gather, analyze
and interpret business data and then take appropriate actions will be essential
to their success. Telecommunications Intelligence is currently comprised of the
following two modules:
. Channel Wizard allows a carrier to analyze its distribution channel
performance by market, subscriber type or other factors, to assist the
carrier in making decisions designed to reduce customer acquisition costs
and improve channel performance. Channel Wizard is designed to provide up-
to-date information in a format that is easy for users without statistical
training to operate. Channel Wizard became commercially available in the
second quarter of 1996.
. Churn Prophet is an analytical tool designed to help carriers reduce churn
and increase customer retention. Churn Prophet uses predictive modeling
technology to identify characteristics of subscribers who have canceled
service in the past and to develop predictions as to which subscribers are
likely to cancel service in the future. Customer retention efforts can
then be targeted more cost effectively to the subscribers most likely to
cancel service. Churn Prophet became commercially available in the fourth
quarter of 1996, and version 2.0 of Churn Prophet was released in
September 1997.
Channel Wizard and Churn Prophet are licensed to clients and require
customization and integration with other products and systems to varying
degrees. Pricing of Channel Wizard and Churn Prophet varies with the number of
users and the degree of customization required.
The Telecommunications Intelligence Group also provides a range of consulting
services, including churn analysis and data warehouse design.
Business Integration
Lightbridge's Business Integration Group provides consulting, software and
tools to link carrier and third-party systems to Lightbridge's systems to enable
those carriers to process qualification and activation transactions through
Lightbridge's systems. To facilitate the development of these interfaces,
Lightbridge developed CAS_COMM, a library of software functions for the remote
host that enables third-party systems to connect to CAS. CAS_COMM is an
application layer protocol that gives CAS the appearance of a local process
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to the third-party system. CAS_COMM runs on DEC VMS, Microsoft Windows NT and
certain Unix platforms and supports both TCP/IP and DECnet.
The Business Integration Group also provides a range of other consulting
services to wireless carriers, employing Lightbridge's expertise and experience
in the wireless telecommunications industry. For example, the Business
Integration Group helps carriers develop solutions for work flow optimization,
management of bad debt, distribution channel analysis and sales automation.
Lightbridge charges for consulting services on a per diem basis and also
undertakes smaller consulting projects on a fixed-fee basis.
TECHNOLOGY
Lightbridge's development efforts have created a proprietary multi-layered
software architecture that facilitates the development of application products.
This design conforms to the three standard tiers of presentation (front-ends),
business logic and database services, each independent of the others. The
architecture supports the development of Lightbridge's core products and
provides a discrete platform that enables the rapid creation of client-specific
requirements. In addition, the architecture is open in terms of its ability to
interface with third-party systems, as well as with Lightbridge's Windows-based
products. Lightbridge can therefore offer its clients the ability to use and
enhance legacy systems and third-party systems (such as billing systems) while
implementing the market-oriented products offered by Lightbridge.
At the most fundamental layer of its architecture, Lightbridge has written
a common, independent library of code that provides a foundation for reusability
and, equally importantly, independence from hardware platforms and operating
systems. The common library currently supports Unix and OpenVMS. The Lightbridge
products are portable and able to run on the most suitable hardware platform for
the computing needs.
A critical element of Lightbridge's development has been the creation and
enhancement of Allegro, a proprietary peer-to-peer, client/server, transaction
management system. Allegro encapsulates a sequence of independent, application
servers into a complete transaction, customized for the client's customer
acquisition requirements. The solutions may include front-end data capture,
customer qualification, fulfillment of physical distribution and connectivity to
back office systems such as billing. To an individual user, however,
Lightbridge products offer the front-end appearance of a "single virtual
machine." Allegro features include data validation, exception handling, process
queues, manual review queues and transaction monitors.
Lightbridge servers each perform only a single function, without knowledge
of the other steps in the transaction processes or their computing environment.
Third-party software products are encapsulated so that they are integrated
seamlessly into the Allegro system. As a result, the Allegro network is scalable
and includes software redundancy.
The wireless marketplace continues to grow rapidly and requires quick
reaction to evolving market conditions. To meet this requirement, Lightbridge
has incorporated a set of software and tools with which its trained staff can
provide the rapid customization of front-ends, business rules, system interfaces
and reporting. The customization is independent of the core products, so that
Lightbridge can provide client-specific enhancements while continuing to develop
regular releases of major product enhancements.
CLIENTS
Revenues attributable to Lightbridge's 10 largest clients accounted for
approximately 90%, 90% and 81% of Lightbridge's revenues in the years ended
September 30, 1994 and 1995 and December 31, 1996, respectively. Four clients
each accounted for greater than ten percent of Lightbridge's total revenues in
the years ended September 30, 1994 and 1995, and two clients each accounted for
more than ten percent of total revenues in the year ended December 31, 1996.
AT&T Wireless Services, Inc. ("AT&T Wireless") accounted for 29% and GTE Mobile
accounted for 15% of Lightbridge's revenues for the year ended December 31,
1996. During 1996, GTE Mobile changed the way it accessed Lightbridge's CAS
during the year ended December 31, 1995, and then
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terminated its client relationship with Lightbridge as of June 30, 1997. As a
result, Lightbridge's revenues from GTE Mobile decreased significantly during
fiscal 1996 and the first half of fiscal 1997, before being curtailed completely
as of June 30, 1997. See "Lightbridge Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and Note 2 to
Lightbridge's Audited Consolidated Financial Statements.
Lightbridge's agreements with its clients set forth the terms on which
Lightbridge will provide products and services for the clients, but do not
typically require the clients to purchase any particular type or quantity of
Lightbridge's products or services or to pay any minimum amount for products or
services. Lightbridge's agreement with GTE Mobile and certain subsidiaries of
GTE Mobile, which provided that the contract may be terminated by GTE Mobile as
of June 30 of any year upon sixty days' prior notice, was terminated as of June
30, 1997. Lightbridge has an agreement with AT&T Wireless for the provision of
credit decision services. The agreement will expire on December 31, 1999 unless
it is terminated earlier, upon not less than sixty days' prior written notice.
AT&T Wireless has the right to extend the term of the agreement an additional
two years. The agreement with AT&T Wireless does not require that AT&T Wireless
purchase any particular type or quantity of Lightbridge's products or services,
although it does contain provisions requiring payment of minimum amounts.
SALES AND MARKETING
Lightbridge's sales strategy is to establish, maintain and foster long-term
relationships with its clients. Lightbridge's sales and client services
activities are led by "relationship teams," each of which includes a senior
management team sponsor. Lightbridge employs a team approach to selling in
order to develop a consultative relationship with existing and prospective
clients. Directors of solutions groups and product managers, as well as other
executive, technical, operational and consulting personnel, are frequently
involved in the business development and sales process. The teams conduct needs
assessments and, working with the client, develop a customized solution to meet
the client's particular needs. The sales cycle for Lightbridge's products and
services is typically six to twelve months, although the period may be
substantially longer in some cases.
Lightbridge expanded its sales and marketing group during 1996 and the
first half of 1997 by hiring additional staff experienced in the wireless
telecommunications industry.
Lightbridge's marketing activities include public relations, advertising,
participation in industry trade shows and panels, substantive articles in trade
journals and targeted direct mail.
ENGINEERING, RESEARCH AND DEVELOPMENT
Lightbridge believes that its future success will depend in part on its
ability to continue to enhance its existing product and service offerings and to
develop new products and services to allow carriers to respond to changing
market requirements. Lightbridge's research and development activities consist
of both long-term efforts to develop and enhance products and services and
short-term projects to make modifications to respond to immediate client needs.
In addition to internal research and development efforts, Lightbridge intends to
continue its strategy of gaining access to new technology through strategic
relationships and acquisitions where appropriate. Lightbridge spent
approximately $2.3 million, $3.9 million, $4.4 million and $2.7 million on
engineering, research and development in the years ended September 30, 1994,
1995 and December 31, 1996 and the six months ended June 30, 1997, respectively.
COMPETITION
The market for services to wireless carriers is highly competitive and
subject to rapid change. The market is fragmented, and a number of companies
currently offer one or more services competitive with those offered by
Lightbridge. In addition, many wireless carriers are providing or can provide,
internally, products and services competitive with those Lightbridge offers.
Trends in the wireless telecommunications industry, including greater
consolidation and technological or other developments that make it simpler or
more cost-effective for wireless
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<PAGE>
carriers to provide certain services themselves, could affect demand for
Lightbridge's services and could make it more difficult for Lightbridge to offer
a cost-effective alternative to a wireless carrier's own capabilities. In
addition, Lightbridge anticipates continued growth in the wireless carrier
services industry and, consequently, the entrance of new competitors in the
future.
Lightbridge believes that the principal competitive factors in the wireless
carrier services industry include the ability to identify and respond to
subscriber needs, quality and breadth of service offerings, price and technical
expertise. Lightbridge believes that its ability to compete also depends in
part on a number of competitive factors outside its control, including the
ability to hire and retain employees, the development by others of products and
services that are competitive with Lightbridge's products and services, the
price at which others offer comparable products and services and the extent of
its competitors' responsiveness to subscriber needs.
Many of Lightbridge's current and potential competitors have significantly
greater financial, marketing, technical and other competitive resources than
Lightbridge. As a result, Lightbridge's competitors may be able to adapt more
quickly to new or emerging technologies and changes in subscriber requirements
or may be able to devote greater resources to the promotion and sale of their
products and services. There can be no assurance that Lightbridge will be able
to compete successfully with its existing competitors or with new competitors.
In addition, competition could increase if new companies enter the market or if
existing competitors expand their service offerings. An increase in competition
could result in price reductions or the loss of market share by Lightbridge and
could have a material adverse effect on Lightbridge's business, financial
condition, results of operations and cash flow.
To remain competitive in the wireless carrier services industry,
Lightbridge will need to continue to invest in engineering, research and
development, and sales and marketing. There can be no assurance that Lightbridge
will have sufficient resources to make such investments or that Lightbridge will
be able to make the technological advances necessary to remain competitive. In
addition, current and potential competitors have established or may in the
future establish collaborative relationships among themselves or with third
parties, including third parties with whom Lightbridge has a relationship, to
increase the visibility and utility of their products and services. Accordingly,
it is possible that new competitors or alliances may emerge and rapidly acquire
a significant market share. If this were to occur, Lightbridge's business,
financial condition, results of operations and cash flow could be materially and
adversely affected.
GOVERNMENT REGULATION
The FCC, under the terms of the Communications Act of 1934, as amended,
regulates interstate communications and use of the radio spectrum. Although
Lightbridge is not required to and does not hold any licenses or other
authorizations issued by the FCC, the wireless carriers that constitute
Lightbridge's clients are regulated at both the federal and state levels.
Federal and state regulation may decrease the growth of the wireless
telecommunications industry, affect the development of the PCS or other wireless
markets, limit the number of potential clients for Lightbridge's services,
impede Lightbridge's ability to offer competitive services to the wireless
telecommunications market, or otherwise have a material adverse effect on
Lightbridge's business, financial condition, results of operations and cash
flow. The Telecommunications Act of 1996, which in large measure deregulated
the telecommunications industry, has caused, and is likely to continue to cause,
significant changes in the industry, including the entrance of new competitors,
consolidation of industry participants and the introduction of bundled wireless
and wireline services. Those changes could in turn subject Lightbridge to
increased pricing pressures, decrease the demand for Lightbridge's products and
services, increase Lightbridge's cost of doing business or otherwise have a
material adverse effect on Lightbridge's business, financial condition, results
of operations and cash flow.
As a result of offering its ProFile product, Lightbridge is subject to the
requirements of the Fair Credit Reporting Act as well as various state laws and
regulations. Although Lightbridge's business activities are not otherwise
within the scope of federal or state regulations applicable to credit bureaus
and financial institutions, Lightbridge must take into account such regulations
in order to provide products and services that help its clients
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<PAGE>
comply with such regulations. Lightbridge monitors regulatory changes and
implements changes to its products and services as appropriate. Although
Lightbridge attempts to protect itself by written agreements with its clients,
failure to reflect the provisions of such regulations in a timely or accurate
manner could possibly subject Lightbridge to liabilities that could have a
material adverse effect on Lightbridge's business, financial condition, results
of operations and cash flow.
PROPRIETARY RIGHTS
Lightbridge's success is dependent upon proprietary technology. Lightbridge
relies on a combination of copyrights, the law of trademarks, trade secrets and
employee and third-party non-disclosure agreements to establish and protect its
rights in its software products and proprietary technology. Lightbridge protects
the source code versions of its products as trade secrets and as unpublished
copyrighted works, and has internal policies and systems designed to limit
access to and require the confidential treatment of its trade secrets.
Lightbridge operates its Credit Decision System software on an outsourcing basis
for its clients. In the case of its Channel Solutions and Telecommunications
Intelligence products, Lightbridge provides the software under license
agreements that grant clients the right to use, but contain various provisions
intended to protect Lightbridge's ownership of and the confidentiality of the
underlying copyrights and technology. Lightbridge requires its employees and
other parties with access to its confidential information to execute agreements
prohibiting unauthorized use or disclosure of Lightbridge's technology. In
addition, all of Lightbridge's employees are required as a condition of
employment to enter into non-competition and confidentiality agreements with
Lightbridge.
There can be no assurance that the steps taken by Lightbridge to protect
its proprietary rights will be adequate to prevent misappropriation of its
technology or independent development by others of similar technology. It may be
possible for unauthorized parties to copy certain portions of Lightbridge's
products or reverse engineer or obtain and use information that Lightbridge
regards as proprietary. Lightbridge has no patents and existing copyright and
trade secret laws offer only limited protection. Lightbridge's non-competition
agreements with its employees may be enforceable only to a limited extent, if at
all. In addition, the laws of some foreign countries do not protect
Lightbridge's proprietary rights to the same extent as do the laws of the United
States. Lightbridge has been and may be required from time to time to enter into
source code escrow agreements with certain clients and distributors, providing
for release of source code in the event Lightbridge breaches its support and
maintenance obligations, files for bankruptcy or ceases to continue doing
business.
Lightbridge's competitive position may be affected by limitations on its
ability to protect its proprietary information. However, Lightbridge believes
that patent, trademark, copyright, trade secret and other legal protections are
less significant to Lightbridge's success than other factors, such as the
knowledge, ability and experience of Lightbridge's personnel, new product and
service development, frequent product enhancements, customer service and ongoing
product support.
Certain technologies used in Lightbridge's products and services are
licensed from third parties. Lightbridge generally pays license fees on these
technologies and believes that if the license for any such third-party
technology were terminated, it would be able to develop such technology
internally or license equivalent technology from another vendor, although no
assurance can be given that such development or licensing can be effected
without significant delay or expense.
Although Lightbridge believes that its products and technology do not
infringe on any existing proprietary rights of others, there can be no assurance
that third parties will not assert such claims against Lightbridge in the future
or that such future claims will not be successful. Lightbridge could incur
substantial costs and diversion of management resources with respect to the
defense of any claims relating to proprietary rights, which could have a
material adverse effect on Lightbridge's business, financial condition, results
of operations and cash flow. Furthermore, parties making such claims could
secure a judgment awarding substantial damages, as well as injunctive or other
equitable relief, which could effectively block Lightbridge's ability to make,
use, sell, distribute or market its products and services in the United States
or abroad. Such a judgment could have a material adverse effect on Lightbridge's
business, financial condition, results of operations and cash flow. In the
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<PAGE>
event a claim relating to proprietary technology or information is asserted
against Lightbridge, Lightbridge may seek licenses to such intellectual
property. There can be no assurance, however, that such a license could be
obtained on commercially reasonable terms, if at all, or that the terms of any
offered licenses will be acceptable to Lightbridge. The failure to obtain the
necessary licenses or other rights could preclude the sale, manufacture or
distribution of Lightbridge's products and, therefore, could have a material
adverse effect on Lightbridge's business, financial condition, results of
operations or cash flow. The cost of responding to any such claim may be
material, whether or not the assertion of such claim is valid.
EMPLOYEES
As of September 1, 1997, Lightbridge had a total of 319 employees, of which
270 were full-time and 49 were part-time or seasonal. The number of personnel
employed by Lightbridge varies seasonally. None of Lightbridge's employees is
represented by a labor union, and Lightbridge believes that its employee
relations are good.
The future success of Lightbridge will depend in large part upon its
continued ability to attract and retain highly skilled and qualified personnel.
Competition for such personnel is intense, particularly for sales and marketing
personnel, software developers and service consultants.
PROPERTIES
In March 1997 Lightbridge entered into a seven year lease for approximately
46,000 square feet in Burlington, Massachusetts. In August 1997 Lightbridge
relocated its headquarters from Waltham, Massachusetts to the Burlington
facility, and it currently subleases a portion of the 39,000 square foot
facility in Waltham. Lightbridge's teleservices group is located in a 27,000
square foot leased facility, also in Waltham, Massachusetts. The leases for
both Waltham facilities expire between 1999 and 2001.
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MANAGEMENT OF LIGHTBRIDGE
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Pamela D.A. Reeve 48 President, Chief Executive Officer and Director
William G. Brown 37 Chief Financial Officer, Vice President of
Finance and Administration, and Treasurer
Michael A. Perfit 41 Senior Vice President of Technology
Richard H. Antell 49 Vice President of Software Development
Douglas E. Blackwell 41 Vice President of Service Delivery
Andrew I. Fillat(1) 49 Director
Torrence C. Harder(1) 53 Director
Douglas A. Kingsley(2) 35 Director
D. Quinn Mills(2) 55 Director
</TABLE>
______________
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
PAMELA D.A. REEVE has served as the President of Lightbridge since November
1989, as Chief Executive Officer of Lightbridge since September 1993 and as a
director of Lightbridge since November 1989. From November 1989 to September
1993, Ms. Reeve also served as Chief Operating Officer of Lightbridge. Prior to
joining Lightbridge, Ms. Reeve was employed by The Boston Consulting Group. Ms.
Reeve is President of the Massachusetts Software Council and also serves as a
director of PageMart Wireless, Inc., a provider of wireless messaging services.
WILLIAM G. BROWN has served as Chief Financial Officer, Vice President of
Finance and Administration, and Treasurer of Lightbridge since June 1989. Prior
to joining Lightbridge, Mr. Brown was Manager of Financial Reporting and
Analysis for Bolt, Beranek and Newman, Inc. and was employed at Deloitte,
Haskins and Sells.
MICHAEL A. PERFIT, a founder of Lightbridge, has served as Senior Vice
President of Technology of Lightbridge since June 1991. From June 1989 to May
1991, Mr. Perfit served as Vice President of Engineering of Lightbridge. Prior
to joining Lightbridge, Mr. Perfit was Vice President of Appex, Inc. and held
engineering and technical support positions at Interactive Management Systems.
RICHARD H. ANTELL has served as Vice President of Software Development of
Lightbridge since February 1996. From June 1991 to January 1996, Mr. Antell was
Vice President of Engineering of Lightbridge. Prior to joining Lightbridge, Mr.
Antell served as Vice President of Application Development of Applied Expert
Systems, Inc. and Project Leader of Index Systems, Inc.
DOUGLAS E. BLACKWELL has served as Vice President of Service Delivery of
Lightbridge since November 1995. From October 1994 to October 1995, Mr.
Blackwell served as Vice President of Operations of Lightbridge. From February
1991 to September 1994, Mr. Blackwell was employed as Vice President of
Operations of Thomson Financial Services, Inc., an on-line financial transaction
and information services firm. Prior to February 1991, Mr. Blackwell was
employed at Nolan, Norton and Co., an affiliate of KPMG/Peat Marwick.
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<PAGE>
ANDREW I. FILLAT has served as a director of Lightbridge since April 1996.
Since July 1995, Mr. Fillat has served as Senior Vice President of Advent
International Corporation, a venture capital investment firm. From April 1989
to June 1995, Mr. Fillat served as Vice President of Advent International
Corporation.
TORRENCE C. HARDER, a founder of Lightbridge, has served as a director of
Lightbridge since June 1989. Mr. Harder has been the President and a director
of Harder Management Company, a registered investment advisory firm, since its
establishment in 1971. He has also been the President and a director of
Entrepreneurial Ventures, Inc. and Entrepreneurial Inc., venture capital
investment firms, since their foundings in 1987 and 1990, respectively.
DOUGLAS A. KINGSLEY has served as a director of Lightbridge since April
1996. Since January 1996, Mr. Kingsley has been Vice President of Advent
International Corporation, a venture capital investment firm. From September
1990 to December 1995, Mr. Kingsley was an investment manager at Advent
International Corporation. Mr. Kingsley is a director of LeCroy Corporation, a
manufacturer of electronic instrumentation.
D. QUINN MILLS has served as a director of Lightbridge since June 1990.
Since 1976, Dr. Mills has served as the Albert J. Weatherhead, Jr. Professor of
Economics at the Harvard Business School.
Lightbridge's Board of Directors is divided into three classes. One class
of directors is elected each year at the annual meeting of stockholders for a
term of office expiring after three years. Mr. Fillat and Dr. Mills serve in the
class whose term expires in 1998; Mr. Harder and Ms. Reeve serve in the class
whose term expires in 1999; and Mr. Kingsley serves in the class whose term
expires in 2000. Each director will serve until the expiration of his or her
term and thereafter until a successor is duly elected and qualified.
The Board of Directors of Lightbridge has a Compensation Committee which
provides recommendations concerning salaries and incentive compensation for
employees of and consultants to Lightbridge. In addition, the Board of
Directors of Lightbridge has an Audit Committee, which reviews the results and
scope of the audit and other services provided by Lightbridge's independent
auditors.
Directors of Lightbridge serve without compensation. Under Lightbridge's
1996 Incentive and Non-Qualified Stock Option Plan, non-employee directors of
Lightbridge are eligible to receive automatic formula grants of nonqualified
options.
Executive officers of Lightbridge are elected annually by the Board of
Directors and serve at its discretion or until their successors are duly elected
and qualified.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table provides certain summary
information concerning compensation paid to the Lightbridge's President and
Chief Executive Officer and its four other most highly compensated executive
officers (collectively, the "Lightbridge Named Executive Officers") for the
fiscal year ended December 31, 1996.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
----------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
-----------------------
NAME AND PRINCIPAL POSITION(S) SALARY($) BONUS($) OPTIONS(#) COMPENSATION (1)
- ---------------------------------------------------- ---------- ----------- ---------------- ------------------
<S> <C> <C> <C>
Pamela D.A. Reeve................................... $ 165,000 $ 60,000 -- $2,475
President and Chief Executive Officer
Richard H. Antell................................... 105,000 40,000 90,000 --
Vice President of Software Development
William G. Brown.................................... 108,462 65,000 70,000 1,488
Chief Financial Officer, Vice President of
Finance and Administration, and Treasurer
Douglas E. Blackwell................................ 105,000 40,000 90,000 787
Vice President of Service Delivery
Michael A. Perfit................................... 92,700 20,000 -- 695
Senior Vice President of Technology
</TABLE>
_________________
(1) Represents matching contributions made by Lightbridge pursuant to the
Lightbridge, Inc. 401(k) Plan.
Option Grants in Last Fiscal Year. The following table sets forth certain
information with respect to grants of stock options to the only Named Executive
Officers to whom stock options were granted during fiscal 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATE OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE EXPIRATION OPTION TERM(3)
--------------------------
GRANTED(#) FISCAL YEAR(1) ($/SH)(2) DATE 5%($) 10%($)
-------------- ----------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Antell............. 20,000(4) 11.0% $2.00 4-24-06 $ 25,156 $ 63,750
70,000(5) 8.50 6-14-06 374,192 948,277
William G. Brown.............. 70,000(5) 8.6 8.50 6-14-06 374,192 948,277
Douglas E. Blackwell.......... 70,000(4) 11.0 2.00 4-24-06 88,045 223,124
20,000(5) 8.50 6-14-06 106,912 270,936
</TABLE>
__________________
(1) In fiscal 1996 Lightbridge granted to employees options to purchase an
aggregate of 625,800 shares of Lightbridge Common pursuant to its 1990
Incentive and Nonqualified Stock Option Plan and options to purchase an
aggregate of 191,300 shares of Lightbridge Common pursuant to its 1996
Incentive and Non-Qualified Stock Option Plan.
(2) All options were granted at fair market value on the date of grant as
determined by the Compensation Committee, which determined the market value
of Lightbridge Common based on various factors, including the illiquid
nature of an investment in Lightbridge Common, Lightbridge's historical
financial performance and Lightbridge's future prospects.
(3) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming the specified compounded rates of appreciation of
the price of Lightbridge Common over the term of the options. These numbers
are calculated based on rules promulgated by the Securities and Exchange
Commission and do not represent Lightbridge's estimate of future stock
price growth. Any actual gains on stock option exercises and Lightbridge
Common holdings depend on the timing of such exercise and the future
performance of Lightbridge Common. There can be no assurance that the rates
of appreciation assumed in this table will be achieved or that the amounts
reflected will be received by the Lightbridge Named Executive Officers.
This table does not take into account any appreciation in the price of
Lightbridge Common from the date of grant to the current date. The values
shown are net of the option exercise price but do not include deductions
for taxes or other expenses associated with the exercise.
[footnotes continued on next page]
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<PAGE>
(4) All options were granted as incentive stock options that become exercisable
as to 20% of the shares subject thereto on the date of grant and an
additional 5% at the end of each three-month period thereafter.
(5) All options were granted as incentive stock options that become exercisable
as to 20% of the shares subject thereto on the first anniversary of the
date of grant and an additional 5% at the end of each three-month period
thereafter.
Option Exercises and Fiscal Year-End Values. The following table sets forth
certain information concerning stock options exercised during fiscal 1996 and
stock options held as of December 31, 1996 by each of the Lightbridge Named
Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ON REALIZED OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)(1)
-------------------------------- --------------------------------
NAME EXERCISE(#) ($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
---- ----------- --- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Pamela D.A. Reeve........ -- -- 362,000 108,000 $3,042,645 $ 888,930
Richard H. Antell........ 5,800 $ 38,686 70,200 164,000 570,552 721,250
William G. Brown......... -- -- 47,000 153,000 385,001 654,793
Douglas E. Blackwell..... 22,000 136,000 21,000 117,000 137,813 703,813
Michael A. Perfit........ -- -- -- -- -- --
</TABLE>
___________________
(1) Value is based on the last sale price of Lightbridge Common ($8.5625 per
share) on December 31, 1996, as reported by the Nasdaq National Market,
less the applicable option exercise price. These values have not been and
may never be realized. Actual gains upon exercise, if any, will depend on
the value of Lightbridge Common on the date of the sale of the shares.
EMPLOYMENT AGREEMENT
In August 1996 Lightbridge executed an employment agreement with Pamela
D.A. Reeve pursuant to which Lightbridge agreed to employ Ms. Reeve as President
and Chief Executive Officer at an initial base salary of $165,000 per year.
Ms. Reeve's base salary for 1997 is $200,000. The employment agreement is
terminable at will by either party, but if Ms. Reeve's employment is terminated
by Lightbridge for any reason, other than death or disability, within one year
after a change of control of Lightbridge or if Lightbridge terminates Ms.
Reeve's employment at any time without cause, Lightbridge is required to
continue to pay Ms. Reeve's salary for a period of twelve months after such
termination, offset by any amounts received by Ms. Reeve from subsequent
employment during such period.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF LIGHTBRIDGE
The following table sets forth certain information regarding the beneficial
ownership of Lightbridge Common as of September 1, 1997 by (i) each person known
by Lightbridge to own beneficially more than five percent of the outstanding
shares of Lightbridge Common, (ii) each director of Lightbridge, (iii) each of
the Lightbridge Named Executive Officers and (iv) all directors and executive
officers of Lightbridge as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(2)
----------------------------
NAME AND ADDRESSES(1) NUMBER PERCENT
--------------------- ------ -------
<S> <C> <C>
Advent International Investors II Limited Partnership
Advent Partners Limited Partnership
Global Private Equity II Limited Partnership(3)...................................... 2,000,000 12.9%
101 Federal Street
Boston, Massachusetts 02110
Torrence C. Harder (4)............................................................... 1,598,717 10.3
Massachusetts Capital Resource Company(5)............................................ 1,309,958 8.2
420 Boylston Street
Boston, Massachusetts 02116
Pamela D.A. Reeve(6)................................................................. 808,214 5.1
D. Quinn Mills(7).................................................................... 431,451 2.8
Michael A. Perfit(8)................................................................. 307,194 2.0
William G. Brown(9).................................................................. 132,500 *
Richard H. Antell(10)................................................................ 105,200 *
Douglas E. Blackwell(11)............................................................. 81,250 *
Andrew I. Fillat(12)................................................................. 5,500 *
Douglas A. Kingsley(13).............................................................. 5,500 *
All directors and executive officers as a group (9 persons)(14)...................... 3,475,526 21.5
</TABLE>
________________________
* Less than 1%.
(1) Unless otherwise specified, the address is in care of Lightbridge, 67 South
Bedford Street, Burlington, Massachusetts 01803.
(2) Unless otherwise noted, each person or group identified possessed sole
voting and investment power with respect to such shares, subject to
community property laws where applicable. Shares not outstanding but deemed
beneficially owned by virtue of the right of a person or group to acquire
them within sixty days of September 1, 1997 are treated as outstanding only
for purposes of determining the amount and percent owned by such person or
group. As of September 1, 1997, 15,538,251 shares of Lightbridge Common
were outstanding.
(3) Consists of 1,668 shares held by Advent International Investors II Limited
Partnership, 93,332 shares held by Advent Partners Limited Partnership and
1,905,000 shares held by Global Private Equity II Limited Partnership.
Advent International Corporation is the general partner of Advent
International Investors II Limited Partnership, Advent Partners Limited
Partnership and Advent International Limited Partnership, which is the
general partner of Global Private Equity II Limited Partnership. Because
Advent International Corporation is controlled by a group of four persons,
none of whom may act independently and a majority of whom must act in
concert to exercise voting or investment power over the holdings of such
entity, individually, no individual in this group is deemed to share such
voting or investment power.
[footnotes continued on next page]
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<PAGE>
(4) Includes 280,000 shares beneficially owned by a trust for the benefit of
Mr. Harder's children, 7,400 shares owned by Mr. Harder's wife and
children, 822,460 shares owned by a trust of which Mr. Harder is the
trustee and beneficiary, 20,000 shares held by the Torrence C. Harder
Cultural Foundation, of which Mr. Harder is the trustee, 236,672 shares
held by Entrepreneurial Ventures, Inc., 1,469 shares held by
Entrepreneurial, Inc., 50,000 shares held by Entrepreneurial Limited
Partnership IV and 12,500 shares purchasable upon exercise of a warrant
held by Entrepreneurial Limited Partnership III. Mr. Harder is the
President of Entrepreneurial Ventures, Inc., the President of
Entrepreneurial, Inc. and a general partner of both Entrepreneurial Limited
Partnership III and Entrepreneurial Limited Partnership IV. Mr. continued
on Harder is a director of Lightbridge.
(5) Includes 500,000 shares currently purchasable upon exercise of a warrant.
William J. Torpey, Jr. is the President, and Joan C. McArdle is the Vice
President, of Massachusetts Capital Resource Company, and as a result of
these relationships, Mr. Torpey and Ms. McArdle may be deemed to be the
beneficial owners of the shares held by Massachusetts Capital Resource
Company.
(6) Includes 4,400 shares held in trust for the benefit of Ms. Reeve's children
and 395,000 shares subject to stock options exercisable within 60 days of
September 1, 1997. Ms. Reeve is the President and Chief Executive Officer
and a director of Lightbridge.
(7) Includes 341,466 shares held by the D. Quinn Mills Profit Sharing Plan. Dr.
Mills is a director of Lightbridge.
(8) Consists of 319,194 shares held by various trusts and a pension plan for
the benefit of Mr. Perfit and 4,000 shares purchasable upon exercise of a
warrant held by various trusts and a pension plan for the benefit of Mr.
Perfit. Mr. Perfit is the Senior Vice President of Technology of
Lightbridge.
(9) Includes 8,800 shares held in various trusts for the benefit of Mr. Brown's
children, niece and nephew and 52,500 shares subject to stock options
exercisable within 60 days of September 1, 1997. Mr. Brown disclaims
beneficial ownership of 2,200 shares held in trusts for the benefit of his
niece and nephew. Mr. Brown is the Chief Financial Officer, Vice President
of Finance and Administration and Treasurer of Lightbridge.
(10) Consists of 93,900 shares subject to stock options exercisable within 60
days of September 1, 1997. Mr. Antell is the Vice President of Software
Development of Lightbridge.
(11) Consists of 59,250 shares subject to stock options exercisable within 60
days of September 1, 1997. Mr. Blackwell is the Vice President of Service
Delivery of Lightbridge.
(12) Consists of shares held by Advent Partners Limited Partnership. Mr. Fillat
holds a limited partnership interest in Advent Partners Limited Partnership
representing beneficial ownership of the shares listed in the table. Mr.
Fillat is a director of Lightbridge.
(13) Consists of shares held by Advent Partners Limited Partnership. Mr.
Kingsley holds a limited partnership interest in Advent Partners Limited
Partnership representing beneficial ownership of the shares listed in the
table. Mr. Kingsley is a director of Lightbridge.
(14) Represents shares described in Notes 3, 6, 7, 8, 9, 10, 11, 12 and 13.
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DESCRIPTION OF LIGHTBRIDGE CAPITAL STOCK
The authorized capital stock of Lightbridge consists of 60,000,000 shares
of Lightbridge Common and 5,000,000 shares of preferred stock, $.01 par value
per share ("Lightbridge Preferred"). As of September 1, 1997 there were
outstanding (i) 15,538,251 shares of Lightbridge Common held by 183 holders of
record and (ii) options to purchase 1,763,292 shares of Lightbridge Common.
The following summary of certain provisions of Lightbridge Common and
Lightbridge Preferred does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Lightbridge Charter and
applicable law. See also "Comparison of Stockholders' Rights."
LIGHTBRIDGE COMMON
Holders of Lightbridge Common are entitled to one vote per share for each
share held of record on all matters submitted to a vote of stockholders. Holders
of Lightbridge Common do not have cumulative voting rights, and therefore the
holders of a majority of the shares of Lightbridge Common voting for the
election of directors may elect all of Lightbridge's directors standing for
election. Subject to preferences that may be applicable to the holders of
outstanding shares of Lightbridge Preferred, if any, the holders of Lightbridge
Common are entitled to receive such lawful dividends as may be declared by the
Board of Directors of Lightbridge. In the event of a liquidation, dissolution or
winding up of the affairs of Lightbridge, whether voluntary or involuntary, and
subject to the rights of the holders of outstanding shares of Lightbridge
Preferred, if any, the holders of shares of Lightbridge Common shall be entitled
to receive pro rata all of the remaining assets of Lightbridge available for
distribution to its stockholders. Lightbridge Common has no preemptive,
redemption, conversion or subscription rights. All outstanding shares of
Lightbridge Common are, and the shares of Lightbridge Common to be issued
pursuant to the Merger will be, fully paid and nonassessable. The issuance of
Lightbridge Common or of rights to purchase Lightbridge Common could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding voting stock of Lightbridge.
LIGHTBRIDGE PREFERRED
The Board of Directors of Lightbridge is authorized, subject to any
limitations prescribed by Delaware Law, to provide for the issuance of
Lightbridge Preferred in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the powers,
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of the shares of
each such series and to increase (but not above the total number of authorized
shares of Lightbridge Preferred) or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any such series without
further vote or action by the stockholders. The Board of Directors of
Lightbridge is authorized to issue Lightbridge Preferred with voting, conversion
and other rights and preferences that could adversely affect the voting power or
other rights of the holders of Lightbridge Common. Although Lightbridge has no
current plans to issue such shares, the issuance of Lightbridge Preferred or of
rights to purchase Lightbridge Preferred could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, a majority of the outstanding voting stock of
Lightbridge.
WARRANTS
Lightbridge has issued warrants to purchase an aggregate of 847,016 shares
of Lightbridge Common, subject to certain antidilution adjustments. The warrants
to purchase 747,016 shares of Lightbridge Common have an exercise price of $2.00
per share, and the warrants to purchase 100,000 shares of Lightbridge Common
have an exercise of $10.00 per share. All of the warrants are exercisable in
full. The warrants expire on dates between September 1999 and July 2001. The
holders of the warrants are entitled to certain registration rights in respect
of the shares of Lightbridge Common issuable upon exercise of the warrants.
77
<PAGE>
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CHARTER AND BY-LAWS AND OF
DELAWARE LAW
RESTATED CHARTER AND BY-LAWS. The Restated Charter and the Restated By-Laws
contain certain provisions that could discourage potential takeover attempts and
make more difficult attempts by stockholders to change Lightbridge's management.
The Restated Charter authorizes the directors to issue, without stockholder
approval, shares of Lightbridge Preferred in one or more series and to fix the
voting powers, preferences and rights and the qualifications, limitations and
restrictions thereof. The Restated By-Laws provide for the division of the Board
of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management of Lightbridge." The classification
of the Board of Directors could make it more difficult for a third party to
acquire, or discourage a third party from acquiring, control of Lightbridge. The
Restated Charter provides that stockholders may act only at meetings of
stockholders and not by written consent in lieu of a stockholders' meeting. The
Restated By-Laws provide that nominations for directors may not be made by
stockholders at any annual or special meeting thereof unless the stockholder
intending to make a nomination notifies Lightbridge of its intentions a
specified number of days in advance of the meeting and furnishes to Lightbridge
certain information regarding itself and the intended nominee. These provisions
could delay any stockholder actions that are favored by the holders of a
majority of the outstanding stock of Lightbridge until the next stockholders'
meeting. These provisions may also discourage another person or entity from
making a tender offer for Lightbridge Common, because such person or entity,
even after acquiring a majority of the outstanding stock of Lightbridge, could
only take action at a duly called stockholders' meeting and not by written
consent. The Restated By-Laws also provide that special meetings of
Lightbridge's stockholders may be called only by the President or a majority of
the directors and require advance notice of business to be brought by a
stockholder before any annual or special meeting of stockholders and the
provision of certain information to Lightbridge regarding such stockholder and
others known to be supporting such proposal and any material interest they may
have in the proposed business.
DELAWARE ANTI-TAKEOVER STATUTE. Lightbridge is subject to Section 203 of
the Delaware Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the interested stockholder.
Section 203 defines "business combination" to include (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition involving the interested stockholder
of 10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person associated with, affiliated with or
controlling or controlled by such entity or person.
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<PAGE>
LIMITATION OF LIABILITY
The Restated Charter provides that no director of Lightbridge shall be
personally liable to Lightbridge or to any stockholder for monetary damages
arising out of such director's breach of fiduciary duty, except to the extent
that the elimination or limitation of liability is not permitted by the Delaware
Law. The Delaware Law, as currently in effect, permits charter provisions
eliminating the liability of directors for breach of fiduciary duty, except that
directors remain liable for (i) any breach of the director's duty of loyalty to
a company or its stockholders, (ii) any acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) any
payment of a dividend or approval of a stock purchase that is illegal under
Section 174 of the Delaware Law or (iv) any transaction from which the director
derived an improper personal benefit. A principal effect of this provision of
the Restated Charter is to limit or eliminate the potential liability of
Lightbridge's directors for monetary damages arising from breaches of their duty
of care, unless the breach involves one of the four exceptions described in (i)
through (iv) above. The provision does not prevent stockholders from obtaining
injunctive or other equitable relief against directors, nor does it shield
directors from liability under federal or state securities laws.
The Restated Charter and the Restated By-Laws further provide for the
indemnification of Lightbridge's directors and officer to the fullest extent
permitted by Section 145 of the Delaware Law, including circumstances in which
indemnification is otherwise discretionary.
STOCK TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Lightbridge Common is American Stock
Transfer & Trust Company.
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<PAGE>
SELECTED FINANCIAL DATA OF CORAL
The following selected financial data of Coral for the three years ended
December 31, 1994, 1995 and 1996 and as of December 31, 1995 and 1996 have
been derived from Coral's audited Financial Statements included elsewhere in
this Proxy Statement/Prospectus. The report of Price Waterhouse LLP, independent
accountants for Coral, with respect to those Financial Statements contains an
explanatory paragraph with respect to Coral's recurring losses from operations
and accumulated deficit, which raise substantial doubt about Coral's ability to
continue as a going concern. Selected financial data for the six months ended
June 30, 1996 and 1997 and as of June 30, 1997 have been derived from Coral's
unaudited Financial Statements included elsewhere in this Proxy
Statement/Prospectus. In the opinion of Coral's management, the unaudited
financial information presented reflects all adjustments, consisting only of
normal, recurring adjustments, necessary for a fair presentation of the
financial information for each such period. Operating results for the six months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for any other interim period or for the year ending December 31, 1997.
This data should be read in conjunction with the Financial Statements of Coral
and Notes thereto and the other financial information of Coral included
elsewhere in this Proxy Statement/Prospectus. See "Coral Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses....................................... $ -- $ 215 $ 1,036 $ 2,485 $ 7,263 $ 2,165 $ 2,924
Services and other...................................... 699 179 240 625 638 202 623
Hardware................................................ -- 110 141 780 791 219 163
------ ------- ------- ------- ------- ------- -------
Total revenue........................................ 699 504 1,417 3,890 8,692 2,586 3,710
------ ------- ------- ------- ------- ------- -------
Cost of revenue:
Software licenses....................................... -- 58 122 526 561 182 363
Services and other...................................... 140 75 258 645 816 319 491
Hardware................................................ -- 111 128 738 618 150 158
------ ------- ------- ------- ------- ------- -------
Total cost of revenue................................ 140 244 508 1,909 1,995 651 1,012
------ ------- ------- ------- ------- ------- -------
Gross profit.............................................. 559 260 909 1,981 6,697 1,935 2,698
Operating expenses:
Research and development................................ 514 414 573 2,160 2,792 1,285 1,766
Sales and marketing..................................... 133 158 645 1,870 3,579 1,487 1,639
General and administrative.............................. 417 677 886 1,351 2,533 1,026 1,473
Stock offering costs(1)................................. -- -- -- -- 676 -- --
------ ------- ------- ------- ------- ------- -------
Total operating expenses............................. 1,064 1,249 2,104 5,381 9,580 3,798 4,878
------ ------- ------- ------- ------- ------- -------
Loss from operations...................................... (505) (989) (1,195) (3,400) (2,883) (1,863) (2,180)
Other income (expense), net............................... 3 (61) (33) 9 15 (52) (2)
------ ------- ------- ------- ------- ------- -------
Loss before extraordinary item............................ (502) (1,050) (1,228) (3,391) (2,868) (1,915) (2,182)
Extraordinary item:
Gain on extinguishment of debt and other liabilities (2).. -- -- -- -- 243 -- --
------ ------- ------- ------- ------- ------- -------
Net loss.................................................. $ (502) $(1,050) $(1,228) $(3,391) $(2,625) $(1,915) $(2,182)
====== ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- ------------------
1992 1993 1994 1995 1996 1997
------ ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 215 $ 62 $ 83 $ 1,023 $ 2,335 $ 62
Total assets.............................................. 312 355 1,092 2,958 5,770 3,730
Long-term debt, net of current portion.................... 167 500 22 146 286 146
Stockholders' equity (deficit)(3)......................... (450) (1,518) (754) 138 1,573 (568)
</TABLE>
______________
(1) During 1996, Coral incurred $676,100 of costs associated with the filing of
a registration statement with the Commission for an initial public offering
of shares of Coral Common. Subsequent to December 31, 1996, Coral withdrew
its registration statement with respect to its initial public offering. As
a result, costs associated with the offering were expensed in the year
ended December 31, 1996.
(2) In September 1996, Coral paid $415,000 in full settlement of a previously
recorded net liability of $658,300, resulting in a gain of $243,300.
(3) Coral has never declared or paid any cash dividends on any class of Coral
Capital Stock.
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<PAGE>
CORAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data of Coral" and the Financial Statements of Coral and
Notes thereto included elsewhere in this Proxy Statement/Prospectus. The
following discussion contains forward-looking statements that involve risks and
uncertainties, such as statements of Coral's plans, objectives, expectations and
intentions. In evaluating such statements, Coral stockholders should consider
specifically the risk factors set forth below and identified elsewhere in this
Proxy Statement/Prospectus. See "Forward-Looking Statements."
OVERVIEW
Coral was founded in 1991 and develops, markets and supports software
solutions for the wireless telecommunications industry. Prior to the fourth
quarter of 1993, Coral operated as a development stage company with revenue
consisting solely of software development fees. The report of Price Waterhouse
LLP, independent accountants for Coral, with respect to Coral's Financial
Statements as of December 31, 1995 and 1996 and for the years ended December 31,
1994, 1995 and 1996 contains an explanatory paragraph with respect to Coral's
recurring losses from operations and accumulated deficit, which raise
substantial doubt about Coral's ability to continue as a going concern. See Note
12 to the Financial Statements of Coral.
Coral did not begin to generate significant revenue until the second quarter
of 1995. During 1995, 1996 and the six months ended June 30, 1997,
approximately 51.1%, 62.7% and 58.0%, respectively, of Coral's total revenue was
attributable to licenses of FraudBuster, Coral's fraud profiling software
product. In addition, a significant portion of Coral's service and hardware
revenue for these periods was directly attributable to the licensing of
FraudBuster.
Coral generates revenue from software licenses, services (including
maintenance, installation and training), development and consulting contracts,
and certain hardware sold in conjunction with software licenses. Coral's
software license agreements typically provide for an initial license fee and an
annual maintenance fee for a defined number of subscribers, as well as
additional license and maintenance fees for net subscriber additions. This
provides a potential ongoing revenue stream, which enables Coral to benefit from
growth in the subscriber base of its customers. Coral also has entered into
license agreements that provide for either a one-time license fee or a monthly
license fee, each of which has an annual maintenance fee with no additional fee
based on incremental subscriber growth. Revenue from initial license fees with
end users is recognized when the product has been delivered and Coral has
satisfied all significant performance obligations, unless terms of the sales
arrangement provide for customer acceptance that is based on non-standard
performance or other terms. In the latter case, revenue is recognized when the
customer accepts the product pursuant to those terms. Revenue for incremental
subscriber growth, if any, is recognized at the date subscriber growth is
calculated and the revenue is earned pursuant to the terms of the relevant
software license agreement. Monthly license fees are recognized as earned on a
monthly basis. Maintenance revenue is recognized ratably over the term of the
maintenance agreement. Service revenue for installation and training is
recognized as the service is performed. Revenue from development and consulting
contracts is generally recognized as the services are performed, using the
percentage of completion method. Hardware is sold only in conjunction with
software licenses when required by the customer and such revenue is deferred
until the related license revenue is recognized.
Coral licenses its software products through a direct sales force,
international sales agents and distributors. Distributors include vendors of
telecommunications switching equipment, computer hardware and database software.
Sales agreements with distributors typically do not include any rights of return
or provisions for the future adjustment of the selling price. Coral recognizes
revenue from these transactions at the time the products are shipped to the
distributor, unless payment terms are contingent on the distributor's subsequent
resale or other significant matters. In those latter cases, revenue is not
recognized until the contingencies are resolved. To date, a significant portion
of Coral's revenue in any particular period has been attributable to a limited
number of customers which are comprised of both distributors and wireless
service providers that purchased products and services directly from Coral.
Coral expects a relatively small number of customers will continue to represent
a
81
<PAGE>
significant percentage of its total revenue for the foreseeable future, although
the companies that comprise the largest customers in any given quarter are
expected to change from quarter to quarter. License revenue from all
distributors accounted for approximately 33.1%, 42.6% and 70.3% of Coral's total
revenue in 1995, 1996 and the six months ended June 30, 1997, respectively.
Revenue from international installations accounted for approximately 34.7%,
16.0% and 25.2% of Coral's total revenue in 1995, 1996 and the six months ended
June 30, 1997, respectively, and Coral expects that international revenue may,
in the future, account for a significant portion of Coral's total revenue.
International revenue is subject to a number of inherent risks, including
increased practical and legal difficulties in accounts receivable collection.
Cost of software license revenue primarily includes fees paid to third-
party software vendors, as well as costs associated with implementation of the
application software when necessary. Cost of service revenue consists primarily
of expenses for personnel engaged in customer support, installation, training
and consulting services. Cost of hardware consists of hardware purchased from
third party vendors plus shipping costs. Coral's gross margin has varied
significantly in the past and may vary significantly in the future, depending
primarily on the mix of services and products licensed or sold by Coral.
Coral's software licenses have a substantially higher gross margin than its
services and hardware revenue. Therefore, to the extent Coral's total revenue
for any particular period includes a higher proportion of lower margin services
or hardware, there will be an adverse effect on Coral's operating results.
The sale of Coral's software products to wireless carriers typically
involves a lengthy sales cycle ranging from 6 to 18 months. The length of the
sales cycle for Coral's products has caused, and may continue to cause, material
fluctuations in Coral's revenue and operating results on a quarterly and annual
basis. As a result, period-to-period comparisons on a quarterly or annual basis
are not necessarily meaningful and should not be relied upon as indicators of
Coral's future performance.
RESULTS OF OPERATIONS
The following table presents certain items from Coral's statements of
operations expressed as a percentage of total revenue for the respective
periods.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
---------------------------------------------------------------------
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------- -----------------------------
1994 1995 1996 1996 1997
---------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses............................... 73.1% 63.9% 83.6% 83.7% 78.8%
Services and other.............................. 16.9 16.1 7.3 7.8 16.8
Hardware........................................ 10.0 20.0 9.1 8.5 4.4
------ ------ ------ ------ ------
Total revenue........................ 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Cost of revenue:
Software licenses............................... 8.6 13.5 6.5 7.0 9.8
Services and other.............................. 18.2 16.6 9.4 12.3 13.2
Hardware........................................ 9.1 19.0 7.1 5.8 4.3
------ ------ ------ ------ ------
Total cost of revenue................ 35.9 49.1 23.0 25.1 27.3
------ ------ ------ ------ ------
Gross profit........................................ 64.1 50.9 77.0 74.9 72.7
------ ------ ------ ------ ------
Operating expenses:
Research and development....................... 40.4 55.5 32.1 49.7 47.6
Sales and marketing............................ 45.5 48.1 41.2 57.5 44.2
General and administrative..................... 62.5 34.7 29.1 39.7 39.7
Stock offering costs........................... -- -- 7.8 -- --
------ ------ ------ ------ ------
Total operating expenses............. 148.4 138.3 110.2 146.9 131.5
------ ------ ------ ------ ------
Loss from operations................................ (84.3) (87.4) (33.2) (72.0) (58.8)
Other income (expense), net......................... (2.4) 0.2 0.2 (2.0) --
------ ------ ------ ------ ------
Loss before extraordinary item...................... (86.7) (87.2) (33.0) (74.0) (58.8)
Extraordinary item:
Gain on extinguishment of debt and other
liabilities................................. -- -- 2.8 -- --
------ ------ ------ ------ ------
Net loss............................................ (86.7)% (87.2)% (30.2)% (74.0)% (58.8)%
====== ====== ====== ====== ======
</TABLE>
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<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
REVENUE. Total revenue increased 43.5% from $2.6 million in the six months
ended June 30, 1996 to $3.7 million in the six months ended June 30, 1997.
Software Licenses. Revenue from software licenses increased 35.1%
from $2.2 million in the six months ended June 30, 1996 to $2.9 million in
the six months ended June 30, 1997 and represented 83.7% and 78.8%,
respectively, of total revenue in these periods. The increase in software
license revenue for the six months ended June 30, 1997 was primarily
attributable to revenue from a ChurnAlert license and, to a lesser extent,
to increased revenue from FraudBuster licenses during this period.
Services and Other. Service revenue increased over 200% from $202,000
in the six months ended June 30, 1996 to $623,700 in the six months ended
June 30, 1997 and represented 7.8% and 16.8%, respectively, of total
revenue in these periods. Service revenue was higher in the 1997 period due
to increased maintenance revenue resulting from an increase in cumulative
software licenses sold by Coral.
Hardware. Hardware revenue decreased from $219,000 in the six months
ended June 30, 1996 to $162,700 in the six months ended June 30, 1997 and
represented 8.5% and 4.4%, respectively, of total revenue in these periods.
The decrease in hardware revenue resulted from a lack of hardware being
sold in conjunction with new software licenses. The only sale of hardware
in 1997 was for a hardware upgrade to a customer that originally purchased
a FraudBuster license and related hardware in 1994.
COST OF REVENUE. Cost of revenue was $650,600 and $1,012,300 for the six
months ended June 30, 1996 and 1997, respectively. Overall gross profit as a
percentage of total revenue decreased from 74.9% in the six months ended June
30, 1996 to 72.7% in the six months ended June 30, 1997. This decrease was
primarily attributable to a decrease in software license revenue as a percentage
of total revenue and an increase in service revenue, which contributes a lower
gross margin.
Software Licenses. Cost of software licenses increased from $182,000
in the six months ended June 30, 1996 to $362,600 in the six months ended
June 30, 1997. Software license gross profit as a percentage of software
license revenue decreased from 91.6% in the six months ended June 30, 1996
to 87.6% in the six months ended June 30, 1997. This decrease was primarily
attributable to higher third-party software costs as a percentage of total
software license revenue. The increase in third-party software expenses as
a percentage of total software license revenue was a result of a third-
party software license upgrade by an existing customer.
Services and Other. Cost of services increased from $318,500 in the
six months ended June 30, 1996 to $490,900 in the six months ended June 30,
1997, but decreased as a percentage of service revenue from 157.7% in the
six months ended June 30, 1996 to 78.7% in the six months ended June 30,
1997. This decrease as a percentage of revenue was due primarily to
increased maintenance fee revenue resulting from a larger customer base as
well as more cost efficient customer support operations. In addition,
during the 1996 period Coral incurred expenses to hire and train personnel
in anticipation of increased customer installations and future support
requirements.
Hardware. Cost of hardware increased from $150,100 in the six months
ended June 30, 1996 to $158,800 in the six months ended June 30, 1997, and
increased as a percentage of hardware revenue from 68.5% in the six months
ended June 30, 1996 to 97.6% in the six months ended June 30, 1997. This
increase in the 1997 period was due to Coral's decision to provide a
hardware upgrade to an existing customer at a nominal margin.
RESEARCH AND DEVELOPMENT. Research and development costs primarily consist
of salaries and other personnel-related expenses, supplies, depreciation of
development equipment and third party contract resources used in the development
of Coral's software products. Research and development expenses increased from
$1.3 million in the six months ended June 30, 1996 to $1.8 million in the six
months ended June 30, 1997,
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<PAGE>
primarily due to costs related to enhancing existing products and the
development of new products. Research and development expenses represented 49.7%
and 47.6% of total revenue in the six months ended June 30, 1996 and 1997,
respectively. Coral has not capitalized any software costs to date.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries and other personnel-related expenses including commissions, promotional
activities, public relations, consulting services and travel expenses related to
sales and marketing activities. Sales and marketing expenses increased from
$1.5 million in the six months ended June 30, 1996 to $1.6 million in the six
months ended June 30, 1997. This increase was due to increased sales
commissions resulting from higher levels of revenue, as well as slightly higher
expenses associated with international sales activity and promotional spending.
Sales and marketing expenses represented 57.5% and 44.2% of total revenue in the
six months ended June 30, 1996 and 1997, respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other personnel-related expenses, as well as
occupancy, insurance and professional services expenses. General and
administrative expenses increased from $1.0 million in the six months ended June
30, 1996, to $1.5 million in the six months ended June 30, 1997. This increase
was primarily due to a severance agreement with an officer of Coral, the
addition of executive management and support personnel, as well as facility
expansion and other related expenses necessary to manage Coral's operations.
PROVISION (BENEFIT) FOR INCOME TAXES. Income taxes are accounted for in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Due to Coral's history of pre-tax losses and uncertainty
surrounding the timing of realizing the benefits of its favorable tax
attributes, Coral has recorded a valuation allowance against all of its net
deferred tax assets as of June 30, 1997.
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
REVENUE. Total revenue increased from $1.4 million in 1994 to $3.9 million
in 1995 and to $8.7 million in 1996, due to significant increases in software
license revenue during such periods.
Software Licenses. Software license revenue was $1.0 million, $2.5
million, and $7.3 million in 1994, 1995 and 1996, respectively. Software
license revenue consisted primarily of licenses of Coral's FraudBuster
product in all three years.
Services and Other. Service revenue was $239,700, $624,700 and
$637,700, in 1994, 1995 and 1996, respectively. In 1994 and 1995,
respectively, service revenue consisted of product development fees for
both FraudBuster and ChurnAlert of $203,000 and $373,000. The remaining
service revenue in 1994 and 1995 was primarily from maintenance,
installation and training fees derived from Coral's software product
licenses. In 1996 service revenue was derived primarily from maintenance
fees and, to a lesser extent, from training and installation fees.
Hardware. Hardware revenue was $140,800, $780,500, and $790,800, in
1994, 1995 and 1996, respectively. The increase in hardware revenue from
1994 to 1995 was a result of the increase in software license sales.
Although software license sales continued to grow in 1996, hardware revenue
in aggregate terms remained relatively flat due to decreased customer
demand for Coral to provide hardware in conjunction with its software
product licenses.
COST OF REVENUE. Cost of revenue was $508,300, $1.9 million and $2.0
million in 1994, 1995 and 1996, respectively. Overall gross profit as a
percentage of revenue decreased from 64.1% in 1994 to 50.9% in 1995 and
increased to 77.0% in 1996. Overall gross profit fluctuated as a percentage of
total revenue due to changes in the amount of lower margin service and
hardware revenue as a percentage of total revenue.
Software Licenses. The cost of software licenses increased from
$122,000 in 1994 to $526,000 in 1995, and increased to $560,600 in 1996,
each as a direct result of increased revenue from software licenses.
Software license gross profit decreased as a percentage of software license
revenue from 88.2%
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<PAGE>
in 1994 to 78.8% in 1995, and increased to 92.3% in 1996. The changes in
gross profit of software licenses were the result of changes in the average
license fee of Coral's application software licenses, as well as the cost
of third party software associated with specific software application
licenses.
Services and Other. Cost of services increased from $258,000 in 1994
to $644,700 in 1995, and increased to $816,000 in 1996. Cost of services as
a percentage of service revenue decreased from 107.5% in 1994 to 103.2% in
1995, and increased to 128.0% in 1996. Cost of services in absolute dollars
increased in 1995 and 1996 due to an increase in customer support personnel
and related maintenance expenses incurred in anticipation of new customer
installations and future support requirements.
Hardware. Cost of hardware increased from $128,300 in 1994 to
$738,300 in 1995, and decreased to $617,900 in 1996, primarily due to
changing levels of hardware sold in conjunction with software licenses.
Cost of hardware as a percentage of hardware revenue increased from 91.1%
in 1994 to 94.6% in 1995, and decreased to 78.1% in 1996. The decrease in
1996 was a result of Coral obtaining significant discounts on larger
hardware purchases.
RESEARCH AND DEVELOPMENT. Research and development expenses were $572,700,
$2.2 million and $2.8 million in 1994, 1995 and 1996, respectively, and
represented 40.4%, 55.5% and 32.1% of Coral's total revenue in such periods.
The increases in absolute dollars in 1995 and 1996 were the result of increased
personnel and related expenses for the enhancement of existing products and the
research and development of new products.
SALES AND MARKETING. Sales and marketing expenses were $645,300, $1.9
million and $3.6 million in 1994, 1995 and 1996, respectively, and represented
45.6%, 48.1% and 41.2% of Coral's total revenue in such periods. Prior to 1994,
Coral relied primarily on reseller and distribution channels for the marketing
and sale of Coral's products. In late 1994, Coral began building a direct sales
force as well as an infrastructure to manage distribution channels, which
significantly contributed to the increase in sales and marketing expenses. The
increase in sales and marketing expenses from 1994 to 1995 was a result of
increased personnel and related expenses for Coral's continued development of a
direct sales force and distribution channels, which in 1995 began to expand into
international markets. The increase from 1995 to 1996 was primarily
attributable to additional personnel and related expenses for selling, marketing
and promotional activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$885,600, $1.4 million and $2.5 million in 1994, 1995 and 1996, respectively,
and represented 62.5%, 34.7% and 29.1% of Coral's total revenue in such periods.
The increase in general and administrative expenses in each period primarily
resulted from increased personnel, facilities, professional services and other
expenses necessary to manage and support Coral's growth.
STOCK OFFERING COSTS. During 1996 Coral incurred $676,100 of costs
associated with the filing of a registration statement with the Commission.
Subsequent to December 31, 1996, Coral withdrew its registration statement with
respect to its initial public offering and expensed all related costs.
PROVISION (BENEFIT) FOR INCOME TAXES. Coral did not report any tax
provision (benefit) during any of three years ended December 31, 1994, 1995 or
1996. Coral recorded a valuation allowance against all of its net deferred tax
assets as of each of these respective year ends.
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT AND OTHER LIABILITIES. During
1996 Coral extinguished a previously recorded net liability of $658,300. Coral
settled the above obligation for $415,000, resulting in a $243,300 extraordinary
gain. Coral incurred $127,200 in legal fees associated with this transaction
that were included in general and administrative expenses.
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LIQUIDITY AND CAPITAL RESOURCES
Coral has funded its operations to date primarily through the private
placements of equity and debt securities, capital equipment leases, and, to a
lesser extent, bank borrowings. Since inception, Coral has raised $10.9 million
of gross proceeds from the sale of its capital stock. Net cash used in
operations for 1994, 1995, 1996, and the six months ended June 30, 1997,
totalled $1.3 million, $3.0 million, $1.5 million and $2.0 million,
respectively.
Net cash used in investing activities for 1994, 1995, 1996, and the six
months ended June 30, 1997, totalled $195,000, $316,000, $522,000 and $478,000,
respectively. Investment activities have been primarily for the purchase of
hardware and software used in product development, as well as fixtures and
equipment to support Coral's operations. During 1995, Coral secured a $750,000
capital equipment lease line, all of which has been used. The lease line
requires monthly payments over three years, commencing from the date of the
funding of each equipment schedule.
In addition to the capital equipment lease line, Coral has a $750,000 and a
$530,000 revolving variable rate note with a bank. At June 30, 1997 and
September 25, 1997, Coral had drawn down $500,000 and $740,000, respectively, on
the $750,000 note and had drawn down the full amount of the $530,000 note. The
$750,000 and $530,000 notes mature on April 26, 1998, and October 22, 1997,
respectively, and provide for monthly interest payments at the bank's prime rate
plus 1.25%, with the principal due at maturity. The notes are secured by all
cash, accounts receivable, furniture and equipment, inventory and all
transferable third party software rights of Coral. The amount that can be drawn
on the notes is limited to the sum of 70% of accounts receivable which are no
more than 60 days past due, 50% of the net book value of equipment owned by
Coral, and 50% of the net book value of Coral's inventory.
Coral may receive, on occasion, advance payments prior to delivery and
acceptance of its products and services. Such advance payments are treated as
deferred revenue until such time as performance requirements and customer
acceptance are achieved.
A hardware manufacturer advanced Coral $400,000 in 1992 for the development
of one of Coral's products to operate on the manufacturer's hardware. Coral has
an agreement with the hardware manufacturer by which Coral earns revenue based
on a percentage of the sales price of the manufacturer's hardware sold by Coral.
Any revenue earned by Coral from the sale of the manufacturer's hardware will
first be applied to this advance. The $400,000 advance has been recorded as
deferred revenue until earned from the sale of the manufacturer's hardware. At
June 30, 1997, deferred revenue related to this agreement was $385,000.
As of June 30, 1997, Coral is involved in two matters that could result in
future liabilities to Coral. An interference proceeding has been declared by
the United States Patent and Trademark office between an issued patent and a
patent application of Coral and a patent application by another company (the
"Interference"). Coral's patent and patent application involve certain
technology that is an essential part of its current FraudBuster product. Coral
is currently in negotiations with the other company regarding the Interference;
however, Coral is currently unable to determine whether it will be able to
settle the Interference on terms satisfactory to Coral, the ultimate outcome, or
the range of possible loss in this matter. Coral is also involved in a dispute
in which a customer asserts it is owed approximately $153,000 in past royalties
from Coral. Coral believes it is owed amounts by the customer for services
previously rendered which would fully offset any amount owed to the customer.
Coral is currently unable to predict the ultimate outcome of this uncertainty or
the range of potential loss should an unfavorable outcome occur. The outcome of
these uncertainties could have a material adverse effect on Coral's business,
financial condition, results of operations and cash flow. See Note 10 to the
Financial Statements of Coral.
For the six months ended June 30, 1997, Coral incurred a net loss of $2.2
million and experienced net cash outflows of $2.3 million, resulting in a
working capital deficit of $1.6 million at June 30, 1997. If the Merger is not
consummated, Coral intends to fund its future cash requirements, to the extent
not provided by operations, by seeking additional equity or debt financing while
continuing to pursue other potential business combinations.
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BUSINESS OF CORAL
Coral provides client-server software products for the wireless
telecommunications industry to enable carriers to reduce fraud and customer
turnover, or "churn," and increase operating efficiencies. Coral's products are
based upon its core technology, which provides several key advantages, including
rapid product development, portability, technology independence and enhanced
scalability. Coral's fraud management software, FraudBuster, includes a fraud
profiler and subscription monitoring techniques and is designed to combat most
currently identified types of wireless fraud. Unlike many other fraud
prevention techniques, which address specific types of fraud, FraudBuster
detects multiple types of existing and emerging fraud, including cloning,
subscription fraud, tumbling fraud and cellular telephone theft. Coral's churn
prevention product, ChurnAlert, allows carriers to analyze and identify
potential churn candidates before they seek customer service assistance or
deactivate service.
PRODUCTS
Coral currently offers two principal products. FraudBuster, which was
introduced in June 1993, combats most common known types of fraud by tracking
subscriber usage patterns and alerting carrier of suspected fraud. ChurnAlert,
which was introduced in September 1995, analyzes a carrier's customer base to
identify subscribers likely to discontinue service or churn.
FRAUDBUSTER. FraudBuster, Coral's principal product, is a fraud management
software product that includes a fraud profiler and subscription fraud
monitoring functionality and is designed to identify most commonly known types
of wireless fraud (e.g., cloning, subscription, tumbling and cellular theft).
FraudBuster collects subscriber account information and call usage data from
telecommunications switches, billing systems and other commonly accepted data
sources to create individual subscriber profiles that are continuously updated,
referenced and analyzed on a near real-time, call-by-call basis. In addition,
for enhanced fraud detection FraudBuster monitors usage limits and identifies
suspicious call activity, including simultaneous call attempts, calls to
suspicious locations, abnormally high usage and calls from different cities in
illogical time sequences. When suspicious account activity occurs, FraudBuster
notifies the carriers with details of the questionable activity and suggests
responses. FraudBuster addresses the evolving needs of carriers to include more
sophisticated customer care capabilities to proactively manage the impact of
fraud on their subscribers. For example, FraudBuster can enable the carrier's
billing system to automatically credit subscribers for fraudulent calls charged
to their account before they are invoiced. By using a client-server
architecture, FraudBuster may be located anywhere on the carrier's premises,
including at the switching center or at the carrier's business offices.
Cellular carriers may locate the servers in a switching center for closer
monitoring and management of the application, with the clients residing in the
departments using the applications. FraudBuster was introduced in June 1993 and
is now installed in analog, digital and PCS carriers.
CHURNALERT. ChurnAlert is a software product that enables carriers to use
adjustable analyses to proactively address the needs of subscribers who are
likely to terminate service, or churn. Most other currently available churn
products are reactive in that they merely provide information about a subscriber
in response to a query from the customer service representative when the
subscriber calls customer service to deactivate service, which is often too late
to prevent the subscriber from churning. ChurnAlert collects information from
multiple data sources (e.g., switches and billing systems), analyzes key churn
indicators, such as competitive rate plans and quality of service, and assigns a
probability "value" based on the output of various analyses. ChurnAlert also
incorporates a customer evaluation feature that permits a user to assign higher
customer care priorities to specific segments of subscribers, such as heavy
users. ChurnAlert provides carriers visibility to the vulnerability of their
subscriber bases to competitor rate plans and promotions and enables carriers to
model scenarios for other key indicators of churn, such as feature usage and
network quality. By utilizing a client-server architecture, ChurnAlert may be
located anywhere on the carrier's premises. For example, cellular carriers may
locate the servers in a switching center for closer monitoring and management of
the application, with the clients residing in the departments using the
applications. ChurnAlert was introduced in September 1995.
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PRODUCT DEVELOPMENT
Coral believes that its future success will depend on its ability to
maintain and improve its current technologies, enhance its existing products and
develop new products that meet an expanding range of carrier requirements. At
June 30, 1997, Coral's development staff consisted of 27 employees. For 1994,
1995 and 1996 and the six months ended June 30, 1997, Coral's expenditures on
research and development were $572,700, $2.2 million, $2.8 million and $1.8
million, respectively. To date, Coral has not capitalized any software
development costs.
Coral's success depends in part on the timely introduction and success of
new products or product enhancements. A significant delay in the introduction
of, or the presence of a defect in, one or more new products or product
enhancements could have a material adverse effect on the ultimate success of
such products or product enhancements and on Coral's business, operating results
and financial condition. Further, because of the revenue typically associated
with initial shipments of a new product or product enhancement, delaying the
introduction of a new product or product enhancement expected near the end of a
fiscal quarter may materially adversely affect operating results for that
quarter or beyond. The process of developing software products such as those
offered by Coral is extremely complex and is expected to become more complex and
expensive in the future as new platforms and technologies emerge. In the past,
Coral has experienced significant delays in the introduction of certain new
products and product enhancements and Coral anticipates that there will be
similar delays in developing and introducing new products and product
enhancements in the future. There can be no assurance that new products or
product enhancements will be introduced on schedule or at all or that they will
achieve market acceptance or generate significant revenue. Software products as
complex as those offered by Coral may contain undetected errors when first
introduced or when new versions are released. There can be no assurance that,
despite testing by Coral, errors will not be found in new products or product
enhancements after commencement of commercial shipments, resulting in loss of or
delay in market acceptance, which could have a material adverse effect on
Coral's business, operating results and financial condition.
TECHNOLOGY
Coral's products are based upon its core technology, which provides several
key development advantages, including enabling Coral to quickly develop new
applications, to rapidly port Coral's applications to alternative third party
software platforms and to offer carriers technology-independent solutions that
are scalable for rapid growth. Coral's core technology allows new applications
to be built by using applets and services that were developed for previous
releases of other applications. An "applet" is a self-contained mini-
application that provides complete application functionality for a given task.
This strategy permits consistent re-use of applets and services reducing the
amount of code that it must develop and maintain, enabling rapid development of
new applications and improving the quality of the code through reuse. In
addition, the flexibility of Coral's core technology will enable Coral to reduce
the development time for native language versions of its existing products for
use in foreign countries. Coral has encapsulated many of the external links of
its core technology in order to insulate it from changes or obsolescence of
third party hardware and software. Coral's core technology provides enhanced
scalability to permit the rapid and efficient growth of the wireless subscriber
bases and the deployment of new software technologies. Coral believes that
these features (rapid development, portability, protection against technology
obsolescence and enhanced scalability) provide carriers with a significant
development advantage in integrating evolving technologies into Coral's products
for increased application efficiency and performance. Coral's core technology
operates on Hewlett-Packard and Sun Microsystems hardware platforms, and
includes interfaces to Oracle and Informix databases, allowing for flexible
configuration to each customer's environment. In addition, the core technology
enables Coral to offer applications that support all air interfaces and IS-41
and GSM network protocols, permitting multi-national wireless carriers to
utilize Coral's products in diverse technology and standards settings.
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SALES, MARKETING AND DISTRIBUTION
Coral markets its products to cellular, PCS and other wireless carriers
domestically and internationally. Products are distributed through Coral's
direct sales force, international sales agents and distributors. Coral licenses
its products pursuant to agreements that typically provide for an initial
license fee and annual maintenance for a defined number of subscribers, as well
as additional license and maintenance fees for net subscriber additions. Coral's
products typically require a significant investment by the carrier and involve
multilevel testing, integration, implementation and support requirements. As a
result, product sales cycles generally range from 6 to 18 months.
The end users of Coral's products are domestic and international wireless
telecommunications providers. Revenue from international installations accounted
for approximately 27.2%, 34.7%, 16.0% and 25.2% of Coral's total revenue in
1994, 1995, 1996 and the six months ended June 30, 1997, respectively, and Coral
expects that international revenue will continue to account for a significant
portion of Coral's total revenue. Coral expects to expand its sales efforts
outside of the U.S., which will require significant management attention and
financial resources. International revenue is subject to inherent risks,
including unexpected changes in regulatory requirements, tariffs and other trade
barriers, political and economic instability in foreign markets, difficulties in
staffing and management and integration of foreign operations, longer payment
cycles, greater difficulty in accounts receivable collection, currency
fluctuations and potentially adverse tax consequences. Since most of Coral's
foreign sales are denominated in U.S. dollars, Coral's products may also become
less price competitive in countries in which local currencies decline in value
relative to the U.S. dollar.
CUSTOMERS AND CUSTOMER SUPPORT
Lucent Technologies accounted for 49.3% and 47.3% of Coral's total revenue
in 1996 and the six months ended June 30, 1997, respectively.
Coral provides its customers with support including project management,
database navigation and trouble shooting, product training, technical expertise
in network communications and interface development, as well as hardware and
software installation skills. As part of its standard maintenance services,
Coral provides support services five days a week, eight hours per day, via
telephone, remote login, e-mail, and, if necessary, on-site assistance. Coral
offers a range of support packages for additional fees, including support seven
days a week, 24 hours per day. Coral also offers consulting services to its
customers for a separate fee.
COMPETITION
The markets for Coral's software products are new, intensely and
increasingly competitive, rapidly evolving and subject to rapid technological
change. Coral's competitors include computer hardware and software providers,
telecommunications services and billing providers and range from small companies
with limited resources to large companies with substantially greater financial,
technical and marketing resources than those of Coral. In addition, Coral
competes against the internal development efforts of Coral's customers and
potential customers. As a result, some of Coral's competitors may be able to
adapt more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than Coral. Further, existing companies may broaden their product
lines or increase their focus to compete more directly with Coral's current and
future products. Currently, Coral's principal competitors are GTE-TSI in the
United States and Digital Equipment Corporation in international markets.
Coral's FraudBuster product competes with a number of other profiler products
and several alternative technologies, including RF signature systems, PINs and
authentication. In addition, Coral has licensed the source code for FraudBuster
to AirTouch for the purpose of enabling AirTouch to use, reproduce and develop
enhancements to FraudBuster in AirTouch's markets and to sublicense FraudBuster
to cellular carriers in which AirTouch directly owns at least a 10% equity
interest, in exchange for a royalty to Coral on such sublicenses. As a result,
AirTouch could compete with Coral in those markets covered by cellular carriers
in which AirTouch owns such an equity interest. GTE-TSI is also Coral's primary
competitor in the churn prevention software market. To the extent that
competitors achieve higher product quality, lower price, greater functionality
or other advantages relative to Coral's products, Coral's business, operating
results and financial condition could be materially and adversely
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affected. There can be no assurance that Coral will have the resources required
to respond effectively to market or technological changes or to compete
successfully in the future. Furthermore, increasing competition in the wireless
telecommunications industry may cause prices to fall, which may materially and
adversely affect Coral's business, operating results, financial condition and
cash flow.
Current and potential competitors have established or may in the future
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address the needs of Coral's
prospective customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. If this were
to occur, Coral's business, operating results, financial condition and cash flow
would be materially adversely affected.
INTELLECTUAL PROPERTY
Coral regards its software as proprietary and relies primarily on a
combination of patent, trademark, copyright and trade secret laws, employee and
third-party nondisclosure agreements and other methods to protect its
proprietary rights. Coral currently has two issued U.S. patent and five
applications pending in the U.S. Patent and Trademark Office, six applications
for foreign patents pending and four Patent Cooperation Treaty applications
preserving Coral's ability to obtain patent protection in a number of foreign
countries. There can be no assurance that any of such pending patent
applications will result in the issuance of any patents, or that Coral's current
patent or any future patents will provide meaningful protection to Coral. In
particular, there can be no assurance that third parties have not or will not
develop equivalent technologies or products that avoid infringing Coral's
current patent or any future patents or that Coral's current patent or any
future patents would be held valid and enforceable by a court having
jurisdiction over a dispute involving such patents. In addition, since patent
applications in the United States are not publicly disclosed until the patent
issues and foreign patent applications generally are not publicly disclosed for
at least a portion of the time that they are pending, applications may have been
filed by entities other than Coral which, if issued as patents, may relate to
Coral's products. There can be no assurance that third parties will not assert
infringement claims against Coral in the future based on existing patents or
future patents or that such claims will not be successful.
Coral does not include in its products any mechanism to prevent or inhibit
unauthorized copying. Unauthorized copying is common within the software
industry, and if a significant amount of unauthorized copying of Coral's
products were to occur, Coral's business, operating results, financial condition
and cash flow could be materially and adversely affected. Furthermore, Coral
may enter into transactions in countries where intellectual property laws are
not well developed and where legal protection of Coral's rights may be
ineffective. Also, as the number of software products in the industry
increases, and the possibility for overlapping functionality increases, software
developers may increasingly become subject to infringement claims. There can be
no assurance that third parties will not assert infringement claims against
Coral with respect to current or future products. From time to time, Coral
receives notices from third parties claiming infringement of intellectual
property rights of such parties. Coral investigates these claims and responds
as it deems appropriate. However, there can be no assurance that Coral's
response will satisfy the party sending the notice, or that such party will not
institute a claim against Coral. The scope of protection accorded to patents
covering software-related inventions is evolving and is subject to a significant
degree of uncertainty. Any claims or litigation, with or without merit, could
be costly, time-consuming and could result in a diversion of management's
attention, which could have a material adverse effect on Coral's business,
operating results, financial condition and cash flow. In addition, such claims
could cause product shipment delays or require Coral to enter into royalty or
licensing agreements which may not be available on terms acceptable to Coral or
at all, any of which could have a material adverse effect on Coral's business,
operating results, financial condition and cash flow. There has been
substantial litigation regarding copyright, trademark and other intellectual
property rights involving computer software companies and there can be no
assurance that Coral will not be subject to litigation regarding these matters
in the future. Adverse determinations in such claims or litigation could also
have a material adverse effect on Coral's business, operating results, financial
condition and cash flow.
One of Coral's issued U.S. patents relates to specific aspects of its fraud
detection and profiling technology, including aspects that have been or may in
the future be used in FraudBuster or other Coral products. Coral filed
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a continuation application for this issued patent to pursue additional claims.
Coral received notice from the United States Patent and Trademark Office that
the issued patent and the continuation application are the subject of the
interference, in which Coral has been determined to be the junior party.
Interference actions may be complex and expensive, and the outcome of such
actions is often difficult to predict. Accordingly, Coral is considering
opportunities to settle the interference action on terms acceptable to Coral.
Any such settlement may require paying royalty fees and/or licensing of Coral's
patent rights which may diminish their value to Coral. In addition, there can
be no assurance that Coral will pursue a settlement or that a settlement would
be reached on terms acceptable to Coral. In the event that Coral could not
settle any such interference action and were declared to lose the interference,
it could lose some or all of the claims in Coral's existing patent and/or the
continuation application and be subject to patent infringement claims for its
use of the technology in question. Any such action or claim could have a
material adverse effect on Coral's business, operating results, financial
condition and cash flow.
Coral recently has settled an alleged trademark infringement matter with
Tadiran Telecommunications regarding Coral's use of the name "Coral Systems,
Inc." The settlement, among other things, provides that in exchange for a one-
time payment, Coral shall take reasonable steps to clarify any actual confusion
regarding its use of the name "Coral Systems, Inc." and shall enter binding
arbitration to alleviate any such confusion (although the award of any
arbitration cannot require Coral to cease using the name "Coral Systems, Inc.").
EMPLOYEES
As of September 1, 1997, Coral had 67 employees, including 24 in research
and development, 8 in customer support, 8 in domestic sales, 3 in international
sales, 2 in consulting services, 8 in marketing, and 14 in finance and
administration. Coral also retains consultants from time to time to assist it
with particular software development projects. Coral believes that its future
success will depend in part on its ability to attract, motivate and retain
highly qualified personnel. None of Coral's employees is represented by a
collective bargaining agreement, nor has Coral experienced any work stoppage.
Coral considers its employee relations to be good.
FACILITIES
Coral currently leases approximately 24,000 square feet in Longmont,
Colorado as its only office. The lease on Coral's premises will expire in
February 1999. Coral believes that such facilities are adequate for its current
needs and that suitable additional space will be available in the future as
needed on commercially reasonable terms.
LEGAL PROCEEDINGS
The Interference has been declared by the United States Patent and
Trademark office between an issued patent and a patent application of Coral and
a patent application by another company. Coral's patent and patent application
involve certain technology that is an essential part of its current FraudBuster
product. Coral is currently in negotiations with the other company regarding
the Interference; however, Coral is currently unable to determine whether it
will be able to settle the Interference on terms satisfactory to Coral, the
ultimate outcome, or the range of possible loss in this matter. The outcome of
this uncertainty could have a material adverse effect on Coral's business,
operating results, financial condition and cash flow.
From time to time, Coral has been involved in litigation relating to claims
arising out of its operations in the ordinary course of business. As of the
date of this Proxy Statement/Prospectus, Coral is not a party to any legal
proceedings other than the interference.
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PRINCIPAL STOCKHOLDERS OF CORAL
The following table sets forth certain information regarding the beneficial
ownership of Coral Stock as of October 1, 1997 by (i) all persons known by Coral
to own beneficially more than five percent of the outstanding shares of each
class or series of Coral stock, (ii) each director of Coral, (iii) all current
executive officers of Coral and (iv) all current directors and executive
officers of Coral as a group:
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK(2)
-------------------------------------------------------------
COMMON STOCK(2) SERIES A SERIES B SERIES C
----------------- ----------------- ----------------- -----------------
NAMES AND ADDRESSES(1) NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Five Percent Stockholders
- ----------------------------------------
Eric A. Johnson(3)...................... 1,198,653 34.2% -- -- -- -- -- --
8015 North 63rd Street
Longmont, Colorado 80503
CVM Equity Fund III(4).................. 1,131,525 34.0 -- -- -- -- -- --
4845 Pearl East Circle, Suite 300
Boulder, Colorado 80301
Howard Kaushansky(5).................... 333,574 9.5 -- -- -- -- -- --
Michael D. Liss......................... 290,040 8.9 -- -- -- -- -- --
119 State Park Road
Chester, New Jersey 07930
The Blake Family Partnership(6)......... 271,207 8.3 -- -- -- -- -- --
65 Baynard Park Road
Hilton Head, South Carolina 29928
Kirlan I, L.P........................... -- -- 250,000 12.5% -- -- -- --
221 First Avenue West
Seattle, Washington 98119
Rand Capital Corporation................ -- -- 200,000 10.0 -- -- -- --
1300 Rand Building
Buffalo, Texas 14203
The W. James Price Revocable Trust
dated 11/6/91......................... -- -- 100,000 5.0 -- -- -- --
6885 North Ocean Boulevard
Ocean Ridge, Florida 33435
Gorguze Investments, L.P................ -- -- 100,000 5.0 -- -- -- --
11975 El Camino Real
San Diego, California 92130
Gordon L. Smith......................... -- -- 100,000 5.0 -- -- -- --
300 East Lombard Street
Baltimore, Maryland 21202
Cincinnati Bell Information
Systems, Inc......................... 85,935 2.6 -- -- -- -- 1,824,920 100.0
600 Vine Street
Cincinnati, Ohio 45201
Vertex Investment (II) Ltd.............. 79,668 2.4 -- -- 578,703 27.8 -- --
3 Lagoon Drive, Suite 220
Redwood City, California 94065
Bessemer Venture Partners III L.P.(7)... 70,308 2.1 -- -- 510,700 24.5 -- --
1025 Old Country Road, Suite 205
Westbury, New York 11590
David J. Cowan(8)....................... 70,556 2.2 -- -- 512,500 24.6 -- --
Unterberg Harris Private Equity
Partners(9)........................... 36,431 1.1 -- -- 385,648 18.5 -- --
65 East 55th Street, 18th Floor
New York, New York 10022
P/A Fund, L.P........................... 34,012 1.0 -- -- 360,040 17.3 -- --
518 Broad Street
Sewickley, Pennsylvania 15143
Directors Not Listed Above
- ----------------------------------------
Robert J. Marino(10).................... -- -- -- -- -- -- -- --
Bruce K. Graham(11)..................... -- -- -- -- -- -- -- --
Thomas G. Washing(12)................... 72,888 2.2 40,000 2.0 -- -- -- --
William F. Nicklin(13).................. 56,521 1.7 85,000 4.3 10,000 * -- --
Jeffrey R. Hultman(14).................. 14,125 * -- -- -- -- -- --
</TABLE>
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<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK(2)
-------------------------------------------------------------
COMMON STOCK(2) SERIES A SERIES B SERIES C
----------------- ----------------- ----------------- -----------------
NAMES AND ADDRESSES(1) NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Executive Officers Not Listed Above
- ----------------------------------------
Kyle D. Hubbart(15)..................... 124,878 3.7 -- -- -- -- -- --
Thomas Fedro(16)........................ 55,625 1.7 -- -- -- -- -- --
John A. Fraser(17)...................... 50,000 1.7 -- -- -- -- -- --
Timothy Hayes(18)....................... 50,000 1.7 -- -- -- -- -- --
Thomas F. Prosia(19).................... 9,375 * -- -- -- -- -- --
All directors and executive officers
as a group (11 persons)(20)........... 837,542 22.1 125,000 6.3 522,500 25.1 -- --
</TABLE>
________________
* Less than 1%.
(1) Unless otherwise specified, the address is in care of Coral, 1500 Kansas
Avenue, Suite 2E, Longmont, Colorado 80501.
(2) Unless otherwise noted, each person or group identified possessed sole
voting and investment power with respect to such shares, subject to
community property laws where applicable. Shares not outstanding but deemed
beneficially owned by virtue of the right of a person or group to acquire
them within 60 days of October 1, 1997 are treated as outstanding only
for purposes of determining the amount and percent owned by such person or
group. As of October 1, 1997, there were outstanding 3,276,134 shares of
Coral Common, 2,000,000 shares of Coral Series A, 2,083,333 shares of Coral
Series B and 1,824,920 shares of Coral Series C outstanding.
(3) Includes 100,000 shares of Coral Common held in trust for the benefit of
Mr. Johnson's children and 231,726 shares of Coral Common subject to stock
options exercisable within 60 days of October 1, 1997. Mr. Johnson
resigned as President of Coral in May 1997 and resigned as Chairman of the
Board and Chief Executive Officer of Coral on September 10, 1997.
(4) Includes 48,968 shares of Coral Common purchasable upon the exercise of
outstanding warrants.
(5) Includes 221,074 shares of Coral Common subject to stock options and
warrants exercisable within 60 days of October 1, 1997. Mr. Kaushansky is
the Vice President of Strategic Planning, General Counsel and Secretary of
Coral.
(6) Includes 267,457 shares of Coral Common purchasable upon the exercise of
outstanding warrants within 60 days of October 1, 1997.
(7) Consists of (i) 67,411 shares of Coral Common and 489,657 shares of Coral
Series B held by Bessemer Venture Partners III, L.P. and (ii) 2,897 shares
of Coral Common and 21,043 shares of Coral Series B held by BVP III Special
Situations L.P.
(8) Consists of the shares described in footnote (7). Mr. Cowan is a partner of
Deer III & Co., which is the general partner of Bessemer Venture Partners
III, L.P. and Bessemer III Special Situations L.P. and, as such, may be
deemed to share voting and investment power with respect to such shares.
Mr. Cowan disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein. Mr. Cowan is a director of Coral.
(9) Consists of (i) 30,019 shares of Coral Common and 307,786 shares of Coral
Series B held by Unterberg Harris Private Equity Partners L.P. and (ii)
6,412 shares of Coral Common and 77,862 shares of Coral Series B held by
Unterberg Harris Private Equity Partners C.V.
(10) Mr. Marino is the President and Chief Executive Officer of Cincinnati Bell
Information Systems, Inc. and disclaims beneficial ownership of the shares
held by Cincinnati Bell Information Systems, Inc. Mr. Marino is a director
of Coral.
(11) Mr. Graham formerly was a Vice President of Vertex Management Inc., which
provides investment advice to Vertex Investment (II) Ltd. Mr. Graham
disclaims beneficial ownership of the shares owned by Vertex Investment
(II) Ltd. Mr. Graham is a director of Coral.
(12) Includes 28,250 shares of Coral Common subject to a repurchase option in
favor of Coral which expires ratably through February 1999. Also includes
1,492 shares of Coral Common and 25,000 shares of Coral Series A held by
Mr. Washing's spouse, 597 shares of Coral Common and 10,000 shares of Coral
Series A held by a child of Mr. Washing and 5,000 shares of Coral Series A
held in a trust for the benefit of a child of Mr. Washing. Mr. Washing
disclaims beneficial ownership of the shares held by his spouse.
(13) Includes 22,601 shares of Coral Common purchasable upon the exercise of
outstanding warrants and 28,250 shares of Coral Common subject to stock
options exercisable within 60 days of October 1, 1997.
(14) Consists of shares of Coral Common subject to stock options exercisable
within 60 days of October 1, 1997.
(15) Includes 64,879 shares of Coral Common subject to stock options exercisable
within 60 days of October 1, 1997. Mr. Hubbart is the Chief Financial
Officer and Treasurer of Coral.
(16) Consists of shares of Coral Common subject to stock options exercisable
within 60 days of October 1, 1997. Mr. Fedro is the Vice President of
Sales and Consulting Services of Coral.
(17) Consists of shares of Coral Common subject to stock options exercisable
within 60 days of October 1, 1997. Mr. Fraser is the President of Coral.
(18) Consists of shares of Coral Common subject to stock options exercisable
within 60 days of October 1, 1997. Mr. Hayes is the Executive Vice
President of Engineering and Development of Coral.
(19) Consists of shares of Coral Common subject to stock options exercisable
within 60 days of October 1, 1997. Mr. Prosia is the Vice President of
Marketing of Coral.
(20) Includes the shares described in Notes 5, 8, 10, 11, 12, 13, 14, 15,
16, 17, 18 and 19.
93
<PAGE>
LIGHTBRIDGE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AND STATEMENTS OF OPERATIONS
OVERVIEW
On September 9, 1997, Lightbridge and Coral entered into the Reorganization
Agreement, pursuant to which Lightbridge proposes to acquire all of the
outstanding shares of Coral Capital Stock. Under the Reorganization Agreement,
the acquisition would be effected by a merger of Acquisition Corp., a wholly
owned subsidiary of Lightbridge, with and into Coral, with the Surviving
Corporation becoming a wholly owned subsidiary of Lightbridge. Coral provides
client-server software products for the wireless telecommunications industry to
enable carriers to reduce fraud and customer turnover, or "churn," and increase
operating efficiencies.
Pursuant to the Merger, each of the outstanding shares of Coral Capital
Stock, other than any duly qualified dissenting share, would convert into a
fraction of a share of Lightbridge Common determined as set forth in the
Reorganization Agreement, which determination would be based on the Calculation
Price and subject to the Adjustment Amount. If the Calculation Price is between
$10.8375 and $14.6625, Lightbridge would issue (and reserve for issuance upon
exercise of outstanding Coral options and warrants) an aggregate of 1,286,863
shares of Lightbridge Common, subject to decrease for the Adjustment Amount. If
the Calculation Price is less than $10.8375 or greater than $14.6625, the number
of shares of Lightbridge Common issued (and reserved for issuance) would equal
the quotient of $13,946,375 or $18,868,625, respectively, divided by the
Calculation Price, in each case subject to decrease for the Adjustment
Amount.
In addition, as a result of the Merger, each Option and Warrant outstanding
at the Effective Time, whether vested or unvested, would entitle its holder,
upon exercise (if and when vested) following the Effective Time, to receive that
number of whole shares of Lightbridge Common equal to the product of the number
of shares of Coral Common that were issuable upon exercise of such Option or
Warrant immediately prior to the Effective Time (without regard to vesting)
multiplied by the conversion rate for a single share of Coral Common, rounded
down to the nearest whole number of shares of Lightbridge Common. In addition,
following the Effective Time, the per share exercise price for the Lightbridge
Common issuable upon exercise of each Option and Warrant would be equal to the
per share exercise price thereof immediately prior to the Effective Time divided
by the conversion rate for a single share of Coral Common.
The acquisition of Coral by Lightbridge would include approximately $16
million of in-process research and development technology that would be written-
off by Lightbridge in the quarter ending December 31, 1997.
The Unaudited Pro Forma Condensed Consolidated Financial Statements of
Lightbridge consist of an Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of June 30, 1997 and Unaudited Pro Forma Condensed Consolidated
Statements of Operations for the year ended December 31, 1996 and the six months
ended June 30, 1997. The Unaudited Pro Forma Condensed Consolidated Financial
Statements and related pro forma adjustments thereto should be read in
conjunction with the Consolidated Financial Statements of Lightbridge and Notes
thereto, as well as the Financial Statements of Coral and Notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus.
BASIS OF ACCOMPANYING UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The results of Coral's operations would be included in Lightbridge's
operating results after the Closing, which is expected to occur in the quarter
ending December 31, 1997. The Unaudited Pro Forma Condensed Consolidated
Balance Sheet assumes that Lightbridge's acquisition of Coral occurred on June
30, 1997. The Unaudited Pro Forma Condensed Consolidated Statements of
Operations combine the historical results of operations for Lightbridge and
Coral for the year ended December 31, 1996 and the six months ended June 30,
1997 and assume that the acquisition occurred on January 1, 1996.
The Unaudited Pro Forma Condensed
94
<PAGE>
Consolidated Financial Statements do not reflect any cost savings and synergies
that might be achieved from the Merger.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet includes the
effect of the write-off of certain in-process research and development
technology of $16,040,901. However, the Unaudited Pro Forma Condensed
Consolidated Statements of Operations do not consider the effect of this write-
off or other non-recurring charges, expected by Lightbridge management to
approximate $750,000, that may result from the integration of Coral into
Lightbridge. Lightbridge expects to incur these charges during the quarters
ending December 31, 1997 and March 31, 1998.
On October 6, 1997, the last reported sale price per share of Lightbridge
Common on the Nasdaq National Market was $15.875. The Unaudited Pro Forma
Condensed Consolidated Financial Statements assume that the Calculation Price
will exceed $14.6625 and that therefore the market value, based on the
Calculation Price, of the shares of Lightbridge Common issued (or reserved for
issuance) in connection with the Merger will equal $18,868,625, subject to
decrease for the Adjustment Amount. For purposes of the Unaudited Pro Forma
Condensed Consolidated Financial Statements, Lightbridge management has assumed
that the Adjustment Amount will be $400,000, consisting principally of legal,
accounting and other expenses expected to be incurred by Coral and paid by
Lightbridge in connection with the Merger. THE ACTUAL PURCHASE PRICE MAY DIFFER
MATERIALLY FROM THE PRELIMINARY ESTIMATES REFLECTED IN THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. See "The Merger Proposal--
Calculation of Merger Consideration."
The Unaudited Pro Forma Condensed Consolidated Balance Sheet includes
Lightbridge's direct transaction costs associated with the Merger. These direct
costs consist principally of investment advisory, legal, accounting and
appraisal fees. The actual allocation of the final purchase price may differ
from the preliminary estimate reflected in the Unaudited Pro Forma Condensed
Consolidated Financial Statements. There can be no assurance that Lightbridge
will not incur additional charges in subsequent quarters to reflect costs
associated with the Merger or that Lightbridge will be able to integrate the
operations of Coral successfully.
Lightbridge management believes that the assumptions underlying the pro
forma adjustments used to prepare the Unaudited Pro Forma Condensed Consolidated
Financial Statements provide a reasonable basis for presenting the significant
effects of the Merger. The Unaudited Pro Forma Condensed Consolidated Financial
Statements are not necessarily indicative of the results that would have been
reported had such events actually occurred on the date specified, nor are they
indicative of Lightbridge's future results of operations.
PRO FORMA ADJUSTMENTS
The following is a summary of the pro forma adjustments made in connection
with the preparation of the Unaudited Pro Forma Condensed Consolidated Financial
Statements. Such adjustments are based upon a preliminary purchase price of:
<TABLE>
<S> <C>
995,252 shares of Lightbridge Common at
an average stock price of $16.175 per share $16,098,201
Assumed liabilities:
Accounts payable and accrued expenses 2,850,600
Short-term borrowings and current
portion of subordinated notes payable 768,500
Deferred revenues 1,457,300
Long-term debt 146,400
Lightbridge transaction fees:
Investment advisory 500,000
Professional fees 300,000
Coral transaction fees:
Investment advisory 500,000
Professional fees 150,000
-----------
Total $22,771,001
===========
</TABLE>
95
<PAGE>
Pro Forma Condensed Consolidated Balance Sheet Adjustments
------------------------------------------------------------
(1) To record preliminary goodwill pursuant to the Merger.
(2) To record acquired technology pursuant to the Merger.
(3) To record direct costs of the Merger, including (a) financial
advisory, legal, accounting and appraisal fees incurred by Lightbridge
and (b) certain legal, accounting and other professional fees incurred
or to be incurred by Coral that are payable by Lightbridge pursuant to
the Reorganization Agreement.
(4) To record a deferred tax liability related to the acquired technology,
at an assumed tax rate of 38%.
(5) To record the 995,252 shares of Lightbridge Common to be issued by
Lightbridge in connection with the Merger, based on a preliminary
Calculation Price of $16.175 per share.
(6) To record the write-off of certain in-process research and development
technology.
Pro Forma Condensed Consolidated Statements of Operations Adjustments
-----------------------------------------------------------------------
(7) To record the amortization of acquired technology over the remaining
life of the existing version of the acquired technology (twenty-six
months).
(8) To record property and equipment depreciation adjustments.
(9) To record the amortization of goodwill over three years.
(10) To record the income tax effect of pro forma adjustments at an assumed
tax rate of 38% of pre-tax income or loss.
(11) To eliminate the effect of common stock equivalents on the historical
weighted average number of shares of common stock.
96
<PAGE>
LIGHTBRIDGE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
Coral
Lightbridge, Inc. Systems, Inc. Pro Forma
Historical Historical Adjustments Pro Forma
------------------- ------------ ----------- ----------
ASSETS
- ---------------------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 23,298,904 $ 62,100 $ 23,361,004
Short-term investments...................... 1,038,190 -- 1,038,190
Accounts receivable--net.................... 8,676,897 1,978,700 10,655,597
Other current assets........................ 1,457,391 136,400 1,593,791
-------------- ----------- -------------
Total current assets................... 34,471,382 2,177,200 36,648,582
Property and equipment--net...................... 6,006,817 1,506,200 7,513,017
Deferred tax asset............................... 863,406 -- 863,406
Goodwill......................................... -- -- $ 2,721,000(1) 2,721,000
Other assets..................................... 903,167 46,700 450,000(2) 1,399,867
-------------- ----------- ------------ -------------
Total assets......................... $ 42,244,772 $ 3,730,100 $ 3,171,000 $ 49,145,872
============== =========== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities.... $ 2,221,997 $ 1,926,100 $ 2,374,500(3) $ 6,522,597
Short-term borrowings and current portion of
subordinated notes payable................ 805,205 768,500 -- 1,573,705
Current portion of obligations under capital
leases.................................... 648,955 -- -- 648,955
Deferred revenues........................... 506,403 1,072,300 1,578,703
Deferred tax liability...................... -- -- 171,000(4) 171,000
Dividends payable on redeemable convertible
preferred stock........................... 166,876 -- -- 166,876
----------- ----------- ---------- ------------
Total current liabilities.............. 4,349,436 3,766,900 2,545,500 10,661,836
Obligations under capital leases................. 32,399 -- -- 32,399
Long-term debt................................... 305,371 146,400 -- 451,771
Deferred revenue and other....................... -- 385,000 -- 385,000
Subordinated notes payable....................... 1,335,115 -- -- 1,335,115
----------- ----------- ---------- ------------
Total liabilities.................... 6,022,321 4,298,300 2,545,500 12,866,121
----------- ----------- ---------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock............................. -- -- -- --
Common stock................................ 154,697 -- 9,953(5) 164,650
Additional paid-in capital................... 36,342,717 -- 16,088,248(5) 52,430,965
Warrants.................................... 605,125 -- -- 605,125
Retained earnings (deficit)................. 744,875 -- (16,040,901)(6) (15,296,026)
----------- ------------ ----------- -----------
Total................................... 37,847,414 -- 57,300 37,904,714
Less treasury stock, at cost..................... (1,624,963) -- -- (1,624,963)
----------- ------------ ----------- ------------
Total stockholders' equity.............. 36,222,451 -- 57,300 36,279,751
----------- ------------ ----------- ------------
Total liabilities and stockholders'
equity............................ $ 42,244,772 $ 4,298,300 $ 2,602,800 $ 49,145,872
============ =========== =========== ============
</TABLE>
97
<PAGE>
LIGHTBRIDGE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Coral
Lightbridge, Inc. Systems, Inc. Pro Forma Pro Forma
Historical Historical Adjustments Results
----------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues............................... $29,544,852 $ 8,691,800 $ 38,236,652
Cost of revenues....................... 15,433,548 1,994,500 $ 208,000(7) 17,636,048
----------- ----------- ------------ ------------
Gross profit........................... 14,111,304 6,697,300 (208,000) 20,600,604
----------- ----------- ------------ ------------
Operating expenses:
Development....................... 4,380,293 2,792,300 (41,320)(8) 7,131,273
Sales and marketing............... 4,225,302 3,578,600 52,150 (8) 7,856,052
General and administrative........ 2,768,424 2,533,700 (48,486)(8)
907,000 (9) 6,160,638
Stock offering costs.............. -- 676,100 676,100
----------- ----------- ------------ ------------
Total operating expenses............... 11,374,019 9,580,700 869,344 21,824,063
----------- ----------- ------------ ------------
Income (loss) from operations.......... 2,737,285 (2,883,400) (1,077,344) (1,223,459)
Other income (expense):
Interest income................... 421,608 -- -- 421,608
Interest expense.................. (753,623) -- -- (753,623)
Other non-operating income........ 26,727 15,100 -- 41,827
----------- ----------- ------------ ------------
Income (loss) before provision
for income taxes..................... 2,431,997 (2,868,300) (1,077,344) (1,513,647)
Provision for (benefit from)
income taxes......................... 159,500 -- (469,500)(10) (310,000)
----------- ----------- ------------ ------------
Net income (loss)...................... $ 2,272,497 $(2,868,300)(a) $ (607,844) $ (1,203,647)
=========== =========== ============ ============
Net income (loss) per common
share................................ $0.16 ($0.09)
===== ============
Weighted average number of shares of
common and common equivalent shares
outstanding.......................... 14,433,722 (1,758,657)(11)
=========== 995,252 (5) 13,670,317
============
</TABLE>
(a) Reflects Coral Systems, Inc.'s loss before extraordinary item
for the year ended December 31, 1996.
98
<PAGE>
LIGHTBRIDGE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Coral
Lightbridge, Inc. Systems, Inc. Pro Forma Pro Forma
Historical Historical Adjustments Results
------------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Revenues................................... $17,830,688 $ 3,710,300 $21,540,988
Cost of revenues........................... 8,320,091 1,012,300 $ 104,000 (7) 9,436,391
----------- ------------ ------------ -----------
Gross profit............................... 9,510,597 2,698,000 (104,000) 12,104,597
----------- ------------ ------------ -----------
Operating expenses:
Development........................... 2,682,213 1,766,300 (20,660)(8) 4,427,853
Sales and marketing................... 2,604,549 1,639,000 26,075 (8) 4,269,624
General and administrative............ 2,122,617 1,472,600 (24,293)(8)
453,500 (9) 4,024,424
----------- ------------ ------------ -----------
Total operating expenses................... 7,409,379 4,877,900 434,622 12,721,901
----------- ------------ ------------ -----------
Income (loss) from operations.............. 2,101,218 (2,179,900) (538,622) (617,304)
Other income (expense):
Interest income....................... 647,241 -- -- 647,241
Interest expense...................... (191,542) -- -- (191,542)
Other non-operating income (expense).. 15,524 (1,700) -- 13,824
----------- ------------ ------------ -----------
Income (loss) before provision
for income taxes......................... 2,572,441 (2,181,600) (538,622) (147,781)
Provision for (benefit from) income taxes.. (93,509) -- 170,209(10) 76,700
----------- ------------ ------------ -----------
Net income (loss).......................... $ 2,665,950 ($2,181,600) $ (708,831) $ (224,481)
=========== ============ ============ ===========
Net income (loss) per common share......... $0.16 ($0.01)
=========== ===========
Weighted average number of shares of
common and common equivalent shares
outstanding.............................. 16,341,201 (1,720,780)(11)
=========== 995,252 (5) 15,615,673
===========
</TABLE>
99
<PAGE>
COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, the stockholders of Coral, a Delaware
corporation, will become stockholders of Lightbridge, also a Delaware
corporation. The following description summarizes the rights of holders of
Lightbridge and Coral stock under Delaware Law.
ACTION BY WRITTEN CONSENT
Under Section 228 of the Delaware Law, unless otherwise provided in a
corporation's certificate of incorporation, any action required or permitted to
be taken at an annual or special meeting of stockholders may be taken without
such a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action to be taken is signed by the holders of
outstanding stock representing the number of shares necessary to take such
action at a meeting at which all shares entitled to vote were present.
The Lightbridge Charter prohibits stockholder action by written consent.
The Coral Charter does not prohibit stockholder action by written consent.
CLASS VOTES
The Delaware Law does not require separate class votes of all voting
classes in order to approve charter amendments, mergers or sales of
substantially all assets. Section 242 of the Delaware Law, however, provides
that all classes of stock, even a nonvoting class of stock, shall vote on
charter amendments that increase or decrease the aggregate number of authorized
shares of such class, increase or decrease the par value of such class, or
adversely affect the rights of holders of shares of such class.
The Lightbridge Charter does not provide for additional class voting. The
Coral Charter provides that the holders of the Coral Series B, voting as a
separate class, shall be entitled to elect two directors, the holders of the
Coral Series A and Coral Series C, each voting as a separate class, shall be
entitled to elect one director each and the holders of the Coral Common, voting
as a separate class, shall be entitled to elect three directors. The Coral
Charter also provides that the Coral Series A, Coral Series B and Coral Series C
shall vote together as a separate class in order to approve certain actions by
Coral. In addition, the Coral Charter provides that the holders of Coral Series
A, Coral Series B and Coral Series C each shall vote as a separate class with
respect to the authorization or issuance of any equity security senior to, or on
parity with the rights and preferences of, each of the classes of preferred
stock. The Coral Charter also provides that the Coral Series A shall vote as a
separate class with respect to any alteration or change in the rights and
preferences of the Coral Series A.
STOCKHOLDER VOTING
Section 251 of the Delaware Law requires a majority vote of the shares of
stock of each constituent corporation outstanding and entitled to vote in order
to effectuate a merger between two Delaware corporations.
The Lightbridge Charter does not require additional votes in order to
effectuate a merger between two Delaware corporations. The Coral Charter
provides that a merger of Coral with or into any other corporation or entity
must be approved by (i) the holders of a majority of the then-outstanding Coral
Common and (ii) the holders of a majority of the then-outstanding Coral Series
A, Coral Series B and Coral Series C (treating each share of preferred stock as
being equal to the number of Coral Common into which each share of preferred
stock shall then be convertible) voting as a single class.
CERTAIN BUSINESS COMBINATIONS
Section 203 of the Delaware Law prohibits a corporation from engaging in
any business combination with an interested stockholder (defined as any entity
or person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person associated with, affiliated with or
controlling or controlled by such entity or person) for a period of three years
after the time that the stockholder became an
100
<PAGE>
interested stockholder unless (i) prior to that time, the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction pursuant to which the person became an
interested stockholder, such stockholder owned 85% or more of the outstanding
voting stock at the time the transaction commenced (excluding shares owned by
directors and officers and shares owned by employee stock option plans in which
the participants cannot determine confidentially whether or not the shares would
be tendered in response to a tender or an exchange offer) or (iii) at or
subsequent to the time of the transaction, the business combination is approved
by the corporation's board of directors and by a vote at a meeting (and not by
written consent) of at least two-thirds of the outstanding voting stock not
owned by the interested stockholder.
Section 203 only applies to Delaware corporations that have a class of
voting stock (i) listed on a national securities exchange, (ii) authorized for
quotation by the Nasdaq Stock Market, Inc. or (iii) held of record by more than
2,000 stockholders. A Delaware corporation may elect in its original certificate
of incorporation, or by amending its certificate of incorporation or by-laws,
that it will not be governed by Section 203. Any such amendment must be approved
by the stockholders and may not be further amended by the board of directors.
Since Lightbridge is authorized for quotation by the Nasdaq Stock Market,
Inc., Lightbridge is subject to the anti-takeover provisions of Section 203 of
the Delaware Law. Section 203 currently does not apply to Coral, since it does
not meet any of the criteria set forth above. Lightbridge has not elected to be
excluded from being governed by Section 203.
DIVIDENDS
Section 170 of the Delaware Law allows a Delaware corporation to pay
dividends out of surplus or, if there is no surplus, out of its net profits for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year.
APPRAISAL RIGHTS
Section 262 of the Delaware Law provides for appraisal rights only in the
case of a statutory merger or consolidation of the corporation where the
petitioning stockholder does not consent to the transaction. In addition, no
appraisal rights are available where the corporation is to be the surviving
corporation and a vote of its stockholders is not required under Section 251(f)
or (g) of the Delaware Law. In addition, there are no appraisal rights, unless
otherwise provided for in a corporation's certificate of incorporation, for
shares of stock listed on a national securities exchange or held by more than
2,000 holders of record, unless such stockholders would be required to accept
anything other than shares of stock of the surviving corporation, shares of
another corporation so listed or held by such number of holders of record, cash
in lieu of fractional shares of such stock, or any combination thereof.
Neither the Lightbridge Charter nor the Coral Charter provides for
additional appraisal rights. For more information concerning dissenters' right
under Delaware Law, see "Other Matters Related to the Merger--Appraisal Rights
of Dissenting Stockholders" and ANNEX B hereto.
REDEEMABLE SHARES
Section 151 of the Delaware Law permits both common and preferred stock to
be made subject to redemption at the option of the corporation, at the option of
the stockholder or upon the happening of a specified event, subject to certain
limitations.
The Lightbridge Common is not redeemable. None of the Coral Common, Coral
Series A, Coral Series B and Coral Series C are redeemable.
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<PAGE>
AMENDMENT OF BY-LAWS
Section 109 of the Delaware Law provides that the stockholders entitled to
vote have the power to adopt, amend or repeal by-laws and that a corporation may
confer, in its certificate of incorporation, such powers on the board of
directors.
Under the Lightbridge Charter, the Lightbridge By-Laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors. Similarly, the Coral Charter allows the Board of
Directors of Coral to make, amend, supplement or repeal the Coral Bylaws, but
any such bylaws will be subject to the power of the stockholders to change or
repeal them.
LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the Delaware Law allows a corporation to include in its
certificate of incorporation a provision that limits or eliminates the personal
liability of directors to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director. Section 102 of the Delaware
Law does not, however, permit a corporation to limit or eliminate the personal
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
intentional or negligent payment of unlawful dividends or stock purchase or
redemption or (iv) any transaction from which the director derived an improper
personal benefit.
Both the Lightbridge Charter and the Coral Charter provide for limitations
on the personal liability of any director to the extent permitted by Delaware
Law.
Section 145 of the Delaware Law provides that a corporation may indemnify
any of its officers and directors party to any action, suit or proceeding by
reason of the fact that he or she was a director, officer, employee or agent of
the corporation by, among other things, a majority vote consisting of directors
who were not parties to such action, suit or proceeding, provided that such
officer or director acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation.
The Lightbridge Charter and the Lightbridge By-Laws provide for the
indemnification of Lightbridge's officers and directors to the extent permitted
by Delaware Law. Similarly, the Coral Bylaws provide for the indemnification of
Coral's directors and executive officers to the extent permitted by Delaware
Law.
CLASSIFIED BOARD OF DIRECTORS
Delaware law permits, but does not require, a classified board of
directors, with staggered terms under which one-half or one-third of the
directors are elected for terms of two or three years, respectively.
The Lightbridge By-Laws provide that the Board of Directors be divided into
three classes. One class of directors is elected each year at the annual
meeting of stockholders for a term of office of three years. Andrew I. Fillat
and D. Quinn Mills serve in the class whose term expires in 1998; Torrence C.
Harder and Pamela D.A. Reeve serve in the class whose term expires in 1999; and
Douglas A. Kingsley serves in the class whose term expires in 2000. Each
director will serve until the expiration of his or her term and thereafter until
a successor is duly elected and qualified. Neither the Coral Charter nor the
Coral Bylaws provide that the Board of Directors be divided into classes.
REMOVAL OF DIRECTORS
Under Section 141 of the Delaware Law, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors, except (i) unless the
certificate of incorporation otherwise provides, in the case of a corporation
having a classified board, stockholders may effect such removal only for cause
or (ii) in the case of a corporation having cumulative voting,
102
<PAGE>
if less than the entire board is to be removed, no director may be removed
without cause if the votes cast against his removal would be sufficient to elect
him if then cumulatively voted at an election of the entire board of directors.
The Lightbridge By-Laws provide that directors may be removed only for
cause by the affirmative vote of the holders of at least two-thirds of the
capital stock issued and outstanding and entitled to vote at an election of
directors. Coral does not have a classified board or cumulative voting.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Section 223 of the Delaware Law provides that vacancies and newly created
directorships may be filled by a majority of the directors then in office, even
if the number of directors then in office is less than a quorum, or by a sole
remaining director unless (i) otherwise provided in a corporation's certificate
of incorporation or by-laws or (ii) the certificate of incorporation directs
that a particular class is to elect such director, in which case any other
directors elected by such class, or a sole remaining director, shall fill such
vacancy. In addition, if, at the time of filling any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the whole board, the Delaware Court of Chancery may, upon application of
stockholders holding at least ten percent of the shares outstanding at the time
and entitled to vote for such directors, summarily order an election to be held
to fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office. Such elections are to be
conducted in accordance with the procedures provided by the Delaware Law.
Unless otherwise provided in the certificate of incorporation or by-laws, when
one or more directors resign from the board, effective at a future date, a
majority of directors then in office, including those who have so resigned, may
vote to fill the vacancy.
The Lightbridge By-laws provide that vacancies, including those resulting
from an enlargement of the board, shall be filled by the vote of a majority of
the directors then in office, although less than a quorum, or by the sole
remaining director. The Coral Bylaws provide that, unless otherwise provided in
the Coral Charter, any vacancies and newly created directorships resulting from
any increase in the number of directors shall be filled by a majority of the
directors then in office, even if less than a quorum, unless the Board of
Directors determines that such vacancy or newly created directorship shall be
filled by the stockholders. The Coral Charter provides that if there are more
than seven directors, the holders of the Coral Series C shall have certain
rights with respect to the election of any additional director.
SPECIAL MEETINGS
Under Section 211 of the Delaware Law, special meetings of stockholders may
be called by the board of directors and by such other person or persons
authorized to do so by the corporation's certificate of incorporation or by-
laws.
Under the Lightbridge By-Laws, a special meeting of stockholders may be
called by the president and shall be called by the president or secretary at the
request in writing of a majority of the Board of Directors. Under the Coral
Bylaws, a special meeting of stockholders may be called by (i) the Chairman of
the Board of Directors, (ii) the chief executive officer, (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors or (iv) by the holders of shares entitled to cast not less
than ten percent of the votes at such meeting.
INSPECTION RIGHTS
Section 220 of the Delaware Law provides that any stockholder, upon written
demand stating the purpose of the inspection, shall have the right to inspect
for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records.
103
<PAGE>
ELECTION
In accordance with the Lightbridge By-laws, the Board of Directors will
consist of not less than two nor more than nine directors and the number of
directors shall be determined by resolution of the Board of Directors and may be
increased or decreased at any time or from time to time by the directors by a
vote of a majority of the directors then in office, except that any decrease by
vote of the directors shall only be made to eliminate vacancies existing by
reason of the death, resignation or removal of one or more directors. The Board
of Directors of Lightbridge is divided into three classes. One class of
directors is elected each year at the annual meeting of stockholders for a term
of three years. Each director serves until the expiration of his or her term and
thereafter until a successor is duly elected and qualified. There are currently
five members on the Board of Directors.
In accordance with the Coral Charter, the Board of Directors is currently
fixed at seven members. In addition, the holders of Coral Series B, voting as a
separate class, have the right to elect two directors, the holders of Coral
Series A and Coral Series C, each voting as a separate class, have the right to
elect one director each, and the holders of the Coral Common, voting as a
separate class, have the right to elect three directors. Directors of Coral are
elected at each annual meeting, serve a term of one year and hold office until a
successor is elected and qualified.
Upon consummation of the Merger, holders of Coral Capital Stock would
become holders of Lightbridge Common. Thereafter, holders of Coral Series A,
Coral Series B and Coral Series C would no longer be entitled to certain rights
and privileges provided for in the Coral Charter, including dividend and
liquidation preferences, conversion rights and certain other protective rights.
Holders of Coral Series A, Coral Series B and Coral Series C also would lose the
right to vote as separate classes concerning certain corporate transactions. In
addition, each holder of Coral Capital Stock would have a percentage ownership
of Lightbridge Common that is substantially less than the holder's current
percentage ownership of Coral Capital Stock. Accordingly, holders of Coral
Capital Stock would have a significantly smaller voting influence over the
affairs of Lightbridge than they currently possess over the affairs of Coral.
Appraisal rights are available to stockholders of Coral with respect to the
Merger. See "The Merger Proposal--Appraisal Rights."
LEGAL MATTERS
The legality of the Lightbridge Common to be issued in connection with the
Merger and certain federal tax matters related to the Merger are being passed
upon for Lightbridge by Foley, Hoag and Eliot LLP, Boston, Massachusetts.
Certain federal tax consequences of the Merger are being passed upon for holders
of Coral Capital Stock by Cooley Godward LLP, Boulder, Colorado.
EXPERTS
The consolidated balance sheets of Lightbridge and subsidiary as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, stockholders' equity (deficiency), and cash flows for the years
ended September 30, 1994 and 1995, the three months ended December 31, 1995, and
the year ended December 31, 1996 included and incorporated in this Proxy
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is included and incorporated by
reference herein, and have been so included and incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Coral as of December 31, 1995 and 1996 and
for each of the three years in the period ended December 31, 1996 included in
this Proxy Statement/Prospectus have been so included in reliance upon the
report (which contains an explanatory paragraph relating to Coral's ability to
continue as a going concern, as described in Note 12 to the Financial
Statements) of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
104
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
LIGHTBRIDGE
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996......................... F-3
Consolidated Statements of Operations for the years ended September 30, 1994
and 1995, the three months ended December 31, 1995 and the year ended
December 31, 1996................................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for the years
ended September 30, 1994 and 1995, the three months ended December 31,
1995 and the year ended December 31, 1996......................................... F-5
Consolidated Statements of Cash Flow for the years ended September 30, 1994
and 1995, the three months ended December 31, 1995 and the year ended
December 31, 1996................................................................. F-6
Notes to Consolidated Financial Statements........................................... F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1997 and December 31, 1996............................. F-19
Income Statements for the Six Months Ended June 30, 1997 and June 30, 1996........... F-20
Statements of Cash Flow for the Six Months Ended June 30, 1997 and June 30,
1996................................................................................. F-21
Notes to Unaudited Condensed Consolidated Financial Statements....................... F-22
CORAL
Report of Independent Accountants.................................................... F-24
Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997 (unaudited)......... F-25
Statements of Operations for the years ended December 31, 1994, 1995 and 1996
and the six months ended June 30, 1996 and 1997 (unaudited)....................... F-26
Statements of Changes in Stockholders' Equity (Deficit) for the years ended
December 31, 1994, 1995 and 1996 and the six months ended
June 30, 1997 (unaudited)......................................................... F-27
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996
and the six months ended June 30, 1996 and 1997 (unaudited)....................... F-29
Notes to Financial Statements........................................................ F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Lightbridge, Inc.
We have audited the accompanying consolidated balance sheets of
Lightbridge, Inc. and subsidiary as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the years ended September 30, 1994 and 1995,
the three months ended December 31, 1995, and the year ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Companies at December 31,
1995 and 1996, and the results of their operations and their cash flows for the
years ended September 30, 1994 and 1995, the three months ended December 31,
1995, and the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 1997 (Except for Note 2 "Recent Accounting Pronouncement," and
Note 4, as to which the dates are March 5, 1997)
F-2
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996
---- ----
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 58,064 $27,900,802
Accounts receivable-net............................................ 4,578,143 7,249,106
Accounts receivable from related parties........................... 149,894 281,703
Other current assets............................................... 144,294 970,735
----------- -----------
Total current assets..................................... 4,930,395 36,402,346
Property and equipment-net............................................ 4,881,655 4,271,880
Capitalized software development costs-net............................ 762,084 355,838
Deposits............................................................... 225,807 150,731
Note receivable from related party..................................... -- 55,210
Other assets........................................................... 254,625 529,650
----------- -----------
Total assets............................................. $11,054,566 $41,765,655
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses.............................. $ 3,025,038 $ 3,216,968
Short-term borrowings and current portion of subordinated notes
payable........................................................ 1,500,000 555,205
Current portion of obligations under capital leases................ 2,073,895 1,533,899
Deferred revenues.................................................. 74,800 422,875
Dividends payable on redeemable convertible preferred stock........ 166,876 166,876
Related parties:
Interest payable................................................ 44,096 37,453
Current portion of subordinated notes payable................... -- 12,500
----------- -----------
Total current liabilities................................ 6,884,705 5,945,776
Obligations under capital leases....................................... 1,502,128 100,301
Subordinated notes payable:
Unaffiliated parties............................................... 2,848,837 2,041,515
Related parties.................................................... 164,298 79,420
----------- -----------
Total liabilities........................................ 11,399,968 8,167,012
----------- -----------
Commitments and contingencies (Note 5)
Redeemable convertible preferred stock at redemption value
(liquidation preference of $3,343,494 at December 31, 1995)........ 3,176,618 --
----------- -----------
Stockholders' equity (deficiency):
Preferred stock; $.01 par value, 0 and 5,000,000 shares authorized, no
shares issued or outstanding at December 31, 1995 and 1996,
respectively................................................... -- --
Common stock, $.01 par value; 60,000,000 shares authorized;
6,575,098 and 15,369,697 shares issued; 6,573,950 and
14,568,549 shares outstanding at December 31, 1995 and 1996,
respectively................................................... 65,751 153,698
Additional paid-in capital......................................... -- 36,296,969
Warrants........................................................... 406,375 605,125
Accumulated deficit................................................ (3,993,572) (1,921,075)
----------- -----------
Total.................................................... (3,521,446) 35,134,717
Less treasury stock, at cost....................................... (574) (1,536,074)
----------- -----------
Total stockholders' equity (deficiency).................. (3,522,020) 33,598,643
----------- -----------
Total liabilities and stockholders' equity (deficiency).. $11,054,566 $41,765,655
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED YEAR ENDED
---------------------------- DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Transaction revenues (Includes
sales to a related party of
$104,278, $59,017, $10,644
and $3,125, respectively).... $12,902,142 $18,403,464 $6,053,688 $22,158,773
Software and other revenues.... 495,721 947,003 458,362 7,386,079
----------- ----------- ---------- -----------
Total revenues................. 13,397,863 19,350,467 6,512,050 29,544,852
Cost of revenues............... 7,415,356 12,607,879 3,484,175 15,433,548
----------- ----------- ---------- -----------
Gross profit................... 5,982,507 6,742,588 3,027,875 14,111,304
----------- ----------- ---------- -----------
Operating Expenses:
Development................ 2,317,454 3,864,000 1,144,973 4,380,293
Sales and marketing........ 814,891 1,901,716 794,687 4,225,302
General and administrative. 1,643,496 2,583,912 700,640 2,768,424
----------- ----------- ---------- -----------
Total operating expenses....... 4,775,841 8,349,628 2,640,300 11,374,019
----------- ----------- ---------- -----------
Income (loss) from operations.. 1,206,666 (1,607,040) 387,575 2,737,285
Other income (expense):
Interest income:
Related parties......... 12,604 8,688 1,551 4,807
Other................... 9,384 29,006 510 416,801
Interest expense:
Related parties......... (20,753) (39,276) (11,657) (89,142)
Other................... (224,927) (824,292) (295,454) (664,481)
Other nonoperating income
(expense)................ (9,802) -- (7,920) 26,727
----------- ----------- ---------- -----------
Income (loss) before provision
for income taxes............. 973,172 (2,432,914) 74,605 2,431,997
Provision for income taxes..... 22,900 -- 2,400 159,500
----------- ----------- ---------- -----------
Net income (loss).............. $ 950,272 $(2,432,914) $ 72,205 $ 2,272,497
=========== ========== ===========
Accretion of preferred stock (182,544)
dividends.................... -----------
Net income available for common
stock........................ $ 767,728
===========
Net income per common share.... $ 0.10
===========
Weighted average number of common
and common equivalent shares
outstanding.................. 7,796,000
===========
Pro forma net income (loss) per
common share................. $ (0.19) $ 0.01 $ 0.16
=========== ========== ===========
Pro forma weighted average number
of common and common equivalent
shares outstanding........... 12,661,576 13,161,680 14,433,722
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON STOCK TREASURY STOCK PAID-IN ACCUMULATED EQUITY
------------------------------------------- CAPITAL WARRANTS DEFICIT (DEFICIENCY)
SHARES AMOUNT SHARES AMOUNT --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1993....... 6,412,132 $ 64,121 -- $ -- $ 274,284 $ -- $(2,457,177) $(2,118,772)
Issuance of common stock
for cash...................... 86,100 861 -- -- 8,263 -- -- 9,124
Issuance of stock purchase
warrants...................... -- -- -- -- -- 262,500 -- 262,500
Dividends on redeemable
convertible preferred
stock........................ -- -- -- -- (182,544) -- -- (182,544)
Net income..................... -- -- -- -- -- -- 950,272 950,272
---------- -------- -------- ----------- ----------- -------- ----------- -----------
Balance, September 30, 1994.... 6,498,232 64,982 -- -- 100,003 262,500 (1,506,905) (1,079,420)
Issuance of common stock
for cash...................... 2,516 25 -- -- 142 -- -- 167
Issuance of stock purchase
warrants...................... -- -- -- -- -- 143,875 -- 143,875
Dividends on redeemable
convertible preferred
stock....................... -- -- -- -- (100,145) -- (82,399) (182,544)
Repurchase of common stock for
cash........................ -- -- 1,148 (574) -- -- -- (574)
Net loss....................... -- -- -- -- -- -- (2,432,914) (2,432,914)
---------- -------- -------- ----------- ----------- -------- ----------- -----------
Balance, September 30, 1995.... 6,500,748 65,007 1,148 (574) -- 406,375 (4,022,218) (3,551,410)
Issuance of common stock
for cash...................... 74,350 744 -- -- 2,076 -- -- 2,820
Dividends on redeemable
convertible preferred
stock....................... -- -- -- -- (2,076) -- (43,559) (45,635)
Net income..................... -- -- -- -- -- -- 72,205 72,205
---------- -------- -------- ----------- ----------- -------- ----------- -----------
Balance, December 31, 1995..... 6,575,098 65,751 1,148 (574) -- 406,375 (3,993,572) (3,522,020)
Issuance of common stock
for cash...................... 115,120 1,152 -- -- 156,420 -- -- 157,572
Exercise of common stock
warrants...................... 410,287 4,103 -- -- 27,147 (31,250) -- --
Repurchase of common stock for
cash.......................... -- -- 800,000 (1,535,500) -- -- -- (1,535,500)
Dividends on redeemable
convertible preferred
stock....................... -- -- -- -- (136,905) -- -- (136,905)
Expenses paid on behalf of
stockholder................. -- -- -- -- -- -- (200,000) (200,000)
Issuance of common stock, net of
issuance costs.............. 3,021,868 30,219 -- -- 27,030,857 -- -- 27,061,076
Conversion of preferred stock to
common stock................ 5,247,324 52,473 -- -- 9,219,450 -- -- 9,271,923
Compensation cost of issuance of
warrant..................... -- -- -- -- -- 230,000 -- 230,000
Net income..................... -- -- -- -- -- -- 2,272,497 2,272,497
---------- -------- -------- ----------- ----------- -------- ----------- -----------
Balance, December 31, 1996..... 15,369,697 $153,698 801,148 $(1,536,074) $36,296,969 $605,125 $(1,921,075) $33,598,643
========== ======== ======== =========== =========== ======== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED YEAR ENDED
--------------------------- DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................... $ 950,272 $(2,432,914) $ 72,205 $ 2,272,497
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ........ 1,000,057 2,567,767 864,192 3,557,699
Amortization of discount on notes .... 4,219 76,500 87,853 63,975
Compensation expense related to
warrant grant ...................... -- -- -- 230,000
Changes in assets and liabilities:
Accounts receivable ................ (1,278,988) (77,307) (1,840,094) (2,802,772)
Other assets ....................... (269,299) (173,594) (30,014) (731,600)
Accounts payable and accrued
liabilities ...................... 341,878 935,172 725,504 185,287
Deferred revenues .................. (254,721) 167,536 (153,850) 348,075
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities ............. 493,418 1,063,160 (274,204) 3,123,161
----------- ----------- ----------- -----------
Cash flows used in investing activities:
Purchases of property and equipment (339,223) (1,391,679) (184,186) (2,339,797)
Capitalization of software costs ... -- (980,453) -- --
Other assets ....................... -- -- -- (350,000)
----------- ----------- ----------- -----------
Net cash used in investing
activities...................... (339,223) (2,372,132) (184,186) (2,689,797)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable and
warrants.......................... 2,350,000 1,901,000 500,000 --
Proceeds from equipment line
borrowings........................ -- -- -- 763,013
Payments on notes payable .......... (50,000) -- -- (2,651,000)
Payments under capital lease
obligations....................... (823,085) (1,884,512) (525,391) (2,144,187)
Proceeds from initial public
offering ......................... -- -- -- 27,061,076
Proceeds from issuance of common
stock............................. 9,124 167 2,820 157,572
Payments toward the purchase of
treasury stock ................... -- (574) -- (1,535,500)
Expenses paid on behalf of
stockholder ...................... -- -- -- (200,000)
Proceeds from issuance of mandatory
redeemable convertible preferred
stock, net ....................... -- -- -- 5,958,400
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities ........... 1,486,039 16,081 (22,571) 27,409,374
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents .................... 1,640,234 (1,292,891) (480,961) 27,842,738
Cash and cash equivalents, beginning
of period .......................... 191,682 1,831,916 539,025 58,064
----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period ................................. $ 1,831,916 $ 539,025 $ 58,064 $27,900,802
=========== =========== =========== ===========
Cash paid for interest ................. $ 283,272 $ 904,605 $ 176,271 $ 836,869
=========== =========== =========== ===========
Cash paid for income taxes ............. $ 5,300 $ 25,000 $ 15,700 $ 87,413
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND TECHNOLOGY ACQUISITIONS
Business--Lightbridge, Inc. (formerly Credit Technologies, Inc.) (the
"Company") was incorporated in June 1989 under the laws of the state of
Delaware. Effective November 1, 1994, the Company changed its name and
reincorporated as Lightbridge, Inc. During 1995, the Board of Directors passed a
resolution to change the Company's fiscal year end to December 31. The Company
develops and markets customer acquisition solutions for the wireless
telecommunications industry. In September 1996, the Company organized a wholly
owned subsidiary, Lightbridge Security Corporation, as a Massachusetts
securities corporation for tax purposes, to buy, hold and sell securities.
In September 1996, the Company completed an initial public offering (the
"IPO") whereby 3,021,868 shares of its Common Stock ($.01 par value) were sold
by the Company, 778,132 shares by selling shareholders and 570,000 additional
shares sold by selling shareholders pursuant to the exercise of the
over-allotment option by the underwriters at $10.00 per share. The net proceeds
of the IPO, after deducting underwriters' commissions and fees and offering
costs, were approximately $27.1 million. These proceeds were used to repay
certain debt obligations of the Company, to repurchase certain shares of the
common stock of the Company and to fund working capital and other general
corporate purposes.
Technology Acquisitions--During the year ended September 30, 1995, the
Company completed the following technology acquisitions:
o In November 1994, the Company purchased the technology for a pen-based
software product for $400,000.
o In February 1995, the Company purchased the software technology for a
multimedia kiosk for $45,000. The Company is also obligated to make
royalty payments to the former owners based on future sales of the
product.
The costs associated with these acquisitions were recorded as capitalized
software costs, since such products had reached technological feasibility at the
date of acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation--These consolidated
financial statements include the accounts of the Company and its subsidiary. All
intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents--Cash and cash equivalents include short-term,
highly liquid instruments, which consist primarily of money market accounts,
purchased with remaining maturities of three months or less.
Property and Equipment--Property and equipment is recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets ranging from three to seven years.
Leasehold improvements are amortized over the term of the lease or the lives of
the assets, whichever is shorter.
Revenue Recognition and Concentration of Credit Risk--Revenues from
processing of qualification and activation transactions for wireless
telecommunications carriers are recognized in the period when services are
performed. Revenues derived from software implementation projects are recognized
throughout the performance period of the contracts. Revenues arising from the
prepayment of fees or from licensing agreements where the Company has continuing
vendor obligations are deferred.
F-7
<PAGE>
Substantially all of the Company's customers are providers of wireless
telephone service and are generally granted credit without collateral. The
Company's revenues vary throughout the year with the period of highest revenue
generally occurring during the period October 1 through December 31. The
allowance for doubtful accounts at September 30, 1994 and 1995 and at December
31, 1995 and 1996 was $25,000, $9,000, $22,200 and $18,000, respectively. The
Company recorded bad debt expense of $25,000, $0, $13,200 and $0 and had
write-offs, net of recoveries associated with accounts receivable of $0,
$16,000, $0 and $4,200 for the years ended September 30, 1994, 1995, the three
months ended December 31, 1995 and the year ended December 31, 1996.
Customers exceeding 10% of the Company's revenues during the years ended
September 30, 1994 and 1995, the three months ended December 31, 1995, and the
year ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
PERCENT OF REVENUES
-----------------------------------------------------------
YEARS ENDED THREE MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
-------------------- DECEMBER 31, DECEMBER 31,
CUSTOMER 1994 1995 1995 1996
- -------- ------- -------- ---------------- ---------------
<S> <C> <C> <C> <C>
A...................... 32% 31% 22% 15%
B...................... 12 11 18 29
C...................... 10 * * *
D...................... 10 11 10 *
E...................... * 10 11 *
------- -------- ---------------- ---------------
64% 63% 61% 44%
======= ======== ================ ===============
</TABLE>
* For periods in which a customer represented less than 10% of revenues,
such customer's percent of revenue for that period is not presented.
Income Taxes--The Company has adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of existing assets and
liabilities. Deferred income tax assets are principally the result of net
operating loss carryforwards and differences in depreciation and amortization
for financial statement purposes and income tax purposes, and are recognized to
the extent realization of such benefits is more likely than not.
Software Development Costs--Software development costs are capitalized
after establishment of technological feasibility as provided for under SFAS No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed."
During the year ended September 30, 1995, the Company capitalized
approximately $980,400 of software development costs associated with the
development of two new products, including the costs of purchasing certain
technology (see Note 1). Capitalized software development costs are being
amortized to cost of revenues using the straight-line method over 24 months
which results in the highest levels of amortization. Accumulated amortization
was approximately $218,000 and $625,000 at December 31, 1995 and 1996,
respectively.
Development Costs--Development costs, which consist of research into and
development of new products and services, are expensed as incurred, except costs
which may be subject to capitalization under the provisions of SFAS No. 86.
Supplemental Cash Flow Information--The Company entered into the following
noncash transactions:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
----------------------- DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Capital lease obligations
incurred For the acquisition
of equipment..................... $3,256,900 $2,268,605 $118,057 $202,364
========== ========== ======== ========
</TABLE>
In both April and September of 1996, the Company reacquired 200,000 shares
of its common stock from a former director. These repurchases were partially
financed through the issuance of two separate 8% notes payable in the amount of
$226,667 and $260,000. Such notes were repaid during 1996.
F-8
<PAGE>
Pro Forma Income (Loss) Per Common Share--Pro forma income (loss) per
common share is based on the weighted average number of common and dilutive
common equivalent shares (common stock options and warrants) outstanding and
assumes that all series of redeemable convertible preferred stock had been
converted to common stock for all pro forma periods presented. Common equivalent
shares are not included in the per share calculations where the effect of their
inclusion would be anti-dilutive, except in accordance with the requirements of
Securities and Exchange Commission Staff Accounting Bulletin No. 83. That
Bulletin requires all common shares issued and options or warrants to purchase
common stock granted by the Company during the twelve-month period prior to the
filing of a proposed initial public offering be included in the calculation as
if they were outstanding for all periods. For purposes of applying the Bulletin,
the Company has used the initial public offering price of $10 per share.
Historical income (loss) per share, which includes the conversion of the
redeemable convertible preferred stock on the actual date of conversion, was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1995 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Net Income (loss) ................ $(2,432,914) $ 72,205 $ 2,272,497
Accretion of preferred dividends . (182,544) (45,635) (136,905)
----------- ----------- -----------
Net income (loss) available for
common stock .................. $(2,615,458) $ 26,570 $ 2,135,592
=========== =========== ===========
Net income (loss) per common
share.......................... $ (0.35) -- $ .23
=========== =========== ===========
Weighted average number of common
and common equivalent shares
outstanding ................... 7,414,252 7,914,356 9,185,274
=========== =========== ===========
</TABLE>
Fair Value of Financial Instruments--In the opinion of management, the
estimated fair value of the Company's financial instruments, which include cash
equivalents, accounts receivable and long-term debt, approximates their carrying
value.
Impairment of Long-Lived Assets--In March 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." SFAS No. 121 addresses the accounting for the impairment of
long-lived assets, certain identifiable intangibles and goodwill when
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The adoption of SFAS No. 121 in 1996 did not
have a material impact on the Company's results of operations, financial
position or cash flows.
Stock-Based Compensation--In November 1995, the FASB issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 addresses the
financial accounting and reporting standards for stock-based compensation
plans and permits an entity to either record the effects of stock-based
employee compensation plans in its financial statements or present pro
forma disclosures in the notes to the financial statements. Compensation
expense associated with awards to non-employees is required to be measured
using a fair value method. In connection with the adoption of SFAS No. 123
during 1996, the Company elected to provide the appropriate disclosures in
the notes to the financial statements for employee compensation plans.
Since the Company does not expect to make significant equity awards to
outsiders in the future, adoption of SFAS No. 123 is not expected to
impact the Company's future consolidated results of operations, financial
position or cash flows.
Recent Accounting Pronouncement--
Earnings Per Share--In February 1997, the FASB released SFAS No. 128,
"Earnings Per Share," which will be effective for fiscal 1997. SFAS No. 128
will require the Company to restate amounts previously reported as earnings
per share to comply with the requirements of SFAS No. 128; while the
Company is in the process of evaluating the impact of SFAS No. 128, it
does not expect that adoption will have a dilutive effect on previously
reported earnings per share.
F-9
<PAGE>
Significant Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates. These estimates include provisions
for bad debts, certain accrued liabilities, recognition of revenue and
expenses, and recoverability of deferred tax assets. These estimates could
change; however, the Company does not expect any changes in the near term
that would have a significant impact on the financial statements.
Stock Split--On June 14, 1996, the Board of Directors authorized a two
for one stock split effective on July 15, 1996. All shares and per share
information included in the financial statements has been restated to
reflect this stock split. In addition, during 1996, the number of shares of
authorized common stock was increased to 60,000,000.
Reclassifications--Certain reclassifications have been made to the
1994 and 1995 financial statements to conform with the 1996 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1996
------------- ------------
<S> <C> <C>
Furniture and fixtures .......... $ 117,876 $ 261,379
Leasehold improvements .......... 867,726 776,634
Computer equipment .............. 1,161,052 2,603,936
Computer equipment under capital
leases ..................... 6,972,938 5,846,954
Computer software ............... 829,436 953,602
------------ ------------
9,949,028 10,442,505
Less accumulated depreciation and
amortization ............... (5,067,373) (6,170,625)
------------ ------------
Property and equipment--net ..... $ 4,881,655 $ 4,271,880
============ ============
</TABLE>
Accumulated amortization of equipment under capital leases was $3,606,915
and $4,400,628 at December 31, 1995 and 1996, respectively.
4. NOTES PAYABLE
The carrying value of notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------------- -------------------------
HELD BY HELD BY HELD BY HELD BY
RELATED UNAFFILIATED RELATED UNAFFILIATED
PARTIES PARTIES PARTIES PARTIES
--------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Line-of-credit/demand note
borrowings....................... $ -- $1,500,000 $ -- $ --
Equipment line borrowings........... -- -- -- 763,013
8% subordinated notes............... 90,045 1,798,549 91,920 1,833,707
16% subordinated notes.............. 74,253 1,050,288 -- --
--------- ----------- ------- ----------
Total............................... 164,298 4,348,837 91,920 2,596,720
Less current portion................ -- 1,500,000 12,500 555,205
--------- ----------- ------- ----------
Long-term portion................... $164,298 $2,848,837 $79,420 $2,041,515
======== =========== ======= ==========
</TABLE>
F-10
<PAGE>
Line of Credit--Prior to 1996, the Company had a line of credit agreement
with a bank (the "Bank Agreement") which permitted the Company to borrow up to
$2,000,000 ($1,000,000 during 1994) subject to certain borrowing formulae
established by the bank. Interest based on prime plus .5% was charged on any
outstanding borrowings. In December 1995, the Bank Agreement was amended to
reduce the amount of permitted borrowings to $1,500,000 and the outstanding
borrowings under the Bank Agreement, $1,500,000, were converted to a demand note
due in March 1996 (the "Demand Note Agreement"). The weighted average annual
interest rate for outstanding borrowings during the years ended September 30,
1994 and 1995 and the three months ended December 31, 1995 approximated 9.75%,
9.9% and 9.5%, respectively.
During 1996, the Company converted the existing demand note agreement (the
"Amended Bank Agreement") to a line of credit which increased the maximum
borrowing limit to $4,000,000, subject to a borrowing base formula, decreased
the interest rate to prime plus .25% and extended the agreement to June 1997.
The weighted average annual interest rate on outstanding borrowings during 1996
was 9.4%. The Amended Bank Agreement contains certain restrictions which, among
others, limits the Company's ability to pay cash dividends and requires the
Company to achieve defined levels of quarterly earnings and tangible net worth,
as well as meeting defined ratios of senior liabilities to net worth and quick
assets. Borrowings under the Amended Bank Agreement are collateralized by the
Company's accounts receivable, equipment and intangible assets.
The Amended Credit Agreement was further amended on March 5, 1997 to
provide for the issuance of letters of credit. Outstanding letters of credit
reduce the amount the Company may borrow under the Amended Credit Agreement and
are limited to $1,250,000 in the aggregate.
Line of Credit-Equipment--The Company has a $2,000,000 line of credit
available for equipment purchases (the "Equipment Line"). Borrowings under the
Equipment Line are payable in 30 monthly installments of principal and interest
commencing January, 1997 and ending June, 1999. Interest on the Equipment Line
is payable at prime plus .75%. The weighted average annual interest rate for
outstanding borrowings under the Equipment Line during the year ended December
31, 1996 approximated 8.78%.
16% Subordinated Notes--In August 1995, the Company issued $1,151,000 of
16% subordinated notes to certain holders of the Company's redeemable preferred
stock, with immediately exercisable warrants for the purchase of 287,750 shares
of the Company's common stock. Interest on the notes was accrued monthly, and
principal and accrued interest were payable on January 31, 1996. Such repayment
obligations were extended by the note holders until the Company completed the
placement of its Series D Preferred Stock on April 4, 1996 (See Note 6). The
warrants are exercisable through June 30, 2001 at a price of $2 per share and
have been appraised and recorded at an aggregate market value of $143,875. The
related discount on the subordinated note ($143,875 at time of issuance) has
been accreted over the originally scheduled term of the notes. Interest expense
for the year ended September 30, 1995, the three months ended December 31, 1995
and the year ended December 31, 1996 includes approximately $38,900, $78,500 and
$26,475 of accretion, respectively. The Company repaid principal and interest
related to these notes in full upon the sale of its Series D Preferred Stock.
The amount outstanding related to these notes was classified as long term at
December 31, 1995, reflecting the Company's refinancing of this obligation
through the issuance of Series D Preferred Stock.
8% Subordinated Notes--In August 1994, the Company issued $2,100,000 of
subordinated notes to certain holders of the Company's common and mandatory
redeemable preferred stock, with immediately exercisable warrants for the
purchase of 525,000 shares of the Company's common stock. The warrants are
exercisable through June 30, 2001 at a price of $2 per share and have been
appraised and recorded at an aggregate market value of $262,500. The related
discount on the subordinated notes ($262,500 at time of issuance) is being
accreted over the term of the notes. Interest expense for the years ended
September 30, 1994 and 1995, the three months ended December 31, 1995 and the
year ended December 31, 1996 includes accretion related to these notes of
approximately $4,200, $37,500, $9,375 and $37,500, respectively. Interest on the
notes is payable quarterly at an annual rate of 8%. Principal is payable in
quarterly installments of $131,250 beginning on September 30, 1997 through
maturity (2001). The notes are redeemable at the Company's option at par plus
declining premiums at various dates.
F-11
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
Leases--The Company leases computer and other equipment under various
noncancelable leases which have been capitalized for financial reporting
purposes. The Company has noncancelable operating lease agreements for office
space and certain equipment.
Future minimum payments under capital and operating leases consist of the
following at December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING
DECEMBER 31 CAPITAL LEASES LEASES
--------------- ------------------
<S> <C> <C>
1997................................................ $ 1,621,547 $1,612,947
1998................................................ 104,695 1,441,581
1999................................................ -- 1,410,652
2000................................................ -- 1,269,630
2001................................................ -- 781,692
----------- ----------
Total minimum lease payments........................ 1,726,242 $6,516,502
==========
Less amount representing interest................... (92,042)
-----------
Present value of future minimum lease payments...... 1,634,200
Less current portion................................ (1,533,899)
-----------
Long-term portion................................... $ 100,301
===========
</TABLE>
Rent expense for operating leases was approximately $454,000, $1,503,000,
$405,000, and $1,797,000 for the years ended September 30, 1994 and 1995, for
the three months ended December 31, 1995, and for the year ended December 31,
1996, respectively.
Litigation--During 1996, the Company and certain affiliates (the
"Entrepreneurial Partnerships") (collectively, the "Plaintiffs") reached an
agreement to settle various lawsuits between the Plaintiffs and a former
director of the Company (see Note 10). In addition to settling all claims and
disputes, the former director agreed, in exchange for payments of $25,500 each,
to grant the Company and the Entrepreneurial Partnerships' various options to
purchase the Company's common stock from the former director (the "Settlement
Shares"). The Company's purchase option permitted the Company to purchase
Settlement Shares in 200,000 share allotments during each of three specified
periods of time through February 1997 at purchase prices of $1.70, $1.95 and
$2.20 per share during the first, second and final share allotments,
respectively. In the event that the Company chose not to immediately pay for the
Settlement Shares, a portion of the purchase price (66.67%) could be financed by
issuing the former director an 8% two-year note. During 1996, the Company
exercised its option to purchase 600,000 settlement shares of which a portion
were temporarily financed during the year and subsequently repaid in October
1996.
In connection with the exercise of the options by the Entrepreneurial
Partnerships, on March 28, 1996 the Company loaned an aggregate of $113,333 to
the Entrepreneurial Partnerships at an interest rate of 16%. Such amount was
repaid in May 1996. In May 1996, the Company repurchased for cash consideration
an additional 200,000 shares of its common stock from certain Entrepreneurial
Partnerships at a price of $1.70 per share and reimbursed the Entrepreneurial
Partnerships, by means of a distribution, for certain legal fees and expenses
incurred by them in connection with the litigation against the former director
in the amount of $200,000.
F-12
<PAGE>
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
During 1996, the holders of the Company's Series A, B, C, and D redeemable
convertible preferred stock (collectively, the "Preferred Stock" ) converted
their holdings into shares of the Company's common stock.
Activity related to the classes of redeemable convertible preferred stock
prior to conversion was as follows:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D TOTAL
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, October 1, 1993......... $ 1,130,475 $ 1,204,729 $ 597,567 $ -- $ 2,932,771
Dividends accreted................ 15,668 -- -- 15,668
----------- ----------- --------- ----------- -----------
Balances, September 30, 1994...... 1,146,143 1,204,729 597,567 -- 2,948,439
Dividends accreted................ 60,978 76,104 45,462 -- 182,544
----------- ----------- --------- ----------- -----------
Balances, September 30, 1995...... 1,207,121 1,280,833 643,029 -- 3,130,983
Dividends accreted................ 15,244 19,026 11,365 -- 45,635
----------- ----------- --------- ----------- -----------
Balances, December 31, 1995....... 1,222,365 1,299,859 654,394 -- 3,176,618
Stock issued, net of issuance
costs of $41,600 .............. -- -- -- 5,958,400 5,958,400
Dividends accreted................ 45,731 57,083 34,091 -- 136,905
Conversion to common stock........ (1,268,096) (1,356,942) (688,485) (5,958,400) (9,271,923)
----------- ----------- --------- ----------- -----------
Balances, December 31, 1996....... $ -- $ -- $ -- $ -- $ --
=========== =========== ========= =========== ===========
</TABLE>
During 1991, the Company issued 630,516 shares of redeemable convertible
preferred stock ("Series A Preferred Stock") for an aggregate purchase price of
$1,000,000, of which 315,258 shares were issued to a third-party investor and
315,258 shares were issued to certain Entrepreneurial Partnerships which are
related parties.
Also during 1991, the Company issued 620,000 shares of redeemable
convertible preferred stock ("Series B Preferred Stock") for an aggregate
purchase price of $1,085,000.
In June 1993, the Company issued 200,789 shares of redeemable convertible
preferred stock ("Series C Preferred Stock") for an aggregate purchase price of
$602,367.
In April 1996, the Company issued 1,000,000 shares of redeemable
convertible preferred stock ("Series D Preferred Stock") for an aggregate
purchase price of $6,000,000.
Conversion and Liquidation Preferences--Each share of Series A and Series D
Preferred Stock was convertible into two shares of common stock. Each share of
Series B and Series C Preferred Stock was convertible into approximately 2.42
and 2.40 shares of common stock, respectively. The Preferred Stock was
convertible upon a sale of the Company's stock or net assets for an amount in
excess of $7,500,000, with a minimum price per share of $5.25. In the event of a
liquidation, merger, consolidation, or sale of the Company's assets, the holders
of the various classes of Preferred Stock were entitled to receive a liquidation
preference equal to their aggregate purchase price plus accreted and unpaid
dividends outstanding prior to any distributions to holders of common stock of
the Company. Each share of Preferred Stock entitled the holder to the number of
votes per share equivalent to the number of common shares into which each share
of preferred stock was then convertible.
Dividends--On October 1, 1992, the Series A and Series B Preferred Stock
began accruing dividends at the rate of 8% per annum. The Series C Preferred
Stock began accruing dividends at the rate of 8% per annum beginning on October
1, 1993. Prior to the issuance of the Series D Preferred Stock, the Series A,
Series B and Series C Preferred Stock dividends were payable in cash for fiscal
years in which the Company has net income in excess of $500,000 and accruable in
all other years. Accrued dividends outstanding for any year were payable in cash
in subsequent years to the extent net income exceeded the required minimum of
$500,000 by an additional $500,000. No dividends were paid in the years ended
September 30, 1994 and 1995 or the three months ended December 31, 1995. In
connection with the issuance of the Series D Preferred Stock, the Series A,
Series B and
F-13
<PAGE>
Series C Preferred Stock dividends became payable in cash or by subordinated
promissory note for fiscal years in which the Company's net income was
$1,000,000 or more, to the extent of the lesser of 20% of net income in excess
of $1,000,000 or all dividends then payable. For financial reporting purposes,
the dividends were accreted ratably over the period the Preferred Stock was
expected to be outstanding to the extent not required to be paid. Dividends
payable for all periods presented consisted of $80,076 and $86,800 required to
be paid on the Series A and Series B Preferred Stock, respectively, as a result
of the Company's 1994 net income. The Company expects to pay those dividends in
1997.
Redemption--Prior to the issuance of the Series D Preferred Stock, the
Series A and Series B Preferred Stock had a mandatory redemption date of
December 31, 1997 and the Series C Preferred Stock had a mandatory redemption
date of December 31, 1999. Since the issuance of the Series D Preferred Stock,
holders of two-thirds of all shares of Series A, B and C Preferred Stock could
have, commencing on April 1, 2000 and on the same date in each following year,
required the Company to redeem 1/3 of their shares. The redemption amount
equaled the higher of the fair market value of the preferred stock as of the
fiscal year end closest to the redemption date or an amount equal to the
aggregate purchase price plus accrued dividends outstanding.
7. COMMON STOCK OPTION PLANS AND WARRANTS
1990 Incentive and Nonqualified Stock Option Plan--Under the Company's 1990
Incentive and Nonqualified Stock Option Plan, the Company could grant either
incentive or nonqualified stock options to officers, directors, employees or
consultants for the purchase of up to 2,400,000 shares of common stock. Options
were granted with an exercise price equal to the common stock's market value at
the date of grant, as determined by the Board of Directors, and would expire ten
years later. No further grants will be made under the 1990 Incentive and
Nonqualified Stock Option Plan.
1996 Employee Stock Plans--On June 14, 1996, the Board of Directors
authorized and the stockholders approved the adoption of the 1996 Incentive and
Nonqualified Stock Option Plan and the 1996 Stock Purchase Plan for the issuance
of options or sale of shares to employees. Both plans became effective
immediately after the closing of the Company's IPO:
- 1996 Incentive and Nonqualified Stock Option Plan--The 1996 Incentive
and Nonqualified Stock Option Plan provides for the issuance of up to
1,000,000 options to purchase shares of common stock. Options may be
either qualified incentive stock options or nonqualified stock options
at the discretion of the Board of Directors. Exercise prices will be
either fair market value on the date of grant, in the case of
incentive stock options, or set by the Board of Directors at the date
of grant, in the case of nonqualified options.
- 1996 Employee Stock Purchase Plan--The 1996 Stock Purchase Plan
provides for the sale of up to 100,000 shares of common stock to
employees. Employees will be allowed to purchase shares at a discount
from the lower of fair value at the beginning or end of the purchase
periods through payroll deductions.
F-14
<PAGE>
The following table presents activity under all stock option plans:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE GRANT DATE
NUMBER OF OPTIONS EXERCISE PRICE FAIR VALUE (1)
------------------- ------------------- ----------------
<S> <C> <C> <C>
Outstanding at October 1, 1993........... 991,184 $0.06
Granted............................. 200,000 0.38 $ 76,000
Exercised........................... (86,100) 0.04
Forfeited........................... (388,984) 0.05
-------------------
Outstanding at September 30, 1994........ 716,100 0.16
Granted............................. 321,700 0.62 199,454
Exercised........................... (2,516) 0.07
Forfeited........................... (21,584) 0.12
-------------------
Outstanding at September 30, 1995........ 1,013,700 0.31
Granted............................. 233,500 0.75 175,125
Exercised........................... (74,350) 0.04
Forfeited........................... (100,150) 0.50
-------------------
Outstanding at December 31, 1995......... 1,072,700 0.40
Granted............................. 817,100 5.40 4,412,340
Exercised........................... (52,620) 0.64
Forfeited........................... (105,880) 0.84
-------------------
Outstanding at December 31, 1996......... 1,731,300 2.74
===================
</TABLE>
(1) Exercise prices on grant date have equaled fair market value accordingly,
no compensation expense has been recorded in the accompanying financial
statements.
The number of options exercisable at the dates presented below and their
weighted average exercise price were as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercisable
Exercisable Price
--------------- ----------------
<S> <C> <C>
September 30, 1994 296,565 $0.06
September 30, 1995 457,055 0.10
December 31, 1995 426,835 0.13
December 31, 1996 684,705 0.51
</TABLE>
The fair value of options on their grant date was measured using the
Black/Scholes option pricing model. Key assumptions used to apply this pricing
model are as follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED DECEMBER DECEMBER 31,
31, 1995 1996
----------------- -----------------
<S> <C> <C>
Risk-free interest rate......................................... 5.51% - 5.86% 5.36% - 6.69%
Expected life of option grants.................................. 2-6 years 1-6 years
Expected volatility of underlying stock......................... 31% 31%
Expected dividend payment rate, as a percentage of
the stock price on the date of grant......................... -- --
</TABLE>
It should be noted that the option pricing model used was designed to value
readily tradable stock options with relatively short lives. The options granted
to employees are not tradable and have contractual lives of up to ten years.
However, management believes that the assumptions used to value the options and
the model applied yield a reasonable estimate of the fair value of the grants
made under the circumstances.
F-15
<PAGE>
The following table sets forth information regarding options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
NUMBER AVERAGE REMAINING EXERCISE PRICE
NUMBER OF RANGE OF CURRENTLY EXERCISE CONTRACTUAL FOR CURRENTLY
PLAN OPTIONS EXERCISE PRICES EXERCISABLE PRICE LIFE (YEARS) EXERCISABLE
- ------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1990 Incentive Stock
Option Plan.......... 948,300 $0.04 - 0.75 545,985 $ 2.71 7 $0.20
391,700 2.00 116,460 2.00 9.5 2.00
200,000 8.50 -- 8.50 9.5 --
1996 Incentive Stock
Option Plan.......... 12,000 7.75 2,400 7.75 10 7.75
99,300 8.13 19,860 8.13 10 8.13
80,000 12.38 -- 12.38 10 --
</TABLE>
The Company uses the intrinsic value method to measure compensation expense
associated with grants of stock options to employees. Had the Company used the
fair value method to measure compensation, reported net income and earnings per
share would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31,
1995 1996
----------------- ----------------
<S> <C> <C>
Income before provision for income
taxes $64,188 $1,892,716
Provision for income taxes 2,200 125,000
----------------- ----------------
Net income $61,988 $1,767,716
================= ================
Net income per common share $ 0.01 $ 0.12
================= ================
</TABLE>
The pro forma effect on net income and earnings per share for the three
months ended December 31, 1995 and the year ended December 31, 1996 is not
representative of the pro forma effect in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to the three months ended December 31, 1995.
Common Stock Warrants--The Company has issued warrants to purchase
1,270,038 shares of the Company's common stock at exercise prices ranging from
$0.793 to $2.00 per share. Warrants issued prior to August 1994 were assigned
nominal value based upon management's estimate of their fair market value.
Warrants issued in connection with the Company's issuance of subordinated notes
(see Note 4) have been ascribed an aggregate value of $406,375. During 1996,
warrant holders with warrants to purchase 457,288 shares of common stock
exercised such warrants in conjunction with the IPO. The warrant holder
surrendered a portion of the warrants, valued at the IPO price of the common
stock, in lieu of payment of the cash exercise price. In addition, a director
exercised a warrant for 3,234 shares in conjunction with the IPO which was
valued at the IPO price of common stock. In June 1996, a warrant holder
exercised a warrant for 62,500 shares which had an exercise price of $2.00 per
share. In conjunction with the IPO, the Company issued warrants to a former
director to purchase 100,000 shares of common stock at the IPO price. The
compensation expense recognized for this warrant grant was $230,000 and was
determined by using the Black/Scholes pricing model. At December 31, 1996,
warrants to purchase shares of common stock aggregated 847,016 (747,016 shares
at an exercise price of $2.00 and 100,000 shares at an exercise price of
$10.00.) Such shares are subject to certain antidilutive adjustments.
Reserved Shares--The Company has reserved 3,577,016 shares of common stock
for issuance for the stock purchase plan and the exercise of stock options and
warrants.
F-16
<PAGE>
8. INCOME TAXES
In October 1993, the Company implemented the provisions of SFAS No. 109.
The cumulative effect of this change did not have a material effect on the
Company's results of operations, financial position or cash flows as a result of
the valuation allowance established at the time of adoption.
The income tax (benefit) provision for the years ended September 30, 1994
and 1995, the three months ended December 31, 1995, and for the year ended
December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED YEAR ENDED
----------------------------- DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------- ------------- -------------- --------------
Current:
<S> <C> <C> <C> <C>
Federal..................................... $ 299,341 $ -- $2,400 $141,400
State....................................... 89,156 -- -- 18,100
Deferred:
Federal..................................... (278,341) -- -- --
State....................................... (87,256) -- -- --
---------- ----- ------ --------
Income tax provision............................ $ 22,900 $ -- $2,400 $159,500
========== ===== ====== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------ ------------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Deferred tax assets:
Depreciation and amortization....... $ 161,518 $ 332,841 $ 370,598 $ 579,759
Accrued expenses and reserves....... 94,871 216,802 227,085 86,669
Tax credit and loss carryforwards... 282,962 946,098 842,847 60,189
Valuation allowance...................... (539,351) (1,495,741) (1,440,530) (726,617)
--------- ----------- ---------- ---------
Net deferred tax asset................... $ -- $ -- $ -- $ --
========= =========== =========== =========
</TABLE>
The net change in the valuation allowance for the years ended September 30,
1994 and 1995, the three month period ended December 31, 1995 and the year ended
December 31, 1996 was an increase (decrease) of $(409,258), $956,390, $(55,211)
and $(713,913), respectively. At December 31, 1996, the Company had no remaining
net operating loss carryforwards for federal income tax purposes. A valuation
allowance was established against the deferred tax assets as their realization
is not assured.
The following is a reconciliation of income taxes at the federal statutory
rate to the Company's effective tax rate:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------------- DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statutory federal income tax rate ........... 34% (34)% 34% 34%
Loss producing no tax benefit ............... -- 34 -- --
Alternative minimum tax asset, not assured of
realization .............................. 2 -- 3 2
State taxes, net of federal benefit ......... -- -- -- 1
Other, net .................................. -- -- -- 4
Net operating loss carryforwards ............ (34) -- (34) (34)
--- --- --- ---
Effective tax rate .......................... 2% -- % 3% 7%
=== === === ===
</TABLE>
F-17
<PAGE>
9. EMPLOYEE PROFIT SHARING PLAN
The Company has a 401(k) Employee Profit Sharing Plan (the "Plan"). Under
the Plan, the Company, at its discretion, may make contributions to match
employee contributions. All employees of the Company are eligible to
participate, subject to employment eligibility requirements. Vesting of employer
contributions occurs ratably over a five-year period. Employer contributions
amounted to approximately $27,500, $43,000, $20,000 and $91,000 for the years
ended September 30, 1994 and 1995, the three months ended December 31, 1995, and
the year ended December 31, 1996, respectively.
10. RELATED-PARTY TRANSACTIONS
Under an agreement dated February 28, 1990, the Company granted an
exclusive license to RentGrow, Inc. ("RentGrow"), a company having certain
common investors with the Company, to use the Company's Credit Decision System
in the rental real estate market. Under the terms of the agreement, the Company
was to receive $250,000, comprised of five installments in varying amounts
through August 1996. The final payment was not made in August 1996. In 1997, the
Company received from RentGrow a three year 11.25% promissory note in the
principal amount of $75,584 representing the final payment and other amounts
owed to the Company at December 31, 1996. In addition, this agreement provides
for the Company to maintain the licensed software, at RentGrow's option, at an
annual amount equal to 15% of the license amount, which the Company believes
exceeds the cost of providing such maintenance.
The Company has received advances from various Entrepreneurial Partnerships
and their general partners and has issued preferred stock to various
Entrepreneurial Partnerships. The Company leased computer equipment from various
Entrepreneurial Partnerships. The general partners of these partnerships are
also stockholders of the Company. In 1992, the Company sold and leased back
equipment from an Entrepreneurial Partnership resulting in a gain of $12,518,
which was deferred and amortized over the capital lease term. The amount
deferred was $2,781, $0, $0 and $0 as of September 30, 1994 and 1995 and
December 31, 1995 and 1996, respectively.
On August 26, 1996, the Company entered into an agreement with the former
director pursuant to which the Company paid $75,000 to the former director and
granted the former director the warrant (described in Note 7) to purchase
100,000 shares of the Company's Common Stock at the IPO price in exchange for
the execution of certain agreements related to the IPO.
F-18
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------- -----------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $23,298,904 $27,900,802
Short-term investments 1,038,190 --
Accounts receivable - net 8,676,897 7,530,809
Other current assets 1,457,391 970,735
--------------- -----------------
Total current assets 34,471,382 36,402,346
Property and equipment - net 6,006,817 4,271,880
Deferred tax asset 863,406 --
Other assets 903,167 1,091,429
--------------- -----------------
Total assets $42,244,772 $41,765,655
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 2,221,997 $ 3,254,421
Short-term borrowings and current portion
of subordinated notes payable 805,205 567,705
Current portion of obligations under
capital leases 648,955 1,533,899
Deferred revenues 506,403 422,875
Dividends payable on redeemable convertible
preferred stock 166,876 166,876
--------------- -----------------
Total current liabilities 4,349,436 5,945,776
Obligations under capital leases 32,399 100,301
Notes payable 305,371 457,808
Subordinated notes payable 1,335,115 1,663,127
--------------- -----------------
Total liabilities 6,022,321 8,167,012
--------------- -----------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding
at June 30, 1997 and December 31, 1996,
respectively -- --
Common stock, $.01 par value; 60,000,000 shares
authorized; 15,468,752 and 15,369,697 shares
issued; 14,641,460 and 14,568,549 shares
outstanding at June 30, 1997 and December 31,
1996, respectively 154,697 153,698
Additional paid-in capital 36,342,717 36,296,969
Warrants 605,125 605,125
Retained earnings (deficit) 744,875 (1,921,075)
--------------- -----------------
Total 37,847,414 35,134,717
Less treasury stock, at cost (1,624,963) (1,536,074)
--------------- -----------------
Total stockholders' equity 36,222,451 33,598,643
--------------- -----------------
Total liabilities and stockholders' equity $42,244,772 $41,765,655
=============== =================
</TABLE>
See notes to unaudited condensed consolidated financial statements
F-19
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues (includes sales to related
party of $0 and $3,125, respectively) $17,830,688 $13,263,057
Cost of revenues 8,320,091 7,762,426
------------- -------------
Gross profit 9,510,597 5,500,631
------------- -------------
Operating expenses:
Development 2,682,213 1,970,735
Sales and marketing 2,604,549 1,665,797
General and administrative 2,122,617 1,172,095
------------- -------------
Total operating expenses 7,409,379 4,808,627
------------- -------------
Income from operations 2,101,218 692,004
Other income (expense):
Interest income 647,241 44,253
Interest expense (191,542) (415,543)
Other non-operating income - net 15,524 1,286
------------- -------------
Income before provision for income taxes 2,572,441 322,000
Provision for (benefit from) income taxes (93,509) 19,500
------------- -------------
Net income $ 2,665,950 $ 302,500
============= =============
Net income per common share $0.16
=============
Weighted average number of common and
common equivalent shares outstanding 16,341,201
=============
Pro forma net income per common share $0.02
=============
Pro forma weighted average number of
common and common equivalent shares
outstanding 13,793,911
=============
</TABLE>
See notes to unaudited condensed consolidated financial statements
F-20
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,665,950 $ 302,500
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,696,167 1,665,679
Amortization of discount on notes 9,484 35,534
Deferred tax asset (863,406) --
Changes in assets and liabilities:
Accounts receivable and other
current assets (1,632,744) (649,755)
Accounts payable and accrued liabilities (1,032,424) (888,580)
Deferred revenues 83,528 733,981
Other assets 93,006 (388,860)
------------- ------------
Net cash provided by operating activities 1,019,561 810,499
------------- ------------
Cash Flows Used in Investing Activities:
Purchases of property and equipment (3,494,550) (463,646)
Purchase of investments (2,069,323) --
Redemption of investments 1,031,133 --
------------- ------------
Net cash used in investing activities (4,532,740) (463,646)
------------- ------------
Cash Flows From (Used In) Financing Activities:
Payments on notes payable (152,437) --
Payments on subordinated notes payable (100,000) (1,151,000)
Principal payments under capital lease
obligations (883,029) (1,077,348)
Proceeds from issuance of common stock 46,747 136,158
Payments toward the purchase of treasury
stock -- (478,833)
Expenses paid on behalf of stockholder -- (260,000)
Proceeds from issuance of mandatory
redeemable convertible preferred
stock, net -- 5,958,400
------------- ------------
Net cash provided by (used in) financing
activities (1,088,719) 3,127,377
------------- ------------
Net increase (decrease) in cash and cash
equivalents (4,601,898) 3,474,230
Cash and cash equivalents, beginning of period 27,900,802 58,064
------------- ------------
Cash and cash equivalents, end of period $23,298,904 $ 3,532,294
============= ============
</TABLE>
See notes to unaudited condensed consolidated financial statements
F-21
<PAGE>
LIGHTBRIDGE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The consolidated financial statements included herein have been prepared by
Lightbridge, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Although certain
information and footnote disclosures normally included in annual financial
statements have been omitted, the Company believes that the disclosures are
adequate to make the information presented not misleading and reflect all
adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of results of operations for such periods.
Results of interim periods may not be indicative of results for the full year.
It is suggested that these financial statements be read in conjunction with the
consolidated financial statements and notes thereto included at pages F-2
through F-18 herein.
2. Significant Accounting Policies:
Net Income Per Common Share
Net income per common and per common equivalent share are computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period, using the provisions of Accounting Principles
Board Opinion No. 15, "Earnings per Share." Dilutive common equivalent shares
represent shares issuable upon exercise of stock options and warrants,
calculated using the treasury stock method. Primary and fully diluted earnings
per share were the same for the three and six month periods ended June 30, 1997.
Pro forma income per common share for the three month and six month periods
ended June 30, 1996 is based on the weighted average number of common and
dilutive common equivalent shares (common stock options and warrants)
outstanding and assumes that all series of redeemable convertible preferred
stock had been converted to common stock as of January 1, 1996. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive, except in accordance with the
requirements of Securities and Exchange Commission Staff Accounting Bulletin No.
83. That Bulletin requires all common shares issued and options or warrants to
purchase common stock granted by the Company during the twelve-month period
prior to the filing of a proposed initial public offering be included in the
calculation as if they were outstanding for all periods. For purposes of
applying the Bulletin, the Company has used the initial public offering price of
$10 per share from the Company's offering in October 1996.
In February 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which the Company will adopt in the fourth quarter of 1997. Had SFAS No.
128 been effective for the six months ended June 30, 1997 and 1996, reported
earnings per share would have been as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Basic...................... $0.18 $0.02
Diluted.................... 0.16 0.02
</TABLE>
Income Taxes
In October 1993, the Company adopted SFAS No. 109. "Accounting for Income
Taxes." In connection with the adoption, the Company recorded a deferred tax
asset relating to the tax benefit of operating losses, and differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. At that time the Company provided
a full valuation allowance equal to the entire deferred tax asset as the
F-22
<PAGE>
Company believed it was more likely than not that the deferred tax asset would
not be realized.
During the first quarter of 1997, the Company determined that the valuation
allowance was no longer necessary for the existing deferred tax assets and
deferred tax assets arising during the quarter, and recorded an income tax
benefit of approximately $644,000.
Reclassifications
Certain reclassifications have been made to the 1996 financial statements
to conform with the 1997 presentation.
F-23
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Coral Systems, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Coral
Systems, Inc. at December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, 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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has suffered recurring losses from operations
and has an accumulated deficit that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 12. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Price Waterhouse LLP
Boulder, Colorado
April 9, 1997, except as to Note 10 and Note 12, which are as of September 30,
1997
F-24
<PAGE>
Coral Systems, Inc.
Balance Sheet
================================================================================
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------------- -------------
1995 1996 1997
--------------- -------------- -------------
(Unaudited)
Assets
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,022,500 $ 2,334,900 $ 62,100
Accounts receivable 1,119,300 1,929,800 1,978,700
Other current assets 149,300 123,800 136,400
------------ ------------ ------------
Total current assets 2,291,100 4,388,500 2,177,200
------------ ------------ ------------
Property and equipment, net 625,800 1,341,900 1,506,200
Other assets 41,100 39,100 46,700
------------ ------------ ------------
$ 2,958,000 $ 5,769,500 $ 3,730,100
============ ============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 412,900 $ 680,300 $ 551,500
Accrued liabilities 526,100 1,066,300 1,374,600
Current portion of long-term debt 796,700 403,600 768,500
Deferred revenue 463,700 1,375,500 1,072,300
------------ ------------ ------------
Total current liabilities 2,199,400 3,525,700 3,766,900
------------ ------------ ------------
Deferred revenue and other 475,200 385,000 385,000
Long-term debt 145,800 286,300 146,400
Commitments and contingencies
Stockholders' Equity (Deficit)
Series A preferred stock, $.001 par value; 2,000,000 shares
authorized, issued and outstanding 2,000 2,000 2,000
Series B preferred stock, $.001 par value; 2,083,333 shares
authorized, issued and outstanding 2,083 2,083 2,083
Series C preferred stock, $.001 par value; 1,850,000 shares
authorized; 1,824,920 shares issued and outstanding at
December 31, 1996 and June 30, 1997 (unaudited) -- 1,825 1,825
Preferred stock $.001 par value; 9,066,667 shares authorized; no
shares issued or outstanding -- -- --
Common stock, $.001 par value; 20,000,000 shares authorized at
December 31, 1995; 30,000,000 shares authorized at
December 31, 1996, and June 30, 1997 (unaudited); 4,265,508,
3,256,397 and 3,273,472 shares issued at December 31, 1995 and
1996, and June 30, 1997 (unaudited), respectively 4,265 3,256 3,273
Additional paid-in capital 6,449,252 10,484,536 10,525,519
Accumulated deficit (6,296,000) (8,921,000) (11,102,600)
Less treasury stock at cost; 966,965, 750 and 1,500 shares at
December 31, 1995 and 1996, and June 30, 1997 (unaudited),
respectively (24,000) (200) (300)
------------ ------------ ------------
Total stockholders' equity (deficit) 137,600 1,572,500 (568,200)
------------ ------------ ------------
$ 2,958,000 $ 5,769,500 $ 3,730,100
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
Coral Systems, Inc.
Statement of Operations
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses $ 1,036,400 $ 2,484,600 $ 7,263,300 $ 2,164,800 $ 2,923,900
Services and other 239,700 624,700 637,700 202,000 623,700
Hardware 140,800 780,500 790,800 219,000 162,700
----------- ----------- ----------- ----------- -----------
Total revenue 1,416,900 3,889,800 8,691,800 2,585,800 3,710,300
Cost of revenue:
Software licenses 122,000 526,000 560,600 182,000 362,600
Services and other 258,000 644,700 816,000 318,500 490,900
Hardware 128,300 738,300 617,900 150,100 158,800
----------- ----------- ----------- ----------- -----------
Total cost of revenue 508,300 1,909,000 1,994,500 650,600 1,012,300
----------- ----------- ----------- ----------- -----------
Gross profit 908,600 1,980,800 6,697,300 1,935,200 2,698,000
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development 572,700 2,159,700 2,792,300 1,284,700 1,766,300
Sales and marketing 645,300 1,869,700 3,578,600 1,487,200 1,639,000
General and administrative 885,600 1,351,000 2,533,700 1,026,400 1,472,600
Stock offering costs -- -- 676,100 -- --
----------- ----------- ----------- ----------- -----------
Total operating expenses 2,103,600 5,380,400 9,580,700 3,798,300 4,877,900
----------- ----------- ----------- ----------- -----------
Loss from operations (1,195,000) (3,399,600) (2,883,400) (1,863,100) (2,179,900)
Other income (expense), net (32,800) 8,700 15,100 (52,200) (1,700)
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item (1,227,800) (3,390,900) (2,868,300) (1,915,300) (2,181,600)
Extraordinary gain on
extinguishment of debt
and other liabilities -- -- 243,300 -- --
=========== =========== =========== =========== ===========
Net loss $(1,227,800) $(3,390,900) $(2,625,000) $(1,915,300) $(2,181,600)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
Coral Systems, Inc.
Statement Of Changes in Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock
--------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993
Exercise of stock options and warrants
Conversion of bridge loan
Private placement of Series A preferred
stock, net 2,000,000 $2,000
Net loss
---------- --------- ---------- --------- ---------- ---------
Balance at December 31, 1994 2,000,000 2,000
Private placement of Series B preferred
stock, net 2,083,333 $2,083
Exercise of stock options and warrants
and other stock issued for services
Purchase of treasury stock
Net loss
---------- --------- ---------- --------- ---------- ---------
Balance at December 31, 1995 2,000,000 2,000 2,083,333 2,083
Purchase of treasury stock
Retirement of treasury stock
Private placement of Series C preferred
stock, net 1,824,920 $1,825
Exercise of stock options and warrants
Net loss
---------- --------- ---------- --------- ---------- ---------
Balance at December 31, 1996 2,000,000 2,000 2,083,333 2,083 1,824,920 1,825
Exercise of stock options and warrants
(unaudited)
Expense upon issuance of stock options
(unaudited)
Purchase of treasury stock (unaudited)
Net loss (unaudited)
---------- --------- ---------- --------- ---------- ---------
Balance at June 30, 1997 (unaudited) 2,000,000 $2,000 2,083,333 $2,083 1,824,920 $1,825
========== ========= ========== ========= ========== =========
<CAPTION>
Common Stock Additional
---------------------- Paid-In Accumulated
Shares Amount Capital Deficit
----------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 3,731,728 $3,732 $ 173,768 $ (1,677,300)
Exercise of stock options and warrants 196,758 197 1,303
Conversion of bridge loan 195,872 195 129,805
Private placement of Series A preferred
stock, net 1,858,300
Net loss (1,227,800)
----------- --------- ------------ -------------
Balance at December 31, 1994 4,124,358 4,124 2,163,176 (2,905,100)
Private placement of Series B preferred
stock, net 4,269,317
Exercise of stock options and warrants
and other stock issued for services 141,150 141 16,759
Purchase of treasury stock
Net loss (3,390,900)
----------- --------- ------------ -------------
Balance at December 31, 1995 4,265,508 4,265 6,449,252 (6,296,000)
Purchase of treasury stock
Retirement of treasury stock (1,074,400) (1,074) (187,326)
Private placement of Series C preferred
stock, net 4,191,375
Exercise of stock options and warrants 65,289 65 31,235
Net loss (2,625,000)
----------- --------- ------------ -------------
Balance at December 31, 1996 3,256,397 3,256 10,484,536 (8,921,000)
Exercise of stock options and warrants
(unaudited) 17,075 17 3,483
Expense upon issuance of stock options
(unaudited) 37,500
Purchase of treasury stock (unaudited)
Net loss (unaudited) (2,181,600)
----------- --------- ------------ -------------
Balance at June 30, 1997 (unaudited) 3,273,472 $3,273 $10,525,519 $(11,102,600)
=========== ========= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
<TABLE>
<CAPTION>
Total
Treasury Stock Stockholders'
---------------------- Equity
Shares Amount (Deficit)
---------- ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1993 676,887 $(18,000) $(1,517,800)
Exercise of stock options and warrants 1,500
Conversion of bridge loan 130,000
Private placement of Series A preferred
stock, net 1,860,300
Net loss (1,227,800)
---------- ---------- -------------
Balance at December 31, 1994 676,887 (18,000) (753,800)
Private placement of Series B preferred
stock, net 4,271,400
Exercise of stock options and warrants
and other stock issued for services 16,900
Purchase of treasury stock 290,078 (6,000) (6,000)
Net loss (3,390,900)
---------- ---------- -------------
Balance at December 31, 1995 966,965 (24,000) 137,600
Purchase of treasury stock 108,185 (164,600) (164,600)
Retirement of treasury stock (1,074,400) 188,400
Private placement of Series C preferred
stock, net 4,193,200
Exercise of stock options and warrants 31,300
Net loss (2,625,000)
---------- ---------- -------------
Balance at December 31, 1996 750 (200) 1,572,500
Exercise of stock options and warrants
(unaudited) 3,500
Expense upon issuance of stock options
(unaudited) 37,500
Purchase of treasury stock (unaudited) 750 (100) (100)
Net loss (unaudited) (2,181,600)
---------- ---------- -------------
Balance at June 30, 1997 (unaudited) 1,500 $ (300) $ (568,200)
========== ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
Coral Systems, Inc.
Statement Of Cash Flows
================================================================================
<TABLE>
<CAPTION>
For the Six Months
Year Ended December 31, Ended June 30,
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(1,227,800) $(3,390,900) $(2,625,000) $(1,915,300) $(2,181,600)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 90,100 198,700 460,100 195,200 309,100
Write-offs of uncollectible receivables -- -- 175,700 64,400 --
(Gain) loss on disposal of property and equipment -- (2,600) (5,500) (5,400) 5,000
Extraordinary gain -- -- (243,300) -- --
Stock option compensation expense 37,500
Changes in:
Accounts receivable (604,000) (378,500) (1,107,600) (752,100) (48,900)
Other assets (7,000) (177,600) (106,500) (378,800) (20,200)
Accounts payable and accrued liabilities 158,600 576,900 1,008,000 648,500 179,500
Deferred revenue 291,200 163,400 905,900 153,200 (303,200)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (1,298,900) (3,010,600) (1,538,200) (1,990,300) (2,022,800)
----------- ----------- ----------- ----------- -----------
Cash Flows From Investing Activities
Proceeds from sale of property and equipment -- 198,300 206,800 206,400 --
Property and equipment additions (195,400) (514,000) (729,200) (307,200) (478,400)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (195,400) (315,700) (522,400) (100,800) (478,400)
----------- ----------- ----------- ----------- -----------
Cash Flows From Financing Activities
Proceeds from sale of preferred stock, net 1,580,300 3,874,500 4,193,200 4,193,200 --
Proceeds from sale of common stock 1,500 13,900 31,300 1,300 3,500
Purchase of treasury stock -- (6,000) (164,600) -- (100)
Proceeds from the issuance of bridge loans and
long-term debt 205,200 760,000 250,000 100,000 350,000
Payment on borrowings (271,900) (376,500) (936,900) (196,800) (125,000)
----------- ----------- ----------- ----------- -----------
Net cash from financing activities 1,515,100 4,265,900 3,373,000 4,097,700 228,400
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 20,800 939,600 1,312,400 2,006,600 (2,272,800)
Cash and cash equivalents, beginning of period 62,100 82,900 1,022,500 1,022,500 2,334,900
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 82,900 $ 1,022,500 $ 2,334,900 $ 3,029,100 $ 62,100
=========== =========== =========== =========== ===========
Supplemental Disclosure of Noncash Activities
and Other Cash Flow Information
Conversion of bridge loans to preferred stock $ 280,000 $ 400,000 $ -- $ -- $ --
Conversion of accrued liabilities to debt 36,200 11,600 5,000 5,000 --
Conversion of bridge loan to common stock 130,000 -- -- -- --
Capital lease obligations -- 253,000 515,000 459,600 --
Issuance of note payable to acquire stock -- -- -- -- --
Interest paid 73,700 26,700 86,400 41,200 45,700
Transfer of other assets to property and equipment -- -- 134,000 134,000 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements
================================================================================
1. Nature of Business and Summary of Significant Accounting Policies
Coral Systems, Inc. (the "Company") was incorporated in August 1991.
The Company develops and provides software solutions for the wireless
telecommunications industry. The solutions enable carriers to reduce fraud and
customer turnover and increase operating efficiencies.
Summary of Significant Accounting Policies
Revenue Recognition
The Company generates revenue from software licenses; services
(including maintenance, installation and training); development and consulting
contracts; and certain hardware sold in conjunction with software licenses. The
Company's software license agreements typically provide for an initial license
fee and annual maintenance based on a defined number of subscribers, as well as
additional license and maintenance fees for net subscriber additions. The
Company also has entered into license agreements that provide for either a one-
time license fee or a monthly license fee with no additional fees based on
incremental subscriber growth.
Revenue from initial license fees with end users is recognized when
the product has been delivered and the Company has satisfied all significant
performance obligations, unless terms of the sales arrangement provide for
customer acceptance that is based on non-standard performance or other terms. In
the latter case, revenue is recognized when the customer accepts the product
pursuant to those terms. Revenue for incremental subscriber growth, if any, is
recognized at the date subscriber growth is calculated and the revenue is earned
pursuant to the terms of the relevant software license agreement. Monthly
license fees are recognized as earned on a monthly basis. Maintenance revenue is
recognized ratably over the term of the maintenance agreement. Service revenue
for installation and training is recognized as the services are performed.
Revenue from development and consulting contracts is generally recognized as the
services are performed, using the percentage of completion method. Hardware is
sold only in conjunction with software licenses when required by the customer
and such revenue is deferred until the related license revenue is recognized.
Sales agreements with distributors typically do not include any
rights of return or provisions for the future adjustment of the selling price.
The Company recognizes revenue from these transactions at the time the products
are shipped to the distributor, unless payment terms are contingent on the
distributor's subsequent resale or other significant matters. In those latter
cases, revenue is not recognized until the contingencies are resolved.
Concentration of Credit Risk
Accounts receivable are concentrated in the wireless
telecommunications industry, with both domestic and international customers.
During the years ended December 31, 1994, 1995 and 1996, and the six months
ended June 30, 1997, the Company recognized approximately 89%, 77%, 59%, and 80%
(unaudited) of its revenue from four, five, two, and two (unaudited) customers,
respectively.
F-30
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable and cash
equivalents. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The Company has a cash investment policy which restricts investments to ensure
preservation of principal and maintenance of liquidity.
Cash and Cash Equivalents
The Company considers cash on hand, deposits in banks, and
investment instruments purchased with original maturities of less than three
months to be cash and cash equivalents. Cash equivalents are carried at
amortized cost which approximates fair value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
computed using straight-line and accelerated methods over the estimated useful
lives of the respective assets which range from three to seven years.
Maintenance and repairs are expensed as incurred.
Software Development Costs
Research and development costs are expensed as incurred. Statement
of Financial Accounting Standards No. 86 (SFAS No. 86) requires the
capitalization of certain software development costs once technological
feasibility is established. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or on the ratio of current
revenue to total projected product revenue, whichever is greater. To date, the
period between achieving technological feasibility and the general availability
of such software has been short. Consequently, software development costs
qualifying for capitalization have been insignificant and therefore, the Company
has not capitalized any software development costs to date.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities as well as the reported amounts of revenue
and expenses. Actual results could differ from these estimates.
F-31
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments,
including cash, short-term trade receivables and payables and long-term debt,
approximate their fair values.
Stock Compensation Plans
The Company applies APB Opinion No. 25, Accounting for Stock Issued
to Employees, in accounting for its stock option and employee stock purchase
plans. The Company has adopted the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation.
Export Sales
The Company had export sales to the following countries:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Sweden $ 378,900 $ 43,100 $ --
Mexico -- 231,700 41,300
Germany -- 266,900 209,500
Puerto Rico 7,300 118,900 72,000
Malaysia -- 689,300 6,000
Great Britain -- -- 742,600
============ ============= =============
$ 386,200 $ 1,349,900 $ 1,071,400
============ ============= =============
</TABLE>
Adoption of New Accounting Standards
The Company has adopted Statement of Financial Accounting Standards
No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. Adoption of this standard did not have a material
effect on the Company's financial position and results of operations.
Unaudited Interim Financial Data
The interim financial data as of June 30, 1997, and for the six
months ended June 30, 1996, and June 30, 1997, is unaudited; however, in the
opinion of management of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods presented. All data
presented in these notes at such date and for such periods is unaudited.
F-32
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
2. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Furniture and office equipment $ 410,000 $ 804,900
Computer equipment 293,300 982,900
Purchased software 210,700 280,700
-------------- --------------
914,000 2,068,500
Less accumulated depreciation and amortization (288,200) (726,600)
-------------- --------------
$ 625,800 $ 1,341,900
============== ==============
</TABLE>
Included in property and equipment are the following amounts for
equipment under capital lease:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Equipment under capital lease $ 253,000 $ 768,000
Less accumulated amortization (30,400) (244,100)
-------------- --------------
$ 222,600 $ 523,900
============== ==============
</TABLE>
3. Accrued Liabilities
At December 31, 1996, accrued liabilities greater than 5% of total
current liabilities consist of accrued compensation of $300,500 and accrued
vacation of $206,100, while at December 31, 1995, accrued liabilities greater
than 5% of total current liabilities consisted of accrued reseller fees of
$229,000 and accrued interest of $129,600.
At June 30, 1997, the Company accrued $264,200 (unaudited) for a
severance agreement with an officer of the Company. The amount accrued
represents an estimate of the Company's liability under this agreement. The
severance will be paid in equal payments over 18 months.
F-33
<PAGE>
Coral Systems, Inc
Notes to Financial Statements (continued)
================================================================================
4. Long-Term Debt, Extraordinary Item and Available Credit
Long-term debt, including capitalized lease obligations consists of the
following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
------------------------
<S> <C> <C>
Line of credit with bank; interest at bank's prime plus 2% through May 1995,
prime plus 1.50% from June 1995 to May 1996, and prime plus 1.25% thereafter
(actual rate of 9.5% at December 31, 1996); due April 1998; secured by all
cash, accounts receivable, equipment, inventory and transferable third-party
rights $ 207,000 $ 150,000
Capital lease obligation; interest at 11.55%; payable in monthly installments
of $25,300 through September 1999; secured by equipment 223,900 539,900
Convertible note payable to systems integrator; interest at 8% through
May 31, 1995, 18% thereafter; due June 1, 1995; unsecured 500,000 --
Note payable to bank; interest at prime plus 2% (actual rate of 10.5% at
December 31, 1995); payable in monthly installments of $2,700 through
May 1996; secured by equipment 11,600 --
--------- ---------
942,500 689,900
Less current portion (796,700) (403,600)
========= =========
$ 145,800 $ 286,300
========= =========
</TABLE>
At June 30, 1997, the Company had $250,000 (unaudited) available to draw on
a $750,000 (unaudited) line of credit with a bank. The line of credit expires on
April 26, 1998.
Future maturities of long-term debt at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $454,400
1998 260,000
1999 47,500
---------
761,900
Less amount representing interest (72,000)
---------
$ 689,900
=========
</TABLE>
In September 1996, the Company extinguished a previously recorded net
liability of $658,300, consisting of a $500,000 note payable plus accrued
interest, and a separate liability due to a systems integrator, partially offset
by receivables owed to the Company by the systems integrator. The Company paid
$415,000 resulting in a net gain of $243,300 which was recorded as an
extraordinary item. The Company also paid $127,200 of legal expenses associated
with this matter, which were included in general and administrative expenses.
F-34
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
5. Capital Stock, Options and Warrants
Stock Split
In October 1996, a one-for-two reverse split of the Company's common stock
was consummated. All common stock share and per share information and all
preferred stock conversion rates presented in these financial statements have
been restated for all periods presented to reflect the reverse stock split.
Preferred Stock
In March 1996, the Company's certificate of incorporation was amended to
increase the authorized shares of preferred stock from 5,000,000 shares to
15,000,000 shares consisting of: 2,000,000 shares of Series A preferred stock,
2,083,333 shares of Series B preferred stock, 1,850,000 shares of Series C
preferred stock and 9,066,667 shares undesignated as to series.
Series A and Series C preferred stock are convertible at the option of the
holder into common stock on a two-for-one basis; Series B preferred stock is
convertible on a one-for-one basis. In the event of a qualified public offering,
all preferred shares will automatically convert to common stock. Additionally,
all preferred shares have certain voting rights on an as-converted basis and a
liquidation preference equal to the original purchase price plus a pro rata
portion of remaining liquidation proceeds in excess of the liquidation
preference proceeds paid to common stockholders.
Employee Stock Purchase Plan
In August 1996, the Company's Board of Directors approved the Employee
Stock Purchase Plan (the "Purchase Plan") with 450,000 shares of common stock
reserved for issuance thereunder. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. Employees, other than part-time or
seasonal employees and 5% stockholders, are eligible to participate in the
currently authorized offerings if they are employed by the Company or an
affiliate of the Company incorporated in the U.S. Employees may elect to have up
to 15% of their earnings withheld and applied to the purchase of common stock at
a price equal to 85% of the lower of the fair market value of the common stock
on the commencement date of each offering period or the relevant purchase date.
The Board has currently authorized an offering commencing on the effective date
of an initial public offering of the Company's common stock. No shares of common
stock have been issued to participants in the Purchase Plan to date.
F-35
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
Stock Options and Warrants
In October 1992, the Company adopted a stock option plan with 941,690
shares reserved for issuance to employees, directors and consultants of the
Company. Subsequent to 1992, the Board of Directors increased the number of
authorized shares reserved under the Company's 1992 Stock Option Plan to
2,089,189. Options granted under the plan expire ten years from the date of
grant and generally vest over a period of three to four years.
The Company had 958,723 warrants outstanding and fully exercisable at
December 31, 1996. At December 31, 1996, 503,007 of the warrants were held by an
officer, a present director and a former director of the Company. The warrants
have five to ten year terms and expire from 1998 through 2003.
The following is a summary of stock option and warrant activity for the
years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Options Price
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding December 31, 1993 1,204,236 $ 0.1641 545,045 $ 0.0926
Granted 43,002 2.0000 149,500 0.2000
Forfeited (112,852) 0.0027 (52,843) 0.1117
Exercised (146,284) 0.0027 (50,474) 0.0265
---------- ---------- --------- ----------
Outstanding December 31, 1994 988,102 0.2864 591,228 0.1237
Granted 29,000 0.2000 457,753 0.1853
Forfeited -- -- (158,925) 0.2732
Exercised (18,331) 0.0027 (108,819) 0.1238
---------- ---------- --------- ----------
Outstanding December 31, 1995 998,771 0.2891 781,237 0.1326
Granted -- -- 469,250 4.2112
Forfeited -- -- (49,150) 0.2165
Exercised (40,048) 0.7431 (25,241) 0.0585
---------- ---------- --------- ----------
Outstanding December 31, 1996 958,723 0.2701 1,176,096 1.7641
========== ========== ========= ==========
</TABLE>
The weighted average minimum value of options granted during the year ended
December 31, 1995 and 1996, was $.06 per share and $1.33 per share,
respectively. The weighted average minimum value of warrants granted during the
year ended December 31, 1995, is $.06 per share.
F-36
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
The following table summarizes information about exercisable stock
options and warrants as of the following dates:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------- ------------------
<S> <C> <C> <C>
December 31, 1995 Options 284,009 $.09
Warrants 998,771 $.29
December 31, 1996 Options 463,846 $.10
Warrants 958,723 $.27
</TABLE>
The following table summarizes information about stock options and
warrants outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Weighted Average
Remaining
Range of Outstanding Contractual Life
Exercise Price at 12/31/96 12/31/96
------------------ ------------- --------------------
<S> <C> <C> <C>
Options $0.027 - $1.50 891,846 7.36
Options $6.00 - $9.00 284,250 9.00
Warrants $0.003 - $2.00 958,723 4.31
</TABLE>
At December 31, 1996, there were 728,559 shares available for grant
under the stock option plan.
F-37
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
The Company applies APB Opinion 25 in accounting for its stock
compensation plans through December 31, 1996, and no compensation expense has
been recognized in the financial statements as all grants were made with
exercise prices not less than fair value. Had compensation expense for the
Company's stock option plan been determined based on the minimum values at the
grant dates for awards under the plan for grants made in 1995 and 1996
consistent with the method of accounting prescribed by FASB Statement 123, the
Company's net loss and loss per share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Net loss As reported $(3,390,900) $(2,625,000)
Pro forma (3,398,100) (2,788,200)
</TABLE>
In accordance with the guidance provided under SFAS 123, fair values
are based on minimum values. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in the year ended
December 31, 1995 and 1996: dividend yield of zero; expected volatility of zero;
risk-free interest rates ranging from 5.62% to 7.13%; and an expected term of
six years. The risk-free rate used in the calculation is the yield on the grant
date of a U.S. Treasury Strip with a maturity equal to the expected term of the
option.
6. Income Taxes
The Company's net deferred tax assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Net operating loss carryforwards $2,146,500 $3,040,900
Deferred revenue and other 163,600 227,500
Tax credit carryforwards 125,000 125,000
----------- -----------
Gross deferred tax assets 2,435,100 3,393,400
Less deferred tax asset valuation allowance
(2,435,100) (3,393,400)
=========== ===========
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
Based upon the Company's accumulated deficit and history of
recurring net losses, the ultimate realization of the deferred tax asset does
not appear to be more likely than not. Accordingly, a valuation allowance has
been provided against all potential future tax benefits.
F-38
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
The benefit for income taxes differs from the amount computed by applying
the U.S. federal income tax rate of 34% to loss before income taxes as follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1994 1995 1996
-------------- ----------- -----------
<S> <C> <C> <C>
U.S. federal income tax benefit at statutory rate $ 417,500 $ 1,152,900 $ 892,500
Increases (decreases) resulting from:
Unrecognized benefit of net operating loss carryforwards and future net deductions (492,000) (1,288,800) (958,300)
Non-deductible items and other 74,500 135,900 65,800
----------- ----------- -----------
Benefit for income taxes $ -- $ -- $ --
=========== =========== ===========
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards
aggregating approximately $8,109,000 which expire between 2006 and 2010. The
Internal Revenue Code places certain limitations on the annual amount of net
operating loss carryforwards which can be utilized if certain changes in the
Company's ownership occur. Such defined changes occurred in 1994 and 1995. Those
changes have substantially limited the amount of net operating loss benefit that
may be utilized in any given taxable year to approximately $30,000 for pre-
January 1994 net operating losses and approximately $180,000 for pre-March 1995
net operating losses. Future changes in the Company's ownership may further
limit the use of the carryforward benefits. There can be no assurance that the
IRS will not challenge the Company's factual and legal determination related to
ownership changes.
7. Related Party Transactions
During the years ended December 31, 1994, 1995 and 1996, and the six months
ended June 30, 1997 (unaudited), the Company paid directors of the Company
approximately $85,500, $58,500, $79,800, and $40,700, respectively, for their
services and expenses as Board members and consultants.
During 1995, the Company paid an additional $54,000 and issued 14,000
shares of common stock to a director of the Company for services performed in
connection with the Series B preferred stock private placement.
8. Employee Benefits
During 1995, the Company established a 401(k) defined contribution plan
covering substantially all employees meeting minimum age and service
requirements. Participation in the plan is optional. Employer contributions are
made to the plan solely at the discretion of the Board of Directors. To date, no
Company contributions have been made.
F-39
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
9. Commitments
The Company conducts its operations from leased facilities. Future minimum
non-cancelable rental payments for this facilities lease and other equipment
leases are as follows as of December 31, 1996:
<TABLE>
<CAPTION>
Operating
Lease Obligations
-----------------
<S> <C>
1997 $312,500
1998 219,300
1999 201,800
2000 23,800
--------
$757,400
========
</TABLE>
Rent expense related to the above operating leases approximated $80,000,
$147,500, and $216,800 for the years ended December 31, 1994, 1995 and 1996,
respectively.
10. Contingencies
Subsequent to December 31, 1996, an interference proceeding was declared
by the United States Patent and Trademark office between an issued patent and a
patent application of the Company and a patent application by another company
(the "Interference"). The Company's patent and patent application involve
certain technology that is an essential part of its current FraudBuster(R)
product. The Company is currently in negotiations with the other company
regarding the Interference. The Company is currently unable to determine whether
it will be able to settle the Interference on terms satisfactory to the Company
or the ultimate outcome or the range of possible loss in this matter.
The Company is currently involved in a dispute in which a customer asserts
it is owed approximately $153,000 in past royalties from the Company. The
Company believes it is owed amounts by the customer for unrecognized services
previously rendered which would fully offset any amount owed to the customer.
The Company is currently unable to predict the ultimate outcome of this matter
or estimate the range of potential loss should an unfavorable outcome occur.
The outcome of these uncertainties could have a material adverse effect
on the Company's financial position, results of operations or cash flows.
11. Stock Offering Costs
During 1996, the Company incurred $676,100 of costs associated with the
filing of a registration statement with the Securities and Exchange Commission
for the sale of shares of its common stock to the public. Subsequent to December
31, 1996, the Company suspended the initial public offering. As a result, costs
associated with the offering have been expensed in the statement of operations
for the year ended December 31, 1996.
F-40
<PAGE>
Coral Systems, Inc.
Notes to Financial Statements (continued)
================================================================================
12. Subsequent Events
Subsequent to December 31, 1996, the Company's financial position has
deteriorated. The Company has incurred a net loss of $2,181,600 and experienced
net cash outflows from operations of $2,022,800 for the six-month period ended
June 30, 1997 (unaudited). At June 30, 1997, the Company has an accumulated
deficit of $11,102,600 (unaudited). As of September 30, 1997, the Company had
exhausted substantially all available lines of credit. As a result, there is
substantial doubt about whether the Company can continue as a going concern.
During July 1997, the Company entered into a plan and agreement of merger with
another company. Management believes that consummation of the merger will
provide the Company with sufficient working capital and other financial
resources to allow the Company to continue operations. If the merger is not
consummated, the Company intends to seek additional financing through sales of
equity instruments, another business combination, or other means.
Subsequent to December 31, 1996, the Company drew an additional $240,000 on
the line of credit discussed in Note 4. In addition, on July 22, 1997, the
Company entered into a second line of credit arrangement with a bank for
$530,000, which matures on October 22, 1997. The Company had drawn the entire
amount of its available credit at September 30, 1997.
F-41
<PAGE>
================================================================================
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
LIGHTBRIDGE, INC.,
SEECROSS ACQUISITION CORP.
AND
CORAL SYSTEMS, INC.
Dated as of September 9, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
Article 1. The Merger
<S> <C>
Section 1.1. Certificate of Merger................................................................. A-1
Section 1.2. Closing Date.......................................................................... A-1
Section 1.3. Effective Time........................................................................ A-2
Section 1.4. Effect on Capital Stock............................................................... A-2
Section 1.5. Exchange of Coral Certificates........................................................ A-5
Section 1.6. Other Effects......................................................................... A-6
Section 1.7. Dissenting Shares..................................................................... A-6
Section 1.8. Holders' Agent........................................................................ A-7
Section 1.9. Distributions......................................................................... A-7
Section 1.10. Post-Closing Balance Sheet Adjustment................................................. A-7
Section 1.11. Taking of Necessary Action; Further Action............................................ A-8
Section 1.12. Tax Treatment......................................................................... A-9
Article 2. Representations and Warranties of Coral
Section 2.1. Corporate Status...................................................................... A-9
Section 2.2. Corporate Documents................................................................... A-9
Section 2.3. Capital Structure..................................................................... A-9
Section 2.4. Authority............................................................................. A-10
Section 2.5. Investments........................................................................... A-11
Section 2.6. Financial Statements.................................................................. A-11
Section 2.7. Compliance with Applicable Laws....................................................... A-12
Section 2.8. Litigation............................................................................ A-12
Section 2.9. Properties............................................................................ A-13
Section 2.10. Contracts............................................................................. A-14
Section 2.11. Taxes................................................................................. A-15
Section 2.12. Benefit Plans......................................................................... A-16
Section 2.13. Absence of Certain Events............................................................. A-17
Section 2.14. Officers, Directors and Key Employees................................................. A-19
Section 2.15. Potential Conflicts of Interest....................................................... A-19
Section 2.16. Finder's Fees......................................................................... A-19
Section 2.17. Bank Accounts......................................................................... A-19
Section 2.18. Environmental Matters................................................................. A-20
Section 2.19. Insurance............................................................................. A-21
Section 2.20. Employee Relations.................................................................... A-21
Section 2.21. Proprietary Rights.................................................................... A-21
Section 2.22. Certain Loans......................................................................... A-23
Section 2.23. Customers, Suppliers and Sales Agents................................................. A-23
Section 2.24. Warranties and Indemnities............................................................ A-23
Section 2.26. No Existing Discussions............................................................... A-24
Section 2.27. Registration Statement; Proxy Statement/Prospectus.................................... A-24
Section 2.28. Full Disclosure....................................................................... A-24
Article 3. Representations and Warranties of Lightbridge and
Acquisition Corp.
Section 3.1. Corporate Status...................................................................... A-24
Section 3.2. Capital Structure..................................................................... A-25
Section 3.3. Authority............................................................................. A-25
Section 3.4. SEC Documents......................................................................... A-26
Section 3.5. Absence of Certain Events............................................................. A-26
Section 3.6. Litigation............................................................................ A-26
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Section 3.7. Finder's Fees......................................................................... A-27
Section 3.8. Registration Statement; Proxy Statement/Prospectus.................................... A-27
Section 3.9. Full Disclosure....................................................................... A-27
Article 4. Covenants of Coral as to Conduct of Business
Section 4.1. Ordinary Course....................................................................... A-27
Section 4.2. Corporate Documents................................................................... A-27
Section 4.3. Capital Structure..................................................................... A-27
Section 4.4. Compliance with Applicable Laws....................................................... A-28
Section 4.5. Investments and Acquisitions.......................................................... A-28
Section 4.6. Indebtedness.......................................................................... A-28
Section 4.7. Proceedings........................................................................... A-28
Section 4.8. Properties............................................................................ A-28
Section 4.9. Contracts............................................................................. A-28
Section 4.10. Taxes................................................................................. A-29
Section 4.11. Benefit Plans......................................................................... A-29
Section 4.12. Insurance............................................................................. A-29
Section 4.13. Employee Matters...................................................................... A-29
Section 4.14. Proprietary Rights.................................................................... A-29
Section 4.15. General............................................................................... A-29
Article 5. Additional Covenants
Section 5.1. Registration Statement................................................................ A-29
Section 5.2. Coral Stockholders Meeting............................................................ A-30
Section 5.3. Charter Amendment..................................................................... A-30
Section 5.4. Access to Information................................................................. A-30
Section 5.5. Confidentiality....................................................................... A-30
Section 5.6. Public Disclosure..................................................................... A-31
Section 5.7. Exclusivity........................................................................... A-31
Section 5.8. State Statutes........................................................................ A-31
Section 5.9. Tax Matters........................................................................... A-32
Section 5.10. Options and Warrants.................................................................. A-32
Section 5.11. Expenses.............................................................................. A-32
Section 5.12. Other Agreements...................................................................... A-32
Section 5.13. Nasdaq................................................................................ A-32
Section 5.14. Indemnification of Coral's Officers and Directors..................................... A-33
Section 5.15. Patent Interference Proceeding........................................................ A-33
Section 5.16. Legends............................................................................... A-33
Section 5.17. Consents; Further Assurances.......................................................... A-33
Section 5.18. Updates of Schedule................................................................... A-34
Article 6. Conditions Precedent
Section 6.1. Conditions to Each Party's Obligations................................................ A-34
Section 6.2. Conditions to Obligations of Lightbridge and Acquisition Corp......................... A-35
Section 6.3. Conditions to Obligations of Coral.................................................... A-36
Article 7. Indemnification
Section 7.1. Agreement to Indemnify................................................................ A-37
Section 7.2. Survival of Indemnity................................................................. A-37
Section 7.3. Escrow................................................................................ A-38
Section 7.4. Additional Provisions................................................................. A-38
Section 7.5. Survival of Representations and Warranties and Covenants.............................. A-38
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Article 8. Termination, Amendment and Waiver
Section 8.1. Termination........................................................................... A-38
Section 8.2. Effect of Termination................................................................. A-39
Section 8.3. Amendment............................................................................. A-39
Section 8.4. Extension; Waiver..................................................................... A-39
Article 9. Miscellaneous
Section 9.1. Notices............................................................................... A-40
Section 9.2. Construction.......................................................................... A-40
Section 9.3. Exhibits and Schedule................................................................. A-40
Section 9.4. Entire Agreement, Assignability, etc.................................................. A-41
Section 9.5. Validity.............................................................................. A-41
Section 9.6. Further Assurances.................................................................... A-41
Section 9.7. Jurisdiction and Venue................................................................ A-41
Section 9.8. Governing Law......................................................................... A-41
Section 9.9. Counterparts.......................................................................... A-41
</TABLE>
(iii)
<PAGE>
This Agreement and Plan of Reorganization dated as of September 9, 1997 (this
"Agreement") is entered into among Lightbridge, Inc., a Delaware corporation
("Lightbridge"), SeeCross Acquisition Corp., a Delaware corporation and wholly
owned subsidiary of Lightbridge ("Acquisition Corp."), and Coral Systems, Inc.,
a Delaware corporation ("Coral").
RECITALS
The parties hereto desire to effect a reorganization in which Acquisition
Corp. shall be merged into Coral, with the surviving corporation to be a wholly
owned subsidiary of Lightbridge, all of the issued and outstanding shares of
capital stock of Coral ("Coral Capital Stock") to be converted into shares of
common stock, $.01 par value, of Lightbridge ("Lightbridge Common") and all of
the outstanding options and warrants to purchase Coral Capital Stock to become
exercisable (if and when vested) to acquire shares of Lightbridge Common, all
upon the terms and conditions set herein.
Following the execution of this Agreement, Lightbridge will file with the
Securities and Exchange Commission ("SEC") a registration statement on Form S-4
covering the shares of Lightbridge Common to be issued in the proposed merger.
Upon the effectiveness of such registration statement, Coral will deliver the
proxy statement/prospectus contained in such registration statement to the
holders of Coral Capital Stock in connection with the solicitation of proxies to
approve this Agreement and the merger contemplated hereby.
Concurrently with the execution of this Agreement and in order to induce
Lightbridge to enter into this Agreement, (i) each of the holders of Coral
Capital Stock designated with an asterisk on Exhibit A is delivering to
---------
Lightbridge a duly executed voting agreement in the form of Exhibit B (each a
---------
"Voting Agreement") pursuant to which, among other things, the executing holder
has granted to certain representatives of Lightbridge an irrevocable proxy to
vote all of the holder's shares of Coral Capital Stock in favor of the approval
of this Agreement and the merger contemplated hereby and (ii) the holders of a
majority of the outstanding shares of each class of Coral Capital Stock have
delivered to Coral an action by consent of stockholders dated as of the date
hereof, pursuant to which such holders have duly approved and adopted a
certificate of amendment to the amended and restated certificate of
incorporation of Coral in the form of Exhibit C (the "Charter Amendment") in
---------
order to amend and waive certain rights of holders of Coral Capital Stock that
would otherwise apply to the merger contemplated by this Agreement.
Now, Therefore, Lightbridge, Acquisition Corp. and Coral hereby agree as
follows:
ARTICLE 1. THE MERGER
Section 1.1. CERTIFICATE OF MERGER. Subject to and upon the terms and
conditions of this Agreement, and on the basis of the agreements, covenants,
representations and warranties herein contained, at the closing of the
transactions contemplated by this Agreement (the "Closing"), the Surviving
Corporation (as defined in Section 1.6) shall execute a certificate of merger
(the "Certificate of Merger") in substantially the form of Exhibit D, providing
---------
for the statutory merger of Acquisition Corp. with and into Coral (the "Merger")
as of the time (the "Effective Time") of filing of the Certificate of Merger
with the Secretary of State of the State of Delaware. At the Effective Time,
shares of Coral Capital Stock issued and outstanding immediately prior to the
Effective Time will be converted into fully paid and nonassessable shares of
Lightbridge Common, in accordance with Section 1.4.
Section 1.2. CLOSING DATE. The Closing shall be held on the business day
following the date of the Coral Stockholders Meeting (as defined in Section 5.2)
and shall take place at the office of Foley, Hoag & Eliot LLP, Boston,
Massachusetts, at 10 A.M., Eastern time, or on such other date, or at such other
time and place, as the parties may agree upon in writing. The date on which the
Closing is to be held is herein referred to as the "Closing Date."
A-1
<PAGE>
Section 1.3. EFFECTIVE TIME. Subject to the provisions of this Agreement
and the Certificate of Merger, the Certificate of Merger, together with the
required related certificates, shall be filed in accordance with the applicable
provisions of the Delaware General Corporation Law ("Delaware Law") as soon as
practicable after the Closing. The Merger shall become effective as of the
Effective Time.
Section 1.4. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of any party:
1.4.1. All of the 1,000 issued and outstanding shares of common stock,
$.01 par value, of Acquisition Corp. shall be converted into an aggregate of
1,000 shares of common stock, $.01 par value, of the Surviving Corporation.
Each stock certificate representing shares of common stock, $.01 par value,
of Acquisition Corp. prior to the Effective Time shall represent an equal
number of shares of common stock, $.01 par value, of the Surviving
Corporation from and after the Effective Time.
1.4.2. Each outstanding share of Coral Capital Stock (except Dissenting
Shares, as defined in Section 1.7.1) shall be converted, subject to the
indemnification and escrow provisions of Article 7, into the right to receive
the consideration set forth below. The maximum number of shares of
Lightbridge Common to be issued in exchange for the acquisition by
Lightbridge of all outstanding shares of Coral Capital Stock and for
reservation upon exercise of all unexpired and unexercised options and
warrants to acquire Coral Capital Stock shall be the Aggregate Share Number
(as defined in Section 1.4.4). No adjustment shall be made in the number of
shares of Lightbridge Common issued in the Merger as a result of any cash
proceeds received by Coral from the date hereof to the Effective Time
pursuant to the exercise of options, warrants or other rights to acquire
Coral Capital Stock. Subject to the terms and conditions of this Agreement,
as of the Effective Time, by virtue of the Merger and without any action on
the part of Acquisition Corp., Coral or the holder of any shares of the Coral
Capital Stock, the following shall occur:
(a) Each share of common stock, $.001 par value, of Coral ("Coral
Common") will be exchanged for the Common Consideration (as defined in
Section 1.4.4).
(b) Each share of Series A Preferred Stock, $.001 par value, of Coral
("Coral Series A") will be exchanged for the Series A Consideration (as
defined in Section 1.4.4).
(c) Each share of Series B Preferred Stock, $.001 par value, of Coral
("Coral Series B") will be exchanged for the Series B Consideration (as
defined in Section 1.4.4).
(d) Each share of Series C Preferred Stock, $.001 par value, of Coral
("Coral Series C") will be exchanged for the Series C Consideration (as
defined in Section 1.4.4).
(e) Each outstanding option to purchase shares of Coral Common (each
an "Option") previously issued under the Coral Systems, Inc. Amended and
Restated Stock Option Plan adopted August 29, 1996, including the
predecessor Coral Systems, Inc. Stock Option Plan effective October 27,
1992 (together, the "Option Plan"), whether vested or unvested, shall
entitle its holder, upon exercise of such Option (if and when vested)
following the Effective Time, to receive that number of whole shares of
Lightbridge Common equal to the product of the number of shares of Coral
Common that were issuable upon exercise of such Option immediately prior
to the Effective Time (without regard to vesting) multiplied by the Common
Consideration, rounded down to the nearest whole number of shares of
Lightbridge Common. In addition, following the Effective Time, the per
share exercise price for the Lightbridge Common issuable upon exercise of
each Option shall be equal to the quotient of the exercise price per share
of Coral Common at which such Option was exercisable immediately prior to
the Effective Time divided by the number of shares of Lightbridge Common
that constitute the Common Consideration,
A-2
<PAGE>
rounded up to the nearest whole cent. Following the Effective Time, each
Option shall continue to have, and be subject to, the same terms and
conditions set forth in the Option Plan and as provided in the option
agreement governing such Option immediately prior to the Effective Time,
except as set forth in this Section. It is the intention of the parties
that the Options qualify following the Effective Time as incentive stock
options, as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to the extent they qualified as incentive stock
options immediately prior to the Effective Time.
(f) Each outstanding warrant to purchase shares of Coral Common (each
a "Warrant"), whether vested or unvested, shall entitle its holder, upon
exercise of such Warrant (if and when vested) following the Effective
Time, to receive that number of whole shares of Lightbridge Common equal
to the product of the number of shares of Coral Common that were issuable
upon exercise of such Warrant immediately prior to the Effective Time
(without regard to vesting) multiplied by the Common Consideration,
rounded down to the nearest whole number of shares of Lightbridge Common.
In addition, following the Effective Time, the per share exercise price
for the Lightbridge Common issuable upon exercise of each Warrant shall be
equal to the quotient of the exercise price per share of Coral Common at
which such Warrant was exercisable immediately prior to the Effective Time
divided by the number of shares of Lightbridge Common that constitute the
Common Consideration, rounded up to the nearest whole cent. Following the
Effective Time, each Warrant shall continue to have, and be subject to,
the same terms and conditions set forth in the Warrant immediately prior
to the Effective Time, except as set forth in this Section.
1.4.3. No fractional shares of Lightbridge Common shall be issuable in
connection with the Merger. The number of shares of Lightbridge Common
allocable to all outstanding shares of Coral Capital Stock and to be reserved
for exercise of all Options and Warrants shall equal the Aggregate Share
Number and, to the extent the calculations pursuant to Section 1.4.2 produce
fractional shares or an aggregate number greater or less than the Aggregate
Share Number, the number of shares of Lightbridge Common allocable to
individual holders of Coral Capital Stock, Options and Warrants shall be
appropriately adjusted.
1.4.4. The following terms used in this Section 1.4 shall have the
indicated meanings:
(a) The "Aggregate Preference" shall mean a number of shares of
Lightbridge Common equal to the quotient of:
(i) the sum of (A) the product of $0.66 multiplied by the
number of shares of Coral Common outstanding immediately
prior to the Effective Time, (B) the product of $1.00
multiplied by the number of shares of Coral Series A
outstanding immediately prior to the Effective Time, (C)
the product of $2.16 multiplied by the number of shares of
Coral Series B outstanding immediately prior to the
Effective Time, (D) the product of $2.3207 multiplied by
the number of shares of Coral Series C outstanding
immediately prior to the Effective Time, and (E) the
product of $0.66 multiplied by the number of shares of
Coral Common issuable (without regard to vesting) upon the
exercise of all unexpired and unexercised Options and
Warrants outstanding immediately prior to the Effective
Time, divided by
(ii) the Calculation Price.
A-3
<PAGE>
(b) The "Aggregate Share Number" shall mean a number of shares of
Lightbridge Common equal to:
(i) if the Calculation Price is greater than or equal to
$10.8375 but less than or equal to $14.6625, 1,286,863;
(ii) if the Calculation Price is less than $10.8375, the
quotient of $13,946,375 divided by the Calculation Price,
rounded down to the nearest whole number of shares of
Lightbridge Common; or
(iii) if the Calculation Price is greater than $14.6625, the
quotient of $18,868,625 divided by the Calculation Price,
rounded down to the nearest whole number of shares of
Lightbridge Common;
less the number of shares of Lightbridge Common equal to the quotient
of (A) the Offset Expenses (as defined in Section 5.11) plus the Final
Adjustment Amount (as defined in Section 1.10) divided by (B) the
Calculation Price.
(c) The "Calculation Price" shall equal the average of the last
sales prices of Lightbridge Common on the Nasdaq National Market for
each of the ten trading days immediately preceding the Closing Date.
(d) The "Common Consideration" shall mean the number of shares of
Lightbridge Common equal to the sum of (i) $0.66 divided by the
Calculation Price, plus (ii) the Remainder Amount.
(e) The "Remainder Amount" shall equal the quotient of (i) the
Aggregate Share Number minus the Aggregate Preference, divided by (ii)
the sum of (A) the number of shares of Coral Common outstanding
immediately prior to the effective time, (B) the number of shares of
Coral Common into which the shares of Coral Series A outstanding
immediately prior to the Effective Time are then convertible, (C) the
number of shares of Coral Common into which the shares of Coral Series
B outstanding immediately prior to the Effective Time are then
convertible, (D) the number of shares of Coral Common into which the
shares of Coral Series C outstanding immediately prior to the
Effective Time are then convertible and (E) the number of shares of
Coral Common issuable (without regard to vesting) upon the exercise of
all unexpired and unexercised Options and Warrants outstanding
immediately prior to the Effective Time.
(f) The "Series A Consideration" shall mean the number of shares of
Lightbridge Common equal to the sum of (i) $1.00 divided by the
Calculation Price, plus (ii) the Remainder Amount multiplied by the
number of shares of Coral Common into which a share of Coral Series A
is convertible immediately prior to the Effective Time.
(g) The "Series B Consideration" shall mean the number of shares of
Lightbridge Common equal to the sum of (i) $2.16 divided by the
Calculation Price, plus (ii) the Remainder Amount multiplied by the
number of shares of Coral Common into which a share of Coral Series B
is convertible immediately prior to the Effective Time.
(h) The "Series C Consideration" shall mean the number of shares of
Lightbridge Common equal to the sum of (i) $2.3207 divided by the
Calculation Price, plus (ii) the Remainder Amount multiplied by the
number of shares of Coral Common into which a share of Coral Series C
is convertible immediately prior to the Effective Time.
A-4
<PAGE>
(i) The "Stock Consideration Number" shall mean a portion of the
Aggregate Share Number equal to the sum of (i) the Common
Consideration multiplied by the number of shares of Coral Common
outstanding immediately prior to the Effective Time, (ii) the Series A
Consideration multiplied by the number of shares of Coral Series A
outstanding immediately prior to the Effective Time, (iii) the Series
B Consideration multiplied by the number of shares of Coral Series B
outstanding immediately prior to the Effective Time, and (iv) the
Series C Consideration multiplied by the number of shares of Coral
Series C outstanding immediately prior to the Effective Time.
Section 1.5. EXCHANGE OF CORAL CERTIFICATES. Lightbridge hereby appoints
American Stock Transfer & Trust Company to act as exchange agent (the "Exchange
Agent") in the Merger, to act in accordance with the terms hereof and with such
other instructions as Lightbridge may provide from time to time at or prior to
the Closing. Prior to the filing of the Registration Statement with the SEC,
Lightbridge shall appoint a commercial bank having at least $50,000,000 in
assets and reasonably acceptable to Coral (or American Stock Transfer & Trust
Company) to act as escrow agent (the "Escrow Agent") in accordance with the
terms hereof and the Escrow Agreement (as defined in Section 6.2.3(e)). At the
Closing, the holders of Coral Capital Stock (the "Stockholders") shall surrender
to the Exchange Agent the stock certificates (the "Coral Certificates")
representing the outstanding shares of Coral Capital Stock. As soon as
practicable after the Effective Time, and in any event within five business days
thereafter, Lightbridge shall deliver or cause to be delivered to the Exchange
Agent, stock certificates registered in the names of the Stockholders and
representing a number of shares of Lightbridge Common (the "Irrevocable
Shares") equal to thirty percent of the maximum Stock Consideration Number
reasonably estimated by Lightbridge to be issuable after giving effect to the
post-closing adjustments provided for in Section 1.10, all as determined to
enable Foley, Hoag & Eliot LLP to deliver the tax opinion contemplated by
Section 6.2.8. As soon as practicable after the Final Adjustment Amount has been
determined pursuant to Section 1.10, Lightbridge shall deliver or cause to be
delivered (i) to the Exchange Agent, stock certificates registered in the names
of the Stockholders and representing a number of shares of Lightbridge Common
equal to the number, if any (the "Additional Shares"), by which (A) one-third of
the Stock Consideration Number exceeds (B) the number of shares delivered
pursuant to the preceding sentence and (ii) to the Escrow Agent, stock
certificates registered in the names of the Escrow Agent and representing a
number of shares (the "Escrow Shares") equal to the portion of the Stock
Consideration Number not delivered to the Exchange Agent pursuant to the
preceding clause (A) and the preceding sentence. Upon the delivery of such stock
certificates to the Exchange Agent and the Escrow Agent, the Coral Certificates
shall forthwith be canceled. On the first business day occurring six months
after the Closing Date, the Exchange Agent shall send to Stockholders who have
duly surrendered their Coral Certificates by overnight courier certificates
representing the Irrevocable Shares and the Additional Shares, if any, provided
that if, in connection with its tax opinion contemplated by Section 6.2.8,
Foley, Hoag & Eliot LLP shall require that the stock certificates representing
the Irrevocable Shares be delivered to Stockholders at an earlier date, the
Exchange Agent shall deliver such certificates at such earlier time to
Stockholders who have duly surrendered their Coral Certificates. In the event
stock certificates representing the Irrevocable Shares are delivered in
accordance with the foregoing proviso, the Irrevocable Shares shall not be
transferable until six months after the Closing Date and such stock certificates
shall bear transfer legends to such effect. Coral shall use reasonable business
efforts to cause all of the Coral Certificates to be surrendered prior to the
Closing; if, however, any of the Coral Certificates are presented to the
Surviving Corporation after the Effective Time for any reason, they shall be
delivered to the Exchange Agent and exchanged in accordance with this Section.
In the event any Coral Certificates shall have been lost, stolen or destroyed,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Coral Certificates, upon the making of an affidavit of that fact by the holder
thereof, the shares of Lightbridge Common issuable with respect thereto pursuant
to Section 1.4, provided that Lightbridge may, in its discretion and as a
condition precedent to the issuance thereof, require such holder to deliver a
bond in such sum as Lightbridge may reasonably direct as indemnity against any
claim that may be made against Lightbridge or the Exchange Agent with respect to
the Coral Certificates alleged to have been lost, stolen or destroyed. The
shares of Lightbridge Common delivered to the Exchange Agent and the Escrow
Agent
A-5
<PAGE>
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to the shares of Coral Capital Stock represented by the Coral
Certificates. It is acknowledged that the holders of Coral Capital Stock, by
virtue of the Merger, shall have no further rights as stockholders of Coral or
the Surviving Corporation following the Merger, including any rights pursuant to
(i) the Stock Purchase Agreement dated as of November 1, 1991 by and between
Coral and CVM Equity Fund III, Ltd., (ii) the Series A Convertible Preferred
Stock Purchase Agreement dated as of January 26, 1994 by and between Coral and
the Purchasers named therein, (iii) the Series B Preferred Stock Purchase
Agreement dated as of March 2, 1995 by and among Coral and the Purchasers named
therein, (iv) the Series C Preferred Stock Purchase Agreement dated as of March
21, 1996 by and between Coral and Cincinnati Bell Information Systems Inc. and
(v) the Amended and Restated Investors' Rights Agreement dated as of March 21,
1996 by and among Coral and the Stockholders named therein (collectively, the
"Coral Stockholders Agreements").
Section 1.6. OTHER EFFECTS. At the Effective Time:
(a) the separate existence of Acquisition Corp. shall cease and
Acquisition Corp. shall be merged with and into Coral, with Coral
remaining as the surviving corporation (the "Surviving Corporation");
(b) the certificate of incorporation and by-laws of Acquisition Corp.
shall be the certificate of incorporation and by-laws of the Surviving
Corporation;
(c) the directors and officers of Acquisition Corp. shall be the directors
and officers of the Surviving Corporation; and
(d) the Merger shall, from and after the Effective Time, have all of the
effects provided by Delaware Law.
Section 1.7. DISSENTING SHARES.
1.7.1. Notwithstanding any provision of this Agreement to the contrary,
the shares of Coral Capital Stock of any Stockholder who has demanded and
perfected appraisal rights for such shares in accordance with Delaware Law
and who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be exchanged for or
represent a right to receive Lightbridge Common pursuant to Section 1.4, but
the holder thereof shall only be entitled to such rights as are granted by
Delaware Law.
1.7.2. Notwithstanding the provisions of Section 1.7.1, if any Stockholder
who demands appraisal of shares of Coral Capital Stock under Delaware Law
shall effectively withdraw the right to appraisal, then, as of the later of
the Effective Time and the occurrence of such event, such shares shall
automatically be exchanged for and represent only the right to receive
Lightbridge Common, without interest thereon, upon surrender of the stock
certificate representing such shares to the Exchange Agent.
1.7.3. Coral shall give Lightbridge (a) prompt notice of any written
demands for appraisal of any shares of Coral Capital Stock, withdrawals of
such demands, and any other instruments served pursuant to Delaware Law and
received by Coral which relate to any such demand for appraisal and (b) the
opportunity to participate in all negotiations and proceedings which take
place prior to the Effective Time with respect to demands for appraisal under
Delaware Law. Coral shall not, except with the prior written consent of
Lightbridge, voluntarily make any payment with respect to any demands for
appraisal of Coral Capital Stock or offer to settle any such demands.
A-6
<PAGE>
Section 1.8. HOLDERS' AGENT. Pete Bloomer (or another Person designated by
Coral) shall, by virtue of the Merger and the resolutions to be adopted at the
Coral Stockholders Meeting (as defined in Section 5.2), be irrevocably appointed
attorney-in-fact and authorized and empowered to act, for and on behalf of any
or all of the Stockholders (with full power of substitution in the premises) in
connection with the determination of the Final Adjustment Amount pursuant to
Section 1.10, the indemnity provisions of Article 7 as they relate to the
Stockholders generally, the Escrow Agreement, the notice provisions of this
Agreement and such other matters as are reasonably necessary for the
consummation of the transactions contemplated hereby, including to act as the
representative of the Stockholders to review and authorize all set-offs, claims
and other payments authorized or directed by the Escrow Agreement and dispute or
question the accuracy thereof, to compromise on their behalf with Lightbridge
any claims asserted thereunder and to authorize payments to be made with respect
thereto, and to take such further actions as are authorized in this Agreement.
The above-named representative, as well as any subsequent representative of the
Stockholders appointed by such representative (or, after such representative's
death or incapacity, elected by vote of holders of a majority of Coral Capital
Stock outstanding immediately prior to the Effective Time), is referred to
herein as the "Holders' Agent." The Holders' Agent shall not be liable to any
Stockholder, Lightbridge, the Surviving Corporation or any other person with
respect to any action taken or omitted to be taken by the Holders' Agent under
or in connection with this Agreement or the Escrow Agreement unless such action
or omission results from or arises out of fraud, gross negligence, willful
misconduct or bad faith or the part of the Holders' Agent. The Stockholders
shall severally indemnify the Holders' Agent and hold the Holders' Agent
harmless against any loss, liability or expense incurred without fraud, gross
negligence, willful misconduct or bad faith on the part of the Holders' Agent
and arising out of or in connection with the acceptance or administration of the
duties of the Holders' Agent hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Holders' Agent. Each of
Lightbridge and Acquisition Corp. and each of their respective affiliates shall
be entitled to rely on such appointment and treat the Holders' Agent as the duly
appointed attorney-in-fact of each Stockholder. Each Stockholder who votes in
favor of the Merger pursuant to the terms hereof, by such vote, without any
further action, and each Stockholder who receives shares of Lightbridge Common
in connection with the Merger, by acceptance thereof and without any further
action, confirms such appointment and authority and acknowledges and agrees that
such appointment is irrevocable and coupled with an interest, it being
understood that the willingness of Lightbridge and Acquisition Corp. to enter
into this Agreement is based, in part, on the appointment of a representative to
act on behalf of the Stockholders.
Section 1.9. DISTRIBUTIONS. Subject to applicable law, no dividends or
other distributions with respect to Lightbridge Common declared or made after
the Effective Time and with a record date after the Effective Time will be paid
to the holder of any unsurrendered Coral Certificate with respect to the shares
of Lightbridge Common represented thereby until the holder of record of such
Coral Certificate shall surrender such Coral Certificate. Subject to applicable
law, following surrender of any such Coral Certificate, there shall be paid to
the record holder of shares of Lightbridge Common issued in exchange therefor,
without interest, at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such shares of Lightbridge Common, provided that any
stock dividend shall not be delivered to such recordholder prior to the
delivery, pursuant to this Agreement, of the Lightbridge Common on which such
stock dividend was declared.
Section 1.10. POST-CLOSING BALANCE SHEET ADJUSTMENT.
1.10.1. Following the Closing Date, Lightbridge and the Surviving
Corporation will prepare a balance sheet of Coral as of immediately prior to
the time of the Closing (the "Preliminary Closing Balance Sheet"). The
Preliminary Closing Balance Sheet will be prepared in accordance with
generally accepted accounting principles applied on a basis, and using
methodologies, consistent with the Financial Statements (as defined in
Section 2.6), except that the Preliminary Closing Balance Sheet may omit
footnotes and related disclosures normally contained in audited balance
sheets prepared in accordance with generally accepted accounting principles.
Lightbridge will then cause Deloitte &
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Touche LLP, Lightbridge's independent accountants ("Lightbridge's
Accountants"), to audit the Preliminary Closing Balance Sheet and to issue
their report thereon, and Lightbridge will reflect in the Preliminary Closing
Balance Sheet such adjustments, if any, as are proposed by Lightbridge's
Accountants based upon their audit.
1.10.2. On or before the forty-fifth day following the Closing Date,
Lightbridge will deliver to the Holders' Agent the Preliminary Closing
Balance Sheet, the audit report of Lightbridge's Accountants with respect
thereto, and a statement of the Preliminary Adjustment Amount. The
Preliminary Adjustment Amount shall be the difference between negative
$1,245,500 and the working capital (total current assets less total current
liabilities) of Coral as reflected on the Preliminary Closing Balance Sheet;
provided, however, that the Preliminary Adjustment Amount shall not reflect
any reductions in the working capital of Coral attributable to any of the
items listed in Section 1.10 of the Schedule.
1.10.3. Within fifteen days after his receipt of the Preliminary Closing
Balance Sheet and statement of the Preliminary Adjustment Amount, the
Holders' Agent shall notify Lightbridge whether he accepts or disputes the
Preliminary Adjustment Amount. If the Holders' Agent accepts the Preliminary
Closing Balance Sheet and the Preliminary Adjustment Amount, or fails to
notify Lightbridge of any dispute with respect thereto within said fifteen-
day period, the Preliminary Closing Balance Sheet shall be deemed to be the
"Final Closing Balance Sheet" and the Preliminary Adjustment Amount shall be
deemed to be final, conclusive and binding upon the parties (the "Final
Adjustment Amount"). During such fifteen-day period and until the
determination of the Final Adjustment Amount, the Holders' Agent will be
provided with access to such financial books and records of Coral as he may
reasonably request in order to confirm the accuracy of the Preliminary
Closing Balance Sheet. If the Holders' Agent disputes the accuracy of the
Preliminary Closing Balance Sheet or the Preliminary Adjustment Amount, he
shall in such notice set forth in reasonable detail those items that he
believes are not fairly presented in conformity with Section 1.10.1 above and
the reasons for his opinion. The parties shall then meet and in good faith
use their best efforts to try to resolve their disagreements over the
disputed items. If the parties resolve their disagreements over the disputed
items in accordance with the foregoing procedure, the Preliminary Closing
Balance Sheet and the Preliminary Adjustment Amount, with those modifications
to which the parties shall have agreed, shall be deemed to be the Final
Closing Balance Sheet and the Final Adjustment Amount. If the parties have
not resolved their disagreements over the disputed items on the Preliminary
Closing Balance Sheet or the Preliminary Adjustment Amount within fifteen
days after the notice of dispute from the Holders' Agent, the parties shall
forthwith jointly request an independent, national accounting firm mutually
agreed upon by Lightbridge's Accountants and the Holders' Agent (the
"Accounting Arbitrator") to make a binding determination of those disputed
items in accordance with this Agreement. The Accounting Arbitrator will have
no more than forty-five days from the date of referral and no more than
thirty days from the final submission of information or testimony by the
parties to render its decision with respect to the disputed items concerning
the Preliminary Closing Balance Sheet and the Preliminary Adjustment Amount,
which decision shall be final and binding upon the parties and enforceable as
an arbitration award pursuant to the Massachusetts Uniform Arbitration Act
for Commercial Disputes, Mass. Gen. Laws Ann. ch. 251 or the Federal
Arbitration Act, 9 U.S.C. (S)(S)1 et seq. The Preliminary Closing Balance
Sheet and the Preliminary Adjustment Amount, with those adjustments
determined by the Accounting Arbitrator to be necessary, shall be deemed to
be the Final Closing Balance Sheet and the Final Adjustment Amount. The fees
and expenses of the Accounting Arbitrator engaged pursuant to this Section
shall be borne equally by the Stockholders and by Lightbridge (with the
portion attributable to the Stockholders being treated as an additional
Offset Expense, further decreasing the Aggregate Share Number pursuant to
Section 1.4.4).
Section 1.11. TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time
after the Effective Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the
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Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of Coral and Acquisition
Corp., the officers and directors of Coral and Acquisition Corp. are fully
authorized in the name of their respective corporations or otherwise to take,
and shall take, all such lawful and necessary action.
Section 1.12. TAX TREATMENT. The parties intend that the Merger shall be
treated as a reorganization under Section 368 of the Code.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF CORAL
Coral hereby represents and warrants to Lightbridge and Acquisition Corp. as
follows, subject to such exceptions as are specifically disclosed under
appropriate section headings in the disclosure schedule attached hereto and made
a part hereof (the "Schedule"):
Section 2.1. CORPORATE STATUS. Coral is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with all requisite corporate power to own, lease and operate its properties and
to carry on its business as now being conducted. Coral is duly qualified to do
business as a foreign corporation, and is in good standing, in each other
jurisdiction in which it owns or leases property or conducts business, except
where the failure to be so qualified does not have any effect that is, or is
reasonably likely to be, materially adverse to its business, results of
operations, properties, assets, liabilities, prospects or condition (financial
or otherwise) (a "Coral Material Adverse Effect").
Section 2.2. CORPORATE DOCUMENTS. Coral has delivered to Lightbridge true
and complete copies of its amended and restated certificate of incorporation, as
amended to date (the "Coral Charter"), and its bylaws, as amended to date (the
"Coral Bylaws"). The Coral Charter and the Coral Bylaws are in full force and
effect, and no further amendment or restatement thereof has been adopted or
proposed, except for the Charter Amendment. Coral is not in Violation of any
provision of the Coral Charter or the Coral Bylaws. The minute books and stock
records of Coral, which have heretofore been made available to Lightbridge, are
true and complete and are the only minute books and stock records of Coral. The
Schedule sets forth the current directors and officers of Coral.
Section 2.3. CAPITAL STRUCTURE. The authorized Coral Capital Stock consists
of (a) 30,000,000 shares of Coral Common, of which 3,276,234 shares are
outstanding as of the date hereof; (b) 2,000,000 shares of Coral Series A, of
which 2,000,000 shares are outstanding as of the date hereof; (c) 2,083,333
shares of Coral Series B, of which 2,083,333 shares are outstanding as of the
date hereof; (d) 1,850,000 shares of Coral Series C, of which 1,824,920 shares
are outstanding as of the date hereof; and (e) 9,066,667 shares of preferred
stock, $.001 par value, none of which have been designated in series or are
outstanding as of the date hereof. No shares of Coral Capital Stock are held as
treasury stock. The name of each Stockholder, and the number and class of
shares of Coral Capital Stock owned of record by such Stockholder, are set forth
on the Schedule. All of the outstanding shares of Coral Capital Stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Coral Charter, the Coral Bylaws or any
agreement to which Coral is a party or is bound. No bonds, debentures, notes or
other indebtedness of Coral having the right to vote (or convertible into
securities having the right to vote) on any matters on which holders of Coral
Capital Stock may vote ("Voting Debt") have been issued or are outstanding.
Except for the Option Plan, Coral has never adopted or maintained any stock
option plan or other plan providing for equity compensation of any person.
Coral has reserved 2,089,189 shares of Coral Common for issuance to employees
and consultants pursuant to the Option Plan, of which 1,186,544 shares are
subject to outstanding, unexercised Options as of the date hereof and 696,874
shares remain available for future grant as of the date hereof. The name of
each holder of an Option or a Warrant, and the grant date of the Option or
Warrant and the number of shares of Coral Common for which the Option or Warrant
is exercisable, are set forth on the Schedule. Coral has never accelerated the
vesting schedule of any of the outstanding Options, and no Option will be
accelerated and become exercisable by
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reason of the transactions contemplated by this Agreement. All shares of Coral
Common subject to issuance under the Options and the Warrants, upon issuance on
the terms and conditions specified in the Options or Warrants pursuant to which
they are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. Coral is not a party to or bound by: (a) any option, warrant,
call, right or agreement, other than the Options and the Warrants, obligating
Coral to issue, deliver or sell additional shares of Coral Capital Stock or
Voting Debt or to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call, right or
agreement; (b) any voting trust, proxy or other agreement or understanding with
respect to the voting of shares of Coral Capital Stock; or (c) any other
agreement restricting the transfer of, or affecting rights with respect to,
shares of Coral Capital Stock. The holders of the Options and the Warrants have
been or will be given, or shall have properly waived, any required notice prior
to the Merger.
Section 2.4. AUTHORITY.
2.4.1. Coral has all requisite corporate power to execute and deliver this
Agreement and each of the Certificate of Merger, the Employment Agreements
and the Non-Competition Agreement (each as defined herein and collectively
the "Coral Corollary Agreements") and to consummate the transactions
contemplated hereby and thereby. Subject only to the approval of this
Agreement by the Stockholders, the execution and delivery of this Agreement
and the Coral Corollary Agreements, and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
requisite corporate action on the part of Coral and no other corporate
proceedings on the part of Coral are necessary to authorize the execution and
delivery of this Agreement or any of the Coral Corollary Agreements or to
consummate the transactions contemplated hereby and thereby. Without limiting
the foregoing, the Charter Amendment has been duly approved by the
Stockholders. The vote required of the Stockholders to duly approve the
Merger and this Agreement is a majority of the outstanding shares of the
Coral Common and a majority of the outstanding shares of the Coral Series A,
Coral Series B and Coral Series C, voting as a single class. The board of
directors of Coral has unanimously approved the Merger, this Agreement and
the Charter Amendment. This Agreement has been duly and validly executed and
delivered by Coral and constitutes a legal, valid and binding obligation of
Coral enforceable in accordance with its terms, all as may be subject to or
affected by any bankruptcy, reorganization, insolvency, moratorium or similar
laws of general application from time to time in effect and relating to or
affecting the rights or remedies of creditors generally (the "Creditor
Exception"). As of the Closing Date, each of the Coral Corollary Agreements
will be duly and validly executed and delivered by Coral and will constitute
a legal, valid and binding obligation of Coral enforceable in accordance with
its terms, all as may be subject to or affected by the Creditor Exception.
2.4.2. Subject only to the approval of this Agreement and the filing of
the Charter Amendment with the Secretary of State of the State of Delaware,
the execution and delivery by Coral of this Agreement do not, and the
execution and delivery by Coral of the Coral Corollary Agreements and the
consummation by Coral of the transactions contemplated hereby and thereby
will not, result in any Violation (as defined below) of any provision of the
Coral Charter, the Coral Bylaws, any material Contract (as defined in Section
2.10), any of the Permits (as defined in Section 2.7), or any judgment,
order, decree, statute, law, ordinance, rule or regulation of any
Governmental Entity (as defined below) applicable to Coral or its properties
or assets. Coral does not have any plans, programs or agreements to which it
is a party or subject pursuant to which payments may be required or
acceleration of benefits may be required upon a change of control of Coral.
No consent, approval, order or authorization of, or registration, declaration
or filing with, any Governmental Entity is required by or with respect to
Coral at or prior to the Effective Time in connection with the execution and
delivery by Coral of this Agreement or any of the Coral Corollary Agreements
or the consummation by Coral of the transactions contemplated hereby and
thereby, except for (i) the filing of the Charter Amendment and the
Certificate of Merger with the Secretary of State of the State of Delaware
and (ii) the filing of the Registration Statement (as defined in Section 5.1)
with the SEC in accordance with the
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Securities Act of 1933, as amended (the "Securities Act"). As used herein:
"Violation" means, with respect to a provision, (A) any material conflict
with, material violation of or material default (with or without notice or
lapse of time, or both) under such provision, (B) the arising of any right of
termination, cancellation or acceleration of any obligation, or loss of any
material benefit, under such provision, or (C) the arising of any material
lien, pledge, claim, charge, security interest, mortgage, easement,
servitude, refusal, claim of infringement or other restriction or encumbrance
of any kind, including any restriction on use, voting (in the case of any
security), transfer, receipt of income or exercise of any other attribute of
ownership on assets; and "Governmental Entity" means any domestic or foreign
court, administrative agency or commission, or other governmental authority
or instrumentality.
Section 2.5. INVESTMENTS. Coral does not directly or indirectly own, or
have the right to acquire, any equity interest or investment in the equity
capital of any Person (as defined below). Coral has no obligation to acquire
any class of securities (including debt securities) issued by any Person. Coral
has not owned or controlled any subsidiary corporation or any stock or other
interest in any Person and is not a party to, and has not been a party to, or
bound by any partnership, joint venture, voluntary association, cooperative or
business trust agreement or arrangement other than in the ordinary course of
business. Coral has delivered or made available to Lightbridge true and
complete copies of any such agreements or arrangements that were entered into in
the ordinary course of business and any provision of which is currently in
effect. As used herein, "Person" means any individual, corporation,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Entity or any other entity.
Section 2.6. FINANCIAL STATEMENTS.
2.6.1. The audited balance sheets of Coral at each of December 31, 1994,
1995 and 1996 and the related audited statements of operations, changes in
stockholders' equity and cash flows for the years then ended (including the
notes thereto), and the unaudited balance sheets of Coral at June 30, 1996
and 1997 and the related unaudited statements of operations, changes in
stockholders' equity and cash flows for the six-month periods then ended
(including the notes thereto), as provided by Coral to Lightbridge, have been
prepared in accordance with generally accepted accounting principles, applied
on a consistent basis throughout the periods involved (except that the
unaudited financial statements do not contain all the notes that may be
required by generally accepted accounting principles and were or are subject
to normal and recurring year-end adjustments that were not or are not
expected to be material in amount), and fairly present in all material
respects the financial condition of Coral as at the dates thereof and the
results of its operations and its cash flows for the periods then ended. As
used herein, "Financial Statements" means all of such financial statements
and notes collectively, "1997 Balance Sheet" means the unaudited balance
sheet of Coral at June 30, 1997, and "1997 Financial Statements" means the
1997 Balance Sheet and the related unaudited financial statements of Coral
for the six months ended June 30, 1997 (including the notes thereto). The
1997 Financial Statements have been reviewed (but not audited) by Price
Waterhouse LLP, independent accountants to Coral, in accordance with the
procedures specified by the American Institute of Certified Public
Accountants for a review of interim financial information as described in
Statement on Auditing Standards No. 71, "Interim Financial Information." The
books of account of Coral have been prepared and maintained in accordance
with Coral's normal practice, consistent in all material respects with the
accounting principles and policies reflected in the Financial Statements.
2.6.2. All accounts receivable reflected on the 1997 Balance Sheet and
Coral's books and records as of the date hereof represent sales actually made
in the ordinary course of business and in a manner consistent with Coral's
regular credit practices. The reserve for doubtful accounts reflected on the
1997 Balance Sheet has been established based upon and consistent with past
practice and is, in Coral's reasonable judgment, adequate.
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2.6.3. Coral has no outstanding Indebtedness (as defined below) or other
liabilities, asserted liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, other than (a) those disclosed or
reflected on the 1997 Financial Statements, (b) those not required under
generally accepted accounting principles to be disclosed or reflected on the
1997 Financial Statements and (c) those incurred since June 30, 1997 in the
ordinary course of business consistent with past practice. Without limiting
the foregoing, Coral does not have any outstanding monetary obligations to
either AirTouch Communications, Inc. or Cincinnati Bell Information Systems
Inc. or their respective affiliates under Contracts existing as of, or
terminated prior to, the date of this Agreement. Coral does not have any
outstanding Indebtedness for borrowed money. For purposes of this Agreement,
"Indebtedness" means (i) all items (except items of capital stock,
stockholders' equity, surplus or retained earnings, and general contingency
reserves) that in accordance with generally accepted accounting principles
would be included in determining total liabilities as shown on the liability
side of a balance sheet of Coral as at the date as of which such Indebtedness
is to be determined, (ii) all indebtedness secured by any mortgage, pledge,
lien, security interest or conditional sale or other title retention
agreement to which any property or asset owned or held by Coral is subject,
whether or not the indebtedness secured thereby shall have been assumed, and
(iii) all indebtedness of others which Coral has directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business), sold or discounted with recourse or
(contingently or otherwise) to purchase or repurchase or otherwise acquire,
or in respect of which Coral has agreed to supply or advance funds (whether
by way of loan, stock purchase, capital contribution or otherwise) or
otherwise become directly or indirectly liable.
Section 2.7. COMPLIANCE WITH APPLICABLE LAWS. Coral holds all permits,
licenses, variances, certificates of occupancy, exemptions, orders, approvals
and authorizations of all Governmental Entities that are material to the
operation of its business (the "Permits"). All of the Permits are in full force
and effect, and Coral has delivered or made available to Lightbridge true and
complete copies of all of the Permits. Coral is in compliance with the terms of
the Permits, except where any such failure so to comply, individually or in the
aggregate with any other such failures, would not have a Coral Material Adverse
Effect. No Violation of any of the Permits has been alleged by any Governmental
Entity, and no proceeding is pending, or to the knowledge of Coral threatened,
to revoke, suspend, cancel or limit any of the Permits. No action by Coral,
Lightbridge, the Surviving Corporation or any other party is required in order
that all of the Permits will remain in full force and effect following the
Merger. The business of Coral is not being conducted in violation of or
conflict with any law, ordinance or regulation or any order, judgment,
injunction, award or decree of any Governmental Entity (collectively "Laws"),
except where any such violation or conflict, individually or in the aggregate,
would not have a Coral Material Adverse Effect and except for Environmental
Laws, which are the subject of Section 2.18. As of the date of this Agreement,
no investigation or review by any Governmental Entity with respect to Coral is
pending or, to the knowledge of Coral, threatened, nor has any Governmental
Entity indicated an intention to conduct the same, and, to Coral's knowledge,
the continued use, occupancy and operation of the Leased Real Property (as
defined in Section 2.9.2) as currently used, occupied and operated does not
constitute a nonconforming use under any Law. Coral has no knowledge of any
pending or anticipated change in any Law which would have a material adverse
effect upon the current ownership, use, occupancy or operation of the Leased
Real Property or any portion thereof.
Section 2.8. LITIGATION. There is no claim, dispute, action, suit, appeal,
legal, administrative or arbitral proceeding, or investigation, at law or in
equity, pending against Coral, or involving any of its assets or properties,
before any court, agency, authority, arbitration panel or other tribunal, and,
to the knowledge of Coral, none has been threatened. To the knowledge of Coral,
there are no facts that, if known to customers, Governmental Entities or other
Persons, could reasonably be expected to result in any such claim, dispute,
action, suit, appeal, legal, administrative or arbitral proceeding, or
investigation that could reasonably be expected to have a Coral Material Adverse
Effect. Coral is not named as a subject of any order, writ, injunction or
decree of any court, agency, authority, arbitration panel or other tribunal, nor
is it
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in default with respect to any notice, order, writ, injunction or decree. No
judgment has been entered by, and no claim, dispute, action, suit, appeal,
legal, administrative or arbitral proceeding, or investigation, at law or in
equity, is pending or, to the knowledge of Coral, threatened that materially and
adversely affects, or could reasonably be expected to materially and adversely
affect, the ability of Coral to perform under this Agreement or that seeks to
enjoin or prohibit any of the transactions contemplated by this Agreement.
Section 2.9. PROPERTIES.
2.9.1. Owned Properties. Coral does not own and has never owned any real
property.
2.9.2. Leased Properties. The Schedule sets forth a true and complete list
of all leases, subleases, licenses, revocable use permits and other
agreements (collectively, the "Real Property Leases") under which Coral uses
or occupies any real property (the land and improvements covered by the Real
Property Leases being herein called the "Leased Real Property"), which
Schedule sets forth the date of and parties to each Real Property Lease.
Coral has heretofore delivered to counsel for Lightbridge true and complete
copies of all Real Property Leases, including all modifications thereof and
all amendments and supplements thereto. Each Real Property Lease is valid,
binding and in full force and effect, no written notice of default or
termination thereunder is outstanding with respect to any Real Property
Lease, all rent and other material sums due and payable by Coral under each
Real Property Lease are current, with respect to each Real Property Lease
Coral is not in material default in its obligations, and no event has
occurred nor condition exists which, with the giving of notice or the lapse
of time or both, would constitute a material default by Coral under any Real
Property Lease. Coral holds the leasehold estate under and interest in each
Real Property Lease free and clear of all liens, charges and encumbrances
(together, "Encumbrances") except for (a) Encumbrances reflected in the 1997
Financial Statements (including overleases, governmental development plans
and similar agreements to which Coral is not a party), (b) Encumbrances
securing taxes, assessments, governmental charges or levies, or the claims of
materialmen, carriers, landlords and like persons, all of which are not yet
due and payable, (c) restrictions on use contained in Real Property Leases
that do not materially restrict the property subject thereto from being used
as such property is currently used or (d) imperfections of title and other
minor Encumbrances that do not materially detract from the value or impair
the use of the asset subject thereto or impair the operations of Coral
(collectively, the Encumbrances described in clauses (a), (b), (c) and (d)
shall be referred to as "Permitted Encumbrances"). Neither Coral nor any its
officers, directors or Stockholders has any ownership, financial or other
interest in the landlord under any Real Property Lease. Each Real Property
Lease was negotiated on an arm's-length basis on commercially reasonable
terms.
2.9.3. Entire Premises. All of the land, buildings, structures and other
improvements used by Coral in the conduct of Coral's business (the
"Improvements") are included in the Leased Real Property. To the knowledge
of Coral, Coral has taken no action and has suffered no action to occur that
would materially adversely affect the interest of Coral in the Leased Real
Property. Coral does not own or hold, and is not obligated under or a party
to, any option, right of first refusal or other contractual right to
purchase, acquire, sell or dispose of the Leased Real Property or any portion
thereof or interest therein.
2.9.4. Personal Property. The 1997 Balance Sheet reflects all of the
material personal property used by Coral in its business or otherwise held by
Coral, except for personal property acquired in the ordinary course of
business by Coral since June 30, 1997 and personal property not required
under generally accepted accounting principles to be reflected on the 1997
Balance Sheet. Coral has good and marketable title to, or adequate rights or
licenses to use, all of the personal property listed on the 1997 Balance
Sheet or thereafter acquired, in each case free and clear of any imperfection
of title, lien, claim or encumbrance, except for (a) any lien, claim or
encumbrance securing taxes, assessments, governmental charges or levies, or
the claims of materialmen, carriers, landlords and like Persons, all
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of which are not yet due and payable, and (b) imperfections of title and
other minor liens, claims and encumbrances that do not materially detract
from the value or impair the use of the asset subject thereto.
2.9.5. Condition of Property. The Leased Real Property and the owned and
leased personal property of Coral necessary to the conduct of its business
are in good operating condition and repair, ordinary wear and tear excepted.
The Leased Real Property and personal property of Coral are sufficient for
the continued operation of the business of Coral after the Closing in
substantially the same manner as conducted prior to the Closing.
2.9.6. Condemnation. To the knowledge of Coral, there is no threatened or
contemplated condemnation proceeding affecting the Leased Real Property or
any part thereof or any sale or other disposition of the Leased Real Property
or any part thereof in lieu of condemnation.
2.9.7. Casualty. No portion of the Leased Real Property has suffered any
material damage by fire or other casualty which has not heretofore been
substantially repaired and restored to its original condition.
2.9.8. Space Leases. Coral has not entered into any lease, sublease,
license or other agreement granting to any person other than Coral any right
to the possession, use, occupancy or enjoyment of the Leased Real Property or
any portion thereof.
Section 2.10. CONTRACTS. As used herein, "Contracts" means written
agreements, contracts, instruments, guaranties, powers of attorney, commitments,
understandings, arrangements, promises, assurances, obligations or undertakings
to which Coral is a party or by which or to which Coral's assets or properties
are bound or subject. Coral has provided or made available to Lightbridge true
and complete copies of the following Contracts:
(a) Contracts with any current or former officer, director, employee,
consultant, agent, representative or security holder, including any
employment, consulting or deferred compensation agreement and any
executive compensation, bonus or incentive plan agreement;
(b) Contracts for the purchase, sale or lease of materials, supplies,
equipment, goods, research and development, or capital assets, or the
receipt of services, the performance of which will extend over a period
of more than one year or involve consideration in excess of $50,000;
(c) Contracts currently in effect that were entered into in the ordinary
course of business and that involve executory payment of consideration to
or by Coral in excess of $50,000;
(d) Contracts for the sale of any assets or properties of Coral other than in
the ordinary course of business or for the grant to any Person of any
preferential rights to purchase any assets or properties of Coral;
(e) Contracts establishing joint ventures or partnerships;
(f) Contracts establishing franchise, distribution or sales agency
arrangements;
(g) Contracts under which Coral agrees to indemnify any party other than
Contracts entered into in the ordinary course of business;
(h) Contracts containing obligations or liabilities of any kind to holders of
Coral Capital Stock as such;
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(i) Contracts relating to the acquisition by Coral of any operating business
or any capital stock of any other Person;
(j) Contracts containing options for the purchase of any asset tangible or
intangible, for an aggregate purchase price of more than $50,000;
(k) Contracts requiring the payment to any person of any override or similar
commission or fee;
(l) Contracts for the borrowing of money; and
(m) any other Contracts that were not made in the ordinary course of business
and that are, individually or in the aggregate, material to Coral.
With respect to each Contract referred to above:
(1) the Contract is legal, valid and binding, is enforceable in accordance
with its terms, and is in full force and effect;
(2) the Contract will continue to be legal, valid and binding, enforceable in
accordance with its terms, and in full force and effect on identical
terms following the Merger;
(3) neither Coral nor, to its knowledge, any other party to the Contract is
in material breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default by Coral,
or, to its knowledge, by any other party, or permit termination,
modification or acceleration under the Contract; and
(4) neither Coral nor, to its knowledge, any other party to the Contract has
repudiated any material provision of the Contract;
provided that the foregoing representations and warranties are qualified by the
Creditor Exception.
Section 2.11. TAXES.
2.11.1 Coral has timely filed in accordance with applicable law all Tax
Returns (as defined below) required to be filed by or with respect to it, its
operations and assets, and all Taxes (as defined below) shown as due on such
Tax Returns have been paid. All Tax Returns filed by Coral with respect to
Taxes were prepared in compliance with all applicable laws and regulations
and were true and complete in all material respects as of the date on which
they were filed or as subsequently amended to the date hereof. Coral has
provided or otherwise made available to Lightbridge true and complete copies
of federal, state, local and foreign Tax Returns of Coral for each of the
years ended December 31, 1996, 1995 and 1994 and all revenue agent's reports
and other written assertions of deficiencies or other liabilities for Taxes
with respect to past periods for which the applicable statute of limitations
has not expired. Coral will provide to Lightbridge copies of any such
reports or written assertions received after the date hereof within ten days
of their first being received by Coral.
2.11.2. Coral has timely paid, or will timely pay on or prior to the
Closing Date, all Taxes for which a notice of, or assessment or demand for,
payment has been received or which are otherwise due and payable up to and
including the Closing Date with respect to Coral, its operations and assets
(in each case, whether or not shown on any Tax Return), except for Taxes that
are being contested in good faith by appropriate proceedings (all of which
are set forth on the Schedule) or for payment of which Taxes adequate
reserves are reflected on the 1997 Balance Sheet.
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2.11.3 Coral has complied in all material respects with all applicable
laws, rules and regulations relating to the withholding of Taxes and has
timely collected or withheld and paid over (and up to the Closing Date will
have timely collected or withheld and paid over) to the proper Governmental
Entities all amounts required to be so collected or withheld and paid over
for all periods up to the Closing Date under all applicable laws. There are
not currently in effect any waivers or extensions of any applicable statute
of limitations for the assessment or collection of Taxes with respect to any
Tax Return that relates to Coral, and no request for any such waiver or
extension is pending. There are no Tax rulings, requests for rulings or
closing agreements relating to Coral that could affect its liability for
Taxes for any period after the Closing Date.
2.11.4 Coral has no current or potential contractual obligation to
indemnify any other Person with respect to Taxes, and has no obligation to
make distributions in respect of Taxes. No claim has ever been made by a
taxing authority in a jurisdiction where Coral does not file Tax Returns that
Coral is or may be subject to taxation by such jurisdiction. No power of
attorney has been granted by Coral with respect to any matter relating to
Taxes, which power of attorney is currently in force. Coral has not filed a
consent under Code section 341(f) or any comparable provision of state law.
As used herein: "Taxes" means all taxes of any kind, charges, fees, customs,
duties, imposts, levies or other assessments, including all net income, gross
receipts, ad valorem, value added, transfer, gains, franchise, profits,
inventory, net worth, capital stock, asset, sales, use, license, estimated,
withholding, payroll, transaction, capital, employment, social security, workers
compensation, unemployment, excise, severance, stamp, occupation, and property
taxes, together with any interest and any penalties, additions to tax or
additional amounts, imposed by any taxing authority; and "Tax Return" means all
returns, declarations, reports, forms, estimates, information returns and
statements required to be filed in respect of any Taxes or to be supplied to a
taxing authority in connection with any Taxes.
Section 2.12. BENEFIT PLANS.
2.12.1 The Schedule sets forth a true and complete list of all employee
benefit plans (whether or not they constitute employee benefit plans within
the meaning of section 3(3) of Title IV of Employee Retirement Income
Security Act of 1974, as amended), arrangements, policies or commitments
(including any employment, consulting or deferred compensation agreement,
executive compensation, bonus, incentive, pension, profit-sharing, savings,
retirement, stock option, stock purchase or severance pay plan, any life,
health, disability or accident insurance plan, or any holiday or vacation
practice) as to which Coral or any Commonly Controlled Entity has any direct
or indirect, actual or contingent liability (each a "Benefit Plan"). Coral
has, with respect to each Benefit Plan, delivered to Lightbridge, where
applicable, true and complete copies of: (a) all plan texts and agreements
and related trust agreements or annuity contracts; (b) all summary plan
descriptions and material employee communications; (c) the most recent annual
report (Form 5500 series, including all schedules thereto); (d) the most
recent actuarial valuation; (e) the most recent annual audited financial
statement and opinion; (f) if the plan is intended to qualify under Code
section 401(a) or 403(a), the most recent determination letter received from
the Internal Revenue Service (the "IRS"); and (g) all material communications
with any Governmental Entity, including the Pension Benefit Guaranty
Corporation (the "PBGC") and the IRS.
2.12.2 No Benefit Plan is subject to Title IV of Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or to Code section 412 or
is a defined benefit plan within the meaning of ERISA section 3(35) or Code
section 414(i). Coral and any entity which is under common control with Coral
within the meaning of Code section 414(b), (c), (m) or (o) (a "Commonly
Controlled Entity") has made all payments due from it to date with respect to
each Benefit Plan. All amounts properly accrued as liabilities to or expenses
of any Benefit Plan that have not been paid have been properly reflected on
the 1997 Financial Statements. Each Benefit Plan conforms to, and its
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administration is in material compliance with, all applicable laws and
regulations. There are no actions, liens, suits or claims pending or
threatened (other than routine claims for benefits) with respect to any
Benefit Plan. Each Benefit Plan which is intended to qualify under Code
section 401(a) or 403(a) so qualifies. No event has occurred, and there
exists no condition or set of circumstances, that presents a material risk of
a partial termination (within the meaning of Code section 411(d)(3)) of any
Benefit Plan. Coral does not have any Benefit Plan that is a "group health
plan" (as defined in ERISA section 607(1)). No assets of Coral are allocated
to or held in a "rabbi trust" or similar funding vehicle. Coral does not have
any Benefit Plan that is a welfare plan within the meaning of ERISA section
3(1) (regardless of whether the plan is covered by ERISA) and that provides
benefits to current or former employees beyond their retirement or other
termination of service (other than coverage mandated by COBRA, the cost of
which is fully paid by the current or former employee or his dependents); and
there exists no (a) unfunded benefit obligations with respect to any employee
of Coral which are not fairly reflected by reserves shown on Coral's most
recent financial statements or (b) reserves, assets, surpluses or prepaid
premiums with respect to any Benefit Plan that is a welfare plan within the
meaning of ERISA section 3(1) (regardless of whether the plan is covered by
ERISA).
2.12.3. The consummation of the transactions contemplated by this
Agreement will not (a) entitle any current or former any individual employed
by Coral or any Commonly Controlled Entity to severance pay, unemployment
compensation or any similar payment, (b) accelerate the time of payment or
vesting, or increase the amount of any compensation due to, any current or
former employed by Coral or any Commonly Controlled Entity, (c) constitute or
involve a prohibited transaction (as defined in ERISA section 406 or Code
section 4975), constitute or involve a breach of fiduciary responsibility
within the meaning of ERISA section 502(1) or otherwise violate Part 4 of
Title I of ERISA or (d) result in the payment of compensation that would, in
combination with any other payment, result in an "excess parachute payment"
within the meaning of Code section 280G(b).
2.12.4. As of the Closing, neither Coral nor any Commonly Controlled
Entity has incurred any liability or obligation under the Worker Adjustment
and Retraining Notification Act, as it may be amended from time to time, and
within the six-month period immediately following the Closing, neither will
incur any such liability or obligation if, during such six-month period, only
terminations of employment in the normal course of operations occur.
2.12.5. With respect to the Benefit Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Coral, there exists
no condition or set of circumstances in connection with which Coral could be
subject to any material liability under ERISA, the Code or any other
applicable law that is reasonably likely to have a Coral Material Adverse
Effect, other than any liability for benefits claims and funding obligations
payable in the ordinary course.
2.12.6. With respect to the Benefit Plans, there are no funded benefit
obligations for which contributions have not been made or properly accrued
and there are no unfunded benefit obligations that have not been accounted
for by reserves, or otherwise properly footnoted in accordance with generally
accepted accounting principles, on the 1997 Balance Sheet, except for
obligations that are not, individually and in the aggregate, reasonably
likely to have a Coral Material Adverse Effect.
Section 2.13. ABSENCE OF CERTAIN EVENTS. Except as contemplated by this
Agreement, since June 30, 1997, Coral has conducted its business only in the
ordinary course consistent with past practice. Without limiting the generality
of the foregoing, during such period:
(a) neither the business, properties nor assets of Coral have suffered a
material adverse loss (whether or not covered by insurance) as the result
of fire, explosion, earthquake, accident, labor trouble, condemnation or
taking of property by any Governmental Entity, flood, windstorm,
pestilence, embargo, riot, act of God or the public enemy or any other
casualty or similar event;
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(b) Coral has not declared or paid any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of Coral Capital Stock;
(c) Coral has not purchased, redeemed or otherwise acquired (or
committed itself to purchase, redeem or acquire), directly or indirectly,
any shares of Coral Capital Stock;
(d) Coral has not made any acquisition of all or any part of the assets,
properties, capital stock or business of any other Person, other than
inventory, equipment and supplies acquired in the ordinary course of
business consistent with past practice;
(e) Coral has not, except in the ordinary course of business consistent with
past practice, sold or otherwise disposed of any material assets of
Coral;
(f) Coral has not sold, assigned, transferred, conveyed or licensed, or
committed itself to sell, assign, transfer, convey or license, any
Proprietary Rights (as defined in Section 2.21), other than in the
ordinary course of business;
(g) Coral has not waived or released any right or claim of material value to
its business, including any write-off or other compromise of any material
account receivable of Coral;
(h) Coral has not paid, directly or indirectly, any of its material
liabilities before the same became due in accordance with its terms or
otherwise than in the ordinary course of business consistent with past
practice;
(i) Coral has not made any payment or commitment to pay any severance or
termination pay to any employee of Coral;
(j) Coral has not made any wage or salary increase or bonus, or increase in
any other direct or indirect compensation for or to any employee,
officer, director, consultant, agent or other representative, other than
in the ordinary course of business consistent with past practice;
(k) Coral has not made any loan or advance to any of its Stockholders,
officers, directors, employees, consultants, agents or other
representatives (other than travel advances made in the ordinary course
of business), or made any other loan or advance otherwise than in the
ordinary course of business consistent with past practice;
(l) Coral has not pledged or otherwise, voluntarily or involuntarily,
encumbered any of its assets or properties, except for liens for current
taxes which are not yet delinquent and purchase-money liens arising out
of the purchase or sale of products made in the ordinary and usual course
of business and in any event not in excess of $25,000 for any single item
or $50,000 in the aggregate;
(m) Coral has not materially changed any of its accounting methods,
principles or procedures;
(n) Coral has not materially changed any of its business policies or
practices, including advertising, marketing, pricing, purchasing,
personnel, sales or budget policies;
(o) Coral has not suffered or incurred any damage, destruction or loss,
whether or not covered by insurance, which will have or could reasonably
be expected to have a Coral Material Adverse Effect; and
(p) Coral has not entered into any agreement to do any of the foregoing.
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Section 2.14. OFFICERS, DIRECTORS AND KEY EMPLOYEES. The Schedule sets
forth:
(a) the name, position held and total compensation of each Person who is
either an officer or director of Coral or an employee, consultant, agent
or other representative of Coral whose current annual rate of
compensation (including bonuses and commissions) exceeds $75,000;
(b) details of all wage and salary increases or bonuses received by any such
Person since September 1, 1996, and any accrual by Coral for, or
commitment or agreement by Coral to pay, any wage or salary increase or
bonus to any such Person; and
(c) any arrangement or obligation of Coral to make any payment to any such
Person as a result of, or conditioned on, the consummation of the
transactions contemplated hereby.
Except as contemplated by Section 6.2.10, none of the Persons described in
clause (a) above has given a written threat to Coral to cancel or otherwise
terminate such Person's relationship with Coral.
Section 2.15. POTENTIAL CONFLICTS OF INTEREST. Except for normal
compensation received as employees, no officer or director of Coral, no holder
of ten percent or more of the Coral Capital Stock (calculated as if all shares
of Coral Series A, Coral Series B and Coral Series C were converted into Coral
Common), and no entity known by Coral to be controlled by any such officer,
director or stockholder:
(a) has engaged in any transaction or transactions of the types described in
Item 404 of Regulation S-X under the Securities Act, except in as
described in the Preliminary Prospectus of Coral dated December 19, 1996;
(b) owns directly or indirectly, in whole or in part, any material tangible
or intangible property that Coral uses;
(c) has any cause of action or other claim whatsoever against, or owes any
amount to, Coral, except for claims in the ordinary course of business,
such as for accrued vacation pay, and similar matters in agreements
existing on the date hereof; or
(d) has made any payment or commitment to pay any commission, fee or other
amount to, or purchase or obtain or otherwise contract to purchase or
obtain any goods or services from, any Person of which any officer or
director of Coral is a partner or stockholder (excepting no more than
five percent stockholdings for investment purposes in securities of
publicly held companies).
Section 2.16. FINDER'S FEES. Coral has not incurred any liability,
contingent or otherwise, for brokerage fees, finder's fees, agent's commissions,
financial advisory fees or other similar forms of compensation in connection
with this Agreement or any of the transactions contemplated hereby, other than
to Broadview Associates LLC under the engagement letter dated May 8, 1997.
Section 2.17. BANK ACCOUNTS. Coral has provided or made available to
Lightbridge true and complete written summaries of information regarding all
accounts, lock boxes and safe deposit boxes maintained by Coral at banks, trust
companies, securities or other brokers or other financial institutions,
including the names of all Persons authorized to draw thereon or have access
thereto.
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Section 2.18. ENVIRONMENTAL MATTERS.
2.18.1. Coral has been in the past and is now in material compliance with
all Environmental Laws (as defined below) and all material requirements of
applicable permits, licenses, approvals and other authorizations pertaining
thereto.
2.18.2. Coral has received no notification that it is or could be, and
there is no basis for it to become, and it is not, subject to any claim,
action, obligation, proceeding, investigation or evaluation, directly or
indirectly relating to any of its current or past operations, or those of any
predecessor, or any by-product thereof, or any of its current or formerly
owned, leased or operated properties, or those of any predecessor, that are
reasonably likely to result in the incurrence of any material Environmental
Liabilities and Costs (as defined below) by Coral.
2.18.3. There are not now and never have been any underground storage
tanks situated on any real property owned, leased or operated by Coral.
2.18.4. Coral has entered into no agreement with any Governmental Entity
or other Person by which responsibility was assumed for, either directly or
indirectly, the conduct of any Remedial Action or the incurrence of any other
Environmental Liabilities and Costs.
2.18.5. Coral has not prepared, caused to be prepared or received any
environmental audits, environmental risk assessments or site assessments.
Coral is not a party to any Contract with respect to the removal or disposal
of any Oil or Hazardous Material.
As used herein:
(a) "Environment" shall mean all navigable waters, waters of the contiguous
zone, ocean waters, natural resources, surface waters, ground water,
drinking water supply, land surface, subsurface strata, ambient air, both
inside and outside of buildings and structures, and plant and animal life
on Earth;
(b) "Environmental Laws" shall mean all federal, state, local and foreign
laws, principles of common law, rules, regulations and codes, as well as
orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder relating to pollution, protection of the
Environment or public health and safety, including the Release or
threatened Release of Oil or Hazardous Material into the Environment or
otherwise relating to presence, manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Oil or
Hazardous Material;
(c) "Environmental Liabilities and Costs" shall mean all costs, expenses or
losses, whether direct or indirect, known or unknown, current or
potential, past, present or future, arising from, relating to or imposed
by, under or pursuant to Environmental Laws and in any way based on,
arising out of or otherwise in respect of (1) the ownership or operation
by Coral or any predecessor, of the businesses of Coral or (2) the
condition or operation of any real property, assets, equipment or
facilities owned, leased or operated by or related to the businesses of
Coral (including, in each case, the disposal or arrangement for the
disposal of any Oil or Hazardous Material, or other substances or wastes
On-site or Off-site), including all such costs, expenses or losses (A)
related to Remedial Actions, (B) necessary for compliance with any
requirements of Environmental Laws and any applicable permits, licenses,
approvals or other authorizations, (C) necessary to make full economic
use of the property, assets, equipment and facilities of Coral (assuming
that Coral's properties are operated for substantially the same purpose
and at substantially the same levels as at the date hereof) and (D)
related to reasonable fees, disbursements and expenses of counsel and
consultants;
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(d) "Off-site" shall mean any property of any Person other than those
properties included within the definition of On-site;
(e) "Oil or Hazardous Material" shall mean any waste, pollutant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial
substance or waste, petroleum or petroleum-derived substance or waste,
asbestos-containing substance or waste, radioactive material or any
constituent of any such substance or waste including any such substance
regulated under or defined by any Environmental Law;
(f) "On-site" shall mean any property owned, leased, or operated by Coral;
(g) "Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching, migration,
or movement of Oil or Hazardous Material through the indoor or outdoor
Environment; and
(h) "Remedial Action" shall mean all actions reasonably necessary, whether
voluntary or involuntary, to (A) clean up, remove or treat Oil or
Hazardous Material in the indoor or outdoor Environment; (B) prevent the
Release of Oil or Hazardous Material so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor
or outdoor Environment; or (C) perform investigations, remedial studies,
restoration and post-remedial studies and monitoring on, in, under,
above or about any assets or properties On-site or Off-site.
Section 2.19. INSURANCE. Coral has delivered or made available to
Lightbridge true and complete copies of all insurance policies or binders to
which Coral is a party or under which Coral is covered and true and complete
copies of all applications for insurance policies submitted by Coral. All
insurance policies to which Coral is a party or that provide coverage to Coral
are in full force and effect. Since September 1, 1995, Coral has not received
any refusal of coverage, or any notice of suspension, revocation, modification
or cancellation or any other indication that any insurance policy is no longer
in full force or effect or that the issuer of any policy is not willing or able
to perform its obligations thereunder or any notice from an insured to
discontinue any coverage afforded to Coral and, to the knowledge of Coral, there
is no basis for the issuance of any such notice or the taking of any such
action. Coral has paid all premiums due and has otherwise performed all of its
respective obligations under each such policy, except such as will not
materially adversely affect Coral's coverage thereunder. There was no claim in
excess of $5,000 asserted under any of the insurance policies of Coral for the
period from September 1, 1995 to the date hereof. Coral is not party to, or
bound by, any Contract requiring Coral (a) to name a third party as loss payee
under any insurance policy or binder held by or on behalf of Coral or otherwise
requiring Coral to obtain insurance for or on behalf of any third party or (b)
to provide coverage to third parties (such as, for example, under leases or
service agreements). There is no written self-insurance arrangement by or
affecting Coral.
Section 2.20. EMPLOYEE RELATIONS. Coral has never been a party to a
collective bargaining agreement and has never made any final or binding offer to
a labor union or association representing its employees with respect to any
terms or conditions of employment. Coral has never had, nor is there now
threatened, a union organizing effort, strike, picket, organized work stoppage
or organized work slowdown. Coral has complied with all applicable laws relating
to employment, equal opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
taxes, occupational safety and health, and plant closings, except where the
failure so to be in compliance would not have a Coral Material Adverse Effect.
Section 2.21. PROPRIETARY RIGHTS.
2.21.1. Coral owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, maskworks,
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schematics, technology, know-how, computer software programs or applications
(in both source code and object code form), and tangible or intangible
proprietary information or material (excluding Commercial Software, as
defined below) that are material to the business of Coral as currently
conducted or as proposed to be conducted by Coral (the "Proprietary Rights"),
free and clear of any and all liens, claims and encumbrances.
2.21.2. The Schedule sets forth a complete list of all patents,
trademarks, registered copyrights, trade names and service marks, and any
applications therefor, owned by Coral and included in the Proprietary Rights,
specifying, where applicable, the jurisdictions in which each such
Proprietary Right has been issued or registered or in which an application
for such issuance and registration has been filed, including the respective
registration or application numbers and the names of all registered owners.
None of Coral's currently marketed software products has been registered for
copyright protection with the United States Copyright Office or any foreign
offices nor has Coral been requested to make any such registration. Coral has
provided or made available to Lightbridge true and complete copies of all
material licenses, sublicenses and other agreements as to which Coral is a
party and pursuant to which Coral or any other person is authorized to use
any Proprietary Right (excluding End-User Licenses, as defined below) or
other trade secret material to Coral. Coral is not in Violation of any such
license, sublicense or agreement except for such Violations that do not, in
the aggregate, materially impair Coral's rights under such license,
sublicense or agreement. Coral is not contractually obligated to pay any
compensation to any third party in respect of the Proprietary Rights, the use
thereof or the material covered thereby in connection with the services or
products in respect of which the Proprietary Rights are being used. No claims
with respect to the Proprietary Rights have been asserted or, to the
knowledge of Coral, are threatened by any person nor are there any valid
grounds, to the knowledge of Coral, for any material claims that are
reasonably likely to be successful (a) to the effect that the business of
Coral as currently conducted or as proposed to be conducted by Coral,
including Coral's design, development, use, import, manufacture and sale of
the products, technology (including products or technology currently under
development) or services of Coral, infringes on or misappropriates any valid
copyright, patent, trademark, service mark, trade secret or other valid
proprietary rights of any other Person or constitutes unfair competition or
trade practices under any Law, (b) against the use by Coral of any
trademarks, service marks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in
Coral's business as currently conducted or as proposed to be conducted by
Coral, or (c) challenging the ownership by Coral, validity or effectiveness
of any of the Proprietary Rights. All registered trademarks, service marks
and copyrights owned by Coral and included in the Proprietary Rights are
valid and subsisting, all necessary registration, maintenance and renewal
fees in connection with such Proprietary Rights have been paid and all
necessary documents and certificates in connection with such Proprietary
Rights have been filed with the relevant Governmental Entities for the
purposes of maintaining such Proprietary Rights. The Schedule lists all
actions that must be taken by Coral within 120 days following the date
hereof, including the payment of any registration, maintenance or renewal
fees or the filing of any documents, applications or certificates required in
connection with the maintenance, perfection, preservation or renewal of any
Proprietary Rights. There is no material unauthorized use, infringement or
misappropriation of any of the Proprietary Rights by any employee or former
employee of Coral or, to Coral's knowledge, any other third party. No
Proprietary Right or material product of Coral is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the
licensing thereof by Coral. There are no Contracts between Coral and any
other Person with respect to Proprietary Rights under which there is any
dispute known to Coral regarding the scope of such Contract, or performance
under such Contract, including with respect to any payments to be made or
received by Coral thereunder.
2.21.3. To the extent that any Proprietary Rights have been developed or
created by a third party for which Coral has, directly or indirectly, paid,
Coral has a written agreement with such third party with respect thereto and
Coral thereby has obtained valid ownership of or rights sufficient for the
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conduct of Coral's business to all such Proprietary Rights by operation of
law or by valid assignment or license, except where failure to do so would
not have a Coral Material Adverse Effect. Each employee, officer and
consultant of Coral has executed a confidentiality agreement in substantially
the form provided to Lightbridge, providing Coral with title and ownership to
Proprietary Rights developed or used by such person in the conduct of Coral's
business. All of such agreements are legal, valid, binding and enforceable
in accordance with their terms, all as may be subject to or affected by the
Creditor Exception. No employee, officer or consultant of Coral is in
Violation of any provision of any employment or consulting contract,
proprietary information and inventions agreement, non-competition agreement,
or any other contract or agreement relating to the relationship of any such
employee, officer or consultant with Coral or, to the knowledge of Coral, any
previous employer.
As used herein:
(a) "Commercial Software" means packaged commercially available software
programs generally available to the public through retail dealers in
computer software which have been licensed to Coral pursuant to End-User
Licenses and which are used in Coral's business but are in no way a
component of or incorporated in or specifically required to develop or
support any of Coral's products and related trademarks, technology and
know-how; and
(b) "End-User Licenses" means any object code and end-user licenses granted
to end-users in the ordinary course of business that permit use of
software products without a right to modify, distribute or sublicense the
same.
Section 2.22. CERTAIN LOANS. There are no loans, receivables, advances or
similar amounts owed to Coral by any director, officer, employee, consultant or
Stockholder of Coral, or owing by any affiliate of any director or officer of
Coral, nor is any amount owed by Coral to any of its directors, officers,
employees or Stockholders other than normal compensation and advances in the
ordinary course of business to officers and employees for reimbursable business
expenses not exceeding $10,000 for any one individual.
Section 2.23. CUSTOMERS, SUPPLIERS AND SALES AGENTS. Coral has provided to
Lightbridge a true and complete written summary listing (a) each customer whose
purchases accounted for more than five percent of Coral's net revenues during
either the year ended December 31, 1996 or the six months ended June 30, 1997,
together with the aggregate amount of such purchases in each such period, (b)
each supplier from whom Coral purchased in excess of $50,000 worth of products
or services during either the year ended December 31, 1996 or the six months
ended June 30, 1997, together with the aggregate amount of such purchases in
each such period, and (c) each sales agent of Coral, together with the territory
and term of engagement of such agent. No customer, supplier or sales agent of
Coral has canceled or otherwise terminated, or threatened in writing to cancel
or otherwise terminate, its commercial relationship with Coral since September
1, 1996.
Section 2.24. WARRANTIES AND INDEMNITIES. Each Coral product substantially
meets the published specifications applicable to it and the standards set forth
in the related documentation and marketing information and in Coral's
representations and warranties (express and implied) to customers and sales
agents. Coral has no obligations for any warranties or indemnities in
connection with the conduct of its business prior to the Closing Date in excess
of the amount accrued therefor on the 1997 Balance Sheet. No warranty and
indemnity claims in excess of $50,000 have been made against Coral at any time
since its incorporation.
Section 2.25. BUSINESS ACTIVITY RESTRICTIONS. There is no agreement
(noncompetition or otherwise), commitment, judgment, injunction, order or decree
to which Coral is a party or otherwise binding upon Coral that has or reasonably
could be expected to have the effect of prohibiting or impairing the conduct of
Coral's business as presently conducted or as proposed to be conducted. Coral
has not entered into any agreement
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under which Coral is restricted from selling, licensing or otherwise
distributing any of its technology or products to, or providing services to,
customers or potential customers or any class of customers, in any geographic
area, during any period of time or in any segment of the market or line of
business.
Section 2.26. NO EXISTING DISCUSSIONS. As of the date hereof, Coral is not
engaged, directly or indirectly, in any discussions or negotiations with any
other Person with respect to a proposed Transaction (as defined in Section 5.7).
Section 2.27. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by Coral for inclusion in the Registration Statement shall
not, at the time the Registration Statement is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading.
The information supplied by Coral for inclusion in the Proxy
Statement/Prospectus (as defined in Section 5.1) shall not, on the date the
Proxy Statement/Prospectus is first mailed to the Stockholders, at the time of
the Coral Stockholders Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Coral
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Coral or any of its affiliates,
officers or directors should be discovered by Coral which should be set forth in
an amendment to the Registration Statement or an amendment or supplement to the
Proxy Statement/Prospectus, Coral shall promptly inform Lightbridge. Coral makes
no representation or warranty with respect to any information supplied by
Lightbridge that is contained in the Registration Statement or the Proxy
Statement/Prospectus.
Section 2.28. FULL DISCLOSURE. No representation or warranty made by Coral
in this Agreement (as modified by the Schedule) or in any document or
certificate delivered to Lightbridge by Coral pursuant to this Agreement, when
taken together with the foregoing, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make the statements made not misleading. Disclosure of any matter herein,
including as set forth under any section of the Schedule, shall, if reasonable,
be deemed to be set forth under any other section of the Schedule for which such
matter is applicable. Notwithstanding any other provision of this Agreement
(including any provision of the Schedule), disclosure in the Schedule of the
existence of any Contract or other document shall not be deemed to disclose the
contents of any provision thereof unless the disclosure with respect to such
provision is reasonably evident from the face of the Schedule.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF LIGHTBRIDGE AND ACQUISITION
CORP.
Each of Lightbridge and Acquisition Corp., jointly and severally, represents
and warrants to Coral as follows:
Section 3.1. CORPORATE STATUS. Each of Lightbridge and Acquisition Corp. is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with all requisite corporate power to own, lease
and operate its properties and to carry on its business as now being conducted.
Each of Lightbridge and Acquisition Corp. is duly qualified to do business as a
foreign corporation, and is in good standing, in each other jurisdiction in
which it owns or leases property or conducts business, except where the failure
to be so qualified does not have any effect that is, or is reasonably likely to
be, materially adverse to the business, results of operations, properties,
assets, liabilities, prospects or condition (financial or otherwise) of
Lightbridge and its subsidiaries, taken as a whole (an "Lightbridge Material
Adverse Effect").
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Section 3.2. CAPITAL STRUCTURE.
3.2.1. The authorized and outstanding capital stock of Lightbridge
consists of (a) 5,000,000 shares of preferred stock, $0.01 par value, none of
which is issued and outstanding, and (b) 60,000,000 shares of Lightbridge
Common, of which 14,700,010 shares were issued and outstanding as of August
1, 1997. All of the outstanding shares of Lightbridge Common are, and the
shares of Lightbridge Common when issued and delivered to the Stockholders in
accordance with this Agreement and the Certificate of Merger will be, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, Lightbridge's certificate of
incorporation or by-laws, or any agreement to which Lightbridge is a party or
is bound. All outstanding shares of Lightbridge Common are listed on the
Nasdaq National Market, and there are no proceedings to revoke or suspend
such listing.
3.2.2. The authorized capital stock of Acquisition Corp. consists of 1,000
shares of common stock, $.01 par value, of which 1,000 shares are outstanding
and are held by Lightbridge of record and beneficially.
Section 3.3. AUTHORITY.
3.3.1. Lightbridge has all requisite corporate power and authority to
execute and deliver this Agreement and each of the Escrow Agreement, the
Employment Agreements and the Non-Competition Agreement (collectively the
"Lightbridge Corollary Agreements") and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the Lightbridge Corollary Agreements, and the consummation of
the transactions contemplated hereby and thereby, have been duly and validly
authorized by all requisite corporate action on the part of Lightbridge, and
no other corporate proceedings on the part of Lightbridge are necessary to
authorize the execution and delivery of this Agreement or any of the
Lightbridge Corollary Agreements or to consummate the transactions
contemplated hereby and thereby. The board of directors of Lightbridge has
unanimously approved the Merger and this Agreement. This Agreement has been
duly and validly executed and delivered by Lightbridge and constitutes a
legal, valid and binding obligation of Lightbridge enforceable in accordance
with its terms, all as may be subject to or affected by the Creditor
Exception. As of the Closing Date, each of the Lightbridge Corollary
Agreements will be duly and validly executed and delivered by Lightbridge and
will constitute a legal, valid and binding obligation of Lightbridge
enforceable in accordance with its terms, all as may be subject to or
affected by the Creditor Exception. The execution and delivery of this
Agreement do not, and the execution and delivery of the Lightbridge Corollary
Agreements and the consummation of the transactions contemplated hereby and
thereby will not, result in any Violation of any provision of (a) the
certificate of incorporation or by-laws of Lightbridge or (b) any loan or
credit agreement, note, mortgage, indenture, lease, employee benefit plan,
other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Lightbridge or its properties or assets, except to the extent
that a consent or waiver to any such Violation has been obtained as of the
date hereof or is obtained prior to the Closing.
3.3.2. Acquisition Corp. has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action on the part of
Acquisition Corp., and no other corporate proceedings on the part of
Acquisition Corp. are necessary to authorize the execution and delivery of
this Agreement or to consummate the transactions contemplated hereby. The
board of directors of Acquisition Corp. has unanimously approved the Merger
and this Agreement. This Agreement has been duly and validly executed and
delivered by Acquisition Corp. and constitutes a legal, valid and binding
obligation of Acquisition Corp. enforceable in accordance with its terms, all
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as may be subject to or affected by the Creditor Exception. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, result in any Violation of any provision of (a)
the certificate of incorporation or by-laws of Acquisition Corp. or (b) any
loan or credit agreement, note, mortgage, indenture, lease, employee benefit
plan, other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Acquisition Corp. or its properties or assets.
3.3.3. No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Lightbridge or Acquisition Corp. in connection with the execution
and delivery of this Agreement by Lightbridge and Acquisition Corp. or the
consummation of the transactions contemplated hereby, except for (a) the
filing of the Certificate of Merger with the Secretary of State of the State
of Delaware, (b) the filing of the Registration Statement with the SEC in
accordance with the Securities Act, (c) such other filings, consents,
approvals, orders, authorizations, registrations and declarations as may be
required under applicable federal and state securities laws (collectively
"Securities Filings"), which Securities Filings will be made by the Effective
Time, (d) the filing of such reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the transactions contemplated hereby, and (e) such other
consents, authorizations, filings, approvals and registrations that if not
obtained or made would not have an Lightbridge Material Adverse Effect or a
material adverse effect on the transactions contemplated by this Agreement.
Section 3.4. SEC DOCUMENTS. Lightbridge has furnished to Coral true and
complete copies of Lightbridge's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, its Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997 and June 30, 1997, and its definitive proxy
statement for its 1997 Annual Meeting of Stockholders (collectively, the "SEC
Documents"). As of their respective filing dates, (a) each of the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
(b) none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. As of the date hereof, the SEC
Documents constitute all reports, statements and other documents required to be
filed by Lightbridge under the Exchange Act since January 1, 1997. All
documents required under the Exchange Act to be filed as exhibits to the SEC
Documents have been filed as so required. The consolidated financial statements
and notes thereto of Lightbridge included in the SEC Documents have been
prepared in accordance with generally accepted accounting principles, applied on
a consistent basis throughout the periods involved (except that the unaudited
financial statements do not contain all the notes that may be required by
generally accepted accounting principles and are subject to normal and recurring
year-end adjustments that are not expected to be material in amount), and fairly
present in all material respects the consolidated financial position of
Lightbridge and its subsidiaries as at the dates thereof and their consolidated
results of operations and cash flows for the periods covered therein. The
unaudited condensed consolidated balance sheet of Lightbridge and its subsidiary
contained in the SEC Documents, as of June 30, 1997, is hereafter referred to
as the "Lightbridge Balance Sheet."
Section 3.5. ABSENCE OF CERTAIN EVENTS. Since the date of the Lightbridge
Balance Sheet, Lightbridge has not declared or paid any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of the capital stock of Lightbridge.
Section 3.6. LITIGATION. No judgment has been entered by, and no claim,
dispute, action, suit, appeal, legal, administrative or arbitral proceeding, or
investigation, at law or in equity, is pending or, to the knowledge of
Lightbridge or Acquisition Corp., threatened that materially and adversely
affects, or could reasonably be expected to materially and adversely affect, the
ability of Lightbridge or Acquisition Corp. to perform under this Agreement or
that seeks to enjoin or prohibit any of the transactions contemplated by this
Agreement.
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Section 3.7. FINDER'S FEES. Neither Lightbridge nor Acquisition Corp. has
incurred any liability, contingent or otherwise, for brokerage fees, finder's
fees, agent's commissions, financial advisory fees or other similar forms of
compensation in connection with this Agreement or any of the transactions
contemplated hereby, other than to Cowen & Company.
Section 3.8. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Subject to
the accuracy of the representations of Coral made in Section 2.27, (a) the
Registration Statement shall not, at the time the Registration Statement is
filed with the SEC or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading and (b) the Proxy Statement/Prospectus shall not, on the
date the Proxy Statement/Prospectus is first mailed to the Stockholders, at the
time of the Coral Stockholders Meeting and at the Effective Time, include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which such statements were made, not false or
misleading. Lightbridge shall promptly notify Coral upon the occurrence, at any
time prior to the Effective Time, of any event relating to Lightbridge or
Acquisition Corp. that should be set forth in an amendment or supplement to the
Proxy Statement/Prospectus. Notwithstanding the foregoing, Lightbridge and
Acquisition Corp. make no representation or warranty with respect to any
information supplied by Coral that is contained in the Registration Statement or
the Proxy Statement/Prospectus.
Section 3.9. FULL DISCLOSURE. No representation or warranty made by
Lightbridge in this Agreement or in any document or certificate delivered to
Coral by Lightbridge pursuant to this Agreement, when taken together with the
foregoing, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
made not misleading.
ARTICLE 4. COVENANTS OF CORAL AS TO CONDUCT OF BUSINESS
During the period from the date of this Agreement and continuing until the
Closing, Coral agrees that, except as expressly contemplated by this Agreement
or as consented to by Lightbridge in writing:
Section 4.1. ORDINARY COURSE. Coral shall carry on its business in the
ordinary course consistent with prior practice, including the payment of all
debts and taxes owed by Coral in substantially the same manner as heretofore.
Section 4.2. CORPORATE DOCUMENTS. Coral shall not amend the Coral Charter
or the Coral Bylaws, except as contemplated by the Charter Amendment.
Section 4.3. CAPITAL STRUCTURE. Coral shall not (a) declare or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of Coral Capital Stock, (b) issue, deliver or
sell, or authorize the issuance, delivery or sale of, any shares of capital
stock of any class (except pursuant to exercises of outstanding Options and
Warrants), any Voting Debt or any options, warrants, calls, rights or agreements
that obligate Coral to issue, deliver or sell additional shares of Coral Capital
Stock or Voting Debt or to grant, extend or enter into any such option, warrant,
call, right or agreement, (c) split, combine or reclassify any Coral Capital
Stock, (d) purchase, redeem or otherwise acquire, directly or indirectly, any
securities of Coral, including shares of Coral Capital Stock, or (e) otherwise
effect any reorganization, recapitalization or similar change with respect to
Coral Capital Stock. Notwithstanding the foregoing, Coral may:
(i) repurchase, pursuant to a stock repurchase or similar agreement in
existence on the date hereof, shares of Coral Common at a price of no
more than $1.00 per share from any person leaving the employment of the
Company;
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(ii) cancel, with the consent of the holder thereof but without the delivery
or payment of any consideration, any Option held by a person who is a
non-employee director of Coral, to the extent that such Option will not,
by its terms, vest prior to or as of the Effective Time and will, by its
terms, expire as of the Effective Time as a result of the termination of
such person's position as a director of Coral; and
(iii) cancel, with the consent of the holder thereof, any Option outstanding
as of the date hereof and initially issued at an exercise price of
either $6.00 or $9.00 per share, and in exchange therefor, issue a new
option under the Option Plan that shall (A) have an exercise price of
$1.50 per share, (B) be exercisable for an aggregate number of shares
such that the value of the new option is equal to the value of the
canceled Option, as determined and agreed upon by Broadview Associates
LLC and Cowen & Company using a Black-Scholes valuation methodology and
(C) otherwise have terms, including the rate of vesting, identical to
the canceled Option. Upon any such cancellation and exchange, the newly
issued option shall be deemed to be an "Option" for all purposes of this
Agreement.
Coral shall notify Lightbridge promptly after any action taken pursuant to the
preceding clauses (i), (ii) and (iii).
Section 4.4. COMPLIANCE WITH APPLICABLE LAWS. Coral shall duly comply in
all material respects with all applicable laws, ordinances and regulations and
all applicable orders, judgments, injunctions, awards and decrees of
Governmental Entities.
Section 4.5. INVESTMENTS AND ACQUISITIONS. Coral shall not (a) acquire any
equity interest or investment exceeding five percent of the equity capital of
any Person, (b) acquire by merging or consolidating with, by purchasing a
substantial portion of the assets of, or by any other manner, any Person, (c)
otherwise acquire or license any assets that are material, individually or in
the aggregate, to Coral except in the ordinary course of business consistent
with prior practice or (d) enter into any partnership, joint venture, voluntary
association, cooperative or business trust agreement or arrangement, other than
in the ordinary course of business consistent with prior practice.
Section 4.6. INDEBTEDNESS. Coral shall not, and shall not propose to, incur
any Indebtedness for borrowed money, incur any other Indebtedness except in the
ordinary course of business, or guarantee any Indebtedness of others. Coral
shall not pay, discharge or satisfy, in an amount in excess of $10,000 (in the
aggregate), any claims, liabilities or obligations reflected or reserved against
in the 1997 Balance Sheet, except in the ordinary course of business consistent
with past practice.
Section 4.7. PROCEEDINGS. Coral shall not commence any litigation. Coral
shall cooperate and consult with Lightbridge with respect to any matters
regarding any proceeding set forth under Section 2.8 in the Schedule, including
any settlement proposed by any Person (including Lightbridge), and Coral shall
not take any significant actions with respect to such proceedings (including the
entering into of any such settlement) without the prior approval of Lightbridge,
which approval shall not be unreasonably withheld.
Section 4.8. PROPERTIES. Coral shall not lease or otherwise dispose of any
of its property, individually or in the aggregate, except in the ordinary course
of business consistent with prior practice.
Section 4.9. CONTRACTS. Coral shall not (a) enter into any Contract or
engage in any transaction not in the ordinary course of business consistent with
past practice, (b) amend or otherwise modify any Contract pursuant to which any
other party is granted marketing, distribution or similar rights of any type or
scope with respect to any products of Coral, (c) amend or otherwise modify any
Contract except in the ordinary course of business consistent with past
practice, or (d) do or omit to do any act or permit any act or omission to act,
which act or omission will result in a Violation of any material provision of
any material Contract.
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Coral shall cooperate and consult with Lightbridge with respect to the amendment
of existing Contracts between Coral and Cincinnati Bell Information Systems Inc.
and the resolution of existing disagreements under Contracts between Coral and
AirTouch Communications, Inc. and its affiliate, including any amendment or
settlement proposed by any Person (including Lightbridge), and Coral shall not
take any significant actions with respect to such matters (including the
entering into of any such amendment or settlement), except (a) such actions as
will not materially affect Coral's relationship with such parties or (b) with
the prior approval of Lightbridge, which approval shall not be unreasonably
withheld.
Section 4.10. TAXES. Coral shall not make or change any material election in
respect of Taxes, adopt or change any accounting method in respect of Taxes,
enter into any closing agreement, settle any claim or assessment in respect of
Taxes, or consent to any extension or waiver of the limitation period applicable
to any claim or assessment in respect of Taxes.
Section 4.11. BENEFIT PLANS. Coral shall not adopt any Benefit Plan or amend
any Benefit Plan in any material respect.
Section 4.12. INSURANCE. Coral shall maintain insurance of the types, in the
amounts and with deductibles and exclusions consistent with past business
practice.
Section 4.13. EMPLOYEE MATTERS. Coral shall not (a) adopt any collective
bargaining agreement, (b) except as contemplated by Section 5.12, grant any
severance or termination pay to any director, officer or other employee of
Coral, (c) grant any general or uniform increase in the rates of pay of
employees of Coral, (d) increase the compensation payable or to become payable
to any officer or key salaried employee or (e) grant any increase in the
benefits under any bonus plan or similar compensation arrangements. Coral shall
use all reasonable efforts to notify Lightbridge in the event Coral shall learn
(either directly or indirectly) that an officer or other employee of Coral
proposes to terminate his or her employment with Coral, shall cooperate and
consult with Lightbridge to determine the manner in which Coral should proceed
with respect to such employee, and shall not voluntarily take any significant
actions with respect to such employee's termination without the prior approval
of Lightbridge, which approval shall not be unreasonably withheld.
Section 4.14. PROPRIETARY RIGHTS. Coral shall not transfer to any Person any
rights to Proprietary Rights, except in the ordinary course of business
consistent with past practice.
Section 4.15. GENERAL. Coral shall not take, propose to take, or agree in
writing or otherwise to take any of the actions described in Sections 4.1
through 4.14 or any other action that would prevent Coral from performing, or
cause Coral not to perform, its covenants and other obligations hereunder.
ARTICLE 5. ADDITIONAL COVENANTS
Section 5.1. REGISTRATION STATEMENT. Lightbridge shall prepare and file
with the SEC a registration statement on Form S-4 that shall register under the
Securities Act the shares of Lightbridge Common to be issued in the Merger (the
"Registration Statement"). Lightbridge shall use all reasonable efforts to
cause the Registration Statement to be filed as soon as practicable after the
date hereof, and thereafter to be declared effective by the SEC as soon as
practicable. Coral shall furnish all information concerning Coral and the
holders of Coral Capital Stock as Lightbridge may reasonably request in
connection with the Registration Statement or any other filings required to be
made in connection with the Merger. Without limiting the foregoing, Coral shall
provide, in accordance with all applicable laws, rules and regulations, for
inclusion in the proxy statement/prospectus forming a part of the Registration
Statement (the "Proxy Statement/Prospectus") and submission to its stockholders,
proxy statement information for use in connection with the Coral Stockholders
Meeting. The Proxy Statement/Prospectus shall include the recommendation of the
board of directors of Coral in favor of the Merger, which shall not be
withdrawn,
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modified or withheld except in compliance with the fiduciary duties of Coral's
board of directors under Delaware Law. Notwithstanding any drafting or review
by Lightbridge of the proxy statement information contained in the Proxy
Statement/Prospectus, Coral will retain full responsibility for the accuracy and
completeness of the proxy statement portion of the Proxy Statement/Prospectus
and the other information concerning Coral and the holders of Coral Capital
Stock provided by Coral upon the request of Lightbridge.
Section 5.2. CORAL STOCKHOLDERS MEETING. Coral agrees that this Agreement
shall be submitted to the holders of Coral Capital Stock for approval pursuant
to Delaware Law at a meeting of such holders called for the purpose of voting
upon and approving this Agreement and the Merger (the "Coral Stockholders
Meeting"). Coral shall take all steps necessary to duly call, give timely
notice of, convene and hold the Coral Stockholders Meeting promptly following
the initial declaration of effectiveness of the Registration Statement by the
SEC; provided that in no event shall Coral be obligated to cause the Coral
Stockholders Meeting to take place later than ten calendar days following such
initial declaration of effectiveness. In connection with the Coral Stockholders
Meeting, Coral agrees to solicit, in compliance with all applicable laws, rules
and regulations, all votes and approvals of the holders of Coral Capital Stock
that are required in connection with the approval of this Agreement and the
Merger under Delaware Law, the Coral Charter and the Coral Bylaws, by mailing or
delivering the proxy statement to each such holder of record on the record date
for the Coral Stockholders Meeting. Coral shall not distribute solicitation
materials to such holders in connection with the Coral Stockholders Meeting that
do not contain the information contained in the Proxy Statement/Prospectus.
Coral shall deliver to Lightbridge promptly after the conclusion of the Coral
Stockholders Meeting a certificate executed on behalf of Coral by its Secretary
(the "Certificate of Objections") setting forth (a) the number of shares of each
class of Coral Capital Stock outstanding and entitled to vote on the approval
and adoption of this Agreement, (b) the number of votes cast in favor of and
against the approval of this Agreement and the Merger, and (c) the number of
shares of each class of Coral Capital Stock as to which written objection to
this Agreement were filed with Coral prior to the taking of a vote of holders at
the Coral Stockholders Meeting in accordance with Delaware Law, and which were
not voted in favor of the approval and adoption of this Agreement. The
Certificate of Objections shall include the names and mailing addresses of the
Stockholders who shall have filed such written objections and who shall not have
voted in favor of this Agreement.
Section 5.3. CHARTER AMENDMENT. Within three business days after the date
hereof, the officers of Coral shall take all necessary action to ensure that the
Charter Amendment is filed with the Secretary of State of the State of Delaware
and becomes effective in accordance with Delaware Law.
Section 5.4. ACCESS TO INFORMATION. Coral shall afford to Lightbridge, and
shall cause its independent accountants to afford to Lightbridge and
Lightbridge's accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Closing to all of
Coral's properties, books, contracts, commitments and records. During such
period, Coral shall use reasonable efforts to furnish promptly to Lightbridge
all other information concerning the business, properties and personnel of Coral
as Lightbridge may reasonably request. Coral will use all reasonable efforts to
cause its management and independent auditors to facilitate on a timely basis
(a) the preparation of financial statements (including pro forma financial
statements if required) as required by Lightbridge to comply with applicable SEC
regulations in connection with the Registration Statement or otherwise and (b)
the review of any Coral audit or review work papers for any of the past three
fiscal years or any portion of the current fiscal year, including the
examination of selected interim financial statements and data.
Section 5.5. CONFIDENTIALITY.
5.5.1. For purposes of this Section 5.5, a "party" shall refer to (a)
Coral and (b) together, Lightbridge and Acquisition Corp. Each party shall
treat as confidential, and shall cause its accountants, counsel and other
representatives to treat as confidential, all documents and information
concerning the other party furnished by the other party to such party
(including documents and
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information furnished prior to the date hereof) in connection with the
transactions contemplated by this Agreement, except to the extent that such
information or documents: (i) at the time of its disclosure to the receiving
Party by or on behalf of the disclosing party is already known or available
to the receiving party, provided that the receiving party is not subject to
similar restrictions of confidentiality as set forth herein with a third
party with respect to such information; (ii) is or becomes known or available
to the public other than as a result of an unauthorized disclosure by the
receiving party or its directors, officers, employees, agents or
representatives; (iii) is or becomes known or available to the receiving
party without similar restrictions of confidentiality as set forth herein
from a source other than the disclosing party, provided that such source is
not known by the receiving party, after reasonable inquiry, to be bound by a
confidentiality agreement with, or other obligation of secrecy to, the
disclosing party that would prohibit such disclosures to the receiving party
by such other party; (iv) is independently generated by the receiving party
and not derived from confidential information; or (v) is required to be
disclosed by the receiving party by law, regulation, court order or other
legal process. Subject to the foregoing, each party will not release or
disclose such information or documents to any Person other than its
representatives in connection with this Agreement and will not use such
information for purposes other than as contemplated by this Agreement. In the
event of the termination of this Agreement, each party hereto shall, and
shall cause its representatives to, deliver to the other party the originals
of all documents obtained by such party or on behalf of such party from the
other party in connection with this Agreement, whether so obtained before or
after the execution hereof, and such party shall, and shall cause its
representatives to, destroy all copies thereof.
5.5.2. Except as contemplated by Section 5.6, no party shall disclose to
any Person (other than the party's representatives) any information regarding
the transactions contemplated by this Agreement, including the existence and
terms of this Agreement.
5.5.3. The agreements contained in this Section 5.5 shall survive any
termination of this Agreement and remain in effect for a period of five years
from the date hereof.
Section 5.6. PUBLIC DISCLOSURE. Any press release or other public
disclosure of information regarding the transactions contemplated by this
Agreement (including the existence and terms of this Agreement) shall be
developed by Lightbridge, subject to the approval of Coral, which approval shall
not be unreasonably withheld, and subject to the obligations of the parties to
comply with applicable law.
Section 5.7. EXCLUSIVITY. Coral shall not, nor shall it permit any of its
representatives to, directly or indirectly, (a) solicit, initiate or participate
in discussions or negotiations or otherwise cooperate in any way with, or
provide any information to, any Person (other than Lightbridge) or any group of
Persons concerning any tender offer, exchange offer, merger, business
combination, sale of substantial assets, sale of shares of capital stock or
similar transaction involving such party (a "Transaction") or (b) enter into any
agreement to effect, or effect, any Transaction (other than the transactions
contemplated hereby). Coral shall immediately notify Lightbridge in writing of
any proposed Transaction, including a summary of the material terms of any offer
made or proposed in connection therewith.
Section 5.8. STATE STATUTES. Lightbridge shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
of the United States that are applicable in connection with the Merger. Coral
shall use its best efforts to assist Lightbridge as may be necessary to comply
with such laws. If any state takeover law shall become applicable to the
transactions contemplated by this Agreement, Lightbridge and its board of
directors or Coral and its board of directors, as the case may be, shall use
their reasonable best efforts to obtain such approvals and take such actions as
are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effects of such state takeover law on
the transactions contemplated by this Agreement.
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Section 5.9. TAX MATTERS. At or prior to the Closing, Coral and Lightbridge
shall execute and deliver to Cooley Godward LLP and to Foley, Hoag & Eliot LLP
tax representation letters and continuity of interest certificates reasonably
satisfactory to each such counsel, which tax representation letters and
continuity of interest certificates will be used in connection with the opinions
contemplated by Sections 6.2.8 and 6.3.4. Each of Coral, Lightbridge and
Acquisition Corp. shall not, before or after the Effective Time, purposefully
take any action or fail to take any action that would prevent, or would be
reasonably likely to prevent, the Merger from qualifying as a reorganization
within the meaning of Code section 368(a).
Section 5.10. OPTIONS AND WARRANTS.
5.10.1. On the Closing Date, Lightbridge shall file a registration
statement on Form S-8 with the SEC covering the shares of Lightbridge Common
issuable upon exercises of the Options and shall use commercially reasonable
efforts to maintain the effectiveness of such registration statement (or file
and maintain the effectiveness of a successor registration statement covering
such shares) for so long as such Options remain outstanding.
5.10.2. Within fifteen days after the Closing Date, Lightbridge shall send
to each record holder of a Warrant (a) a notice stating that Lightbridge has
assumed the obligations of Coral under such Warrant and that, as of the
Effective Time, such Warrant is exercisable to purchase Lightbridge Common
and (b) an agreement providing that, to the extent not already contemplated
by the terms of such Warrant, as of the Effective Time the purchase price
payable upon any exercise of such Warrant may, at the election of the record
holder of such Warrant, be paid pursuant to a "cashless" exercise, on the
terms set forth in such agreement.
Section 5.11. EXPENSES. If the Merger is not consummated, each party will be
and remain responsible for its costs and expenses, including fees and
disbursements of consultants, investment bankers and other financial advisors,
counsel and accountants, and the costs incurred in seeking necessary consents,
in connection with the acquisition of Coral by Lightbridge. In the event the
Merger is completed, (a) Lightbridge and Acquisition Corp. will be and remain
responsible for their costs and expenses and (b) the Stockholders will be and
remain responsible for their costs and expenses, as well as the costs and
expenses of Coral arising prior to the Closing in connection with the Merger,
except that Lightbridge will be responsible for a total of $500,000 of fees of
Broadview Associates LLC incurred by Coral in connection with the Merger. Any
obligations of the Stockholders pursuant to clause (b) above (the "Offset
Expenses") shall be set forth in the Schedule and shall be deemed to have been
paid by a decrease in the Aggregate Share Number as contemplated in Section
1.4.4.
Section 5.12. OTHER AGREEMENTS. Exhibit A sets forth under the heading
---------
"Affiliates" the names of those persons who, in Coral's reasonable judgment, are
"affiliates" of Coral within the meaning of Rule 145 under the Securities Act.
Coral shall provide Lightbridge with such information and documents as
Lightbridge may reasonably request for purposes of reviewing such list. Coral
will use all reasonable efforts to cause the individuals party thereto to (a)
enter into the Affiliate's Agreements, the Employment Agreements and the Non-
Competition Agreement on or before the Closing Date and (b) cause each of the
Coral Stockholders Agreements to be terminated on or before the Closing Date.
Coral shall, to the extent it reasonably determines to be desirable, use
reasonable efforts to enter into agreements, in each case in a form reasonably
satisfactory to Lightbridge, with respect to the termination prior to the date
hereof of each of the employees specified in the supplemental employee
settlement letter dated as of the date hereof between Lightbridge and Coral,
provided that if any such agreement is not entered with such an employee prior
to the Closing Date, Coral and Lightbridge shall negotiate in good faith to
agree upon an amount to be recorded as a liability on the Final Balance Sheet
with respect to the termination of such employee.
Section 5.13. NASDAQ. After the Final Adjustment Amount has been determined
pursuant to Section 1.10 and, in any event, by no later than six months
following the Closing Date, Lightbridge shall use
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all reasonable efforts to cause all of the shares of Lightbridge Common issuable
in the Merger or upon exercise of the Options and the Warrants after the
Effective Time to be approved for quotation on the Nasdaq National Market.
Lightbridge shall comply in all material respects with all rules and regulations
of the Nasdaq Stock Market, Inc. applicable to Lightbridge in connection with
the Merger.
Section 5.14. INDEMNIFICATION OF CORAL'S OFFICERS AND DIRECTORS. After the
Effective Time, Lightbridge shall take no action that would impair any rights to
indemnification that Coral's officers and directors may have under the Coral
Charter or the Coral Bylaws with respect to stockholder claims arising out of
events prior to the Effective Time.
Section 5.15. PATENT INTERFERENCE PROCEEDING. Coral shall proceed with the
prosecution of the patent interference proceeding referenced in Section 2.8 of
the Schedule (the "Interference"). To the extent feasible, Coral shall seek one
or more extensions of the filing deadline for the Interference. Lightbridge
shall have the right to identify the counsel (the "Interference Counsel")
responsible for prosecuting the Interference on behalf of Coral, subject to the
approval of Coral, which approval shall not be unreasonably withheld.
Lightbridge and the Interference Counsel shall be responsible for determining
the manner in which to proceed in the Interference, including the identification
and preparation of documents to be filed in the Interference; provided, however,
that (a) Lightbridge and the Interference Counsel shall consult with Coral from
time to time and as reasonably requested by Coral and shall advise Coral of the
progress of the Interference and (b) the final form of the filing with respect
to the Interference shall be subject to the approval of Coral, which consent
shall not be unreasonably withheld or delayed. In connection with the
Interference, Coral shall (i) render to Interference Counsel such assistance as
such Interference Counsel may reasonably request, (ii) make Coral's attorneys
and other representatives available to the Interference Counsel and (iii)
provide the Interference Counsel with copies of all books, records and other
information relating to the patents that are the subject of the Interference.
The fees and expenses of the Interference Counsel shall be considered, for
purposes of this Agreement, to be expenses incurred by Lightbridge in connection
in with this Agreement. In the event that this Agreement is terminated pursuant
to Section 8.1, Lightbridge agrees that Coral may, in its discretion and at its
expense, elect to have the Interference Counsel continue to represent Coral in
the Interference after the date of termination. Nothing in this Section 5.15
shall be deemed to require Coral to take any action that would waive any
attorney-client or attorney work product privilege in any material respect,
after giving effect to any "common interests" or other legal doctrine that may
apply to Coral and Lightbridge.
Section 5.16. LEGENDS. Each stock certificate for shares of Lightbridge
Common to be delivered to the Stockholders named under the heading "Affiliates"
in Exhibit A will be imprinted with a legend in substantially the following
---------
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AFFILIATE'S AGREEMENT
DATED [INSERT CLOSING DATE] BETWEEN THE REGISTERED HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH WILL BE PROVIDED BY THE COMPANY TO ANY HOLDER OF
THIS CERTIFICATE UPON REQUEST.
Section 5.17. CONSENTS; FURTHER ASSURANCES. The parties shall use all
commercially reasonable efforts to obtain any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity, or other third party,
required to be obtained or made by such party in connection with the taking of
any action contemplated by this Agreement. No party shall take any action that
would, or is reasonably likely to, result in any of its representations and
warranties set forth in this Agreement being untrue or in any of the conditions
precedent set forth in Article 6 not being satisfied. At any time and from time
to time after
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the Closing, the parties agree to cooperate with each other to execute and
deliver such other documents, instruments or transfer or assignment, files,
books and records, and to do all such further acts and things, as may be
reasonably required to carry out the transactions contemplated hereby.
Section 5.18. UPDATES OF SCHEDULE. Coral may, from time to time after the
date hereof but not later than five days before the Closing Date, prepare and
deliver to Lightbridge updates under one or more Sections of the Schedule
disclosing any changes thereto required in respect of matters not known to Coral
on or prior to the date hereof. In the event the Closing does not occur, the
initial Schedule shall constitute the Schedule to be used in determining any
inaccuracy in, or breach of, any representations or warranties of Coral pursuant
to Section 8.2. In the event the Closing occurs, the final version of the
Schedule as of the Closing Date shall supersede the initial Schedule and shall
constitute the definitive Schedule for all purposes of Article 7.
ARTICLE 6. CONDITIONS PRECEDENT
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction on or prior to the Closing Date
of the following conditions unless waived by such party:
6.1.1 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved by the requisite vote of the Stockholders under Delaware Law.
6.1.2. REGISTRATION STATEMENT EFFECTIVE. The SEC shall have declared the
Registration Statement effective. No stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened in
writing by the SEC.
6.1.3. GOVERNMENT APPROVALS. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any Governmental Entity necessary for the consummation of
the transactions contemplated by this Agreement, including under applicable
federal and state securities laws, shall have been filed, occurred or been
obtained.
6.1.4. SEC DOCUMENTS. The Proxy Statement/Prospectus shall not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, as of the Closing Date.
6.1.5. LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation
of the transactions contemplated by this Agreement shall have been issued by
any federal or state court and remain in effect, and no litigation seeking
the issuance of such an order or injunction, shall be pending which, in the
good faith judgment of Coral's or Lightbridge's board of directors, has a
reasonable probability of resulting in such order, injunction or damages. In
the event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such injunction lifted.
6.1.6. STATUTES. No statute, rule or regulation shall have been enacted by
any Governmental Entity that (a) makes the consummation of the transactions
contemplated by this Agreement illegal, (b) prohibits Lightbridge's ownership
or operation of all or a material portion of the business or assets of Coral,
or compels Lightbridge to dispose of or hold separate all or a material
portion of the business or assets of Coral, as a result of the transactions
contemplated by this Agreement, or (c) renders Lightbridge or Coral unable to
consummate the transactions contemplated by this Agreement.
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6.1.7. THIRD-PARTY APPROVALS. There shall have been obtained consents or
approvals required from third parties relating to (a) Contracts listed under
Section 2.10 of the Schedule and marked with an asterisk and (b) contracts,
agreements, licenses, leases and other instruments to which Lightbridge is a
party or by which it is bound, to the extent that such contracts, agreements,
licenses, leases and other instruments are material to the business of
Lightbridge.
Section 6.2. CONDITIONS TO OBLIGATIONS OF LIGHTBRIDGE AND ACQUISITION CORP.
The obligations of Lightbridge and Acquisition Corp. to effect the transactions
contemplated by this Agreement are subject to the satisfaction on or prior to
the Closing Date of the following conditions, unless waived by Lightbridge:
6.2.1. REPRESENTATIONS, WARRANTIES AND PERFORMANCE OF CORAL. The
representations and warranties of Coral set forth in this Agreement shall be
true and correct as of the date of this Agreement and as if made at and as of
the Closing Date. Coral shall have performed in all material respects all
obligations required to be performed under this Agreement prior to the
Closing Date by such parties. Since June 30, 1997, there shall have been no
changes that, in the aggregate, have had or could reasonably be expected to
have a Coral Material Adverse Effect, and the Closing, itself, will not cause
any default under any material contract to which Coral is a party or
otherwise have an Coral Material Adverse Effect. Lightbridge shall have
received a certificate signed by the chief executive officer and chief
financial officer of Coral confirming the preceding three sentences.
6.2.2. FINAL SCHEDULES. The amendments, if any, to the Schedule pursuant
to Section 5.18 shall be reasonably satisfactory in form and substance to
Lightbridge.
6.2.3. OTHER AGREEMENTS. Each of the parties thereto, other than
Lightbridge and Acquisition Corp., shall have entered into the following
agreements:
(a) the Certificate of Merger;
(b) Affiliate's Agreements, dated as of the Closing Date, of each
Stockholder named under the heading "Affiliates" in Exhibit A,
----------
each such Affiliate's Agreement to be in the form of Exhibit E;
---------
(c) Employment Agreements, dated as of the Closing Date, among Coral,
Lightbridge and each of John Fraser and Timothy Hayes in the form
of Exhibit F (the "Employment Agreements");
---------
(d) Non-Competition Agreement, dated as of the Closing Date, among
Coral, Lightbridge and Eric A. Johnson in the form of Exhibit G
---------
(the "Non-Competition Agreements"); and
(e) an Escrow Agreement, dated as of the Closing Date (the "Escrow
Agreement"), among Lightbridge, Coral, the Holders' Agent and the
Escrow Agent, in the form of Exhibit H.
---------
6.2.4. CORAL STOCKHOLDERS AGREEMENTS. There shall have been obtained all
consents or agreements necessary to terminate, effective no later than the
Closing Date, each of the Coral Stockholders Agreements.
6.2.5. OPINION OF GENERAL COUNSEL FOR CORAL. Lightbridge shall have
received an opinion dated as of the Closing Date of the general counsel for
Coral, substantially in the form of Exhibit I.
---------
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6.2.6. OPINION OF SPECIAL COUNSEL FOR CORAL. Lightbridge shall have
received an opinion dated as of the Closing Date of Cooley Godward LLP,
special counsel for Coral, substantially in the form of Exhibit J.
---------
6.2.7. OPINION OF PATENT COUNSEL FOR CORAL. Coral shall have received a
patent non-infringement opinion dated as of the Closing Date of Holme Roberts
& Owen LLP, patent counsel for Coral, in a form reasonably satisfactory to
Lightbridge.
6.2.8. OPINION OF COUNSEL FOR LIGHTBRIDGE. Lightbridge shall have received
an opinion dated as of the Closing Date of Foley, Hoag & Eliot LLP (or, if
such counsel fails to deliver the opinion, of Cooley Godward LLP) to the
effect that the Merger will constitute a reorganization within the meaning of
Code section 368(a).
6.2.9. DISSENTERS. Holders of no more than five percent of the outstanding
shares of Coral Capital Stock, computed on an as-converted basis, shall have
exercised, nor shall they have any continued right to exercise, appraisal or
similar rights under Delaware Law with respect to their shares by virtue of
the Merger.
6.2.10. REPAYMENT OF INSIDER LOANS. All loans payable to Coral from any of
its officers, directors or employees shall have been repaid in full.
6.2.11. FIRPTA COMPLIANCE. Coral shall deliver to Lightbridge a properly
executed statement in a form reasonably acceptable to Lightbridge for
purposes of satisfying Lightbridge's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
6.2.12. PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings in
connection with the transactions contemplated by this Agreement, and all
certificates and documents delivered to Lightbridge pursuant to this Section
6.2 or otherwise reasonably requested by Lightbridge, shall be reasonably
satisfactory to Lightbridge and its counsel.
6.2.13. CINCINNATI BELL INFORMATION SYSTEMS INC. Coral and Cincinnati Bell
Information Systems Inc. shall have amended their existing agreements in a
manner reasonably satisfactory to Lightbridge.
Section 6.3. CONDITIONS TO OBLIGATIONS OF CORAL. The obligations of Coral
to effect the transactions contemplated by this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions, unless
waived by Coral:
6.3.1. REPRESENTATIONS, WARRANTIES AND PERFORMANCE OF LIGHTBRIDGE. The
representations and warranties of Lightbridge and Acquisition Corp. set forth
in this Agreement shall be true and correct as of the date of this Agreement
and as if made at and as of the Closing Date. Lightbridge and Acquisition
Corp. shall have performed in all material respects all obligations required
to be performed under this Agreement prior to the Closing Date by such
parties. Since June 30, 1997, there shall have been no changes that, in the
aggregate, have had or could reasonably be expected to have a Lightbridge
Material Adverse Effect, and the Closing, itself, will not cause any default
under any material contract to which Lightbridge or Acquisition Corp. is a
party or otherwise have an Lightbridge Material Adverse Effect. Coral shall
have received a certificate signed by the chief executive officers and chief
financial officers of Lightbridge and Acquisition Corp. confirming the
preceding three sentences.
6.3.2 OTHER AGREEMENTS. Lightbridge shall have entered into the Escrow
Agreement.
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6.3.3. OPINION OF COUNSEL FOR LIGHTBRIDGE AND ACQUISITION CORP. Coral
shall have received an opinion dated as of the Closing Date of Foley, Hoag &
Eliot LLP, counsel for Lightbridge and Acquisition Corp., substantially in
the form of Exhibit K.
---------
6.3.4. OPINION OF SPECIAL COUNSEL FOR CORAL. The Stockholders shall have
received an opinion dated as of the Closing Date of Cooley Godward LLP (or,
if such counsel fails to deliver the opinion, of Foley, Hoag & Eliot LLP) to
the effect that the Merger will constitute a reorganization within the
meaning of Code section 368(a).
ARTICLE 7. INDEMNIFICATION
Section 7.1. AGREEMENT TO INDEMNIFY. Subject to the limitations set forth
herein, the Stockholders hereby jointly and severally indemnify and agree to
defend and hold harmless Lightbridge and the Surviving Corporation (and their
respective affiliates, officers, directors, employees, representatives and
agents) against and in respect of any and all claims, costs, losses, expenses,
liabilities or other damages, including interest and penalties (collectively
"Damages"), that Lightbridge or the Surviving Corporation (or such affiliates,
officers, directors, employees, representatives and agents) shall suffer or
incur, whether liquidated or unliquidated, accrued or contingent, by reason of
or otherwise arising out of:
(a) any misrepresentation or inaccuracy in, or breach of, any representation
or warranty contained in this Agreement, including the Schedule hereto or
any certificates delivered by Coral pursuant to this Agreement, in each
case as each such representation or warranty (other than the
representation and warranty contained in the certificate delivered
pursuant to Section 6.2.1 confirming the statements made in the third
sentence of Section 6.2.1) would read if all qualifications as to
materiality or Coral Material Adverse Effects were deleted therefrom,
provided that this clause(a) shall not apply to any representation or
warranty made in Section 2.4.1 with respect to the Employment Agreements
or the Non-Competition Agreement;
(b) any breach of any covenant, agreement or obligation of Coral contained in
this Agreement;
(c) any monetary payment required to be made by the Surviving Corporation
after the Closing Date that (i) arises out of Contracts between Coral and
AirTouch Communications, Inc., Cincinnati Bell Information Systems Inc.
or any of their respective affiliates, (ii) relates to events occurring
or facts in existence on or prior to the Closing Date and (iii) is not
reflected on the Final Closing Balance Sheet; or
(d) any matter set forth in the supplemental escrow letter dated as of the
date hereof between Lightbridge and Coral.
The amounts for which Lightbridge and the Surviving Corporation may seek
indemnification under this Article 7 shall extend to, and as used herein the
term "Damages" shall include, reasonable attorneys' and accountants' fees and
disbursements, costs of litigation (including court costs and fees of expert
witnesses) and other expenses incurred by them (or their respective affiliates,
officers, directors or employees) in the defense of any claim asserted against
them (or their respective affiliates, officers, directors or employees) and any
amounts paid in settlement or compromise of any claim asserted against them to
the extent that the claim asserted is or would have been subject to the
indemnification provisions hereof, subject to the limitations on total
indemnification set forth in Section 7.4.
Section 7.2. SURVIVAL OF INDEMNITY. The indemnification obligations of the
Stockholders pursuant to Sections 7.1(a), (b) and (c) shall survive the Closing
and continue for all Damages as to which Lightbridge has given written notice
thereof to each of the Stockholders, on or prior to the date one year from the
Closing Date; provided, however, that indemnification obligations of the
Stockholders for breach of the
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representations and warranties contained in Sections 2.11 and 2.18 shall
continue until the expiration of the applicable statutes of limitation and the
covenants contained in Section 5.5 (to the extent of a breach by Coral's
accountants, counsel and other Persons acting as representatives of Coral prior
to the Effective Time) shall continue until the fifth anniversary of the date
hereof. Upon expiration of such statutes, the Stockholders shall have no
liability for Damages under such indemnification obligation unless Lightbridge
has given written notice as required. The indemnification obligations of the
Stockholders pursuant to Section 7.1(d) shall survive the Closing and continue
for all Damages as to which Lightbridge has given written notice thereof to each
of the Holders' Agent, on or prior to the date eighteen month from the Closing
Date.
Section 7.3. ESCROW. At the Closing, Lightbridge, Coral, the Holders' Agent
and the Escrow Agent shall enter into the Escrow Agreement pursuant to which
Lightbridge shall issue to the Escrow Agent the Escrow Shares. To the extent
any of the parties named in Section 7.1 may be entitled to indemnification
under Section 7.1 as a result of any Damages, Lightbridge shall be entitled to
set off and apply against such Damages the Escrow Shares in accordance with the
terms of the Escrow Agreement and this Article 7. Pursuant to the terms of the
Escrow Agreement, the Escrow Shares shall be valued at any time, for purposes of
set off against any Damages, at the Calculation Price.
Section 7.4. ADDITIONAL PROVISIONS. The Stockholders shall have no
obligation to indemnify Lightbridge or the Surviving Corporation with respect to
the matters described in Section 7.1(a), (b) or (c) except to the extent that
the aggregate cumulative amount of any Damages with respect to those matters
exceeds $150,000. The Stockholders' liability for indemnification under this
Article 7 or otherwise by reason of or arising out of any breach by Coral of any
covenant that does not survive the Closing or of any representation or warranty
shall be limited as follows: (a) recovery under the Escrow Agreement shall be
limited to an aggregate dollar amount equal to the number of Escrow Shares,
multiplied by the Calculation Price and (b) recovery with respect to any
Stockholder shall be limited to an aggregate of the product of the Calculation
Price multiplied by the aggregate number of shares of Lightbridge Common which
such Stockholder receives pursuant to Section 1.4. Such liability of the
Stockholders for indemnification shall not be modified, waived or diminished by
any examination or investigation conducted by Lightbridge of the books, records
or operations of Coral. Nothing in this Article 7 or otherwise shall limit, in
any manner, any remedy at law or equity, to which Lightbridge may be entitled as
a result of fraud by Coral, any of the Stockholders or any employee, officer or
director of Coral. Notwithstanding the foregoing, the Stockholders' liability
for a misrepresentation or inaccuracy in, or breach of, the representations and
warranties contained in Section 2.1 shall not be limited in any way under this
Article 7 or otherwise.
Section 7.5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. The
representations and warranties of Coral shall survive until one year after the
Closing Date, except for the representations and warranties in Sections 2.11 and
2.18, which shall survive until the expiration of the applicable statutes of
limitations. The representations and warranties of Lightbridge and Acquisition
Corp. shall terminate immediately as of the Closing. The covenants of any party
shall terminate according to the terms thereof.
ARTICLE 8. TERMINATION, AMENDMENT AND WAIVER
Section 8.1. TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written consent of Coral and Lightbridge;
(b) by Coral or Lightbridge if the Stockholders of Coral shall have voted not
to approve this Agreement and the Merger;
(c) by Coral or Lightbridge if the Closing shall not have been occurred on or
before December 31, 1997;
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(d) by Coral or Lightbridge if (i) there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the
transactions contemplated by this Agreement or (ii) there shall be any
action taken, or any statute, rule, regulation or order erected,
promulgated or issued or deemed applicable to the transactions
contemplated by this Agreement by any Governmental Entity which would
make consummation of the transactions contemplated by this Agreement
illegal;
(e) by Coral if there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part
of Lightbridge or Acquisition Corp. and, if such breach is curable, such
breach has not been promptly cured after written notice of such breach,
or by Lightbridge if there has been a material breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of Coral and, if such breach is curable, such
breach has not been promptly cured after written notice of such breach;
(f) by Lightbridge if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable
to the transactions contemplated by this Agreement by any Governmental
Entity that would (i) prohibit Lightbridge's or Coral's ownership or
operation of all or a material portion of the business or assets of Coral
or Lightbridge and its subsidiaries taken as a whole, or compel
Lightbridge or Coral to dispose of or hold separate all or a material
portion of the business or assets of Coral or Lightbridge, as a result of
the transactions contemplated by this Agreement or (ii) render
Lightbridge or Coral unable to consummate the transactions contemplated
by this Agreement;
(g) by Lightbridge if any condition to the obligation of Lightbridge and
Acquisition Corp. to complete the transactions contemplated by this
Agreement has not been satisfied by Coral or waived by Lightbridge;
(h) by Coral if any condition to the obligation of Coral to complete the
transactions contemplated by this Agreement has not been satisfied by
Lightbridge or Acquisition Corp. or waived by Coral;
(i) by Lightbridge if the Calculation Price shall be less than $9.5625; or
(j) by Coral if (a) the Calculation Price shall be less than $9.5625 and,
following the date of this Agreement, an event has occurred that has had
a material adverse effect on the business, financial condition or results
of operations of Lightbridge or (b) the Calculation Price shall be more
than $15.9375.
Section 8.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by Coral or Lightbridge as provided in Section 8.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of Lightbridge or Coral or their respective officers or directors, except
that if such termination results from the breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, the other parties shall be entitled to recover from such party all
fees and expenses incurred by them incident to their investigation, preparation
and carrying out of the transactions contemplated hereby.
Section 8.3. AMENDMENT. This Agreement may not be amended, modified or
supplemented by the parties hereto in any manner, except by an instrument in
writing signed on behalf of each of the parties hereto.
Section 8.4. EXTENSION; WAIVER. At any time prior to the Effective Time,
any party hereto, by such corporate or other action as shall be appropriate,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies
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<PAGE>
in the representations and warranties made to such party contained herein or in
any document delivered pursuant hereto and (c) waive compliance with any of the
covenants, agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE 9. MISCELLANEOUS
Section 9.1. NOTICES. Any notice, request, instruction or other document to
be given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by facsimile (with
receipt confirmed), or by courier service, as follows:
To Lightbridge: Lightbridge, Inc.
67 South Bedford Road
Burlington, Massachusetts 01803
Facsimile: (617) 359-4500
Attention: President and Chief Executive Officer
With a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
Attention: John D. Patterson, Jr.
To Coral: Coral Systems, Inc.
1500 Kansas Avenue, Suite 2E
Longmont, Colorado 80501
Facsimile: (303) 772-8230
Attention: President
With a copy to:
Cooley Godward LLP
2595 Canyon Boulevard, Suite 250
Boulder, Colorado 80302
Facsimile: (303) 546-4099
Attention: James H. Carroll
or to such other Persons as may be designated in writing by the parties, by a
notice given as aforesaid.
Section 9.2. CONSTRUCTION. The headings in this Agreement are included only
for convenience and shall not affect the meaning or interpretation of this
Agreement. The words "herein" and "hereof" and other words of similar import
refer to this Agreement as a whole and not to any particular part of this
Agreement. The word "including" as used herein shall not be construed so as to
exclude any other thing not referred to or described.
Section 9.3. EXHIBITS AND SCHEDULE. The Exhibits to this Agreement and the
Schedule are a part of this Agreement as if set forth in full herein. All
references herein to Sections and Exhibits shall be deemed references to such
parts of this Agreement, except as otherwise provided.
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<PAGE>
Section 9.4. ENTIRE AGREEMENT, ASSIGNABILITY, ETC. This Agreement (a)
constitutes the entire agreement, and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, (b) is not intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder, except as otherwise
expressly provided herein, and (c) shall not be assignable by operation of law
or otherwise; provided, however, that the Holders' Agent shall have the right to
seek enforcement of the covenants of Lightbridge that extend beyond the
Effective Time. No provisions of this Agreement are intended, nor will be
interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any client, customer, affiliate, stockholder,
partner or employee of any party hereto or any other Person unless specifically
provided otherwise herein, and, except as so provided, all provisions hereof
will be personal solely between the parties to this Agreement.
Section 9.5. VALIDITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
Section 9.6. FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
Section 9.7. JURISDICTION AND VENUE. Each party agrees that the federal
courts of the United States shall have the exclusive jurisdiction for any
dispute under this Agreement.
Section 9.8. GOVERNING LAW. This Agreement shall be governed by the laws of
the Commonwealth of Massachusetts.
Section 9.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
* * *
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<PAGE>
In Witness Whereof, the parties have duly executed this Agreement as of the
date first above written.
Lightbridge, Inc.
By: /s/ Pamela D.A. Reeve
--------------------------------------
President and Chief Executive Officer
SeeCross Acquisition Corp.
By: /s/ Pamela D.A. Reeve
--------------------------------------
President
Coral Systems, Inc.
By: /s/ Eric A. Johnson
--------------------------------------
Chairman
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<PAGE>
ANNEX B
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DELAWARE GENERAL CORPORATION LAW SECTION 262
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
subsection (g) of sec. 251 of this title), 252, 254, 257, 258, 263 or 264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were
either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving
a merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to sec. 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied with
this subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228 or
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall
notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that ore entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding the day on
which the notice is given.
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(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement
shall be mailed to the stockholder within 10 days after his written request for
such a statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all of the shares entitled
to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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