<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 21, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LHS GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
7371 58-2224883
DELAWARE (PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
SIX CONCOURSE PARKWAY, SUITE 2700
ATLANTA, GEORGIA 30328
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JERRY W. BRAXTON
CHIEF FINANCIAL OFFICER LHS GROUP INC. SIX CONCOURSE PARKWAY, SUITE 2700
ATLANTA, GEORGIA 30328 (770) 280-3004 (770) 280-3099 (FAX)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
M. HILL JEFFRIES ALSTON & BIRD LLP JOHN D. CAPERS, JR. KING & SPALDING
1201 WEST PEACHTREE STREET ATLANTA, 191 PEACHTREE STREET ATLANTA,
GEORGIA 30309-3424 (404) 881-7000 GEORGIA 30303-1763 (404) 572-4600
(770) 881-7777 (FAX) (404) 572-5145 (FAX)
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value(3)...... 6,765,450 $16.00 $108,247,200 $32,803
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</TABLE>
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(1) Includes 882,450 shares which the underwriters have the option to purchase
solely to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(3) The shares of Common Stock are not being registered for the purpose of
sales outside the United States.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 21, 1997
5,883,000 SHARES
LHS GROUP INC.
[LOGO OF LHS GROUP INC. COMMON STOCK
APPEARS HERE] (PAR VALUE $.01 PER SHARE)
----------
Of the 5,883,000 shares of Common Stock offered, 4,706,400 shares are being
offered hereby in the United States and 1,176,600 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting".
Of the 5,883,000 shares of Common Stock offered, 5,000,000 shares are being
sold by the Company and 883,000 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price per share will be between $14.00 and $16.00. For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "LHSG".
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total(3)................... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting estimated expenses of $620,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 705,960 shares at the initial public offering
price per share, less the underwriting discount, solely to cover over-
allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 176,490 shares
as part of the concurrent international offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting".
----------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1997, against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO.
COWEN & COMPANY
ROBERTSON, STEPHENS & COMPANY
----------
The date of this Prospectus is , 1997.
<PAGE>
[LOGO OF LHS]
A COMPELLING VISION
FRONT COVER: DESIGN ABOVE TEXT
Primary Design:
Conceptual Illustration of a Profile of a Man Talking on a Cellular
Phone with Eyes Looking to the Future.
Secondary Images:
Satellite in the Sky.
Telephone Poles in the Background.
----------------
Our Industry
------------
The rapid advance of telecommunications, deregulation of markets around the
globe and the increasing importance of reducing time-to-market have
motivated carriers to install, maintain and update advanced
billing and customer care systems.
Our Company
-----------
LHS is a leading provider of client/server-based billing and customer
care software products and related services to wireless and wireline
carriers in the Americas, Europe and Asia. Scaleable billing and customer
care solutions based on the company's proven modular software give
carriers the flexibility to dynamically offer telecommunications
services to consumers around the world.
----------------
The Company intends to furnish its stockholders annual reports containing
financial statements audited and reported upon by its independent
certified public accountants after the end of each fiscal year, and quarterly
reports for the first three fiscal quarters of each year containing unaudited
summary consolidated financial information.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
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CREATING BILLING AND CUSTOMER CARE SOLUTIONS FOR AN
EXPANDING TELECOMMUNICATIONS MARKEPLACE
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The Expanding Billing
And Customer Care Industry
- -----------------------------
. Deregulation and advances in technology INSIDE LEFT FOLDOUT
have stimulated growth in the number of FRONT COVER: DESIGN TO
carriers and types of services offered. RIGHT OF TEXT
. As competition intensifies, carriers are
increasingly utilizing billing and customer Illustration of a Cellular
care solutions as a strategic weapon. Phone Placed in Front of a
Generic Telephone Statement.
. Carriers need a flexible billing and
customer care solution which can be
implemented quickly to offer dynamic
marketing and pricing services.
. Carriers are seeking a common billing
and customer care solution that will
accommodate subscriber growth, multiple
service offerings and entrance into new
geographic markets.
<PAGE>
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CREATING BILLING AND CUSTOMER CARE SOLUTIONS FOR AN
EXPANDING TELECOMMUNICATIONS MARKEPLACE
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The LHS Solution
- -----------------------------
. Flexibility to meet individual carrier INSIDE FRONT FOLDOUT
needs. FRONT COVER: (TWO DESIGNS)
. Open client/server-based architecture.
. Modular configuration for quick, cost Conceptual Illustration of
effective implementation. a Key Unlocking a Software
. Able to support multiple technology Disc. (to the right of "The
standards. LHS Solution").
. Comprehensive international solution.
. Complete customer services. Conceptual Illustration of
Puzzle Pieces Containing a
Pager, Satellite, Phones and an
Internet Image Converging
Together (to the right of "The
LHS Strategy").
The LHS Strategy
- ------------------------------------
. Leverage wireless position to penetrate
other markets.
. Maintain a leading billing and customer
care solution.
. Expand globally.
. Develop and maintain customer relations.
. Leverage third-party relationships.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
(i) all share and per share data in this Prospectus have been adjusted to
reflect (a) a 20-for-1 split of the Common Stock effected on October 16, 1996
and (b) the conversion of all outstanding shares of Series A Convertible
Preferred Stock to Common Stock on the closing date of the Offerings and (ii)
the information in this Prospectus assumes that the Underwriters' over-
allotment options are not exercised. All references to the "Company" and "LHS"
shall mean LHS Group Inc. and its subsidiaries unless the context otherwise
requires. Certain terms used herein are defined under the heading "Glossary".
THE COMPANY
LHS Group Inc. (the "Company" or "LHS") is a leading provider of
client/server-based billing and customer care solutions to providers of
wireless and wireline telecommunications services ("carriers") in the Americas,
Europe and Asia. The Company's products enable carriers to compete more
effectively in a rapidly growing telecommunications market. The Company's
Business Support and Control System ("BSCS") software is a scaleable, modular
billing and customer care solution that can be installed quickly and can
support innovative marketing and pricing of telecommunications services. BSCS
has been licensed to approximately 60 carriers in over 25 countries and
supports approximately 3.5 million subscribers.
The deregulation of telecommunications markets worldwide and rapid advances
in technology has led to a large increase in the number of carriers worldwide,
creating a highly competitive market for telecommunications services. This
increasingly competitive market is motivating carriers to install advanced
billing and customer care systems as they introduce new services and enter new
markets. Carriers demand billing and customer care systems that provide
innovative and flexible marketing of services, robust customer management
capabilities, subscriber data and feedback and service plan flexibility in
addition to basic rating, invoicing and collection features. Increasingly,
billing and customer care systems are being deployed by carriers as a strategic
business weapon.
The Company's objective is to be the leading provider of client/server-based
billing and customer care solutions for the global telecommunications industry.
The Company intends to leverage its significant installed base of European
wireless customers to serve wireline and wireless markets around the world.
Moreover, the Company seeks to continually improve the functionality of its
products, maintain the strong technology position of BSCS and establish long-
term relationships with carriers. The Company intends to leverage its
relationships with leading systems integrators, including Andersen Consulting,
Cap Gemini Sogeti S. A. ("Cap Gemini"), Electronic Data Systems Corporation
("EDS") and Logica plc ("Logica"), and equipment vendors to more effectively
market its software and services to emerging carriers. Current customers of the
Company include Aerial Communications, Inc. ("Aerial") and Pacific Bell Mobile
Services ("PBMS") in the Americas, Telecom PTT ("Swiss Telecom") in Europe and
Binariang Communications Sdn Bhd ("Binariang") in Asia.
The Company was incorporated under the laws of Germany in October 1990 and
was redomiciled under the laws of the State of Delaware in December 1995. The
Company's executive offices are located at Six Concourse Parkway, Suite 2700,
Atlanta, Georgia 30328, and its telephone number at that location is (770) 280-
3000.
3
<PAGE>
THE OFFERINGS
The offering of 4,706,400 shares of Common Stock initially being offered in
the United States (the "U.S. Offering") and the concurrent offering of
1,176,600 shares of Common Stock initially being offered outside the United
States (the "International Offering") are collectively referred to herein as
the "Offerings". The closing of the International Offering is conditioned upon
the closing of the U.S. Offering and vice versa. See "Underwriting".
<TABLE>
<S> <C>
Common Stock offered by the Company:
U.S. Offering........................ 4,000,000 shares
International Offering............... 1,000,000 shares
Total............................... 5,000,000 shares
Common Stock offered by the Selling
Stockholders:
U.S. Offering........................ 706,400 shares
International Offering............... 176,600 shares
Total............................... 883,000 shares
Common Stock to be outstanding after
the
Offerings (1)........................ 25,050,000 shares
Proposed Nasdaq National Market
symbol................................ LHSG
Use of proceeds....................... General corporate purposes, including
working capital. See "Use of Proceeds".
</TABLE>
- --------
(1) Excludes 2,954,500 shares of Common Stock reserved for issuance pursuant to
stock options outstanding as of February 20, 1997.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Total revenues.......................... $2,788 $6,712 $20,722 $26,967 $56,864
Earnings before interest and taxes...... 59 287 4,182 1,217 5,581
Net earnings (loss)..................... $ (17) $ 194 $ 3,043 $ 284 $ 3,420
====== ====== ======= ======= =======
Net earnings per share (1).............. $ 0.00 $ 0.02 $ 0.29 $ 0.02 $ 0.16
====== ====== ======= ======= =======
Shares used in per share calculation
(1).................................... 6,095 7,802 10,578 16,255 21,913
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
----------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 4,289 $ 73,419
Working capital.......................................... 5,148 74,278
Total assets............................................. 43,819 112,949
Long-term and other obligations.......................... 1,360 1,360
Total stockholders' equity............................... 12,325 81,455
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for the
determination of the number of shares used in per share calculation.
(2) Pro forma to give effect to the conversion of all outstanding shares of
Series A Convertible Preferred Stock into shares of Common Stock upon
completion of the Offerings and as adjusted to reflect the sale of the
5,000,000 shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $15.00 per share, after deducting
the underwriting discount and estimated expenses of the Offerings payable
by the Company). See "Use of Proceeds" and "Capitalization".
4
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be carefully considered in evaluating the Company and
its business before purchasing the Common Stock offered hereby. This
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results reflected in those forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed below as well as those discussed elsewhere in this Prospectus.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced fluctuations in its quarterly operating results
and anticipates that such fluctuations will continue and could intensify.
Fluctuations in operating results may result in volatility in the price of the
Company's Common Stock. Although the Company was profitable in each of the
last two quarters, there can be no assurance that the Company's profitability
will continue in the future or that the Company's levels of profitability will
not vary significantly between quarters. The Company's operating results may
fluctuate as a result of many factors, including lengthening of the sales
cycles for new or existing customers, the size, timing or cancellation of
significant client projects and license fees, timing of new product
introductions, customer acceptance of new products, ability of the Company to
hire, train and retain qualified personnel, increased competition, changes in
operating expenses, changes in Company strategy, the financial performance of
the Company's customers, changes in telecommunications legislation and
regulations that may affect the competitive environment for the Company's
products or services, foreign currency exchange rates and general economic
factors.
The Company's expense levels are based in significant part on its
expectations regarding future revenues. The Company's revenues are difficult
to forecast because the market for the Company's products and services is
rapidly evolving and the Company's sales cycle and the size and timing of
significant customer projects and license fees vary substantially among
customers. Accordingly, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected shortfall in revenues. Any
significant shortfall could therefore have a material adverse effect on the
Company's business, results of operations and financial condition. In
addition, the Company hired a significant number of employees in 1995 and
1996, including several senior executives, and expects to continue hiring
additional consulting, support and development employees during 1997. This
significant increase in its work force has reduced the Company's operating
margins in 1995 and 1996, and the Company expects that this increase will
continue to affect the Company's operating margins for the short term. In
addition, the Company experienced operating losses in the fourth quarter of
1995 and the first two quarters of 1996 and operating profits in the last two
quarters of 1996. There can be no assurance that the Company can continue to
report operating profits, and failure to do so is likely to have a material
adverse effect on the Company's business, financial condition and Common Stock
price. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
DEPENDENCE ON NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions, evolving industry
standards and changing customer needs. The introduction of products embodying
new technologies and the emergence of new industry and technology standards
can render existing products obsolete and unmarketable in short periods of
time. The Company expects other vendors to continually introduce new products
and services, as well as enhancements to their existing products and services,
which will compete with the products and services offered by the Company. As a
result, the life cycles of the Company's products are difficult to estimate.
The Company believes that its future success will depend in large part on its
ability to maintain and enhance its current product and service offerings and
to continually develop and introduce new products and services that will keep
pace with technological advances and satisfy evolving customer requirements.
In addition, the Company plans to introduce billing and customer care
5
<PAGE>
solutions for carriers providing services in telecommunications markets
different from those the Company has traditionally supported. There can be no
assurance that the Company will be successful in developing and marketing
these new products and services or that its current or new products and
services will adequately meet the demands of its current or new markets.
Further, there can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products and services. If the Company is
unable to develop and introduce new products and services in a timely manner,
or if a new release of a product does not achieve market acceptance, the
Company's business, operating results and financial condition will be
materially adversely affected.
The Company is currently scheduled to introduce, by the second quarter of
1997, BSCS Version 4.03, which will support digital and analog wireless
standards particular to the Americas market. The Company currently plans to
introduce, by the third quarter of 1997, Version 5.0 of its BSCS product,
which will offer billing and customer care solutions for telecommunications
carriers that operate in markets that the Company's solutions currently do not
support. BSCS Version 5.0, will support satellite and paging standards
particular to the Americas market and will improve upon the overall
functionality of BSCS Version 4.03. In addition, the Company plans to
introduce, by the fourth quarter of 1997, a separate Version 5.0 of its BSCS
product in Europe and Asia, which will support wireline, other digital
wireless, analog wireless, satellite and paging standards. Version 5.0 is
crucial to the Company's current and future operations, particularly its
Americas operations. Factors which may cause the events described in the
aforementioned forward-looking statements not to develop as expected are
discussed below.
The introduction of Version 5.0 and the continuing development of leading
technology are subject to significant technical risks which may result in
delays in the development and introduction of new products or enhancements to
existing products. In addition, the Company's scheduled BSCS release dates are
dependent on the Company's ability to successfully attract, train and retain
software developers. Failure by the Company to introduce BSCS Version 5.0 in
the Americas, and to a lesser extent in Europe and Asia, on a timely basis, or
failure of Version 5.0 to gain market acceptance, would have a material
adverse effect on the Company's business, results of operations and financial
condition, especially with respect to the Company's current and future
operations in the Americas. There can be no assurance that the Company will be
able to meet its development schedule and continue to introduce products
acceptable to the market on a timely basis.
MANAGEMENT OF GROWTH
The Company has expanded its operations rapidly over the past two years,
placing significant demands on its administrative, operational and financial
personnel and systems. Additional expansion by the Company may further strain
its management, operational, financial, reporting and other systems and
resources. There can be no assurance that the Company's systems, resources,
procedures, controls and existing space will be adequate to support such
expansion of the Company's operations. The Company's future operating results
will substantially depend on the ability of its officers and key employees to
manage changing business conditions and to implement and improve its
management, operational, financial control and other reporting systems. In
addition, the Company's future operating results are dependent on its ability
to attract, train and retain qualified consulting, technical, sales,
financial, marketing and management personnel. Failure to hire, train or
retain qualified personnel necessary to keep pace with the Company's
development of products and services could have a material adverse effect on
the Company's business, results of operations and financial condition.
Continued expansion will require the Company's management to: enhance
management information and reporting systems; standardize BSCS installation
methodologies; further develop its infrastructure; jointly develop and
coordinate strategies, functions and product development among its Americas,
European and Asian operations and continue to maintain customer satisfaction.
If the Company is
6
<PAGE>
unable to respond to and manage changing business conditions, the quality of
the Company's products and services, its ability to retain key personnel and
its business, results of operations and financial condition could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Management".
DEVELOPING TELECOMMUNICATIONS MARKET AND NEW CARRIERS
The Company provides customized software billing and customer care solutions
to telecommunications carriers in the wireline and wireless markets. Although
these markets have experienced significant growth and have been characterized
by increased deregulation and competition in recent years, there can be no
assurance that such trends will continue at similar rates or that the Company
will be able to effectively market and sell its products and services in such
markets. In addition, many of the new entrants in the telecommunications
market are companies that lack significant financial and other resources. To
cultivate relationships with such new market entrants, the Company may be
required to offer alternative pricing arrangements, which may provide for
deferred payments. However, there can be no assurance that the Company will be
able to develop such relationships or that new carriers that become customers
of the Company will gain market acceptance for their telecommunications
services. If the Company permits customers that may not have adequate
financial resources to pay the Company for its services on a deferred basis,
the Company may ultimately be unable to collect payments for such services.
Because the Company has been dependent historically on a limited number of
long-term customer relationships, the failure of the Company to develop
relationships with, make sales to, or collect payments from, new
telecommunications carriers and failure of the Company's customers to compete
effectively in the telecommunications market could have a material adverse
effect on the Company's business, results of operations and financial
condition. In addition, the telecommunications market is experiencing some
consolidations and formations of alliances among established carriers. A
consolidation or alliance affecting one of the Company's customers may result
in such customer shifting to another billing system, which may have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business--Industry Background".
RELIANCE ON SIGNIFICANT CUSTOMERS
Historically, the Company has relied on a limited number of customers for a
substantial portion of its revenues. Aerial and Swiss Telecom accounted for
12% and 10%, respectively, of the Company's total revenues in 1996. In
addition, the Company had three customers that accounted for 14%, 10% and 10%
of the Company's total revenues in 1995. The Company has historically depended
on, and expects to continue to depend on, large contracts from significant
customers, which can cause its revenues and earnings to fluctuate between
quarters based on the timing of orders and installation of the Company's BSCS
product by these customers. Although the Company believes that it has good
relationships with its major customers and has in the past received a
substantial portion of its revenues from repeat business with established
customers, these customers generally have acquired fully-paid licenses for
their installed systems and none of the Company's major customers has any
obligation to purchase additional products or services. There can be no
assurance that any of the Company's major customers will continue to purchase
new products and services or enhancements of products and services at a level
similar to previous periods. A significant decrease in business from any of
the Company's major customers would have a material adverse effect on the
Company's business, results of operations and financial condition.
Additionally, the acquisition by a third party of one of the Company's major
customers could result in the loss of that customer, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Business--Customers" and Notes 1 and 7
of Notes to Consolidated Financial Statements.
7
<PAGE>
INITIAL MARKET ENTRY RISKS; CUSTOMER EXPECTATIONS
The Company intends to pursue an aggressive expansion strategy for its
product and service offerings to carriers in new geographic markets and to
carriers providing telecommunications services in markets different from those
the Company has traditionally supported. This strategy has certain inherent
risks which the Company believes are unique to the industry in which the
Company competes and which arise from, among other things, the characteristics
of the Company's targeted customer base in these markets. When the Company
enters a new market and begins to develop a relationship with a new customer,
the Company's initial performance and initial market perception are critical
to the Company's future prospects in that new market. Although the Company
believes that its strategy for new market entry and its preparations for such
entry will enable it to perform to the satisfaction of customers in a new
market, there can be no assurance that a new customer will be satisfied with
the Company's products or services or that the Company will be able to
successfully establish itself in any such new market.
RELIANCE ON THIRD-PARTY RELATIONSHIPS
The Company currently relies on a number of consulting and systems
integration firms to enhance its marketing, sales and customer support
efforts, particularly with respect to installation and support of its product,
lead generation and assistance in the sales process. An integral factor in the
Company's growth strategy is the continuing development of relationships with
such firms and the Company's ability to successfully leverage such
relationships through joint marketing and sales efforts in order to generate
new business opportunities. There can be no assurance that the Company will be
able to continue to successfully leverage these relationships in the future.
The failure by the Company to maintain joint marketing and sales efforts with
consulting and systems integration firms in the future would have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company currently derives a substantial portion of its revenues from
projects in which it serves as subcontractor to a consulting or systems
integration firm that provides a variety of information technology products
and services to end-user customers. In such instances, the Company is highly
dependent upon such firms for product installation and BSCS end-user training.
Although the Company seeks to maintain close relationships with consulting and
systems integration firms, many such firms have similar, and often more
established, relationships with the Company's principal competitors. The
Company has no exclusive agreements with any of these firms, and there can be
no assurance that such firms, many of which have significantly greater
financial, technical, personnel and marketing resources than the Company, will
not discontinue or reduce their relationships with the Company, develop their
own products and services in competition with the Company, or develop
relationships with companies that offer products that compete with the
Company's solutions. If the Company is unable to develop and maintain
effective, long-term relationships with these firms or if these firms fail to
meet the needs of the Company's customers, the Company's business will be
adversely affected. In addition, the failure of the consulting or systems
integration firm or another subcontractor to perform to the satisfaction of
the customer may adversely affect the Company's relationship with the customer
and could adversely affect the perception of the Company in the market.
The Company had historically entered into contracts with a limited number of
third parties that provided such third parties with the Company's kernel
source code and the right to market and sell independently modified versions
of the Company's products. As a result, certain carriers in the United States
experienced difficulties with the Company's software due primarily to the
inability of these third parties to properly install the Company's software
and adapt it for use by such carriers. In those instances, the reputation and
credibility of the Company and its products were damaged and the Company may
have lost the confidence of the affected carriers. The Company has since
terminated all third-party rights that allowed access to the Company's kernel
source code and permitted the
8
<PAGE>
subsequent modification and resale of that source code. However, there can be
no assurance that there will be no further damage to the Company's reputation
and credibility in the United States. Any further damage could have a material
adverse effect on the Company's business, results of operations and financial
condition.
HIGHLY COMPETITIVE MARKET; COMPETITION
The market for telecommunications billing and customer care systems is
highly competitive, and the Company expects this competition to increase. The
Company competes with independent providers of billing systems and services,
such as Alltel Information Systems, Inc. ("Alltel"), American Management
Systems, Inc. ("AMS") and Cincinnati Bell Information Systems, Inc. ("CBIS")
in the Americas and Kingston-SCL and SEMA Group internationally, with systems
integrators and with internal billing departments of larger telecommunications
carriers. The Company anticipates continued growth and competition in the
telecommunications industry and the entrance of new competitors into the
billing and customer care systems market in the future.
The Company believes that its ability to compete depends in part on a number
of competitive factors, including the development by others of software that
is competitive with the Company's products and services, the price at which
others offer competitive software and services, the extent of competitors'
responsiveness to customer needs and the ability of the Company's competitors
to hire, retain and motivate key personnel. The Company competes with a number
of companies that have longer operating histories, larger customer bases,
substantially greater financial, technical, sales, marketing and other
resources, and greater name recognition than the Company. Current and
potential competitors have established, and may establish in the future,
cooperative relationships among themselves or with third parties to increase
their ability to address the needs of the Company's prospective customers.
Accordingly, new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. As a result, the Company's
competitors may be able to adapt more quickly than the Company to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their products. There can be no
assurance that the Company will be able to compete successfully with existing
or new competitors. Failure by the Company to adapt to emerging market demands
and to compete successfully with existing and new competitors would have a
material adverse effect on the Company's business, results of operations and
financial condition.
In addition, as the Company expands, it will market its products and
services to carriers in markets not currently served by the Company. Upon its
entrance into these markets, the Company may encounter new competitors, many
of which have significantly greater financial, technical, personnel and
marketing resources than the Company. There can be no assurance that the
Company will be able to properly identify and address the demands for these
new markets or that the Company can continue to be competitive in its current
markets. Failure by the Company to maintain its competitiveness in current or
new markets would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Competition".
UNIFICATION OF AMERICAN AND EUROPEAN/ASIAN PRODUCT LINES
The Company expanded its operations into the Americas for the first time in
late 1995. In connection with this expansion, the Company modified its
existing software kernel for use exclusively in the Americas while continuing
to maintain a separate software kernel which it uses in European and Asian
markets. Although these two software kernels currently comprise separate
software code, they provide similar functionality. The Company intends to
unify the two software kernels into one common kernel in 1998 to avoid further
duplication of its software development efforts. If the Company's efforts to
unify the software kernels are unsuccessful, the Company may be forced to
maintain redundant research and development efforts in Europe and the
Americas, which would adversely affect the Company's business, results of
operations and financial condition. There can be no assurance that the
9
<PAGE>
Company will be able to successfully unify these two software kernels or, if
successful, realize any cost savings from such unification. See "Business--
Product Development".
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large part on the continued service
of its key management, sales, product development and operational personnel,
including Hartmut Lademacher, Chairman of the Board and Chief Executive
Officer, and Dr. Joachim Hertel, Executive Vice President-Technology, and on
the Company's ability to continue to attract, motivate and retain highly
qualified employees, including technical, managerial and sales and marketing
personnel. Additionally, the Company expects to continue to expand the number
of employees engaged in sales, marketing and product development. However,
competition in the recruitment of highly qualified personnel in the software
and telecommunications services industry is intense. The inability to hire and
retain qualified personnel or the loss of the services of key personnel could
have a material adverse effect upon the Company's current business, new
product development efforts and future business prospects. If such personnel
do not remain active in the Company's business, the Company's operations could
be materially adversely affected. See "Business--Employees" and "Management".
INTERNATIONAL RISKS
The Company began its operations in Germany in 1990 and continues to conduct
a substantial portion of its business outside of the Americas. In 1995 and
1996, the Company's sales outside the Americas represented 97% and 68% of the
Company's total revenues, respectively. Although the Company intends to
continue to expand its operations within the Americas, European and Asian
operations are expected to continue to account for a majority of its revenues
for the foreseeable future. The Company's business outside the United States
may be subject to unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs of localizing products for foreign countries, lack
of acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
political instability, potentially adverse tax obligations, restrictions on
the repatriation of earnings and the burdens of complying with a wide variety
of foreign laws and regulations. In addition, the laws of some foreign
countries do not protect the Company's intellectual property rights to as
great an extent as do the laws of the United States. There can be no assurance
that such factors will not have a material adverse effect on the Company's
revenues outside the Americas or its overall financial performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 10 of Notes to Consolidated Financial Statements.
CURRENCY FLUCTUATIONS
A significant portion of the Company's revenues are denominated in the
German Deutsche Mark and, to a lesser extent, the Swiss Franc and the
Malaysian Ringgit. Fluctuations in exchange rates between the U.S. Dollar and
the German Deutsche Mark may have a material adverse effect on the Company's
business, results of operations and financial condition, particularly its
operating margins, and could also result in exchange losses. The impact of
future exchange rate fluctuations on the Company's results of operations
cannot be accurately predicted. To date, the Company has not sought to hedge
the risks associated with fluctuations in exchange rates but may undertake
such transactions in the future. There can be no assurance that any hedging
techniques implemented by the Company in the future would be successful or
that the Company's business, results of operations and financial condition
will not be materially adversely affected by exchange rate fluctuations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY
The Company regards its software products as proprietary and relies
primarily on a combination of statutory and common law copyright, trademark
and trade secret laws, customer licensing
10
<PAGE>
agreements, employee and third-party nondisclosure agreements and other
methods to protect its proprietary rights. These laws and contractual
provisions provide only limited protection of the Company's proprietary
rights. The Company has no patents or patent applications pending and has no
registered trademarks or copyrights. Despite the Company's efforts to protect
its proprietary rights, it may be possible for a third party to copy or
otherwise obtain and use the Company's technology without authorization or to
develop similar technology independently. Furthermore, the laws of certain
countries in which the Company sells its products do not protect the Company's
software and intellectual property rights to the same extent as do the laws of
the United States. If unauthorized copying or misuse of the Company's products
were to occur to any substantial degree, the Company's business, results of
operations and financial condition could be materially adversely affected.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology.
Although the Company has not received any notices from third parties
alleging infringement claims, there can be no assurance that third parties
will not claim that the Company's current or future products infringe the
proprietary rights of others. The Company expects that software developers
will increasingly be subject to such claims as the number of products and
competitors providing products and services to the telecommunications industry
grows. Any such claim, with or without merit, could result in costly
litigation, require significant management resources, cause product shipment
delays, require the Company to enter into royalty or licensing agreements or
cause the Company to discontinue the use of the challenged trades name,
service mark or technology, any of which could have a material adverse effect
on the Company's business, results of operations and financial condition.
Furthermore, such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all. See "Business--
Proprietary Rights and Licenses".
PRODUCT LIABILITY
The software developed and utilized by the Company in providing its products
and services may contain undetected errors. Although the Company engages in
extensive testing of its software prior to introducing the software onto a
customer's network, there can be no assurance that errors will not be found in
software after the commencement of its use. The Company's license agreements
with its customers generally contain provisions designed to limit the
Company's exposure to potential product liability claims, such as disclaimers
of warranties and limitations on liability for special, consequential and
incidental damages. In addition, the Company's license agreements generally
limit the amounts recoverable for damages to the amounts paid by the licensee
to the Company for the product or service giving rise to the damages claimed.
Although the Company has not experienced any product liability claims to date,
the sale and support of products by the Company may result in the Company
being subject to such claims. The Company has product liability insurance
which it believes is satisfactory to cover potential product liability claims;
however, a successful product liability claim brought against the Company
could have a material adverse effect upon the Company's business, operating
results and financial condition.
CONCENTRATION OF STOCK OWNERSHIP
Following the Offerings, the Company's executive officers and directors and
their affiliates together will beneficially own approximately 18,466,833
shares (approximately 72.8%) of the outstanding Common Stock (as determined in
accordance with rules of the Securities and Exchange Commission (the
"Commission")). In addition to the shares and options exercisable within 60
days of the date of this Prospectus, which have been included in the
calculation of such beneficial ownership, the Company's executive officers and
directors and their affiliates hold options to acquire an additional 1,226,667
shares of Common Stock at an exercise price of $5.30 per share. These
additional shares, together with shares currently beneficially owned, would
represent approximately 74.0% of the Common Stock outstanding after
consummation of the Offerings, after giving effect to the exercise of those
options. Furthermore, substantially all such persons have granted Hartmut
Lademacher the right to vote, through as late as December 31, 1999, all shares
of Common Stock owned by them. As a
11
<PAGE>
result, Mr. Lademacher, voting in any election of directors through December
31, 1999, may be able to elect all directors nominated for election and may be
able to determine the outcome of certain corporate actions requiring
stockholder approval regardless of how the other stockholders of the Company
may vote. This concentration of ownership may have the effect of delaying or
preventing a change in control of the Company. See "Management" and "Principal
and Selling Stockholders".
ANTI-TAKEOVER CONSIDERATIONS
Upon the completion of the Offerings and the conversion of all outstanding
shares of Series A Convertible Preferred Stock to Common Stock, the Board of
Directors will have the authority to issue up to 225,000 shares of preferred
stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares, without any further
vote or action by the stockholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no current plans to
issue shares of preferred stock. Certain provisions of the Company's
Certificate of Incorporation and By-Laws and the Delaware General Corporation
Law could delay or make more difficult a merger, tender offer or proxy contest
involving the Company. Furthermore, the Company's Board of Directors is
divided into three classes with only one class being elected each year, and
directors may only be removed by the affirmative vote of 80% or greater of all
classes of voting stock, which factors may also have the effect of delaying,
deterring or preventing a change of control of the Company. In addition,
pursuant to the LHS Group Inc. Stock Incentive Plan, all stock options granted
to employees become automatically vested and exercisable upon certain
triggering events leading up to a change of control. This vesting and the
dilutive effect that the exercise of a large number of options would have on
the Company's Common Stock may have the effect of delaying or preventing a
change of control of the Company. See "Description of Capital Stock" and
"Management--Executive Compensation".
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained or that the market price of the Common Stock will not
decline below the initial public offering price. The initial public offering
price of the Common Stock will be determined by negotiations among the
Company, the Selling Stockholders and the representatives of the Underwriters
and may not be indicative of the market price for shares of Common Stock after
the Offerings. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price of the Common
Stock.
POSSIBLE VOLATILITY OF MARKET PRICE
From time to time after the Offerings, there may be significant volatility
in the market price of the Common Stock. The stock market has from time to
time experienced significant price and volume fluctuations, which have
particularly affected the market prices of the stocks of high technology and
telecommunications companies and which may be unrelated to the operating
performance of such companies. Factors such as actual or anticipated operating
results, growth rates, changes in estimates by analysts, market conditions in
the industry, announcements by competitors, regulatory actions and general
economic conditions will vary from period to period. As a result of these
factors, the Company's operating results from time to time may be below the
expectations of public market analysts and investors. Any such event would
likely have a material adverse effect on the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Future sales of Common Stock could adversely affect the market price of the
Common Stock. Several of the Company's principal stockholders hold a
significant portion of the outstanding Common
12
<PAGE>
Stock, and a decision by one or more of these stockholders to sell their
shares could adversely affect the market price of the Common Stock. The
5,883,000 shares of Common Stock offered hereby (plus any shares issued upon
exercise of the Underwriters' over-allotment options) will be freely tradable
in the public market without restriction. The holders of all of the remaining
19,167,000 shares of Common Stock that will be outstanding upon the completion
of the Offerings will enter into agreements with the Underwriters (the "Lock-
up Agreements") which will provide that, during the period beginning on the
date of this Prospectus and continuing to and including the date 180 days
after the date of this Prospectus, they will not, except in connection with
the Offerings or pursuant to certain other permitted exceptions, offer, sell,
contract to sell or otherwise dispose of, or file a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to, any securities of the Company which are substantially similar to
the shares of Common Stock or which are convertible into or exchangeable for,
or represent the right to receive, shares of Common Stock or securities that
are substantially similar to the Common Stock without the prior written
consent of the representatives of the Underwriters. Upon the expiration of the
Lock-up Agreements, 18,755,980 shares will be eligible for sale pursuant to
Rule 144 of the Commission, an additional 781 shares will first become
eligible for sale in each month thereafter through October 2001 and 373,520
shares will first become eligible for sale in December 1997.
The Company intends to file a Registration Statement on Form S-8 as soon as
practicable after the expiration of the Lock-up Agreements to register
4,000,000 shares of Common Stock that are issuable upon the exercise of
outstanding stock options or that are available for issuance pursuant to the
Company's Stock Incentive Plan. Additionally, commencing 180 days after the
completion of the Offerings, certain stockholders of the Company who will
beneficially own in the aggregate 17,793,480 shares of Common Stock as of the
completion of the Offerings will be entitled to certain demand and piggyback
registration rights with respect to such shares. All of such registered shares
generally would then be eligible for immediate sale in the public market.
Public sales of a significant number of such shares could have a material
adverse effect on the market price of the Common Stock. See "Shares Eligible
for Future Sale".
DILUTION
Purchasers of Common Stock in the Offerings will incur immediate and
substantial dilution in the net tangible book value per share of Common Stock
in the amount of $11.75 per share, assuming an initial public offering price
of $15.00 per share. To the extent that outstanding options to purchase Common
Stock are exercised, there will be further dilution. See "Dilution".
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock being offered by the Company in the Offerings (at an assumed
initial public offering price of $15.00 per share) are estimated to be
$69,130,000 ($81,440,178 if the Underwriters' over-allotment options are
exercised in full), after deduction of the underwriting discount and estimated
offering expenses.
The Company expects to use the net proceeds of the Offerings for working
capital and other general corporate purposes. See "Business--Strategy".
Furthermore, from time to time the Company expects to evaluate possible
acquisitions of or investments in businesses, products and technologies that
are complementary to those of the Company, for which a portion of the net
proceeds from the Offerings may be used. There are, however, no understandings
or agreements for any such acquisition or investment as of the date of this
Prospectus. Pending such uses, the Company intends to invest the net proceeds
of the Offerings in short-term, investment grade, interest bearing
instruments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
since 1994. The Company currently intends to retain its future earnings, if
any, to fund the development and growth of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future.
14
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1996, after giving effect to the conversion of all outstanding shares of
Series A Convertible Preferred Stock to Common Stock upon the completion of
the Offerings, was $12.3 million or $0.61 per share of Common Stock. "Pro
forma net tangible book value" per share represents the amount of total
tangible assets of the Company reduced by the amount of its total liabilities
divided by the total number of shares of Common Stock outstanding. After
giving effect to the net proceeds from the sale of 5,000,000 shares of Common
Stock offered by the Company hereby, the "pro forma as adjusted net tangible
book value", which reflects pro forma net tangible book value after giving
effect to the conversion of all outstanding shares of Series A Convertible
Preferred Stock into Common Stock upon completion of the Offerings, as of
December 31, 1996 would have been $81.5 million or $3.25 per share. This
represents an immediate increase in the pro forma net tangible book value of
$2.64 per share to existing stockholders, including holders of Series A
Convertible Preferred Stock, and an immediate dilution of $11.75 per share to
new investors. The following table illustrates the per share dilution in pro
forma net tangible book value to new investors:
<TABLE>
<CAPTION>
Assumed initial public offering price per share............... $15.00
<S> <C> <C>
Pro forma net tangible book value per share before the
Offerings................................................... $0.61
Increase per share attributable to new investors............. 2.64
-----
Pro forma as adjusted net tangible book value per share after
the Offerings................................................ 3.25
------
Dilution per share to new investors........................... $11.75
======
</TABLE>
The following table summarizes as of December 31, 1996, on a pro forma
basis, the differences in the total consideration paid and the average price
per share paid to the Company by existing stockholders, including holders of
Series A Convertible Preferred Stock, and by new investors with respect to the
number of shares of Common Stock purchased from the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 20,050,000 80.0% $21,576,720 22.3% $ 1.08
New investors.............. 5,000,000 20.0 75,000,000 77.7 $15.00
---------- ----- ----------- -----
Total..................... 25,050,000 100.0% $96,576,720 100.0%
========== ===== =========== =====
</TABLE>
The above discussion and tables assume no exercise of stock options
outstanding as of December 31, 1996. As of December 31, 1996, options for the
purchase of an aggregate of 2,904,500 shares of Common Stock were outstanding.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 (i) on a historical basis, (ii) on a pro forma basis after
giving effect to the conversion of all outstanding shares of Series A
Convertible Preferred Stock to Common Stock upon the completion of the
Offerings, and (iii) on a pro forma as adjusted basis to reflect the sale of
the 5,000,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $15.00 per share (after deduction of
the underwriting discount and estimated expenses of the Offerings). The
information set forth in the table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------- ------- -----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Long-term and other obligations.................. $ 1,360 $ 1,360 $ 1,360
Stockholders' equity:
Series A Convertible Preferred Stock, $.01 par
value; 225,000 shares authorized, 225,000
shares issued and outstanding, actual; 225,000
shares authorized, none issued or outstanding,
pro forma and pro forma as adjusted............ 2 -- --
Common Stock, $.01 par value; 40,000,000 shares
authorized; 15,550,000 shares issued and
outstanding, actual; 20,050,000 shares issued
and outstanding, pro forma; 25,050,000 shares
issued and outstanding, as adjusted (1)........ 156 201 251
Additional paid-in-capital....................... 6,374 6,331 75,411
Retained earnings................................ 6,301 6,301 6,301
Accumulated translation adjustments.............. (508) (508) (508)
------- ------- -------
Total stockholders' equity....................... 12,325 12,325 81,455
------- ------- -------
Total capitalization......................... $13,685 $13,685 $82,815
======= ======= =======
</TABLE>
- --------
(1) Excludes 2,904,500 shares of Common Stock reserved for issuance pursuant
to stock options outstanding as of December 31, 1996.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements, notes thereto and other
financial information included elsewhere in this Prospectus. The selected
financial data for each of the three years ended December 31, 1996 are derived
from the consolidated financial statements of the Company which have been
audited by Ernst & Young LLP, independent auditors. The data presented for
each of the years ended December 31, 1992 and December 31, 1993 are derived
from unaudited financial statements, but in the opinion of the Company
reflects all adjustments (consisting of normal recurring adjustments) that the
Company considers necessary for a fair presentation of such information in
accordance with generally accepted accounting principles.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME DATA:
Total revenues........................... $2,788 $6,712 $20,722 $26,967 $56,864
Cost of services......................... 966 2,531 4,457 9,653 19,107
------ ------ ------- ------- -------
Gross profit........................... 1,822 4,181 16,265 17,314 37,757
Operating expenses:
Sales and marketing..................... 411 630 2,965 2,455 7,653
Research and development................ 995 2,606 5,169 9,714 16,236
General and administrative.............. 357 658 3,949 3,928 8,287
------ ------ ------- ------- -------
1,763 3,894 12,083 16,097 32,176
------ ------ ------- ------- -------
Earnings before interest and taxes....... 59 287 4,182 1,217 5,581
Interest expense, net.................... 43 58 70 110 77
------ ------ ------- ------- -------
Earnings before income taxes............. 16 229 4,112 1,107 5,504
Income taxes............................. 33 34 1,069 823 2,084
------ ------ ------- ------- -------
Net earnings (loss)...................... $ (17) $ 195 $ 3,043 $ 284 $ 3,420
====== ====== ======= ======= =======
Net earnings per share (1)............... $ 0.00 $ 0.02 $ 0.29 $ 0.02 $ 0.16
====== ====== ======= ======= =======
Shares used in per share calculation (1). 6,095 7,802 10,578 16,255 21,913
<CAPTION>
AT DECEMBER 31,
--------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
<CAPTION>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $ 1 $ 209 $ 2,374 $10,200 $ 4,289
Working capital.......................... (114) 191 635 5,334 5,148
Total assets............................. 1,192 2,147 14,006 24,462 43,819
Long-term and other obligations.......... 96 151 372 399 1,360
Total stockholders' equity............... 323 681 3,770 9,933 12,325
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for the
determination of the number of shares used in per share calculation.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Founded in 1990, the Company is a leading provider of client/server-based
billing and customer care solutions to carriers in the global
telecommunications industry. The Company's software products offer carriers
flexible, customer-tailored, cost-effective billing and customer care
solutions. Historically, the Company has focused on the wireless
telecommunications sector, specifically carriers providing services based on
the GSM digital standard. To capitalize on increasing opportunities in the
global telecommunications market, the Company's strategy is to provide billing
and customer care solutions to carriers that provide services in one or more
markets, including other digital and analog wireless, wireline, paging,
satellite and Internet services.
The Company derives revenues from license fees and service fees. License
revenues consist of license fees for the Company's client/server software, and
service revenues consist of fees for customization, installation and product
support services and, to a lesser extent, maintenance fees and fees for
training. License revenues for one time licenses without customization are
recognized upon delivery of the software to the customer. Revenues from
licenses which require customization of the software are recognized over the
estimated term of the installation of such software based on the percentage of
completion method of accounting. The Company also recognizes additional
license revenues after installation as the number of subscribers supported by
BSCS for any carrier exceeds pre-established thresholds. Service revenues that
relate to customization and initial installation of BSCS and customization
after the BSCS software has been installed are accounted for over the
estimated term of such service based on the percentage of completion method of
accounting. Maintenance fees are recognized ratably over the term of the
maintenance contract, and fees for training are recognized as the training is
performed.
The total value of an initial contract for BSCS software and services
typically ranges from $1 million to $5 million, depending on the size of the
carrier, the number of subscribers that the carrier expects to serve, the
number and type of telecommunications services supported by BSCS and the scope
of customization and installation requirements. Maintenance pricing is based
on the level of service desired by the customer and typically varies from 10%
to 35% of the license fee per year.
FOREIGN CURRENCY EXPOSURE
Sales outside of the United States represent a significant portion of the
Company's total revenues. A substantial amount of the Company's revenues and
costs and expenses are invoiced and paid in currencies other than the U.S.
Dollar, primarily the German Deutsche Mark and to a lesser extent the Swiss
Franc and the Malaysian Ringgit. See "Risk Factors--Currency Fluctuations".
18
<PAGE>
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items in
the Company's statement of income reflected as a percentage of total revenues.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues:
License revenues.......................................... 72.5% 50.6% 41.7%
Service revenues.......................................... 27.5 49.4 58.3
----- ----- -----
Total revenues......................................... 100.0 100.0 100.0
Cost of services........................................... 21.5 35.8 33.6
----- ----- -----
Gross margin............................................... 78.5 64.2 66.4
Operating expenses:
Sales and marketing....................................... 14.3 9.1 13.5
Research and development.................................. 24.9 36.0 28.6
General and administrative................................ 19.1 14.6 14.6
----- ----- -----
58.3 59.7 56.6
----- ----- -----
Earnings before interest and taxes......................... 20.2 4.5 9.8
Interest expense, net...................................... 0.3 0.4 0.1
----- ----- -----
Earnings before income taxes............................... 19.8 4.1 9.7
Income taxes............................................... 5.2 3.1 3.7
----- ----- -----
Net earnings............................................... 14.7% 1.1% 6.0%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Total revenues increased 110.9% to $56.9 million in the year ended
December 31, 1996 from $27.0 million in the year ended December 31, 1995.
License revenues increased 73.6% to $23.7 million in the year ended December
31, 1996 from $13.7 million in the year ended December 31, 1995, while service
revenues increased 149.1% to $33.2 million in the year ended December 31, 1996
from $13.3 million in the year ended December 31, 1995. The increase in total
revenues was primarily due to market acceptance of the Company's products and
services in the Americas, successful release of BSCS Version 4.0 in Europe in
early 1996 and the establishment of the Company's Asian operations in early
1996. Revenues from the Company's Americas customers accounted for $18.1
million or 31.9% of 1996 revenues compared to $945,000 or 3.5% of 1995
revenues. Revenues from the Company's Asian customers accounted for $6.3
million or 11.0% of 1996 revenues compared to $2.3 million or 8.7% of 1995
revenues.
License revenues decreased as a percentage of total revenues to 41.7% in the
year ended December 31, 1996 from 50.6% in the year ended December 31, 1995,
while service revenues increased as a percentage of total revenues to 58.3% in
the year ended December 31, 1996 from 49.4% in the year ended December 31,
1995. This change in the mix of revenues is primarily due to the increased
demands of customers for billing and customer care solutions tailored to their
specific needs.
Historically, the Company has relied on a limited number of customers for a
substantial portion of its revenues. Aerial and Swiss Telecom accounted for
12% and 10%, respectively, of the Company's total revenues in 1996. In
addition, the Company had three customers that accounted for 14%, 10% and 10%
of the Company's total revenues in 1995. The Company's concentration of
customers can result in quarterly revenues and earnings fluctuations based on
the timing of orders for, and installation of the BSCS product by, these
customers.
COST OF SERVICES. Cost of services decreased as a percentage of total
revenues to 33.6% in the year ended December 31, 1996 from 35.8% in the year
ended December 31, 1995. Costs of services increased 97.9% to $19.1 million in
the year ended December 31, 1996 from $9.7 million in the year
19
<PAGE>
ended December 31, 1995, primarily due to compensation expense associated with
increased staffing for new projects in Europe, the Americas and Asia. Cost of
services decreased as a percentage of service revenues to 57.6% in the year
ended December 31, 1996 from 72.5% in the year ended December 31, 1995,
primarily due to a decline in the use of outside consultants and systems
integrators. Cost of services consists primarily of salaries and benefits
associated with customization, installation and product support activities. It
also includes third-party costs associated with systems integrators and, to a
lesser extent, costs related to providing software maintenance and end-user
training to customers.
SALES AND MARKETING. Sales and marketing expenses increased as a percentage
of total revenues to 13.5% in the year ended December 31, 1996 from 9.1% in
the year ended December 31, 1995. These expenses increased 211.7% to $7.7
million in the year ended December 31, 1996 from $2.5 million in the year
ended December 31, 1995. This increase was principally due to growth in the
number of worldwide sales and marketing personnel responsible for developing
business, particularly in the Americas. Sales and marketing expenses consist
primarily of the salaries, benefits and travel expenses of those employees
responsible for acquiring new business and maintaining existing customer
relationships, as well as marketing expenses related to trade publications,
advertisements and shows.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased as a
percentage of total revenues to 28.6% in the year ended December 31, 1996 from
36.0% in the year ended December 31, 1995. These expenses increased 67.1% to
$16.2 million in the year ended December 31, 1996 from $9.7 million in the
year ended December 31, 1995. This increase was principally due to increases
in the number of personnel associated with the continued development of BSCS
Version 4.0 and the initial design and development of Version 5.0. In
addition, the Company's decision in late 1995 to modify its existing software
kernel for use in the Americas necessitated the establishment of two separate
research and development efforts in 1996. Research and development expenses
are comprised of salaries and benefits of the employees involved in product
and enhancement development. All development costs are expensed as incurred.
GENERAL AND ADMINISTRATIVE. General and administrative expenses remained
constant at 14.6% of total revenues in the years ended December 31, 1996 and
December 31, 1995. These expenses increased 111.0% to $8.3 million in the year
ended December 31, 1996 from $3.9 million in the year ended December 31, 1995.
This increase was principally due to increases in the number of administrative
personnel required to staff the Americas operation as well as increases in
office rent and other expenses incurred as a result of the general growth of
the Company's business. General and administrative expenses consist primarily
of salaries and benefits of management and administrative personnel, general
office administration expenses such as rent and occupancy, telephone expenses
and other supply costs, and fees for legal, accounting and other professional
services.
INCOME TAXES. The provision for income taxes decreased to 37.9% of earnings
before income taxes in the year ended December 31, 1996 from 74.3% of earnings
before income taxes in the year ended December 31, 1995. The higher effective
tax rate in 1995 resulted in large part from the Company's inability to
recognize the benefit of net operating losses in the United States and greater
income from certain European countries with higher statutory tax rates. The
Company currently expects that its future annual tax rates ordinarily will not
exceed 40.0% of earnings before income taxes. However, this statement is a
forward-looking statement and the Company's actual tax rate in any year could
be higher, depending on statutory rate changes and the utilization of certain
net operating loss benefits.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Total revenues increased 30.1% to $27.0 million in the year ended
December 31, 1995 from $20.7 million in the year ended December 31, 1994.
License revenues decreased 9.1% to $13.7 million in the year ended December
31, 1995 from $15.0 million in the year ended December 31,
20
<PAGE>
1994, while service revenues increased 133.7% to $13.3 million in the year
ended December 31, 1995 from $5.7 million in the year ended December 31, 1994.
In 1995, the Company experienced relatively modest growth in revenues when
compared to prior years principally due to management's significant focus on
establishing operations in the Americas, which resulted in less emphasis on
sales to, and a lengthening of the sales cycle for, the Company's European
customers. Although the Company established operations in the Americas and
Asia in 1995, such operations did not generate any significant revenues in
1995. Revenues from the Company's European customers accounted for $23.7
million or 87.8% of 1995 revenues compared to $20.7 million or 100.0% of 1994
revenues. Revenues from the Company's Americas customers accounted for
$945,000 or 3.5% of revenues in 1995. In addition, in 1995, the Company's
three largest customers accounted for 14%, 10% and 10% of total revenues, and
in 1994 the Company's two largest customers accounted for 15% and 12% of total
revenues.
License revenues decreased as a percentage of total revenues to 50.6% in the
year ended December 31, 1995 from 72.5% in the year ended December 31, 1994,
while service revenues increased as a percentage of total revenues to 49.4% in
the year ended December 31, 1995 from 27.5% in the year ended December 31,
1994. This change in the mix of revenues is due to the increased demands of
customers for billing and customer care solutions tailored to their specific
needs.
COST OF SERVICES. Cost of services increased as a percentage of total
revenues to 35.8% in the year ended December 31, 1995 from 21.5% in the year
ended December 31, 1994. This increase was primarily the result of the shift
in the mix of revenues towards service revenues, which have a higher cost of
revenues than license revenues. Cost of services decreased as a percentage of
service revenues to 72.5% in the year ended December 31, 1995 from 78.2% in
the year ended December 31, 1994, due to increases in service revenues that
offset increases in service staffing. Cost of services increased 116.6% to
$9.7 million in the year ended December 31, 1995 from $4.5 million in the year
ended December 31, 1994. This increase was principally due to increased
staffing for new projects in Europe in 1995 and related compensation expense.
SALES AND MARKETING. Sales and marketing expenses decreased as a percentage
of total revenues to 9.1% in the year ended December 31, 1995 from 14.3% in
the year ended December 31, 1994. These expenses decreased 17.2% to $2.5
million in the year ended December 31, 1995 from $3.0 million in the year
ended December 31, 1994. The decrease in expense was principally due to the
payment in 1994 of approximately $700,000 in sales commissions to establish
new distribution channels, offset by related increases in staffing.
RESEARCH AND DEVELOPMENT. Research and development expenses increased as a
percentage of total revenues to 36.0% in the year ended December 31, 1995 from
24.9% in the year ended December 31, 1994. These expenses increased 87.9% to
$9.7 million in the year ended December 31, 1995 from $5.2 million in the year
ended December 31, 1994, principally due to increased staffing required to
develop BSCS Version 4.0, which was released in early 1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased as
a percentage of total revenues to 14.6% in the year ended December 31, 1995
from 19.1% in the year ended December 31, 1994. These expenses remained
constant at $3.9 million in the years ended December 31, 1995 and 1994 as
existing management and administrative staffing was sufficient to support the
increase in revenues in 1995.
INCOME TAXES. The provision for income taxes increased to 74.3% of earnings
before income taxes in the year ended December 31, 1995 from 26.0% of earnings
before income taxes in the year ended December 31, 1994. The high effective
tax rate in 1995 resulted primarily from the Company's inability to recognize
the benefit of net operating losses in the United States. The lower effective
tax rate in 1994 was the result of greater income from certain European
countries with lower statutory tax rates.
21
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly consolidated statement of
income data for each of the eight quarters ended December 31, 1996. This
information has been prepared on the same basis as the audited consolidated
financial statements appearing elsewhere in this Prospectus and includes all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of the information when read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License revenues....... $2,334 $3,662 $3,663 $3,995 $2,625 $4,560 $ 8,068 $ 8,448
Service revenues....... 2,161 2,756 2,897 5,499 4,131 6,393 10,886 11,753
------ ------ ------ ------ ------ ------ ------- -------
Total revenues....... 4,495 6,418 6,560 9,494 6,756 10,953 18,954 20,201
Cost of services....... 1,621 1,984 2,144 3,904 1,977 3,772 6,692 6,666
------ ------ ------ ------ ------ ------ ------- -------
Gross profit........... 2,874 4,434 4,416 5,590 4,779 7,181 12,262 13,535
Operating expenses:
Sales and marketing.... 566 621 664 604 1,238 2,136 2,009 2,270
Research and
development............ 1,892 1,763 2,040 4,019 3,540 4,083 3,765 4,848
General and
administrative......... 851 911 1,032 1,134 1,238 1,192 2,588 3,269
------ ------ ------ ------ ------ ------ ------- -------
3,309 3,295 3,736 5,757 6,016 7,411 8,362 10,387
------ ------ ------ ------ ------ ------ ------- -------
Earnings (loss) before
interest and taxes.... (435) 1,139 680 (167) (1,237) (230) 3,900 3,148
Interest expense, net.. (4) (10) (39) (57) (52) (85) (24) 84
------ ------ ------ ------ ------ ------ ------- -------
Earnings (loss) before
income taxes.......... (439) 1,129 641 (224) (1,289) (315) 3,876 3,232
Income taxes (credit).. (325) 834 479 (165) (490) (120) 1,473 1,221
------ ------ ------ ------ ------ ------ ------- -------
Net earnings (loss).... $ (114) $ 295 $ 162 $ (59) $ (799) $ (195) $ 2,403 $ 2,011
====== ====== ====== ====== ====== ====== ======= =======
Net earnings (loss) per
share (1).............. $(0.01) $ 0.02 $ 0.01 $ 0.00 $(0.04) $(0.01) $ 0.11 $ 0.09
====== ====== ====== ====== ====== ====== ======= =======
Shares used in per
share calculation (1). 12,316 17,413 17,413 17,805 21,913 21,913 21,913 21,913
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(AS A PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License revenues....... 51.9% 57.1% 55.8% 42.1% 38.9% 41.6% 42.6% 41.8%
Service revenues....... 48.1 42.9 44.2 57.9 61.1 58.4 57.4 58.2
------ ------ ------ ------ ------ ------ ------- -------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of services....... 36.1 30.9 32.7 41.1 29.3 34.4 35.3 33.0
------ ------ ------ ------ ------ ------ ------- -------
Gross margin........... 63.9 69.1 67.3 58.9 70.7 65.6 64.7 67.0
Operating expenses:
Sales and marketing.... 12.6 9.7 10.1 6.4 18.3 19.5 10.6 11.2
Research and
development............ 42.1 27.5 31.1 42.3 52.4 37.3 19.9 24.0
General and
administrative......... 18.9 14.2 15.7 11.9 18.3 10.9 13.7 16.2
------ ------ ------ ------ ------ ------ ------- -------
73.6 51.3 57.0 60.6 89.0 67.7 44.1 51.4
------ ------ ------ ------ ------ ------ ------- -------
Earnings (loss) before
interest and taxes.... (9.7) 17.7 10.4 (1.8) (18.3) (2.1) 20.6 15.6
Interest expense, net.. (0.1) (0.2) (0.6) (0.6) (0.8) (0.8) (0.1) 0.4
------ ------ ------ ------ ------ ------ ------- -------
Earnings (loss) before
income taxes.......... (9.8) 17.6 9.8 (2.4) (19.1) (2.9) 20.4 16.0
Income taxes (credit).. (7.2) 13.0 7.3 (1.7) (7.3) (1.1) 7.8 6.0
------ ------ ------ ------ ------ ------ ------- -------
Net earnings (loss).... (2.5)% 4.6% 2.5% (0.6)% (11.8)% (1.8)% 12.7% 10.0%
====== ====== ====== ====== ====== ====== ======= =======
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for the
determination of the number of shares used in per share calculation.
22
<PAGE>
The Company has experienced quarterly fluctuations in its operating and
financial results, primarily due to the timing of the introduction of new
releases of its BSCS software, the timing of commencement of new projects and
completion of existing projects, the size of new projects, cancellations of
projects, increases in sales and marketing and operations staff and the start-
up costs associated with the implementation of new operations in the Americas
and Asia. The Company expects quarterly fluctuations to continue as the
Company introduces new software releases and continues its expansion globally
into new telecommunications markets. Quarterly fluctuations may also result
from the timing of introduction of products and services by the Company's
competitors. See "Risk Factors--Fluctuations in Quarterly Operating Results"
and "--Dependence on New Products".
The Company's quarterly revenues have increased throughout 1995 and 1996. In
the first quarter of 1996, however, revenues declined due to the completion of
a number of large projects in Europe during 1995. In addition, the decrease in
revenues was due to a shift in management focus toward establishing operations
in the Americas and Asia, which did not begin to generate significant revenues
until the second quarter of 1996. Revenues increased in the second and third
quarters of 1996, due to the commencement of multiple installations of BSCS
Version 4.0, particularly in the Americas. Service revenues, which represented
less than 50% of the Company's revenues in the first three quarters of 1995,
increased to, and have remained at, approximately 60% of revenues through 1996
primarily due to increased demands of customers for billing and customer care
solutions tailored to their specific needs.
Cost of services has increased in proportion to the Company's increasing
revenues due to greater costs related to additional personnel, outside
consultants and systems integrators required to meet the increased demands of
customers for billing and customer care solutions tailored to their specific
needs. In the first quarter of 1996, however, cost of services decreased due
to a reduction in the use of systems integrators and outside contractors in
connection with the completion of a number of significant projects in Europe.
Gross profit also increased throughout 1995 and 1996 in proportion to the
Company's revenues, except in the first quarter of 1996.
Total operating expenses steadily increased throughout 1995 and 1996. Sales
and marketing expenses, which were relatively stable through 1995, increased
in the first two quarters of 1996 primarily due to significant increases in
personnel related to expansion into the Americas and Asian markets. Research
and development expenses increased dramatically during the fourth quarter of
1995 as the Company employed additional contract and permanent software
developers for the launch of BSCS Version 4.0 in the Americas and Asia.
Research and development expenses increased in the fourth quarter of 1996 due
to further increases in staffing levels in Atlanta and Frankfurt for the
planned launch of BSCS Version 5.0. General and administrative expenses
increased moderately through the second quarter of 1996. In the second half of
1996, the Company hired additional members of senior management, particularly
in the Americas.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $3.3 million in 1994 and
$3.2 million in 1995, and net cash used by operating activities totaled $3.8
million in 1996. Net cash used by operations in 1996 was primarily the result
of the increased use of working capital to fund the new business opportunities
in the Americas and Asia.
23
<PAGE>
The Company invested $3.5 million, $1.8 million and $4.0 million in
leasehold improvements during 1994, 1995, and 1996, respectively. The higher
investments in 1994 compared to 1995 were primarily due to $1.9 million of
leasehold improvements to the Company's European office spaces. The increase
from 1995 to 1996 is primarily the result of growth in the Company's Americas
operations which required significant purchases of furniture and computer
equipment.
Since its inception, the Company has financed its growth principally through
cash provided by operations. The Company's only significant external financing
activity to date has been through the sale of $20.0 million of preferred stock
in December 1995 to General Atlantic Partners and its affiliates. Of the $20.0
million of proceeds, net of $434,000 in costs of the offering, $14.6 million
was distributed to LHS stockholders as part of the reorganization that created
the LHS Group Inc. holding company. Additionally, in July 1996, the Company
repurchased shares of Common Stock from one of its stockholders for $10.0
million and simultaneously sold an equal number of shares of Common Stock to
other stockholders of the Company for $10.0 million. See "Certain
Transactions".
Working capital requirements periodically require the Company to borrow on a
short-term basis from the Company's line of credit facilities in Europe which
provide for maximum borrowings of approximately $3.9 million. The credit
facility is renewable on an annual basis. Outstanding borrowings under the
credit facilities as of December 31, 1996 aggregated approximately $1.9
million.
At December 31, 1996, the Company did not have any material commitments for
capital expenditures. The Company believes that the net proceeds from the sale
of the Common Stock in the Offerings, combined with existing cash balances and
funds generated by operations, will be sufficient to meet its anticipated
working capital and capital expenditure requirements through at least the end
of 1997.
24
<PAGE>
BUSINESS
LHS is a leading provider of client/server-based billing and customer care
solutions to providers of wireless and wireline telecommunications services
("carriers") in the Americas, Europe and Asia. The Company's products enable
carriers to compete more effectively in a rapidly growing telecommunications
market. The Company's BSCS software is a scaleable, modular billing and
customer care solution that can be implemented quickly and can support
innovative marketing and pricing of telecommunications services. BSCS has been
licensed to approximately 60 carriers in over 25 countries and supports
approximately 3.5 million subscribers.
The Company's objective is to be the leading provider of client/server-based
billing and customer care solutions for the global telecommunications
industry. The Company intends to leverage its significant installed base of
European wireless customers to serve wireline and wireless markets around the
world. Moreover, the Company seeks to continually improve the functionality of
its products, maintain the strong technology position of BSCS and establish
long-term relationships with carriers. The Company intends to leverage its
relationships with leading systems integrators, including Andersen Consulting,
Cap Gemini, EDS and Logica, and equipment vendors to more effectively market
its software and services to emerging carriers, and to efficiently install the
BSCS solution. Current customers of the Company include Aerial and PBMS in the
Americas, Swiss Telecom in Europe and Binariang in Asia.
INDUSTRY BACKGROUND
TELECOMMUNICATIONS INDUSTRY
For most of this century, telecommunications carriers around the world
provided wireline services in heavily regulated environments. Often
characterized by monopoly dominance, the telecommunications industry offered
basic telephony services and underwent little change. More recently, however,
the deregulation of the telecommunications industry coupled with the
development and widespread adoption of new wireless communications services,
such as paging and analog and digital cellular telephony, has resulted in
significant growth in the number of new carriers and in the overall size of
the telecommunications services market. As existing carriers attempt to
maintain market share in their traditional markets while simultaneously
entering new markets, and as new entrants seek to capture market share in
wireline and wireless markets, telecommunications markets worldwide have
become increasingly competitive and dynamic.
Governments around the world are relaxing regulatory constraints on the
telecommunications industry. Within the United States, deregulation commenced
in the long distance market with the breakup of AT&T in 1984 and the
subsequent entry of additional long distance carriers. In 1994, the U.S.
government similarly allowed new competitors to enter the cellular industry,
which developed in the 1980's and was initially structured as a duopoly in
each service area, by auctioning significant radio spectrum for digital
cellular, PCS and other services to new carriers. More recently, the
Telecommunications Act of 1996 is expected to increase competition across U.S.
markets by allowing new and existing local and long distance wireline,
wireless and cable TV companies to provide competing services. As a result of
these trends, the number of wireless and wireline carriers in the U.S. market
has increased and is expected to continue to increase dramatically.
Outside the United States, deregulation and privatization are also resulting
in the emergence of new carriers, increased competition and the broader
availability of telecommunications services. The general trend toward
deregulation and the expected adoption in 1998 of uniform regulatory
constraints within wireline markets of the European Community, along with
continued growth in European wireless markets, are expected to increase the
number and types of services offered and to intensify competition within
wireless and wireline markets across Europe. In Asia, increased competition is
expected in both wireless and wireline markets as many nations deregulate and
privatize their national telecommunications carriers and allow new carriers to
offer services to meet the demands of a rapidly
25
<PAGE>
growing population. Further accelerating these trends in the
telecommunications industry, more than 60 member nations of the World Trade
Organization reached an agreement in February 1997 to substantially deregulate
the majority of the world's telecommunications markets beginning in 1998.
These trends are expected to result in established and emerging carriers
introducing service offerings in telecommunications markets worldwide, thus
increasing overall competition.
In conjunction with deregulation, advances in telecommunications technology
have significantly stimulated the growth in the number of carriers as well as
in the types of services offered. In the wireless sector, the trend in
technology has been to migrate from analog to digital, with digital
technologies promising carriers and consumers lower infrastructure costs,
greater privacy, fraud protection and new, enhanced features. Most established
carriers using older analog cellular standards such as AMPS (Americas and
Asia), NMT (Europe and Asia) and TACS (Europe) are expanding their networks to
include digital standards. Although the GSM digital standard and its
derivatives have gained widespread acceptance, particularly among carriers in
Europe and Asia, other digital cellular and PCS standards such as TDMA (U.S.)
and CDMA (U.S., Canada and Asia) are being deployed rapidly. These rapid
changes in telecommunications technology have created significant market
opportunities for new and existing carriers, resulting in greater competition
and a wider range of service offerings for consumers.
As competition intensifies, telecommunications carriers increasingly
differentiate their service offerings, not only on the basis of pricing and
reliability, but also by offering value added features, bundling multiple
services and marketing innovative, targeted rate and service plans. Carriers
are utilizing technology advancements to compete by offering service features
in addition to basic telephony, including voice mail, call forwarding, caller
identification, fax and data transmission. As carriers established in one
market attempt to enter other formerly distinct markets in wireline, wireless,
satellite and Internet services, many are bundling multiple services in order
to successfully retain existing customers and to attract new customers.
Increasingly, carriers are relying on innovative marketing of rate and service
plans to successfully segment and attract potential customers.
To compete effectively, carriers require business systems which enable
innovative and flexible marketing and support multiple service offerings.
These systems, which provide billing and customer handling, or "customer
care," have become critical to the business success of carriers. Billing
systems are no longer a back-office operation focused simply on billing and
invoicing. Carriers today demand that billing and customer care systems
provide innovative and flexible marketing of services, robust customer
management capabilities, subscriber data and feedback and service plan
flexibility in addition to the rating, invoicing and collection features
provided by yesterday's billing systems. Increasingly, billing and customer
care systems are deployed by carriers as a strategic business weapon.
BILLING AND CUSTOMER CARE SYSTEMS
Billing systems for telecommunications services were first developed to meet
the needs of large monopoly carriers, and offered a simple, single-service
billing function, including rate tariffing and invoicing. These systems lacked
advanced customer care functionality, which typically provides the initial
establishment of customer accounts, assignment of phone numbers, issuance and
reporting of calling card usage, maintenance of customer history, directory
listings, and generation and management of marketing feedback. While
sufficient for the regulated environment in which carriers then operated,
these early billing systems typically were mainframe-based, were built around
proprietary, closed hardware and software platforms, and were inflexible and
costly to maintain.
The rapid advance of telecommunications technology, the deregulation of
markets around the
globe and the increasing importance of reducing time-to-market have motivated
carriers to install, maintain and update advanced billing and customer care
systems. These systems are essential for both existing and emerging carriers
to compete effectively as they seek to introduce new services, enter new
markets and offer a high level of customer service. In some cases, carriers
may choose to outsource the fulfillment of these billing and customer care
activities to service bureaus for financial or
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other business reasons. Regardless of whether carriers rely on a purchased
solution operated internally or on an outsourced solution from a service
bureau provider, a strong market opportunity exists for a billing and customer
care solution which provides the following benefits:
. FLEXIBILITY. Carriers need billing and customer care solutions which
enable innovative, sophisticated and dynamic marketing and pricing of
telecommunications services.
. RAPID TIME-TO-MARKET. Carriers entering new markets for
telecommunications services place a significant premium on rapid launch
of services and, accordingly, require billing and customer care
solutions which can be implemented quickly.
. PROVEN TRACK RECORD. With little margin for error in a very competitive
environment, carriers are seeking billing and customer care solutions
with a proven track record to minimize deployment risk during the
critical launch of new services.
. SCALEABILITY. Carriers are seeking solutions that will scale with
subscriber growth to avoid service billing and collection disruption and
to minimize recurring staff training and billing and customer care
system investments.
. MULTIPLE SERVICE SUPPORT. As established carriers enter new markets,
billing and customer care solutions must support multiple
telecommunications services and standards. A common billing and customer
care solution supporting wireline, wireless, Internet and satellite
offerings will enable innovative marketing of multiple services with
centralized customer billing.
. INTERNATIONAL SUPPORT. As carriers are entering new geographic markets,
billing and customer care solutions must increasingly support multiple
languages and currencies while providing consistent functionality across
diverse market environments.
THE LHS SOLUTION
The Company believes that it currently meets, and will continue to meet, the
needs of a wide variety of carriers with its BSCS software product and the
broad range of comprehensive customization, installation and maintenance
services offered by the Company. BSCS is a proven system which has been
licensed to approximately 60 carriers in more than 25 countries supporting a
total of approximately 3.5 million subscribers. BSCS offers the following
features and benefits:
. FLEXIBLE SOLUTION. The BSCS system can be tailored to each carrier's
particular needs in order to keep pace with a highly competitive,
dynamic market for telecommunications services. BSCS enables carriers to
dynamically update rate and pricing plans tailored to time of day, day
of week, previous usage levels, call destinations, credit
characteristics and numerous other marketing parameters.
. OPEN, CLIENT/SERVER BASED ARCHITECTURE. BSCS supports multiple hardware
platforms and operating systems, enabling carriers to benefit from
continued advances in technology. As a packaged application customized
to meet the needs of each particular carrier, BSCS offers carriers rapid
installation relative to complete custom solutions and is more flexible
than in-house legacy mainframe solutions. BSCS's client/server
architecture enables efficient integration with best-of-breed financial,
human resources, operational and other software applications and
provides scaleability as a carrier's subscriber base grows.
. MODULAR CONFIGURATION. The BSCS architecture offers carriers efficient,
rapid customization and cost effective implementation. The Company's
modular architecture provides carriers with the flexibility to modify or
add BSCS functions with little or no impact to unmodified portions of
the product, allowing carriers to easily tailor BSCS to meet their
unique system requirements.
. MULTIPLE SERVICES SUPPORT. BSCS is architected to support multiple
telecommunications technology standards with minimal modification to the
software's core billing and customer care functionality. BSCS 4.0
currently supports the GSM, NMT, ERMES, Pocsag and SMR standards. The
BSCS 5.0 versions, scheduled for release by the fourth quarter of 1997,
will also support the CDMA, TDMA and AMPS wireless standards as well as
satellite, wireline, Internet and additional paging standards.
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<PAGE>
. COMPREHENSIVE INTERNATIONAL SOLUTION. BSCS is a global solution that
supports multiple currencies and requirements of different geographic
markets. The product currently supports billing and customer care in the
English, French, German, Italian and Spanish languages.
. COMPLETE CUSTOMER SERVICES. In addition to the BSCS software, the
Company provides carriers with a complete customer solution, including
initial customization and installation and ongoing maintenance, upgrades
and customer support. LHS offers carriers the choice of initial
installation directly from the Company or through leading systems
integrators. Ongoing maintenance and customer support is offered at
varying levels of service and priced to meet the needs of the carrier.
THE LHS STRATEGY
To maintain its position as a leading provider of client/server-based
billing and customer care solutions for the global telecommunications
industry, the Company's strategies include:
. LEVERAGE WIRELESS POSITION TO PENETRATE OTHER MARKETS. LHS currently has
a significant installed base of wireless customers utilizing the BSCS
billing and customer care system and, as a result, the Company believes
it is well positioned to compete for new wireless installations
worldwide. The Company believes there is a significant market
opportunity to become the leading provider of client/server-based
billing and customer care solutions for the growing number of carriers
which offer multiple telecommunications services. LHS will modify its
BSCS product to support not only carriers that compete in GSM wireless
markets, but also other digital wireless, analog wireless, wireline,
satellite, paging and Internet service markets. To reach this goal, the
Company plans to introduce BSCS Version 5.0 and will initially focus on
wireline opportunities in Europe to take advantage of the Company's
strong reputation and resources in that region and the impending
deregulation of European wireline markets.
. MAINTAIN A LEADING BILLING AND CUSTOMER CARE SOLUTION. The BSCS product
is currently deployed on a client/server technology platform, providing
significant billing and customer care functionality. The Company will
continue to improve product functionality by offering prepayment,
discounting, promotional and other marketing capabilities. To ensure
that its products keep pace with information technology advances, the
Company will develop support for Windows NT server software and will
continue to adopt leading database and client technologies.
. EXPAND GLOBALLY. Through its regional offices, LHS intends to expand its
marketing focus to be well-positioned for global growth in demand for
billing and customer care solutions. The Company will continue to deploy
software development, sales, service and management resources to its
regional offices in Frankfurt, Germany; Atlanta, United States; and
Kuala Lumpur, Malaysia and will continue to customize its products to
support additional languages and currencies.
. DEVELOP AND MAINTAIN CUSTOMER RELATIONS. The Company believes that the
development of long-term customer relations will result in continuing
business, a strong reputation for LHS within the telecommunications
industry and direction for future product development. LHS will hold
management, consulting and sales staff accountable for the quality of
relations with specific customers, each of which will be assigned a
dedicated contact person within the Company.
. LEVERAGE THIRD-PARTY RELATIONSHIPS. The Company seeks to maintain its
relationships with leading systems integrators such as Andersen
Consulting, Cap Gemini and Logica as well as with leading vendors of
telecommunications equipment. Many of these systems integrators and
equipment vendors operate on a global basis across wireless, wireline
and other communications technology lines, and the Company expects these
relationships to facilitate the Company's penetration of non-wireless
and non-European markets.
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BSCS ARCHITECTURE
The Company's BSCS product is a client/server application that supports
industry standard technologies. The product currently supports the UNIX
operating system and Oracle relational database software as well as hardware
from Hewlett-Packard, IBM, Sun and DEC on the server side, and supports
Microsoft Windows and Windows NT operating systems and standard PC hardware on
the client side. BSCS leverages leading commercial database technology to
provide support for symmetric multiprocessing and very large database
capability. Client applications are written in Centura and Visual C++
languages, while server applications are developed in C and SQL. BSCS supports
TCP/IP, X.25, HTTP and other standard network communications protocols.
The Company's development group maintains close contact with carriers,
integrators and technology suppliers to keep pace with technology change. BSCS
is currently implemented in a two-tier architecture for optimal performance,
scaleability and functionality. LHS is also evaluating the potential
development of BSCS on a multi-tier architecture in support of future
distributed computing and application partitioning technologies, as well as
the development of an object-oriented implementation of BSCS for future
deployment.
PRODUCTS
The Company derives a significant portion of its revenues from licensing its
BSCS software to telecommunications carriers. The BSCS software is structured
in a kernel/non-kernel hierarchy: the kernel comprises the set of core
software modules common to all BSCS configurations, while non-kernel modules
primarily provide interface functions. Kernel and non-kernel modules can be
customized to meet individual carrier requirements. The following graphic
depicts the BSCS product architecture and kernel/non-kernel structure:
DESCRIPTION OF ILLUSTRATION
Schematic diagram depicting kernel and non-kernel modules within the BSCS
software product and the interfaces of those modules with network equipment,
subscriber databases, authentication databases, payment systems and bill
delivery systems. Honeycomb background depicts several level and non-kernel
software modules.
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Kernel and non-kernel software modules are organized as follows:
Customer Care Administration -- This module enables carrier customer service
representatives to establish and maintain subscriber contact by creating and
maintaining account information that tracks initial service requests through
service activation and service termination. This module also supports
registration of the customer data, maintenance of subscriber service and
feature profiles, provisioning, sales of services and equipment,
administration of contracts, initiation of on-demand bills, complaint
tracking, adjustment processing and bill and payment inquiries.
Network Resource Administration -- After a carrier customer service
representative has initiated a subscriber's account, this module is utilized
to assign subscribers a telephone number. This module also maintains the
inventory of network resources applicable to the services supported by the
system, including telephone numbers and network devices. Facilities are
provided to monitor the level of network resource inventory and to distribute
the resources to sales channels.
Carrier Administration -- In order to assign a long distance carrier, the
customer service representative utilizes this Carrier Administration module.
In addition, this module provides roaming agreement maintenance, generates
roaming bills, enables reconciliation of incoming roaming calls and supports
long distance interconnect traffic settlement.
Services and Tariffs Administration -- This module allows a carrier to
develop innovative marketing and billing plans through use of tariff tables
for multiple services which can reflect usage-sensitive or flat rate charging.
This module enables service-specific usage, one-time and recurring charges,
volume and free usage discounting, rate plan queries, processed calls
monitoring, tailored tariffing, roaming charges and competitor tariff
analysis.
Event Processing -- This module allows carriers to rate calls as subscriber
call records are received. Validation and pricing of call detail records are
performed in this module, which also provides on-line monitoring of credit
limits and customer rate plan optimization. The module has been designed to
provide near real-time rating over an entire subscriber base.
Bill Processing -- In order for carriers to process bills, this module
calculates all bill charges and creates the services invoice on a periodic
basis. Key functions include tax calculation, discounting, late fee
calculations, invoice scheduling, general ledger postings and revenue
reporting. The module supports multiple currencies and multiple languages.
Financial Administration -- This module reconciles billing with a carrier's
financial records and statements in addition to handling payments from
customers. Payment processing, accounts receivable and general ledger posting
activities are enabled by this module. Payments may be made via cash, credit
card transaction, direct debit transaction or lock-box bank transfer. The
module also supports advance payments, deposits, bad debt write-offs,
adjustments, corrections and account query. A sales administration function
maintains sales force data and enables sales tracking for commission
processing.
A number of customizable non-kernel interface modules are included within
BSCS to enable close integration with a carrier's network and business
infrastructure. These non-kernel modules are organized as follows: Call Record
Input, which receives, edits, authenticates and formats call detail records
into a standard event record that may be used in downstream BSCS functions
such as event and bill processing; Activation, which activates, deactivates
and modifies a suscriber's equipment and services at the switch;
Authentication, which provides an interface to a central repository of
subscriber authentication keys used in a validation algorithm to determine
whether a subscriber should have network access; Payment Processing, which
encompasses the acceptance, validation, and automated entry of payments and
Bill Formatting, which provides carriers with the flexibility to define their
own bill format, printing and delivery mechanism.
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The Company offers two other products within the BSCS suite to
telecommunications carriers. The Company's APSIS product enables carriers
providing GSM-based PCS services to offer integrated smart card based
services. The Intelligent Call Center ("ICC") product is an automatic call
distribution system for customer service call centers. APSIS and ICC together
generated less than 7% of the Company's revenues in 1996, and the Company
expects that together they will contribute less than 5% of the Company's
continuing revenues.
SERVICES
The Company derives significant revenues from project consulting undertaken
to customize BSCS for particular carriers. LHS offers carriers the choice of
initial installation directly from the Company or through leading systems
integrators, including Andersen Consulting, Cap Gemini, CMG Telecommunications
& Utilities B.V., Danet GmbH ("Danet"), Debis Systemhaus GmbH, Digital
Equipment Corporation, EDS, Hewlett-Packard Company, IBM Corp. ("IBM") and
Logica. The first phase of a project typically consists of an analysis to
identify and specify BSCS system tailoring requirements and to define the
overall project and budget. The second phase involves customization to modify
BSCS non-kernel modules to meet the resulting system specifications for that
carrier. The resulting custom BSCS solution is then tested and installed in
the carrier's information and telecommunications infrastructure. Project
duration, from initial analysis through implementation and acceptance,
typically ranges from six to twelve months. As of December 31, 1996, the
Company employed 189 projects and services personnel.
After installation, LHS maintains close ongoing contact with the carrier,
even on projects developed through a systems integrator, by holding LHS
management, consulting and sales personnel accountable for the quality of
relations with specific customers, by assigning a consulting and sales contact
to each customer, and through control over BSCS upgrades and maintenance. As a
result, the Company is often well-positioned to earn substantial revenues from
additional customization of the BSCS product after installation and additional
revenues from maintenance agreements as a carrier's subscriber base and
service offerings continue to grow and change.
The total value of an initial contract for BSCS software and services
typically ranges from $1 million to $5 million, depending on the size of the
carrier, the number of subscribers in service with the carrier, the number and
type of telecommunications services supported by BSCS, and the scope of
customization and installation requirements. Maintenance pricing is based on
the level of service desired by the customer and typically varies from 10% to
35% of the license fee per year.
PRODUCT DEVELOPMENT
The Company directs its product development efforts toward refining and
enhancing BSCS. Significant emphasis is placed on the Company's compliance
with world-wide development standards and quality benchmarks during product
development. Processes used by the Company in product development have ISO
9001 certification.
Development efforts currently in process are focused on providing support
for the AMPS analog wireless standard, European wireline services, radio
dispatch services, Microsoft's management systems suite for Internet service
providers, paging services, CDMA-based PCS and satellite-based wireless
services. The Company is also developing a Web Service Center product, an add-
on module to the Company's core BSCS product that enables carriers to offer
limited, but cost-effective, access via the Internet to the BSCS system. The
Web Service Center will utilize HTML, Java and ActiveX technologies. The
Company's development efforts will be focused on plans to unify the American
and European/Asian versions of the BSCS kernel by 1998. Longer term, the
Company is evaluating the potential development of BSCS on a multi-tier
architecture to support future distributed computing and application
partitioning technologies, as well as the development of an object-oriented
implementation of BSCS for future deployment. The Company's development staff
consisted of 146 employees as of December 31, 1996 and 87 employees as of
December 31, 1995. See "Risk Factors--Unification of American and
European/Asian Product Lines" and "--Dependence on New Products".
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MARKETING AND SALES
The Company's marketing efforts are focused on targeting key carriers in
each geographical market through advertising in telecommunications industry
publications, participation in trade shows, presentations at technical
conferences and other initiatives. The Company's sales strategy relies on
direct and indirect channels of distribution for its products. Under its
direct sales approach, the Company develops relationships with carriers
through a consultative, problem-solving sales process and works closely with
those parties to define and determine how their needs can be fulfilled by the
Company's products. The Company had a sales organization of 27 employees as of
December 31, 1996 and intends to expand its direct sales operations based in
Frankfurt, Germany; Atlanta, United States; and Kuala Lumpur, Malaysia. Due to
the sophisticated nature of the Company's products and services, the duration
of a sales cycle can range from as short as thirty days to as long as one year
or more. See "Risk Factors--Fluctuations in Quarterly Operating Results".
Because third parties play an important role in the general deployment of
information technology with carriers, the Company has developed a number of
indirect sales channels. These indirect channels, through systems integrators
and telecommunications equipment vendors, are built on relationships and
references developed through cross-selling and problem-solving. LHS markets
its products through a number of systems integrators, particularly for systems
serving larger carriers. See "Risk Factors--Reliance on Third Party
Relationships".
In addition, the Company is currently exploring a service bureau offering
through third parties to provide billing services to carriers within the U.S.
market. The Company believes that a service bureau offering may be attractive
to these carriers for financial, time-to-market and other reasons.
CUSTOMERS
BSCS has been licensed to approximately 60 carriers in more than 25
countries supporting a total of approximately 3.5 million subscribers. Much of
the Company's early growth was accomplished by focusing on GSM-based wireless
carriers in Europe, and all of the Company's 1994 revenues and 88% of the
Company's 1995 revenues were from European carriers. LHS plans to continue its
recent expansion beyond the European wireless market and to serve wireless and
wireline carriers around the world. In 1996, carriers in Europe, the Americas
and Asia contributed 55%, 33% and 12% of the Company's total revenues,
respectively. An overview of the Company's relationships with some selected
customers follows:
AERIAL COMMUNICATIONS
Aerial was one of the first PCS operators in the United States to offer GSM
based wireless services. Aerial has licenses to provide PCS service in major
trading areas covering 27.3 million people in the United States. The BSCS
software is expected to enable customer service representatives to perform
nationwide activation and allow for the integration of various sub-systems
such as mapping, interactive voice response systems and credit verification
systems. Aerial signed a contract for BSCS in July 1996 and intends to launch
commercial service in mid-1997. Revenues from Aerial accounted for
approximately 12% of the Company's 1996 total revenues.
BINARIANG COMMUNICATIONS
Binariang is a leading provider of multiple telecommunications services,
including wireless, wireline, data and satellite services, in Malaysia.
Binariang entered into an agreement with the Company to license BSCS in June
1995 and launched its commercial services in October 1995. The BSCS product
was enhanced in late 1996 to support wireline services. Binariang currently
utilizes BSCS to send bills and handle customer care for approximately 160,000
wireless subscribers and 30,000 wireline subscribers.
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PACIFIC BELL MOBILE SERVICES
On November 1, 1996 PBMS became one of the first companies to commercially
launch PCS services in the United States, with licenses covering an area of 34
million people. BSCS was selected to support billing and over-the-air
activation services to give customer representatives easy access to
information that helps them address subscriber requests quickly and
efficiently. PBMS signed an agreement in December 1995 for the BSCS software
license and customization services and launched service in October 1996.
SWISS TELECOM
Swiss Telecom is the monopoly provider of telecommunications services,
including GSM services, in Switzerland. Swiss Telecom was one of the first
customers of BSCS and launched GSM services supported by BSCS in October 1995
after signing an agreement for the Company's software and services in July
1994. Swiss Telecom currently serves a subscriber base of over 400,000 GSM and
paging services customers. The BSCS system is expected to support another
350,000 NMT (analog wireless) subscribers by June 1997. The Company continues
to provide ongoing development and maintenance support services to Swiss
Telecom. Revenues from Swiss Telecom accounted for approximately 10% of the
Company's 1996 total revenues.
COMPETITION
The market for telecommunications billing and customer care systems is
highly competitive, and the Company expects this competition to increase. The
Company competes with independent providers of billing systems and services,
such as Alltel, AMS and CBIS in the Americas and Kingston-SCL and SEMA Group
internationally, with systems integrators and with internal billing
departments of larger telecommunications carriers. The Company anticipates
continued growth and competition in the telecommunications industry and the
entrance of new competitors into the billing and customer care systems market
in the future.
The Company believes that the principal competitive factors in its market
include responsiveness to carrier needs, timeliness of implementation, quality
and reliability of products, price, project management capability and
technical expertise. The Company also believes that its ability to compete
depends in part on a number of competitive factors, including the development
by others of software that is competitive with the Company's products and
services, the price at which others offer competitive software and services,
the extent of competitors' responsiveness to customer needs and the ability of
the Company's competitors to hire, retain and motivate key personnel. The
Company competes with a number of companies that have longer operating
histories, larger customer bases, substantially greater financial, technical,
sales, marketing and other resources, and greater name recognition than the
Company. Current and potential competitors have established, and may establish
in the future, cooperative relationships among themselves or with third
parties to increase their ability to address the needs of the Company's
prospective customers. Accordingly, new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. As a
result, the Company's competitors may be able to adapt more quickly than the
Company to new or emerging technologies and changes in customer requirements,
or to devote greater resources to the promotion and sale of their products.
There can be no assurance that the Company will be able to compete
successfully with existing or new competitors. Failure by the Company to adapt
to emerging market demands and to compete successfully with existing and new
competitors could have a material adverse effect on the Company's business,
results of operations and financial condition.
In addition, as the Company expands, it will market its products and
services to carriers in markets not currently served by the Company. Upon its
entrance into these markets, the Company may encounter new competitors, many
of which have significantly greater financial, technical, personnel and
marketing resources than the Company. There can be no assurance that the
Company will be able
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to properly identify and address the demands for these new markets or that the
Company can continue to be competitive in its current markets. Failure by the
Company to maintain its competitiveness in current or new markets could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Risk Factors--Highly Competitive Market;
Competition".
PROPRIETARY RIGHTS AND LICENSES
LHS does not currently hold any patents and relies upon a combination of
statutory and common law copyright, trademark and trade secret laws, customer
licensing agreements, employee and third party non-disclosure agreements and
other methods to establish and maintain its proprietary rights to its
products. The Company believes that because of the rapid pace of technological
change in the communication and software industries, the legal protections for
its products are less significant factors in the Company's success than the
knowledge, ability and experience of the Company's employees and the
timeliness and quality of support services provided by LHS.
LHS generally enters into confidentiality agreements with its employees,
consultants, and current and potential clients and limits access to, and
distribution of, its proprietary information. Use of the Company's software
products is usually restricted to specified locations and is subject to terms
and conditions prohibiting unauthorized reproduction or transfer of the
software products. The Company also seeks to protect the source code of its
software as a trade secret and as a copyrighted work. See "Risk Factors--Risks
Associated with Intellectual Property".
EMPLOYEES
As of December 31, 1996, the Company employed a total of 456 employees. None
of the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that its employee relations are
good.
PROPERTIES
LHS leases office space in Atlanta, United States; Frankfurt, Germany; and
Kuala Lumpur, Malaysia for customer support and sales operations. The Atlanta
and Frankfurt offices are also used for software development, and the Atlanta
office is the Company's corporate headquarters. The Company believes that its
facilities are adequate for its current needs and that suitable additional
space will be available as required. In January 1997, the Company entered into
a five-year lease agreement for new office space in Atlanta beginning April
15, 1997 with total floor space of 16,880 square feet. This new space will
replace 14,161 square feet of currently-occupied space in another building.
The Company expects to sublease the currently-occupied space to a new tenant
beginning in mid 1997. The Company also entered into a five-year lease
agreement for 33,874 square feet of new office space in Frankfurt beginning
July 1, 1997. This new space will replace 20,721 square feet of currently-
occupied space which is expected to be either sub-leased or terminated in mid-
1997. The Company currently leases 5,304 square feet of office space in Kuala
Lumpur.
LEGAL PROCEEDINGS
The Company is not party to any legal proceedings that the Company believes
will have a material adverse effect on its financial condition or results of
operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Hartmut Lademacher............... 48 Chairman of the Board and Chief
Executive Officer
Jerry W. Braxton................. 49 Executive Vice President, Chief
Financial
Officer, Treasurer and Director
Dr. Wolf J. Gaede................ 40 Executive Vice President, General
Counsel, Secretary and Director
Dr. Joachim Hertel............... 44 Executive Vice President-Technology
Jurgen Doring.................... 52 Executive Vice President
Erik Froberg..................... 40 Executive Vice President
Ulf Bohla (1).................... 53 Director
William E. Ford (2).............. 35 Director
William O. Grabe (2)............. 58 Director
George F. Schmitt (1)............ 53 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
HARTMUT LADEMACHER is one of the founders of the Company and has served as
Chairman of the Board and Chief Executive Officer since the Company's
inception in October 1990. From 1973 to October 1990, Mr. Lademacher was
employed by IBM in Germany where he last served as Manager of Project
Marketing.
JERRY W. BRAXTON has served as the Company's Executive Vice President, Chief
Financial Officer and Treasurer since August 1996 and as a director of the
Company since September 1996. Before joining LHS, Mr. Braxton served as the
Chief Financial Officer for National Data Corporation, a provider of
transaction processing services and software applications systems, from 1992
to 1996. From 1976 to 1992, Mr. Braxton served as the Vice
President/Controller and Treasurer for Contel Corporation, a
telecommunications services provider.
DR. WOLF J. GAEDE has served as Executive Vice President, General Counsel,
Secretary and a director of the Company since January 1997. From 1991 to
January 1997, Dr. Gaede was a partner with the German law firm of Oppenhoff
and Radler. From 1989 to 1991, Dr. Gaede served with the law firm of
Fischotter and Luther in Hamburg, Germany and the law firm of Fulbright,
Jaworski, Reavis & McGrath in New York, New York. From 1986 to 1989, Dr. Gaede
acted as Adjunct Professor at the University of Hamburg, Germany.
DR. JOACHIM HERTEL is one of the founders of the Company and has served as
Executive Vice President-Technology of the Company since October 1990. Prior
to joining the Company, Dr. Hertel worked as an Architect and Designer with
SAP, a software provider, from 1987 to 1990, and as an Architect and Designer
with IBM from 1982 to 1987.
JURGEN DORING joined LHS in November 1996 as Executive Vice President of the
Company and President and Chief Executive Officer of LHS Communications
Systems, Inc., a subsidiary of the Company. Mr. Doring previously served as
Chief Executive Officer of Danet, Inc., a systems integrator, from 1993 to
1996 and worked in various positions with Danet GmbH in Germany from 1977 to
1989.
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ERIK FROBERG has served as Executive Vice President of the Company and
President and Chief Executive Officer of LHS Holding Germany GmbH, a
subsidiary of the Company, since August 1996. Prior to joining LHS, Mr.
Froberg was Executive Vice President and Division Manager for Utilities and
Telecom at Cap Gemini Sweden AB, a systems integrator, from 1985 to 1996.
ULF BOHLA has been a director of the Company since December 1995. He has
been Chairman of the Board of Vebacom GmbH, a telecommunications service
provider, since July 1994. He was General Manager of Telecommunications and
Vice President of International Marketing Operations for IBM Deutschland from
1970 to 1994. While with IBM, Mr. Bohla also acted as Director of the North
German Region.
WILLIAM E. FORD has been a director of the Company since December 1995. Mr.
Ford is a managing member of General Atlantic Partners, LLC ("GAP LLC") and
has been with GAP LLC since July 1991. From August 1987 to July 1991, Mr. Ford
was an associate with Morgan Stanley & Co. Incorporated. Mr. Ford is also a
director of E* Trade Group, an electronic discount brokerage company, Envoy
Corporation, a health insurance claims processing company, and GT Interactive,
Marcam Corporation and SS&C Technologies, all of which are software companies.
WILLIAM O. GRABE has been a director of the Company since December 1995. Mr.
Grabe is a managing member of GAP LLC and has been with GAP LLC since April
1992. Prior to April 1992, Mr. Grabe was a Vice President and General Manager
for IBM. Mr. Grabe is a director of Compuware Corporation, Marcam Corporation,
The Baan Company, The Coda Group PLC and Centura Software, all of which are
software companies, and is also a director of Gartner Group, an information
technology consulting company.
GEORGE SCHMITT has been a director of the Company since October 1996. He has
served as President of Omnipoint Communications, Inc., a PCS carrier, since
October 1995. From November 1994 to September 1995, Mr. Schmitt was the
President and Chief Executive Officer of PCS PrimeCo L.P., a PCS services
provider formed by AirTouch Communications, Bell Atlantic, NYNEX and U.S.
West. From November 1993 to November 1994, Mr. Schmitt was Executive Vice
President of International Operations of AirTouch Communications. From January
1990 to March 1994, he served as Vice President of Pacific Telesis Group, a
predecessor of AirTouch Communications. Mr. Schmitt is also a director of
Objective Systems Integrators, Inc.
BOARD OF DIRECTORS
The Board of Directors consists of seven directors and, pursuant to the
Company's Certificate of Incorporation, the Board of Directors is divided into
three classes as nearly equal in number as possible, with staggered three-year
terms. One class is elected each year. The terms of Messrs. Bohla and Braxton
will expire at the 1998 annual meeting of stockholders, the terms of Messrs.
Grabe and Schmitt will expire at the 1999 annual meeting of stockholders, and
the terms of Messrs. Ford, Gaede and Lademacher will expire at the 2000 annual
meeting of stockholders. Pursuant to the By-Laws of the Company and a
stockholders agreement (the "Stockholders Agreement") among the Company,
General Atlantic Partners 23, L.P. ("GAP 23"), General Atlantic Partners 31,
L.P. ("GAP 31") and GAP Coinvestment Partners, L.P. ("GAP Coinvestment") (GAP
23, GAP 31 and GAP Coinvestment hereinafter being referred to together as the
"General Atlantic Stockholders") and the other stockholders of the Company
(hereinafter being referred to together as the "Major Stockholders"), the
General Atlantic Stockholders have designated two of the members of the Board
of Directors (Messrs. William E. Ford and William O. Grabe) and the Major
Stockholders have designated two members of the Board of Directors (Ulf Bohla
and Hartmut Lademacher). The remaining directors were unanimously elected by
the stockholders. Upon the completion of this offering, the Stockholders
Agreement and the related director designation rights of the General Atlantic
Stockholders and the Major Stockholders will terminate.
36
<PAGE>
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee is responsible for reviewing and making
recommendations regarding the Company's independent auditors, the annual audit
of the Company's financial statements and the Company's internal accounting
practices and policies. The Compensation Committee approves compensation
arrangements for officers and key employees of the Company, establishes
general levels of compensation for all other employees of the Company and
administers the Company's Stock Incentive Plan. See "Management--Executive
Compensation--Stock Options".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ending December 31, 1996, all matters concerning executive
officer compensation were addressed by the entire Board of Directors, which
included Hartmut Lademacher, Chairman of the Board and Chief Executive Officer
of the Company, and Jerry Braxton, Executive Vice President, Chief Financial
Officer and Treasurer of the Company. See "Certain Transactions" for a
description of certain transactions between the Company and certain members of
its Board of Directors.
DIRECTOR COMPENSATION
Directors do not receive cash retainers or fees for attendance at meetings
of the Board of Directors or committees of the Board but are reimbursed for
reasonable expenses incurred by them in connection with their attendance at
Board and committee meetings. In lieu of cash compensation, the Company in
1996 granted non-qualified options to purchase 50,000 shares of Common Stock
to each of the seven directors of the Company. The exercise price of all of
these options was $5.30 per share and these options expire in 2006. These
options are immediately exercisable into non-vested restricted shares of
Common Stock. The restrictions on 25% of these restricted shares lapse one
year from the date of the option grant and the restrictions on 1.56% of these
shares lapse on the monthly anniversary of the grant date in each of the
succeeding 48 months.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the amounts paid by the Company during the
year ended December 31, 1996 to the Company's Chief Executive Officer and the
two other most highly compensated executive officers of the Company who earned
salary and bonus in excess of $100,000 during 1996 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------- -------------------
NAME AND PRINCIPAL OTHER ANNUAL SHARES UNDERLYING
POSITION SALARY BONUS COMPENSATION(1) OPTIONS (#)
- -------------------------- -------- ------- -------------- -------------------
<S> <C> <C> <C> <C>
Hartmut Lademacher........ $353,870 $ -- $58,341 200,000
Chairman of the Board and
Chief Executive Officer
Dr. Joachim Hertel........ 298,567 -- -- 150,000
Executive Vice President-
Technology
Erik Froberg (2).......... 124,594 37,378 37,871 400,000
Executive Vice President
</TABLE>
- --------
(1) Represents the value of personal use of a Company-provided automobile.
(2) Mr. Froberg's employment with the Company commenced on August 1, 1996.
37
<PAGE>
STOCK OPTIONS
The following table sets forth information regarding options to purchase
shares of Common Stock granted during the year ended December 31, 1996 to the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
POTENTIAL
REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL
TOTAL OPTIONS RATES OF STOCK
SHARES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM(2)
GRANT OPTIONS IN FISCAL EXERCISE EXPIRATION -------------------
NAME DATE GRANTED YEAR PRICE(1) DATE 5% 10%
---- ----- ---------- ------------- -------- ---------- --------- ---------
Hartmut Lademacher...... 6/18/96 50,000 1.9% $ 5.30 6/18/06 $ 166,657 $ 422,342
9/17/96 150,000 5.6 5.30 9/17/06 499,921 1,267,025
Dr. Joachim Hertel ..... 9/17/96 150,000 5.6 5.30 9/17/06 499,921 1,267,025
Erik Froberg ........... 9/17/96 400,000 14.8 5.30 9/17/06 1,333,257 3,378,734
</TABLE>
- --------
(1) All options were granted at an exercise price equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors.
(2) The amounts shown as potential realizable values of the options are based
on assumed annualized rates of appreciation in the price of the Common
Stock of 5% and 10% over the term of the options, as set forth in the
rules of the Commission. Actual gains, if any, on stock option exercises
are dependent upon the future performance of the Common Stock. There can
be no assurance that the potential realizable values reflected in the
table will be achieved. No shares of restricted stock, stock appreciation
rights or other equity-linked securities were granted during the year.
The following table sets forth the number and value of unexercised options
held as of December 31, 1996 by the Named Executive Officers. None of the
Named Executive Officers has exercised any of the options granted to him.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-
UNEXERCISED OPTIONS AT THE-MONEY OPTIONS AT
YEAR END (#) YEAR END ($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Hartmut Lademacher.......... 50,000 150,000 $485,000 $1,455,000
Dr. Joachim Hertel.......... -- 150,000 -- 1,455,000
Erik Froberg................ -- 400,000 -- 3,880,000
</TABLE>
- --------
(1) There was no public trading market for the Common Stock at December 31,
1996. Accordingly, these values have been calculated based on an assumed
initial public offering price of $15.00 per share less the exercise price
of $5.30 per share.
On October 14, 1996, the Board of Directors adopted and the Company's
stockholders approved the LHS Group Inc. Stock Incentive Plan (the "Incentive
Plan"). Directors, officers, key employees and consultants of the Company and
its affiliates are eligible to receive awards under the Incentive Plan. The
Incentive Plan authorizes the award of stock options, restricted stock grants,
and other rights that relate to or are valued by reference to the Company's
Common Stock or other awards relating to Common Stock. The number of shares
which may be awarded under the Incentive Plan may not exceed 4,000,000 shares
in the aggregate, and over the life of the Incentive Plan no individual may be
awarded stock options to purchase more than 1,000,000 shares. In the event of
certain transactions
38
<PAGE>
affecting the number or type of outstanding shares, the number of shares
subject to the Incentive Plan and the number, type and exercise price of
shares subject to outstanding awards shall be appropriately adjusted. The
Compensation Committee of the Board of Directors has been appointed to
administer the Incentive Plan. This Committee determines which individuals are
eligible to receive awards under the Incentive Plan and the amount, price,
timing and other terms and conditions applicable to such awards.
Options awarded under the Incentive Plan may be either incentive stock
options which are intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock
options which are not intended to satisfy Section 422 of the Code. Under the
terms of the Incentive Plan, options are granted at an exercise price that is
equal to the fair market value of a share of Common Stock of the Company at
the time the option is granted, unless otherwise determined by the Committee,
but in no event may the exercise price be less than 50% of such fair market
value. The Incentive Plan provides that each option granted becomes
exercisable on the first anniversary of the grant date with regard to 25% of
the shares subject to the option and an additional 1.56% of the shares subject
to the option become exercisable on the first day of each of the succeeding 48
months following such anniversary, unless otherwise determined by the
Committee. Vested options generally expire on the date determined by the
Committee, which shall not be later than the earliest to occur of (i) the
tenth anniversary of the grant date, (ii) the first anniversary of the
participant's termination of employment by reason of death, or (iii) in the
case of incentive stock options, the three month anniversary of the
participant's termination of employment for any other reason.
Under the Incentive Plan, the Committee also may grant awards of Common
Stock or other rights that are payable in, valued by reference to or otherwise
related to shares of Common Stock, which awards and rights shall be subject to
any such conditions and restrictions, including performance objectives, as the
Committee may determine. No options or unvested shares of restricted stock may
be transferred other than by will or the laws of descent and distribution,
unless otherwise provided by the Committee. Upon a Change of Control of the
Company (as defined in the Incentive Plan), all unvested options vest and all
restrictions applicable to restricted stock awards lapse.
EMPLOYMENT AGREEMENTS
Hartmut Lademacher, Chairman of the Board and Chief Executive Officer, and
Dr. Joachim Hertel, Executive Vice President-Technology, have employment
agreements with LHS. Each employment agreement has a stated term of three
years that began on January 1, 1997, but may be terminated at any time upon 90
days notice by the Company. The agreements provide for salaries in 1997 of
$540,000 for Mr. Lademacher and $480,000 for Dr. Hertel, which salaries are to
be adjusted annually by the Board of Directors or a committee thereof based on
its assessment of the employee's performance. Each employment agreement
further provides that the employee may participate in all benefit programs
offered by the Company and provides for an automobile or an automobile
allowance. The agreements also contain covenants relating to (i) the non-
disclosure of confidential information; (ii) the protection of inventions and
other developments; (iii) the non-solicitation of customers; and (iv) the non-
recruitment of the Company's employees.
In addition, LHS Holding Germany GmbH, a subsidiary of the Company, entered
into an employment agreement with Erik Froberg on May 21, 1996. The agreement
provides for an annual base salary of 500,000 German Deutsche Marks
(approximately $290,000) with 150,000 Deutsche Marks (approximately $90,000)
as the maximum incentive based bonus. The agreement also grants Mr. Froberg
options to purchase 400,000 shares of Common Stock at an exercise price of
$5.30 per share, which options vest over a five year period. The agreement
requires 12 months notice before either party can terminate Mr. Froberg's
employment.
39
<PAGE>
CERTAIN TRANSACTIONS
In connection with the reincorporation of the Company as a Delaware
corporation in December 1995, the Company issued shares of its Common Stock to
ten individuals and paid cash to certain of these individuals as described in
the next paragraph in exchange for their equity interests in various entities
that comprised the business, and that currently are subsidiaries, of the
Company. These individuals include Hartmut Lademacher (3,873,520 shares), Dr.
Joachim Hertel (3,873,520 shares), Manfred Hellwig (2,014,900 shares), Dr.
Rainer Zimmermann (1,861,560 shares), Otto Wipprecht (1,007,480 shares) and
Dr. Wolf Gaede (155,000 shares). Concurrently, the Company sold 193,890 shares
of Series A Convertible Preferred Stock to GAP 23 at a price of $17,234,882
and sold 31,110 shares of Series A Convertible Preferred Stock to GAP
Coinvestment at a price of $2,765,368. Each share of Series A Convertible
Preferred Stock is convertible into 20 shares of Common Stock of the Company,
and all of such shares of Series A Convertible Preferred Stock will be
automatically converted into an aggregate of 4,500,000 shares of Common Stock
upon completion of the Offerings.
In connection with the above transactions, the Company distributed
approximately $14,600,000 of the proceeds from the sale of its Series A
Preferred Stock to the following executive officers, directors and principal
stockholders of the Company in exchange for their equity interests in LHS
Communications Systems, Inc., LHS Germany Holding GmbH and LHS Europe Ltd. and
the forgiveness by those individuals of certain loans to those entities:
Hartmut Lademacher ($3,760,000), Dr. Joachim Hertel ($3,880,000), Mr. Manfred
Hellwig ($1,310,000), Dr. Rainer Zimmermann ($1,190,000), Mr. Otto Wipprecht
($1,400,000) and Dr. Wolf J. Gaede ($100,000). The Company believes that these
exchanges were made for fair value.
In July 1996, the Company repurchased 1,861,560 shares of Common Stock from
one of its stockholders at a price of $10,000,000 and simultaneously sold
1,601,920 shares of Common Stock to GAP 31 at a price of $8,605,514 and
259,640 shares of Common Stock to GAP Coinvestment at a price of $1,394,786.
All of the transactions described above are hereafter referred to collectively
as the "Reorganization". See "Principal and Selling Stockholders".
On December 12 and 13, 1996, Hartmut Lademacher sold an aggregate of 373,520
shares of Common Stock for a purchase price of $16.75 per share to five
investors as follows: 50,000 shares to GAP Coinvestment, 40,000 shares to
Coutts (Jersey) Limited, 120,000 shares to Baan Investment, B.V., 11,999
shares to Technology Crossover Ventures, C.V. and 151,521 shares to Technology
Crossover Ventures, L.P.
In connection with the Reorganization, the Company, the General Atlantic
Stockholders and the Major Stockholders entered into the Stockholders
Agreement and a registration rights agreement (the "Registration Rights
Agreement") which set forth certain rights and obligations of the parties. The
Stockholders Agreement will terminate upon the completion of the Offerings.
The Registration Rights Agreement will continue following the completion of
this offering and is summarized under the heading "Shares Eligible for Future
Sale".
In December 1994, LH Specifications Software Projectberatungsgesellschaft
mbH and LHS-Service Gesellschaft fur DV-Dienstleistungen und Handel mbH paid
one-time dividends in the aggregate amount of approximately $621,000 to
certain executive officers, directors and principal stockholders of the
Company, including Hartmut Lademacher ($155,250), Dr. Joachim Hertel
($155,250) and Manfred Hellwig ($142,830). See "Management--Directors and
Executive Officers" and "Principal and Selling Stockholders". Each of the
above referenced companies is currently an indirect wholly owned subsidiary of
the Company.
A subsidiary of the Company leases office space in Frankfurt, Germany from a
corporation that is owned in part by Hartmut Lademacher (25%), Dr. Joachim
Hertel (25%) and Dr. Rainer Zimmermann (10%), who is an employee and owner of
more than 5% of the Common Stock of the Company. During the years ended
December 31, 1994, 1995 and 1996, the Company made lease payments totaling
$247,000, $370,000 and $370,000, respectively, to this corporation.
40
<PAGE>
In connection with the E-Plus project in Dusseldorf, Germany, a subsidiary
of the Company leases housing space for certain of its employees. This space
is owned by a partnership consisting of three equal partners, Hartmut
Lademacher, Dr. Joachim Hertel and Dr. Rainer Zimmermann. During each of the
years ended December 31, 1994, 1995 and 1996, the Company made lease payments
of approximately $67,000 to the partnership.
Dr. Wolf J. Gaede, who has served since January 1, 1997 as Executive Vice
President, General Counsel and a director of the Company, was previously a
partner with the German law firm of Oppenhoff & Radler, which provides legal
services to the Company. During the years ended December 31, 1994, 1995 and
1996, the Company paid legal fees totaling $121,597, $518,660 and $554,509,
respectively, to Oppenhoff & Radler.
In October 1996, William O. Grabe, who is a director of the Company, paid
$265,000 to the Company to exercise options for the purchase of 50,000 shares
of Common Stock of the Company. The shares of Common Stock received by him are
restricted shares that may not be sold, pledged or otherwise transferred
except in accordance with the vesting schedule applicable to the options. The
vesting schedule provides that 12,500 of the shares vest on October 18, 1997,
and an additional 781 shares vest on the monthly anniversary of such date in
each subsequent month through October 18, 2001. If Mr. Grabe ceases to be a
director of the Company for any reason, he will forfeit all of his rights to
any unvested shares as of the date he ceases to be a director.
The Company believes that each of the above transactions was on terms no
less favorable to the Company than could have been obtained from unaffiliated
third parties on an arms length basis. The Company subsequently has adopted a
policy requiring that all transactions between the Company and its officers,
directors or other affiliates, or entities in which such person has an
interest, must be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties on an arm's-length basis and must be
approved in advance by a majority of the Company's directors who have no
interest in the transaction.
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 1, 1997 and as adjusted
to reflect the sale of shares offered hereby by (i) each person known to the
Company to beneficially own more than 5% of the Common Stock, (ii) each
director and Named Executive Officer, (iii) all directors and executive
officers of the Company as a group and (iv) each Selling Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERINGS (1) OFFERINGS (1)
--------------------- SHARES ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
- ------------------------ ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
General Atlantic Partners
LLC (3).................... 6,411,560 32.0% -- 6,411,560 25.6%
Manfred Hellwig (4)........ 2,014,900 13.0 200,000 1,814,900 7.2
Dr. Rainer Zimmermann (5).. 1,861,560 12.0 180,000 1,681,560 6.7
Otto Wipprecht (6)......... 1,007,480 6.5 100,000 907,480 3.6
DIRECTORS:
William E. Ford (3)(7)..... 6,461,560 32.2 -- 6,461,560 25.7
William O. Grabe (3)(8).... 6,461,560 32.2 -- 6,461,560 25.7
Hartmut Lademacher (9)..... 14,761,060 93.7 -- 13,458,060 53.6
Wolf J. Gaede (7).......... 205,000 1.3 20,000 185,000 *
Jerry W. Braxton (7)....... 73,333 * -- 73,333 *
Ulf Bohla (7).............. 50,000 * -- 50,000 *
George F. Schmitt (7)...... 50,000 * -- 50,000 *
OTHER NAMED EXECUTIVE
OFFICERS:
Dr. Joachim Hertel (10).... 3,873,520 24.9 300,000 3,573,520 14.3
Erik Froberg............... -- -- -- -- --
All directors and executive
officers
as a group (10
persons) (11).............. 19,584,833 96.1 320,000 18,466,833 72.8
ADDITIONAL SELLING
STOCKHOLDERS:
Eberhard Czempiel.......... 464,980 3.0 45,000 419,980 1.7
William J. Bobb, II........ 310,000 2.0 30,000 280,000 1.1
Jurgen Spengler............ 77,480 * 8,000 69,480 *
</TABLE>
- --------
*Less than 1%
(1) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares that such person or group has
the right to acquire within 60 days after December 31, 1996 or with
respect to which such person otherwise has or shares voting or investment
power. Unless otherwise indicated, to the Company's knowledge the named
persons and group have sole voting and investment power over the shares
of Common Stock indicated. For purposes of computing the percentages of
outstanding shares held by each person or group of persons on a given
date, shares which such person or group has the right to acquire within
60 days after such date are deemed to be outstanding for purposes of
computing the percentage for such person or group but are not deemed to
be outstanding for the purpose of computing the percentage for any other
person or group.
(2) Based on 15,550,000 shares of Common Stock outstanding prior to
completion of the Offerings and 25,050,000 shares of Common Stock
outstanding after the completion of the Offerings.
(3) Includes (i) 193,890 shares of Series A Preferred Stock held by GAP 23,
which shares are convertible into 3,877,800 shares of Common Stock, (ii)
1,601,920 shares of Common Stock held by GAP 31, (iii) 31,110 shares of
Series A Preferred Stock held by GAP Coinvestment, which shares are
convertible into 622,200 shares of Common Stock and (iv) 309,640 shares
of Common
42
<PAGE>
Stock held by GAP Coinvestment. The general partner of GAP 31 and GAP 23 is
GAP LLC. The managing members of GAP LLC are Steven A. Denning, David C.
Hodgson, Stephen P. Reynolds, J. Michael Cline, William O. Grabe and
William E. Ford. The managing members of GAP LLC are the general partners
of GAP Coinvestment. Messrs. Ford and Grabe, directors of the Company, are
managing members of GAP LLC and general partners of GAP Coinvestment. Mr.
Ford and Mr. Grabe disclaim beneficial ownership of shares owned by GAP 31,
GAP 23, and GAP Coinvestment, except to the extent of their respective
pecuniary interests therein. The address for GAP 31, GAP 23, GAP
Coinvestment, GAP LLC, Mr. Ford and Mr. Grabe is: c/o General Atlantic
Service Corporation, Three Pickwick Plaza, Greenwich, CT 06830.
(4) The address of Mr. Hellwig is Steuerberatungsgesellschaft mbH,
Marienbader Platz 18, 61348 Bad Homburg v.d.H., Germany.
(5) The address of Dr. Zimmermann is LH Specifications GmbH, Theodor-Heuss-
Ring 52, 63128 Dietzenbach, Germany.
(6) The address of Mr. Wipprecht is LH Specifications GmbH, Theodor-Heuss-
Ring 52, 63128 Dietzenbach, Germany.
(7) Includes options to purchase 50,000 shares of Common Stock of the
Company.
(8) Includes 50,000 restricted shares of Common Stock.
(9) Includes (i) options to purchase 50,000 shares of Common Stock of the
Company and (ii) 11,211,060 shares, the beneficial holders of which have
granted to Mr. Lademacher the right to vote such shares in his
discretion. The voting rights with respect to 515,000 of these shares
will expire upon completion of the Offerings and the voting rights with
respect to the remaining 10,696,060 shares expire upon the earlier of (a)
twelve months after the date on which the respective holders sell any of
their shares of Common Stock in the Offerings and (b) December 31, 1999.
The address of Mr. Lademacher is Six Concourse Parkway, Suite 2700,
Atlanta, Georgia 30328.
(10) The address of Dr. Hertel is LHS Group Inc., 6 Concourse Parkway, Suite
2700, Atlanta, Georgia 30328.
(11) Includes options to purchase 323,333 shares of Common Stock.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares of
Common Stock, $.01 par value, and 225,000 shares of Preferred Stock, $.01 par
value. After giving effect to the sale of shares in the Offerings and the
conversion of the Series A Convertible Preferred Stock to Common Stock upon
completion of the Offerings, there will be 25,050,000 shares of Common Stock
outstanding (25,932,450 shares if the Underwriters' over-allotment options are
exercised in full), and no shares of Preferred Stock outstanding.
The following summary is subject to and qualified in its entirety by the
provisions of the Company's Certificate of Incorporation, as amended, and By-
Laws, copies of which are included as exhibits to the Registration Statement
of which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of February 20, 1997, 15,550,000 shares of Common Stock were issued and
outstanding and were held of record by 16 stockholders. All shares of Common
Stock are entitled to participate in dividends, subject to preference rights
of holders of Preferred Stock, when, as and if declared by the Board of
Directors out of funds legally available therefor; are entitled to participate
equally in the assets of the Company in the event of liquidation, after paying
or setting aside sufficient assets to fully pay the preferential amounts owed
to holders of Preferred Stock; and have no conversion rights, redemption
rights, or preemptive or preferential rights to subscribe for any additional
shares of any class of capital stock of the Company, whether now or hereafter
authorized. Holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. Such voting rights are non-
cumulative, so that stockholders holding more than 50% of the outstanding
shares entitled to vote may be able to elect all members of the Board of
Directors. See "Risk Factors--Concentration of Stock Ownership".
PREFERRED STOCK
As of February 20, 1997, 225,000 shares of Series A Convertible Preferred
Stock were issued and outstanding, which shares will be converted into a total
of 4,500,000 shares of Common Stock upon completion of the Offerings. Pursuant
to the Certificate of Incorporation, upon conversion of the Series A
Convertible Preferred Stock into shares of Common Stock, the Board of
Directors will be authorized to issue, by resolution and without any action by
the stockholders, up to 225,000 shares of Preferred Stock and may establish
the designations, dividend rights, dividend rate, conversion rights, voting
rights, terms of redemption, liquidation preference, sinking fund terms and
all other preferences, relative rights and limitations of the shares of each
series of Preferred Stock. The terms of any such Preferred Stock could be more
favorable than the terms of the Common Stock, could adversely affect the
voting power, market price and other rights and privileges of the Common
Stock, and could hinder or delay the removal of directors and attempted tender
offers, proxy contests, takeovers or other attempts to change control of the
Company, some or all of which may be desired by holders of the Common Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Company's Certificate of Incorporation and By-Laws require the Company
to indemnify the current and former directors and officers of the Company, and
permit the Company to indemnify any current or former employee or agent of the
Company, to the fullest extent permitted by law. The Company's Certificate of
Incorporation eliminates a director's liability for monetary damages for
conduct as a director, unless the elimination of liability is prohibited by
the Delaware General Corporation Law, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or
knowing violation of law. These provisions do not eliminate a director's duty
44
<PAGE>
of care. Moreover, the provisions do not eliminate or limit a director's
liability for violation of certain laws, including federal securities laws.
The Company believes that these provisions are helpful to the Company in
attracting and retaining qualified individuals to serve as directors and
officers.
In addition, the Company's Certificate of Incorporation divides the Board of
Directors into three classes of directors serving staggered three-year terms.
As a result, approximately one-third of the Board of Directors will be elected
at each annual meeting of stockholders. The classification of directors,
together with other provisions in the Certificate of Incorporation and By-Laws
that require the affirmative vote of 80% or greater of all classes of voting
stock of the Company to remove a director and that permit the remaining
directors to fill any vacancies on the Board of Directors, will have the
effect of making it more difficult for stockholders to change the composition
of the Board of Directors. As a result, at least two annual meeting of
stockholders may be required for the stockholders to change a majority of the
directors, whether or not such change in the Board of Directors would be
beneficial to the Company and its stockholders and whether or not a majority
of the Company's stockholders believe that such a change would be desirable.
Currently, the terms of Class I directors expire in 1998, the terms of Class
II directors expire in 1999 and the terms of Class III directors expire in
2000.
DELAWARE ANTI-TAKEOVER LAW
The Company is a Delaware corporation that is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"). Under Section 203, certain
"business combinations" between a Delaware corporation whose stock generally
is publicly traded or held of record by more than 2,000 stockholders and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its certificate of incorporation not to be governed
by Section 203 (the Company has not made such an election), (ii) the business
combination was approved by the board of directors of the corporation before
such stockholder became an interested stockholder, (iii) upon consummation of
the transaction that made such stockholder an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the commencement of the transaction (excluding
voting stock owned by directors who are also officers or held in employee
benefit plans in which the employees do not have a confidential right to
tender or vote stock held by the plan) or (iv) the business combination is
approved by the board of directors of the corporation and ratified by two-
thirds of the voting stock which the interested stockholder did not own. The
three-year prohibition also does not apply to certain business combinations
proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation
and a person who had not been an interested stockholder during the previous
three years or who became an interested stockholder with the approval of a
majority of the corporation's directors. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or its majority-
owned subsidiaries, and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as those stockholders who become beneficial owners of 15%
or more of a Delaware corporation's voting stock, together with the affiliates
or associates of that stockholder.
LISTING
The Company has filed an application for the Common Stock to be listed and
traded on the Nasdaq National Market under the symbol "LHSG".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is SunTrust
Bank, Atlanta.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market, or the availability of substantial amounts of Common Stock for
sale, could adversely affect prevailing market prices.
Upon completion of the Offerings, the Company will have 25,050,000 shares of
Common Stock outstanding. Of these shares, the 5,883,000 shares sold in the
Offerings will be freely tradable without restriction or further registration
under the Securities Act, except for shares purchased by "affiliates" of the
Company, as such term is defined in Rule 144 under the Securities Act, which
shares generally may be sold only in compliance with Rule 144.
The remaining 19,167,000 shares are "restricted securities" within the
meaning of Rule 144 in that they have not been registered under the Securities
Act. These restricted securities generally will be eligible for sale in the
open market after the Offerings, subject to the 180 day Lock-up Agreements and
the applicable requirements of Rule 144 described below. Of these restricted
securities, 18,755,980 shares will be eligible for sale pursuant to Rule 144
upon the expiration of the Lock-up Agreements, an additional 781 shares will
first become eligible for sale in each month thereafter through October 2001
and 373,520 shares will first become eligible for sale in December 1997. In
addition, the General Atlantic Stockholders and the Major Stockholders have
the right pursuant to the Registration Rights Agreement to cause the Company,
commencing 180 days after the completion of the Offerings, to register under
the Securities Act all or a portion of the restricted shares of Common Stock
then beneficially owned by them, subject to certain conditions described
below, in which event such shares could be sold publicly without restriction
upon the effectiveness of any such registration.
In general, Rule 144 (as amended effective April 1997) provides that after a
period of one year has elapsed between the later of the date on which
restricted securities were acquired from the Company and the date on which
they were acquired from an affiliate of the Company, the holder of such
restricted securities (including an affiliate) is entitled to sell a number of
shares within any three-month period that does not exceed the greater of (i)
one percent of the then outstanding shares of the Common Stock or (ii) the
average weekly reported volume of trading of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 also are subject to
certain requirements pertaining to the manner of such sales, notice of such
sales and the availability of current public information concerning the
Company. Affiliates may sell shares not constituting restricted securities in
accordance with the foregoing volume limitations and other requirements of
Rule 144 but without regard to the one year holding period. Under Rule 144(k)
(as amended effective April 1997), after a period of two years has elapsed
between the later of the date on which restricted securities were acquired
from the Company and the date on which they were acquired from an affiliate, a
holder of such restricted securities who is not an affiliate of the Company at
the time of the sale and has not been an affiliate for at least three months
prior to the sale would be entitled to sell the shares immediately without
regard to the volume limitations and other conditions of Rule 144 described
above.
All of the Company's directors and executive officers and all of the other
stockholders of the Company, who will own in the aggregate 19,167,000 shares
of Common Stock upon completion of the Offerings, will enter into the Lock-up
Agreements with the Underwriters which will provide that for a period of 180
days after the date of this Prospectus, they will not, except in connection
with the Offerings or pursuant to certain other permitted exceptions, offer,
sell, contract to sell or otherwise dispose of, or file a registration
statement under the Securities Act with respect to, any shares of Common Stock
or any securities of the Company that are substantially similar to the Common
Stock or which are convertible into or exchangeable for, or represent the
right to receive, Common Stock or securities that are substantially similar to
the Common Stock without the prior written consent of the representative of
the Underwriters. The Company also has agreed that for a period of 180 days
after the date of this Prospectus, it will not except in connection with the
Offerings, offer, sell, contract to
46
<PAGE>
sell or otherwise dispose of, or file a registration statement under the
Securities Act with respect to, any shares of Common Stock or any securities
of the Company that are substantially similar to the Common Stock or which are
convertible into or exchangeable for, or represent the right to receive,
Common Stock (other than pursuant to employee stock plans existing on the date
of this Prospectus) without the prior written consent of the representatives
of the Underwriters.
Upon completion of the Offerings, the Company will have options outstanding
for the purchase of 2,954,500 shares of Common Stock pursuant to the Stock
Incentive Plan and outside of the Stock Incentive Plan, and options for the
purchase of 1,681,500 additional shares of Common Stock remain available for
issuance under the Stock Incentive Plan. The Company intends to file a
Registration Statement on Form S-8 to register under the Securities Act
4,000,000 shares of Common Stock that are issuable upon the exercise of
outstanding stock options and that may be subject to stock options that are
issuable in the future under the Stock Incentive Plan. This registration
statement is expected to be filed as soon as practicable after the expiration
of the Lock-up Agreements and is expected to become effective immediately upon
filing. Shares covered by this registration statement will be eligible for
sale in the public market after the effective date of the registration
statement, subject to Rule 144 limitations applicable to affiliates of the
Company. See "Management--Stock Options".
Pursuant to the Registration Rights Agreement, the Major Stockholders as a
group and the General Atlantic Stockholders as a group each are entitled to
require the Company on up to two occasions (a total of four occasions),
commencing 180 days after the completion of the Offerings, to register under
the Securities Act a number of shares of Common Stock which, upon the sale
thereof pursuant to such registration, will result in net proceeds to the
selling stockholders as a group of more than $10 million. The Major
Stockholders and the General Atlantic Stockholders also are entitled, subject
to certain conditions, to have any shares of Common Stock owned by them
included in certain registration statements filed by the Company under the
Securities Act. Upon completion of the Offerings, the Major Stockholders and
the General Atlantic Stockholders will own a total of 17,793,480 shares of
Common Stock which, subject to the above conditions, will be eligible for
registration and resale beginning 180 days after the completion of the
Offerings.
LEGAL MATTERS
Certain legal matters with regard to the shares of Common Stock offered
hereby will be passed upon for the Company by Alston & Bird LLP, Atlanta,
Georgia. Certain legal matters will be passed upon for the Underwriters by
King & Spalding, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1996 and for each of the three years in the period ended December 31, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
47
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to
the shares of Common Stock offered hereby. For the purposes hereof, the term
"Registration Statement" means the original registration statement and any and
all amendments thereto. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and
such Common Stock, reference is hereby made to such Registration Statement,
which can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission at Seven World Trade
Center, New York, New York 10048 and 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such material also may be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract or
other document are necessarily summaries of such documents. With regard to
each such contract or other document that is filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description thereof, and each such statement shall be deemed qualified in all
respects by such reference.
48
<PAGE>
GLOSSARY OF TERMS
"AMPS" -- Advanced Mobile Phone Service. An analog cellular telephone
service standard utilizing the 800 MHz band, in use in North America,
Australia and other areas.
"ActiveX" -- A collection of applications program interfaces and other
technology developed by Microsoft Corporation which facilitates the
distribution and portability of applications software.
"analog" -- A method of storing, processing and transmitting information by
representing information as a continuously-varying signal.
"C" -- A popular programming language used to create computer applications
software.
"CDMA" -- Code Division Multiple Access. A digital wireless transmission
technology for use in cellular, PCS and other wireless communications systems.
CDMA is a spread spectrum technology in which calls are assigned a pseudo
random code for encoding a digital bit stream onto a radio carrier frequency.
CDMA allows more than one wireless user to simultaneously occupy a single
radio frequency channel.
"cell" -- The geographic area defined by the signal coverage of one
transmitter/receiver site in a cellular system.
"cellular" -- A wireless telephone system based on a grid of cells. Each
cell site contains transmitters, receivers and antennas and is connected to
switching gear and control equipment.
"Centura" -- a set of software tools from Centura Software Corporation for
development of client/server applications.
"client" -- The client component of a client/server system. It is typically
a personal computer with a graphical user interface.
"client/server" -- A computer system architecture in which two independent
processes communicate via an established protocol. The client component makes
requests to the server component, which responds with information or actions.
The client component is typically the "front-end" of the system and is
operated by the end-user.
"database" -- A collection of information organized in such a way that a
computer program can quickly retrieve desired data.
"digital" -- A method of storing, processing and transmitting information by
representing information with combinations of the binary digits 0 and 1.
"ERMES" -- European Radio Message System. A European digital standard for
paging services also suited to applications such as process monitoring,
telemetry and alarm systems.
"frequency" -- The number of cycles per second, measured in hertz, of a
periodic oscillation or wave.
"GSM" -- Global System for Mobile Communications. A distributed open
networking architecture standard for digital wireless systems worldwide.
"HTML" -- Hypertext Markup Language. An authoring language used to create
documents on the Internet's World Wide Web.
"HTTP" -- Hypertext transfer protocol. The protocol used by the Internet's
World Wide Web to format and transmit messages and instructions.
"ISO 9001" -- A quality assurance standard administered by the International
Standards Organization.
"Java" -- A high-level object-oriented programming language developed by Sun
Microsystems, Inc. which is independent of a computer operating system.
"LAN" -- Local Area Network. A short distance data transmission network,
usually with decentralized communication management.
"NMT" -- Nordic Mobile Telephone. An analog cellular standard adopted in
Europe and Asia.
G-1
<PAGE>
"object-oriented" -- A type of software programming that combines data
structures with programming functions to create reusable software modules
("objects").
"PCS" -- Personal Communications Services. An advanced digital wireless
system operating at frequencies between 1800 MHz and 2000 MHz.
"Pocsag" -- An analog standard for paging services.
"protocol" -- A formal set of standards governing the establishment of a
communications link and controlling the format and timing of transmissions
between two devices.
"roaming" -- A set of agreements among wireless carriers to permit a
carrier's customer to communicate with another carrier's wireless network.
"server" -- The server component of a client/server system typically
performs database management functions.
"smart card" -- A plastic card with an embedded integrated circuit for
storing information.
"SMR" -- Specialized Mobile Radio. A system originally providing non-public
mobile dispatch services which may be adapted to provide two-way wireless
communications services.
"SQL" -- Structured Query Language. A high-level language used to define and
manipulate data in a database.
"switch" -- A central facility capable of routing calls from one point to
another. Usually a point of connection to the public switched telephone
network.
"TACS" -- Total Access Communication System. An analog cellular standard
adopted in Europe.
"TCP/IP" -- Transmission Control Protocol/lnternet Protocol. A compilation
of network- and transport-level protocols that allow diverse computers to
communicate over the Internet and other networks.
"TDMA" -- Time Division Multiple Access. A digital wireless transmission
technology that converts analog voice signals into digital form and encodes
more than one voice channel onto a single radio frequency channel by
separating the users in time.
"UNIX" -- A computer operating system, versions of which are provided by a
variety of vendors. UNIX is often used to run the database server in a
client/server application.
"Visual C++" -- A C language development system for Windows applications
software.
"Windows (Windows 3.1; Windows NT; Windows 95)" -- A family of computer
operating systems developed by Microsoft which provide a graphical user
interface. Windows NT has the same graphical user interface as Windows 95 but
is optimized for use in a network environment.
"X.25" -- A communications protocol for packet-switched data transfer.
G-2
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Statements of Income........................................... F-3
Consolidated Balance Sheets................................................. F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to the Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of LHS Group
Inc. and Subsidiaries (the "Company") as of December 31, 1995 and 1996, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years then ended. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LHS Group
Inc. and Subsidiaries at December 31, 1995 and 1996 and the results of their
operations and their cash flows for each of the three years then ended, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 7, 1997
F-2
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues
License revenues........ $ 15,026 $ 13,654 $ 23,701
Service revenues........ 5,696 13,313 33,163
----------------- ----------------- -----------------
Total revenues........... 20,722 26,967 56,864
Cost of services......... 4,457 9,653 19,107
----------------- ----------------- -----------------
Gross profit............. 16,265 17,314 37,757
Operating expenses:
Sales and marketing..... 2,965 2,455 7,653
Research and develop-
ment................... 5,169 9,714 16,236
General and administra-
tive................... 3,949 3,928 8,287
----------------- ----------------- -----------------
12,083 16,097 32,176
----------------- ----------------- -----------------
Earnings before interest
and taxes............... 4,182 1,217 5,581
Interest expense, net.... 70 110 77
----------------- ----------------- -----------------
Earnings before income
taxes................... 4,112 1,107 5,504
Income taxes............. 1,069 823 2,084
----------------- ----------------- -----------------
Net earnings............. $ 3,043 $ 284 $ 3,420
================= ================= =================
Net earnings per share... $ 0.29 $ 0.02 $ 0.16
================= ================= =================
Shares used in per share
calculation (Note 2).... 10,578 16,255 21,913
================= ================= =================
</TABLE>
F-3
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------- DECEMBER 31,
1995 1996 1996 (NOTE 1)
------- ------- -------------
(UNAUDITED)
(IN THOUSANDS
OF U.S. DOLLARS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $10,200 $ 4,289
Trade accounts receivable..................... 8,002 22,415
Unbilled receivables.......................... 238 6,073
Amounts due from stockholders................. 297 --
Prepaid expenses.............................. 607 2,505
Deferred taxes................................ 120 --
------- -------
Total current assets........................... 19,464 35,282
Leasehold improvements and equipment:
Leasehold improvements........................ 1,741 1,870
Computer equipment............................ 2,627 4,431
Purchased computer software................... 672 1,370
Furniture, fixtures and equipment............. 2,185 3,755
------- -------
7,225 11,426
Allowance for depreciation and amortization... (3,054) (4,304)
------- -------
4,171 7,122
Deferred taxes................................. 335 1,187
Other.......................................... 492 228
------- -------
Total assets................................... $24,462 $43,819
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to banks........................ $ 3,842 $ 1,914
Accounts payable.............................. 2,735 2,572
Salaries, wages and commissions............... 950 2,532
Accrued expenses and other liabilities........ 1,716 6,215
Deferred revenues............................. 3,789 8,931
Amount due to former shareholder.............. -- 4,000
Income taxes payable.......................... 1,098 3,730
Deferred income taxes......................... -- 240
------- -------
Total current liabilities...................... 14,130 30,134
Long-term obligations.......................... -- 897
Other.......................................... 399 463
Stockholders' equity:
Series A convertible preferred stock ($.01 par
value), 225,000 shares authorized, issued and
outstanding (none outstanding pro forma)..... 2 2 $ --
Common stock ($.01 par value) 40,000,000
shares authorized; 15,500,000 and 15,550,000
shares issued and outstanding (20,050,000
outstanding pro forma)....................... 155 156 201
Additional paid-in-capital.................... 6,110 6,374 6,331
Retained earnings............................. 2,881 6,301 6,301
Accumulated translation adjustments........... 785 (508) (508)
------- ------- -------
Total stockholders' equity..................... 9,933 12,325 $12,325
------- ------- =======
Total liabilities and stockholders' equity..... $24,462 $43,819
======= =======
</TABLE>
F-4
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
SHARE ---------------------------------------- PAID-IN- RETAINED TRANSLATION TREASURY TOTAL
CAPITAL SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY
------- ----------- -------------------- ------ ---------- -------- ----------- -------- -------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1,
1994............... $ 506 -- $ -- -- $-- $ -- $ 175 $-- $-- $ 681
Issuance of share
capital............ 539 -- -- -- -- -- -- -- -- 539
Distribution of
share capital...... (62) -- -- -- -- -- -- -- -- (62)
Dividends paid...... -- -- -- -- -- -- (621) -- -- (621)
Translation adjust-
ment............... -- -- -- -- -- -- -- 190 -- 190
Net earnings........ -- -- -- -- -- -- 3,043 -- -- 3,043
------ ----------- -------- ---------- ---- ------- ------ ------ ---- -------
BALANCE DECEMBER 31,
1994............... 983 -- -- -- -- -- 2,597 190 -- 3,770
Issuance of share
capital............ 300 -- -- -- -- -- -- -- -- 300
Issuance of pre-
ferred stock....... -- 225,000 2 -- -- 19,564 -- -- -- 19,566
Reclassification of
share capital to
common stock....... (155) -- -- 15,500,000 155 -- -- -- -- --
Distribution of
share capital...... (1,128) -- -- -- -- (13,454) -- -- -- (14,582)
Translation adjust-
ment............... -- -- -- -- -- -- -- 595 -- 595
Net earnings........ -- -- -- -- -- -- 284 -- -- 284
------ ----------- -------- ---------- ---- ------- ------ ------ ---- -------
BALANCE DECEMBER 31,
1995............... 225,000 2 15,500,000 155 6,110 2,881 785 -- 9,933
Repurchase of shares
of common stock.... -- -- -- 1,861,560 -- (9,981) -- -- (19) (10,000)
Issuance of common
stock.............. -- -- -- (1,861,560) -- 9,981 -- -- 19 10,000
Exercise of stock
options............ -- -- -- 50,000 1 264 -- -- -- 265
Translation adjust-
ment............... -- -- -- -- -- -- -- (1,293) -- (1,293)
Net earnings........ -- -- -- -- -- -- 3,420 -- -- 3,420
------ ----------- -------- ---------- ---- ------- ------ ------ ---- -------
BALANCE DECEMBER 31,
1996............... $ -- 225,000 $ 2 15,550,000 $156 $ 6,374 $6,301 $ (508) $-- $12,325
====== =========== ======== ========== ==== ======= ====== ====== ==== =======
</TABLE>
F-5
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings.............................. $ 3,043 $ 284 $ 3,420
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Depreciation and amortization........... 940 1,226 1,474
Provision for deferred income taxes
(credit)............................... 522 (932) (492)
Changes in operating assets and liabili-
ties
Trade accounts receivable.............. (4,245) (2,518) (14,413)
Unbilled receivables................... -- 739 (5,835)
Amounts due from stockholders.......... -- (154) 297
Prepaid expenses....................... (1,184) (125) (1,898)
Accounts payable....................... 936 1,018 (163)
Accrued expenses and other liabilities. 342 392 6,081
Deferred revenues...................... 976 2,773 5,142
Income taxes payable................... 1,946 493 2,632
---------- ---------- ----------
Net cash provided by (used in) operating
activities............................... 3,276 3,196 (3,755)
INVESTING ACTIVITIES
Additions of leasehold improvements and
equipment................................ (3,527) (1,768) (3,978)
Other..................................... (63) (360) 264
---------- ---------- ----------
Net cash used in investing activities..... (3,590) (2,128) (3,714)
FINANCING ACTIVITIES
Proceeds from issuance of share capital... 649 300 --
Proceeds from issuance of preferred stock. -- 19,566 --
Proceeds from issuance of capital stock... -- -- 10,265
Purchase of treasury stock................ -- -- (6,000)
Dividends and distribution of share capi-
tal...................................... (683) (14,582) --
Proceeds from bank borrowings............. 2,504 1,912 450
Repayment of bank borrowings.............. -- (836) (1,928)
Other..................................... -- -- 64
---------- ---------- ----------
Net cash provided by financing activities. 2,470 6,360 2,851
Effect of exchange rate differences on
cash..................................... 56 398 (1,293)
---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents.............................. 2,212 7,826 (5,911)
Cash and cash equivalents at beginning of
year..................................... 162 2,374 10,200
---------- ---------- ----------
Cash and cash equivalents at end of year.. $ 2,374 $ 10,200 $ 4,289
========== ========== ==========
ADDITIONAL CASH FLOW INFORMATION
Cash paid for interest.................... $ 93 $ 204 $ 167
========== ========== ==========
Cash paid for income taxes................ $ 66 $ 465 $ 260
========== ========== ==========
</TABLE>
F-6
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All U.S. Dollar amounts in the notes to the consolidated financial statements
are expressed in thousands)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The consolidated financial statements include the accounts of LHS Group Inc.
and its wholly-owned subsidiaries ("LHS Group" or the "Company"). Prior to
December 1995, the companies comprising the LHS Group operated under the
common control of individual stockholders. The accompanying financial
statements have been presented on a consolidated basis as if the
reorganization described in Note 2 occurred January 1, 1994. Significant
intercompany accounts and transactions have been eliminated in preparing the
accompanying financial statements.
Business Activity and Basis of Revenue Recognition:
The Company provides scaleable client/server-based billing and customer care
solutions to carriers in the global telecommunications industry. Solutions
based on the Company's software products enable carriers to offer flexible,
customer-tailored, cost effective billing and customer care services in the
wireless and wireline telecommunications markets. LHS configures its
proprietary software tools to give each carrier a flexible and cost-effective
billing solution tailored to specific network technology and marketing needs.
The Company derives revenues from license fees and fees for its services.
License revenues consist of license fees for the Company's client/server-based
software and service revenues consist of fees for customization, installation
and production support services. License revenues for one time licenses
without customization are recognized upon delivery of the software to the
customer. Both service and license revenues on long-term projects for the
customization and installation of the software are recognized over the term of
the contract on the percentage of completion method of accounting, based on
hours worked on a project compared to hours expected to be worked. Service
revenues also includes, to a lesser extent, maintenance fees which are
recognized ratably over the term of the maintenance contract and fees for
training which are recognized as the training is performed.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Leasehold Improvements and Equipment:
Leasehold improvements and equipment are stated at cost. Depreciation and
amortization is provided over the estimated useful lives of the assets or the
term of the lease on a straight-line basis. Depreciation and amortization
expense for the years ended December 31, 1994, 1995 and 1996 was $940, $1,226
and $1,474, respectively.
Software Development Costs:
Software development costs incurred to develop new versions of the software
or to enhance the core software are expensed as incurred.
F-7
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(All U.S. Dollar amounts in the notes to the consolidated financial statements
are expressed in thousands)
Translation of Foreign Currencies:
All assets and liabilities are translated into U.S. Dollars using the
exchange rate in effect at the balance sheet date. All revenue, costs and
expenses are translated using an average exchange rate. The gains and losses
of foreign subsidiaries resulting from the change in exchange rates from year
to year have been reported separately as a component of stockholders' equity.
The effect on the statements of income of transaction gains and losses is
insignificant for all years presented.
Income Taxes:
The Company accounts for income taxes under the liability method. Under the
liability method, deferred income taxes are recorded to reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for income tax
purposes.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentrated
credit risks consists primarily of cash and trade receivables. The Company
maintains cash and cash equivalents with various financial institutions. The
Company policy is designed to limit exposure to any one institution. A
significant percentage of the Company's revenues and receivables are
concentrated in a relatively few number of customers. Refer to Note 7.
Fair Value of Financial Instruments:
The carrying value of financial instruments such as cash, accounts
receivable and accounts payable approximate their fair value based on the
short-term maturities of these instruments. The carrying value of bank debt
approximates fair value based on quoted market prices for the same or similar
issues as well as the current rates offered to the Company.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Unaudited Pro Forma Information:
If the offering contemplated by this Prospectus is consummated, all of the
Preferred Stock outstanding as of the closing date will be converted into
shares of common stock. The pro forma stockholders' equity as of December 31,
1996 reflects the conversion of all outstanding Preferred Stock into 4,500,000
shares of common stock.
2. CAPITALIZATION
Corporate Reorganization:
Effective December 22, 1995, the stockholders of the companies comprising
the LHS Group exchanged their shareholdings for cash of $14,580 and 15,500,000
shares of the common stock of LHS Group Inc. (a newly formed company). LHS
Group Inc. also issued 225,000 shares of Series A Convertible Preferred Stock
("Preferred Stock") with a par value of $.01 per share to a previously
unrelated third party for $20,000. The proceeds of the preferred stock
offering, net of approximately $434 in issuance costs, were used to finance
the acquisition of the shareholdings.
On October 16, 1996, the Company effected a 20-for-1 common stock split. The
share and per share amounts in the financial statements have been
retroactively adjusted for the stock split.
F-8
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(All U.S. Dollar amounts in the notes to the consolidated financial statements
are expressed in thousands)
Preferred Stock:
The board of directors of the Company is authorized to issue up to 225,000
shares of preferred stock, par value $.01 per share, in one or more series and
to fix the powers, voting rights, designations and preferences of each series.
During 1995, the board of directors authorized for issuance 225,000 shares of
Preferred Stock ranking senior to common stock. The Preferred Stock ranks
senior to common stock and is entitled to dividends, if declared by the board
of directors, in an amount equal to the pro rata share that would have been
received had the Preferred Stock been converted to common stock.
Upon liquidation, holders of Preferred Stock, on an equal basis, are
entitled to receive the preference value of $88.89, plus accumulated and
unpaid dividends, if any, before any distribution or payment is made to the
holders of common stock. No dividends have been declared or paid on Preferred
Stock.
Any holder of Preferred Stock has the right at its option, to convert each
share of Preferred Stock into 20 shares of common stock, adjusted for stock
splits and unpaid dividends (the "Conversion Ratio"). In the event of an
underwritten initial public offering, as defined in the certificate of
incorporation of the Company, all Preferred Stock will be converted into
common stock at the Conversion Ratio.
The holders of Preferred Stock have the right to vote at special or annual
meetings of stockholders on all matters entitled to be voted on by holders of
common stock voting together as a single class with other shares entitled to
vote thereon. With respect to such vote, each share of Preferred Stock shall
entitle the holder to cast that number of votes per share as would be cast had
the Preferred Stock been converted to common stock at the Conversion Ratio.
Per Share Data:
Net earnings per share was computed by dividing net earnings by the weighted
average number of shares of Common Stock and common stock equivalents
outstanding (all currently outstanding Preferred Stock is considered a common
stock equivalent). Retroactive effect has been given to share and per share
amounts for the stock split as noted above. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock, common
stock equivalents and other potentially dilutive securities issued at prices
below the assumed initial public offering price per share ("cheap stock")
during the twelve month period immediately preceding the initial filing date
of the Company's Registration Statement for its public offering have been
included as outstanding for all periods presented (using the treasury stock
method at the assumed initial public offering price) even when the effect is
to reduce the loss per share.
3. LONG-TERM OBLIGATIONS
At December 31, 1995, the Company had short-term overdraft facilities, with
two banks, under which it could borrow up to $4,138. At December 31, 1995
total borrowings on the facilities were $3,392. Interest on the facilities was
8.75% with respect to $568 and 8% with respect to $2,824. Subsequent to
December 31, 1995, the Company replaced one of its short-term overdraft
facilities with a new facility which provides the Company with a total $4,138
of available credit. The interest rate on the new facility is 8%.
F-9
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(All U.S. Dollar amounts in the notes to the consolidated financial statements
are expressed in thousands)
In 1995, the Company had a line of credit agreement with a United States
bank which provided for borrowings of up to $500. Borrowings under the
agreement were secured by a letter of credit from the Company's German bank.
In 1996, the Company terminated this line of credit agreement.
At December 31, 1996, the Company had short-term overdraft facilities with
two banks under which it could borrow up to $3,871. At December 31, 1996 total
borrowings on the facilities were $1,914. Interest on the facilities was 7%
with respect to $39 and 8% with respect to $1,875.
4. LEASES
LHS Group leases certain of its office buildings from a company related
through common ownership under an operating lease agreement which expires in
2005. The lease agreement requires monthly rental payments of $32 adjusted
annually for inflation.
The Company also leases various automobiles and miscellaneous office
equipment under operating lease arrangements. Rental expense under all
operating leases totaled $683, $1,583 and $1,982 for the years ended December
31, 1994, 1995 and 1996, respectively. Telecommunications equipment in the
amount of $476 was acquired under capital lease arrangements. Future minimum
lease payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
------- --------- -------
<S> <C> <C> <C>
1997................................................. $143 $ 2,971 $ 3,114
1998................................................. 106 2,629 2,735
1999................................................. 106 2,233 2,339
2000................................................. 106 1,975 2,081
2001................................................. 99 1,637 1,736
Thereafter........................................... -- 889 889
---- ------- -------
Total future minimum lease payments.................. 560 $12,334 $12,894
======= =======
Less amounts representing interest................... (113)
----
Present value of net minimum lease payments.......... $447
====
</TABLE>
5. INCOME TAXES
The Company and each of its consolidated subsidiaries file separate tax
returns. For financial reporting, the Company and consolidated subsidiaries
calculate their respective tax liabilities on a separate return basis which
are combined in the accompanying consolidated financial statements.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Currently payable income taxes
U.S. federal............................................ $ -- $ -- $1,143
Foreign................................................. 547 1,755 1,433
Deferred income taxes (credit)
U.S. federal............................................ -- (139) (230)
Foreign................................................. 522 (793) (262)
------ ------ ------
$1,069 $ 823 $2,084
====== ====== ======
</TABLE>
F-10
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(All U.S. Dollar amounts in the notes to the consolidated financial statements
are expressed in thousands)
The net deferred income tax asset (liability) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------ -------
<S> <C> <C>
Deferred Tax Assets:
Deferred revenue.............................................. $ 688 $ 1,449
Net operating loss carryforward............................... 139 1,058
Accrued vacation and bonuses.................................. 56 43
Tax on foreign differences.................................... 414 190
Other......................................................... -- 10
Valuation allowance........................................... (139) --
------ -------
1,158 2,750
Deferred tax liabilities:
Unbilled receivables.......................................... (80) (1,083)
Warranty expenses............................................. (483) (661)
Depreciation expense.......................................... (102) (61)
Other......................................................... (38) --
------ -------
(703) (1,805)
------ -------
$ 455 $ 945
====== =======
</TABLE>
The reconciliation of income tax expense computed using the statutory tax
rates in the United States to the income tax expense recognized in the
financial statements is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1995 1996
------ ---- ------
<S> <C> <C> <C>
Tax at statutory rates...................................... $1,046 $399 $1,871
Differences resulting from higher tax rates in foreign coun-
tries...................................................... 23 285 213
Tax benefit of net operating loss not recognized............ -- 139 --
------ ---- ------
$1,069 $823 $2,084
====== ==== ======
</TABLE>
The Company has foreign net operating loss carryforwards for tax purposes of
approximately $1,600. Such net operating losses can be carried forward
indefinitely.
6. RELATED PARTY TRANSACTIONS
The Company leases office space and housing space for certain of its
employees from partnerships consisting in part of three of the Company's
directors. During the years ended December 31, 1994, 1995 and 1996, the
Company made lease payments totaling $314, $437 and $437, respectively to the
partnerships.
7. MAJOR CUSTOMERS
The Company's revenues are derived from a relatively few number of
customers. In 1996, two customers accounted for 12% and 10% of revenues; in
1995, three customers accounted for 14%, 10% and 10% of revenues; and in 1994,
two customers accounted for 15% and 12%.
8. RETIREMENT PLANS
The Company maintains the LHS Communications Systems, Inc. 401(k) Plan.
Employees age 21 or older are eligible to participate in the quarter following
their date of hire and to elect to defer a percentage of his/her salary. The
Company has the discretion to make contributions to the 401(k) plans. No
Company contributions to date have been made to the plan.
F-11
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(All U.S. Dollar amounts in the notes to the consolidated financial statements
are expressed in thousands)
9. STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company has a nonqualified Stock Incentive Plan (the "Plan") under which
stock options, restricted stock and other stock-based awards may be granted to
certain officers, directors, key employees and non-employee directors. Awards
may be granted under the Plan for up to 4,000,000 shares of common stock. All
options are exercisable over a five year period with 25% vesting on the first
anniversary of the grant date and the remaining 75% vesting ratable over 48
months. The terms of the options are ten years from the date of the grant at
which time all unexercised options expire and are again available for future
grant.
The Company may also award restricted stock or other stock-based awards in
such amounts and subject to such terms as may be selected by the Company.
Pro forma information regarding net earnings and earnings per share is
required by SFAS 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
minimum value option pricing model with the following assumptions for 1996:
risk-free interest rates of 6.3%; no anticipated dividends; and a weighted-
average expected life of the option of seven years.
Option valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of SFAS 123 pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma net earnings was $3,078 and the pro forma earnings per
share was $0.14 for the year ended December 31, 1996. There is no effect on
years prior to 1996 as all options were issued during 1996.
A summary of the Company's stock option activity, and related information
for the year ended December 31, 1996 follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES ISSUED
-------------
<S> <C>
Outstanding as of January 1, 1996................................. --
Granted.......................................................... 2,954,500
Exercised........................................................ (50,000)
---------
Outstanding as of December 31, 1996............................... 2,904,500
=========
</TABLE>
F-12
<PAGE>
LHS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(All U.S. Dollar amounts in the notes to the consolidated financial statements
are expressed in thousands)
Exercise prices for options outstanding as of December 31, 1996 ranged from
$5.30 to $16.75. At December 31, 1996, the weighted-average remaining
contractual life of those options is 9.63 years and the weighed-average
exercise price was $5.39. At December 31, 1996, options to acquire 313,352
shares of common stock were exercisable.
10. GEOGRAPHIC INFORMATION
Information about the Company's operations by geographic area is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Americas:
Revenues.............................................. $ -- $ 945 $18,115
Earnings before interest and taxes.................... -- (454) 914
Identifiable assets................................... -- 6,429 14,868
Europe/Far East:
Revenues.............................................. 20,722 26,022 38,749
Earnings before interest and taxes.................... 4,182 1,671 4,667
Identifiable assets................................... 14,006 18,033 28,951
</TABLE>
Intercompany transfers between geographic areas are not material.
F-13
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom
Goldman, Sachs & Co., Cowen & Company and Robertson, Stephens & Company LLC
are acting as representatives, has severally agreed to purchase from the
Company and the Selling Stockholders, the respective number of shares of
Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
------------ ----------------
<S> <C>
Goldman, Sachs & Co........................................
Cowen & Company............................................
Robertson, Stephens & Company LLC..........................
---------
Total.................................................... 5,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the representatives.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters
of the international offering (the "International Underwriters") providing for
the concurrent offer and sale of 1,176,600 shares of Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two
offerings are identical. The completion of the offering made hereby is a
condition to the completion of the international offering, and vice versa. The
representatives of the International Underwriters are Goldman Sachs
International, Cowen & Company and Robertson, Stephens & Company LLC.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will offer, sell or deliver the shares of Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase
is located in the United States. Each of the International Underwriters has
agreed pursuant to the Agreement Between that, as a part of the distribution
of the shares offered as a part of the international offering and subject to
certain exceptions, it will (i) not, directly or indirectly, offer, sell or
deliver shares of Common Stock (a) in the United States or to any U.S. persons
or (b) to any person who it believes intends to reoffer,
U-1
<PAGE>
resell or deliver the shares in the United States or to any U.S. persons and
(ii) cause any dealer to whom it may sell such shares at any concession to
agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall
be the initial public offering price, less an amount not greater than the
selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
705,960 additional shares of Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
5,000,000 shares of Common Stock offered hereby. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
176,490 additional shares of Common Stock.
The Company and the Selling Stockholders have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company which
are substantially similar to the shares of Common Stock or which are
convertible into or exchangeable for securities which are substantially
similar to the shares of Common Stock without the prior written consent of the
representatives, except for the shares of Common Stock offered in connection
with the concurrent U.S. and international offerings.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company, the
Selling Stockholders and the representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Common Stock, in addition to
prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuations of companies in related businesses.
The Common Stock will be quoted on the Nasdaq National Market under the
symbol "LHSG".
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
international offering, to persons located in the United States.
U-2
<PAGE>
- -------------------------------------------------------------------------
WORLDWIDE GROWTH
AND EXPERIENCE
- -------------------------------------------------------------------------
LHS has built its global business around its Business Support and Control
System (BSCS) software solution. BSCS is licensed to approximately 60
carriers in more than 25 countries supporting an approximate total
of 3.5 million subscribers. BSCS is a global solution, with support
for multiple languages, currencies and the requirements for different
geographic markets. LHS is a global company with offices in Frankfurt,
Germany and Kuala Lumpur, Malaysia, and its headquarters
in Atlanta, United States.
BACK COVER (DESIGN BETWEEN TOP AND BOTTOM TEXTS)
Illustration of the Globe Highlighting LHS in Atlanta, United States; Frankfurt,
Germany; and Kuala Lumpur, Malaysia.
Americas Asia
Aerial Communications, USA Binariang, Maxis, Malaysia
BellSouth PCS,USA BPL Bombay, India
Clearnet, Canada BPL-US-West, India
CTBC, Brazil BUC-Bangalore, India
Iridium, USA Excel Comindo, Indonesia
Pacific Bell Mobile Services, USA J.T. Mobiles, India
Pocker Communications, USA Mobicell, Indonesia
Powertel, USA Mondi Telstra, India
Sprint, USA New Caledonia, New Caledonia
Western Wireless, USA RPG, India
Tikiphone, Polynesia
VMS Vietnam, Vietnam
Vodac, Australia
Europe
Bouygues Telecom. France Nishny Novgorod, Russia
BU-PTT, Serbia Nokia, Finland
Centertel, Poland Omnitel Pronto Italia, Italy
Chekker, Germany PTC, Poland
CNI, Germany Radio Mobil, Czech Republic
E-Plus, Germany Rostov on Don, Russia
Eurotel, Bratislava RWE, Germany
Eurotel, Czech Republic SAIT, The Netherlands
France, Telecom, France Swiss PTT, Switzerland
Guernsey Telecom, Germany Talkline, Germany, INT
IBM, Germany Talkline, The Netherlands
ISIS, Germany Telia Datacom, Sweden
Lesotho, Africa Tritel Tanzania, Tanzania
Max-Call, Austria Turkcell, Turkey
Miniruf, Germany UMC, Ukraine
Mobtel, Slovenia Unicom/Dekrafon, Germany
MTC-Namibia, Namibia Vevacom Netz, Germany
MTL Lithuania, Lithuania Westel 900, Hungary
MTS, Russia
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECU-
RITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 2
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Dilution.................................................................. 15
Capitalization............................................................ 16
Selected Consolidated Financial Data...................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 18
Business ................................................................. 25
Management................................................................ 35
Certain Transactions...................................................... 40
Principal and Selling Stockholders........................................ 42
Description of Capital Stock.............................................. 44
Shares Eligible for Future Sale........................................... 46
Legal Matters............................................................. 47
Experts................................................................... 47
Additional Information.................................................... 48
Glossary of Terms......................................................... G-1
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
------------
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
----------------
[LOGO OF LHS GROUP INC. APPEARS HERE]
----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,883,000 SHARES
LHS GROUP INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
GOLDMAN, SACHS & CO.
COWEN & COMPANY
ROBERTSON, STEPHENS & COMPANY
REPRESENTATIVES OF THE UNDERWRITERS
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby, other than underwriting discounts and commissions.
The Registrant is paying all of these expenses in connection with the issuance
and distribution of the securities.
<TABLE>
<CAPTION>
SEC registration fee................................................ $32,803
<S> <C>
NASD filing fee..................................................... 11,325
Nasdaq National Market listing fee.................................. 50,000
Accountants' fees and expenses...................................... *
Legal fees and expenses............................................. *
Printing and engraving costs........................................ *
Blue Sky fees and expenses.......................................... *
Transfer agent and registrar fees................................... *
Miscellaneous....................................................... *
--------
Total........................................................... $620,000
========
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-Laws provide for indemnification of directors and officers
of the Company to the full extent permitted by Delaware law.
Section 145 of the General Corporation Law of the State of Delaware provides
generally that a corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at its request in
such capacity in another corporation or business association, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. In addition, pursuant to the authority of
Delaware law, the Certificate of Incorporation of the Company also eliminates
the monetary liability of directors to the fullest extent permitted by
Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 21, 1995, in connection with the reorganization of LHS, the
Company issued shares of its Common Stock to certain of its officers and
certain holders of shares in LHS Communications Systems Inc. ("LHS
Communications"), LHS Holding Germany GmbH ("LHS Germany") and
II-1
<PAGE>
LHS Europe Ltd. ("LHS Europe"), which companies are affiliates of the Company.
These shares were issued in the amounts and for the consideration as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES OF LHS(1) CONSIDERATION TENDERED
---- -------------------------- ----------------------
Hartmut Lademacher 193,676 250 LHS Communications
shares; 22.23% interest in
LHS Germany; 23,704,083 LHS
Europe shares; Forgiveness of
$8,270,000 loan to LHS
Germany
<C> <C> <S>
Dr. Joachim Hertel 193,676 250 LHS Communications
shares; 22.23% interest in
LHS Germany; 23,704,083 LHS
Europe shares; Forgiveness of
$8,270,000 loan to LHS
Germany
Manfred Hellwig 100,745 13.65% interest in LHS
Germany; 17,808,366 LHS
Europe shares; Forgiveness of
$5,080,000 loan to LHS
Germany
Dieter Pfisterer 93,078 200 LHS Communications
shares; 3.93% interest in LHS
Germany; 12,596,195 LHS
Europe shares; Forgiveness of
$1,460,000 loan to LHS
Germany
Dr. Rainer Zimmermann 93,078 12.67% interest in LHS
Germany; 16,361,034 LHS
Europe shares; Forgiveness of
$4,710,000 loan to LHS
Germany
Otto Wipprecht 50,374 150 LHS Communications
shares; 5.56% interest in LHS
Germany; 3,149,180 LHS Europe
shares; Forgiveness of
$2,070,000 loan to LHS
Germany
Eberhard Czempiel 23,249 4.41% interest in LHS
Germany; 2,499,182 LHS Europe
shares; Forgiveness of
$1,640,000 loan to LHS
Germany
William Bobb 15,500 100 LHS Communications shares
Dr. Wolf Gaede 7,750 50 LHS Communications shares
Jurgen Spengler 3,874 0.33% interest in LHS
Germany; 187,877 LHS Europe
shares; Forgiveness of
$120,000 loan to LHS Germany
</TABLE>
- --------
(1)These shares were subsequently adjusted for a 20-to-1 stock split.
These transactions were exempt from registration pursuant to Section 4(2) of
and Regulation D under the Securities Act as a limited offer and sale of
securities to accredited investors or persons who have such knowledge and
experience in financial and business matters that they are capable of
evaluating the merits and risks of the prospective investment.
On December 22, 1995, the Company sold 225,000 shares of Series A
Convertible Preferred Stock to investors at $88.89 per share. Each of the
investors was an accredited investor. Each share of Series A Convertible
Preferred Stock was, at the time of issuance, convertible into one share of
the Company's Common Stock (adjusted to 20 shares following the stock split).
These transactions were exempt from registration pursuant to Section 4(2) of
and Regulation D under the Securities Act as a limited offer and sale of
securities to accredited investors.
On July 15, 1996, the Company sold 93,078 shares of Common Stock to
investors at $107.44 per share. These shares were subsequently adjusted for a
20-to-1 stock split. Each of the investors was an accredited investor. These
transactions were exempt from registration pursuant to Section 4(2) of and
Regulation D under the Securities Act as a limited offer and sale of
securities to accredited investors.
On October 18, 1996, the Company sold 50,000 shares of Common Stock to
William O. Grabe, a director of the Company, upon the exercise of stock
options. Mr. Grabe paid an exercise price of $5.30 per share, equal to
$265,000. This transaction was exempt from registration pursuant to Section
4(2) of and Regulation D under the Securities Act as an offer and sale of
securities to an accredited investor.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement between the Company and Goldman
Sachs & Co., Cowen & Company and Robertson, Stephens & Company, as
representatives of the several underwriters.
3.1 -- Certificate of Incorporation, as amended.
3.2 -- By-Laws.
4.1* -- Specimen Common Stock Certificate.
5.1* -- Opinion of Alston & Bird LLP (including consent).
10.1 -- Preferred Stock Purchase Agreement dated December 22, 1995 among
the Company, General Atlantic Partners 23, L.P. and GAP
Coinvestment Partners, L.P.
10.2 -- Common Stock Purchase Agreement dated July 15, 1996 among the
Company, General Atlantic Partners 31, L.P. and GAP Coinvestment
Partners, L.P.
10.3 -- Amended and Restated Stockholders Agreement dated July 15, 1996
among the Company, General Atlantic Partners 23, L.P., General
Atlantic Partners 31, L.P., GAP Coinvestment Partners, L.P. and
the other stockholders named therein.
10.4 -- Registration Rights Agreement dated July 15, 1996 among the
Company, General Atlantic Partners 23, L.P., General Atlantic
Partners 31, L.P., GAP Coinvestment Partners, L.P. and the other
stockholders named therein.
10.5** -- Credit line of DM5,000,000 from BHF-Bank to LHS Holding Germany
GmbH dated March 19, 1996.
10.6 -- Form of Employment Agreement dated as of , 1997, between
Hartmut Lademacher and LHS Group Inc.
10.7 -- Form of Employment Agreement dated as of , 1997, between
Dr. Joachim Hertel and LHS Group Inc.
10.8 -- Contract for Employment dated May 21, 1996, between Erik Froberg
and LHS Holding Germany GmbH.
11.1 -- Statement re computation of per share earnings.
21.1 -- Subsidiaries.
23.1* -- Consent of Alston & Bird LLP (contained in Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP.
24.1 -- Power of Attorney with regard to amendments to this Registration
Statement executed by the directors and officers of the Company is
included on the signature page of this Registration Statement
appearing on page II-5.
27.1 -- Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
**Original document is in German. English translation has been provided.
(b) FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedule is included in this Registration
Statement:
IIValuation and Qualifying Accounts
All other financial statement schedules are omitted because they are not
required or are not applicable.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously discussed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the
representatives of the Underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the representatives of the Underwriters to permit
prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rules 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on February 20, 1997.
LHS GROUP INC.
By: /s/ Hartmut Lademacher__________
Hartmut Lademacher
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Hartmut Lademacher and Dr. Wolf J. Gaede, and
each of them, with the power to act without the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, and in any and all
capacities, (i) to sign any and all amendments (including post-effective
amendments) to this Registration Statement, (ii) to sign any registration
statement to be filed pursuant to Rule 462(b) under the Securities Act of 1933
for the purpose of registering additional shares of Common Stock for the same
offering covered by this Registration Statement, and (iii) to file any of the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on February 20, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Hartmut Lademacher Chairman of the Board and Chief
_________________________________ Executive Officer (Principal
HARTMUT LADEMACHER Executive Officer)
/s/ Jerry W. Braxton Executive Vice President-Finance, CFO
_________________________________ and Director (Principal Financial and
JERRY W. BRAXTON Accounting Officer)
Executive Vice President, General
_________________________________ Counsel and Director
DR. WOLF J. GAEDE
/s/ Ulf Bohla Director
_________________________________
ULF BOHLA
/s/ William E. Ford Director
_________________________________
WILLIAM E. FORD
/s/ William O. Grabe Director
_________________________________
WILLIAM O. GRABE
/s/ George F. Schmitt Director
_________________________________
GEORGE F. SCHMITT
</TABLE>
II-5
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated balance sheets of LHS Group Inc. as of
December 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years then ended,
and have issued our report thereon dated February 7, 1997 (included elsewhere
in this Registration Statement on Form S-1). Our audits also included the
financial statement schedule of LHS Group Inc. listed in item 16(b). This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 7, 1997
<PAGE>
LHS GROUP INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED WRITE-
BEGINNING OF TO COSTS AND OFFS/ BALANCE AT
YEAR EXPENSES OTHER END OF YEAR
------------ ------------ --------- -----------
<S> <C> <C> <C> <C>
VALUATION ALLOWANCE FOR
DEFERRED TAX ASSETS
- ------------------------------
Year ended December 31, 1994. $ -- $ -- $ -- $ --
Year ended December 31, 1995. -- -- 139 139
Year ended December 31, 1996. 139 139 -- --
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
1.1* - Form of Underwriting Agreement between the Company and Goldman Sachs
& Co., Robertson, Stephens & Company and Cowen & Company, as
representatives of the several underwriters.
3.1 - Certificate of Incorporation, as amended.
3.2 - By-Laws.
4.1* - Specimen Common Stock Certificate.
5.1* - Opinion of Alston & Bird LLP (including consent).
10.1 - Preferred Stock Purchase Agreement dated December 22, 1995 among the
Company, General Atlantic Partners 23, L.P. and GAP Coinvestment
Partners, L.P.
10.2 - Common Stock Purchase Agreement dated July 15, 1996 among the
Company, General Atlantic Partners 31, L.P. and GAP Coinvestment
Partners, L.P.
10.3 - Amended and Restated Stockholders Agreement dated July 15, 1996
among the Company, General Atlantic Partners 23, L.P., General
Atlantic Partners 31, L.P., GAP Coinvestment Partners, L.P. and the
other stockholders named therein.
10.4 - Registration Rights Agreement dated July 15, 1996 among the Company,
General Atlantic Partners 23, L.P., General Atlantic Partners 31,
L.P., GAP Coinvestment Partners, L.P. and the other stockholders
named therein.
10.5** - Credit line of DM5,000,000 from BHF-Bank to LHS Holding Germany GmbH
dated March 19, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
10.6 - Form of Employment Agreement dated as of _________, 1997, between
Hartmut Lademacher and LHS Group Inc.
10.7 - Form of Employment Agreement dated as of _________, 1997, between
Dr. Joachim Hertel and LHS Group Inc.
10.8 - Contract for Employment dated May 21, 1996, between Erik Froberg and
LHS Holding Germany GmbH.
11.1 - Statement re computation of per share earnings.
21.1 - Subsidiaries.
23.1 - Consent of Alston & Bird LLP (contained in Exhibit 5.1).
23.2 - Consent of Ernst & Young LLP.
24.1 - Power of Attorney with regard to amendments to this Registration
Statement executed by the directors and officers of the Company is
included on the signature page of this Registration Statement
appearing on page II-5.
27.1 - Financial Data Schedule.
</TABLE>
___________
* To be filed by amendment.
** Original document is in German. English translation has been provided.
-2-
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
LHS GROUP HOLDING CORPORATION
The undersigned incorporator, in order to form a corporation under the
General Corporation Law of the State of Delaware (the "General Corporation
Law"), certifies as follows:
1. Name. The name of the corporation is LHS Group Holding Corporation
----
(the "Corporation").
2. Address; Registered Office and Agent. The address of the
------------------------------------
Corporation's registered office is 9 East Loockerman Street, City of Dover,
County of Kent, State of Delaware; and its registered agent at such address is
National Corporate Research, Ltd.
3. Purposes. The purpose of the Corporation is to engage in any lawful
--------
act or activity for which corporations may be organized under the General
Corporation Law.
4. Authorized Capital. The Corporation is authorized to issue two
------------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares of stock that the corporation shall have
authority to issue shall be 1,225,000, consisting of 1,000,000 shares of Common
Stock, having a par value of one cent ($.01) per share, and 225,000 shares of
Preferred Stock, having a par value of one cent ($.01) per share.
4.1 The shares of Preferred Stock may be issued from time to time in
one or more series of any number of shares, provided that the aggregate number
of shares issued and not canceled of any and all such series shall not exceed
the total number of shares of Preferred Stock hereinabove authorized. The Board
of Directors of the Corporation (the "Board") is hereby vested with authority to
fix by resolution or resolutions the powers and the designations, preferences
and relative, participating, option or other special rights, and qualifications,
limitations or restrictions thereof, including, without limitation, the voting
rights, the dividend rate, conversion or exchange rights, redemption price and
<PAGE>
liquidation preference, of any series of shares of Preferred Stock, and to fix
the number of shares constituting any such series, and to increase or decrease
the number of shares of any such series (but not below the number of shares
thereof then outstanding). In case the number of shares of any such series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution or resolutions
originally fixing the number of shares of such series. Any of the powers and
the designations, preferences, rights and qualifications, limitations or
restrictions of any such series of Preferred Stock may be made dependent upon
facts ascertainable outside of the resolution or resolutions providing for the
issue of such Preferred Stock adopted by the Board pursuant to the authority
vested in it by this Section 4.1, provided that the manner in which such facts
shall operate upon any of the powers and the designations, preferences, rights
and qualifications, limitations or restrictions of such series of Preferred
Stock is clearly and expressly set forth in the resolution or resolutions
providing for the issue of such Preferred Stock. The term "facts" as used in
the next preceding sentence shall have the meaning given to it in Section 151(a)
of the General Corporation Law. Shares of Preferred Stock of any series that
have been redeemed (whether through the operation of a sinking fund or
otherwise) or that if convertible or exchangeable, have been converted into or
exchanged for shares of any other class or classes shall have the status of
authorized and unissued shares of Preferred Stock of the same series and may be
reissued as a part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of shares of Preferred Stock
to be created by resolution or resolutions of the Board or as part of any other
series of shares of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the resolution or resolutions adopted by
the Board providing for the issue of any series of shares of Preferred Stock.
4.2 (a) Subject to the provisions of any applicable law or of the
By-laws of the Corporation, as from time to time amended, with respect to the
closing of the transfer books or the fixing of a record date for the
-2-
<PAGE>
determination of stockholders entitled to vote and except as otherwise provided
by the resolution or resolutions providing for the issue of any series of shares
of Preferred Stock, the holders of outstanding shares of Common Stock shall
exclusively possess voting power for the election of directors and for all other
purposes, each holder of record of shares of Common Stock being entitled to one
vote for each share of Common Stock standing in his or her name on the books of
the Corporation.
(b) Except as otherwise provided by the resolution or resolutions
providing for the issue of any series of shares of Preferred Stock, the holders
of shares of Common Stock shall be entitled, to the exclusion of the holders of
shares of Preferred Stock of any and all series, to receive such dividends and
other distributions (other than pursuant to clause (c) below) as from time to
time may be declared by the Board.
(c) Except as otherwise provided by the resolution or resolutions
providing for the issue of any series of shares of Preferred Stock, in the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of shares of Common Stock shall be
entitled, to the exclusion of the holders of shares of Preferred Stock of any
and all series, to share, ratably according to the number of shares of Common
Stock held by them, in all remaining assets of the Corporation available for
distribution to its stockholders.
4.3 Subject to the provisions of this Certificate of Incorporation
and except as otherwise provided by law, the stock of the Corporation,
regardless of class, may be issued for such consideration and for such corporate
purposes as the Board may from time to time determine.
5. Name and Mailing Address of Incorporator. The name and mailing
----------------------------------------
address of the incorporator are: Janet B. Lapidus, Esq., c/o Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, New York 10017.
-3-
<PAGE>
6. Election of Directors. Members of the Board of Directors of the
---------------------
Corporation (the "Board") may be elected either by written ballot or by voice
vote.
7. Limitation of Liability. No director of the Corporation shall be
-----------------------
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, provided that this provision shall
not eliminate or limit the liability of a director (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the General Corporation Law
or (d) for any transaction from which the director derived any improper personal
benefits.
Any repeal or modification of the foregoing provision shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
8. Indemnification.
---------------
8.1 To the extent not prohibited by law, the Corporation shall
indemnify any person who is or was made, or threatened to be made, a party to
any threatened, pending or completed action, suit or proceeding (a
"Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is a legal representative, is or was a director or
officer of the Corporation, or, at the request of the Corporation, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, limited liability
company, joint venture, trust, employee benefit plan or other enterprise (an
"Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid
in settlement and costs, charges and expenses (including attorneys' fees,
disbursements and other charges). Persons who are not directors or officers of
the Corporation (or otherwise entitled to indemnification pursuant to the
-4-
<PAGE>
preceding sentence) may be similarly indemnified in respect of service to the
Corporation or to an Other Entity at the request of the Corporation to the
extent the Board at any time specifies that such persons are entitled to the
benefits of this Section 8.
8.2 The Corporation shall, from time to time, reimburse or advance to
any director or officer or other person entitled to indemnification hereunder
the funds necessary for payment of expenses, including attorneys' fees and
disbursements, incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; provided, however, that, if required by
-------- -------
the General Corporation Law, such expenses incurred by or on behalf of any
director or officer or other person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such director or officer (or other person
idemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 8 shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
reimbursement or advancement of expenses may have or hereafter be entitled under
any statute, this Certificate of Incorporation, the By-laws of the Corporation
(the "By-laws"), any agreement, any vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office.
8.4 The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 8 shall continue as
to a person who has ceased to be a director or officer (or other person
indemnified hereunder) and shall inure to the benefit of the executors,
administrators, legatees and distributees of such person.
-5-
<PAGE>
8.5 The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of an Other Entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Section 8, the By-laws or under Section 145 of the
General Corporation Law or any other provision of law.
8.6 The provisions of this Section 8 shall be a contract between the
Corporation, on the one hand, and each director and officer who serves in such
capacity at any time while this Section 8 is in effect and any other person
entitled to indemnification hereunder, on the other hand, pursuant to which the
Corporation and each such director, officer, or other person intend to be, and
shall be, legally bound. No repeal or modification of this Section 8 shall
affect any rights or obligations with respect to any state of facts then or
theretofore existing or thereafter arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
8.7 The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 8 shall be
enforceable by any person entitled to such indemnification or reimbursement or
advancement of expenses in any court of competent jurisdiction. The burden of
proving that such indemnification or reimbursement or advancement of expenses is
not appropriate shall be on the Corporation. Neither the failure of the
Corporation (including its Board, its independent legal counsel and its
stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Corporation
(including its Board, its independent legal counsel and its stockholders) that
such person is not entitled to such indemnification or reimbursement or
-6-
<PAGE>
advancement of expenses shall constitute a defense to the action or create a
presumption that such person is not so entitled. Such a person shall also be
indemnified for any expenses incurred in connection with successfully
establishing his or her right to such indemnification or reimbursement or
advancement of expenses, in whole or in part, in any such proceeding.
8.8 Any director or officer of the Corporation serving in any
capacity (a) another corporation of which a majority of the shares entitled to
vote in the election of its directors is held, directly or indirectly, by the
Corporation or (b) any employee benefit plan of the Corporation or any
corporation referred to in clause (a) shall be deemed to be doing so at the
request of the Corporation.
8.9 Any person entitled to be indemnified or to reimbursement or
advancement of expenses as a matter of right pursuant to this Section 8 may
elect to have the right to indemnification or reimbursement or advancement of
expenses interpreted on the basis of the applicable law in effect at the time of
the occurrence of the event or events giving rise to the applicable Proceeding,
to the extent permitted by law, or on the basis of the applicable law in effect
at the time such indemnification or reimbursement or advancement of expenses is
sought. Such election shall be made, by a notice in writing to the Corporation,
at the time indemnification or reimbursement or advancement of expenses is
sought; provided, however, that if no such notice is given, the right to
-------- -------
indemnification or reimbursement or advancement of expenses shall be determined
by the law in effect at the time indemnification or reimbursement or advancement
of expenses is sought.
9. Adoption, Amendment and/or Repeal of By-laws. The Board may from time
--------------------------------------------
to time adopt, amend or repeal the By-laws of the Corporation pursuant to the
terms of such By-laws; provided, however, that any By-laws adopted or amended by
-------- -------
the Board may be amended or repealed, and any By-laws may be adopted, by the
stockholders of the Corporation, subject to the terms of such By-laws, by vote
-7-
<PAGE>
of a majority of the holders of shares of stock of the Corporation entitled to
vote in the election of directors of the Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation this 19th day of December, 1995.
/s/ Janet B. Lapidus
----------------------------------
Janet B. Lapidus, Incorporator
-8-
<PAGE>
LHS GROUP HOLDING CORPORATION
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES A CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
LHS Group Holding Corporation, a Delaware corporation (the "Corporation"),
does hereby certify that pursuant to the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Corporation (the "Board of Directors") duly adopted by the unanimous written
consent of the Board of Directors the following resolution, which resolution
remains in full force and effect on the date hereof:
WHEREAS, the Board of Directors is authorized, within the limitations and
restrictions stated in the Certificate of Incorporation of the Corporation, to
provide by resolution or resolutions for the powers and designations of each
series of Preferred Stock, par value $.01 per share, of the Corporation (the
"Preferred Stock"), and the voting powers, full or limited, or without voting
powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as are not
stated and expressed in the Certificate of Incorporation, or any amendment
thereto, including (but without limiting the generality of the foregoing) such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets and such other subjects or matters as
may be fixed by resolution or resolutions of the Board of Directors under the
General Corporation Law of the State of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of preferred
stock and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such series
of Preferred Stock on the terms and with the provisions set forth herein:
1. Designation and Number of Shares. The designation of the series of
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Preferred Stock authorized by this resolution shall be "Series A Convertible
Preferred Stock" (the "Series A Preferred Stock"). The authorized number of
shares of Series A Preferred Stock shall be 225,000.
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2. Rank. The Series A Preferred Stock shall, with respect to rights upon
----
the liquidation, winding up and dissolution of the Corporation, rank senior to
(a) all classes of common stock of the Corporation (including, without
limitation, the Common Stock, par value $.01 per share, of the Corporation (the
"Common Stock")) and (b) each other class or series of Capital Stock of the
Corporation hereafter created which does not expressly rank pari passu with or
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senior to the Series A Preferred Stock. All Capital Stock of the Corporation to
which the Series A Preferred Stock ranks senior with respect to dividends and
upon liquidation, dissolution, winding up or otherwise is collectively referred
to herein as the "Junior Securities"; and all Capital Stock of the Corporation
authorized by the Board of Directors after the date hereof which may rank on
parity as to any one of dividends, or upon liquidation, dissolution, winding up
or otherwise and does not rank senior as to any of the same are collectively
referred to herein as "Parity Securities."
3. Dividends. Beginning on the date of issuance of the Series A
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Preferred Stock, if the Board of Directors of the Corporation shall declare a
dividend or make any other distribution (including, without limitation, in cash
or other property or assets), to holders of shares of Common Stock, then the
holders of each share of Series A Preferred Stock shall be entitled to receive,
when and as adopted by the Board of Directors, out of funds legally available
therefor, a dividend or distribution in an amount equal to the amount of such
dividend or distribution received by a holder of the number of shares of Common
Stock for which such share of Series A Preferred Stock is convertible on the
record date for such dividend or distribution. Any such amount shall be paid to
the holders of shares of Series A Preferred Stock at the same time such dividend
or distribution is made to holders of Common Stock.
4. Liquidation Preference.
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(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Series A Preferred Stock then outstanding shall be entitled to be paid
for each share held thereby, out of the assets of the Corporation available for
distribution to its stockholders, an amount in cash equal to $88.89 for each
such share outstanding (the "Liquidation Preference") plus an amount in cash
equal to all declared and unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding up, before any payment shall be made or any
assets distributed to the holders of any shares of Junior Securities. Except as
provided in the preceding sentence, holders of the Series A Preferred Stock
shall not be entitled to any distribution in the event of any liquidation,
dissolution or winding up of the affairs of the Corporation. If the assets of
the Corporation are not sufficient to pay in full the foregoing liquidation
payments payable to the holders of outstanding shares of the Series A Preferred
Stock and any Parity Securities, then the holders of all shares of Series A
Preferred Stock and any Parity Securities shall share ratably in such
distribution of assets in accordance with the amount that would be payable on
such distribution if the amounts to which the holders of outstanding shares of
Series A Preferred Stock and the holders of
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outstanding shares of such Parity Securities, if any, are entitled were paid in
full. After the holder of all shares of Series A Preferred Stock any Parity
Securities shall have been paid in full the amounts to which they are entitled
under this paragraph 4, the remaining net assets of the Corporation may be
distributed to the holders of Junior Securities. Written notice of such
liquidation, dissolution or winding up, stating a payment date, the amount of
the Liquidation Payments and the place where such Liquidation Payments shall be
payable, shall be delivered in person, mailed by certified or registered mail,
return receipt requested, or sent by telecopier or telex, not less than ten (10)
days prior to the payment date stated therein, to the holders of record of the
Series A Preferred Stock, such notice to be addressed to each such holder at its
address as shown by the records of the Corporation.
(b) For the purposes of paragraph 2 and this paragraph 4, (i) the
voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all or part of the
property or assets of the Corporation and (ii)(x) the merger or consolidation of
the Corporation into or with one or more other corporations or (y) the merger or
consolidation of one or more corporations into or with the Corporation, if, in
the case of (x) or (y), the stockholders of the Corporation prior to such merger
or consolidation do not retain at least a majority of the voting power of the
surviving corporation, shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary, of the affairs of the Corporation.
5. Redemption. The shares of Series A Preferred Stock shall not be
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redeemed or subject to redemption, whether at the option of the Corporation or
any holder thereof, or otherwise.
6. Voting Rights.
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(a) The holders of record of Series A Preferred Stock, except as
otherwise required under Delaware law or as set forth in paragraph (b) below,
shall not be entitled or permitted to vote on any matter required or permitted
to be voted upon by the stockholders of the Corporation.
(b) So long as any shares of the Series A Preferred Stock are
outstanding, each share of Series A Preferred Stock shall entitle the holder
thereof to vote, in person or by proxy, at a special or annual meeting of
stockholders, on all matters entitled to be voted on by holders of Common Stock
voting together as a single class with other shares entitled to vote thereon.
With respect to any such vote, each share of Series A Preferred Stock shall
entitle the holder thereof to cast that number of votes per share as is equal to
the number of votes that such holder would be entitled to cast had such holder
converted its shares of Series A Preferred Stock into shares of Common Stock on
the record date for determining the stockholders of the Corporation eligible to
vote on any such matters.
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7. Conversion.
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(a) Any holder of Series A Preferred Stock shall have the right, at
its option, at any time and from time to time, to convert, subject to the terms
and provisions of this paragraph 7, any or all of such holder's shares of Series
A Preferred Stock into such number of fully paid and non-assessable shares of
Common Stock as is equal to the product of the number of shares of Series A
Preferred Stock being so converted multiplied by the quotient of (i) the
Liquidation Preference divided by (ii) the conversion price of $88.89 per share,
subject to adjustment as provided in paragraph 7(d) (the "Conversion Price"),
then in effect. Such conversion right shall be exercised by the surrender of
the shares of Series A Preferred Stock to be converted to the Corporation at any
time during usual business hours at its principal place of business to be
maintained by it, accompanied by written notice that the holder elects to
convert such shares of Series A Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates for shares of Common Stock
are to be issued and (if so required by the Corporation) shall be duly endorsed
to the Corporation or in blank, or accompanied by a written instrument or
instruments of transfer in form reasonably satisfactory to the Corporation duly
executed by the holder or its duly authorized legal representative and transfer
tax stamps or funds therefor, if required pursuant to paragraph 7(j). All
shares of Series A Preferred Stock surrendered for conversion shall be delivered
to the Corporation for cancellation and canceled by it and no shares of Series A
Preferred Stock shall be issued in lieu thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any shares of Series A Preferred Stock for conversion pursuant to
paragraph 7(a), the Corporation shall deliver to or upon the written order of
the holder of such shares of Series A Preferred Stock so surrendered a
certificate or certificates representing the number of duly authorized, fully
paid and non-assessable shares of Common Stock (including fractional shares
thereof) into which such shares of Series A Preferred Stock may be or have been
converted in accordance with the provisions of this paragraph 7. Subject to the
following provisions of this paragraph and of paragraph 7(d), such conversion
shall be deemed to have been made immediately prior to the close of business on
the date that such shares of Series A Preferred Stock shall have been
surrendered in satisfactory form for conversion, and at such time the rights of
the holders of such shares of Series A Preferred Stock shall cease, and the
Person or Persons entitled to receive the shares of Common Stock deliverable
upon conversion of such shares of Series A Preferred Stock shall be treated for
all purposes as having become the record holder or holders of such shares of
Common Stock as and after such time, and such conversion shall be at the
Conversion Price in effect at such time; provided, however, that no surrender
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shall be effective to constitute the Person or Persons entitled to receive the
shares of Common Stock deliverable upon such conversion as the record holder or
holders of such shares of Common Stock while the share transfer books of the
Corporation shall be closed (but not for any period in excess of five days), but
such surrender shall be effective to constitute the Person or Persons entitled
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to receive such shares of Common Stock as the record holder or holders thereof
for all purposes immediately prior to the close of business on the next
succeeding day on which such share transfer books are open, and such conversion
shall be deemed to have been made at, and shall be made at the Conversion Price
in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series A Preferred
Stock are converted, all dividends declared and unpaid on the shares of Series A
Preferred Stock so converted to the date of conversion shall be immediately due
and payable and must accompany the shares of Common Stock issued upon such
conversion.
(d) The Conversion Price shall be subject to adjustment as follows:
(i) In the event that the Corporation shall at any time or from
time to time (w) pay a dividend or make a distribution (other than a dividend or
distribution paid or made to holders of shares of Series A Preferred Stock in
the manner provided in paragraph 3) on its outstanding shares of Common Stock in
Capital Stock, (x) subdivide the outstanding shares of Common Stock into a
larger number of shares, (y) combine its outstanding shares of Common Stock into
a smaller number of shares or (z) issue any shares of its Capital Stock in a
reclassification of the Common Stock, then, and in each such case, the
Conversion Price in effect immediately prior to such event shall be
proportionately adjusted (and any other appropriate actions shall be taken by
the Corporation) so that the holder of any share of Series A Preferred Stock
thereafter surrendered for conversion shall be entitled to receive upon
conversion the number of shares of Common Stock or other securities of the
Corporation that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Series A Preferred Stock been converted immediately prior to the occurrence
of such event. An adjustment made pursuant to this paragraph 7(d)(i) shall
become effective retroactively (x) in the case of any such dividend or
distribution, to a date immediately following the close of business on the
record date for the determination of holders of Common Stock entitled to receive
such dividend or distribution or (y) in the case of any such subdivision,
combination or reclassification, to the close of business on the day upon which
such corporate action becomes effective. If after an adjustment pursuant to this
paragraph 7(d)(i), a holder may receive shares of two or more classes of
securities of the Corporation upon conversion, the Board of Directors shall
determine in good faith the allocation of the adjusted Conversion Price between
the classes of securities to the extent practicable and consistent with this
Certificate of Designations. After such allocation, the Conversion Price of each
class of securities shall thereafter be subject to adjustment on terms as nearly
equivalent as may be practicable to the adjustment provided for in this
paragraph 7. Such adjustment shall be made successively whenever any event
listed above shall occur.
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<PAGE>
(ii) In case the Corporation shall at any time or from time to
time distribute to all holders of shares of its Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the resulting or surviving corporation and the Common Stock is
not changed or exchanged) cash, evidences of indebtedness of the Corporation or
another issuer, securities of the Corporation or another issuer or other assets
(excluding dividends or distributions paid or made to holders of shares of
Series A Preferred Stock in the manner provided in paragraph 3, and dividends
payable in shares of Common Stock for which adjustment is made under paragraph
7(d)(i) or rights or warrants to subscribe for or purchase securities of the
Corporation (excluding those distributions in respect of which an adjustment in
the Conversion Price is made pursuant to paragraph 7(d)(i)), then, and in each
such case, the Conversion Price then in effect shall be adjusted by dividing the
Conversion Price in effect immediately prior to the date of such distribution by
a fraction (x) the numerator of which shall be the Current Market Price of the
Common Stock on the record date referred to below and (y) the denominator of
which shall be such Current Market Price of the Common Stock less the then Fair
Market Value (as determined by the Board of Directors) of the portion of the
cash, evidences of indebtedness, securities or other assets so distributed or of
such subscription rights or warrants applicable to one share of Common Stock
(but such denominator not to be less than one); provided, however, that no
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adjustment shall be made with respect to any distribution of rights to purchase
securities of the Corporation if the holder of shares of Series A Preferred
Stock would otherwise be entitled to receive such rights upon conversion at any
time of shares of Series A Preferred Stock into Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
retroactively to a date immediately following the close of business on the
record date for the determination of stockholders entitled to receive such
distribution.
(iii) In the case the Corporation, at any time or from time to
time, shall take any action affecting its Common Stock similar to or having an
effect similar to any of the actions described in any of paragraph 7(d)(i) or
paragraph 7(d)(ii), inclusive, or paragraph 7(h) (but not including any action
described in any such paragraph) and the Board of Directors in good faith
determines that it would be equitable in the circumstances to adjust the
Conversion Price as a result of such action, then, and in each such case, the
Conversion Price shall be adjusted in such manner and at such time as the Board
of Directors of the Corporation in good faith determines would be equitable in
the circumstances (such determination to be evidenced in a resolution, a
certified copy of which shall be mailed to the holders of the shares of Series A
Preferred Stock).
(iv) Notwithstanding anything herein to the contrary, no
adjustment under this paragraph 7(d) need be made to the Conversion Price unless
such adjustment would require an increase or decrease of at least 1% of the
Conversion Price then in effect. Any lesser adjustment shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment, which, together with any adjustment or adjustments so carried
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<PAGE>
forward, shall amount to an increase or decrease of at least 1% of such
Conversion Price. Any adjustment to the Conversion Price carried forward and not
theretofore made shall be made immediately prior to the conversion of any shares
of Series A Preferred Stock pursuant hereto.
(v) Notwithstanding anything herein to the contrary, no adjustment
under this paragraph 7(d) shall be made upon the grant of options to employees
or directors of the Corporation pursuant to benefit plans approved by the Board
of Directors.
(e) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Conversion Price then in
effect shall be required by reason of the taking of such record.
(f) Upon any increase or decrease in the Conversion Price, then, and
in each such case, the Corporation promptly shall deliver to each registered
holder of Series A Preferred Stock at least five (5) Business Days prior to
effecting any of the foregoing transactions a certificate, signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased
Conversion Price then in effect following such adjustment.
(g) In case of any capital reorganization or reclassification or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Corporation with or into another Person (other than a
consolidation or merger in which the Corporation is the resulting or surviving
Person and which does not result in any reclassification or change of
outstanding Common Stock), or in case of any sale or other disposition to
another Person of all or substantially all of the assets of the Corporation
which is effected in such a way that holders of Common Stock are entitled to
receive stock or other securities or property (including, without limitation,
cash) (any of the foregoing, a "Transaction"), the Corporation, or such
successor or purchasing Person, as the case may be, shall execute and deliver to
each holder of Series A Preferred Stock at least ten (10) Business Days prior to
effecting any of the foregoing Transactions a certificate that the holder of
each share of Series A Preferred Stock then outstanding shall have the right
thereafter to convert such share of Series A Preferred Stock into the kind and
amount of shares of stock or other securities (of the Corporation or another
issuer) or property or cash receivable upon such Transaction by a holder of the
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<PAGE>
number of shares of Common Stock into which such share of Series A Preferred
Stock could have been converted immediately prior to such Transaction.
(h) In case at any time or from time to time:
(w) the Corporation shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(x) the Corporation shall authorize the granting to the holders of
its Common Stock or rights or warrants to subscribe for or purchase any shares
of Capital Stock of any class or of any other rights or warrants (excluding
shares of Capital Stock or rights for Capital Stock issued pursuant to an
employee benefit plan of the Corporation);
(y) there shall be any reclassification of the Common Stock (other
than a subdivision or combination of the outstanding shares of Common Stock), or
any consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required, or any sale or
other disposition of all or substantially all of the assets of the Corporation;
or
(z) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall mail to each holder of shares of Series A Preferred
Stock at such holder's address as it appears on the transfer books of the
Corporation, as promptly as possible but in any event at least ten (10) days
prior to the applicable date hereinafter specified, a notice stating (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution or grant of rights or warrants or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution or grant of rights are to be determined, or (B) the
date on which such reclassification, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding up is expected to become effective. Such
notice also shall specify the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
shares of stock or other securities or property or cash deliverable upon such
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding up.
(i) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Series A Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series A
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
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<PAGE>
authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversation of all outstanding shares of Series A Preferred Stock.
(j) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Series A Preferred Stock shall be made without charge to
the converting holder of shares of Series A Preferred Stock for such
certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective names of, or (subject to compliance
with the applicable provisions of federal and state securities laws) in such
names as may be directed by, the holders of the shares of Series A Preferred
Stock converted; provided, however, that the Corporation shall not be required
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to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than that of the
holder of the shares of Series A Preferred Stock converted, and the Corporation
shall not be required to issue or deliver such certificate unless or until the
Person or Persons requesting the issuance or delivery thereof shall have paid to
the Corporation the amount of such tax or shall have established to the
reasonable satisfaction of the Corporation that such tax has been paid.
8. Automatic Conversion. Each share of Series A Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then applicable
Conversion Price prior to the closing of a firm commitment underwritten initial
public offering pursuant to an effective registration statement under the
Securities Act covering at least the offer and sale of shares of Common Stock
for the account of the Corporation resulting in the aggregate net proceeds to
the Corporation in excess of $15,000,000. In the event of such offering, the
Person(s) entitled to receive the shares of Common Stock issuable upon such
conversion of the Series A Preferred Stock shall not be deemed to have converted
the Series A Preferred Stock until immediately prior to the closing of such
offering, except that any such Person may convert its shares of Series A
Preferred Stock at an earlier time in accordance with paragraph 7(a).
9. Certain Remedies. Any registered holder of Series A Preferred Stock
----------------
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Certificate of Designations and to enforce specifically the
terms and provisions of this Certificate of Designations, this being in addition
to any other remedy to which such holder may be entitled at law or in equity.
10. Reissuance of Series A Preferred Stock. Shares of Series A Preferred
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Stock that have been issued and reacquired in any manner, including shares
purchased or converted, shall (upon compliance with any applicable provisions of
the laws of Delaware) have the status of authorized and unissued shares of
Preferred Stock undesignated as to series and may be redesignated and reissued
as part of any series of preferred stock (other than Series A Preferred Stock).
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11. Business Day. If any payment shall be required by the terms hereof to
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be made on a day that is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
12. Definitions. As used in this Certificate of Designations, the
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following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
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unless the context otherwise requires:
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means any day except a Saturday, a Sunday, or other day on
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
"Common Stock" shall have the meaning ascribed to it in paragraph 2 hereof.
"Corporation" shall have the meaning ascribed to it in the first paragraph
of this Resolution.
"Current Market Price" per share shall mean, on any date specified herein
for the determination thereof, (a) the average of the daily Market Price of the
Common Stock for those days during the period of thirty (30) Trading Days
through and including the date ending one Business Day prior to such date, and
(b) if the Common Stock is not then listed or admitted to trading on any
national securities exchange or quoted in the over-the-counter market, the
Market Price on such date.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Junior Securities" shall have the meaning ascribed to it in paragraph 2
hereof.
"Liquidation Preference" shall have the meaning ascribed to it in paragraph
4 hereof.
"Market Price" shall mean, per share of Common Stock on any date specified
herein: (a) the closing price per share of the Common Stock on such date
published in the Wall Street Journal or, if no such closing price on such date
is published in the Wall Street
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Journal, the average of the closing bid and asked prices on such date, as
officially reported on the principal national securities exchange on which the
Common Stock is then listed or admitted to trading; or (b) if the Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date; or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the reported closing bid and asked prices of the Common Stock on such date as
shown by NASDAQ and reported by any member firm of the New York Stock Exchange,
Inc. selected by the Corporation. If none of (a), (b) or (c) is applicable,
Market Price shall mean the Fair Value of the Common Stock determined by a panel
of three independent appraisers, which shall be nationally recognized investment
banking firms or nationally recognized experts experienced in the valuation of
corporations. Within five (5) Business Days after notice of the necessity of
such calculation shall have been delivered by the Corporation to the holders of
Series A Preferred Stock, the holders of a majority of the shares of Series A
Preferred Stock (the "Majority Stockholders") and the Board of Directors shall
each designate one such appraiser that is willing and able to conduct such
determination. If either the Majority Stockholders or the Board of Directors
fails to make such designation within such period, then the other party that has
made the designation shall have the right to make the designation on its behalf.
The two appraisers designated shall, within a period of five (5) Business Days
after the designation of the second appraiser, agree to designate a third
appraiser. The three appraisers shall conduct their determination as promptly as
practicable, and the Fair Value of the Common Stock shall be the average of the
determination of the two appraisers that are closer to each other than the
determination of the third appraiser, which third determination shall be
discarded; provided, however, that if the determination of two appraisers
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are equally close to the determination of the third appraiser, then the Fair
Value of the Common Stock shall be the average of the determination of all three
appraisers. Such determination shall be final and binding on the Majority
Stockholders and the Company. The Majority Stockholders shall be responsible for
the fees and expenses of the appraiser designated by or on behalf of such
Majority Stockholders, and the Company for the fees and expenses of the
appraiser designated by or on behalf of the Board of Directors. The Majority
Stockholders and the Company shall each share half the fees and expenses of the
appraiser designated by the appraisers. For the purposes of this definition, the
"Fair Value" of the Common Stock means the fair market value of the Common Stock
determined in accordance with this definition based upon all considerations that
the appraisers determine to be relevant.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Market System of the National Association
of Securities Dealers, Inc. Automated Quotations System.
"Parity Securities" shall have the meaning ascribed to such term in
paragraph 2 hereof.
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"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any kind.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder.
"Senior Securities" shall have the meaning ascribed to such term in
paragraph 2 hereof.
"Series A Preferred Stock" shall have the meaning ascribed to it in
paragraph 1 hereof.
"Trading Day" shall mean a day on which the national securities exchanges
are open for trading.
IN WITNESS WHEREOF, LHS GROUP HOLDING CORPORATION has caused this
certificate to be duly executed by its Chief Executive Officer and President
this 21st day of December, 1995.
LHS GROUP HOLDING CORPORATION
By: /s/ Hartmut Lademacher
-------------------------------------
Name: Hartmut Lademacher
Title: Chief Executive Officer and
President
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CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
LHS GROUP HOLDING CORPORATION
LHS GROUP HOLDING CORPORATION, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation") hereby certifies as
follows:
1. The name of the Corporation is LHS GROUP HOLDING CORPORATION. The
date of filing of its Certificate of Incorporation with the Secretary of State
was December 19, 1995.
2. The first paragraph of Article 4 of the Certificate of Incorporation
of the Corporation is hereby amended to read in its entirety as follows:
"4. Authorized Capital. The Corporation is authorized to issue two
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classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares of stock that the corporation
shall have authority to issue shall be 2,225,000, consisting of 2,000,000
shares of Common Stock, having a par value of one cent ($.01) per share,
and 225,000 shares of Preferred Stock, having a par value of one cent
($.01) per share.
3. This amendment of the Certificate of Incorporation of the Corporation
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation law of the State of Delaware.
IN WITNESS WHEREOF, LHS GROUP HOLDING CORPORATION has caused this
Certificate of Amendment to be signed by Hartmut Lademacher, its Chief Executive
Officer, President and Chairman of the Board, this 15th day of July, 1996.
LHS GROUP HOLDING CORPORATION
By /s/ Hartmut Lademacher
----------------------------------
Hartmut Lademacher
Chief Executive Officer,
President and Chairman of the
Board
ATTEST:
/s/ Wolf Gaede
- --------------------------------
Name: Dr. Wolf Gaede
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
LHS GROUP HOLDING CORPORATION
______________________________________
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
_______________________________________
LHS Group Holding Corporation, a Delaware corporation (the "Corporation"),
does hereby certify as follows:
FIRST: Section 1 of the Corporation's Certificate of Incorporation is
hereby amended by deleting in its entirety the present Section 1 and
substituting in lieu thereof the following new Section 1:
"1. Name. The name of the corporation is LHS Group Inc. (the
----
"Corporation")."
SECOND: The foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Wolf Gaede has caused this Certificate to be duly
executed in its corporate name this 30th day of July, 1996 and affirms that the
statements made herein are true under penalties of perjury.
LHS GROUP HOLDING CORPORATION
By: /s/ Wolf Gaede
-----------------------------
Name: Wolf Gaede
Title: Secretary
-22-
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
LHS GROUP, INC.
LHS GROUP, INC., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation") hereby certifies as follows:
1. The name of the Corporation is LHS Group, Inc. (formerly LHS Group
Holding Corporation). The date of filing of its Certificate of Incorporation
with the Secretary of State was December 19, 1995.
2. The first paragraph of Article 4 of the Certificate of Incorporation
of the Corporation is hereby amended to read in its entirety as follows:
"4. Authorized Capital. The Corporation is authorized to issue two
------------------
classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares of stock that the corporation
shall have authority to issue shall be 40,225,000, consisting of 40,000,000
shares of Common Stock, having a par value of one cent ($.01) per share,
and 225,000 shares of Preferred Stock, having a par value of one cent
($.01) per share."
3. This Amendment of the Certificate of Incorporation of the Corporation
has been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation law of the State of Delaware.
IN WITNESS WHEREOF, LHS Group, Inc. has caused this Certificate of
Amendment to be signed by Hartmut Lademacher, its Chief Executive Officer,
President and Chairman of the Board, this 14th day of October, 1996.
LHS GROUP, INC.
By /s/ Hartmut Lademacher
---------------------------------
Hartmut Lademacher
Chief Executive Officer,
President and Chairman of the Board
ATTEST:
/s/ Jerry W. Braxton
- -----------------------------------
Name: Jerry W. Braxton
-23-
<PAGE>
EXHIBIT 3.2
BY-LAWS
of
LHS GROUP HOLDING CORPORATION
(A Delaware Corporation)
------------------------
ARTICLE I
DEFINITIONS
-----------
As used in these By-laws, unless the context otherwise requires, the term:
1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "By-laws" means the initial by-laws of the Corporation, as amended
from time to time.
1.5 "Certificate of Incorporation" means the initial certificate of
incorporation of the Corporation, as amended, supplemented or restated from time
to time.
1.6 "Chairman" means the Chairman of the Board of Directors of the
Corporation.
1.7 "Common Stock" means the Common Stock, par value $.0l per share, of
the Corporation.
1.8 "Corporation" means LHS Group Holding Corporation.
1.9 "Directors" means directors of the Corporation.
1.10 "Entire Board" means all directors of the Corporation in office,
whether or not present at a meeting of the Board, but disregarding vacancies.
1.11 "GAP Coinvestment" means GAP Coinvestment Partners, L.P., a New York
limited partnership.
1.12 "GAP LP" means General Atlantic Partners 23, L.P., a Delaware limited
partnership.
<PAGE>
1.13 "General Atlantic Directors" has the meaning set forth in Section
3.2(b) of these By-Laws.
1.14 "General Atlantic Stockholders" means GAP LP, GAP Coinvestment and any
Permitted Transferee of either of them to whom shares of Preferred Stock and/or
shares of Common Stock issuable upon conversion of shares of Preferred Stock are
transferred in accordance with the Stockholders Agreement.
1.15 "Major Stockholders" means Joachim Hertel, Hartmut Lademacher, Manfred
Hellwig, Rainer Zimmerman, Dieter Pfisterer, Eberhard Czempiel, Otto Wipprecht,
Jurgen Spengler, William Bobb and Wolf Gaede and any Permitted Transferee
thereof to whom shares of Common Stock are transferred in accordance with the
Stockholders Agreement.
1.16 "General Corporation Law" means the General Corporation Law of the
State of Delaware, as amended from time to time.
1.17 "Major Stockholder Directors" has the meaning set forth in Section
3.2(b) of these By-laws.
1.18 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.19 "Permitted Transferee" has the meaning set forth in Section 2.2 of the
Stockholders Agreement.
1.20 "Preferred Stock" means the Series A Convertible Preferred Stock, par
value $.01 per share, of the Corporation.
1.21 "President" means the President of the Corporation.
1.22 "Secretary" means the Secretary of the Corporation.
1.23 "Stockholders" means stockholders of the Corporation.
-2-
<PAGE>
1.24 "Stockholders Agreement" means the Stockholders Agreement, dated
December 22, 1995, among the Corporation, GAP LP, GAP Coinvestment and the
stockholders listed on Schedule 1 thereto.
1.25 "Subsidiary" means, as to the Corporation, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors (or persons performing similar functions) of such
corporation, partnership, limited liability company or other entity are at the
time owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by the Corporation.
1.26 "Treasurer" means the Treasurer of the Corporation.
1.27 "Vice President" means a Vice President of the Corporation.
ARTICLE 2
STOCKHOLDERS
------------
2.1 Place of Meetings. Every meeting of stockholders shall be held at the
-----------------
office of the Corporation or at such other place within or without the State of
Delaware as shall be specified or fixed in the notice of such meeting or in the
waiver of notice thereof.
2.2 Annual Meeting. A meeting of stockholders shall be held annually for
--------------
the election of Directors and the transaction of such other proper business at
such time, date and place as may be determined by the Board by resolution and
designated in the notice of meeting.
2.3 Other Special Meetings. A special meeting of stockholders, unless
----------------------
otherwise prescribed by statute, may be called at any time by the Board or by
the President or by the Secretary.
-3-
<PAGE>
2.4 Fixing Record Date. For the purpose of (a) determining the
------------------
stockholders entitled (i) to notice of or to vote at any meeting of stockholders
or any adjournment thereof, (ii) to express consent to corporate action in
writing without a meeting or (iii) to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect of
any change, conversion or exchange of stock; or (b) any other lawful action, the
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date was adopted by the Board and which
record date shall not be (x) in the case of clause (a) (i) above, more than
sixty (60) nor less than ten (10) days before the date of such meeting, (y) in
the case of clause (a) (ii) above, more than ten (10) days after the date upon
which the resolution fixing the record date was adopted by the Board and (z) in
the case of clause (a) (iii) or (b) above, more than ten (10) days prior to such
action. If no such record date is fixed:
2.4.1 the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held;
2.4.2 the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no
prior action by the Board is required under the General Corporation Law,
shall be the first day on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are recorded;
and when prior action by the Board is required under the General
Corporation Law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the
-4-
<PAGE>
close of business on the date on which the Board adopts the resolution
taking such prior action; and
2.4.3 the record date for determining stockholders for any purpose
other than those specified in Sections 2.4.1 and 2.4.2 shall be at the
close of business on the day on which the Board adopts the resolution
relating thereto.
When a determination of stockholders entitled to notice of or to vote at
any meeting of stockholders has been made as provided in this Section 2.4,
such determination shall apply to any adjournment thereof unless the Board
fixes a new record date for the adjourned meeting. Delivery made to the
Corporation's registered office in accordance with Section 2.4.2 shall be
by hand or by certified or registered mail, return receipt requested.
2.5 Notice of Meetings of Stockholders. Except as otherwise provided in
----------------------------------
Sections 2.4 and 2.6 hereof, whenever under the provisions of any statute, the
Certificate of Incorporation or these By-laws, stockholders are required or
permitted to take any action at a meeting, written notice shall be given to each
stockholder at his or her address as it appears on the records of the
Corporation, stating the place, date and hour of the meeting and, in the case of
a special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by any statute, the Certificate of Incorporation or
these By-laws, a copy of the notice of any meeting shall be given by registered
or certified first class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery, not less than ten (10) nor more
than sixty (60) days before the date of the meeting, to each stockholder
entitled to notice of or to vote at such meeting. All such notices shall be
deemed to have been given when delivered by hand, if personally delivered; when
delivered by courier or overnight mail, if delivered by commercial courier
service or overnight mail; five days after deposit in the United States mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
-5-
<PAGE>
telecopied. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the Corporation that the notice required by this Section 2.5
has been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
2.6 Waivers of Notice. Whenever the giving of any notice is required by
-----------------
statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in
writing, signed by the stockholder or stockholders entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance by a stockholder at a meeting shall
constitute a waiver of notice of such meeting except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by statute, the
Certificate of Incorporation or these By-laws.
2.7 List of Stockholders. The Secretary shall prepare and make, or cause
--------------------
to be prepared and made, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, the stockholder's
agent, or attorney, at the stockholder's expense, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least five (5) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The
Corporation shall maintain the stockholder list in written form or in another
-6-
<PAGE>
form capable of conversion into written form within a reasonable time. Upon the
willful neglect or refusal of the Directors to produce such a list at any
meeting for the election of Directors, they shall be ineligible for election to
any office at such meeting. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
2.8 Quorum of Stockholders; Adjournment.
-----------------------------------
2.8.1 Except as otherwise provided by any statute, the Certificate of
Incorporation or these By-laws, the holders of a majority of all outstanding
shares of stock entitled to vote at any meeting of stockholders, present in
person or represented by proxy, shall constitute a quorum for the transaction of
any business at such meeting. When a quorum is once present to organize a
meeting of stockholders, it is not broken by the subsequent withdrawal of any
stockholders. Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
-------- -------
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
2.8.2 The holders of a majority of the shares of stock present in
person or represented by proxy at any meeting of stockholders, including an
adjourned meeting, whether or not a quorum is present, may adjourn such meeting
to another time and place. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken, and at
the adjourned meeting any business may be transacted that might have been
transacted at the meeting as originally called. If, however, the adjournment is
for more than thirty days, or if after the adjournment a new record date is
-7-
<PAGE>
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 Voting; Proxies. Unless otherwise provided in the Certificate of
---------------
Incorporation, every stockholder of record shall be entitled at every meeting of
stockholders to one vote for each share of capital stock standing in his or her
name on the record of stockholders determined in accordance with Section 2.4
hereof. If the Certificate of Incorporation provides for more or less than one
vote for any share on any matter, each reference in the By-laws or the General
Corporation Law to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the General Corporation Law shall apply in determining
whether any shares of capital stock may be voted and the persons, if any,
entitled to vote such shares; but the Corporation shall be protected in assuming
that the persons in whose names shares of capital stock stand on the stock
ledger of the Corporation are entitled to vote such shares. Holders of
redeemable shares of stock are not entitled to vote after the notice of
redemption is mailed to such holders and a sum sufficient to redeem the stocks
has been deposited with a bank, trust company, or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
surrender of the shares of stock. At any meeting of stockholders (at which a
quorum was present to organize the meeting), all matters, except as otherwise
provided by statute or by the Certificate of Incorporation or by these By-laws,
shall be decided by a majority of the votes cast at such meeting by the holders
of shares present in person or represented by proxy and entitled to vote
thereon, whether or not a quorum is present when the vote is taken. All
elections of Directors shall be by written ballot unless otherwise provided in
the Certificate of Incorporation. In voting on any other question on which a
vote by ballot is required by law or is demanded by any stockholder entitled to
vote, the voting shall be by ballot. Each ballot shall be signed by the
-8-
<PAGE>
stockholder voting or the stockholder's proxy and shall state the number of
shares voted. On all other questions, the voting may be viva voce. Each
---------
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for such stockholder by proxy. The validity
and enforceability of any proxy shall be determined in accordance with Section
212 of the General Corporation Law. A stockholder may revoke any proxy that is
not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by delivering a proxy in accordance
with applicable law bearing a later date to the Secretary.
2.10 Voting Procedures and Inspectors of Election at Meetings of
-----------------------------------------------------------
Stockholders. The Board, in advance of any meeting of stockholders, may appoint
- ------------
one or more inspectors to act at the meeting and make a written report thereof.
The Board may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
a meeting, the person presiding at the meeting may appoint, and on the request
of any stockholder entitled to vote thereat shall appoint, one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall (a) ascertain the number of
shares outstanding and the voting power of each, (b) determine the shares
represented at the meeting and the validity of proxies and ballots, (c) count
all votes and ballots, (d) determine and retain for a reasonable period a record
of the disposition of any challenges made to any determination by the
inspectors, and (e) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of their duties. Unless otherwise provided by the
Board, the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be determined by
-9-
<PAGE>
the person presiding at the meeting and shall be announced at the meeting. No
ballot, proxies or votes, or any revocation thereof or change thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery of the State of Delaware upon application by a stockholder shall
determine otherwise.
2.11 Organization. At each meeting of stockholders, the Chairman, or in
------------
the absence of the Chairman the President, or in the absence of the President a
Vice President, and in case more than one Vice President shall be present, that
Vice President designated by the Board (or in the absence of any such
designation, the most senior vice President, based on age, present), shall act
as chairman of the meeting. The Secretary, or in his or her absence one of the
Assistant Secretaries, shall act as secretary of the meeting. In case none of
the officers above designated to act as chairman or secretary of the meeting,
respectively, shall be present, a chairman or a secretary of the meeting, as the
case may be, shall be chosen by a majority of the votes cast at such meeting by
the holders of shares of capital stock present in person or represented by proxy
and entitled to vote at the meeting.
2.12 Order of Business. The order of business at all meetings of
-----------------
stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.13 Written Consent of Stockholders Without a Meeting. Unless otherwise
-------------------------------------------------
provided in the Certificate of Incorporation, any action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
-10-
<PAGE>
shall be delivered (by registered or certified first class mail, return receipt
requested, telecopier, courier service, overnight mail or personal delivery) to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered in the manner required by this Section
2.13, written consents signed by a sufficient number of holders to take action
are delivered to the Corporation as aforesaid. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE 3
Directors
---------
3.1 General Powers. Except as otherwise provided in the Certificate of
--------------
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or these By-
laws or applicable laws, as it may deem proper for the conduct of its meetings
and the management of the Corporation. In addition to the powers expressly
conferred by these By-laws, the Board may exercise all powers and perform all
acts that are not required, by these By-laws or the Certificate of Incorporation
or by statute, to be exercised and performed by the stockholders.
3.2 Number; Qualification; Term of Office.
-------------------------------------
(a) The number of Directors shall be fixed initially by the
incorporator and may thereafter be changed from time to time by action of the
stockholders or by action of the Board; provided, however, that the Board shall
-------- -------
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<PAGE>
initially consist of not less than one (1) nor greater than five (5) members;
and provided further, that after the date upon which the Corporation commences
-------- -------
its initial offer for sale of Common Stock pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended, the Board shall be
increased as soon as possible after such date to not less than seven (7)
members. Directors need not be stockholders. Each Director shall hold office
until a successor is elected and qualified or until the Director's death,
resignation or removal.
(b) Notwithstanding anything to the contrary contained in these By-
laws, (i) the Major Stockholders shall be entitled to designate three (3)
individuals to serve as members of the Board (collectively, the "Major
Stockholder Directors") and (ii) the General Atlantic Stockholders shall be
entitled to designate two (2) individuals to serve as members of the Board
(collectively, the "General Atlantic Directors").
3.3 Election. Directors shall, except as otherwise required by statute or
--------
by the Certificate of Incorporation, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares of stock entitled to vote
in the election.
3.4 Resignation. Any Director may resign at any time by written notice to
-----------
the Corporation. Such resignation shall take effect at the time therein
specified, or if the time is not specified, it shall take effect immediately
upon its receipt, and, unless otherwise specified in such resignation, the
acceptance of such resignation shall not be necessary to make it effective.
3.5 Removal. Subject to the provisions of Section 141(k) of the General
-------
Corporation Law, (a) any or all of the Major Stockholder Directors may be
removed with or without cause by vote of the holders of a majority of the shares
of stock then entitled to vote at an election of Directors and (b) any or all of
the General Atlantic Directors may be removed with or without cause by vote of
the holders of a majority of the shares of stock then entitled to vote at an
election of Directors, provided that, in the case of subsection (b), such
--------
-12-
<PAGE>
majority must include all of the shares of stock then held by the General
Atlantic Stockholders.
3.6 Compensation. Each Director, in consideration of his or her service
------------
as such, shall be entitled to receive from the Corporation such amount per annum
or such fees for attendance at Directors' meetings, or both, as the Board may
from time to time determine, together with reimbursement for the reasonable out-
of-pocket expenses, if any, incurred by such Director in connection with the
performance of his or her duties. Each Director who shall serve as a member of
any committee of Directors in consideration of serving as such shall be entitled
to such additional amount per annum or such fees for attendance at committee
meetings, or both, as the Board may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred by
such Director in the performance of his or her duties. Nothing contained in
this Section 3.6 shall preclude any Director from serving the Corporation or its
Subsidiaries in any other capacity and receiving proper compensation therefor.
3.7 Newly Created Directorships and Vacancies. Unless otherwise provided
-----------------------------------------
in the Certificate of Incorporation, newly created Directorships resulting from
an increase in the number of Directors and vacancies occurring in the Board for
any other reason, including the removal of Directors without cause, may be
filled by (a) the affirmative votes of a majority of the Directors then in
office although less than a quorum or by the sole remaining Director or (b) a
plurality of the votes cast by the holders of shares of capital stock entitled
to vote in the election at a special meeting of stockholders called for that
purpose; provided, however, that (a) if a vacancy occurs on the Board by reason
-------- -------
of the death, removal or resignation of a Major Stockholder Director, then the
Major Stockholders shall be entitled to designate the individual to fill such
vacancy and (b) subject to Section 3.8 hereof, if a vacancy occurs on the Board
by reason of the death, resignation or removal of a General Atlantic Director,
-13-
<PAGE>
then the General Atlantic Stockholders shall be entitled to designate the
individual to fill such vacancy. A Director elected to fill a vacancy shall be
elected to hold office until a successor is elected and qualified, or until such
Director's earlier death, resignation or removal.
3.8 Termination of Certain General Atlantic Rights. Notwithstanding
----------------------------------------------
anything to the contrary contained in these By-laws, (a) from and after the date
that the General Atlantic Stockholders own shares of Preferred Stock and/or
Common Stock and/or other securities of the Corporation convertible into or
exchangeable for voting capital stock of the Corporation that in the aggregate
represent (after giving effect to any adjustments) greater than 5% but less than
or equal to 10% of the total number of shares of Common Stock outstanding (on an
as converted basis), then (i) at the request of the Chairman, one General
Atlantic Director designated by the General Atlantic Stockholders in accordance
with Section 3.2(b)(ii) hereof shall immediately resign from the Board and the
rights of the General Atlantic Stockholders under Section 3.7 hereof with
respect to the replacement of such General Atlantic Director shall terminate and
(ii) the General Atlantic Stockholders shall be entitled thereafter to designate
one (1) General Atlantic Director for election or removal pursuant to Section
3.2(b)(ii) or Section 3.7 hereof, (b) from and after the date that the General
Atlantic Stockholders own shares of Preferred Stock and/or Common Stock and/or
other securities of the Corporation convertible into or exchangeable for voting
capital stock of the Corporation that in the aggregate represent (after giving
effect to any adjustments) 5% or less of the total number of shares of Common
Stock outstanding (on an as converted basis, then (i) at the request of the
Chairman, any General Atlantic Director designated by the General Atlantic
Stockholders in accordance with Section 3.2(b)(ii) hereof shall immediately
resign from the Board and the rights of the General Atlantic Stockholders under
Section 3.7 with respect to the replacement of such General Atlantic Director
shall terminate and (ii) the General Atlantic Stockholders shall not be entitled
to designate any General Atlantic Directors for election or removal pursuant to
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<PAGE>
Section 3.2(b)(ii) or Section 3.7 hereof and (c) from and after the date upon
which the Corporation commences its initial offer for sale of Common Stock
pursuant to an effective registration statement filed under the Securities Act
of 1933, as amended, (i) at the request of the Chairman, any General Atlantic
Director designated by the General Atlantic Stockholders in accordance with
Section 3.2(b)(ii) hereof shall immediately resign from the Board and the rights
of the General Atlantic Stockholders under Section 3.7 with respect to the
replacement of such General Atlantic Director shall terminate and (ii) the
General Atlantic Stockholders shall not be entitled to designate any General
Atlantic Directors for election or removal pursuant to Section 3.2(b)(ii) or
Section 3.7 hereof.
3.9 Times and Places of Meetings. The Board may hold meetings, both
----------------------------
regular and special, either within or without the State of Delaware. The times
and places for holding meetings of the Board may be fixed from time to time by
resolution of the Board or (unless contrary to a resolution of the Board) in the
notice of the meeting.
3.10 Annual Meetings. On the day when and at the place where the annual
---------------
meeting of stockholders for the election of Directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any other time and place specified in a notice given as provided in Section 3.12
hereof for special meetings of the Board or in a waiver of notice thereof.
3.11 Regular Meetings. Regular meetings of the Board may be held without
----------------
notice at such times and at such places as shall from time to time be determined
by the Board.
3.12 Special Meetings. Special meetings of the Board may be called by the
----------------
Chairman, the President or the Secretary or by any two or more Directors then
serving on at least one day's notice to each Director given by one of the means
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specified in Section 3.15 hereof other than by mail, or on at least three days'
notice if given by mail. Special meetings shall be called by the Chairman,
President or Secretary in like manner and on like notice on the written request
of any two or more of the Directors then serving.
3.13 Telephone Meetings. Directors or members of any committee designated
------------------
by the Board may participate in a meeting of the Board or of such committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.13 shall constitute
presence in person at such meeting.
3.14 Adjourned Meetings. A majority of the Directors present at any
------------------
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. At least one day's
notice of any adjourned meeting of the Board shall be given to each Director
whether or not present at the time of the adjournment, if such notice shall be
given by one of the means specified in Section 3.15 hereof other than by mail,
or at least three days' notice if by mail. Any business may be transacted at an
adjourned meeting that might have been transacted at the meeting as originally
called.
3.15 Notice Procedure. Subject to Sections 3.12 and 3.18 hereof, whenever,
----------------
under the provisions of any statute, the Certificate of Incorporation or these
By-laws, notice is required to be given to any Director, such notice shall be
deemed given effectively if given in person or by telephone, by mail addressed
to such Director at such Director's address as it appears on the records of the
Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or
similar means addressed as aforesaid.
3.16 Waiver of Notice. Whenever the giving of any notice is required by
----------------
statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in
writing, signed by the person or persons entitled to said notice, whether before
or after the event as to which such notice is required, shall be deemed
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<PAGE>
equivalent to notice. Attendance by a person at a meeting shall constitute a
waiver of notice of such meeting except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Directors or a committee of Directors
need be specified in any written waiver of notice unless so required by statute,
the Certificate of Incorporation or these By-laws.
3.17 Organization. At each meeting of the Board, the Chairman, or in the
------------
absence of the Chairman the President, or in the absence of the President a
chairman chosen by a majority of the Directors present, shall preside. The
Secretary shall act as secretary at each meeting of the Board. In case the
Secretary shall be absent from any meeting of the Board, an Assistant Secretary
shall perform the duties of secretary at such meeting; and in the absence from
any such meeting of the Secretary and all Assistant Secretaries, the person
presiding at the meeting may appoint any person to act as secretary of the
meeting.
3.18 Quorum of Directors. The presence in person of a majority of the
-------------------
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business at any meeting of the Board, but a majority of a smaller
number may adjourn any such meeting to a later date.
3.19 Action by Majority Vote. Except as otherwise expressly required by
-----------------------
statute, the Certificate of Incorporation or these By-laws, the act of a
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board. Notwithstanding anything to the contrary
contained in these By-laws, the Board shall not take, approve or otherwise
ratify at a meeting or in writing any of the following actions except with the
consent of at least a majority of the entire Board, which majority shall
include, without limitation, at least one General Atlantic Director:
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(a) any transaction of merger, consolidation, amalgamation,
recapitalization or other form of business combination with respect to the
Corporation or any of the Subsidiaries;
(b) any sale, conveyance, lease, transfer or other disposition of all
or substantially all of the consolidated assets of the Corporation or any of the
Subsidiaries (other than the sale of software products by the Company or any of
the Subsidiaries in the ordinary course of business);
(c) institution of any voluntary bankruptcy or other liquidation or
dissolution proceedings by the Corporation or any of the Subsidiaries;
(d) any issuance of or agreement to issue any shares of capital stock
of the Corporation or any of the Subsidiaries or rights of any kind convertible
into or exchangeable for, any shares of capital stock of the Corporation or any
of the Subsidiaries, or any option, warrant or other subscription or purchase
right with respect to shares of capital stock;
(e) any declaration or making of dividend payments or other payment or
distribution on account of shares of capital stock;
(f) any changes in accounting principles of the Corporation or any of
the Subsidiaries, including any change in the criteria for evaluating the
Corporation's or any of the Subsidiaries' financial conditions and results of
operations, and any changes in the Corporation's or any of the Subsidiaries'
auditors; and
(g) any material amendment, modification or restatement of the
Certificate of Incorporation or By-laws or any material amendment or
modification of this Section 3.19.
3.20 Action Without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these By-laws, including, without limitation,
Section 3.19 hereof, any action required or permitted to be taken at any meeting
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of the Board or of any committee thereof may be taken without a meeting if all
Directors or members of such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
ARTICLE 4
COMMITTEES OF THE BOARD
-----------------------
The Board may, by resolution passed by a vote of the entire Board,
designate one or more committees, each committee to consist of one or more of
the Directors of the Corporation. The Board may designate one or more Directors
as alternate members of any committee to replace absent or disqualified members
at any meeting of such committee. If a member of a committee shall be absent
from any meeting, or disqualified from voting thereat, the remaining member or
members present and not disqualified from voting, whether or not such member or
members constitute a quorum, may, by a unanimous vote, appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Any such committee, solely to the extent specifically provided in a
resolution of the Board passed as aforesaid, shall have and may exercise all the
powers and authority of the Board in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be
impressed on all papers that may require it, but no such committee shall have
the power or authority of the Board in reference to amending the Certificate of
Incorporation, amending these By-laws in accordance with Article 13 hereof,
adopting an agreement of merger or consolidation under Section 251 or 252 of the
General Corporation Law, selling, leasing or exchanging all or substantially all
of the Corporation's property and assets, dissolving or revoking the dissolution
of the Corporation or approving any of the actions set forth in Section
3.19(a)(g). Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board. Unless
otherwise specified in the resolution of the Board designating a committee, at
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all meetings of such committee a majority of the total number of members of the
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of the members of the committee present at any meeting at
which there is a quorum shall be the act of the committee. Each committee shall
keep regular minutes of its meetings. Unless the Board otherwise provides, each
committee designated by the Board may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board conducts its business
pursuant to Article 3 of these By-laws.
ARTICLE 5
OFFICERS
--------
5.1 Positions. The officers of the Corporation shall be a Chairman, a
---------
President, a Secretary, a Treasurer and such other officers as the Board may
appoint, including one or more Vice Presidents and one or more Assistant
Secretaries and Assistant Treasurers, who shall exercise such powers and perform
such duties as shall be determined from time to time by the Board. The Board
may designate one or more Vice Presidents as Executive Vice Presidents and may
use descriptive words or phrases to designate the standing, seniority or areas
of special competence of the Vice Presidents elected or appointed by it. Any
number of offices may be held by the same person unless the Certificate of
Incorporation or these By-laws otherwise provide.
5.2 Appointment. The officers of the Corporation shall be chosen by the
-----------
Board annually or at such other time or times as the Board shall determine.
5.3 Compensation. The compensation of all officers of the Corporation
------------
shall be fixed by the Board. No officer shall be prevented from receiving a
salary or other compensation by reason of the fact that the officer is also a
Director.
5.4 Term of Office. Each officer of the Corporation shall hold office
--------------
until such officer's successor is chosen and qualifies or until such officer's
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earlier death, resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. Such resignation shall take effect at the
date of receipt of such notice or at such later time as is therein specified,
and, unless otherwise specified, the acceptance of such resignation shall not be
necessary to make it effective. The resignation of an officer shall be without
prejudice to the contract rights of the Corporation, if any. Any officer
elected or appointed by the Board may be removed at any time, with or without
cause, by vote of a majority of the entire Board. Any vacancy occurring in any
office of the Corporation shall be filled by the Board. The removal of an
officer without cause shall be without prejudice to the officer's contract
rights, if any. The election or appointment of an officer shall not of itself
create contract rights.
5.5 Fidelity Bonds. The Corporation may secure the fidelity of any or all
--------------
of its officers or agents by bond or otherwise.
5.6 Chairman. The Chairman shall preside at all meetings of the Board and
--------
shall exercise such powers and perform such other duties as shall be determined
from time to time by the Board.
5.7 President. The President shall be the Chief Executive Officer of the
---------
Corporation and shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board and of any duly
authorized committee of Directors. The President shall preside at all meetings
of the stockholders and at all meetings of the Board at which the Chairman is
not present. The President may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts and other instruments except in cases in
which the signing and execution thereof shall be expressly delegated by the
Board or by these By-laws to some other officer or agent of the Corporation or
shall be required by statute otherwise to be signed or executed and, in general,
the President shall perform all duties incident to the office of President of a
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corporation and such other duties as may from time to time be assigned to the
President by the Board.
5.8 Vice Presidents. At the request of the President, or, in the
---------------
President's absence, at the request of the Board, the Vice Presidents shall (in
such order as may be designated by the Board or, in the absence of any such
designation, in order of seniority based on duration of term in office) perform
all of the duties of the President and, in so performing, shall have all the
powers of, and be subject to all restrictions upon, the President. Any Vice
President may sign and execute in the name of the Corporation deeds, mortgages,
bonds, contracts or other instruments, except in cases in which the signing and
execution thereof shall be expressly delegated by the Board or by these By-laws
to some other officer or agent of the Corporation, or shall be required by
statute otherwise to be signed or executed, and each Vice President shall
perform such other duties as from time to time may be assigned to such Vice
President by the Board or by the President.
5.9 Secretary. The Secretary shall attend all meetings of the Board and
---------
of the stockholders and shall record all the proceedings of the meetings of the
Board and of the stockholders in a book to be kept for that purpose, and shall
perform like duties for committees of the Board, when required. The Secretary
shall give, or cause to be given, notice of all special meetings of the Board
and of the stockholders and shall perform such other duties as may be prescribed
by the Board or by the President, under whose supervision the Secretary shall
be. The Secretary shall have custody of the corporate seal of the Corporation,
and the Secretary, or an Assistant Secretary, shall have authority to impress
the same on any instrument requiring it, and when so impressed the seal may be
attested by the signature of the Secretary or by the signature of such Assistant
Secretary. The Board may give general authority to any other officer to impress
the seal of the Corporation and to attest the same by such officer's signature.
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<PAGE>
The Secretary or an Assistant Secretary may also attest all instruments signed
by the President or any Vice President. The Secretary shall have charge of all
the books, records and papers of the Corporation relating to its organization
and management, shall see that the reports, statements and other documents
required by statute are properly kept and filed and, in general, shall perform
all duties incident to the office of Secretary of a corporation and such other
duties as may from time to time be assigned to the Secretary by the Board or by
the President.
5.10 Treasurer. The Treasurer shall have charge and custody of, and be
---------
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys and valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board; against proper vouchers, cause such funds to be disbursed by checks or
drafts on the authorized depositaries of the Corporation signed in such manner
as shall be determined by the Board and be responsible for the accuracy of the
amounts of all moneys so disbursed; regularly enter or cause to be entered in
books or other records maintained for the purpose full and adequate account of
all moneys received or paid for the account of the Corporation; have the right
to require from time to time reports or statements giving such information as
the Treasurer may desire with respect to any and all financial transactions of
the Corporation from the officers or agents transacting the same; render to the
President or the Board, whenever the President or the Board shall require the
Treasurer so to do, an account of the financial condition of the Corporation and
of all financial transactions of the Corporation; exhibit at all reasonable
times the records and books of account to any of the Directors upon application
at the office of the Corporation where such records and books are kept; disburse
the funds of the Corporation as ordered by the Board; and, in general, perform
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all duties incident to the office of Treasurer of a corporation and such other
duties as may from time to time be assigned to the Treasurer by the Board or the
President.
5.11 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries
----------------------------------------------
and Assistant Treasurers shall perform such duties as shall be assigned to them
by the Secretary or by the Treasurer, respectively, or by the Board or by the
President.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
---------------------------------------------
6.1 Checks, Drafts, Etc. All checks, drafts and other orders for the
-------------------
payment of money out of the funds of the Corporation and all evidences of
indebtedness of the Corporation shall be signed on behalf of the Corporation in
such manner as shall from time to time be determined by resolution of the Board.
6.2 Deposits. The funds of the Corporation not otherwise employed shall
--------
be deposited from time to time to the order of the Corporation with such banks,
trust companies, investment banking firms, financial institutions or other
depositaries as the Board may select or as may be selected by an officer,
employee or agent of the Corporation to whom such power to select may from time
to time be delegated by the Board.
ARTICLE 7
STOCK
-----
7.1 Certificates Representing Shares. The shares of capital stock of the
--------------------------------
Corporation shall be represented by certificates in such form (consistent with
the provisions of Section 158 of the General Corporation Law) as shall be
approved by the Board. Such certificates shall be signed by the Chairman, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and may be impressed with the seal of
the Corporation or a facsimile thereof. The signatures of the officers upon a
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certificate may be facsimiles, if the certificate is countersigned by a transfer
agent or registrar other than the Corporation itself or its employee. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon any certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may, unless otherwise ordered by the Board, be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
7.2 Transfer of Shares. Transfers of shares of capital stock of the
------------------
Corporation shall be made only on the books of the Corporation by the holder
thereof or by the holder's duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment of
all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Cancelled," with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation. No transfer of shares of capital stock shall be valid as against
the Corporation, its stockholders and creditors for any purpose, except to
render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books of the
Corporation by an entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from time to time
----------------------------
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any
--------------------------------------------------
shares of capital stock of the Corporation shall immediately notify the
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Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his or her legal representatives, to make proof
satisfactory to the Board of such loss, destruction, theft or mutilation and to
advertise such fact in such manner as the Board may require, and to give the
Corporation and its transfer agents and registrars, or such of them as the Board
may require, a bond in such form, in such sums and with such surety or sureties
as the Board may direct, to indemnify the Corporation and its transfer agents
and registrars against any claim that may be made against any of them on account
of the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
7.5 Rules and Regulations. The Board may make such rules and regulations
---------------------
as it may deem expedient, not inconsistent with these By-laws or with the
Certificate of Incorporation, concerning the issue, transfer and registration of
certificates representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction on the
--------------------------------
transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 202 of the General Corporation Law and noted conspicuously
on the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock or any successor or transferee of the
holder, including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing such capital
stock, a restriction, even though permitted by Section 202 of the General
Corporation Law, shall be ineffective except against a person with actual
knowledge of the restriction. A restriction on the transfer or registration of
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transfer of capital stock of the Corporation may be imposed either by the
Certificate of Incorporation or by an agreement among any number of stockholders
or among such stockholders and the Corporation. No restriction so imposed shall
be binding with respect to capital stock issued prior to the adoption of the
restriction unless the holders of such capital stock are parties to an agreement
or voted in favor of the restriction.
ARTICLE 8
INDEMNIFICATION
---------------
8.1 Indemnity Undertaking. To the extent not prohibited by law, the
---------------------
Corporation shall indemnify any person who is or was made, or threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a Director or
officer of the Corporation, or is or was serving in any capacity at the request
of the Corporation for any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees and disbursements). Persons who
are not Directors or officers of the Corporation may be similarly indemnified in
respect of service to the Corporation or to an Other Entity at the request of
the Corporation to the extent the Board at any time specifies that such persons
are entitled to the benefits of this Article 8.
8.2 Advancement of Expenses. The Corporation shall, from time to time,
-----------------------
reimburse or advance to any Director or officer or other person entitled to
indemnification hereunder the funds necessary for payment of expenses, including
attorneys' fees and disbursements, incurred in connection with any Proceeding,
in advance of the final disposition of such Proceeding; provided, however, that,
-------- -------
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<PAGE>
if required by the General Corporation Law, such expenses incurred by or on
behalf of any Director or officer or other person may be paid in advance of the
final disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such Director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 Rights Not Exclusive. The rights to indemnification and reimbursement
--------------------
or advancement of expenses provided by, or granted pursuant to, this Article 8
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, the Certificate of Incorporation, these
By-laws, any agreement, any vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
8.4 Continuation of Benefits. The rights to indemnification and
------------------------
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall continue as to a person who has ceased to be a Director or
officer (or other person indemnified hereunder) and shall inure to the benefit
of the executors, administrators, legatees and distributees of such person.
8.5 Insurance. The Corporation shall have power to purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of an Other Entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Article 8, the Certificate of Incorporation or
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under Section 145 of the General Corporation Law or any other provision of law.
8.6 Binding Effect. The provisions of this Article 8 shall be a contract
--------------
between the Corporation, on the one hand, and each Director and officer who
serves in such capacity at any time while this Article 8 is in effect and any
other person indemnified hereunder, on the other hand, pursuant to which the
Corporation and each such Director, officer or other person intend to be legally
bound. No repeal or modification of this Article 8 shall affect any rights or
obligations with respect to any state of facts then or theretofore existing or
thereafter arising or any proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
8.7 Procedural Rights. The rights to indemnification and reimbursement or
-----------------
advancement of expenses provided by, or granted pursuant to, this Article 8
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, its independent legal
counsel and its stockholders) to have made a determination prior to the
commencement of such action that such indemnification or reimbursement or
advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that such person is not entitled
to such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that such person is
not so entitled. Such a person shall also be indemnified for any expenses
incurred in connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
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8.8 Service Deemed at Corporation's Request. Any Director or officer of
---------------------------------------
the Corporation serving in any capacity (a) another corporation of which a
majority of the shares entitled to vote in the election of its directors is
held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
8.9 Election of Applicable Law. Any person entitled to be indemnified or
--------------------------
to reimbursement or advancement of expenses as a matter of right pursuant to
this Article 8 may elect to have the right to indemnification or reimbursement
or advancement of expenses interpreted on the basis of the applicable law in
effect at the time of the occurrence of the event or events giving rise to the
applicable Proceeding, to the extent permitted by law, or on the basis of the
applicable law in effect at the time such indemnification or reimbursement or
advancement of expenses is sought. Such election shall be made, by a notice in
writing to the Corporation, at the time indemnification or reimbursement or
advancement of expenses is sought; provided, however, that if no such notice is
-------- -------
given, the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
ARTICLE 9
BOOKS AND RECORDS
-----------------
9.1 Books and Records. There shall be kept at the principal office of the
-----------------
Corporation correct and complete records and books of account recording the
financial transactions of the Corporation and minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep at its principal office, or at the office of the transfer agent or
registrar of the Corporation, a record containing the names and addresses of all
stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
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9.2 Form of Records. Any records maintained by the Corporation in the
---------------
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
9.3 Inspection of Books and Records. Except as otherwise provided by law,
-------------------------------
the Board shall determine from time to time whether, and, if allowed, when and
under what conditions and regulations, the accounts, books, minutes and other
records of the Corporation, or any of them, shall be open to the stockholders
for inspection.
ARTICLE 10
SEAL
----
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
ARTICLE 11
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed, and may be changed, by
resolution of the Board.
ARTICLE 12
PROXIES AND CONSENTS
--------------------
Unless otherwise directed by the Board, the Chairman, the President, any
Vice President, the Secretary or the Treasurer, or any one of them, may execute
and deliver on behalf of the Corporation proxies respecting any and all shares
or other ownership interests of any Other Entity owned by the Corporation
-31-
<PAGE>
appointing such person or persons as the officer executing the same shall deem
proper to represent and vote the shares or other ownership interests so owned at
any and all meetings of holders of shares or other ownership interests, whether
general or special, and/or to execute and deliver consents respecting such
shares or other ownership interests; or any of the aforesaid officers may attend
any meeting of the holders of shares or other ownership interests of such Other
Entity and thereat vote or exercise any or all other powers of the Corporation
as the holder of such shares or other ownership interests.
ARTICLE 13
AMENDMENTS
----------
These By-laws may be altered, amended or repealed by a vote of the holders
of shares of stock entitled to vote in the election of Directors or by a vote of
the Board; provided, however, that (a) so long as the General Atlantic
-------- -------
Stockholders are entitled to designate in accordance with Section 3.2(b)(ii)
hereof a General Atlantic Director to serve as a member of the Board, Sections
3.2, 3.5, 3.7, 3.8, 3.19, 3.20 and Article 4 and Article 13 shall not be
materially altered, amended or repealed by (i) the Board without the consent of
one General Atlantic Director or (ii) the stockholders unless such alteration,
amendment or repeal shall have been approved by the General Atlantic
Stockholders and (b) so long as the General Atlantic Stockholders are entitled
to designate in accordance with Section 3.2(b)(ii) hereof a General Atlantic
Director to serve as a member of the Board, subject to subsection (a) above,
these By-laws shall not be materially altered, amended or repealed by the Board
without the consent of one General Atlantic Director. Any By-laws adopted,
altered or amended by the Board in accordance with the Certificate of
Incorporation and this Article 13 may be altered, amended or repealed by the
stockholders entitled to vote thereon only to the extent and in the manner
provided in the Certificate of Incorporation and this Article 13.
-32-
<PAGE>
EXHIBIT 10.1
PREFERRED STOCK PURCHASE AGREEMENT
among
LHS GROUP HOLDING CORPORATION,
GENERAL ATLANTIC PARTNERS 23, L.P.
and
GAP COINVESTMENT PARTNERS, L.P.
Dated: December 22, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE 1 DEFINITIONS 1
1.1 Definitions............................................... 1
1.2 Accounting Terms; Financial Statements.................... 5
ARTICLE 2 PURCHASE AND SALE OF PREFERRED STOCK...................... 6
2.1 Purchase and Sale of Preferred Stock...................... 6
2.2 Certificate of Designations............................... 6
2.3 Closing................................................... 6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............. 6
3.1 Subsidiaries.............................................. 6
3.2 Corporate Existence and Power............................. 6
3.3 Authorization; No Contravention........................... 7
3.4 Governmental Authorization: Third Party Consents......... 7
3.5 Binding Effect............................................ 8
3.6 Litigation................................................ 8
3.7 Compliance with Laws...................................... 9
3.8 Capitalization............................................ 9
3.9 No Default or Breach...................................... 10
3.10 Title to Properties....................................... 10
3.11 FIRPTA.................................................... 11
3.12 Financial Statements...................................... 11
3.13 Taxes..................................................... 11
3.14 No Material Adverse Change; Ordinary Course of Business.. 12
3.15 Investment Company........................................ 13
3.16 Private Offering.......................................... 13
3.17 Labor Relations........................................... 13
3.18 Employee Benefit Plans.................................... 13
3.19 Title to Assets........................................... 14
3.20 Liabilities............................................... 14
3.21 Intellectual Property..................................... 14
3.22 Potential Conflicts of Interest........................... 16
3.23 Contracts and Other Agreements............................ 16
3.24 Insurance................................................. 17
3.25 Broker's, Finder's or Similar Fees........................ 17
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.......... 17
4.1 Existence and Power of GAP LP and GAP Coinvestment........ 17
4.2 Authorization; No Contravention........................... 17
4.3 Governmental Authorization; Third Party Consents.......... 18
4.4 Binding Effect............................................ 18
4.5 Purchase for Own Account.................................. 18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<C> <S> <C>
4.6 Broker's, Finder's or Similar Fees........................ 19
ARTICLE 5 CONDITIONS TO THE OBLIGATIONS OF THE PARTIES TO CLOSE..... 19
5.1 No Injunction............................................. 20
5.2 Regulatory Authorizations................................. 20
ARTICLE 6 CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE... 20
6.1 Representations and Warranties............................ 20
6.2 Compliance with this Agreement............................ 20
6.3 Secretary's Certificate................................... 21
6.4 Officer's Certificate..................................... 21
6.5 Stockholders Agreement.................................... 21
6.6 Opinion of Counsel........................................ 21
6.7 Approval of Counsel to the Purchasers..................... 21
6.8 Purchased Shares.......................................... 22
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO CLOSE..... 22
7.1 Representations and Warranties............................ 22
7.2 Compliance with this Agreement............................ 22
7.3 General Partners' Certificates............................ 22
7.4 Stockholders Agreement.................................... 23
7.5 Opinion of Counsel........................................ 23
7.6 Approval of Counsel to the Company........................ 23
7.7 Payment of Purchase Price................................. 23
ARTICLE 8 INDEMNIFICATION........................................... 23
8.1 Indemnification........................................... 23
8.2 Notification.............................................. 24
8.3 Limitations on Indemnification............................ 25
ARTICLE 9 TERMINATION............................................... 26
9.1 Termination............................................... 26
9.2 Effect of Termination..................................... 26
ARTICLE 10 AFFIRMATIVE COVENANTS..................................... 26
10.1 Financial Statements and Other Information................ 27
10.2 Reservation of Common Stock............................... 27
10.3 Books and Records......................................... 27
10.4 Opinion of Swiss Counsel.................................. 27
ARTICLE 11 MISCELLANEOUS............................................. 28
11.1 Survival of Representations and Warranties................ 28
11.2 Notices................................................... 28
11.3 Successors and Assigns; Third Party Beneficiaries......... 29
11.4 Amendment and Waiver...................................... 29
11.5 Counterparts.............................................. 30
11.6 Headings.................................................. 30
11.7 GOVERNING LAW............................................. 30
11.8 Severability.............................................. 30
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
<C> <S> <C>
11.9 Rules of Construction..................................... 30
11.10 Entire Agreement.......................................... 30
11.11 Fees...................................................... 31
11.12 Publicity................................................. 31
11.13 Further Assurances........................................ 31
11.14 Confidentiality........................................... 31
</TABLE>
EXHIBITS
A-1 Form of Certificate of Incorporation of the Company
A-2 Form of By-laws of the Company
B Form of Certificate of Designations
C Form of Stockholders Agreement
D-1 Form of Simpson Thacher & Bartlett Opinion
D-2 Form of Oppenhoff & Radler Opinion
E Form of Paul, Weiss Opinion
F Restructuring
SCHEDULES
1 Major Stockholders
2.1 Shares of Preferred Stock and Purchase Price
3.1 Subsidiaries
3.2 Jurisdictions in which the Company or any of the Subsidiaries
Leases or Owns Property
3.4 Governmental Authorizations; Third Party Consents
3.6 Litigation
3.7 Noncompliance with Requirements of Law and Orders
3.8(a) List of Stockholders and Capital Stock and Common Stock
Equivalents owned by such Stockholders
3.8(b) List of Holders of Capital Stock and Ownership Interests of the
Subsidiaries; Options, Warrants, Conversion Privileges,
Subscription or Purchase Rights or Other Rights; Proprietary
Interests of the Company and the Subsidiaries
3.9 Defaults or Breaches of Contractual Obligations
3.13 Taxes
3.14 Transactions Outside the Ordinary Course of Business
3.17 Labor Relations
3.18 Employee Benefit Plans
3.19 Title to Assets
3.20 Liabilities
3.21(a)(i) Intellectual Property Not Owned or Licensed
-iii-
<PAGE>
3.21(a)(ii) Certain Intellectual Property Owned by the Company or any of the
Subsidiaries and Applications therefor
3.21(a)(iii) Certain Intellectual Property Licenses under which the Company or
any of the Subsidiaries is a Licensor or Licensee
3.21(a)(iv) Intellectual Property Litigation
3.21(b) Infringement or Violations of Intellectual Property Rights
3.21(c) Obligations to Pay Consideration for Inventions, Patents or
Designs
3.21(d) Violations of Agreements relating to Confidential Information
3.22 Potential Conflicts of Interest
3.23(a) Contractual Obligations
3.23(b) Actual or Threatened Termination, Cancellation, Limitation or
Material Adverse Modifications in Certain Contractual Obligations
3.24 Insurance
-iv-
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT, dated December 22, 1995 (this "Agreement"), among LHS Group
Holding Corporation, a Delaware corporation (the "Company"), General Atlantic
Partners 23, L.P., a Delaware limited partnership ("GAP LP"), and GAP
Coinvestment Partners, L.P., a New York limited partnership ("GAP Coinvestment"
and, together with GAP LP, the "Purchasers").
WHEREAS, prior to the consummation of the transactions contemplated by this
Agreement, the Company and the Subsidiaries (as hereinafter defined) will have
engaged in a restructuring transaction pursuant to which, among other things,
the Company will acquire direct or indirect equity interests in all of the
Subsidiaries, as set forth in Exhibit F (the "Restructuring"); and
---------
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Company proposes to issue and sell to (a) GAP LP, for an aggregate purchase
price of $17,234,682, an aggregate of 193,890 shares, par value $.01 per share,
of Series A Convertible Preferred Stock of the Company (the "Preferred Stock")
and (b) GAP Coinvestment, for an aggregate purchase price of $2,765,318, an
aggregate of 31,110 shares of Preferred Stock, each of which shares of Preferred
Stock are convertible (subject to adjustment) into one (1) share of Common
Stock, par value $.01 per share, of the Company (the "Common Stock") and all of
which shares of Preferred Stock are convertible (subject to adjustment) into an
aggregate of 225,000 shares of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2
---------
of the General Rules and Regulations under the Exchange Act.
"Agreement" means this Agreement as the same may be amended, supplemented
---------
or otherwise modified in accordance with the terms hereof.
"Approval" has the meaning set forth in Section 3.4.
--------
<PAGE>
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or other day on
------------
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"By-laws" means the by-laws of the Company as in effect on the Closing Date
-------
substantially in the form attached hereto as Exhibit A-1.
-----------
"Capital Lease Obligations" of any Person shall mean, as of the date of
-------------------------
determination, the obligations of such Person with respect to any lease of
property, real or personal, which obligations are required in accordance with
GAAP to be capitalized on a balance sheet of such Person.
"Certificate of Designations" means the Certificate of Designations with
---------------------------
respect to the Preferred Stock in the form attached hereto as Exhibit B.
---------
"Certificate of Incorporation" means the Certificate of Incorporation of
----------------------------
the Company in the form attached hereto as Exhibit A-2.
-----------
"Closing" has the meaning set forth in Section 2.2.
-------
"Closing Date" means the date specified in Section 2.2.
------------
"Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any similar
----------
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means Common Stock, par value $.01 per share, of the
------------
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Common Stock Equivalents" means any security or obligation which is by its
------------------------
terms convertible into or exchangeable for shares of capital stock of the
Company, including, without limitation, the Preferred Stock, and any option,
warrant or other subscription or purchase right with respect to capital stock of
the Company.
"Condition of the Company" means the assets, business, properties,
------------------------
operations or financial condition of the Company and the Subsidiaries, taken as
a whole.
"Contractual Obligations" means, as to any Person, any provision of any
-----------------------
security issued by such Person or of any agreement, undertaking, contract,
-2-
<PAGE>
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Defined Benefit Plan" means a defined benefit plan within the meaning of
--------------------
Section 3(35) of ERISA or Section 414(j) of the Code.
"Environmental Laws" means United States federal, state, local and foreign
------------------
laws, principles of common law, civil law, 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.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission thereunder.
"Financial Statements" has the meaning set forth in Section 3.12.
--------------------
"GAAP" means United States generally accepted accounting principles in
----
effect from time to time.
"GAP Coinvestment" has the meaning assigned to such term in the recital to
----------------
this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
-------
liability company and the general partner of GAP LP.
"GAP LP" has the meaning assigned to such term in the recital to this
------
Agreement.
"Governmental Authority" means the government of any nation, state, city,
----------------------
locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing, in each case exercising jurisdiction over any of the parties to this
Agreement.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
-3-
<PAGE>
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Major Stockholders" means the stockholders of the Company listed on
------------------
Schedule 1 hereto.
- ----------
"Orders" has the meaning set forth in Section 3.3.
------
"Permits" has the meaning set forth in Section 3.7(b).
-------
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning assigned to such term in the recital to
---------------
this Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
----------------
Agreement.
"Requirements of Law" means, as to any Person, any law, Environmental Law,
-------------------
statute, treaty, rule, regulation, right, privilege, qualification, license or
franchise or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable or binding upon such Person or any of its
property or to which such Person or any of its property is subject or pertaining
to any or all of the transactions contemplated or referred to herein.
"Restructuring" has the meaning assigned to such term in the recital to
-------------
this Agreement.
"Securities Act" means the United States Securities Act of 1933, as
--------------
amended, and the rules and regulations of the Commission thereunder.
"Stockholders Agreement" means the Stockholders Agreement substantially in
----------------------
the form attached hereto as Exhibit C.
---------
"Subsidiaries" means, as to any Person, a corporation, partnership, limited
------------
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors (or Persons performing similar
functions) of such corporation, partnership, limited liability company or other
entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
-4-
<PAGE>
"Transaction Documents" means collectively, this Agreement, the Certificate
---------------------
of Designations and the Stockholders Agreement.
1.2 Accounting Terms; Financial Statements. All accounting terms used
--------------------------------------
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK
------------------------------------
2.1 Purchase and Sale of Preferred Stock. Subject to the terms and
------------------------------------
conditions herein set forth, the Company agrees to issue and sell to the
Purchasers, and each of the Purchasers agrees that it will purchase from the
Company, on the Closing Date, the aggregate number of shares of Preferred Stock
set forth opposite such Purchaser's name on Schedule 2.1 hereto, for the
------------
aggregate purchase price set forth opposite such Purchaser's name on Schedule
--------
2.1 hereto (all of the shares of Preferred Stock being purchased pursuant hereto
- ---
being referred to herein as the "Purchased Shares").
2.2 Certificate of Designations. The Purchased Shares will have the
---------------------------
rights and preferences set forth in the Certificate of Designations.
2.3 Closing. The purchase and issuance of the Purchased Shares (the
-------
"Closing") shall take place at the offices of Paul, Weiss, Rifkind, Wharton &
Garrison, at 10:00 a.m., local time, on such date as is mutually agreed upon by
the parties hereto (the "Closing Date"). On the Closing Date, the Company shall
deliver to each Purchaser a stock certificate representing the Purchased Shares
being purchased by such Purchaser against delivery by such Purchaser to the
Company of the aggregate purchase price therefor by wire transfer of immediately
available funds representing payment in full by such Purchaser for such
Purchased Shares.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to the Purchasers as follows:
3.1 Subsidiaries. Schedule 3.1 sets forth the name, date and jurisdiction
------------ ------------
of organization and the percentage and number of outstanding shares of capital
-5-
<PAGE>
stock or ownership interests owned by the Company, of each Subsidiary of the
Company upon completion of the Restructuring.
3.2 Corporate Existence and Power. Each of the Company and each
-----------------------------
Subsidiary (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, as the case
may be; (b) has all requisite power and authority to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged; (c) is duly qualified or otherwise
authorized as a foreign corporation or organization, as the case may be,
licensed and in good standing under the laws of each jurisdiction in which its
ownership, lease or operation of property or the conduct of its business
requires such qualification, except to the extent that the failure to do so
would not have a material adverse effect on the Condition of the Company; and
(d) has the corporate, partnership or limited liability company power and
authority to execute, deliver and perform its obligations under this Agreement,
each of the other Transaction Documents to which it is a party and the
Restructuring. Except as set forth on Schedule 3.2, neither the Company nor any
------------
of the Subsidiaries owns or leases real or personal property in any jurisdiction
other than its jurisdiction of incorporation and the jurisdictions referred to
in clause (c) above.
3.3 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by the Company of this Agreement, each of the other Transaction
Documents and the transactions contemplated hereby and thereby, and the
execution, delivery and performance by the Company and each of the Subsidiaries
of the agreements and documents relating to the Restructuring (a) have been duly
authorized by all necessary corporate, partnership or limited liability company
action, as the case may be; (b) do not contravene the terms of the Certificate
of Incorporation or the By-laws, or any partnership agreement, operating
agreement (or comparable governing organizational documents), or any amendment
of any thereof, of any of the Subsidiaries; (c) do not violate, conflict with or
result in any breach or contravention of or the creation of any Lien under, any
Contractual Obligation of the Company or any of the Subsidiaries, or any
Requirement of Law applicable to the Company or any of the Subsidiaries, except
for such violation, conflict, breach or contravention which would not reasonably
be expected to have a material adverse effect on the Condition of the Company;
and (d) do not violate any judgment, injunction, writ, award, decree or order of
any nature (collectively, "Orders") of any Governmental Authority against, or
binding upon, the Company or any of the Subsidiaries, except where such
violation would not reasonably be expected to have a material adverse effect on
the Condition of the Company.
3.4 Governmental Authorization; Third Party Consents. Except as set
-------------------------------------------------
forth in Schedule 3.4, no approval, consent, compliance, exemption,
------------
authorization or other action by, or notice to, or filing with (collectively, an
"Approval"), any Governmental Authority in respect of any Requirement of Law or
any Person, and no lapse of a waiting period under a Requirement of Law, is
necessary or required in connection with the execution, delivery or performance
(including, without limitation, the sale, issuance and delivery of the Purchased
-6-
<PAGE>
Shares) by, or enforcement against, (a) the Company of this Agreement and the
other Transaction Documents or the transactions contemplated hereby and thereby
or (b) the Company and the Subsidiaries of the Restructuring, except (i) where
the failure to obtain such Approval would not reasonably be expected to have a
material adverse effect on the Condition of the Company or (ii) for Approvals as
may be required in connection with the exercise of registration rights granted
in accordance with Section 6 of the Stockholders Agreement.
3.5 Binding Effect. This Agreement and each of the other Transaction
--------------
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except (i) as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability (regardless of whether considered in a proceeding at law or in
equity) or an implied covenant of good faith or fair dealing or (ii) to the
extent that the indemnification rights set forth in Section 8.1 may be limited
by applicable law.
3.6 Litigation. Except as set forth on Schedule 3.6 and except for the
---------- ------------
litigation which is the subject of the representation and warranty set forth in
Section 3.21(a)(iv), there are no legal actions, suits, proceedings, claims,
complaints, disputes or governmental investigations, to the knowledge of the
Company pending or threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company or any of the Subsidiaries which
would, if adversely determined, reasonably be expected to have a material
adverse effect on (a) the Condition of the Company, (b) the ability of the
Company to perform its obligations under this Agreement and the other
Transaction Documents or (c) the ability of the Company and the Subsidiaries to
perform their respective obligations arising out of the Restructuring.
3.7 Compliance with Laws.
--------------------
(a) Except as set forth on Schedule 3.7, the Company and the
------------
Subsidiaries are in compliance with all Requirements of Law and all Orders
issued by any court or Governmental Authority against the Company or any of the
Subsidiaries relating to the operation of their respective businesses in all
material respects, except to the extent that the failure to comply with such
Requirements of Law or Orders would not reasonably be expected to have a
material adverse effect on the Condition of the Company.
(b) (i) The Company and the Subsidiaries have all licenses, permits,
Orders or Approvals of any Governmental Authority (collectively, "Permits") that
are necessary for the conduct of the business of the Company and the
Subsidiaries, except to the extent that the failure to have such Permits would
not reasonably be expected have a material adverse effect on the Condition of
the Company; (ii) such Permits are in full force and effect; and (iii) no
violations are or have been recorded in respect of any Permit.
-7-
<PAGE>
(c) No material expenditure outside the ordinary course of business is
presently required by the Company or any of the Subsidiaries to comply with any
existing Requirement of Law or Order.
3.8 Capitalization.
--------------
(a) On the Closing Date, after giving effect to the transactions
contemplated by this Agreement and the Restructuring, the Company shall have
authority to issue 1,225,000 shares of capital stock, consisting of (i)
1,000,000 shares of Common Stock, of which 775,000 shares are issued and
outstanding and (ii) 225,000 shares, of Preferred Stock, all of which will be
outstanding and issued to the Purchasers. Schedule 3.8(a) sets forth a true and
---------------
complete list of the stockholders of the Company as they will be on the Closing
Date upon the completion of the Restructuring and, opposite the name of each
stockholder, the amount of all outstanding capital stock and Common Stock
Equivalents which will be owned by such stockholder on the Closing Date. The
Company has duly authorized and reserved an aggregate of 225,000 shares of
Common Stock for issuance upon conversion of the Purchased Shares. Except for
the Purchased Shares and as otherwise described herein, there are no options,
warrants, conversion privileges, subscription or purchase rights or other rights
presently outstanding to purchase or otherwise acquire (i) any authorized but
unissued, unauthorized or treasury shares of the Company's capital stock, (ii)
any Common Stock Equivalents or (iii) other securities of the Company. The
Purchased Shares are duly authorized, and when issued and sold to the Purchasers
after payment therefor, will be validly issued, fully paid and nonassessable.
The shares of Common Stock issuable upon conversion of the Purchased Shares are
duly authorized and, when issued in compliance with the provisions of the
Certificate of Incorporation and the Certificate of Designations, will be
validly issued, fully paid and nonassessable. The issued and outstanding shares
of Common Stock are all duly authorized, validly issued, fully paid and
nonassessable.
(b) Schedule 3.8(b) sets forth a true and complete list of the holders
---------------
of shares of capital stock or other ownership interests of each Subsidiary and,
opposite the name of each holder thereof, the amount of all outstanding capital
or other ownership interests owned by such holder. Each of the Company and each
Subsidiary has good and valid title to all of the shares of capital stock of
each Subsidiary (or each other Subsidiary) or proprietary interests in each
Subsidiary (or each other Subsidiary) that it purports to own, free and clear of
all Liens. Except as set forth on Schedule 3.8(b), all of such shares of
---------------
capital stock are duly authorized, validly issued, fully paid and nonassessable,
and all of such shares of capital stock and proprietary interests were sold in
compliance with the registration and qualification requirements of all
applicable securities laws. Except as set forth on Schedule 3.8(b), there are
---------------
no options, warrants, conversion privileges, subscription or purchase right or
other rights to purchase or otherwise acquire any authorized but unissued,
unauthorized or treasury shares of the capital stock or other securities of, or
any proprietary interest in, any of the Subsidiaries, and there is no
-8-
<PAGE>
outstanding security of any kind convertible into or exchangeable for such
capital stock or proprietary interest. Except as set forth on Schedule 3.8(b),
---------------
neither the Company nor any of the Subsidiaries directly or indirectly owns or
has made any investment in any of the capital stock of, or any other proprietary
interest in, any other Person other than a Subsidiary.
3.9 No Default or Breach. Except as set forth in Schedule 3.9, neither
-------------------- ------------
the Company nor any of the Subsidiaries has received notice of or is in default
under or with respect to any Contractual Obligation in any respect, which,
individually or together with all such defaults, would reasonably be expected to
have a material adverse effect on the Condition of the Company.
3.10 Title to Properties. Each of the Company and each of the Subsidiaries
-------------------
has good, record and marketable title in fee simple to, or holds valid leasehold
interests in, all real property used in connection with its business or
otherwise owned or leased by it, except for such defects in title as would not,
individually or in the aggregate, have a material adverse effect on the
Condition of the Company.
3.11 FIRPTA. The Company is not a "foreign person" within the meaning of
------
Section 1445 of the Code.
3.12 Financial Statements. The Company has delivered to the Purchasers its
--------------------
audited combined financial statements (balance sheet and statements of
operations, cash flows and stockholders' equity, together with the notes
thereto) for the fiscal year ended and as at December 31,1994, (the "Audited
Financial Statements") and a written review prepared by Ernst & Young LLP,
independent accountants for the Company, of the Company's combined financial
statements (balance sheet and statement of operations) for the nine (9) months
ended and as at September 30, 1995 (the "Unaudited Financial Statements"; the
Audited Financial Statements and Unaudited Financial Statements being
collectively referred to as the "Financial Statements"). The Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods indicated and with each other, except that the
Unaudited Financial Statements do not contain footnotes or typical year-end
adjustments. The Financial Statements fairly present the combined financial
position, operating results and cash flows of the Company and the Subsidiaries
as of the respective dates and for the respective periods indicated, subject, in
the case of the Unaudited Financial Statements, to normal year-end audit
adjustments.
3.13 Taxes. Except as set forth on Schedule 3.13, (i) each of the Company
----- -------------
and the Subsidiaries has paid all material United States federal, state, county,
local, foreign and other taxes, including, without limitation, income taxes,
estimated taxes, excise taxes, sales taxes, use taxes, gross receipts taxes,
franchise taxes, employment and payroll related taxes, property taxes and import
duties, whether or not measured in whole or in part by net income (hereinafter,
"Taxes" or, individually, a "Tax") which have come due and are required to be
paid by it through the date hereof, and all deficiencies or other additions to
Tax, interest and penalties owed by it in connection with any such Taxes, except
-9-
<PAGE>
Taxes (including any additions, interest or penalties with respect to such
Taxes) being contested in good faith in appropriate proceedings; (ii) each of
the Company and the Subsidiaries has timely filed returns for Taxes that it is
required to file on and through the date hereof; (iii) with respect to all such
Tax returns, to the best knowledge of the officers and directors of the Company
and the Subsidiaries, (x) there is no unassessed tax deficiency pending,
proposed or threatened against the Company or any of the Subsidiaries and (y) no
Tax audit is in progress and no extension of time is in force with respect to
any date on which any return for material Taxes was or is to be filed and no
waiver or agreement is in force for the extension of time for the assessment or
payment of any Tax; (iv) neither the Company nor any of the Subsidiaries has
agreed to or is required to make any adjustments under Section 481(a) of the
Code by reason of a change in accounting methods; and (v) all provisions for
income and other Tax liabilities of the Company and the Subsidiaries with
respect to the Audited Financial Statements and the Unaudited Financial
Statements have been made in accordance with GAAP consistently applied, and all
liabilities for Taxes of the Company and the Subsidiaries attributable to
periods prior to or ending on December 31, 1994 and September 30, 1995 have been
adequately reserved for on the Audited Financial Statements and the Unaudited
Financial Statements, respectively, in accordance with GAAP. No dividends have
been distributed at any time for the accounting year 1995 by either LHS
Specifications, LHS Voice Data, LHS Service or LHS Projects. Except as listed
on Schedule 3.13, each of the former stockholders of LH Specifications, LHS
-------------
Voice Data, LHS Service and LHS Projects resides in the Federal Republic of
Germany and has been eligible for the imputation credit in respect of dividends
distributed by such companies. None of such stockholders acquired, within the
past ten years, any interest in such companies from any Person who was not, at
the time of such acquisition, eligible for the imputation credit for German
corporate income tax purposes, nor has any of such stockholders within the last
ten years become eligible for the imputation credit for German corporate income
tax purposes as a result of such stockholders' move to the Federal Republic of
Germany or otherwise.
3.14 No Material Adverse Change; Ordinary Course of Business. Since
--------------------------------------------------------
December 31, 1994, except as expressly permitted, required or contemplated by
this Agreement or described on Schedule 3.14, (i) the business of the Company
-------------
and the Subsidiaries, taken as a whole, has been conducted in the ordinary
course, except for such actions which have not had or would not reasonably be
expected to have a material adverse effect on the Condition of the Company and
(ii) there has not been any event or events, individually or in the aggregate,
that has had or would reasonably be expected to have a material adverse effect
on the Condition of the Company. The Company is a newly formed corporation and,
except for activities incident to its formation, in connection with the
transactions contemplated by this Agreement and the Restructuring, has not
engaged in any material business activities.
3.15 Investment Company. Neither the Company nor any of the Subsidiaries
------------------
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
-10-
<PAGE>
3.16 Private Offering. No form of general solicitation or general
----------------
advertising was used by the Company or its respective representatives in
connection with the offer or sale of the Purchased Shares. Assuming the
accuracy of the representations and warranties of the Purchasers set forth in
Section 4.5, no registration of the Purchased Shares, pursuant to the provisions
of the Securities Act or any state securities or "blue sky" laws, will be
required by the offer, sale or issuance of the Purchased Shares.
3.17 Labor Relations. (a) Neither the Company nor any of the Subsidiaries
---------------
is engaged in any unfair labor practice; (b) there is (i) no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
pending or, to the knowledge of the Company, threatened against the Company or
any of the Subsidiaries, and (ii) no strike, labor dispute, slowdown or stoppage
pending or, to the knowledge of the Company, threatened against the Company or
any of the Subsidiaries, which in the case of subsections (i) and (ii) would
reasonably be expected to have a material adverse effect on the Condition of the
Company; (c) except as set forth on Schedule 3.17, neither the Company nor any
-------------
of the Subsidiaries is a party to any collective bargaining agreement or
contract; and (d) to the knowledge of the Company, no union organizing
activities are taking place.
3.18 Employee Benefit Plans. For purposes of this Section 3.18, "Plan"
----------------------
means any employee benefit plan or arrangement, including any plan subject to
ERISA, in respect of which the Company or any of the Subsidiaries has any actual
or contingent, direct or indirect, liability. Except to the extent that the
liability in connection with any Plan would not reasonably be expected to have a
material adverse effect on the Condition of the Company, (a) all of the Plans
are in compliance with all applicable Requirements of Law, and (b) except as set
forth on Schedule 3.18, no Plan (i) is subject to Title IV of ERISA, or is
-------------
otherwise a Defined Benefit Plan, or is a multiple employer plan (within the
meaning of Section 413(c) of the Code) or (ii) provides for post-retirement
welfare benefits or a "parachute payment" (within the meaning of Section 280G(b)
of the Code).
3.19 Title to Assets. Except as set forth in Schedule 3.19, each of the
--------------- -------------
Company and each of the Subsidiaries owns and has good, valid, and marketable
title to all of its personal property and assets used in its business and
reflected as owned on the Financial Statements or so described in any Schedule
hereto (collectively, the "Assets"), except for such Assets which are not
material to the Condition of the Company or for such defects to title which
would not reasonably be expected to have a material adverse effect on the
Condition of the Company, in each case free and clear of all Liens, except for
(a) Liens specifically described on the notes to the Financial Statements and
(b) Liens on Assets not material to the Condition of the Company.
3.20 Liabilities. Except as set forth on Schedule 3.20 or in the Unaudited
----------- -------------
Financial Statements, none of the Subsidiaries had at September 30, 1995, and
has not incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature which would be
required by GAAP to be reflected on a balance sheet or in the notes thereto,
-11-
<PAGE>
except liabilities, obligations or contingencies which, in the aggregate, are
not material to the Condition of the Company or which (i) are accrued or
reserved against in the Unaudited Financial Statements or (ii) were incurred
since the Unaudited Financial Statements in the ordinary course of business and
consistent with past practices and, in either case, except for any such
liabilities, obligations or contingencies which have been discharged or paid in
full.
3.21 Intellectual Property.
---------------------
(a)(i) Except as set forth on Schedule 3.21(a)(i), the Company and
-------------------
each Subsidiary owns or is licensed or otherwise has the right to use, and will
continue to do so on identical terms immediately following the Closing, all of
the trademarks, service marks, trade names, copyrights, trade secrets, licenses,
franchises and other rights, all products, processes and methods, computer
software, computer programs and similar intangible assets (collectively,
"Intellectual Property") that are necessary for the operation of its business
substantially as presently conducted, free and clear of all Liens, except for
the failure to have such rights which does not have a material adverse effect on
the Condition of the Company or such Liens which do not have a material adverse
effect on the Condition of the Company.
(a)(ii) Schedule 3.21(a)(ii) sets forth all of the Intellectual
--------------------
Property owned by, and applications for any of the above filed by, the Company
or any of the Subsidiaries which are material to the business of the Company and
the Subsidiaries as it is presently conducted.
(a)(iii) Schedule 3.21(a)(iii) sets forth all Intellectual Property
---------------------
licenses, sublicenses and other agreements (x) under which the Company or any of
the Subsidiaries is either a licensor or licensee of any Intellectual Property
and (y) which are issued by the Company or any of the Subsidiaries in the
fulfillment of its obligations to the customers of the Company under the
Contractual Obligations set forth on Schedule 3.23(a). Each of the Subsidiaries
----------------
that is a party to such Intellectual Property licenses, sublicenses and other
agreements set forth on Schedule 3.21(a)(iii) has substantially performed all
---------------------
obligations imposed upon it thereunder, and each such Subsidiary is not in
breach of or default thereunder in any respect, nor is there any event which
with notice or lapse of time or both would constitute a default thereunder,
except for such breach or default which would not reasonably be expected to have
a material adverse effect on the Condition of the Company. Either the Company
or the Subsidiaries has all exclusive rights to use BSCS and ICC and the
exclusive user and marketing rights, including patents, with regard to any use
of SICAP outside the telecommunications area except to the extent that the
Company or any of the Subsidiaries has granted to other Persons a right to use
such software products pursuant to written licenses.
(a)(iv) Except as set forth on Schedule 3.21(a)(iv), to the knowledge
--------------------
of the Company, no litigation is pending and no claim has been made against the
Company or any of the Subsidiaries or is threatened, contesting the right of the
Company or any of the Subsidiaries to sell or license to any Person or use the
-12-
<PAGE>
Intellectual Property presently sold or licensed to such Person or used by the
Company or any of the Subsidiaries which would, if adversely determined,
reasonably be expected to have a material adverse effect on the Condition of the
Company. None of the Intellectual Property listed on Schedule 3.21(a)(ii) is
--------------------
subject to any outstanding Order, except for such Orders which would not
reasonably be expected to have a material adverse effect on the Condition of the
Company.
(b) Except as set forth on Schedule 3.21(b), to the knowledge of the
----------------
Company, no Person is infringing upon or otherwise violating the Intellectual
Property rights of the Company or any of the Subsidiaries, except for such
violations which would not reasonably be expected to have a material adverse
effect on the Condition of the Company.
(c) Except as set forth on Schedule 3.21(c), LH Specifications
----------------
Software Projectberatungsgesellschaft mbH, LHS voice date Software
Projectentwicklungsgesellschaft mbH, LHS Service Gesellschaft fur DV-
Dienstleistungen und Handel mbH, LHS Projects Gesellschaft zur Durchfuhrung von
Softwareprojekten mbH, LHS AG and LHS Zug AG and the Company and its
Subsidiaries are not obliged to pay any consideration for inventions, patents or
designs to current or former employees, stockholders, directors or other
officers of such companies. All indemnifications to employees under the German
Statute on Inventions of Employees (Gesetz Uber Arbeitnehmererfindungen) have
been paid for all inventions noticed to each of such companies.
(d) Except as set forth on Schedule 3.21(d), to the knowledge of the
----------------
Company or any of the Subsidiaries, without due inquiry, no employee of any of
the Subsidiaries is in violation of any term of any employment agreement, patent
or invention disclosure agreement or other contract or agreement relating to
confidential information of any of the Subsidiaries, except for any such
violation which would not reasonably be expected to have a material adverse
effect on the Condition of the Company.
3.22 Potential Conflicts of Interest. Except as set forth on Schedule
------------------------------- --------
3.22, to the knowledge of the Company, none of the directors or executive
- ----
officers of the Company or any of the Subsidiaries or any of the spouses of such
directors or executive officers possesses, directly or indirectly, any financial
interest in, or is a director, officer or employee of, any Person which is a
client, supplier, customer, lessor, lessee or competitor of the Company or any
of the Subsidiaries; provided, however, that an interest held for investment
-------- -------
purposes in 1% or less of the securities of a publicly held company shall not
constitute an impermissible financial interest pursuant to Section 3.22.
3.23 Contracts and Other Agreements. Schedule 3.23(a) lists all of the
------------------------------ ----------------
Contractual Obligations to which the Company or any of the Subsidiaries is a
party, whether written or oral, which involve an amount in excess of $500,000
over a three-year period or which are otherwise material to the Condition of the
Company, other than this Agreement. To the knowledge of the Company, no other
-13-
<PAGE>
party to any Contractual Obligation set forth on Schedule 3.23(a) is in default
----------------
thereunder, nor does any condition exist that with notice or lapse of time or
both would constitute a default thereunder, except for such defaults which would
not reasonably be expected to have a material adverse effect on the Condition of
the Company. Except as set forth on Schedule 3.23(b), there exists no actual
----------------
or, to the knowledge of the Company, threatened termination, cancellation,
limitation, modification or change in the Contractual obligations set forth on
Schedule 3.21(a)(iii) or Schedule 3.23(a), except for such termination,
- --------------------- ----------------
cancellation, limitation, modification or change in such Contractual Obligations
which would not reasonably be expected to have a material adverse effect on the
Condition of the Company.
3.24 Insurance. The Company and the Subsidiaries maintain insurance with
---------
insurance companies or associations in such amounts and covering such risks as
are usually and customarily carried with respect to similar businesses according
to their respective locations. Except as set forth on Schedule 3.24, such
-------------
insurance policies and binders are valid and enforceable in accordance with
their terms and are in full force and effect.
3.25 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
or any of the Subsidiaries in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any of the Subsidiaries or any action taken by any such Person.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
The Purchasers hereby represent and warrant to the Company as follows:
4.1 Existence and Power of GAP LP and GAP Coinvestment. Such Purchaser
--------------------------------------------------
(a) is a partnership duly organized and validly existing under the laws of the
jurisdiction of its formation and (b) has the requisite power and authority to
execute, deliver and perform its obligations under this Agreement and each of
the other Transaction Documents to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including, without limitation, the purchase of the Purchased
Shares, (a) have been duly authorized by all partnership necessary action, (b)
do not contravene the terms of such Purchaser's organizational documents, or any
amendment thereof, and (c) do not violate, conflict with or result in any breach
or contravention of or the creation of any Lien under, any Contractual
Obligation of such Purchaser, or any Requirement of Law applicable to such
Purchaser, except for such violation, conflict, breach, contravention or Lien
-14-
<PAGE>
which would not reasonably be expected to have a material adverse effect on the
assets, business, properties, operations or financial condition of such
Purchaser.
4.3 Governmental Authorization; Third Party Consents. Other than the
------------------------------------------------
filing of a premerger notification and report form under the HSR Act and the
expiration of all applicable waiting periods under the HSR Act, no approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under a Requirement of Law (other than any applicable waiting
period under the HSR Act), is necessary or required in connection with the
execution, delivery or performance (including, without limitation, the purchase
of the Purchased Shares) by, or enforcement against, such Purchaser of this
Agreement and each of the other Transaction Documents to which such Purchaser is
a party or the transactions contemplated hereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
--------------
Documents to which such Purchaser is a party have been duly executed and
delivered by such Purchaser and constitute the legal, valid and binding
obligations of such Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
4.5 Purchase for Own Account. The Purchasers are "accredited investors"
------------------------
as that term is defined in Rule 501 of Regulation D of the Securities Act. The
Purchased Shares to be acquired by such Purchaser pursuant to this Agreement are
being or will be acquired for its own account and with no intention of
distributing or reselling such Purchased Shares or any part thereof in any
transaction that would be in violation of the securities laws of the United
States of America, or any state, without prejudice, however, to the rights of
such Purchaser at all times to sell or otherwise dispose of all or any part of
such Purchased Shares under an effective registration statement under the
Securities Act, or under an exemption from such registration available under the
Securities Act. If such Purchaser should in the future decide to dispose of any
of such Purchased Shares, such Purchaser understands and agrees that it may do
so only in compliance with the Securities Act and applicable state securities
laws, as then in effect, and in accordance with the Stockholders Agreement.
Such Purchaser agrees to the imprinting, so long as required by law, of a legend
on certificates representing all of its Purchased Shares and shares of Common
Stock issuable upon conversion of its Purchased Shares to the following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY STATE. THE SECURITIES MAY NOT BE OFFERED AND SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
-15-
<PAGE>
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO
A WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS AGREEMENT, DATED DECEMBER 22, 1995, AMONG LHS GROUP HOLDING
CORPORATION, GENERAL ATLANTIC PARTNERS 23, L.P., GAP COINVESTMENT PARTNERS,
L.P., AND THE STOCKHOLDERS NAMED THEREIN, A COPY OF WHICH MAY BE INSPECTED
AT THE COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE
TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL
THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS
AGREEMENT.
4.6 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the
Purchasers, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Purchasers or any action taken
by the Purchasers.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS
OF THE PARTIES TO CLOSE
-----------------------
The respective obligations of each of the Purchasers and the Company
hereunder are subject to the satisfaction, at or prior to the Closing, of each
of the following conditions:
5.1 No Injunction. As of the Closing, there shall be no action, suit,
-------------
proceeding or Order of any nature of any court or other Governmental Authority
that is pending or in effect that challenges, restrains or prohibits the
consummation of the purchase by the Purchasers of the Purchased Shares.
5.2 Regulatory Authorizations. All (a) consents, approvals,
-------------------------
authorizations and Orders of Governmental Authorities and other Persons in
respect of all Requirements of Law shall have been obtained (i) which are
necessary or required to consummate the transactions contemplated by Article 1
of this Agreement or (ii) which if not obtained would not be reasonably likely
to subject the Purchasers, the Company, the Major Stockholders or any of the
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<PAGE>
Subsidiaries, or any officer, director, or agent of any such Person to criminal
or material civil liability or could render the purchase b the Purchasers of the
Purchased Shares void or voidable and (b) applicable waiting periods specified
under the HSR Act with respect to the transactions contemplated by this
Agreement shall have lapsed or been terminated without any pending United States
federal antitrust investigation.
ARTICLE 6
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
--------------------------
The obligation of the Purchasers to purchase the Purchased Shares, to pay
the purchase price therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by, or waiver by,
the Purchasers of the following conditions on or before the Closing Date.
6.1 Representations and Warranties. The representations and warranties of
------------------------------
the Company contained in Article 3 hereof shall be true and correct in all
material respects at and on the Closing Date as if made at and on such date,
except to the extent that any representation and warranty expressly speaks as of
an earlier date, in which case such representation and warranty is true and
correct as of such date.
6.2 Compliance with this Agreement. The Company shall have performed and
------------------------------
complied in all material respects with all of its agreements and conditions set
forth herein that are required to be performed or complied with by the Company
on or before the Closing Date.
6.3 Secretary's Certificate. The Purchaser shall have received a
-----------------------
certificate from the Company, in form and substance satisfactory to the
Purchasers, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the attached copies of the
Certificate of Incorporation, the By-laws and resolutions of the Board of
Directors of the Company approving this Agreement and each of the other
Transaction Documents to which the Company is a party and the transactions
contemplated hereby and thereby, are all true, complete and correct and, other
than as amended by the Certificate of Designations, have not been modified and
are in full force and effect, and (b) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement, each other
Transaction Document and any other document delivered in connection herewith on
behalf of the Company.
6.4 Officer's Certificate. The Purchaser shall have received a
---------------------
certificate from the Company, in form and substance satisfactory to the
Purchaser, dated the Closing Date and signed by the Chief Executive officer and
Chief Financial Officer of the Company, certifying that (a) the representations
and warranties of the Company contained in Article 3 hereof are true and correct
-17-
<PAGE>
in all material respects at and on the Closing Date as if made on such date,
except to the extent that any representation or warranty expressly speaks as of
an earlier date, in which case such representation and warranty is true and
correct as of such date and (b) the Company has performed and complied in all
material respects with all of the agreements and conditions set forth herein
that are required to be performed or complied with by the Company on or before
the Closing Date.
6.5 Stockholders Agreement. The Company and the Major Stockholders shall
----------------------
have duly executed and delivered the Stockholders Agreement, substantially in
the form attached hereto as Exhibit C.
---------
6.6 Opinion of Counsel. The Purchasers shall have received an opinion of
------------------
each of Simpson Thacher & Bartlett and Oppenhoff & Radler, counsel to the
Company and the Subsidiaries, dated the Closing Date, relating to the
transactions contemplated by or referred to herein, substantially in the forms
attached hereto as Exhibit D-1 and Exhibit D-2.
------------ -----------
6.7 Approval of Counsel to the Purchasers. All actions and proceedings
-------------------------------------
hereunder and all documents required to be delivered by the Company hereunder or
in connection with the consummation of the transactions contemplated hereby, and
all other related matters, shall have been reasonably satisfactory in form and
substance to Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the
Purchasers.
6.8 Purchased Shares. The Company shall have delivered to the Purchasers
----------------
certificates in definitive form representing the number of Purchased Shares set
forth opposite such Purchaser's name on Schedule 2.1 hereto, registered in the
------------
name of such Purchaser.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS
OF THE COMPANY TO CLOSE
-----------------------
The obligation of the Company to issue and sell the Purchased Shares and
the obligation of the Company to perform its other obligations hereunder, shall
be subject to the satisfaction as determined by, or waiver by, the Company of
the following conditions on or before the Closing Date:
7.1 Representations and Warranties. The representations and warranties of
------------------------------
the Purchasers contained in Article 4 hereof shall be true and correct in all
material respects at and on the Closing Date as if made at and on such date,
except to the extent that any representation and warranty expressly speaks as of
an earlier date, in which case such representation and warranty is true and
correct as of such date.
-18-
<PAGE>
7.2 Compliance with this Agreement. The Purchasers shall have performed
------------------------------
and complied in all material respects with all of their agreements and
conditions set forth or contemplated herein that are required to be performed or
complied with by the Purchasers on or before the Closing Date.
7.3 General Partners' Certificates. The Company shall have received a
------------------------------
certificate from the general partner of each of GAP LP and GAP Coinvestment, in
form and substance satisfactory to the Company, dated the Closing Date and
signed by such general partner(s), certifying (a) as to the incumbency and
specimen signature of each individual executing this Agreement, each of the
other Transaction Documents and any other document delivered in connection
herewith on behalf of the Purchasers and (b) that (i) the representations and
warranties of GAP LP or GAP Coinvestment, as the case may be, contained in
Article 4 hereof are true and correct in all material respects at and on the
Closing Date as if made on such date, except to the extent that any
representation or warranty expressly speaks as of an earlier date, in which case
such representation and warranty is true and correct as of such date and (ii)
GAP LP or GAP Coinvestment, as the case may be, has performed and complied in
all material respects with all of its agreements and conditions set forth herein
that are required to be performed or complied with by GAP LP or GAP
Coinvestment, as the case may be, on or before the Closing Date.
7.4 Stockholders Agreement. Each of the Purchasers shall have duly
----------------------
executed and delivered the Stockholders Agreement, substantially in the form
attached hereto as Exhibit C.
---------
7.5 Opinion of Counsel. The Company shall have received an opinion of
------------------
Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the Purchasers, dated the
Closing Date, relating to the transactions contemplated by or referred to
herein, substantially in the form attached hereto as Exhibit E.
---------
7.6 Approval of Counsel to the Company. All actions and proceedings
----------------------------------
hereunder and all documents required to be delivered by the Purchasers hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall have been reasonably satisfactory in form
and substance to Simpson Thacher & Bartlett, counsel to the Company.
7.7 Payment of Purchase Price. The Company shall have received the
-------------------------
aggregate purchase price in immediately available funds for the Purchased
Shares.
ARTICLE 8
INDEMNIFICATION
---------------
8.1 Indemnification. Except as otherwise provided in this Article 8, the
---------------
Company and the Purchasers, as the case may be, (each, an "Indemnifying Party")
agree to indemnify, defend and hold harmless, respectively, (a) the Purchasers,
-19-
<PAGE>
GAP LLC and the members of GAP LLC and (b) the Company (each, an "Indemnified
Party") to the fullest extent permitted by law from and against any and all
losses, claims (including any claim by a third party), damages, expenses
(including reasonable fees and disbursements of counsel incurred by the
Indemnified Party in any action between the Indemnifying Party and the
Indemnified Party or between the Indemnified Party and any third party or
otherwise) or other liabilities, net of any insurance proceeds received by the
Indemnified Party incurring such Losses (collectively, "Losses") resulting from,
arising out of or relating to any breach of any representation or warranty in
this Agreement by the Company or either of the Purchasers, as the case may be,
for which a claim is asserted prior to the termination of such representation or
warranty pursuant to the terms of Section 11.1 hereof; provided, however, that
-----------------
the Indemnifying Party shall not be liable under this Section 8.1 to an
Indemnified Party to the extent that it is finally judicially determined that
such Losses resulted primarily from the material breach by such Indemnified
Party of any representation, warranty, covenant or other agreement of such
Indemnified Party contained in this Agreement; and provided further, that if and
-------- -------
to the extent that such indemnification is unenforceable for any reason, the
Indemnifying Party shall make the maximum contribution to the payment and
satisfaction of such Losses which shall be permissible under applicable laws,
except that such contribution shall be limited to the actual benefit received by
such Indemnifying Party from the Indemnified Party. In connection with the
obligation of the Indemnifying Party to indemnify for expenses as set forth
above, the Indemnifying Party may, upon presentation of appropriate invoices
containing reasonable detail, reimburse each Indemnified Party for all such
expenses (including reasonable fees, disbursements and other charges of counsel
incurred by the Indemnified Party in any action between the Indemnifying Party
and the Indemnified Party or between the Indemnified Party and any third party
or otherwise) as they are incurred by such Indemnified Party; Provided, however,
-------- -------
that if an Indemnified Party is reimbursed hereunder for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Losses in question resulted primarily from the
willful misconduct or gross negligence of such Indemnified Party.
8.2 Notification. Each Indemnified Party under this Article 8 shall,
------------
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Indemnifying Party under this
Article 8, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party (a) other than pursuant to this Article 8 or
(b) under this Article 8 unless, and only to the extent that, such omission
prejudices the Indemnifying Party's substantive rights or defenses. In case any
such action, claim or other proceeding shall be brought against any Indemnified
Party, and it shall notify the Indemnifying Party of the commencement thereof,
the Indemnifying Party shall be entitled to assume the defense thereof at its
own expense, with counsel satisfactory to such Indemnified Party in its
reasonable judgment; provided, however, that any Indemnified Party may, at its
-------- -------
own expense, retain separate counsel to participate in such defense at its own
-20-
<PAGE>
expense. Notwithstanding the foregoing, in any action, claim or proceeding in
which both the Indemnifying Party, on the one hand, and an Indemnified Party, on
the other hand, are, or are reasonably likely to become, a party, such
Indemnified Party shall have the right to employ separate counsel at the expense
of the Indemnifying Party and to control its own defense of such action, claim
or proceeding if, in the reasonable opinion of counsel to such Indemnified
Party, a conflict or potential conflict exists between the Indemnifying Party,
on the one hand, and such Indemnified Party, on the other hand, that would make
such separate representation advisable; provided, however, that the Indemnifying
-------- -------
Party shall not be liable for the fees and expenses of more than one counsel to
all Indemnified Parties. The Indemnifying Party agrees that it will not,
without the prior written consent of the Indemnified Party, settle, compromise
or consent to the entry of any judgment in any pending or threatened claim,
action or proceeding relating to the matters contemplated hereby (if any
Indemnified Party is a party thereto or has been actually threatened to be made
a party thereto) unless such settlement, compromise or consent includes an
unconditional release of the Indemnified Party from all liability arising or
that may arise out of such claim, action or proceeding. The Indemnifying Party
shall not be liable for any settlement of any claim, action or proceeding
effected against an Indemnified Party without its written consent, which consent
shall not be unreasonably withheld. The indemnity pursuant to Section 8.1 shall
be the sole remedy of any Indemnified Party with respect to any and all breaches
of the representations and warranties made by the Company or the Purchasers, as
the case may be, in this Agreement; provided, however, that notwithstanding the
-------- -------
foregoing or anything to the contrary contained in this Agreement, nothing in
this Article 8 shall restrict or limit any rights that any Indemnified Party may
have at law, in equity or otherwise with respect to the Stockholders Agreement.
8.3 Limitations on Indemnification. Notwithstanding anything to the
------------------------------
contrary contained in this Article 8, (a) the Indemnifying Party shall have no
obligation to pay any amounts for indemnification pursuant to Section 8.1 until
the aggregate of amounts for indemnification equal $2,000,000 (the "Basket
Amount"), whereupon the Indemnifying Party shall be obligated to be paid in full
all of such amounts for indemnification, including the Basket Amount and (b) if
the Indemnifying Party is the Company, then such Indemnifying Party shall have
no obligation to pay any amounts for indemnification pursuant to this Article 8,
including amounts in reimbursement for expenses, in excess of $20,000,000 in the
aggregate.
ARTICLE 9
TERMINATION
-----------
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) by the written agreement of the Company and the Purchasers; or
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<PAGE>
(b) by either the Company or the Purchasers by written notice to the
other parties hereto after 5:00 p.m., New York time on January 31, 1996 if the
transactions contemplated hereby shall not have been consummated pursuant
hereto, unless such date is extended by the mutual written consent of the
Company and the Purchasers; or
(c) by either the Company or the Purchasers if any event shall have
occurred or any fact or condition shall exist that shall have made it impossible
to satisfy a condition precedent to the terminating parties obligations to
consummate the transactions contemplated by this Agreement, unless the
occurrence of such event or existence of such fact or condition shall be due to
the failure of the party seeking to terminate this Agreement or any of its
Affiliates to perform or comply with any of the covenants, agreements or
conditions hereof to be performed or complied with by such party or any of its
Affiliates prior to the closing.
9.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to the provisions of Section 9.1, this Agreement shall become
void and have no effect, and there shall be no liability on the part of any
party hereto, or any of its directors, officers, employees, agents, consultants,
representatives, advisers, stockholders or Affiliates.
ARTICLE 10
AFFIRMATIVE COVENANTS
---------------------
The Company hereby covenants and agrees with the Purchasers as follows:
10.1 Financial Statements and Other Information. The Company shall deliver
------------------------------------------
to each Purchaser, in form and substance satisfactory to such Purchaser:
(a) as soon as available, but not later than ninety (90) days after
the end of each fiscal year of the Company, a copy of the audited consolidated
balance sheet of the Company and the Subsidiaries as of the end of such year and
the related statements of operations and cash flows for such fiscal year,
accompanied by the opinion of a nationally recognized independent certified
public accounting firm which report shall state without qualification that such
consolidated financial statements present fairly the consolidated financial
condition as of such date and results of operations and cash flows for the
periods indicated in conformity with GAAP applied on a consistent basis; and
(b) commencing with the fiscal period beginning on January 1, 1996, as
soon as available, but in any event not later than forty-five (45) days after
the end of each of the first three fiscal quarters of each fiscal year, the
unaudited consolidated balance sheet of the Company and the Subsidiaries, and
the related statements of operations and cash flows for such quarter and for the
-22-
<PAGE>
period commencing on the first day of the fiscal year and ending on the last day
of such quarter, all certified by an appropriate officer of the Company as
presenting fairly the consolidated financial condition as of such date and
results of operations and cash flows for the periods indicated in conformity
with GAAP applied on a consistent basis, subject to normal year-end adjustments
and the absence of footnotes required by GAAP.
10.2 Reservation of Common Stock. The Company shall at all times reserve
---------------------------
and keep available out of its authorized shares of Common Stock, solely for the
purpose of issue or delivery upon conversion of the Purchased Shares as provided
in the Certificate of Incorporation and the Certificate of Designations, the
maximum number of shares of Common Stock that may be issuable or deliverable
upon such conversion or exchange.
10.3 Books and Records. The Company shall cause the Subsidiaries to keep,
-----------------
and the Company shall keep, proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the assets
and business of the Company and the Subsidiaries in accordance with GAAP
consistently applied.
10.4 Opinion of Swiss Counsel. On or before January 31, 1996, the Company
------------------------
shall deliver to the Purchasers an opinion of counsel to the Company, that (a)
each of LHS AG and LHS Lademacher und Hertel Software Lizenz AG (the "Swiss
Subsidiaries") is duly formed, has legal existence and is in good standing under
the laws of Switzerland, (b) on the Closing Date, each of the shareholders of
the Swiss subsidiaries has good, valid and marketable title to his shares in the
Swiss Subsidiaries, free and clear of all Liens and (c) after the transfer and
delivery of such shares to LHS Europe Ltd., after payment therefor, LHS Europe
Ltd. acquired good, valid and marketable title to such shares, free and clear of
all Liens.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement until the date that is forty-five (45) days after the
receipt by the Purchasers of the audited consolidated financial statements of
the Company for the fiscal year ending December 31, 1996 (or, if such fiscal
year changes and no such audited consolidated financial statements are
available, then the successor fiscal year), except for Sections 3.2, 3.3, 3.5,
3.8, 3.13, 4.1 and 4.2, which representations and warranties shall survive until
the third anniversary of the Closing Date.
11.2 Notices. All notices, demands and other communications provided for
-------
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
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<PAGE>
(a) if to GAP LP or GAP Coinvestment:
c/o General Atlantic Service Corporation
125 East 56th Street
New York, New York 10022
Telecopy: (212) 644-8339
Attention: Stephen P. Reynolds
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(b) if to the Company:
LHS Group Holding Corporation
115 West Perimeter Center Place
Atlanta, Georgia 30346
Telecopy: (770) 671-9791
Attention: Hartmut Lademacher
with a copy to:
LHS Specifications KG
Theodor-Heuss-Ring 52
D 63128 Dietzenbach
Federal Republic of Germany
Telecopy: 6074-831-199
Attention: Otto Wipprecht
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telecopy: (212) 455-2502
Attention: George R. Krouse, Jr., Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
-24-
<PAGE>
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
11.3 Successors and Assigns; Third Party Beneficiaries. This Agreement
-------------------------------------------------
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. Subject to applicable securities laws, the
Purchasers may assign any of its rights under this Agreement to any Person that
directly or indirectly is controlled by or is under common control with either
of the Purchasers. The Company may not assign any of their rights under this
Agreement without the written consent of the Purchasers. Except as provided in
Article 8, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.
11.4 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the Purchasers
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by the Company or the Purchasers from the terms of any
provision of this Agreement, shall be effective (i) only if it is made or given
in writing and signed by the Company and the Purchasers, and (ii) only in the
specific instance and for the specific purpose for which made or given.
11.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
11.6 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
11.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
11.8 Severability. If any one or more of the provisions contained herein,
------------
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
-25-
<PAGE>
11.9 Rules of Construction. Unless the context otherwise requires, "or" is
---------------------
not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement.
11.10 Entire Agreement. This Agreement, together with the exhibits and
----------------
schedules hereto and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
hereto, and the other Transaction Documents supersede all prior agreements and
understandings between the parties with respect to such subject matter.
11.11 Fees. Each of the Company and the Purchasers shall bear its own
----
fees and expenses incurred in connection with the preparation of this Agreement
and the Stockholders Agreement and the transactions contemplated by this
Agreement. The Purchasers agree that the Company will reimburse the Major
Stockholders for their fees and expenses incurred in connection with the
preparation of this Agreement and the Stockholders Agreement and the
transactions contemplated by this Agreement; provided, however, that the
-------- -------
aggregate amount of such reimbursement shall not exceed $250,000.
11.12 Publicity. Except as may be required by applicable law, none of the
---------
parties hereto shall issue a publicity release or public announcement or
otherwise make any disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
11.13 Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
11.14 Confidentiality. No Purchaser shall disclose or use any
---------------
confidential information of or with respect to the Company, the Subsidiaries or
the Major Stockholders, except for such confidential information that is (i)
generally available to or known by the public, (ii) was available to such
Purchaser on a non-confidential basis prior to its disclosure or use from a
source other than the Company, any of the Subsidiaries or any Major Stockholder,
provided, that such source is not and was not bound by a confidentiality
- --------
agreement with the Company, any Subsidiary or any Major Stockholder, (iii) has
been independently acquired or developed by such Purchaser without violating any
of such Purchaser's obligations under this Agreement or any other agreement
-26-
<PAGE>
executed in connection herewith, (iv) is required by any Requirement of Law or
the rules of any securities exchange or market to be disclosed by such
Purchaser, (v) is waived in writing by the Company or the Major Stockholders or
(vi) is disclosed to a Person to whom Purchased Shares are transferred by the
Purchasers in accordance with the Stockholders Agreement, provided that the
--------
Purchasers shall not disclose confidential information or trade secrets to any
competitors, or Persons who intend to become competitors, of the Company or any
of the Subsidiaries. The obligations contained in this Section 11.14 shall
survive termination or abandonment of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
LHS GROUP HOLDING CORPORATION
By: /s/ Hartmut Lademacher
------------------------------------
Name: Hartmut Lademacher
Title: President
GENERAL ATLANTIC PARTNERS 23, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ William E. Ford
------------------------------------
Name: William E. Ford
Title: A Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ William E. Ford
------------------------------------
Name: William E. Ford
Title: A General Partner
-27-
<PAGE>
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
among
LHS GROUP HOLDING CORPORATION,
GENERAL ATLANTIC PARTNERS 31, L.P.
and
GAP COINVESTMENT PARTNERS, L.P.
Dated: July 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE 1 DEFINITIONS.......................................... 1
1.1 Definitions.......................................... 1
1.2 Accounting Terms; Financial Statements............... 5
ARTICLE 2 PURCHASE AND SALE OF COMMON STOCK.................... 5
2.1 Purchase and Sale of Common Stock.................... 5
2.2 Closing.............................................. 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.............................................. 5
3.1 Corporate Existence and Power........................ 5
3.2 Authorization; No Contravention...................... 6
3.3 Governmental Authorization; Third Party Consents..... 6
3.4 Binding Effect....................................... 6
3.5 Litigation........................................... 7
3.6 Compliance with Laws................................. 7
3.7 Capitalization....................................... 7
3.8 No Default or Breach................................. 7
3.9 Financial Statements................................. 8
3.10 No Material Adverse Change........................... 8
3.11 Private Offering..................................... 8
3.12 Intellectual Property................................ 8
3.13 Broker's, Finder's or Similar Fees................... 8
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS........................................... 9
4.1 Existence and Power.................................. 9
4.2 Authorization; No Contravention...................... 10
4.3 Governmental Authorization; Third Party Consents..... 10
4.4 Binding Effect....................................... 10
4.5 Purchase for Own Account............................. 10
4.6 Broker's, Finder's or Similar Fees................... 11
ARTICLE 5 CONDITIONS TO THE OBLIGATIONS OF
THE PARTIES TO CLOSE................................. 11
5.1 No Injunction........................................ 12
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
5.2 Regulatory Authorizations............................ 12
ARTICLE 6 CONDITIONS TO THE OBLIGATION OF
THE PURCHASERS TO CLOSE.............................. 12
6.1 Representations and Warranties....................... 12
6.2 Compliance with this Agreement....................... 12
6.3 Secretary's Certificate.............................. 12
6.4 Officer's Certificate................................ 13
6.5 Filing of Amendment to Certificate of Incorporation.. 13
6.8 Approval of Counsel to the Purchasers................ 13
6.9 Purchased Shares..................................... 13
6.10 Repurchase of Common Stock........................... 14
6.11 Audited Financial Statements......................... 14
6.12 1996 Budget.......................................... 14
ARTICLE 7 CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE................................. 14
7.1 Representations and Warranties....................... 14
7.2 Compliance with this Agreement....................... 14
7.3 General Partners' Certificates....................... 14
7.4 Stockholders Agreement............................... 15
7.6 Approval of Counsel to the Company................... 15
7.7 Payment of Purchase Price............................ 15
ARTICLE 8 MISCELLANEOUS........................................ 15
8.1 Survival of Representations and Warranties........... 15
8.2 Notices.............................................. 15
8.3 Successors and Assigns; Third Party Beneficiaries.... 17
8.4 Amendment and Waiver................................. 17
8.5 Counterparts......................................... 17
8.6 Headings............................................. 17
8.7 Governing Law........................................ 17
8.8 Severability......................................... 18
8.9 Rules of Construction................................ 18
8.10 Entire Agreement..................................... 18
8.11 Fees and Expenses.................................... 18
8.12 Publicity............................................ 18
8.13 Further Assurances................................... 18
8.14 Confidentiality...................................... 18
</TABLE>
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<PAGE>
EXHIBITS
A Amendment to Certificate of Incorporation
B Form of Stockholders Agreement
C Form of Registration Rights Agreement
SCHEDULES
2.1 Purchased Shares and Purchase Price
3.3 Governmental Authorizations; Third Party Consents
3.5 Litigation
3.7 Capitalization
3.8 Defaults or Breaches of Contractual Obligations
3.10 Transactions Outside the Ordinary Course of Business
3.12(a) Intellectual Property Not Owned or Licensed
3.12(c) Intellectual Property Litigation
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT, dated July , 1996 (this "Agreement"), among LHS Group Holding
--
Corporation, a Delaware corporation (the "Company"), General Atlantic Partners
31, L.P., a Delaware limited partnership ("GAP 31"), and GAP Coinvestment
Partners, L.P., a New York limited partnership ("GAP Coinvestment" and, together
with GAP 31, the "Purchasers").
WHEREAS, pursuant to the Preferred Stock Purchase Agreement, dated December
22, 1995 (the "Preferred Stock Purchase Agreement"), among the Company, General
Atlantic Partners 23, L.P., a Delaware limited partnership ("GAP 23"), and GAP
Coinvestment (a) GAP 23 purchased from the Company an aggregate of 193,890
shares, par value $.01 per share, of Series A Convertible Preferred Stock of the
Company (the "Preferred Stock") and (b) GAP Coinvestment purchased from the
Company an aggregate of 31,110 shares of Preferred Stock, each of which shares
of Preferred Stock is convertible (subject to adjustment) into one (1) share,
par value $.01 per share, of the Company (this "Common Stock") and all of which
shares of Preferred Stock are convertible (subject to adjustment) into an
aggregate of 225,000 shares of Common Stock; and
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Company proposes to issue and sell to (a) GAP 31, for an aggregate purchase
price of $8,605,514.24, an aggregate of 80,096 shares of Common Stock
and (b) GAP Coinvestment, for an aggregate purchase price of $1,394,786.08,
an aggregate of 12,982 shares of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in Rule
---------
12b-2 of the General Rules and Regulations under the Exchange Act.
"Agreement" means this Agreement as the same may be amended, supplemented
---------
or modified in accordance with the terms hereof.
"Board of Directors" means the Board of Directors of the Company.
------------------
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or other day on
------------
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"By-laws" means the by-laws of the Company, as the same may have been
-------
amended from time to time and as in effect as of the Closing Date.
"Capital Lease Obligations" of any Person shall mean, as of the date of
-------------------------
determination, the obligations of such Person with respect to any lease of
property, real or personal, which obligations are required in accordance with
GAAP to be capitalized on a balance sheet of such Person.
"Certificate of Incorporation" means the Certificate of Incorporation of
----------------------------
the Company, as the same may have been amended from time to time and as in
effect as of the Closing Date.
"Closing" has the meaning set forth in Section 2.2.
-------
"Closing Date" means the date specified in Section 2.2.
------------
"Commission" means the Securities and Exchange Commission or any similar
----------
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means Common Stock, par value $.01 per share, of the
------------
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Common Stock Equivalents" means any security or obligation which is by its
------------------------
terms convertible into or exchangeable for shares of Common Stock, including,
without limitation, the Preferred Stock, and any option, warrant or other
subscription or purchase right with respect to shares of Common Stock.
"Condition of the Company" means the assets, business, properties,
------------------------
operations or financial condition of the Company and the Subsidiaries, taken as
a whole.
"Contractual Obligations" means as to any Person, any provision of any
------------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission thereunder.
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<PAGE>
"GAAP" means United States generally accepted accounting principles in
----
effect from time to time.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
-------
liability company and the general partner of GAP 23 and GAP 31, and any
successor to such entity.
"GAP Coinvestment" has the meaning assigned to such term in the recital to
----------------
this Agreement.
"GAP 31" has the meaning assigned to such term in the recital to this
------
Agreement.
"GAP 23" has the meaning assigned to such term in the recital to this
------
Agreement.
"Governmental Authority" means the government of any nation, state, city,
----------------------
locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing, in each case exercising jurisdiction over any of the parties to this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Major Stockholders" has the meaning set forth in the Stockholders
------------------
Agreement.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity o any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning assigned to such term in the recital to
---------------
this Agreement.
"Preferred Stock Purchase Agreement" has the meaning assigned to such term
----------------------------------
in the recital to this Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
----------------
Agreement.
-3-
<PAGE>
"Registration Rights Agreement" means the Registration Rights Agreement,
-----------------------------
dated the date hereof, among the Company, GAP 23, CAP 31, GAP Coinvestment and
the stockholders named therein, substantially in the form attached hereto as
Exhibit C.
- ---------
"Requirements of Law" means, as to any Person, any law, statute, treaty,
-------------------
rule, regulation, right, privilege, qualification, license or franchise or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or pertaining to any or all
of the transactions contemplated or referred to herein.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder.
"Stockholders Agreement" means the Amended and Restated Stockholders
----------------------
Agreement, dated the date hereof, among the Company, GAP 23, GAP 31, GAP
Coinvestment and the stockholders named therein, substantially in the form
attached hereto as Exhibit B.
---------
"Subsidiaries" means, as to any Person, a corporation, partnership, limited
------------
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors (or Persons performing similar
functions) of such corporation, partnership, limited liability company or other
entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
"Transaction Documents" means collectively, this Agreement, the
---------------------
Stockholders Agreement and the Registration Rights Agreement.
1.2 Accounting Terms; Financial Statements. All accounting terms used
--------------------------------------
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
ARTICLE 2
PURCHASE AND SALE OF COMMON STOCK
---------------------------------
2.1 Purchase and Sale of Common Stock. Subject to the terms and
---------------------------------
conditions herein set forth, the Company agrees to issue and sell to the
Purchasers, and each of the Purchasers agrees that it will purchase from the
-4-
<PAGE>
Company, on the Closing Date, the aggregate number of shares of Common Stock set
forth opposite such Purchaser's name on Schedule 2.1 hereto, for the aggregate
------------
purchase price set forth opposite such Purchaser's name on Schedule 2.1 herein
------------
(all of the shares of Common Stock being purchased pursuant hereto being
referred to herein as "Purchased Shares").
2.2 Closing. The purchase and issuance of the Purchased Shares (the
-------
"Closing") shall take place at the Offices of Paul, Weiss, Rifkind, Wharton &
Garrison, at 10:00 a.m., local time, on the date hereof (the "Closing Date").
On the Closing Date, the Company shall deliver to each Purchaser a stock
certificate representing the Purchased Shares being purchased by such Purchaser
against delivery by the Purchasers to the Company of the aggregate purchase
price therefor by wire transfer of immediately available funds representing
payment in full by such Purchaser for such Purchased Shares.
ARTICLE 3
REPRESENTATION AND WARRANTIES OF THE COMPANY
--------------------------------------------
The Company represents and warrants to the Purchasers as follows:
3.1 Corporate Existence and Power. Each of the Company and each of the
-----------------------------
Subsidiaries (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, as the case
may be; (b) has all requisite power and authority to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently, or is currently proposed to be, engaged; and
(c) is duly qualified or otherwise authorized as a foreign corporation or
organization, as the case may be, licensed and in good standing under the laws
of each jurisdiction in which its ownership, lease or operation of property or
the conduct of its business requires such qualification, except to the extent
that the failure to do so would not have a material adverse effect on the
Condition of the Company. The Company has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and each of
the other Transaction Documents.
3.2 Authorization: No Contravention. The execution, delivery and
-------------------------------
performance by the Company of this Agreement, each of the other Transaction
Documents and the transactions contemplated hereby and thereby, including,
without limitation, the sale, issuance and delivery of the Purchased Shares, (a)
have been duly authorized by all necessary corporate action of the Company; (b)
do not contravene the terms of the Certificate of Incorporation or the By-laws,
or any partnership agreement, operating agreement (or comparable governing
organizational documents), or any amendment of any thereof, of any of the
Subsidiaries; (c) do not violate, conflict with or result in any breach or
contravention of or the creation of any Lien under, any Contractual Obligation
of the Company or any of the Subsidiaries, or any Requirement of Law applicable
to the Company or any of the Subsidiaries, except for such violation, conflict,
breach, contravention or Lien which would not reasonably be expected to have a
material adverse affect on the Condition of the Company; and (d) do not violate
-5-
<PAGE>
any judgment, injunction, writ, award, decree or order of any nature
(collectively, "Orders") of any Governmental Authority against, or binding upon,
the Company or any of the Subsidiaries, except for such violation which would
not have a material adverse effect on the Condition of the Company.
3.3 Governmental Authorization; Third Party Consents. Except as set forth
------------------------------------------------
on Schedule 3.3, no approval, consent, compliance, exemption, authorization or
------------
other action by, or notice to, or filing with (collectively, an "Approval"), any
Governmental Authority in respect of any Requirement of Law or any Person, and
no lapse of a waiting period under a Requirement of Law, is necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the sale, issuance and delivery of the Purchased Shares) by,
or enforcement against, the Company of this Agreement and each of the other
Transaction Documents or the Transactions contemplated hereby or thereby, except
where the failure to obtain such Approval would not reasonably be expected to
have a material adverse effect on the Condition of the Company.
3.4 Binding Effect. This Agreement and each of the other Transaction
--------------
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
3.5 Litigation. Except as set forth on Schedule 3.5, there are no legal
---------- ------------
actions, suits, proceedings, claims, complaints, disputes or government
investigations or, to the knowledge of the Company pending or threatened, at
law, in equity, in arbitration or before any Governmental Authority against the
Company or any of the Subsidiaries which would, if adversely determined,
reasonably be expected to have a material adverse effect on (a) the Condition of
the Company or (b) the ability of the Company to perform its obligations under
this Agreement and each of the other Transaction Documents. No Order has been
issued by any court or other Governmental Authority against the Company or any
of the Subsidiaries purporting to enjoin or restrain the execution, delivery or
performance of this Agreement.
3.6 Compliance with Laws. The Company and the Subsidiaries are in
--------------------
compliance with all Requirements of Law and all Orders issued by any court or
Governmental Authority against the Company or any of the Subsidiaries in all
material respects, except to the extent that the failure to comply with such
Requirements of Law or Orders would not reasonably be expected to have a
material adverse effect on the Condition of the Company.
3.7 Capitalization. On the Closing Date, after giving effect to the
--------------
transactions contemplated by this Agreement, the authorized capital stock of the
-6-
<PAGE>
Company shall consist of (i) 2,000,000 shares of Common Stock, of which 868,078
shares shall be issued and outstanding and (ii) 225,000 shares of Preferred
Stock, all of which shall be outstanding and issued to GAP 23 and GAP
Coinvestment. Schedule 3.7 sets forth a true and complete list of the
------------
stockholders of the Company as they will be on the Closing Date and, opposite
the name of each stockholder, the amount of all outstanding capital stock and
Common Stock Equivalents which will be owned by such stockholder on the Closing
Date. Except for the Preferred Stock and as otherwise described herein,
there are no options, warrants, conversion privileges, subscription or purchase
rights or other rights presently outstanding to purchase or otherwise acquire
(i) any authorized but unissued, unauthorized or treasury shares of the
Company's capital stock, (ii) any Common Stock Equivalents or (iii) other
securities of the Company. The Purchased Shares are duly authorized, and when
issued and sold to the Purchasers after payment therefor, will be validly
issued, fully paid and nonassessable and will be issued in compliance with the
registration and qualification requirements of all applicable federal securities
laws.
3.8 No Default or Breach. Except as set forth in Schedule 3.8, neither
-------------------- ------------
the Company nor any of the Subsidiaries has received notice of or is in default
under or with respect to any Contractual Obligation in any respect, which,
individually or together with all such defaults, would reasonably be expected to
have a material adverse effect on the Condition of the Company. To the
knowledge of the Company, no other party to any Contractual Obligation is in
default thereunder, nor does any condition exist that with notice or lapse of
time or both would constitute a default thereunder, except for such defaults
which would not have a material adverse effect on the Condition of the Company.
Except as set forth on Schedule 3.8, there exists no actual or, to the knowledge
------------
of the Company, threatened termination, cancellation, limitation or modification
or change in any Contractual Obligation, except for such termination,
cancellation, limitation, modification or change which would not have a material
adverse effect on the Condition of the Company.
3.9 Financial Statements. The Company has delivered to the Purchasers the
--------------------
audited consolidated financial statements of the Company and its Subsidiaries
(balance sheet and statements of operations, cash flows and stockholders'
equity, together with the notes thereto) for the fiscal year ended and as of
December 31, 1995 (the "Audited Financial Statements"), and the unaudited
consolidated financial statements of the Company and its Subsidiaries (balance
sheet and statement of operations and cash flows) for the three (3) months ended
and as of March 31, 1996 (the "Unaudited Financial Statements" and, together
with the Audited Financial Statements, the "Financial Statements"). The
Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated, except that the Unaudited
Financial Statements do not contain footnotes or typical year-end adjustments.
The Financial Statements fairly present the consolidated financial position,
operating results and cash flows of the Company and the Subsidiaries as of the
respective dates and for the respective periods indicated, subject, in the case
of Unaudited Financial Statements, to normal year-end adjustments.
-7-
<PAGE>
3.10 No Material Adverse Change. Except as described on Schedule 3.10,
-------------------------- -------------
since December 22, 1995, there has not occurred any event or events,
individually or in the aggregate, that has had or would reasonably be expected
to have a material adverse effect on the Condition of the Company.
3.11 Private Offering. No form of general solicitation of general
----------------
advertising was used by the Company or its respective representatives in
connection with the offer or sale of the Purchased Shares. Assuming the
accuracy of the representations and warranties of the Purchasers set forth in
Section 4.5, no registration of the Purchased Shares, pursuant to the provisions
of the Securities Act or any state securities or "blue sky" laws, will be
required by the offer, sale or issuance of the Purchased Shares.
3.12 Intellectual Property.
---------------------
(a) Except as set forth on Schedule 3.12(a), the Company and each
----------------
Subsidiary owns or is licensed or otherwise has the right to use, and will
continue to do so on identical terms immediately following the Closing, all of
the trademarks, service marks, trade names, copyrights, trade secrets, licenses,
franchises and other rights, all products, processes and methods, computer
software, computer programs and similar intangible assets (collectively,
"Intellectual Property") that are necessary for the operation of its business
substantially as presently conducted, free and clear of all Liens, except for
the failure to have such rights which does not have a material adverse effect on
the Condition of the Company or such Liens which do not have a material adverse
effect on the Condition of the Company.
(b) Either the Company or the Subsidiaries has all exclusive rights to
use BSCS and ICC and the exclusive user and marketing rights, including patents,
if any, with regard to any use of SICAP outside the telecommunications area
except to the extent that the Company or any of the Subsidiaries has granted to
other Persons a right to use such software products pursuant to written
licenses.
(c) Except as set forth on Schedule 3.12(c), to the knowledge of the
----------------
Company, no litigation is pending and no claim has been made against the Company
or any of the Subsidiaries or is threatened, contesting the right of the Company
or any of the Subsidiaries to sell or license to any Person or use the
Intellectual Property presently sold or licensed to such Person or used by the
Company or any of the Subsidiaries which would, if adversely determined,
reasonably be expected to have a material adverse effect on the Condition of the
Company.
3.13 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
or any of the Subsidiaries in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any of the Subsidiaries or any action taken by any such Person.
-8-
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each Purchaser hereby represents and warrants (severally as to itself and
not jointly) to the Company as to itself as follows:
4.1 Existence and Power. Such Purchaser (a) is a partnership duly
-------------------
organized and validly existing under the laws of the jurisdiction of its
formation and (b) has the requisite power and authority to execute, deliver and
perform its obligations under this Agreement and each of the other Transaction
Documents.
4.2 Authorization: No Contravention. The execution, delivery and
--------------------------------
performance by such Purchaser of this Agreement and each of the other
Transaction Documents and the transactions contemplated hereby and thereby,
including, without limitation, the purchase of the Purchased Shares, (a) have
been duly authorized by all necessary partnership action, (b) do not contravene
the terms of such Purchaser's organizational documents, or any amendment
thereof, and (c) do not violate, conflict with or result in any breach or
contravention of or the creation of any Lien under, any Contractual Obligation
of such Purchaser, or any Requirement of Law applicable to such Purchaser,
except for such violation, conflict, breach, contravention or Lien which would
not have a material adverse effect on the business, properties, operations or
financial condition of such Purchaser.
4.3 Governmental Authorization: Third Party Consents. No approval,
-------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the purchase of the Purchased Shares) by, or enforcement against,
such Purchaser of this Agreement and each of the other Transaction Documents or
the transactions contemplated hereby or thereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
--------------
Documents have been duly executed and delivered by such Purchaser and constitute
the legal, valid and binding obligations of such Purchaser, enforceable against
it in accordance with their terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
4.5 Purchase for Own Account. The Purchasers are "accredited investors"
------------------------
as that term is defined in Rule 501 of Regulation D of the Securities Act. The
Purchased Shares to be acquired by such Purchaser pursuant to this Agreement are
being or will be acquired for its own account and with no intention of
distributing or reselling such Purchased Shares or any part thereof in any
-9-
<PAGE>
transaction that would be in violation of the securities laws of the United
States of America, or any state, without prejudice, however, to the rights of
such Purchaser at all times to sell or otherwise dispose of all or any part of
such Purchased Shares under an effective registration statement under the
Securities Act, or under an exemption from such registration available under the
Securities Act. If such Purchaser should in the future decide to dispose of any
of such Purchased Shares, such Purchaser understands and agrees that it may do
so only in compliance with the Securities Act and applicable state securities
laws, as then in effect, and in accordance with the Stockholders Agreement.
Such Purchaser agrees to the imprinting, so long as required by law, of a legend
on certificates representing all of its Purchased Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A
WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE AMENDED
AND RESTATED STOCKHOLDERS AGREEMENT, DATED JULY , 1996, AMONG LHS GROUP
----
HOLDING CORPORATION, GENERAL ATLANTIC PARTNERS 23, L.P., GENERAL ATLANTIC
PARTNERS 31, L.P., GAP COINVESTMENT PARTNERS, L.P., AND THE STOCKHOLDERS
NAMED THEREIN, A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL
OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES ON
THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN
COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AGREEMENT.
4.6 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the
Purchasers, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Purchasers or any action taken
by the Purchasers.
-10-
<PAGE>
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS
OF THE PARTIES TO CLOSE
-----------------------
The respective obligations of each of the Purchasers and the Company
hereunder are subject to the satisfaction, at or prior to the Closing, of each
of the following conditions:
5.1 No Injunction. As of the Closing, there shall be no action, suit,
-------------
proceeding or Order of any nature of any court or other Governmental Authority
that is pending or in effect that challenges, restrains or prohibits the
consummation of the purchase by the Purchasers of the Purchased Shares.
5.2 Regulatory Authorizations. All consents, approvals, authorizations
-------------------------
and Orders of Governmental Authorities and other Persons in respect of all
Requirements of Law shall have been obtained (a) which are necessary or required
to consummate the transactions contemplated by Article 2 of this Agreement or
(b) which if not obtained would not be reasonably likely to subject the
Purchasers, the Company or any of the Subsidiaries, or any officer, director, or
agent of any such Person to criminal or material civil liability or could render
the purchase by the Purchasers of the Purchased Shares void or voidable.
ARTICLE 6
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
--------------------------
The obligation of the Purchasers to purchase the Purchased Shares, to pay
the purchase price therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by, or waiver by,
the Purchasers of the following conditions on or before the Closing Date.
6.1 Representations and Warranties. The representations and warranties of
------------------------------
the Company contained in Article 3 hereof shall be true and correct in all
material respects at and on the Closing Date as if made at and on such date,
except to the extent that any representation and warranty expressly speaks as of
an earlier date, in which case such representation and warranty is true and
correct as of such date.
6.2 Compliance with this Agreement. The Company shall have performed and
------------------------------
complied in all material respects with all of its agreements and conditions set
forth herein that are required to be performed or complied with by the Company
on or before the Closing Date.
-11-
<PAGE>
6.3 Secretary's Certificate. The Purchasers shall have received a
-----------------------
certificate from the Company, in form and substance satisfactory to the
Purchasers, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the attached copies of the
Certificate of Incorporation, the By-laws and resolutions of the Board of
Directors of the Company approving this Agreement, each of the other Transaction
Documents and the transactions contemplated hereby and thereby, are all true,
complete and correct and remain unamended and in full force and effect, and (b)
as to the incumbency and specimen signature of each officer of the Company
executing this Agreement, each of the other Transaction Documents and any other
document delivered in connection herewith on behalf of the Company.
6.4 Officer's Certificate. The Purchasers shall have received a
---------------------
certificate from the Company, in form and substance satisfactory to the
Purchaser, dated the Closing Date and signed by the Chief Executive Officer and
Chief Financial Officer of the Company, certifying that (a) the representations
and warranties of the Company contained in Article 3 hereof are true and correct
in all material respects at and on the Closing Date as if made on such date,
except to the extent that any representation or warranty expressly speaks as of
an earlier date, in which case such representation and warranty is true and
correct as of such date and (b) the Company has performed and complied in all
material respects with all of the agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Company on or before the Closing Date.
6.5 Filing of Amendment to Certificate of Incorporation. The Company
---------------------------------------------------
shall have duly filed with the Secretary of State of the State of Delaware in
accordance with the General Corporation Law of the State of Delaware an
amendment to the Certificate of Incorporation, substantially in the form
attached hereto as Exhibit A.
---------
6.6 Stockholders Agreement. The Company and the Major Stockholders shall
----------------------
have duly executed and delivered the Stockholders Agreement, substantially in
the form attached hereto as Exhibit B.
---------
6.7 Registration Rights Agreement. The Company and the Major Stockholders
-----------------------------
shall have duly executed and delivered the Registration Rights Agreement,
substantially in the form attached hereto as Exhibit C.
---------
6.8 Approval of Counsel to the Purchasers. All actions and proceedings
-------------------------------------
hereunder and all documents required to be delivered by the Company hereunder or
in connection with the consummation of the transactions contemplated hereby, and
all other related matters, shall have been acceptable to Paul, Weiss, Rifkind,
Wharton & Garrison, counsel to the Purchasers.
6.9 Purchased Shares. The Company shall have delivered to the Purchasers
----------------
certificates in definitive form representing the number of Purchased Shares set
forth opposite such Purchaser's name of Schedule 2.1 hereto, registered in the
------------
name of such Purchaser.
-12-
<PAGE>
6.10 Repurchase of Common Stock. Simultaneous with the Closing, the
--------------------------
Company shall have purchased from Dieter Pfisterer an aggregate of 93,078 shares
of Common Stock, constituting all of the shares of Common Stock owned by him,
for an aggregate purchase price of $10,051,000.
6.11 Audited Financial Statements. The Audited Financial Statements shall
----------------------------
be in form and substance satisfactory to the Purchasers.
6.12 1996 Budget. The Company shall have delivered to the Purchasers a
-----------
budget relating to the operations of the Company for the calendar year 1996, in
form and substance satisfactory to the Purchasers.
ARTICLE 7
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
-----------------------
The obligation of the Company to issue and sell the Purchased Shares and
the obligation of the Company to perform its other obligations hereunder, shall
be subject to the satisfaction as determined by, or waiver by, the Company of
the following conditions on or before the Closing Date:
7.1 Representations and Warranties. The representations and warranties of
------------------------------
the Purchasers contained in Article 4 hereof shall be true and correct in all
material respects at and on the Closing Date as if made at and on such date,
except to the extent that any representation and warranty expressly speaks as of
an earlier date, in which case such representation and warranty is true and
correct as of such date.
7.2 Compliance with this Agreement. The Purchasers shall have performed
------------------------------
and complied in all material respects with all of their agreements and
conditions set forth or contemplated herein that are required to be performed or
complied with by the Purchasers on or before the Closing Date.
7.3 General Partners' Certificates. The Company shall have received a
------------------------------
certificate from the general partner of each of GAP 31 and GAP Coinvestment, in
form and substance satisfactory to the Company, dated the Closing Date and
signed by such general partner(s), certifying (a) as to the incumbency and
specimen signature of each individual executing the Agreement, each of the other
Transaction Documents and any other document delivered in connection herewith on
behalf of the Purchasers and (b) that (i) the representations and warranties of
GAP 31 or GAP Coinvestment, as the case may be, contained in Article 4 hereof
are true and correct in all material respects at and on the Closing Date as if
made on such date, except to the extent that any representation or warranty
expressly speaks as of an earlier date, in which case such representation and
warranty is true and correct as of such date and (ii) GAP 31 or GAP
-13-
<PAGE>
Coinvestment, as the case may be, has performed and complied in all material
respects with all of its agreements and conditions set forth herein that are
required to be performed or complied with by GAP 31 or GAP Coinvestment, as the
case may be, on or before the Closing Date.
7.4 Stockholders Agreement. Each of GAP 23, GAP 31 and GAP Coinvestment
----------------------
shall have duly executed and delivered the Stockholders Agreement, substantially
in the form attached hereto as Exhibit B.
---------
7.5 Registration Rights Agreement. Each of GAP 23, GAP 31 and GAP
-----------------------------
Coinvestment shall have duly executed and delivered the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit C.
--------
7.6 Approval of Counsel to the Company. All actions and proceedings
----------------------------------
hereunder and all documents required to be delivered by the Purchasers hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall have been acceptable to Simpson Thacher &
Bartlett, counsel to the Company.
7.7 Payment of Purchase Price. The Company shall have received the
-------------------------
aggregate purchase price for the Purchased Shares.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement until the date that is forty-five days after the
receipt by the Purchasers of the audited consolidated financial statements of
the Company for the fiscal year ending December 31, 1996 (or, if such fiscal
year changes and no such audited consolidated financial statements are
available, then the successor fiscal year), except for Sections 3.1, 3.2, 3.4,
3.7, 4.1, 4.2 and 4.4, which representations and warranties shall survive until
the third anniversary of the Closing Date.
8.2 Notices. All notices, demands and other communications provided for
-------
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to GAP 31 or GAP Coinvestment:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. Stephen P. Reynolds
-14-
<PAGE>
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Mathew Nimetz, Esq.
(b) if to the Company:
LHS Group Holding Corporation,
115 West Perimeter Center Place
Atlanta, Georgia 30346
Telecopy: (770) 671-9791
Attention: Mr. Hartmut Lademacher
with a copy to:
LHS Specifications
Theodor-Heuss-Ring 52
D 63128 Dietzenbach
Federal Republic of Germany
Telecopy: 6074-831-199
Attention: Mr. Otto Wipprecht
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, Now York 10017
Telecopy: (212) 455-2502
Attention: George R. Krouse, Jr.
All such notices and communications shall be deemed to have been duly given
when delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial courier service; five (5) Business Days after being
deposited in the mail, postage prepaid, if mailed; and when receipt is
mechanically acknowledged, if telecopied.
8.3 Successors and Assigns; Third Party Beneficiaries. This Agreement
-------------------------------------------------
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. Subject to applicable securities laws, the
Purchasers may assign any of its rights under this Agreement to any Person that
directly or indirectly is controlled by or is under common control with either
of the Purchasers. The Company may not assign any of their rights under this
Agreement without the written consent of the Purchasers. Except as provided in
-15-
<PAGE>
this Section 8.3, no Person other than the parties hereto and their successors
and permitted assigns is intended to be a beneficiary of this Agreement.
8.4 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the Purchasers
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by the Company or the Purchasers from the terms of any
provision of this Agreement, shall be effective (i) only if it is made or given
in writing and signed by the Company and the Purchasers, and (ii) only in the
specific instance and for the specific purpose for which made or given.
8.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
8.6 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
8.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
8.8 Severability. If any one or more of the provisions contained herein,
------------
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
8.9 Rules of Construction. Unless the context otherwise requires, "or" is
---------------------
not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement.
8.10 Entire Agreement. This Agreement, together with the exhibits and
----------------
schedules hereto, and the other Transaction Documents are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
-16-
<PAGE>
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
and schedules hereto, and the other Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
8.11 Fees and Expenses. Each of the Company and the Purchasers shall bear
-----------------
its own fees and expenses incurred in connection with the preparation of this
Agreement and the other Transaction Documents and the transactions contemplated
by this Agreement
8.12 Publicity. Except as may be required by applicable law, none of the
---------
parties hereto shall issue a publicity release or public announcement or
otherwise make any disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto. If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
8.13 Further Assurances. Each of the parties shall execute such documents
------------------
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations or other actions by, or giving any notices
to, or making any filings with, any Governmental Authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Agreement.
8.14 Confidentiality. No Purchaser shall disclose or use any confidential
---------------
information of or with respect to the Company, the Subsidiaries or the Major
Stockholders, except for such confidential information that is (a) generally
available to or known by the public, (b) was available to such Purchaser on a
non-confidential basis prior to its disclosure or use from a source other than
the Company, any of the Subsidiaries or any Major Stockholders, provided that
--------
such source is not and was not bound by a confidentiality agreement with the
Company, any Subsidiary or any Major Stockholder, (c) has been independently
acquired or developed by such Purchaser without violating any of such
Purchaser's obligations under this Agreement or any other agreement executed in
connection herewith, (d) is required by any Requirement of Law or the rules of
any securities exchange or market to be disclosed by such Purchaser, (e) is
waived in writing by the Company or the Major Stockholders or (f) is disclosed
to a Person to whom Purchased Shares are transferred by the Purchasers in
accordance with the Stockholders Agreement, provided that the Purchasers shall
--------
not disclose confidential information or trade secrets to any competitors, or
Persons who intend to become competitors, of the Company or any of the
Subsidiaries. The obligations contained in this Section 8.14 shall survive
termination or abandonment of this Agreement.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
LHS GROUP HOLDING CORPORATION
By: /s/ Hartmut Lademacher
------------------------------------
Name: Hartmut Lademacher
Title: CEO
GENERAL ATLANTIC PARTNERS 31, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ Stephen P. Reynolds
------------------------------------
Name: Stephen P. Reynolds
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Stephen P. Reynolds
-------------------------------------
Name: Stephen P. Reynolds
Title: A General Partner
-18-
<PAGE>
Schedule 2.1
------------
Purchased Shares and Purchase Price
-----------------------------------
Shares of Common Stock
Purchaser Purchased from the Company Purchase Price
- --------- -------------------------- --------------
GAP 31 80,096 $ 8,605,514.24
GAP Coinvestment 12,982 1,394,786.08
Total: 93,078 $10,000,300.32
<PAGE>
SCHEDULE 3.3
None
<PAGE>
SCHEDULE 3.5
Reference is made to the agreement between LHS AG and Hewlett-Packard (prime
contractor to Telenor Mobil) concerning the implementation of BSCS for Telenor
Mobil in Norway. The project is currently on hold and there is some probability
that it might not be continued. There is a strong dispute between Hewlett-
Packard and Telenor Mobil since February 1996 regarding who is responsible for
the current status of the project. The situation has already been discussed in
the Norwegian newspapers, therefore giving a few hints that the current
situation might have been caused by some "political" discrepancies within
Telenor Mobil.
Hewlett-Packard owes LHS AG, Zurich, (who is the subcontractor to Hewlett-
Packard) roughly DM 5 million contract price. The parties are in negotiations
as to how to solve the situation as all three parties want to avoid a lawsuit.
<PAGE>
SCHEDULE 3.7
Shares
General Atlantic Partners 23, L.P. 193890 (Series A Convertible
Preferred Stock)
GAP Coinvestment Partners, L.P. 31110 (Series A Convertible
Preferred Stock)
GAP Coinvestment Partners, L.P. 12982
General Atlantic Partners 31, L.P. 80096
H. Lademacher 193676
Dr. J. Hertel 193676
M. Hellwig 100745
Dr. R. Zimmermann 93078
O. Wipprecht 50374
E. Czempiel 23249
W. Bobb 15500
J. Spengler 3874
Dr. W. Gaede 7750
----------
1,000,000
<PAGE>
SCHEDULE 3.8
I.
Reference is made to Schedule 3.5: After Hewlett-Packard received due notice
from LHS to be in material breach of contract (referring to the agreement
between LHS AG and Hewlett-Packard) and after Hewlett-Packard received a further
notice from Telenor Mobil to be in material breach of contract (referring to
the agreement between Hewlett-Packard and Telenor Mobil), Hewlett-Packard sent
a due notice to LHS AG claiming a material breach of contract based on the
allegations Telenor Mobile made in its notice to Hewlett-Packard.
II.
Furthermore, reference is again made to Schedule 3.5: Hewlett-Packard today
owes LHS AG a portion of the contract price of roughly DM 5 million and
therefore, from LHS AG's point of view, is in default of a Contractual
Obligation resulting from the agreement between Hewlett-Packard and LHS AG.
Finally, Hewlett-Packard is in default under the same agreement with regard to
the further implementation of the project due to the fact Telenor Mobile stopped
the implementation of the project.
III.
Omnitel Pronto Italia S.p.A. is in default with the settlement of several
invoices two of them already resulting from August 1995 and having become due in
October/November 1995. Omnitel does not claim withholding rights or any
offsetting rights against the amounts due. Instead, it seems to be the typical
south European payment behaviour. LHS AG addressed this issue in a meeting on
July 4, 1996 and Omnitel promised to settle the open invoices.
IV.
Apart from the above mentioned situation the parties of the Agreement have the
common understanding the normal delay with regard to Contractual Obligations -
whether the Company, any Subsidiary or any other party is under delay insofar -
is not deemed to be a default or breach under this Agreement. This especially,
however, is not restricted to, refers to situations where Subsidiaries shall
adhere to very tight time schedules in customer contracts or where it is "part
of the cultural background" of customers to observe payment terms or obligations
to contribute not very strictly at all (e.g. Southern Europe, India, Malaysia
and so on).
<PAGE>
SCHEDULE 3.10
None
<PAGE>
SCHEDULE 3.12(A)
LHS Lademacher and Hertel Software Lizenz AG, Zug, Switzerland, may not be
entitled to use the abbreviation "LHS" due to the fact that there exists a lease
company in Zug, Switzerland (formed before LHS Lademacher and Hertel Software
Lizenz AG), also having the abbreviation "LHS" in its company name.
SCHEDULE 3.12(C)
The Company and the Subsidiaries may not license BSCS for operational use in
Italy before August 1997 (due to an agreement with Omnitel).
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
among
LHS GROUP HOLDING CORPORATION,
GENERAL ATLANTIC PARTNERS 23, L.P.
GENERAL ATLANTIC PARTNERS 31, L.P.,
GAP COINVESTMENT PARTNERS, L.P.
and
THE STOCKHOLDERS NAMED HEREIN
Dated: July 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. Definitions............................................................................ 1
2. Restrictions on Transfer of Shares..................................................... 6
2.1 Limitation on Transfer............................................................ 6
2.2 Permitted Transfers............................................................... 6
2.3 Permitted Transfer Procedures..................................................... 7
2.4 Transfers in Compliance with Law; Substitution of Transferee...................... 7
3. Right of First Offer and Co-Sale Right................................................. 7
3.1 Proposed Voluntary Transfer by Major Stockholder or General Atlantic Stockholder.. 7
3.2 Involuntary Transfers............................................................. 10
4. Future Issuance of Shares; Preemptive Rights........................................... 13
4.1 Offering Notice................................................................... 13
4.2 Major Stockholder and General Atlantic Stockholder Option......................... 13
4.3 Exercise of Options............................................................... 14
4.4 Closing........................................................................... 14
4.5 Sale to Subject Purchaser......................................................... 14
4.6 After-Acquired Securities......................................................... 15
4.7 Agreement to be Bound............................................................. 15
5. Corporate Governance................................................................... 15
5.1 General........................................................................... 15
5.2 Stockholders Actions.............................................................. 15
5.3 Election of Directors; Number and Composition..................................... 16
5.4 Removal and Replacement of Directors.............................................. 16
5.5 Termination of Sections 5.3 and 5.4............................................... 17
5.6 Actions of the Board of Directors; Extraordinary Events........................... 17
6. Stock Certificate Legend............................................................... 18
7. Miscellaneous.......................................................................... 19
7.1 Notices........................................................................... 19
7.2 Amendment and Waiver.............................................................. 21
7.3 Specific Performance.............................................................. 21
7.4 Headings.......................................................................... 21
7.5 Severability...................................................................... 21
7.6 Entire Agreement.................................................................. 22
7.7 Term of Agreement................................................................. 22
7.8 Variations in Pronouns............................................................ 22
7.9 GOVERNING LAW..................................................................... 22
7.10 Further Assurances................................................................ 22
7.11 Successors and Assigns............................................................ 22
7.12 Counterparts...................................................................... 22
</TABLE>
<PAGE>
EXHIBITS
A Certificate of Incorporation of the Company
B By-laws of the Company
C-1 Form of Transfer Agreement (Previously issued shares)
C-2 Form of Transfer Agreement (Newly issued shares)
-2-
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AGREEMENT, dated July 15, 1996 (this "Agreement"), among LHS Group Holding
---------
Corporation, a Delaware corporation (the "Company"), General Atlantic Partners
-------
23, L.P., a Delaware limited partnership ("GAP 23"), General Atlantic Partners
------
31, L.P., a Delaware limited partnership ("GAP 31"), and GAP Coinvestment
------
Partners, L.P., a New York limited partnership ("GAP Coinvestment"), and the
----------------
stockholders listed on Schedule 1 hereto (the "Major Stockholders").
---------- ------------------
WHEREAS, pursuant to the Stockholders Agreement, dated December 22, 1995
(the "Original Stockholders Agreement"), the Company, GAP 21, GAP Coinvestment
-------------------------------
and certain stockholders of the Company named therein entered into certain
agreements with respect to the holdings by GAP 21, GAP Coinvestment, such
stockholders and their respective Permitted Transferees (as hereinafter defined)
of Shares (as hereinafter defined) in the Company and future issuances of
capital stock by the Company;
WHEREAS, on the date hereof, (a) GAP 23 and GAP Coinvestment own all of the
issued and outstanding shares, par value $.01 per share, of Series A Convertible
Preferred Stock of the Company (the "Preferred Stock") and (b) the Company, GAP
---------------
31 and GAP Coinvestment are entering into the Stock Purchase Agreement, dated
the date hereof (the "Stock Purchase Agreement"), pursuant to which the Company
------------------------
is, among other things, selling to (i)GAP 31, 80,096 shares, par value, $.01 per
share, of Common Stock of the Company (the "Common Stock") and (ii) GAP
------------
Coinvestment, 12,982 shares of Common Stock; and
WHEREAS, the Company, GAP 23, GAP 31 and the Major Stockholders wish to (a)
enter into this Agreement in order to amend and restate the Original
Stockholders Agreement in its entirety and (b) enter into the Registration
Rights Agreement, dated the date hereof (the "Registration Rights Agreement"),
-----------------------------
containing, among other things, the terms and conditions of the registration
rights granted by the Company in Section 6 of the Original Stockholders
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
-----------
have the meanings set forth below:
"Affiliate" shall mean any Person who is an "affiliate" as defined in Rule
---------
12b-2 of the General Rules and Regulations under the Exchange Act. GAP 23, GAP
31 and GAP Coinvestment shall be deemed to be Affiliates of one another. In
addition, Affiliates of GAP 23 or GAP 31 shall be deemed to include GAP LLC and
the members of the GAP LLC.
<PAGE>
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or other day on
------------
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Charter Documents" means the Certificate of Incorporation and the By-laws
-----------------
of the Company as in effect on the date hereof, as the same may be amended from
time to time in accordance with the terms hereof and thereof, copies of which
are attached hereto as Exhibits A and B, respectively.
----------------
"Commission" means the Securities and Exchange Commission or any similar
----------
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $.01 per share, of the
------------
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Common Stock Equivalents" means any security or obligation which is by its
------------------------
terms convertible into shares of Common Stock, including, without limitation,
the Preferred Stock, and any option, warrant or other subscription or purchase
right with respect to Common Stock.
"Company Option Period" has the meaning set forth in Section 3.1.2 of this
---------------------
Agreement.
"Excess New Securities" has the meaning set forth in Section 4.2 of this
---------------------
Agreement.
"Excess Offered Securities" has the meaning set forth in Section 3.1.3(a)
-------------------------
of this Agreement.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission thereunder.
"GAP Coinvestment" has the meaning assigned to such term in the recital to
----------------
this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
-------
liability company and the general partner of GAP 23 and GAP 31.
"GAP 31" has the meaning assigned to such term in the recital to this
------
Agreement.
"GAP 23" has the meaning assigned to such term in the recital to this
------
Agreement.
-2-
<PAGE>
"General Atlantic Directors" has the meaning set forth in Section 5.3 of
--------------------------
this Agreement.
"General Atlantic Stockholders" means GAP 23, GAP 31, GAP Coinvestment and
-----------------------------
any Permitted Transferee of either of them to which Shares are transferred, and
the term "General Atlantic Stockholder" shall mean any such Person.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended.
"Initial Public Offering" means the Company's initial Public Offering.
-----------------------
"Involuntary Transfer" means any transfer, proceeding or action by or in
--------------------
which a Stockholder shall be deprived or divested of any right, title or
interest in or to any of the Shares, including, without limitation, any seizure
under levy of attachment or execution, any transfer in connection with
bankruptcy (whether pursuant to the filing of a voluntary or an involuntary
petition under the United States Bankruptcy Code of 1978, or any modifications
or revisions thereto) or other court proceeding to a debtor in possession,
trustee in bankruptcy or receiver or other officer or agency, any transfer to a
state or to a public officer or agency pursuant to any statute pertaining to
escheat or abandoned property and any transfer pursuant to a divorce or
separation agreement or a final decree of a court in a divorce action.
"Involuntary Transferee" has the meaning assigned such term in Section
----------------------
3.2.1 of this Agreement.
"IPO Effectiveness Date" means the date upon which the Company commences an
----------------------
Initial Public Offering.
"Liens" has the meaning set forth in Section 3.1.5 of this Agreement.
-----
"Major Stockholders" means the stockholders listed on Schedule 1 hereto and
------------------ ----------
any Permitted Transferee of any of them to which Shares are transferred, and the
term "Major Stockholder" shall mean any such Person.
"Major Stockholder Directors" has the meaning set forth in Section 5.3 of
---------------------------
this Agreement.
"New Issuance Closing Date" has the meaning set forth in Section 4.1 of
-------------------------
this Agreement.
"New Issuance Notice" has the meaning set forth in Section 4.1 of this
-------------------
Agreement.
"New Securities" has the meaning set forth in Section 4.1 of this
--------------
Agreement.
-3-
<PAGE>
"Offered Securities" has the meaning set forth in Section 3.1.1 of this
------------------
Agreement.
"Offering Notice" has the meaning set forth in Section 3.1.1 of this
---------------
Agreement.
"Offer Price" has the meaning set forth in Section 3.1.1 of this Agreement.
-----------
"Option Period" has the meaning set forth in Section 3.1.3(a) of this
-------------
Agreement.
"Original Stockholders Agreement" has the meaning assigned to such term in
-------------------------------
the recital to this Agreement.
"Other Stockholder" means (a) any transferee of a Major Stockholder or a
-----------------
General Atlantic Stockholder (i) who is not a Permitted Transferee and has
agreed to be bound by the terms and conditions of this Agreement in accordance
with Section 2.4 and (ii) to whom Shares have been transferred in accordance
with Section 3 and (b) any Person other than a Major Stockholder or a General
Atlantic Stockholder who has agreed to be bound by the terms and conditions of
this Agreement in accordance with Section 4.7.
"Permitted Transferee" has the meaning set forth in Section 2.2 of this
--------------------
Agreement.
"Person" means any individual, corporation, partnership, firm, joint
------
venture, association, joint stock company, trust, unincorporated organization,
governmental body or other entity.
"Preemptive Rightholder" has the meaning set forth in Section 4.2 of this
----------------------
Agreement.
"Preferred Stock" has the meaning assigned to such term in the recital to
---------------
this Agreement.
"Proportionate Percentage" has the meaning set forth in Section 4.2 of this
------------------------
Agreement.
"Proposed Price" has the meaning set forth in Section 4.1 of this
--------------
Agreement.
"Public Offering" means any offer for sale of shares of Common Stock
---------------
pursuant to an effective Registration Statement filed under the Securities Act.
"Registration Rights Agreement" has the meaning assigned to such term in
-----------------------------
the recital to this Agreement.
"Rightholder" has the meaning set forth in Section 3.1.3(a) of this
-----------
Agreement.
-4-
<PAGE>
"Securities Act" means the United States Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated thereunder.
"Selling Stockholder" has the meaning set fort in Section 3.1.1 of this
-------------------
Agreement.
"Shares" means, with respect to each Stockholder, all shares, whether now
------
owned or hereafter acquired, of Common Stock and Preferred Stock owned thereby;
provided, however, for the purposes of any computation of the number of Shares
- -------- -------
either outstanding or held by any Stockholder or otherwise to be determined
pursuant to Sections 1, 2, 3, 4, 5 and 7.2(b), the shares of Common Stock
issuable upon conversion, exercise or exchange of all Common Stock Equivalents
shall be deemed outstanding whether or not such conversion, exercise or exchange
has actually been effected.
"Stock Purchase Agreement" has the meaning assigned to such term in the
------------------------
recital to this Agreement.
"Stockholders" means the Major Stockholders, the General Atlantic
------------
Stockholders and any Other Stockholder, and the term "Stockholder" shall mean
any such Person.
"Stockholders Meeting" has the meaning set forth in Section 5.1 of this
--------------------
Agreement.
"Subject Purchaser" has the meaning set forth in Section 4.1 of this
-----------------
Agreement.
"Subsidiary" means, as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors (or Persons performing similar functions) of such corporation,
partnership, limited liability company or other entity are at the time owned, or
the management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless otherwise
qualified, all references to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company.
"Transfer" has the meaning set forth in Section 2.1 of this Agreement.
-------
"Transferred Shares" has the meaning set forth in Section 3.2.1 of this
------------------
Agreement.
"Third Party Purchaser" has the meaning set forth in Section 3.1.1 of this
---------------------
Agreement.
"Written Consent" has the meaning set forth in Section 5.1 of this
---------------
Agreement.
-5-
<PAGE>
2. Restrictions on Transfer of Shares.
----------------------------------
2.1 Limitation on Transfer. No Stockholder shall sell, give, assign,
----------------------
hypothecate, pledge, encumber, grant a security interest in or otherwise dispose
of (whether by operation of law or otherwise) (each a "transfer") any Shares or
--------
any right, title or interest therein or thereto, except in accordance with the
provisions of this Agreement; provided, however, that any transferee obtaining
-------- -------
any beneficial interest or right to vote such Shares hereunder shall agree to be
bound by this Agreement and shall comply with Section 2.4. Any attempt to
transfer any Shares or any rights thereunder in violation of the preceding
sentence shall be null and void ab initio and the Company shall not register any
-- ------
such transfer.
2.2 Permitted Transfers. At any time, any Stockholder may, subject to
-------------------
this Section 2.2 and Sections 2.3 and 2.4, transfer Shares to (a), with respect
to a Stockholder who is an individual, a member of such Stockholder's immediate
family, which shall include his parents, spouse, siblings, children or
grandchildren ("Family Members"), or a trust, corporation, partnership or
--------------
limited liability company, all of the beneficial interests in which shall be
held by such Stockholder or one or more Family Members of such Stockholder or
which would otherwise be an Affiliate of such individual; provided, however,
-------- -------
that during the period any such trust, corporation, partnership or limited
liability company holds any right, title or interest in any Shares, no Person
other than such Stockholder or one or more Family Members of such Stockholder
may be or become beneficiaries, stockholders, limited or general partners or
members thereof; and (b) with respect to a Stockholder that is not an
individual, any Affiliate of such Stockholder (the Persons referred to in the
preceding clauses (a) and (b) are herein each called a "Permitted Transferee").
--------------------
2.3 Permitted Transfer Procedures. If any Stockholder wishes to transfer
-----------------------------
Shares to a Permitted Transferee under this Section 2, such Stockholder shall
give notice to the Company of its intention to make any transfer permitted under
this Section 2 not less than ten (10) days prior to effecting such transfer,
which notice shall state the name and address of each Permitted Transferee to
whom such transfer is proposed and the number of Shares proposed to be
transferred to such Permitted Transferee.
2.4 Transfers in Compliance with Law; Substitution of Transferee.
------------------------------------------------------------
Notwithstanding any other provision of this Agreement, no transfer may be made
pursuant to this Section 2 or Section 3 unless (a) the Permitted Transferee has
agreed in writing to be bound by the terms and conditions of this Agreement
pursuant to an instrument substantially in the form attached hereto as Exhibit
-------
C-1, (b) the transfer complies in all respects with the applicable provisions of
- ---
this Agreement and (c) the transfer complies in all respects with applicable
United States federal and state securities laws, including, without limitation,
the Securities Act. If any transfer is made which is not pursuant to an
effective Registration Statement, then an opinion of counsel to such
transferring Stockholder shall be supplied to the Company at such transferring
Stockholder's expense, to the effect that such transfer complies with the
-6-
<PAGE>
applicable federal and state securities laws and such opinion shall be
reasonably satisfactory to the Company. Upon becoming a party to this
Agreement, the Permitted Transferee of a Stockholder shall be substituted for,
and shall enjoy the same rights and be subject to the same obligations as, the
transferring Stockholder hereunder.
3. Right of First Offer and Co-Sale Right.
--------------------------------------
3.1 Proposed Voluntary Transfer by Major Stockholder or General
-----------------------------------------------------------
Atlantic Stockholder.
- --------------------
3.1.1 Offering Notice. If any Major Stockholder, any General
---------------
Atlantic Stockholder or any Other Stockholder (a "Selling Stockholder") wishes
-------------------
to sell or otherwise transfer all or any portion of its or his Shares to any
Person (other than to a Permitted Transferee) (a "Third Party Purchaser"), such
---------------------
Selling Stockholder shall offer such Shares first to the Company by sending
written notice (the "Offering Notice") to the Company and the other Stockholders
---------------
which shall state (a) the number of Shares proposed to be sold or otherwise
transferred (the "Offered Securities") and (b) the proposed purchase price per
------------------
Share which the Selling Stockholder is willing to accept from the Third Party
Purchaser (the "Offer Price"). Upon delivery of the Offering Notice, such offer
-----------
shall be irrevocable unless and until the rights of first offer provided for
herein shall have been waived or shall have expired.
3.1.2 Company Option. For a period of fifteen (15) days after the
--------------
giving of the Offering Notice pursuant to Section 3.1.1 (the "Company Option
--------------
Period"), the Company or any of the Subsidiaries shall have the irrevocable
- ------
right to purchase any or all of the Offered Securities at a purchase price equal
to the Offer Price and upon the terms and conditions set forth in the Offering
Notice.
3.1.3 Major Stockholder and General Atlantic Stockholder Option.
---------------------------------------------------------
(a) If the Company does not elect to purchase all of the
Offered Securities pursuant to Section 3.1.2, then for a period of thirty (30)
days after the earlier to occur of (i) the expiration of the Company Option
Period pursuant to Section 3.1.2 and (ii) the date upon which the Selling
Stockholder shall have received written notice from the Company stating that the
Company and the Subsidiaries do not intend to exercise their option to purchase
any or all of the Offered Securities (the "Option Period"), the Major
-------------
Stockholders and the General Atlantic Stockholders (each, a "Rightholder") shall
-----------
have the irrevocable right to purchase any or all of the remaining Offered
Securities at a purchase price equal to the Offer Price and upon the terms and
conditions set forth in the Offering Notice. Each such Rightholder shall have
the right to purchase that percentage of the Offered Securities determined by
dividing (i) the total number of Shares then owned by such Rightholder by (ii)
the total number of Shares then owned by all such Rightholders, other than the
-7-
<PAGE>
Offered Securities. If any Rightholder does not fully subscribe for the number
or amount of Offered Securities that it or he is entitled to purchase, then each
other participating Rightholder shall have the right to purchase that percentage
of the Offered Securities not so subscribed for (for the purposes of this
Section 3.1.3, the "Excess Offered Securities") determined by dividing (x) the
-------------------------
total number of Shares then owned by such fully participating Rightholder by (y)
the total number of Shares then owned by all fully participating Rightholders
who elected to purchase Offered Securities. The procedure described in the
preceding sentence shall be repeated until there are no remaining Excess Offered
Securities or there are no Rightholders who wish to purchase any additional
Excess Offered Securities.
(b) If a Major Stockholder is selling Offered Securities
and any of the General Atlantic Stockholders do not elect to purchase such
Offered Securities pursuant to subsection (a) of this Section 3.1.3, then each
of such non-electing General Atlantic Stockholders shall have the right to sell,
if such Major Stockholder sells such Offered Securities to a Person other than
the Company or any other Major Stockholder, upon the terms set forth in the
Offering Notice, that number of Shares held by each of such General Atlantic
Stockholders equal to that percentage of the Offered Securities determined by
dividing (i) the total number of Shares then owned by each of such selling
General Atlantic Stockholders by (ii) the total number of outstanding Shares,
other than the Offering Securities. The Selling Stockholder and the electing
General Atlantic Stockholder(s) shall effect the sale of the Offered Securities
and such General Atlantic Stockholder(s) shall sell the number of Offered
Securities required to be sold pursuant to this Section 3.1.3(b), and the number
of Offered Securities to be sold to the Third Party Purchaser by the Selling
Stockholder shall be reduced accordingly.
(c) Notwithstanding the foregoing, the provisions of
Section 3.1.3(b) do not apply with respect to any transfer of Shares to a
Permitted Transferee.
(d) in order to be entitled to exercise its right to sell
Shares to a Third Party Purchaser pursuant to Section 3.1.3(b), a General
Atlantic Stockholder who wishes to sell its Shares must agree to make
substantially the same representations, warranties, covenants and indemnities
and other similar agreements as the Major Stockholder agrees to make in
connection with the proposed sale by it of Offered Securities to a Third Party
Purchaser. Any Major Stockholder shall give notice to all General Atlantic
Stockholders of each proposed sale by it of Offered Securities which gives rise
to the rights of the General Atlantic Stockholders set forth in Section
3.1.3(b), at least thirty (30) days prior to the proposed consummation of such
sale, setting forth the name of the Major Stockholder, the number of Offered
Securities, the name and address of the proposed Third Party Purchaser, the
proposed amount and form of consideration and terms and conditions of payment
offered by the proposed Third Party Purchaser, the percent of Shares that each
General Atlantic Stockholder may sell to such proposed Third Party Purchaser
(determined in accordance with Section 3.1.3(b)), and a representation that the
proposed Third Party Purchaser has been informed of the "tag-along" rights
provided for in Section 3.1.3(b) and has agreed to purchase Shares in accordance
with the terms hereof. The tag-along rights provided by Section 3.1.3(b) must
-8-
<PAGE>
be exercised by a General Atlantic Stockholder wishing to sell its Shares within
fifteen (15) days following receipt of the notice required by the preceding
sentence, by delivery of a written notice to the Major Stockholder indicating
such General Atlantic Stockholder's wish to exercise its rights and specifying
the number of Shares (up to the maximum number of Shares owned by such General
Atlantic Stockholder required to be purchased by the proposed Third Party
Purchaser) it wishes to sell. If the proposed Third Party Purchaser fails to
purchase Shares from any General Atlantic Stockholder that has properly
exercised its tag-along rights pursuant to Section 3.1.3(b), then the Major
Stockholder shall not be permitted to consummate the proposed sale of the
Offered Securities, and any such attempted sale shall be void and of no effect.
3.1.4 Exercise of Options.
-------------------
(a) The right of the Company to purchase the Offered
Securities under Section 3.1.2 shall be exercisable by delivering written notice
of the exercise thereof, prior to the expiration of the 15-day period referred
to in Section 3.1.2, to the Selling Stockholder with a copy to the other
Stockholders. The failure of the Company to respond within such 15-day period
shall be deemed to be a waiver of the Company's rights under Section 3.1.
(b) The right of each Rightholder under Section 3.1.3
shall be exercisable by delivering written notice of the exercise thereof, prior
to the expiration of the 30-day period referred to in Section 3.1.3, to the
Selling Stockholder with a copy to the Company and the other Stockholders. Each
such notice shall state (i) the number of Shares held by such Rightholder and
(ii) the number of Shares that such Rightholder is willing to purchase pursuant
to Section 3.1.3. The failure of a Rightholder to respond within such 30-day
period to the Selling Stockholder shall be deemed to be a waiver of such
Rightholder's rights under Section 3.1.
3.1.5 Closing. The closing of the purchases of Offered Securities
-------
subscribed for by the Company under Section 3.1.2 or the Rightholders under
Section 3.1.3 shall be held at the principal office of the Company at 11:00 a.m.
local time on the 45th day after the giving of the offering Notice pursuant to
Section 3.1.1 or at such other time and place as the parties to the transaction
may agree. At such closing, the Selling Stockholder shall deliver certificates
representing the Offered Securities, duly endorsed for transfer and accompanied
by all requisite transfer taxes, if any, and such Offered Securities shall be
free and clear of any liens, claims, options, charges, encumbrances or rights
("Liens") (other than those arising hereunder and those attributable to actions
by the purchasers) and the Selling Stockholder shall so represent and warrant,
and further represent and warrant that it is the sole beneficial and record
owner of such Offered Securities. The Company or each Rightholder, as the case
may be, purchasing Offered Securities shall deliver at the closing payment in
full in immediately available funds for the Offered Securities purchased by it
or him. At such closing, all of the parties to the transaction shall execute
such additional documents as are otherwise necessary or appropriate.
-9-
<PAGE>
3.1.6 Sale to Third Party Purchaser. Unless the Company or the
-----------------------------
Rightholders elect to purchase all, but not less than all, of the Offered
Securities under Sections 3.1.2 and 3.1.3, the Selling Stockholder may sell the
remaining Offered Securities to the Third Party Purchaser on the terms and
conditions set forth in the Offering Notice; provided, however, that such sale
-------- -------
is bona fide and made pursuant to a contract entered into within sixty (60) days
of the earlier of the waiver by the Company and the Rightholders of their
options to purchase the offered Securities and the expiration of the Option
Period (the earlier of such dates being offered herein as the "Contract Date");
-------------
and provided further, that such sale shall not be consummated unless and until
-------- -------
all of the following conditions are met.
(a) Prior to the purchase by the Third Party Purchaser of any of
such Offered Securities, the Third Party Purchaser shall become a
party to this Agreement and agree to be bound by the terms and
conditions hereof in accordance with Section 2.4 hereof.
(b) The consummation of such sale to the Third Party Purchaser
shall not be subject to any conditions (other than necessary
filings under the HSR Act), except that it may be conditioned
upon the truth as of the closing of the proposed purchase of
customary representations and warranties and the delivery of
stock certificates and a customary legal opinion.
(c) The Third Party Purchaser shall have furnished evidence
satisfactory to the Company, in its reasonable judgment, as to
the financial ability of such Third Party Purchaser to consummate
the proposed purchase.
If such sale is not consummated within forty-five (45) days of the Contract Date
for any reason, then the restrictions provided for herein shall again become
effective, and no transfer of such Offered Securities may be made thereafter by
the Selling Stockholder without again offering the same to the Company, the
Major Stockholders and the General Atlantic Stockholders in accordance with this
Section 3.1.
3.2 Involuntary Transfers.
---------------------
3.2.1 Rights of First Offer upon Involuntary Transfer. If an
-----------------------------------------------
Involuntary Transfer of any Shares (the "Transferred Shares") owned by any
------------------
Stockholder shall occur, then the Company, the Major Stockholders and the
General Atlantic Stockholders shall have the same rights as specified in
Sections 3.1.2 and 3.1.3, respectively, with respect to such Transferred Shares
as if the Involuntary Transfer had been a proposed voluntary transfer by a
Selling Stockholder and shall be governed by Section 3.1 except that (a) the
time periods shall run from the date of receipt by the Company and the
Rightholders of notice of the Involuntary Transfer, (b) such rights shall be
-10-
<PAGE>
exercised by notice to the transferee of such Transferred Shares (the
"Involuntary Transferee") rather than to the Stockholder who suffered or will
- -----------------------
suffer the Involuntary Transfer and (c) the purchase price per Transferred Share
shall be agreed upon by the Involuntary Transferee and the Company or the
purchasing Rightholders, as the case may be; provided, however, that if such
-------- -------
parties fail to agree as to such purchase price, the purchase price shall be the
Fair Value thereof as determined in accordance with Section 3.2.2.
3.2.2 Fair Value. If the parties fail to agree upon the purchase
----------
price of the Transferred Shares in accordance with Section 3.2.1 hereof, then
the Company or the Rightholders, as the case may be, shall purchase the
Transferred Shares at a purchase price equal to the Fair Value (as hereinafter
defined) thereof. The Fair Value of the Transferred Shares shall be determined
by a panel of three independent appraisers, which shall be nationally recognized
investment banking firms or nationally recognized experts experienced in the
valuation of corporations. Within five (5) Business Days after the notice to the
Involuntary Transferee with respect to the exercise of the right to purchase the
Transferred Shares, the Involuntary Transferee and the Board of Directors shall
each designate one such appraiser that is willing and able to conduct such
determination. If either the Involuntary Transferee or the Board of Directors
fails to make such designation within such period, then other party that has
made the designation shall have the right to make the designation on its behalf.
The two appraisers designated shall, within a period of five (5) Business Days
after the designation of the second appraiser, agree to designate a third
appraiser. The three appraisers shall conduct their determination as promptly as
practicable, and the Fair Value of the Transferred Shares shall be the average
of the determination of the two appraisers that are closer to each other than to
the determination of the third appraiser, which third determination shall be
discarded; provided, however, that if the determination of two appraisers are
-------- -------
equally close to the determination of the third appraiser, then the Fair Value
of the Transferred Shares shall be the average of the determination of all three
appraisers. Such determination shall be final and binding on the Involuntary
Transferee, the Company and the Rightholders. The Involuntary Transferee shall
be responsible for the fees and expenses of the appraiser designated by or on
behalf of it, and the Company for the fees and expenses of the appraiser
designated by or on behalf of the Board of Directors. The Involuntary Transferee
and the Company shall each share half the fees and expenses of the appraiser
designated by the appraisers. For purposes of this Section 3.2.2, the "Fair
Value" of the Transferred Shares means the fair market value of such Transferred
Shares determined in accordance with this Section 3.2.2 based upon all
considerations that the appraisers determine to be relevant.
3.2.3 Closing. The closing of any purchase under this Section 3.2
-------
shall be held at the principal office of the Company at 11:00 a.m. local time on
the earlier to occur of (a) the fifth Business Day after delivery of written
notice to the Involuntary Transferee by the Company or the Rightholders, as the
case may be, in accordance with Section 3.2.1(b) or (b) the fifth Business Day
after the determination of the Fair Value of the Transferred Shares in
-11-
<PAGE>
accordance with Section 3.2.2, or at such other time and place as the parties to
the transaction may agree. At such closing, the Involuntary Transferee shall
deliver certificates, if applicable, or other instruments or documents
representing the Transferred Shares being purchased under this section 3.2, duly
endorsed with a signature guarantee for transfer and accompanied by all
requisite transfer taxes, if any, and such Transferred Shares shall be free and
clear of any Liens (other than those arising hereunder) arising through the
action or inaction of the Involuntary Transferee and the Involuntary Transferee
shall so represent and warrant, and further represent and warrant that it is the
beneficial owner of such Transferred Shares. The Company or each Rightholder, as
the case may be, purchasing such Transferred Shares shall deliver at closing
payment in full in immediately available funds for such Transferred Shares. At
such closing, all parties to the transaction shall execute such additional
documents as are otherwise necessary or appropriate.
3.2.4 General. In the event that the provisions of this Section
-------
3.2 shall be held to be unenforceable with respect to any particular Involuntary
Transfer, the Company and the Rightholders shall have the rights specified in
Sections 3.1.2 and 3.1.3, respectively, with respect to any transfer by an
Involuntary Transferee of such Shares, and each Rightholder agrees that any
Involuntary Transfer shall be subject to such rights, in which case the
Involuntary Transferee shall be deemed to be the Selling Stockholder for
purposes of Section 3.1 of this Agreement and shall be bound by the provisions
of Section 3.1 and other related provisions of this Agreement.
4. Future Issuance of Shares; Preemptive Rights.
--------------------------------------------
4.1 Offering Notice. Except for capital stock which may be issued to
---------------
employees of the Company pursuant to a stock option plan or other employee
benefit arrangement approved by the Board of Directors, if the Company wishes to
issue and sell any shares of capital stock or any shares of capital stock or any
security convertible into or exchangeable for capital stock (the "New
---
Securities") to any Person (a "Subject Purchaser"), then the Company shall offer
-----------------
such New Securities first to the Major Stockholders and the General Atlantic
Stockholders by sending written notice (the "New Issuance Notice") to the Major
-------------------
Stockholders and the General Atlantic Stockholders at least fifteen (15) days
prior to the issuance and sale of the New Securities, which shall state (a) the
number of shares of New Securities proposed to be issued and sold, (b) the
proposed purchase price per share of the New Securities that the Company is
willing to accept (the "Proposed Price") and (c) the date on which the New
--------------
Securities will be sold to accepting Major Stockholders and General Atlantic
Stockholders (the "New Issuance Closing Date"). Upon delivery of the New
-------------------------
Issuance Notice, such offer shall be irrevocable unless and until the rights
provided for in Section 4.2 shall have been waived or shall have expired.
4.2 Major Stockholder and General Atlantic Stockholder Option. For a
---------------------------------------------------------
period of fifteen (15) days after the giving of the New Issuance Notice pursuant
to Section 4.1, the Major Stockholders and the General Atlantic Stockholders
(each, a "Preemptive Rightholder") shall have the right to purchase any or all
----------------------
-12-
<PAGE>
of its Proportionate Percentage (as hereinafter defined) of the New Securities
at a purchase price equal to the Proposed Price and upon the terms and
conditions set forth in the New Issuance Notice. Each such Preemptive
Rightholder shall have the right to purchase that percentage of the New
Securities determined by dividing (a) the total number of Shares then owned by
such Preemptive Rightholder by (b) the total number of then outstanding Shares
(the "Proportionate Percentage"). If any Major Stockholder does not fully
------------------------
subscribe for the number or amount of New Securities that he is entitled to
purchase pursuant to the preceding sentence, then each General Atlantic
Stockholder shall have the right to purchase any or all of the remaining New
Securities not so subscribed for by any such Major Stockholder. To the extent
that the General Atlantic Stockholders do not subscribe for any or all of such
remaining New Securities not so subscribed for by any such Major Stockholder,
each other Major Stockholder who elected to purchase New Securities shall have
the right to purchase that percentage of the remaining New Securities not so
subscribed for by the General Atlantic Stockholders (for the purposes of this
Section 4.2, the "Excess New Securities") determined by dividing (x) the total
---------------------
number of Shares then owned by such fully participating Major Stockholder by (y)
the total number of Shares then owned by all fully participating Major
Stockholders who elected to purchase New Securities.
4.3 Exercise of Options. The right of each Preemptive Rightholder to
-------------------
purchase the New Securities under Section 4.2 shall be exercisable by delivering
written notice of the exercise thereof, prior to the expiration of the 15-day
period referred to in Section 4.2, to the Company, which notice shall state the
amount of New Securities that such Preemptive Rightholder elects to purchase.
The failure of a Preemptive Rightholder to respond within such 15-day period
shall be deemed to be a waiver of such Preemptive Rightholder's rights under
Section 4.2.
4.4 Closing. The closing of the purchase of New Securities
-------
subscribed for by the Preemptive Rightholders under Section 4.3 shall be held at
the principal office of the Company at 11:00 a.m. local time on the New Issuance
Closing Date or at such other time and place as the parties to the transaction
may agree. At such closing, the Company shall deliver certificates representing
the New Securities, and the New Securities shall be issued free and clear of all
Liens and the Company shall so represent and warrant, and further represent and
warrant that such New Securities shall be, upon issuance thereof to the
subscribing Preemptive Rightholders and after payment therefor, duly authorized,
validly issued, fully paid and nonassessable. Each Preemptive Rightholder
purchasing the New Securities shall deliver at the closing payment in full in
immediately available funds for the New Securities purchased by him or it. At
such closing, all of the parties to the transaction shall execute such
additional documents as are otherwise necessary or appropriate.
4.5 Sale to Subject Purchaser. Unless the Major Stockholders and the
-------------------------
General Atlantic Stockholders elect to purchase all of the New Securities
pursuant to Section 4.2, the Company may sell to the Subject Purchaser all of
the New Securities not so purchased pursuant to Section 4.2 on terms and
-13-
<PAGE>
conditions that are no more favorable to the Subject Purchaser than those set
forth in the New Issuance Notice; provided, however, that such sale is bona fide
-------- -------
and made pursuant to a contract entered into within six (6) months of the
earlier to occur of (a) the waiver by the Major Stockholders and the General
Atlantic Stockholders of their option to purchase the New Securities and (b) the
expiration of the 15-day period referred to in Section 4.2. If such sale is not
consummated within such six (6) month period for any reason, then the
restrictions provided for herein shall again become effective, and no issuance
and sale of New Securities may be made thereafter by the Company without again
offering the same to the Major Stockholders and the General Atlantic
Stockholders in accordance with this Section 4. The closing of any issue and
purchase pursuant to this Section 4.5 shall be held at the time and place as the
parties to the transaction may agree.
4.6 After-Acquired Securities. All of the provisions of this
-------------------------
Agreement shall apply to all of the Shares now owned or which may be issued or
transferred hereafter to a Stockholder in consequence of any additional
issuance, purchase, exchange or reclassification of any of the Shares, corporate
reorganization, or any other form of recapitalization, consolidation, merger,
share split or share dividend, or which are acquired by a Stockholder in any
other manner.
4.7 Agreement to be Bound. The Company shall not issue any Shares or
---------------------
any Common Stock Equivalents to any Person not a party to this Agreement, unless
such Person has agreed in writing to be bound by the terms and conditions of
this Agreement pursuant to an instrument substantially in the form attached
hereto as Exhibit C-2. Upon becoming a party to this Agreement, such Person
-----------
shall be deemed to be, and shall be subject to the same obligations as a
Stockholder hereunder. Any issuance of Shares or any Common Stock Equivalents
by the Company in violation of this Section 4.7 shall be null and void ab
--
initio. Notwithstanding the foregoing, the provisions of this Section 4.7 shall
- ------
not be applicable to issuances of capital stock upon exercise of options granted
to employees of the Company pursuant to an employee benefit plan approved by the
Board of Directors.
5. Corporate Governance.
--------------------
5.1 General. From and after the execution of this Agreement, each
-------
Stockholder shall vote its or his Shares at any regular or special meeting of
stockholders of the Company (a "Stockholders Meeting") or in any written consent
--------------------
executed in lieu of such a meeting of stockholders (a "Written Consent"), and
---------------
shall take all other actions necessary to ensure that the Charter Documents do
not, at any time hereafter, conflict in any respect with the provisions of this
Agreement.
5.2 Stockholders Actions. In order to effectuate the provisions of
--------------------
this Section 5, each Stockholder (a) hereby agrees that when any action or vote
is required to be taken by such Stockholder pursuant to this Agreement, such
Stockholder shall use its best efforts to call, or cause the appropriate officer
and directors of the Company to call, a Stockholders Meeting or to execute or
-14-
<PAGE>
cause to be executed a Written Consent to effectuate such stockholder action,
(b) shall use its best efforts to cause the Board of Directors to adopt, either
at a meeting of the Board of Directors or by unanimous written consent of the
Board of Directors, all the resolutions necessary to effectuate the provisions
of this Agreement and (c) shall use its best efforts to cause the Board of
Directors to cause the Secretary of the Company, of if there be no secretary,
such other officer of the Company as the Board of Directors may appoint to
fulfill the duties of Secretary, not to record any vote or consent contrary to
the terms of this Section 5.
5.3 Election of Directors; Number and Composition. Each Stockholder
---------------------------------------------
shall vote its or his Shares at any Stockholders Meeting, or act by Written
Consent with respect to such Shares, and take all other actions necessary to
ensure that the number of directors constituting the entire Board of Directors
shall be not less than four (4) nor greater than five (5); provided, however,
-------- -------
that each Stockholder shall vote its or his Shares at any Stockholders Meeting,
or act by Written Consent with respect to such Shares, and take all other
actions necessary to ensure that such number shall be increased to not less than
seven (7) as soon as possible after the IPO Effectiveness Date. Each
Stockholder shall vote its or his shares at any Stockholders Meeting called for
the purpose of filling the positions on the Board of Directors, or in any
Written Consent executed for such purpose, and to take all other actions
necessary to ensure the election to the Board of Directors of (a) two (2)
individuals designated by the Major Stockholders (who initially shall be Hartmut
Lademacher and Ulf Bohla) (collectively, the "Major Stockholder Directors") and
---------------------------
(b) two (2) individuals designated by the General Atlantic Stockholders (who
initially shall be William E. Ford and William O. Grabe) (collectively, the
"General Atlantic Directors"); provided, however, that upon the request of the
- --------------------------- -------- -------
Major Stockholders holding a majority of the Shares then held by all Major
Stockholders, each Stockholder shall vote its or his Shares at any Stockholders
Meeting, or act by Written Consent with respect to such Shares, and take all
other actions necessary, as soon as possible after receipt of such request, to
increase the number of Major Stockholder Directors to three (3).
5.4 Removal and Replacement of Directors.
------------------------------------
5.4.1 Removal of General Atlantic Directors. If at any time the
-------------------------------------
General Atlantic Stockholders notify the other Stockholders of their wish to
remove at any time and for any reason (or no reason) any General Atlantic
Director, then each Stockholder shall vote all of his Shares so as to remove
such General Atlantic Director.
5.4.2 Replacement of Directors.
------------------------
(a) If at any time, a vacancy is created on the Board of
Directors by reason of the death, removal or resignation of a General Atlantic
Director, then the General Atlantic Stockholders shall designate a nominee to be
elected to fill such vacancy until the next Stockholders Meeting.
(b) if at any time, a vacancy is created on the Board of
Directors by reason of the death, removal or resignation of a Major Stockholder
-15-
<PAGE>
Director, then the Major Stockholders shall designate a nominee to be elected to
fill such vacancy until the next Stockholders Meeting.
(c) Upon receipt of notice of the designation of a nominee
pursuant to subsection (a) or (b) above, each Stockholder shall, as soon as
practicable after the date of such notice, take action, including the voting of
its Shares, to elect the director designated by the General Atlantic
Stockholders or the Major Stockholders, as the case may be, to fill such
vacancy.
5.5 Termination of Sections 5.3 and 5.4. Notwithstanding anything to
-----------------------------------
the contrary contained in this Agreement, (a) from and after the date that the
General Atlantic Stockholders own shares of Preferred Stock and/or Common Stock
and/or other securities of the Company convertible into or exchangeable for
voting capital stock of the Company that in the aggregate represent (after
giving effect to any adjustments) greater than 5% but less than or equal to 10%
of the total number of shares of Common Stock outstanding (on an as converted
basis), then (i) at the request of the Chairman of the Company, one General
Atlantic Director designated by the General Atlantic Stockholders in accordance
with Section 5.3 hereof shall immediately resign from the Board of Directors and
the rights of the General Atlantic Stockholders under Section 5.4.2 with respect
to the replacement of such General Atlantic Director shall terminate and (ii)
the General Atlantic Stockholders shall be entitled thereafter to designate one
(1) General Atlantic Director for election or removal pursuant to Section 5.3 or
Section 5.4.1 hereof and (b) from and after the date that the General Atlantic
Stockholders own shares of Preferred Stock and/or Common Stock and/or other
securities of the Company convertible into or exchangeable for voting capital
stock of the Company that in the aggregate represent (after giving effect to any
adjustments) 5% or less of the total number of shares of Common Stock
outstanding (on an as converted basis), then (i) at the request of the Chairman
of the Company, any General Atlantic Director designated by the General Atlantic
Stockholders in accordance with Section 5.3 hereof shall immediately resign from
the Board of Directors and the rights of the General Atlantic Stockholders under
Section 5.4.2 with respect to the replacement of such General Atlantic Director
shall terminate and (ii) the General Atlantic Stockholders shall not be entitled
to designate any General Atlantic Directors for election or removal pursuant to
Section 5.3 or Section 5.4.1 hereof.
5.6 Actions of the Board of Directors; Extraordinary Events.
-------------------------------------------------------
Notwithstanding anything to the contrary contained in this Agreement, the Board
of Directors shall not take, approve or otherwise ratify any of the following
actions except with the consent of at least a majority of the directors
constituting the entire Board of Directors, which majority shall include,
without limitation, at least one General Atlantic Director:
(a) any transaction of merger, consolidation,
amalgamation, recapitalization or other form of business combination with
respect to the Company or any of the Subsidiaries;
-16-
<PAGE>
(b) any sale, conveyance, lease, transfer or other
disposition of all or substantially all of the consolidated assets of the
Company or any of the Subsidiaries (other than the sale of software products by
the Company or any of the Subsidiaries in the ordinary course of business);
(c) institution of any voluntary bankruptcy or other
liquidation or dissolution proceedings by the Company or any of the
Subsidiaries;
(d) any issuance of or agreement to issue any shares of
capital stock of the Company or any of the Subsidiaries or rights of any kind
convertible into or exchangeable for, any shares of capital stock of the Company
or any of the Subsidiaries, or any option, warrant or other subscription or
purchase right with respect to shares of capital stock;
(e) any declaration or making of dividend payments or
other payment or distribution on account of the Shares;
(f) any changes in accounting principles of the Company or
any of the Subsidiaries, including any change in the criteria for evaluating the
Company's or any of the Subsidiaries' financial conditions and results of
operations, and any changes in the Company's or any of the Subsidiaries'
auditors; and
(g) any material amendment, modification or restatement of
the Charter Documents or any material amendment or modification of this Section
5.6.
6. Stock Certificate Legend. A copy of this Agreement shall be filed
------------------------
with the Secretary of the Company and kept with the records of the Company.
Each certificate representing Shares now held or hereafter acquired by any
Stockholder shall for as long as this Agreement is effective bear legends
substantially in the following forms:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY STATE. THE SECURITIES MAY NOT BE OFFERED AND SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO
A WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
-17-
<PAGE>
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE AMENDED
AND RESTATED STOCKHOLDERS AGREEMENT, DATED JULY 15, 1996, AMONG LHS GROUP
HOLDING CORPORATION, GENERAL ATLANTIC PARTNERS 23, L.P., GENERAL ATLANTIC
PARTNERS 31, L.P., GAP COINVESTMENT PARTNERS, L.P., AND THE STOCKHOLDERS
NAMED THEREIN, A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL
OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES ON
THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN
COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AGREEMENT.
7. Miscellaneous.
-------------
7.1 Notices. All notices, demands or other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery:
(a) if the Company:
LHS Group Holding Corporation
115 West Perimeter Center Place
Atlanta, Georgia 30346
Attention: Hartmut Lademacher
Telecopy: (770) 671-9791
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10071
Attention: George R. Krouse, Jr., Esq.
Telecopy: (212) 455-2502
(b) if to any of the General Atlantic Stockholders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Attention: Stephen P. Reynolds
Telecopy: (203) 622-8818
-18-
<PAGE>
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew Nimetz, Esq.
Telecopy: (212) 757-3990
(c) if to the Major Stockholders:
c/o LHS Group Holding Corporation
115 West Perimeter Center Place
Atlanta, Georgia 30346
Attention: Hartmut Lademacher
Telecopy: (770) 671-9791
with a copy to:
LHS Specifications KG
Theodor-Heuss-Ring 52
D 63128 Dietzenbach
Federal Republic of Germany
Attention: Otto Wipprecht
Telecopy: 6074-831-199
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: George R. Krouse, Jr., Esq.
Telecopy: (212) 455-2502
(d) if to any other Stockholder, at its address as it appears
on the record books of the Company.
Any party may by notice given in accordance with this Section 7.1 designate
another address or person for receipt of notices hereunder. All such notices
and communications shall be deemed to have been duly given when delivered by
hand, if personally delivered; when delivered by courier or overnight mail, if
delivered by commercial courier service or overnight mail; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is mechanically acknowledged, if telecopied.
-19-
<PAGE>
7.2 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the parties
hereto at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party from the terms of any provision of
this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the Stockholders holding 60% of the Shares hereunder and (ii) only
in the specific instance and for the specific purpose for which made or given;
provided, however, that any such amendment, supplement or modification to this
- -------- -------
Agreement shall not be effective to withdraw, deny or adversely affect the
rights of any Stockholder who has not consented in writing to such amendment,
supplement or modification; and provided, further, that any amendment which
-------- -------
adversely affects the Company or imposes an additional obligation thereon must
be approved in writing by the Company.
7.3 Specific Performance. The parties hereto intend that each of the
--------------------
parties have the right to seek damages or specific performance in the event that
any other party hereto fails to perform such party's obligations hereunder.
Therefore, if any party shall institute any action or proceeding to enforce the
provisions hereof, any party against whom such action or proceeding is brought
hereby waives any claim or defense therein that the plaintiff party has an
adequate remedy at law.
7.4 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
7.5 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
7.6 Entire Agreement. This Agreement, together with the exhibits and
----------------
schedules hereto, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein. There are no restrictions, promises, warranties
or undertakings, other than those set forth or referred to herein or therein.
This Agreement, together with the exhibits hereto, supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
-20-
<PAGE>
7.7 Term of Agreement. Subject to the following proviso, this
-----------------
Agreement shall become effective upon the execution hereof and shall terminate
upon the IPO Effectiveness Date.
7.8 Variations in Pronouns. All pronouns and any variations thereof
----------------------
to the masculine, feminine or neuter, singular or plural, as the context may
require.
7.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW THEREOF, EXCEPT FOR MATTERS DIRECTLY IN THE PURVIEW OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE (THE "DGCL"), WHICH MATTERS
SHALL BE GOVERNED BY THE DGCL.
7.10 Further Assurances. Each of the parties shall, and shall cause
------------------
their respective Affiliates to, execute such instruments and take such action as
may be reasonably required or desirable to carry out the provisions hereof and
the transactions contemplated hereby.
7.11 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective successors, heirs,
legatees and legal representatives. This Agreement is not assignable except in
connection with a transfer of Shares in accordance with this Agreement.
7.12 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
7.13 General Partner's Certificate. The respective obligations of the
-----------------------------
Company and the Major Stockholders to enter into this Agreement and the
Registration Rights Agreement are subject to the receipt by such parties of a
certificate from the general partner of GAP 23, in form and substance
satisfactory to the Company, dated the date hereof and signed by such general
partner, certifying (a) as to the incumbency and specimen signature of each
individual executing this Agreement and the Registration Rights Agreement; (b)
that GAP 23 is a partnership duly organized and validly existing under the laws
of the jurisdiction of its formation and has the requisite power and authority
to execute, deliver and perform its Obligations under this Agreement and the
Registration Rights Agreement; (c) that the execution, delivery and performance
by GAP 23 of this Agreement (i) have been duly authorized by all necessary
partnership action and (ii) do not contravene the terms of GAP 23's
organizational documents, or any amendment thereof; and (d) that this Agreement
and the Registration Rights Agreement have been duly executed and delivered and
-21-
<PAGE>
constitute the legal, valid and binding obligations of GAP 23, enforceable
against it in accordance with their terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability (regardless of whether considered in a proceeding at law or in
equity).
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Agreement on the date first written above.
LHS GROUP HOLDING CORPORATION
By: /s/ Hartmut Lademacher
----------------------
Name: Hartmut Lademacher
Title: CEO
GENERAL ATLANTIC PARTNERS 23, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By: /s/ Stephen P. Reynolds
-----------------------
Name: Stephen P. Reynolds
Title: A Managing Member
GENERAL ATLANTIC PARTNERS 31, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By: /s/ Stephen P. Reynolds
-----------------------
Name: Stephen P. Reynolds
Title: A Managing Member
-22-
<PAGE>
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Stephen P. Reynolds
-----------------------
Name: Stephen P. Reynolds
Title: A General Partner
MAJOR STOCKHOLDERS
/s/ Joachim Hertel
------------------
Joachim Hertel
/s/ Hartmut Lademacher
----------------------
Hartmut Lademacher
/s/ Manfred Hellwig
-------------------
Manfred Hellwig
/s/ Dr. Rainer Zimmerman
------------------------
Rainer Zimmerman
/s/ Eberhard Czernpiel
----------------------
Eberhard Czernpiel
/s/ Otto Wipprecht
------------------
Otto Wipprecht
/s/ Jurgen Spengler
-------------------
Jurgen Spengler
/s/ William Bobb
----------------
William Bobb
/s/ Wolf Gaede
--------------
Wolf Gaede
-23-
<PAGE>
EXHIBIT 10.4
- -------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
among
LHS GROUP HOLDING CORPORATION.
GENERAL ATLANTIC PARTNERS 23, L.P.,
GENERAL ATLANTIC PARTNERS 31, L.P.,
GAP COINVESTMENT PARTNERS, L.P.
and
THE STOCKHOLDERS NAMED HEREIN
---------------------
Dated: July 15, 1996
---------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Definitions..................................................... 1
2. General; Securities Subject to this Agreement................... 5
(a) Grant of Rights............................................. 5
(b) Registrable Securities...................................... 5
(c) Holders of Registrable Securities........................... 6
3. Demand Registration............................................. 6
(a) General..................................................... 6
(b) Effective Demand Registration............................... 6
(c) Underwriting Adjustment..................................... 7
4. Incidental or "Piggyback" Registration.......................... 7
(a) General..................................................... 7
(b) Underwriting Adjustment..................................... 7
5. Registration Procedures......................................... 8
6. Underwritten Offerings.......................................... 11
(a) Demand Underwritten Offerings............................... 11
(b) Incidental Underwritten Offerings........................... 12
7. Preparation; Reasonable Investigation........................... 12
8. Limitations, Conditions and Qualifications to Obligations
under Registration Covenants.................................... 13
9. Custody Agreement and Power of Attorney......................... 14
10. Expenses........................................................ 15
11. Hold-Back....................................................... 15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
12. Indemnity....................................................... 16
(a) Indemnification by the Company.............................. 16
(b) Indemnification by the Designated Holders................... 16
(c) Conduct of Indemnification Proceedings...................... 17
(d) Contribution................................................ 18
13. Participation in Underwritten Registrations..................... 18
14. Rule 144........................................................ 18
15. Recapitalizations, Exchanges, etc............................... 19
16. Miscellaneous................................................... 19
(a) No Inconsistent Agreements.................................. 19
(b) Remedies.................................................... 19
(c) Amendments and Waivers...................................... 19
(d) Notices..................................................... 20
(e) Successors and Assigns; Third Party Beneficiaries........... 22
(f) Counterparts................................................ 22
(g) Headings.................................................... 22
(h) GOVERNING LAW............................................... 22
(i) Severability................................................ 22
(j) Entire Agreement............................................ 22
(k) Further Assurances.......................................... 22
Schedule 1 Major Stockholders
</TABLE>
-ii-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated July 15, 1996 (this "Agreement"),
---------
among LHS Group Holding Corporation, a Delaware corporation (the "Company"),
-------
General Atlantic Partners 23, L.P., a Delaware limited partnership ("GAP 23"),
------
General Atlantic Partners 31, L.P., a Delaware limited partnership ("GAP 31"),
------
GAP Coinvestment Partners, L.P., a New York limited partnership ("GAP
---
Coinvestment"), and the stockholders listed on Schedule 1 hereto (the "Major
- ------------ ---------- -----
Stockholders").
- ------------
RECITALS
--------
This Agreement is made in connection with the Stock Purchase Agreement,
dated the date hereof (the "Stock Purchase Agreement"), among the Company, GAP
------------------------
31 and GAP Coinvestment, pursuant to which the Company has agreed to, among
other things, issue and sell to (a) GAP 31, and GAP 31 has agreed to purchase
from the Company, 80,096 shares, par value $.01 per share, of Common Stock of
the Company (the "Common Stock") and (b) GAP Coinvestment, and GAP Coinvestment
------------
has agreed to purchase from the Company, 12,982 shares of Common Stock. On the
date hereof, GAP 21 and GAP Coinvestment own all of the issued and outstanding
shares, par value $.01 per share, of Series A Convertible Preferred Stock of the
Company (the "Series A Preferred Stock"). Concurrently herewith, the Company,
------------------------
GAP 23, GAP 31, GAP Coinvestment and the Major Stockholders are entering into
the Amended and Restated Stockholders Agreement (as hereinafter defined),
pursuant to which the parties thereto have agreed to, among other things, amend
and restate the Stockholders Agreement, dated December 22, 1995 (the "Original
--------
Stockholders Agreement"), among the Company, GAP 23, GAP Coinvestment and the
- ----------------------
stockholders named therein. In order to induce (i) each of GAP 23 and the Major
Stockholders to enter into the Amended and Restated Stockholders Agreement and
(ii) each of GAP 31 and GAP Coinvestment to purchase its shares of Common Stock
and to enter into the Amended and Restated Stockholders Agreement, the Company
has agreed to grant in this Agreement the registration rights set forth in
Section 6 of the Original Stockholders Agreement.
In consideration of the mutual agreements contained herein and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereby agree as follows:
1. Definitions. As used in this Agreement the following terms have the
-----------
meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
---------
Rule 12b-2 of the General Rules and Regulations under the Exchange Act. GAP 23,
GAP 31 and GAP Coinvestment shall be deemed to be Affiliates of one another. In
addition, Affiliates of GAP 23 or GAP 31 shall be deemed to include: (a) GAP
LLC, the members of GAP LLC, the limited partners of GAP 23 and the limited
partners of GAP 31; (b) any Affiliate of GAP LLC, the members of GAP LLC, the
<PAGE>
limited partners of GAP 23 or the limited partners of GAP 31; and (c) any
limited liability company or partnership a majority of whose members or
partners, as the case may be, are members, consultants or key employees of GAP
LLC.
"Amended and Restated Stockholders Agreement" means the Amended and
-------------------------------------------
Restated Stockholders Agreement, dated the date hereof, among the Company, GAP
23, GAP 31, GAP Coinvestment and the stockholders named therein.
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"Claim" has the meaning set forth in Section 12(c) of this Agreement.
-----
"Closing Price" of the shares of Common Stock means on any date of
-------------
determination, (a) the closing price per share of Common Stock on such date
published in the Wall Street Journal or, if no such closing price on such date
is published in the Wall Street Journal, the average of the closing bid and
asked prices on such date, as officially reported on the principal national
securities exchange on which the shares of Common Stock are then listed or
admitted to trading; or (b) if the shares of Common Stock are not then listed or
admitted to trading on any national securities exchange but are designated as
national market system securities by the NASD, the last trading price per share
of Common Stock on such date; or (c) if there shall have been no trading on such
date or if the shares of Common Stock are not so designated, the average of the
reported closing bid and asked prices of the shares of Common Stock on such date
as shown by NASDAQ and reported by any member firm of the New York Stock
Exchange, Inc. selected by the Company.
"Common Stock" means the Common Stock, par value $.01 per share, of
------------
the Company or any other equity securities of the Company into which such
securities are converted, reclassified, reconstituted or exchanged.
"Company" has the meaning assigned to such term in the recital to this
-------
Agreement.
"Custody Agreement and Power of Attorney" has the meaning set forth in
---------------------------------------
Section 9 of this Agreement.
"Demand Registration" has the meaning set forth in Section 3(a) of
-------------------
this Agreement.
"Demand Shares" has the meaning set forth in Section 3(a) of this
-------------
Agreement.
<PAGE>
"Demand Stockholder" has the meaning set forth in Section 3(a) of this
------------------
Agreement.
"Designated Holder" means each of the Major Stockholders and the
-----------------
General Atlantic Stockholders and any transferee of any of them to whom
Registrable Securities have been transferred in accordance with the provisions
of the Amended and Restated Stockholders Agreement and Section 16(e) of this
Agreement, other than a transferee to whom such securities have been transferred
pursuant to a Registration Statement or Rule 144 or Regulation S under the
Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"GAP Coinvestment" has the meaning assigned to such term in the
----------------
recital to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
-------
liability company and the general partner of GAP 23 and GAP 31.
"GAP 31" has the meaning assigned to such term in the recital to this
------
Agreement.
"GAP 23" has the meaning assigned to such term in the recital to this
------
Agreement.
"General Atlantic Stockholders" means GAP 23, GAP 31, GAP Coinvestment
-----------------------------
and any Permitted Transferee (as defined in the Amended and Restated
Stockholders Agreement) of any of them to which Registrable Securities are
transferred, and the term "General Atlantic Stockholder" shall mean any such
Person.
"Incidental Registration" has the meaning set forth in Section 4(a) of
-----------------------
this Agreement.
"Incidental Shares" has the meaning set forth in Section 4(a) of this
-----------------
Agreement.
"Incidental Stockholder" has the meaning set forth in Section 4(a) of
----------------------
this Agreement.
"Indemnitee" has the meaning set forth in Section 12(a) of this
----------
Agreement.
"Initial Public Offering" means the Company's initial offer to sell
-----------------------
shares of Common Stock pursuant to an effective Registration Statement filed
under the Securities Act.
<PAGE>
"IPO Effectiveness Date" means the date upon which the Company
----------------------
commences its Initial Public Offering.
"Losses" has the meaning set forth in Section 12(a) of this Agreement.
------
"Major Stockholders" means the stockholders listed on Schedule 1
------------------ ----------
hereto and any Permitted Transferee (as defined in the Amended and Restated
Stockholders Agreement) of any of them to which Registrable Securities are
transferred, and the term "Major Stockholder" shall mean any such Person.
"Majority Registering Stockholders" has the meaning set forth in
---------------------------------
Section 10 of this Agreement.
"Market Price" means, on any date of determination, the average of the
------------
daily Closing Price of the shares of Common Stock for the immediately preceding
thirty (30) days on which the national securities exchanges are open for
trading.
"NASD" means the National Association of Securities Dealers, Inc.
----
"NASDAQ" means The Nasdaq Stock Market, Inc.
------
"Original Stockholders Agreement" has the meaning assigned such term
-------------------------------
in the recital to this Agreement.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"Registering Stockholders" has the meaning set forth in Section 5(c)
------------------------
of this Agreement.
"Registrable Securities" means each of the following: (a) any and all
----------------------
shares of Common Stock now owned or hereafter acquired by the Major Stockholders
or the General Atlantic Stockholders or issued or issuable upon conversion of
shares of Series A Preferred Stock, including, without limitation, any
additional shares of Series A Preferred Stock acquired by any of the Major
Stockholders or the General Atlantic Stockholders after the date hereof and (b)
any shares of Common Stock issued or issuable to any of the Major Stockholders
or the General Atlantic Stockholders with respect to shares of Common Stock or
shares of Series A Preferred Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise and shares of Common Stock issuable upon
conversion, exercise or exchange thereof.
<PAGE>
"Registration Statement" means a registration statement filed pursuant
----------------------
to the Securities Act.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Series A Preferred Stock" has the meaning assigned to such term in
------------------------
the recital to this Agreement.
"Stock Purchase Agreement" has the meaning assigned to such term in
------------------------
the recital to this Agreement.
2. General; Securities Subject to this Agreement.
---------------------------------------------
(a) Grant of Rights. The Company hereby grants registration rights to
---------------
the Major Stockholders and the General Atlantic Stockholders upon the terms and
conditions set forth in this Agreement.
(b) Registrable Securities. For the purposes of this Agreement, as to
----------------------
any particular Registrable Securities, such Registrable Securities shall cease
to be Registrable Securities when (i) a registration statement covering such
Registrable Securities has been declared effective under the Securities Act by
the SEC and such Registrable Securities have been disposed of pursuant to such
effective registration statement, (ii) the entire amount of Registrable
Securities proposed to be sold in a single sale are or, in the opinion of
counsel satisfactory to the Company and the Designated Holder, each in their
reasonable judgment, may be distributed to the public without any limitation as
to volume pursuant to Rule 144 (or any successor provision then in effect) under
the Securities Act, (iii) the Registrable Securities are proposed to be sold or
distributed by a Person not entitled to the registration rights granted by this
Agreement or (iv) such Registrable Securities shall have ceased to be
outstanding.
(c) Holders of Registrable Securities. Registrable Securities
---------------------------------
issuable upon exercise of an option or upon conversion of another security shall
be deemed outstanding for the purposes of this Agreement.
3. Demand Registration.
-------------------
(a) General. At any time after 180 days following the Initial Public
-------
Offering, each of (i) one or more of the Major Stockholders as a group and (ii)
one or more of the General Atlantic Stockholders, acting through GAP LLC or its
written designee (each, a "Demand Stockholder"), may make a written request to
------------------
the Company to register, under the Securities Act (other than pursuant to a
Registration Statement on Form S-4, S-8 or any equivalent form then in effect)
<PAGE>
and under the securities or "blue sky" laws of any jurisdiction designated by
the Demand Stockholder (the "Demand Registration"), the number of Registrable
-------------------
Securities (including the Registrable Securities held by Permitted Transferees
of such Demand Stockholder, the "Demand Shares") stated in such request the
-------------
offer and sale of which shall result in net proceeds (after expenses and
underwriting commissions and discounts) to the Company in excess of $10,000,000
assuming for the purpose of calculating such net proceeds that the price per
share of the Demand Shares is the Market Price on the date of the filing of the
Registration Statement with respect to such Demand Shares; provided, however,
-------- -------
that each Demand Stockholder may request not greater than two Demand
Registrations pursuant to this Section 3(a); and provided further, that in no
-------- -------
event shall the Company be required to effect more than one Demand Registration
within 180 days after the effective date of any other Registration Statement of
the Company. The request for a Demand Registration by a Demand Stockholder
shall specify the amount of Demand Shares proposed to be sold and the intended
method of disposition thereof. Within fifteen (15) days after the receipt of
such request, the Company shall (x) give written notice thereof to all
Designated Holders (other than the Demand Stockholders) and (y) include in such
registration all Registrable Securities held by such Designated Holders from
whom the Company has received a written request for inclusion therein within
fifteen (15) days of the receipt by such Designated Holders of such written
notice. Each such request by such Designated Holders shall specify the number
of Registrable Securities to be registered and the intended method of
disposition thereof. Unless the Demand Stockholders consent in writing, no
other Person, including the Company, shall be permitted to offer securities
under any such Demand Registration.
(b) Effective Demand Registration. The Company shall use its
-----------------------------
reasonable efforts to cause the Demand Registration pursuant to Section 3(a) to
become and remain effective not later than one hundred twenty (120) days after
the Company receives from a Demand Stockholder a request for such Demand
Registration. A registration shall constitute a Demand Registration if the
Demand Registration has become effective and remains continuously effective for
the lesser of (a) 120 days and (b) the consummation of the sale, pursuant to
such registration, of all of the Registrable Securities covered by such
registration.
(c) Underwriting Adjustment. If the Demand Registration pursuant to
-----------------------
Section 3(a) involves an underwritten offering, and the managing underwriter
shall advise the Company in writing that, in its opinion, the number of
Registrable Securities requested to be included in such registration exceeds the
number which can be sold in such offering, the Company will include in such
registration, to the extent of the number of Registrable Securities which the
Company is so advised can be sold in such offering, (a) first, the Demand Shares
-----
and (b) second, all other Registrable Securities proposed to be included in such
------
registration, on a pro rata basis.
<PAGE>
4. Incidental or "Piggyback" Registration.
--------------------------------------
(a) General. If at any time following the Company's Initial Public
-------
Offering, the Company proposes to register any shares of Common Stock under the
Securities Act (other than pursuant to a Registration Statement on Form S-4, S-8
or any equivalent form then in effect) for public sale for its own account, then
the Company shall give to each Major Stockholder and each General Atlantic
Stockholder (each, an "Incidental Stockholder") notice of such proposed
----------------------
registration at least fifteen (15) days prior to the filing of a Registration
Statement with respect to such public sale. Upon the written request of any
Incidental Stockholder delivered to the Company within ten (10) days after the
receipt of the notice from the Company (which request shall state the number of
Registrable Securities, including Registrable Securities held by Permitted
Transferees of such Incidental Stockholder (collectively, the "Incidental
----------
Shares"), that such Incidental Stockholder wishes to sell or distribute publicly
- ------
under such Registration Statement proposed to be filed by the Company), the
Company shall use its reasonable efforts to register such Incidental Shares
under such Registration Statement, and to cause such registration to become and
remain effective so long as the Company keeps such registration effective as to
such other shares of Common Stock (the "Incidental Registration"). The Company
-----------------------
may wish not to file a Registration Statement, may withdraw a Registration
Statement at any time before it becomes effective or postpone or terminate the
offering without obligation to any Incidental Stockholder.
(b) Underwriting Adjustment. If the Incidental Registration pursuant
-----------------------
to Section 4(a) involves an underwritten offering, and the Company's managing
underwriter shall advise the Company in writing that, in its opinion, the number
of shares of Common Stock requested to be included in such registration exceeds
the number which can be sold in such offering in light of the price per share,
the Company shall include in such registration, to the extent of the number of
shares of Common Stock which the Company is so advised can be sold in such
offering, (a) first, shares of Common Stock that the Company proposes to issue
-----
and sell for its own account, if any, and (b) second, all other Registrable
------
Securities (including Incidental Shares) proposed to be included in such
registration, on a pro rata basis.
5. Registration Procedures. In connection with the Company's obligations
-----------------------
pursuant to Sections 3 and 4 hereof, the Company shall use all reasonable
efforts to effect such registration and the Company shall promptly:
(a) prepare and file with the Commission as soon as practicable after
a request for registration hereunder the requisite Registration Statement to
effect such registration and use all reasonable efforts to cause such
Registration Statement to become effective and to remain continuously effective
until the earlier to occur of (x) 180 days following the date on which such
Registration Statement is declared effective and (y) the termination of the
offering being made thereunder:
<PAGE>
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such Registration Statement
until such Registrable Securities have been sold or such lesser period of time
as the Company, any seller of such Registrable Securities or any underwriter is
required under the Securities Act to deliver a prospectus in accordance with the
intended methods of disposition by the sellers of such Shares set forth in such
Registration Statement or supplement to such prospectus;
(c) furnish to each Designated Holder that owns Registrable Securities
covered by such Registration Statement (the "Registering Stockholders") and the
-------------------------
managing underwriter, if any, prior to the filing of a Registration Statement,
copies of such Registration Statement as is proposed to be filed, and thereafter
such number of copies of the Registration Statement, each amendment and
supplement thereto (in each case including all exhibits thereto), such number of
copies of the prospectus contained in such Registration Statement (including
each preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, as may reasonably be requested by
such Registering Stockholder;
(d) use all reasonable efforts to (i) register or qualify all
Registrable Securities covered by such Registration Statement under the
securities or "blue sky" laws of such jurisdiction where an exemption is not
available as the Registering Stockholders shall reasonably request, (ii) keep
such registration or qualification in effect for so long as such Registration
Statement remains in effect and (iii) take any other action which may be
reasonably necessary or advisable to enable the Registering Stockholders to
consummate the disposition in such jurisdictions of such Registrable Securities;
provided, however, that the Company shall not be required to qualify generally
- -------- -------
to do business in any jurisdiction where it is not then so qualified, subject
itself to taxation in any such jurisdiction or take any action which would
subject it to general service of process in any such jurisdiction;
(e) notify the Registering Stockholders, the managing underwriter, if
any, and their respective counsels promptly, and confirm such advice in writing
(i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed and, with respect to a Registration Statement or any post-
effective amendment, when the same has become effective, (ii) of any request by
the Commission for amendments or supplements to a Registration Statement or
related prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, (v) of the
happening of any event or information becoming known which requires the making
of any changes in a Registration Statement or related prospectus so that such
documents will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
<PAGE>
statements therein not misleading and (vi) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification of any of the registered Shares for sale in any
jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)(v)
above, prepare a supplement or post-effective amendment to the applicable
Registration Statement or related prospectus or and document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the securities being sold thereunder, such
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading;
(h) use its best efforts to furnish to the Registering Stockholders a
signed counterpart, addressed to the Registering Stockholders and the
underwriters, if any of (i) an opinion of counsel for the Company and (ii) a
"comfort" letter, signed by the independent public accountants who have
certified the Company's financial statements included or incorporated by
reference in such Registration Statement, covering substantially the same
matters with respect to such Registration Statement (and the prospectus included
therein) and, in the case of the accountant's letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities (and dated the dates
such opinions and comfort letters are customarily dated) and, in the case of the
accountant's letter, such other financial matters, and in the case of the legal
opinion, such other legal matters, as the Registering Stockholders or the
underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to the Registering
Stockholders an earnings statement satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 promulgated thereunder, no later than ninety
(90) days after the end of any 12-month period beginning after the effective
date of a Registration Statement pursuant to which the Shares are sold, which
statement shall cover such 12-month period;
(j) cooperate with the Registering Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing the Registrable Securities to be sold; and enable such
Registrable Securities to be in such denominations and registered in such names
as the Registering Stockholders or the managing underwriters, if any, may
request at least two Business Days prior to any sale of the Registrable
Securities to the underwriters;
<PAGE>
(k) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the Registering Stockholder(s) or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(l) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange, if any, on which securities
of such class, series and form issued by the Company, if any, are then listed if
requested by the managing underwriters, if any, or the holders of a majority of
the Registrable Securities covered by the Registration Statement and entitled
hereunder to be so listed;
(m) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter" that is required
to be retained in accordance with the rules and regulations of the NASD);
(n) as soon as practicable prior to the filing of any document which
is to be incorporated by reference into the Registration Statement or the
prospectus (after initial filing of the Registration Statement) provide copies
of such document to counsel to the Registering Stockholders and to the managing
underwriters, if any, and make the Company's representatives available for
discussion of such document and consider in good faith making such changes in
such document prior to the filing thereof as counsel for such Registering
Stockholders or underwriters may reasonably request; and
(o) use its reasonable efforts to take any other steps necessary to
effect the registration contemplated by Sections 3 and 4.
The Company may require that each Registering Stockholder furnish to
the Company such information regarding such Registering Stockholder and the
distribution of such Registrable Securities as the Company may from time to time
reasonably request in writing in order to comply with the Securities Act.
The Registering Stockholders agree that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
5(e)(ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue
disposition pursuant to such Registration Statement of any Registrable
Securities covered by such Registration Statement or prospectus until their
receipt of the copies of the supplemented or amended prospectus relating to such
Registration Statement or prospectus or until they are advised in writing by the
Company that the use of the applicable prospectus may be resumed (and the
Company shall extend the period during which such Registration Statement shall
be maintained effective so that the period of such discontinuance shall be
excluded from the calculation of the period specified in clause (x) of Section
5(a)) and, if so directed by the Company, will deliver to the Company (at the
<PAGE>
Company's expense), all copies, other than permanent file copies then in their
possession, of the prospectus covering such Registrable Securities in effect at
the time of receipt of such notice. The Registering Stockholders agree to
furnish the Company a signed counterpart, addressed to the Company and the
underwriters, if any, of an opinion of counsel for the Registering Stockholders
covering substantially the same matters with respect to such Registration
Statement (and the prospectus included therein) as are customarily covered in
opinions of selling stockholder's counsel delivered to the underwriters in
underwritten public offerings of securities (and dated the dates such opinions
are customarily dated) and such other legal matters as the Company or the
underwriters may reasonably request.
6. Underwritten Offerings.
----------------------
(a) Demand Underwritten Offerings. In any Demand Registration
-----------------------------
pursuant to Section 3, the Company shall use its best efforts to enter into an
underwriting agreement for such offering with the underwriters selected by the
Demand Stockholder (which underwriters shall be investment banking firms of
national reputation), such underwriters to be reasonably satisfactory to the
Company and such agreement to be reasonably satisfactory in form and substance
to the Company, the Demand Stockholder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
customary in underwriting agreements. The Registering Stockholders who hold
Registrable Securities to be distributed by such underwriters shall be parties
to such underwriting agreement and may, at their option, require that any or all
of the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of them and that any or all of the conditions precedent
to the obligations of such underwriters under such underwriting agreement be
conditions precedent to their obligations. The Company may, at its option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Registering Stockholders to and for the benefit
of such underwriters shall also be made to and for the benefit of the Company
with due regard to the amount of Registrable Securities being sold by such
Registering Stockholder and the nature of such representations, warranties and
agreements and the underwriting.
(b) Incidental Underwritten Offerings. If the Company at any time
---------------------------------
proposes to register any shares of Common Stock as contemplated by Section 4 and
such shares of Common Stock are to be distributed by or through one or more
underwriters, the Company and the Registering Stockholders who hold shares of
Common Stock to be distributed by such underwriters in accordance with Section 4
hereof shall be parties to the underwriting agreement between the Company and
such underwriters (which underwriters shall be investment banking firms of
national reputation and the same underwriters, if any, who underwrite the
distribution of the shares of Common Stock for the account of the Company and/or
Persons whose shares of Common Stock are covered by such Registration Statement)
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
<PAGE>
them and that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to their
obligations. The Company may, at its option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Registering Stockholders to and for the benefit of such underwriters shall also
be made to and for the benefit of the Company with due regard to the amount of
Registrable Securities being sold by such Registering Stockholder and the nature
of such representations, warranties and agreements and the underwriting.
7. Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each Registration Statement pursuant to this
Agreement, the Company shall (a) provide the Registering Stockholders, the
underwriters and their respective counsels and accountants the opportunity (but
such Persons shall not have the obligation) to participate in the preparation of
such Registration Statement, each prospectus included therein or filed with the
Commission, and, to the extent practicable, each amendment thereof or supplement
thereto, and shall give each of them such access to its books and records (to
the extent customarily given to the underwriters of the Company's securities),
(b) keep such counsel advised in writing as to the initiation and progress of
any registration under Sections 3 and 4 and (c) provide such opportunities to
discuss the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of the Registering Stockholders' and the underwriters' respective
outside counsel, to conduct a reasonable investigation within the meaning of the
Securities Act, including, without limitation, making available for inspection
all financial and other records, pertinent corporate documents of the Company
and the Subsidiaries to the extent reasonably necessary to enable the
Registering Stockholders, the underwriters and their respective counsel and
accountants to conduct such investigation.
8. Limitations, Conditions and Qualifications to Obligations under
---------------------------------------------------------------
Registration Covenants. The obligations of the Company use its reasonable
- ----------------------
efforts to cause the Registrable Securities to be registered under the
Securities Act are subject to each of the following limitations, conditions and
qualifications:
(a) The Company shall be entitled to postpone for a reasonable period
of time the filing or effectiveness of, or suspend the rights of Registering
Stockholders to make sales pursuant to, any Registration Statement otherwise
required to be prepared, filed and made and kept effective by it hereunder (but
the duration of such postponement or suspension may not exceed the earlier to
occur of (i) fifteen (15) days after the cessation of the circumstances
described in clauses (x) and (y) below and (ii) 120 days after the date of the
determination of the Board of Directors referred to below, and the duration of
such postponement or suspension shall be excluded from the calculation of the
period specified in clause (x) of Section 5(a) during which such Registration
Statement shall be maintained effective) if the Board of Directors determines in
good faith that (x) there is a material undisclosed development in the business
or affairs of the Company (including any pending or proposed financing,
<PAGE>
recapitalization, acquisition or disposition), the disclosure of which at such
time could be materially adverse to the Company's interests or (y) the Company
has filed a Registration Statement with the Commission, such Registration
Statement has not yet been declared effective, the Company is using its best
efforts to have such Registration Statement declared effective and the
underwriters with respect to such registration advise that such registration
would be materially adversely affected; provided, however, that the Company
-------- -------
shall not be entitled to cause any such suspension or postponement pursuant to
this Section 8(a) more than twice in any one-year period. If the Company shall
so delay the filing of a Registration Statement, it shall, as promptly as
possible, notify the Registering Stockholders of such determination, and the
Registering Stockholders shall have the right (A) in the case of a postponement
of the filing or effectiveness of a Registration Statement, to withdraw the
request for registration by giving written notice to the Company within ten (10)
days after receipt of the Company's notice or (B) in the case of a suspension of
the right to make sales, to receive an extension of the registration period
equal to the number of days of the suspension; provided, however, that if the
-------- -------
Registration Statement described in subsection (A) of this sentence was filed by
the Company after a request for a Demand Registration pursuant to Section 3,
then such request shall not count as a Demand Registration under Section 3 if
such Requesting Stockholder withdraws such request in accordance with subsection
(A) of this sentence.
(b) The Company shall not be required hereby to include Registrable
Securities in a Registration Statement if, in the written opinion of outside
counsel to the Company of recognized standing in securities law matters, the
beneficial owners of such Registrable Securities seeking registration would be
free to sell all of such Registrable Securities within the current calendar
quarter without registration under Rule 144.
(c) The Company's obligations shall be subject to the obligations of
the Registering Stockholders, which the Registering Stockholders acknowledge, to
furnish all information and materials and to take any and all actions as may be
required under applicable federal and state securities laws and regulations to
permit the Company to comply with all applicable requirements of the Commission
and to obtain any acceleration of the effective date of such Registration
Statement.
(d) The Company shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
9. Custody Agreement and Power of Attorney. Each of the Demand
---------------------------------------
Stockholders and the Incidental Stockholders shall, if requested by the Company,
execute and deliver a custody agreement and power of attorney, in form and
substance reasonably satisfactory to the Company relating to such Designated
Holder's Registrable Securities to be registered pursuant to this Agreement (a
"Custody Agreement and Power of Attorney"). The Custody Agreement and Power of
- ----------------------------------------
Attorney shall provide, among other things, that the Demand Stockholders and the
Incidental Stockholders, as the case may be, shall deliver to and deposit in
custody with the custodian and attorney-in-fact named therein a certificate or
<PAGE>
certificates representing such Registrable Securities (duly endorsed in blank by
the registered owner or owners thereof or accompanied by duly executed stock
power in blank) and irrevocably appoint said custodian and attorney-in-fact as
such Designated Holder's agent and attorney-in-fact with full power and
authority to act under the Custody Agreement and Power of Attorney on such
Designated Holder's behalf with respect to the matters specified therein. Such
Demand Stockholder or Incidental Stockholder, as the case may be, shall also
execute such other agreements as the Company may reasonably request to further
evidence the provisions of this Section 9.
10. Expenses. The Company shall pay all reasonable out-of pocket costs
--------
and expenses incurred in connection with each registration of Registrable
Securities pursuant to this Agreement, including, without limitation, (a) the
reasonable fees and disbursements of a single firm of outside counsel retained
by the Registering Stockholders which beneficially own a majority of the total
number of Registrable Securities being registered by the Registering
Stockholders (the "Majority Registering Stockholders"), (b) any and all filing
---------------------------------
fees payable to the Commission, fees with respect to filings required to be made
with stock exchanges, NASDAQ and the NASD, (c) fees and expenses of compliance
with state securities or blue sky laws (including reasonable fees and
disbursements of a single firm of outside counsel for each of (i) the
underwriters and (ii) the Majority Registering Stockholders in connection with
blue sky qualifications of Shares being registered and determination of its
eligibility for investment under the laws of such jurisdictions as the
Registering Stockholders may designate), (d) printing, messenger and delivery
expenses, and (e) fees, charges and disbursements of counsel and accountants of
the Company, including costs associated with comfort letters, and fees and
expenses of other Persons retained by the Company, but excluding underwriters'
expenses (including discounts, commissions or fees (and expenses included
therein) of underwriters and selling brokers, dealer managers or similar
securities industry professionals relating to the distribution of the securities
being registered or legal expenses of any Person other than the Company and the
Registering Stockholders) but including the fees and expenses of any qualified
independent underwriter required to participate in such registration pursuant to
applicable law or the requirements of the NASD. The Company shall, in any event
in all cases, pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), and the expense of securities law liability insurance and
rating agency fees, if any.
11. Hold-Back.
---------
(a) Each Designated Holder of Registrable Securities included in a
Registration Statement hereunder agrees not to effect any public sale or
distribution of Registrable Securities up to thirty (30) days prior to, and up
to 180 days following, the effective date of such Registration Statement, if and
to the extent requested by the Company or by the managing underwriter or
underwriters of such registration.
(b) The Company agrees not to effect any public sale or distribution
of any of its securities for its own account (except pursuant to registrations
on Form S-4 or S-8 or any equivalent form then in effect) during the ninety (90)
<PAGE>
day period beginning on the effective date of any Registration Statement in
which the General Atlantic Stockholders are participating as a result of a
Demand Registration pursuant to Section 3 hereof.
12. Indemnity.
---------
(a) Indemnification by the Company. In the case of any registration
------------------------------
of Registrable Securities pursuant to this Agreement, the Company will indemnify
and hold harmless each Designated Holder under Sections 3 and 4 hereof (each
referred to individually as an "Indemnitee"), and any Person who controls such
----------
Indemnitee or underwriter within the meaning of Section 15 of the Securities
Act, against all claims, losses, damages, liabilities and expenses
(collectively, "Losses") resulting from any untrue statement or allegedly untrue
------
statement of a material fact contained in any Registration Statement,
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or from any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in light of the circumstances under
which they were made) not misleading, except insofar as the same (i) may have
been based upon information concerning such Indemnitee furnished in writing to
the Company by such Indemnitee or such underwriter expressly for use therein and
used in accordance with such writing, (ii) may have been based upon the failure
of the underwriter to send or give a copy of the final prospectus (or any
amendment or supplement thereto) to the Person asserting the untrue statement or
omission or alleged omission at or prior to the sale of the Registrable
Securities to such Person if such statement was corrected in the final
prospectus or (iii) arise in respect of any offers to sell or sales of Demand
Shares or Incidental Shares, as the case may be, made during any period when
such Indemnitee is required to discontinue sales under Section 5(e) after such
Indemnitee has received the notice contemplated by Section 5(e).
(b) Indemnification by the Designated Holders. Each Indemnitee, by
-----------------------------------------
acceptance of the provisions herein, agrees to furnish to the Company such
information concerning such Indemnitee and the proposed sale or distribution as
shall, in the opinion of counsel for the Company, be necessary in connection
with any such registration or qualification of any Demand Shares or Incidental
Shares, and to indemnify and hold harmless the Company, its officers, directors,
employees and agents and each of its underwriters (and any Person who controls
the Company or such underwriters within the meaning of Section 15 of the
Securities Act) against all Losses resulting from any untrue statement or
allegedly untrue statement of a material fact furnished in writing by such
Indemnitee to the Company or to any underwriter of Registrable Securities sold
by such Indemnitee, expressly for use in connection with such registration or
qualification and used in accordance with such writing and from any omission
therefrom or alleged omission therefrom of a material fact needed to be
furnished or necessary to make the statements therein (in light of the
<PAGE>
circumstances under which they were made) not misleading, except insofar as the
same may have been based on information furnished in writing to the Company by
such Indemnitee or to such underwriter expressly for use therein and used in
accordance with such writing, but not insofar as the same may have been based on
the failure of the underwriter to send or give a copy of the final prospectus
(or any amendment or supplement thereto) to the Person asserting the untrue
statement or omission or alleged omission at or prior to the sale of the Shares
to such person if such statement was corrected in the final prospectus;
provided, however, that in no event shall the total amount to be indemnified by
- -------- -------
such Indemnitee under this Section 12(b) be greater than the net proceeds
actually received by such Indemnitee upon the sale of the Demand Shares or the
Incidental Shares, as the case may be, giving rise to the indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Any Indemnitee entitled
--------------------------------------
to indemnification hereunder shall give prompt notice to the indemnifying party
of any action, suit, proceeding, investigation or threat thereof (each, a
"Claim") with respect to which such Indemnitee shall seek indemnification and
-----
shall permit such indemnifying party to assume the defense of such Claim with
counsel reasonably satisfactory to the Indemnitee; provided, however, that the
-------- -------
failure to so notify the indemnifying party shall not relieve the indemnifying
party of any liability that it may have to the Indemnitee hereunder except to
the extent that such failure prejudices the indemnifying party's substantive
rights or defenses. The indemnifying party shall be entitled to participate in
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense of such Claim, at its own expense,
with counsel chosen by it and satisfactory to such Indemnitee; provided,
--------
however, that any Person entitled to indemnification hereunder shall have the
- -------
right to employ separate counsel and to participate in the defense of such
Claim, but the fees and expenses of such counsel shall be at the expense of such
Indemnitee unless (i) the indemnifying party shall have agreed to pay such fees
or expenses, (ii) the indemnifying party shall have failed to assume the defense
of such Claim and employ counsel reasonably satisfactory to such Person or (iii)
in the opinion of outside counsel to such Person, there may be one or more legal
defenses available to such Person which are different from or in addition to
those available to the indemnifying party with respect to such Claim (in which
case, if the Person notifies the indemnifying party in writing that such Person
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such Claim
on behalf of such Person). If such defense is not assumed by the indemnifying
party, then the indemnifying party shall not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). No Indemnitee shall be required to consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnitee of a written
release in form and substance reasonably satisfactory to such Indemnitee from
all liability in respect of such Claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of a Claim shall not be
obligated to pay the fees and expenses of more than one firm of counsel (and, if
necessary, local counsel) for all Indemnities with respect to such Claim, unless
in the written opinion of outside counsel to an Indemnitee a conflict of
interest as to the subject matter exists between such Indemnitee and another
<PAGE>
Indemnitee with respect to such Claim, in event the indemnifying party shall be
obligated to pay the fees and expenses of additional counsel for such
Indemnitee.
(d) Contribution. If for any reason the indemnification provided for
------------
in this Section 12 is unavailable to an Indemnitee in respect of any Loss as
contemplated hereby, then the indemnifying party shall contribute to the amount
paid or payable by the Indemnitee as a result of such Loss in such proportion as
is appropriate to reflect not only the relative benefits received by the
Indemnitee and the indemnifying party, but also the relative fault of the
Indemnitee and the indemnifying party, as well as any other relevant equitable
considerations; provided, however, that in no event shall the total amount to be
-------- -------
contributed and indemnified by such Indemnitee exceed, in the aggregate, the net
proceeds received by such Registering Stockholder upon the sale of the Demand
Shares or the Incidental Shares, as the case may be, giving rise to such
indemnification and contribution obligation. The amount paid or payable as a
result of such Loss referred to above shall be deemed to include, subject to the
limitations set forth in subsections (a), (b) and (c) of this Section 12, any
legal or other fees, charges or expenses reasonably incurred by such party in
connection with in any investigation or proceeding.
13. Participation in Underwritten Registrations. No Designated Holder may
-------------------------------------------
participate in any underwritten registration hereunder unless (a) such
Designated Holder agrees to sell its Registrable Securities on the basis
provided in and in compliance with any underwriting arrangements approved by the
Persons entitled hereunder to approve such arrangements and to comply with Rules
10b-6 and l0b-7 under the Exchange Act and (b) completes and executes all
questionnaires, appropriate and limited powers of attorney, escrow agreements,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements; provided that all such
--------
documents shall be consistent with the provisions hereof.
14. Rule 144. The Company hereby covenants that after it has filed (and
--------
such Registration Statement has become effective) a Registration Statement
pursuant to the requirements of Section 12 of the Exchange Act or a Registration
Statement pursuant to the requirements of the Securities Act in respect of any
Shares, the Company shall file in a timely manner all reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, it shall, upon the request of any Stockholder
make publicly available other information so long as necessary to permit sales
by such Stockholder under Rule 144) and shall take such further action as any
Stockholder may reasonably request to the extent required from time to time to
enable such Stockholder to sell its or his Shares under Rule 144.
15. Recapitalizations, Exchanges, etc. The provisions of this Agreement
---------------------------------
shall apply, to the full extent set forth herein with respect to (a) the shares
of Common Stock and (b) to any and all equity securities of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in conversion of, in
<PAGE>
exchange for or in substitution of, the shares of Common Stock and shall be
appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
16. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company shall not enter into any
--------------------------
agreement with respect to its securities that is inconsistent with the rights
granted to the Designated Holders in this Agreement or grant any additional
registration rights to any Person or with respect to any securities which are
not Registrable Securities which are prior in right to or inconsistent with the
rights granted in this Agreement.
(b) Remedies. The Designated Holders, in addition to being entitled
--------
to exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of their rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive in any action for specific performance the defense
that a remedy at law would be adequate.
(c) Amendments and Waivers.
----------------------
(i) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the parties
hereto at law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party from the terms of any provision of
this Agreement, shall be effective (x) only if it is made or given in writing
and signed by the Designated Holders holding (after giving effect to any
adjustments) 60% of the shares of Common Stock (assuming conversion, exercise or
exchange of all securities or obligations convertible, exerciseable or
exchangeable for shares of Common Stock) and (y) only in the specific instance
and for the specific purpose for which made or given; provided, however, that
-------- -------
any such amendment, supplement or modification to this Agreement shall not be
effective to withdraw, deny or adversely affect the rights of any Designated
Holders who has not consented in writing to such amendment, supplement or
modification; and provided further, that any amendment which adversely affects
the Company or imposes an additional obligation thereon must be approved in
writing by the Company.
(d) Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be made by
registered or certified first-class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
<PAGE>
(i) if to the Company:
LHS Group Holding Corporation
115 West Perimeter Center Place
Atlanta, Georgia 30346
Attention: Hartmut Lademacher
Telecopy: (770) 671-9791
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: George R. Krouse, Jr., Esq.
Telecopy: (212) 455-2505
(ii) if to the General Atlantic Stockholders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Attention: Stephen P. Reynolds
Telecopy: (203) 622-8818
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew Nimetz, Esq.
Telecopy: (212) 757-3990
(iii) if to the Major Stockholders:
c/o LHS Group Holding Corporation
115 West Perimeter Center Place
Atlanta, Georgia 30346
Attention: Hartmut Lademacher
Telecopy: (770) 671-9791
<PAGE>
with a copy to:
LHS Specifications KG
Theodor-Heuss-Ring 52
D 63128 Dietzenbach
Federal Republic of Germany
Attention: Otto Wipprecht
Telecopy: 6074-831-199
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: George R. Krouse, Jr., Esq.
Telecopy: (212) 455-2502
(iv) if to any other Designated Holder, at its address
as it appears on the record books of the
Company.
All such notices and communications shall be deemed to have been duly given
when delivered by had, if personally delivered; when delivered by courier or
overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied.
(e) Successors and Assigns; Third Party Beneficiaries. This Agreement
-------------------------------------------------
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
<PAGE>
(i) Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired.
(j) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
in the Stock Purchase Agreement and the Amended and Restated Stockholders
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
(k) Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Agreement on the date first written above.
LHS GROUP HOLDING CORPORATION
By: /s/ Hartmut Lademacher
----------------------
Name: Hartmut Lademacher
Title: CEO
GENERAL ATLANTIC PARTNERS 23, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its General Partner
By: /s/ Stephen P. Reynolds
-----------------------
Name: Stephen P. Reynolds
Title: A Managing Member
GENERAL ATLANTIC PARTNERS 31, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC
Its General Partner
By: /s/ Stephen P. Reynolds
-----------------------
Name: Stephen P. Reynolds
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Stephen P. Reynolds
-----------------------
Name: Stephen P. Reynolds
Title: A General Partner
<PAGE>
MAJOR STOCKHOLDERS
/s/ Joachim Hertel
------------------
Joachim Hertel
/s/ Hartmut Lademacher
----------------------
Hartmut Lademacher
/s/ Manfred Hellwig
-------------------
Manfred Hellwig
/s/ Rainer Zimmerman
--------------------
Rainer Zimmerman
/s/ Eberhard Czempiel
---------------------
Eberhard Czempiel
/s/ Otto Wipprecht
------------------
Otto Wipprecht
/s/ Jurgen Spengler
-------------------
Jurgen Spengler
/s/ William Bobb
----------------
William Bobb
/s/ Wolf Gaede
--------------
Wolf Gaede
<PAGE>
Schedule 1
----------
Major Stockholders
------------------
Joachim Hertel
Hartmut Lademacher
Manfred Hellwig
Rainer Zimmerman
Eberhard Czempiel
Otto Wipprecht
Jurgen Spengler
William Bobb
Wolf Gaede
<PAGE>
EXHIBIT 10.5
BHF-BANK
Stock Corporation
Frankfurt Branch
(address illegible)
The box in the middle is simply a date stamp,
indicating that LHS received this document
on March 15, 1996 and includes standard
boxes for "for your information", "for your
comments", etc.
Confidential
- ------------
LHS Holding Germany, GmbH (Limited Liability Company) March 14, 1996
ATTN: Mr. Lademacher, Manager Frankfurt Branch
Theodor-Heuss-Ring 52 Telephone 069/718-
63128 Dietzenbach 3115
Account No. 26 048405
Dear Mr. Lademacher,
In accordance with the conversations conducted with Mr. Barta, we gladly confirm
that we are prepared to make available to LHS Holding Company Germany GmbH,
until February 28, 1997, a cash credit line in the amount of:
DM5,000,000.00
(in words: five million German marks)
The existing credit allowance vis-a-vis LH Specifications Software
Projektberatungs-gesellschaft (project consulting company) (limited liability)
is to be dropped.
The cash credit line can also be used, within the credit time duration, as a
bank guarantee and, to the extent demonstrable, as a term loan of Eurofunds.
For withdrawals against the credit line, we calculate, according to a monthly
statement, interest of 8% (annual rate) on the outstanding balance. In
addition, we receive a fee in the amount of .5% (annual rate) calculated on the
entire credit line available for the agreed upon duration after the credit
contract is signed. The interest is due at the end of each statement period.
The interest rate will vary according to the market rate.
<PAGE>
For contracts of guarantee (surety), we receive a fee in the amount of 1.5%
(annual rate) payable in advance of the time period for the guarantee.
BHF BANK Stock Corporation
Frankfurt Branch
Page 2
The conditions for a term loan of Eurofunds are in accordance with the situation
of the market, and we will discuss them with you on a case-by-case basis.
For the expenses we incur in structuring this entire transaction, we agree that
we will charge you a one-time processing fee in the amount 1% of the credit line
after execution of the contract.
The existing guarantee contracts of LHS Projects GmbH (Malaysian Ringgit
176,000.00 Performance/Bond via NL Singapore) as well as of LH Specifications
GmbH (US$ 500,000.00 vis-a-vis Bank South , Atlanta w/ LHS Commun. Systems,
Atlanta plus DM 63, 276.50 rent guarantee) we will reconcile (credit against)
the credit line (i.e., you will be liable, in relation to any current guarantee
contract providers, for any claims they may have for compensation for expenses
resulting from those existing contracts).
The existing debit and credit balances of all of the accounts of LH
Specifications Software Projektberatungsgesellschaft mbH (Project Consulting
Company, ltd. liability), LHS Voice Data GmbH, LHS Service GmbH, LHS Projekts
GmbH, LHS Communications Systems Inc., LHS AG (Stock Corporation), and LHS
Lademacher and Hertel Software Lizenze (license) AG (Stock Corporation) will be
pooled together daily into the Central Account of LHS Holding Germany GmbH in
accordance with a Cash-Management Agreement. For this purpose, you should
legally (notarize) sign the Cash-Management contracts of the participating
entities and send them to us.
According to separate agreements based on the standard (general) conditions and
terms, we receive the following surety for the credit line from:
- - The guarantee agreement with LHS Group Holding Corp., Atlanta/USA, and
- - The guarantee of LHS Europe Ltd., London/Great Britain
in the amount of the admitted cash credit line.
You will receive the required documents for the surety of the credit in the next
few days via a separate mailing from our Security Department.
You are prohibited, until repatriation of this credit, from providing
security/surety, for other creditors, that is already dedicated to the credit
listed above. Moreover, you assume the duty of making sure that no entities of
which you own a majority share provide surety, for creditors, that is already
-2-
<PAGE>
dedicated to the credit listed above. These duties do not refer to the usual
trade practices because of standard (general) bank conditions and terms of the
bank.
BHF BANK Stock Corporation
Frankfurt Branch
Page 3
You should inform us immediately should a third party entity, of which you do
not own a majority percentage, provide or have provided, security for the same
credit, as soon as you have received knowledge of the provision.
In the case that you intend to provide security/surety, for other creditors,
that is already dedicated to the credit listed above, you must immediately, and
in any case before offering such security, inform us so that we may have the
opportunity to offer corresponding security. If we demand it, you must refrain
from offering such security, or offer us security of the same kind.
In offering this credit, we make as a condition that future LHS-Group entities
that are daughter companies, directly or indirectly, of LHS Holding Germany GmbH
will make no separate credit agreements of their own.
As regards (S) 18 of the Credit System Law, you are bound to provide once a year
for our inspection up-to-date, audited financial statements (both consolidated
and unconsolidated), by September 30 at the latest, of LHS Group Holding Corp.,
Atlanta, LHS Europe Ltd., London, and LHS Holding Germany GmbH. In addition, we
request semi-annual reports on the financial status of the LHS Group. We
promise the utmost confidentiality in handling these reports. For completeness,
of the documents we agree, that you will make available to us an up-to-date
summary from the commercial registry of LHS Holding Germany GmbH.
We are pleased to be able to offer you credit, and we hope that we will continue
to have an amiable relationship. Finally, we request, as a sign of your
agreement with this contract, that you legally sign (notarize) this contract on
the next page, include your company stamp, and send it to us. We remain,
with regards,
BHF BANK Stock Corporation
Frankfurt Branch
Braehler Muench
-3-
<PAGE>
I declare that I am in agreement with the contents of this document.
the-19th of March 1996
- ------------------------------------
/s/
- -----------------------------------------------------------
Firm Stamp, Date, Signature
Pursuant to Rule 306 of Regulation S-T, on behalf of LHS Group, Inc., I
hereby certify that this is a fair and accurate English translation of this
document.
/s/ Jerry W. Braxton
----------------------------------------
Executive Vice President-
Chief Financial Officer
-4-
<PAGE>
EXHIBIT 10.6
Form of
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made and entered into this ___
day of February 1997 between LHS Group Inc. (hereinafter referred to as
"Employer") and Hartmut Lademacher (hereinafter referred to as "Employee").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained herein,
the parties hereby agree as follows:
1. EMPLOYMENT -- Employer agrees to employ Employee in the position of
----------
President and Chief Executive Officer. Employee accepts employment with
Employer upon the terms and conditions set forth in this Agreement. During the
term of this Agreement, Employee agrees to be a full-time employee of Employer
and devote his full and exclusive time, energy and skill to the business and
affairs of his employment with Employer.
2. TERM OF EMPLOYMENT -- This Agreement commences on the 1st day of
------------------
January 1997, and shall continue for a fixed period of three (3) years until the
31st day of December 1999. Thereafter, the Agreement may be terminated by
either party upon 90 days written notice to the other party or automatically
upon the disability or death of Employee. It is expressly understood and
agreed, however, that the covenants set forth in Paragraphs 5, 6, 7 and 8 shall
survive the termination of this Agreement.
3. COMPENSATION -- Employer agrees to pay Employee a salary of Five
------------
Hundred Forty Thousand Dollars ($540,000) per year. Employee's salary shall be
paid in twelve equal monthly payments at the end of each month. At the end of
1997, and at the end of each year thereafter, Employer, through its Board of
Directors or a duly authorized committee thereof, agrees to review Employee's
performance and adjust Employee's salary based on its assessment of his
performance.
4. EMPLOYEE BENEFITS -- Except as otherwise provided in this Agreement,
-----------------
Employee shall be entitled to participate in all employee welfare and benefit
programs, if any, maintained by Employer to the same extent and under the same
conditions as other employees of Employer. Employer will provide Employee with
an automobile. Employer will also fund Employee's existing pension plan with
_______ and will pay 100% of the premiums for a disability insurance policy.
<PAGE>
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
------------------------------------------
(a) Definitions --The following definitions shall apply to this
-----------
Agreement:
(ii) "Trade Secrets" means all secret, proprietary or confidential
information regarding Employer or its business, including any and all
information not generally known to, or ascertainable by, persons not employed by
Employer, the disclosure or knowledge of which would permit those persons to
derive actual or potential economic value therefrom or to cause economic or
financial harm to Employer. Such information shall include, but not be limited
to, financial information, strategic plans and forecasts, marketing plans and
forecasts, customer lists, mailing lists, computer software (including without
limitation, source code, object code and manuals), customer billing or order
information, technical information regarding Employer's products or services,
prices offered to or paid by customers, purchase and supply information, current
and future development and expansion or contraction plans of Employer, sales and
marketing plans and techniques, information concerning personnel assignments and
operations of Employer and matters concerning the financial affairs, future
plans and management of Employer. "Trade Secrets" shall not include information
that has become generally available to the public by the act of one who has the
right to disclose such information without violating a legal right of Employer.
(ii) "Confidential Information" means information, other than
Trade Secrets, which relates to Employer, Employer's activities, Employer's
business or Employer's suppliers or customers that is not generally known by
persons not employed by Employer and which is or has been disclosed to Employee
or of which Employee became aware as a consequence of or through his
relationship with Employer. "Confidential Information" shall not include
information that has become generally available to the public by the act of one
who has the right to disclose such information without violating any legal right
of Employer.
(iii) "Document" means originals or copies of handbooks, manuals,
files, memoranda, correspondence, notes, photographs, slides, overheads, audio
or visual tapes, cassettes, or disks, and records maintained on computer or
other electronic media.
(b) Covenant Regarding Non-Disclosure of Trade Secrets or Confidential
------------------------------------------------------------------
Information -- Employee covenants and agrees that: (i) during his employment
- -----------
with Employer he will not use or disclose any Trade Secrets or Confidential
Information of Employer other than as necessary in connection with the
performance of his duties as an employee of Employer; and (ii) for a period of
two (2) years immediately following the termination of his employment with
Employer, Employee shall not, directly or indirectly, transmit or disclose any
Trade Secret or Confidential Information of Employer to any person and shall not
make use of any such Trade Secret or Confidential Information, directly or
indirectly, for himself or others, without the prior written consent
-2-
<PAGE>
of Employer, except for a disclosure that is required by any law or order, in
which case Employee shall provide Employer prior written notice of such
requirement and an opportunity to contest such disclosure. However, to the
extent that such information is a "trade secret" as that term is defined under a
state or federal law, this Paragraph 5(b) is not intended to, and does not,
limit Employer's rights or remedies thereunder and the time period for
prohibition on disclosure for use of such information is until such information
becomes generally known to the public through the act of one who has the right
to disclose such information without violating a legal right of Employer.
(c) Return of Information -- Employee agrees that he shall return all
---------------------
Trade Secrets, Confidential Information or other property of Employer
immediately upon the termination of his employment with Employer, including all
handbooks, training materials, reports, policy statements, research, programs,
customer lists, mailing lists and other documents provided by Employer or
acquired by Employee as a result of his employment with Employer, and all copies
thereof.
6. INVENTIONS AND OTHER DEVELOPMENTS -- All inventions, formulas,
---------------------------------
techniques, processes, concepts, systems and programs, mailing lists and
customer lists and compilations, whether or not patented or patentable, made or
conceived, individually or in conjunction with others, by Employee during the
term of his employment with Employer that relate to activities or proposed
activities of Employer or that result from work performed by Employee for
Employer are the sole and exclusive property of Employer. Employee further
agrees that, upon request by Employer, he will assign title to any such
inventions, formulas, techniques, processes, concepts, systems and programs, and
lists and compilations to Employer and will sign any and all documents necessary
to effect such assignment.
7. NON-SOLICITATION OF CUSTOMERS COVENANT -- To protect the Trade Secrets,
--------------------------------------
Confidential Information and goodwill of Employer, Employee agrees that, during
his employment and for a period of one (1) year immediately following the
termination of his employment with Employer, he will not, without the prior
written permission of Employer, directly or indirectly, for himself or on behalf
of any other person, partnership, firm or corporation, solicit, divert away,
take away or attempt to solicit or take away any Customer, or Potential
Customer, of Employer for purposes of providing or selling products or services
that are competitive with those provided by Employer, if Employer is then still
engaged in the provision or sale of that type of good or service. For purposes
of this covenant, "Customer" means any individual or entity to whom Employer has
provided goods or services and with whom Employee had, alone or in conjunction
with others, Material Contact during the one (1) year prior to the termination
of Employee's employment and "Potential Customer" means any individual or entity
to whom Employer has actively sought to sell products or services within the one
(1) year immediately prior to the termination of Employee's employment and with
whom Employee had Material Contact on Employer's behalf during that same time
period. For purposes of this covenant, Employee had "Material Contact" with a
customer if (i) Employee had business dealings with the customer on Employer's
behalf; (ii) Employee
-3-
<PAGE>
was responsible for supervising or coordinating the dealings between the
customer and Employer; or (iii) Employee obtained Trade Secrets or Confidential
Information (such terms having the same meanings as defined in Paragraph 6
above, but in each case relating to the Customer or Potential Customer) about
the customer as a result of Employee's association with Employer.
8. NON-RECRUITMENT OF EMPLOYEES COVENANT -- Employee agrees that he will
-------------------------------------
not, for so long as he is employed by Employer, and for a period of one (1) year
immediately following the termination of his employment, solicit or induce, or
attempt to solicit or induce, any employee of the Employer to terminate his or
her relationship with Employer or to enter into an employment relationship with
Employee or with any other person or entity other than Employer.
9. MISCELLANEOUS
-------------
(a) Severability -- The invalidity or unenforceability of any
------------
particular provision of this Agreement shall not affect the other provisions of
this Agreement and this Agreement shall be construed in all respects as if such
invalid or unenforceable provision was omitted ab initio.
(b) Governing Law -- This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Georgia.
(c) Entire Agreement and Amendment -- This Agreement constitutes the
------------------------------
entire understanding between the parties with respect to the employment of
Employee by Employer and shall supersede any prior agreements and understandings
between Employee and Employer with respect to such subject matter, provided,
however, that this Agreement shall not be deemed to supersede the compensation
and payment terms of the employment agreement dated September 10, 1990 between
Employee and Employer's wholly-owned subsidiary LH Specifications GmbH, nor to
supersede or affect any other agreement, arrangement, commitment or
understanding by and between Employer and Employee not establishing or governing
the employment relationship between them. This Agreement may not be modified or
amended except in writing signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Employer: Employee:
LHS GROUP INC. HARTMUT LADEMACHER
By: By:
--------------------------------- ---------------------------------
Hartmut Lademacher
-4-
<PAGE>
EXHIBIT 10.7
Form of
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is made and entered into this ___
day of February 1997 between LHS Group Inc. (hereinafter referred to as
"Employer") and Dr. Joachim Hertel (hereinafter referred to as "Employee").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained herein,
the parties hereby agree as follows:
1. EMPLOYMENT -- Employer agrees to employ Employee in the position of
----------
Executive Vice President - Technology. Employee accepts employment with
Employer upon the terms and conditions set forth in this Agreement. During the
term of this Agreement, Employee agrees to be a full-time employee of Employer
and devote his full and exclusive time, energy and skill to the business and
affairs of his employment with Employer.
2. TERM OF EMPLOYMENT -- This Agreement commences on the 1st day of
------------------
January 1997, and shall continue for three (3) years until the 31st day of
December 1999 unless earlier terminated upon 90 days written notice by Employer
to Employee or automatically upon the disability or death of Employee. It is
expressly understood and agreed, however, that the covenants set forth in
Paragraphs 5, 6, 7 and 8 shall survive the termination of this Agreement.
3. COMPENSATION -- Employer agrees to pay Employee a salary of Four
------------
Hundred Eighty Thousand Dollars ($480,000) per year. Employee's salary shall be
paid in twelve equal monthly payments at the end of each month. At the end of
1997, and at the end of each year thereafter, Employer, through its Board of
Directors or a duly authorized committee thereof, agrees to review Employee's
performance and adjust Employee's salary based on its assessment of his
performance.
4. EMPLOYEE BENEFITS -- Except as otherwise provided in this Agreement,
-----------------
Employee shall be entitled to participate in all employee welfare and benefit
programs, if any, maintained by Employer to the same extent and under the same
conditions as other employees of Employer, except that Employee shall be
provided an automobile or automobile allowance as determined by the Board of
Directors or a duly authorized committee thereof.
<PAGE>
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
------------------------------------------
(a) Definitions --The following definitions shall apply to this
-----------
Agreement:
(ii) "Trade Secrets" means all secret, proprietary or confidential
information regarding Employer or its business, including any and all
information not generally known to, or ascertainable by, persons not employed by
Employer, the disclosure or knowledge of which would permit those persons to
derive actual or potential economic value therefrom or to cause economic or
financial harm to Employer. Such information shall include, but not be limited
to, financial information, strategic plans and forecasts, marketing plans and
forecasts, customer lists, mailing lists, computer software (including without
limitation, source code, object code and manuals), customer billing or order
information, technical information regarding Employer's products or services,
prices offered to or paid by customers, purchase and supply information, current
and future development and expansion or contraction plans of Employer, sales and
marketing plans and techniques, information concerning personnel assignments and
operations of Employer and matters concerning the financial affairs, future
plans and management of Employer. "Trade Secrets" shall not include information
that has become generally available to the public by the act of one who has the
right to disclose such information without violating a legal right of Employer.
(ii) "Confidential Information" means information, other than
Trade Secrets, which relates to Employer, Employer's activities, Employer's
business or Employer's suppliers or customers that is not generally known by
persons not employed by Employer and which is or has been disclosed to Employee
or of which Employee became aware as a consequence of or through his
relationship with Employer. "Confidential Information" shall not include
information that has become generally available to the public by the act of one
who has the right to disclose such information without violating any legal right
of Employer.
(iii) "Document" means originals or copies of handbooks, manuals,
files, memoranda, correspondence, notes, photographs, slides, overheads, audio
or visual tapes, cassettes, or disks, and records maintained on computer or
other electronic media.
(b) Covenant Regarding Non-Disclosure of Trade Secrets or Confidential
------------------------------------------------------------------
Information -- Employee covenants and agrees that: (i) during his employment
- -----------
with Employer he will not use or disclose any Trade Secrets or Confidential
Information of Employer other than as necessary in connection with the
performance of his duties as an employee of Employer; and (ii) for a period of
two (2) years immediately following the termination of his employment with
Employer, Employee shall not, directly or indirectly, transmit or disclose any
Trade Secret or Confidential Information of Employer to any person and shall not
make use of any such Trade Secret or Confidential Information, directly or
indirectly, for himself or others, without the prior written consent
-2-
<PAGE>
of Employer, except for a disclosure that is required by any law or order, in
which case Employee shall provide Employer prior written notice of such
requirement and an opportunity to contest such disclosure. However, to the
extent that such information is a "trade secret" as that term is defined under a
state or federal law, this Paragraph 5(b) is not intended to, and does not,
limit Employer's rights or remedies thereunder and the time period for
prohibition on disclosure for use of such information is until such information
becomes generally known to the public through the act of one who has the right
to disclose such information without violating a legal right of Employer.
(c) Return of Information -- Employee agrees that he shall return all
---------------------
Trade Secrets, Confidential Information or other property of Employer
immediately upon the termination of his employment with Employer, including all
handbooks, training materials, reports, policy statements, research, programs,
customer lists, mailing lists and other documents provided by Employer or
acquired by Employee as a result of his employment with Employer, and all copies
thereof.
6. INVENTIONS AND OTHER DEVELOPMENTS -- All inventions, formulas,
---------------------------------
techniques, processes, concepts, systems and programs, mailing lists and
customer lists and compilations, whether or not patented or patentable, made or
conceived, individually or in conjunction with others, by Employee during the
term of his employment with Employer that relate to activities or proposed
activities of Employer or that result from work performed by Employee for
Employer are the sole and exclusive property of Employer. Employee further
agrees that, upon request by Employer, he will assign title to any such
inventions, formulas, techniques, processes, concepts, systems and programs, and
lists and compilations to Employer and will sign any and all documents necessary
to effect such assignment.
7. NON-SOLICITATION OF CUSTOMERS COVENANT -- To protect the Trade Secrets,
--------------------------------------
Confidential Information and goodwill of Employer, Employee agrees that, during
his employment and for a period of one (1) year immediately following the
termination of his employment with Employer, he will not, without the prior
written permission of Employer, directly or indirectly, for himself or on behalf
of any other person, partnership, firm or corporation, solicit, divert away,
take away or attempt to solicit or take away any Customer, or Potential
Customer, of Employer for purposes of providing or selling products or services
that are competitive with those provided by Employer, if Employer is then still
engaged in the provision or sale of that type of good or service. For purposes
of this covenant, "Customer" means any individual or entity to whom Employer has
provided goods or services and with whom Employee had, alone or in conjunction
with others, Material Contact during the one (1) year prior to the termination
of Employee's employment and "Potential Customer" means any individual or entity
to whom Employer has actively sought to sell products or services within the one
(1) year immediately prior to the termination of Employee's employment and with
whom Employee had Material Contact on Employer's behalf during that same time
period. For purposes of this covenant, Employee had "Material Contact" with a
customer if (i) Employee had business dealings with the customer on Employer's
behalf; (ii) Employee
-3-
<PAGE>
was responsible for supervising or coordinating the dealings between the
customer and Employer; or (iii) Employee obtained Trade Secrets or Confidential
Information (such terms having the same meanings as defined in Paragraph 6
above, but in each case relating to the Customer or Potential Customer) about
the customer as a result of Employee's association with Employer.
8. NON-RECRUITMENT OF EMPLOYEES COVENANT -- Employee agrees that he will
-------------------------------------
not, for so long as he is employed by Employer, and for a period of one (1) year
immediately following the termination of his employment, solicit or induce, or
attempt to solicit or induce, any employee of the Employer to terminate his or
her relationship with Employer or to enter into an employment relationship with
Employee or with any other person or entity other than Employer.
9. MISCELLANEOUS
-------------
(a) Severability -- The invalidity or unenforceability of any
------------
particular provision of this Agreement shall not affect the other provisions of
this Agreement and this Agreement shall be construed in all respects as if such
invalid or unenforceable provision was omitted ab initio.
(b) Governing Law -- This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Georgia.
(c) Entire Agreement and Amendment -- This Agreement constitutes the
------------------------------
entire understanding between the parties with respect to the employment of
Employee by Employer and shall supersede any prior agreements and understandings
between Employee and Employer with respect to such subject matter, provided,
however, that this Agreement shall not be deemed to supersede the compensation
or payment terms of the employment agreement dated September 11, 1990 between
Employee and Employer's wholly-owned subsidiary LH Specifications GmbH, nor to
supersede or affect any other agreement, arrangement, commitment or
understanding by and between Employer and Employee not establishing or governing
the employment relationship between them. This Agreement may not be modified or
amended except in writing signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Employer: Employee:
LHS GROUP INC. DR. JOACHIM HERTEL
By: By:
------------------------------ ------------------------------
Dr. Joachim Hertel
-4-
<PAGE>
EXHIBIT 10.8
CONTRACT between LHS Holding Germany GmbH
and Erik Froberg
JOB DEFINITION
Responsibility for all LHS operations in Europe and Asia.
Member of the LHS board of directors. This agreement is not linked to the
aforementioned membership.
Stationed in Frankfurt, Germany.
The intention is, to move to the US after 2-3 years and manage the entire LHS
operations.
CONDITIONS
Salary: 650 TDM whereof:
500 TDM fixed
150 TDM bonus (100%)
Bonus: less than 80% - 0
80% - 75 TDM
90% - 112,5 TDM
100% - 150 TDM
110% - 275 TDM
120% - 400 TDM
For the first 6 months of employment the bonus will be fixed and paied at the
100% target.
VACATION: 30 days (6 weeks)
NOTICE FOR LEAVE: 12 months
START DATE: If possible 1st of August 96 or at a later date (as
soon as Erik Froberg is released from Cap
Programator), however not later than December 1,
1996.
<PAGE>
OPTIONS
Options included for a nominal value of 2 Mio. USD (appr. 2% of today's total
numbers of shares) resulting in 400.000 options at $5 each. The options can be
exercised between one and five years after employment starts according to the
LHS stock option plan.
EXPENSES
During the time Erik Froberg lives in Sweden, cost for travel to and from
Frankfurt will be payed by LHS, but only for a maximum of 6 months.
1-2 travels per week will be normal. Whenever possible to plan ahead they will
be done in coach. To go to and from the airport LHS will pay taxi, or 0,75
DM/km and parking costs. LHS will also pay for an overnight appartment in
Frankfurt. If Erik Froberg moves to Germany or the US, LHS will pay 75 TDM as
relocation costs, as a one time payment and provide Erik Froberg with a company
car, equal to a BMW 528.
OTHER CONDITIONS
LHS is willing to pay for professional help in order to find the most profitable
solution concerning Erik Froberg's tax situation. LHS is also willing to make
any necessary legal arrangement in order to minimize Erik Froberg's income
taxes.
This contract will be used to formulate a standard contract by representatives
of LHS and Erik Froberg as soon as possible, which will replace this contract.
Legal costs will be taken over by LHS.
Dietzenbach, 21st May 1996
/s/ Hartmut Lademacher /s/ Erik Froberg
- ---------------------- ----------------
Hartmut Lademacher Erik Froberg
<PAGE>
EXHIBIT 11.1
LHS GROUP INC.
COMPUTATION OF NET EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
-------- ------- -------
<S> <C> <C> <C>
Primary and fully diluted:
Weighted average shares of common stock and common stock
equivalents outstanding during the year (1)..... 8,664,712 14,341,644 20,000,000
Effect of common stock equivalents issued
subsequent to February 21, 1996 computed
in accordance with the treasury stock
method as required by the SEC (2)............... 1,913,370 1,913,370 1,913,370
----------- ----------- ----------
Total........................................ 10,578,082 16,255,014 21,913,370
========== =========== ===========
Net earnings....................................... $3,043,000 $ 284,000 $ 3,420,000
========== =========== ===========
Net earnings per share............................. $ 0.29 $ 0.02 $ 0.16
========== =========== ===========
</TABLE>
- --------
(1) Includes weighted average outstanding shares of Series A convertible
preferred stock, converted to common stock, as they are common stock
equivalents.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock and common sock equivalents issued at prices below the
assumed initial public offering price per share ("cheap stock") during the
twelve month period immediately preceding the initial filing date of the
Company's Registration Statement for its public offering have been included
as outstanding for all years presented prior to the initial public
offering.
<PAGE>
EXHIBIT 21.1
Subsidiaries
1. LHS Holding Germany GmbH
2. LHS Verwaltungs GmbH
3. LHS Verwaltungs GmbH & Co. Specification Softwareprojektberatungs KG (LH
Specification)
4. LHS Verwaltungs GmbH & Co. voice data Projektentwicklungs KG (LHS voice
data)
5. LHS Verwaltungs GmbH & Co. DV-Dienstleistungen KG (LHS Service)
6. LHS Verwaltungs GmbH & Co. Projekt KG zur Durchfuhrung von
Softwareprojekten (LHS Projects)
7. LHS Asia/Pacific Sdn Bhd
8. LHS Communications Systems Inc.
9. LHS Europe Ltd.
10. LHS International AG
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports dated
February 7, 1997, in the Registration Statement on Form S-1 and related
Prospectus of LHS Group Inc. for the registration of 5,883,000 shares of its
common stock.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<EXCHANGE-RATE> 1.0 1.0
<CASH> 4,289 10,200
<SECURITIES> 0 0
<RECEIVABLES> 28,488 8,240
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 35,282 19,464
<PP&E> 11,426 7,225
<DEPRECIATION> 4,304 3,054
<TOTAL-ASSETS> 43,819 24,462
<CURRENT-LIABILITIES> 30,134 14,130
<BONDS> 0 0
0 0
2 2
<COMMON> 156 155
<OTHER-SE> 12,167 9,776
<TOTAL-LIABILITY-AND-EQUITY> 43,819 24,462
<SALES> 56,864 26,967
<TOTAL-REVENUES> 56,864 26,967
<CGS> 19,107 9,653
<TOTAL-COSTS> 19,107 9,653
<OTHER-EXPENSES> 32,176 16,097
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 77 110
<INCOME-PRETAX> 5,504 1,107
<INCOME-TAX> 2,084 823
<INCOME-CONTINUING> 3,420 284
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,420 284
<EPS-PRIMARY> $.16 $.02
<EPS-DILUTED> $.16 $.02
</TABLE>
