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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TELEMATE.NET SOFTWARE, INC.
(Exact Name of Registrant as Specified in its Charter)
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<CAPTION>
GEORGIA 7372 58-1656726
<S> <C> <C>
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
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4250 PERIMETER PARK SOUTH, SUITE 200
ATLANTA, GEORGIA 30341
(770) 936-3700
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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RICHARD L. MAURO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELEMATE.NET SOFTWARE, INC.
4250 PERIMETER PARK SOUTH, SUITE 200
ATLANTA, GEORGIA 30341
(770) 936-3700
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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COPIES TO:
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JOHN C. YATES, ESQ.
LAUREN Z. BURNHAM, ESQ. IRA A. GREENSTEIN, ESQ.
JOHN A. EARLES, ESQ. JERROLD M. RAPAPORT, ESQ.
MORRIS, MANNING & MARTIN, L.L.P. MORRISON & FOERSTER LLP
1600 ATLANTA FINANCIAL CENTER 1290 AVENUE OF THE AMERICAS
3343 PEACHTREE ROAD, N.E. NEW YORK, NEW YORK 10104
ATLANTA, GEORGIA 30326 (212) 468-8000
(404) 233-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") please 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, please 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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PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES REGISTERED OFFERING PRICE(1) FEE(1)
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<S> <C> <C>
Common Stock $0.01 par value................... $60,000,000 $16,680
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL 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 SECTION 8(A), MAY
DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 24, 1999
SHARES
[COMPANY LOGO]
COMMON STOCK
This is an initial public offering of common stock by Telemate.Net
Software, Inc. Of the shares of common stock being sold in this
offering, we are selling shares and the selling shareholders are
selling shares. We will not receive any of the proceeds from the
sale of shares by the selling shareholders. The estimated initial public
offering price is between $ and $ per share.
There is no public market for the common stock. We have applied to have the
common stock approved for quotation on the Nasdaq Stock Market under the symbol
"TMNT."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.
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<CAPTION>
PER
SHARE TOTAL
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<S> <C> <C>
Initial public offering price.......................... $ $
Underwriting discounts................................. $ $
Proceeds to us, before expenses........................ $ $
Proceeds to the selling shareholders................... $ $
</TABLE>
The underwriters have an option for a period of 30 days to purchase a
maximum of additional shares to cover over-allotments of shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
SOUNDVIEW TECHNOLOGY GROUP
J.C. BRADFORD&CO.
THE ROBINSON-HUMPHREY COMPANY
Prospectus dated , 1999
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[ARTWORK]
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 5
Forward-looking Statements............ 12
Use of Proceeds....................... 13
Dividend Policy....................... 13
Dilution.............................. 14
Capitalization........................ 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
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PAGE
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Business.............................. 28
Management............................ 41
Certain Transactions.................. 47
Principal and Selling Shareholders.... 48
Description of Capital Stock.......... 50
Shares Eligible for Future Sale....... 52
Underwriting.......................... 54
Legal Matters......................... 56
Experts............................... 56
Additional Information................ 56
Index to Financial Statements......... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
---------------------------
Telemate(R) and Telemate.Net(R) are registered trademarks of Telemate.Net
Software, Inc. This prospectus also includes registered and unregistered
trademarks, service marks, trade names and references to intellectual property
owned by other companies. All trademarks, service marks and trade names
appearing herein that do not relate to our products and services are the
property of their respective holders. Without limiting the foregoing,
Microsoft(R) and SQL Server(TM) are trademarks of Microsoft Corporation.
---------------------
DEALER PROSPECTUS DELIVERY REQUIREMENT
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
This summary highlights only selected information contained elsewhere in
this prospectus. Before making an investment in Telemate.Net's common stock, you
should read the entire prospectus and the attached financial statements and
related notes. Unless otherwise noted, all information in this prospectus,
including share and per share information, assumes a three-for-one stock split,
in the form of a stock dividend, to be effected immediately prior to completion
of this offering. Also unless otherwise noted, the information in this
prospectus assumes the conversion of all outstanding shares of our Series A
Preferred Stock into 900,000 shares of common stock concurrently with the
completion of this offering and assumes the underwriters will not exercise their
over-allotment option.
OUR BUSINESS
Telemate.Net Software, Inc. is a leading provider of Internet usage
management and telephone call accounting solutions. Our Telemate.Net network
usage management product suite provides an integrated solution that enables
businesses to monitor, analyze and manage the use of both their Internet and
voice networks. We believe our patent-pending software is the first product to
integrate Internet usage management and call accounting capabilities.
We sell our products through a combination of direct sales, resellers and
strategic distribution and marketing partners. We have installed our products in
over 14,000 customer sites. Our customers represent all major commercial,
industrial and service categories, and include Arthur Andersen, AT&T, Avon,
British Broadcasting Corporation, Cox Communications, Eastman Kodak, Ericsson,
Georgia-Pacific, Merck, Philip Morris, PricewaterhouseCoopers, Sears Roebuck,
Tommy Hilfiger, and the U.S. Army.
MARKET TRENDS
The Internet has emerged as a rapidly growing global communications and
commerce medium. International Data Corporation estimates that the number of
Internet users worldwide will grow from approximately 97 million in 1998 to 320
million in 2002. While the Internet offers significant opportunities for
businesses, the use of the Internet involves certain business risks as well,
including the potential for employee abuse, reduced productivity, legal
liabilities, theft or loss of data, business interruption, excessive bandwidth
use and unnecessary expense. In addition, as businesses increasingly use the
Internet for marketing, electronic commerce, also known as e-commerce, and
customer service, managers need to understand how customers and business
partners are interacting with their businesses' web site.
The growth in Internet usage, along with emerging technologies,
deregulation and increasing competition in the telecommunications industry has
led to the convergence of voice and data networks. To address this converging
network environment, businesses seek management and reporting solutions that can
analyze network usage patterns and provide comprehensive, detailed reports that
enable companies to more effectively utilize their Internet and voice networks.
OUR PRODUCTS
Our Telemate.Net family of products enables businesses to optimize
bandwidth utilization, improve employee productivity, enhance network security,
improve e-commerce effectiveness, and control, allocate and recover network
costs. Our products enable:
- information technology managers to monitor network usage, resolve
bottlenecks and be alerted to security breaches
- financial officers to manage and allocate network costs
- human resources managers to monitor compliance with network use policies
and detect abuse
- sales managers to measure productivity of Internet and telephone-based
sales activities
- marketing managers to analyze the effectiveness of Internet marketing
campaigns
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Telemate.Net currently complements and enhances businesses' investments in
network and network security devices by rapidly extracting and translating the
large amount of network usage data they collect into meaningful management
reports. The flexibility of the Telemate.Net technology enables us to quickly
provide data collection and reformatting capabilities for additional network
devices.
OUR STRATEGY
Our objective is to capitalize on our expertise and leadership in call
accounting and early entry into Internet usage management to become the leading
provider of integrated network usage management software. Our strategy to
achieve this objective is to:
- extend our technology leadership to continue to adapt our solutions to
businesses' evolving network usage management needs
- rapidly expand our direct sales force to increase sales of our Internet
and integrated products
- increase sales to our large existing customer base
- strengthen and expand our strategic distribution and marketing
relationships
- expand our Internet marketing and e-commerce capabilities
Prior to 1997, our products only addressed businesses' call accounting
requirements. In mid-1997, we expanded our Telemate.Net product family by
introducing our Internet usage management solution, and in November 1998, we
introduced our integrated network usage management product.
The following table sets forth our call accounting and Internet/integrated
revenue information for the years ended December 31, 1996, 1997 and 1998 and the
three months ended March 31, 1998 and 1999:
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THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1996 1997 1998 1998 1999
------ ------ ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
Call accounting:
Product revenue................................. $3,785 $4,620 $ 4,479 $1,193 $ 995
Service revenue................................. 3,114 4,053 4,850 1,130 1,241
------ ------ ------- ------ ------
Total call accounting revenue................. 6,899 8,673 9,329 2,323 2,236
Internet/integrated:
Product revenue................................. -- 270 971 176 370
Service revenue................................. -- 5 82 8 52
------ ------ ------- ------ ------
Total Internet/integrated revenue............. -- 275 1,053 184 422
------ ------ ------- ------ ------
Total revenue.............................. $6,899 $8,948 $10,382 $2,507 $2,658
====== ====== ======= ====== ======
</TABLE>
ABOUT US
We incorporated in Georgia as Complementary Solutions, Inc. in 1986, and we
changed our name to Telemate Software, Inc. in 1995. In 1999, we changed our
name to Telemate.Net Software, Inc. Our executive offices are located at 4250
Perimeter Park South, Suite 200, Atlanta, Georgia 30341, and our telephone
number is (770) 936-3700.
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THE OFFERING
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Common stock offered by us................... shares
Common stock offered by selling
shareholders............................... shares
Common stock to be outstanding
after the offering......................... shares
Use of proceeds.............................. For the repayment of indebtedness, working
capital and other general corporate purposes,
including increasing our sales and marketing
and product development activities.
Proposed Nasdaq Stock Market symbol.......... TMNT
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SUMMARY FINANCIAL DATA
This table summarizes our financial data for the periods indicated. The
March 31, 1999 financial statements exclude 3,258,855 shares of common stock
issuable upon the exercise of options outstanding at June 15, 1999, under the
Telemate.Net Stock Incentive Plan at a weighted average exercise price of $1.63
per share, redeemable stock purchase warrants, and convertible redeemable
preferred stock and common stock issued in June 1999. Pro forma net income
(loss) is actual net income adjusted for pro forma income taxes as though we
were a C corporation.
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue................. $ 3,785 $ 4,890 $ 5,450 $ 1,369 $ 1,365
Service revenue................. 3,114 4,058 4,932 1,138 1,293
---------- ---------- ---------- ---------- ----------
Total revenue...................... 6,899 8,948 10,382 2,507 2,658
Gross profit....................... 5,564 7,160 8,185 1,998 2,054
Operating income (loss)............ 121 19 (1,199) (101) (270)
Net income (loss).................. $ 136 $ 38 $ (1,306) $ (102) $ (1,044)
========== ========== ========== ========== ==========
Basic net income (loss) per
share........................... $ 0.13 $ 0.04 $ (1.20) $ (0.09) $ (0.96)
========== ========== ========== ========== ==========
Diluted net income (loss) per
share........................... $ 0.12 $ 0.03 $ (1.20) $ (0.09) $ (0.96)
========== ========== ========== ========== ==========
Basic weighted average shares
outstanding..................... 1,067,248 1,087,271 1,087,271 1,087,271 1,087,271
========== ========== ========== ========== ==========
Diluted weighted average shares
outstanding..................... 1,144,801 1,244,256 1,087,271 1,087,271 1,087,271
========== ========== ========== ========== ==========
Pro forma net income (loss)........ $ 38 $ 42 $ (1,208) $ (94) $ (1,044)
========== ========== ========== ========== ==========
Pro forma net income (loss) per
share:
Basic.............................. $ 0.04 $ 0.04 $ (1.11) $ (0.09) $ (0.96)
========== ========== ========== ========== ==========
Diluted............................ $ 0.03 $ 0.03 $ (1.11) $ (0.09) $ (0.96)
========== ========== ========== ========== ==========
</TABLE>
The following table is a summary of our balance sheet data. Pro forma
information is presented to give effect to: (a) the purchase of a software
product for 18,000 shares of common stock in June 1999; (b) the completion of a
private placement of 300,000 shares of our Series A Preferred Stock in June
1999; (c) the issuance of 900,000 shares of common stock issuable upon
conversion of Series A Preferred Stock concurrently with the completion of the
offering; (d) the redemption of 600,000 shares of our common stock in June 1999;
(e) the distribution of $270,000 upon termination of our S corporation status in
June 1999; (f) the reclassification of accumulated deficit of an estimated $3.2
million to additional paid-in capital in June 1999, which represents
undistributed losses during the S corporation period; (g) the reclassification
of the common stock put warrant to additional paid-in capital upon completion of
the offering; and (h) the sale of 75,000 shares of common stock in June 1999.
Pro forma as adjusted information is presented to give effect to the sale by us
of the shares of common stock offered hereby at an assumed initial public
offering price of $ per share and the receipt of the estimated net
proceeds.
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AS OF MARCH 31, 1999
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PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 10 $2,455
Working capital (deficit)................................. (1,970) 475
Total assets.............................................. 2,536 5,102
Long-term liabilities..................................... 1,776 919
Total shareholders' equity (deficit)...................... (3,116) 307
</TABLE>
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RISK FACTORS
An investment in our common stock involves a high degree of risk. In
addition to the other information in this prospectus, you should carefully read
and consider the following risk factors before investing in our common stock.
RISKS RELATED TO TELEMATE.NET AND OUR INDUSTRY
OUR OPERATING RESULTS ARE LIKELY TO VARY SIGNIFICANTLY IN THE FUTURE, AND
QUARTER TO QUARTER COMPARISONS OF OUR OPERATING RESULTS MAY NOT BE MEANINGFUL.
During our operating history, we have experienced quarterly fluctuations in
our operating results, and we expect this trend to continue. Factors that affect
our operating results include:
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- - the size and timing of sales of our - market acceptance of our products
products and services
- - changing demand for our products and - fluctuating economic conditions
services
- - changes in our management team - the productivity levels of our sales force
- - the timing and release of new products or - the timing of shipment and installation for
enhancements products ordered
- - unexpected delays in introducing new - delays of purchases by customers who
products or enhancements anticipate the release of a new product or
enhancement
- - delays of purchases by customers who are - the amount and timing of our sales and
directing their resources to resolve year marketing, product development, or
2000 issues administrative expenses
</TABLE>
Due to these factors, we believe that our quarterly revenue and results
from operations are likely to vary significantly in the future and that quarter
to quarter comparisons of our operating results may not be meaningful.
Therefore, you should not rely on the results of one quarter as an indication of
our future performance. Furthermore, we plan to increase our operating expenses
to expand our sales and marketing operations, develop new distribution channels,
fund greater levels of research and development, broaden professional services
and support, and improve operational and financial systems. Failure of our
revenue to increase along with these expenses could create fluctuations in our
quarterly results of operations.
WE HAVE RECENTLY EXPERIENCED LOSSES, AND WE EXPECT TO INCUR LOSSES IN THE NEAR
TERM.
We experienced a net loss of approximately $1.3 million in the year ended
December 31, 1998. We anticipate that we will incur additional losses in the
near term due to a high level of planned expenditures. We are not certain when
we will regain profitability. Even if we do regain profitability, we may not
sustain or increase profitability on a quarterly or annual basis.
OUR SUCCESS DEPENDS ON CONTINUED ACCEPTANCE AND GROWTH OF THE INTERNET.
Sales of our Internet usage management solutions depend on the continued
acceptance and growth of the Internet. Because the Internet has only recently
become a viable medium for commerce and communications, demand and market
acceptance for Internet-related products are subject to high levels of
uncertainty and risk. The Internet has experienced, and is expected to continue
to experience, significant growth in the number of users and amount of traffic.
The Internet infrastructure may not be able to support the demands placed on it
by this continued growth. Furthermore, the Internet has experienced a variety of
outages and other delays as a result of damage to portions of its
infrastructure, and such outages and delays could adversely affect the Internet
usage of organizations utilizing our solutions. Additionally, the Internet could
lose its viability due to delays in the development or adoption of new standards
and protocols to handle increased levels of Internet activity or due to
increased governmental regulation. Moreover, critical issues concerning the
commercial use of the Internet remain unresolved and may negatively affect the
growth of Internet use and the attractiveness of commerce and communication on
the
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Internet. If critical issues concerning the commercial use of the Internet are
not resolved in our favor, if the necessary infrastructure and complementary
products are not developed, or if the Internet does not become a viable
commercial marketplace, the demand for our Internet usage management solutions
could be significantly reduced, which would have a material adverse effect on
our business, results of operations and financial condition.
WE MAY NOT BE ABLE TO CONTINUE TO COMPETE SUCCESSFULLY WITH OTHER COMPANIES.
We currently compete or expect to compete in the near future in the markets
for:
- Internet usage management
- web site traffic analysis
- network alerting and monitoring
- firewall and proxy server traffic analysis
- security analysis
- call accounting
These markets are intensely competitive, increasingly subject to rapid changes,
and significantly affected by new product introductions and other activities of
market participants. In addition, these markets are highly fragmented, and our
competitors vary depending upon the market that our network usage management
solutions address.
In addition to current competition from producers of network usage
management solutions, in the future we may experience competition from vendors
of network devices such as firewalls, proxy servers, e-mail servers, VoIP
servers and PBXs. In particular, AXENT Technologies, Inc., Check Point Software
Technologies Ltd., Cisco Systems, Inc., Lucent Technologies, Inc., Microsoft
Corporation, Netscape Communications Corp., Nortel Networks Corporation, Siemens
Corporation and others could bundle network usage management solutions with
their network products. The bundling of competing products with network devices
could make it more difficult for us to market our products or render our
products obsolete. Even if the functionality, ease of use, and performance of
the products included with network devices is inferior to that of our products,
a significant number of customers may elect to accept these products instead of
purchasing additional software from us. In addition, we believe that additional
competitors will continue to enter the market as the size and visibility of the
market opportunity increases. These new market entrants may include traditional
system and network management software developers.
We also face competition from Internet management service providers, such
as consulting firms, web design firms, Internet audit firms, site management
vendors, Internet Service Providers, also known as ISPs, and independent
software vendors. These service providers may use our solutions, our
competitors' solutions, or custom-developed solutions to provide network usage
management for their customers who otherwise would have been sale opportunities
for us. In addition, certain larger potential customers may rely on their IT
departments to internally develop Internet usage management solutions.
Certain of our current and potential competitors have longer operating
histories, greater name recognition, access to larger customer bases, and
substantially greater financial, technical, marketing, distribution, service,
support, and other resources than we have. As a result, they may be able to
respond more quickly than we can to new or changing opportunities, technologies,
standards, or customer requirements. Our inability to develop products that are
technologically competitive, responsive to customer needs and competitively
priced could have a material adverse effect on our business, results of
operations and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO INCREASE BRAND AWARENESS.
Due in part to the emerging nature of the market for Internet usage
management solutions and the substantial resources available to many of our
competitors, we may have limited time to achieve and maintain a significant
market share. Developing and maintaining awareness of the Telemate.Net brand
name is critical to achieving widespread acceptance of our network usage
management and reporting solutions. Furthermore, the importance of brand
recognition will increase as competition in the market for our products
increases. Successfully promoting and positioning the Telemate.Net brand will
depend largely
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on the effectiveness of our marketing efforts and our ability to develop
reliable and useful products at competitive prices. Therefore, we plan to
increase our financial commitment to create and maintain brand awareness among
potential customers. If we fail to successfully promote our brand name or if we
incur significantly greater expenses than planned in promoting and maintaining
our brand name, it could have a material adverse effect on our business, results
of operations, and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND SALES AND DISTRIBUTION OF OUR
SOLUTION.
In order to increase our market share and revenue, we will need to expand
our direct and indirect sales operations and channels of distribution. We have a
broad base of customers, most of whom license a limited number of our products.
To improve our results of operations, we must increase our base of customers and
the number of products that each customer licenses. This may require an
increasingly sophisticated sales effort targeted at network managers, other
management personnel associated with a prospective customer's network
capabilities, and other functional managers throughout the organization. In
order to achieve increased sales, we plan to hire additional sales personnel.
Any new hires will require training and take time to achieve full productivity.
We may not be able to hire enough qualified individuals when needed, or at all.
Failure to do so could have a material adverse effect on our business, results
of operations, and financial condition.
Our future success also depends upon our ability to expand our
relationships with domestic and international distributors, value-added
resellers, also known as VARs, systems integrators, on-line and other resellers,
ISPs, original equipment manufacturers, and other partners to build our indirect
sales channels. We currently maintain relationships with leading networking and
network security vendors that help market and distribute our products, but we do
not have written agreements with many of these companies. We must also continue
to expand and maintain strategic relationships with key hardware and software
vendors, distribution partners, and customers. We may not be successful in these
efforts.
WE MAY BE CONFRONTED WITH DEFECTS IN OUR SOFTWARE.
We provide network usage management solutions that our customers use to
improve the effectiveness of their network, Internet use and e-commerce
applications. These and other functions that our products provide are becoming
increasingly critical to our customers, especially as a result of the
considerable resources many organizations spend on the development and
maintenance of their web sites and e-commerce applications. Consequently, the
licensing and support of our products may expose us to the risk of product
liability and related claims. Our end-user licenses contain provisions that
limit our exposure to such claims, but these provisions may not be enforceable
in certain jurisdictions. Additionally, we maintain limited products liability
insurance. To the extent that our contractual limitations are unenforceable or
such claims are not covered by insurance, a successful products liability claim
could have a material adverse effect on our business, results of operations and
financial condition.
Our products and product enhancements are very complex and may from time to
time contain errors or result in failures that we did not detect or anticipate
when introducing such products or enhancements to the market. In addition, the
computer and Internet environments in which our products are used are
characterized by a wide variety of standard and non-standard configurations and
by errors, failures and bugs in third-party platforms that can impede proper
operation of our products. Despite our testing, errors may still be discovered
in some new products or enhancements after the products or enhancements are
delivered to customers. The occurrence of these errors could result in adverse
publicity, loss of or delay in market acceptance of our products, delays or
cessation of service to our customers or claims by customers against us, any of
which could have a material adverse effect on our business, results of
operations and financial condition.
OUR SUCCESS DEPENDS ON RETAINING AND ATTRACTING KEY PERSONNEL.
Our success depends largely upon the continued services of our executive
officers and other key management, engineering and development personnel. In
particular, we rely on our Chief Executive Officer
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and President, Richard L. Mauro. We currently do not maintain key person life
insurance policies on any of our employees. We are in the process of acquiring
key person insurance on the life of Mr. Mauro. The loss of the services of one
or more of our executive officers, engineering personnel, or other key employees
could have a material adverse effect on our business, results of operations, and
financial condition. Additionally, the competition for qualified personnel in
the computer software and Internet markets is intense, and we may be unable to
attract, assimilate, or retain additional highly qualified personnel in the
future.
OUR ANTICIPATED GROWTH MAY STRAIN OUR OPERATIONS.
As we grow our operations, we anticipate rapid expansion of our company for
the foreseeable future to take advantage of existing and potential market
opportunities. This rapid growth will place significant challenges on our
management, administrative, and operational resources. To properly manage this
growth, we must, among other things, implement additional and improve existing
administrative and operational systems, procedures, and controls on a timely
basis. If we fail to implement and improve these systems, procedures and
controls, it could have a material adverse effect on our business, results of
operations, and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS.
We regard substantial elements of our network usage management solutions as
proprietary and attempt to protect them by relying on patent, trademark, service
mark, trade dress, copyright and trade secret laws and restrictions, as well as
confidentiality procedures and contractual provisions. When we license our
products, we use a signed license agreement with a select number of our
customers and a printed "shrink-wrap" or electronic "click-wrap" license
containing confidentiality terms customary in the industry for all other users
in order to protect the proprietary rights in our technology. Since the licensee
does not sign shrink-wrap or click-wrap licenses, many authorities believe that
they may not be enforceable. The laws of Georgia, which the printed shrink-wrap
and electronic click-wrap licenses purport to make the governing law, are
unclear on this subject. In addition, we currently do not license or release our
source code.
Although we currently have no issued patents, we have one patent
application pending. This application or any new patent applications may not
result in issued patents and may not provide us with any competitive advantages,
or may be challenged by third parties. Also, because patent applications in the
U.S. are not publicly disclosed until the relevant patent is issued,
applications may have been filed by third parties which, if issued as patents,
could cause our patent application to be rejected. Trade secret, patent,
copyright and trademark laws provide limited protection. Moreover, legal
standards relating to the validity, enforceability, and scope of protection of
certain intellectual property rights in Internet-related industries are
uncertain and still evolving, and the future viability or value of any of our
intellectual property rights is uncertain. Effective trademark, copyright and
trade secret protection may not be available in every country in which our
products are distributed or made available through the Internet. Any steps we
take to protect our intellectual property rights may be inadequate, and
enforcing such rights may require the use of substantial amounts of our
resources. Despite taking steps to protect such rights, third parties could
infringe or misappropriate our proprietary rights. Also, most such protections
do not preclude competitors from independently developing products with
functionality or features substantially equivalent or superior to our products.
Any such infringement, misappropriation or third-party development could have a
material adverse effect on our business, results of operations and financial
condition.
OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US.
In addition to the technology we have developed internally, we also use
code libraries developed and maintained by third parties and have acquired or
licensed certain technologies from other companies. Our internally developed
technology, the code libraries, or the technology we acquired or licensed may
infringe on a third party's intellectual property rights and such third parties
may bring claims against us alleging
8
<PAGE> 13
infringement of their intellectual property rights. Any such infringement or
claim of infringement could have a material adverse effect on our business,
results of operations and financial condition.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, particularly in the
software industry. We are not currently involved in any intellectual property
litigation. We may, however, be a party to litigation in the future to protect
our intellectual property or as a result of an alleged infringement of others'
intellectual property. Such claims and any resulting litigation could subject us
to significant liability for damages and invalidate our proprietary rights. Such
litigation, regardless of its success, would likely be time-consuming and
expensive to defend and would divert management time and attention. Any
potential intellectual property litigation could also force us to do one or more
of the following:
- cease selling, incorporating, or using products or services that
incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; and
- redesign those products or services that incorporate such technology.
Any of these results could have a material adverse effect on our business,
results of operations and financial condition.
OUR PRODUCTS MAY BE TARGETED BY COMPUTER HACKERS.
Because our products access a wide range of information relating to our
customers' businesses, computer hackers may attempt to infiltrate our software
systems to obtain sensitive data and information regarding our customers. In
addition, some of our products monitor network security. There is a risk that
those products will be targets of attacks by computer hackers who create bugs or
viruses or otherwise breach the security of those products in an attempt to
sabotage their functionality. There can be no assurance that we will be able to
respond to such attacks in a timely or effective manner and any failure to do so
could result in claims against us and make it difficult for us to market and
sell our products.
OUR SUCCESS DEPENDS ON THE AVAILABILITY OF THIRD-PARTY SOFTWARE.
We license software from third parties for use in our products. We cannot
guarantee that we will continue to be able to resell this software under our
licenses or, if any licensor terminates its agreement with us, that we will be
able to develop or otherwise procure replacement software from another supplier
on a timely basis or on commercially reasonable terms, or that such replacement
supplier will be equally acceptable to our customers or prospective customers.
In addition, such third-party software may contain errors that would be
difficult for us to detect and correct. Any interruption in our relationship
with our current software suppliers could cause delays in the development and
delivery of our products that would have a material adverse effect on our
business.
OUR PLANNED EXPANSION INTO INTERNATIONAL MARKETS MAY ADVERSELY AFFECT OUR
FINANCIAL RESULTS.
In order to further increase sales, we intend to expand our marketing and
direct and indirect sales operations outside the United States. We have limited
experience in marketing our products outside the United States, and we may not
be able to increase international sales. Trade restrictions, foreign tariffs or
political instability could limit or disrupt our international business
activities. Also, additional expenses and risks associated with conducting
operations in geographically diverse locations, and in dealing with customers
who speak different languages and have diverse cultural approaches to the
conduct of business could impair our international expansion.
9
<PAGE> 14
WE MAY BE SUBJECT TO CHANGING GOVERNMENTAL REGULATIONS.
As Internet commerce continues to evolve, increasing regulation by federal,
state or foreign agencies becomes more likely. Such laws and regulations could
affect the network usage management activities of our customers. Regulation, if
imposed, is likely to be in the areas of user privacy, pricing, content, and
quality of products and services. Taxation of Internet use, or other charges
imposed by government agencies or by private organizations for accessing the
Internet, may also be imposed. Furthermore, any regulation imposing fees for
Internet use could result in a decline in the use of the Internet and the
viability of Internet commerce, which could have a material adverse effect on
our business, results of operations and financial condition.
WE MAY FACE CLAIMS AND A DECLINE IN MARKET ACCEPTANCE FOR OUR PRODUCTS AS A
RESULT OF YEAR 2000 PROBLEMS.
Many installed computer systems and software products are designed to
accept and process year codes with only two digits in their date fields. These
systems and products may not operate properly when required to distinguish dates
occurring on or after January 1, 2000 from dates in the 1900's. We believe our
currently marketed network usage management products will function properly with
respect to dates in the year 2000 and thereafter. Nonetheless, we have not
tested our products in every possible computer environment, and therefore such
products may not be fully year 2000 compliant in every environment due to
interaction with third-party products. Certain older versions of our products,
some of which remain in use, are not year 2000 compliant. We do not currently
sell these products and we will not provide maintenance support for these
products after December 31, 1999. For older products that we no longer sell or
support, we are attempting to notify all known users of these products that
these products generally are not year 2000 compliant and that we have no plans
to make them year 2000 compliant. We cannot guarantee that we will be able to
contact all such users. In addition, there can be no guarantee that these
customers will not singly or as a group attempt to force modification of our
software or take other action against us. Although we do not believe any such
action would be successful, the body of law governing year 2000 compliance is
unsettled. We have identified a number of customers whose maintenance contracts
on some of our discontinued products run past the year 2000. Although these
products are not year 2000 compliant, we are currently working with these
customers to provide alternate arrangements for the continued operation of their
systems.
Failure of our products to be year 2000 compliant could result in
significant decreases in market acceptance of our products and legal liability.
To the extent that resellers have embedded older versions of our products in
their products, we cannot guarantee that such resellers are taking measures to
replace their older products with newer versions that are year 2000 compliant.
Any failure by resellers to replace their older products with year 2000
compliant products could result in claims being brought against us. Moreover,
any claims brought against us, regardless of their success, would likely be
time-consuming and expensive to defend, would divert management time and
attention and could result in adverse publicity. As a result, any such decline
in market acceptance for our products or litigation relating to our products
caused by the year 2000 could have a material adverse effect on our business,
results of operations, and financial condition.
In addition to our software products, we have completed our review of our
internal computer programs and systems and believe that our computer systems are
or will be year 2000 compliant in a timely manner. However, if we or our
suppliers, vendors, major distributors and partners fail to correct year 2000
problems, such failure could result in an interruption in, or a failure of,
certain of our normal business activities or operations. Such failures could
have a material adverse effect on our business, results of operations and
financial condition.
10
<PAGE> 15
RISKS RELATED TO THIS OFFERING
WE MAINTAIN BROAD DISCRETION IN USE OF THE PROCEEDS FROM THIS OFFERING.
The net proceeds from the sale of common stock we are offering will be used
to repay approximately $1.0 million of indebtedness and to add to our general
working capital upon completion of this offering. We cannot specify with
certainty how we will use the net proceeds. Accordingly, our management will
have considerable discretion in the application of the net proceeds. The net
proceeds may be placed in investments that do not produce income or that lose
value.
THE VOLUME OF TRADING AND PRICE OF OUR COMMON STOCK COULD FLUCTUATE
SIGNIFICANTLY.
The stock markets have, in general, and with respect to Internet companies
in particular, recently experienced stock price and volume volatility that has
affected the market prices of the common stock of these companies. The stock
markets may continue to experience volatility that may adversely affect the
market price of our common stock. In addition, the market price of our common
stock could be subject to significant fluctuations in response to any of the
following factors:
<TABLE>
<S> <C>
- variations in actual and anticipated operating - lack of liquidity
results
- changes in financial estimates by analysts - general market and economic
conditions
- failure to meet analysts' performance expectations - other events or factors outside our
control
</TABLE>
The stock prices for many companies in the technology sector have
experienced wide fluctuations that have often been unrelated to their operating
performance. Fluctuations such as these may affect the market price of our
common stock. Additionally, securities class action claims have been brought
against issuing companies in the past where such periods of volatility in the
market price of a company's securities have taken place. Such litigation could
result in substantial costs and a diversion of management's attention and
resources, and any adverse determination in such litigation could also subject
us to significant liabilities, any or all of which could have a material adverse
effect on our business, results of operations and financial condition.
OUR CHARTER DOCUMENTS AND GEORGIA LAW COULD MAKE IT MORE DIFFICULT FOR A THIRD
PARTY TO ACQUIRE US.
Certain provisions of our Articles of Incorporation and Bylaws may have the
effect of delaying, preventing or making a merger or acquisition less desirable
to a potential acquirer, even where shareholders may consider the acquisition or
merger favorable. In addition, the issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control without further
action by the shareholders. Any such issuance may materially adversely affect
the market price of our common stock and the voting rights of the holders of our
common stock. The issuance of our preferred stock may also result in the loss of
voting control by the holders of our common stock to the holders of our
preferred stock. In addition, provisions of the Georgia Business Corporation
Code also may delay, prevent or discourage someone from acquiring or merging
with us.
FUTURE SALES OF COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
Following this offering, a portion of our shares of common stock will be
eligible for sale in the public market. Sales or the expectation of sales of a
large number of shares of our common stock in the public market could adversely
affect the prevailing market price of our common stock.
THE VALUE OF YOUR INVESTMENT IN OUR COMMON STOCK WILL BE DILUTED.
If you purchase common stock in this offering, you will incur immediate and
substantial dilution in net tangible book value per share in the amount of
$ . Further dilution will result if options to purchase shares of
common stock are exercised by option holders in the future.
11
<PAGE> 16
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operation" and "Business." They
include statements concerning:
<TABLE>
<S> <C>
- our growth and operating strategy - our financing plans
- liquidity and capital expenditures - trends in our industry
- use of proceeds of the offering - trends in government regulation
</TABLE>
You can identify these statements by forward-looking words such as "may,"
"will," "plans," "expects," "intends," "anticipates," "estimates" or similar
words. You should be aware that these statements are subject to known and
unknown risks, uncertainties and other factors, including those discussed in the
section entitled "Risk Factors," that could cause the actual results to differ
materially from those suggested by the forward-looking statements.
12
<PAGE> 17
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock offered by us in this offering will be approximately
$ million, assuming an initial public offering price of $ per share
and after deducting estimated underwriting discounts and commissions and
estimated expenses payable by us in connection with this offering. We will not
receive any proceeds from the sale of common stock by the selling shareholders.
We will use the proceeds from this offering as follows:
<TABLE>
<CAPTION>
AMOUNT
------
(ESTIMATED IN MILLIONS)
<S> <C>
Payments on our outstanding indebtedness.................... $
Working capital and other general corporate purposes........
-----
Total............................................. $
</TABLE>
As of June 15, 1999, the aggregate outstanding balance under the loan was
$1.0 million, which was borrowed primarily to fund product development. The
interest rate on the loan is 14.0% per year. The loan must be paid in full not
later than March 27, 2003.
Net proceeds from the sale of the common stock that are added to our
working capital may be used in a variety of ways, including:
- increasing our sales and marketing activities
- increasing our product development activities
- pursuing strategic acquisitions and relationships
We currently have no specific agreements, commitments or understandings
with respect to any acquisition. The amounts we actually use for each purpose
may vary significantly depending upon certain factors, including economic or
industry conditions, changes in the competitive environment and strategic
opportunities that may arise. Pending application of the net proceeds as
described above, we intend to invest the net proceeds of the offering in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have historically made distributions to our shareholders related to our
S corporation status and the resulting tax payment obligations imposed on our
shareholders, including a total of $270,000 since January 1, 1997. Effective
June 16, 1999, we converted from an S corporation into a C corporation. We do
not intend to declare or pay cash dividends in the foreseeable future. Our
management anticipates that all our earnings and other cash resources, if any,
will be retained by us for investment in our business.
13
<PAGE> 18
DILUTION
As of March 31, 1999, our net tangible book value was approximately
$ , or $ per share of common stock. Our net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding. After
giving effect to the sale by us of the shares of common stock offered
hereby at an assumed initial public offering price of $ per share and the
application of the estimated net proceeds therefrom, after deducting the
underwriting discount and estimated offering expenses, our pro forma net
tangible book value at March 31, 1999 would have been approximately $
million, or $ per share of common stock. This represents an immediate
increase in such net tangible book value of $ per share to existing
shareholders and an immediate decrease in net tangible book value of
$ per share to new investors. The following table illustrates this
unaudited per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net book value per share as of March 31, 1999............. $
Increase in net book value per share attributable to new
investors..............................................
------
Adjusted net book value per share after the offering........
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table sets forth on a pro forma basis, as of March 31, 1999,
the number of shares of common stock previously issued by us, the total
consideration reflected in our accounts and the average price per share to the
existing shareholders and new investors, assuming the sale by us of
shares of common stock at an assumed initial public offering price of $ per
share, and before deducting the estimated underwriting discounts and commissions
and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 3,654,813 % $2,778,866 % $ 0.76
New investors.................. %
--------- ----- ---------- ----
Total................ % $
========= ===== ========== ====
</TABLE>
Assuming full exercise of the underwriters' over-allotment option, the
percentage of shares held by existing shareholders would be % of the total
number of shares of common stock to be outstanding after the offering, and the
number of shares held by new shareholders would be increased to shares, or
% of the total number of shares of common stock to be outstanding after the
offering.
Immediately following completion of this offering, there will be
outstanding options to acquire approximately 3,258,855 shares of common stock at
exercise prices ranging from $0.73 to $6.67 per share and a weighted average
exercise price of $1.63 per share. The exercise of these options will have the
effect of increasing the net tangible book value dilution of new investors in
this offering.
14
<PAGE> 19
CAPITALIZATION
The following table sets forth at March 31, 1999:
(a) our actual capitalization;
(b) our pro forma capitalization reflecting:
- the purchase of a software product for 6,000 shares of common stock
valued at $120,000;
- the sale of 300,000 shares of Series A Preferred Stock with net proceeds
to us of $5.9 million and the conversion of the Series A Preferred Stock
to 900,000 shares of common stock;
- the purchase of 200,000 shares of common stock for $4.0 million;
- the final S corporation distribution of $270,000, of which $265,000 was
paid by reduction in the outstanding notes receivable from shareholders;
- the reclassification of the accumulated deficit totaling an estimated
$3.2 million on June 16, 1999 to additional paid-in capital, which
represents undistributed losses during the S corporation period;
- the reclassification of a common stock put warrant to additional paid-in
capital, which will occur concurrently with this offering; and
- the sale of 75,000 shares common stock for $500,000; and
(c) our pro forma as adjusted capitalization reflects our pro forma
capitalization as adjusted to give effect to:
- the issuance and sale by us of the shares of common stock offered
hereby at an assumed offering price of $ per share, after deducting
estimated underwriting discounts and commissions and offering expenses;
and
- the application of the estimated net proceeds to us of the offering.
This table should be read in conjunction with our financial statements and
related notes appearing elsewhere in this prospectus.
The actual share numbers as presented exclude:
- 3,900,000 shares of common stock presently reserved for issuance upon
exercise of options granted under the Telemate.Net Stock Incentive Plan,
of which options to purchase 3,258,855 shares were outstanding as of June
15, 1999 at a weighted average exercise price of $1.63 per share; and
- 1,000,000 shares reserved for issuance upon exercise of options granted
under the 1999 Stock Incentive Plan, of which no options were outstanding
as of the date of this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Long-term debt........................................... $ 918,891 $ 918,891
Common stock put warrants................................ 857,428 --
Shareholders' equity (deficit):
Preferred stock, $.01 par value; 20,000,000 shares
authorized, none issued............................. -- --
Common stock, $.01 par value; 100,000,000 shares
authorized, 1,092,435 shares issued, actual;
1,423,435 shares issued, pro forma; and
shares issued pro forma as adjusted................. 10,924 14,009
Additional paid-in capital............................. 211,203 4,430,640
Retained earnings (accumulated deficit)................ (2,934,915) --
Treasury stock......................................... (13,261) (4,013,261)
Notes receivable and accrued interest from
shareholders........................................ (389,647) (124,375)
----------- ----------- --------
Total shareholders' equity (deficit)........... (3,115,696) 307,013
----------- ----------- --------
Total capitalization...................... $(1,339,377) $ 1,225,904
=========== =========== ========
</TABLE>
15
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data of Telemate.Net set forth below for each of the
three years ended December 31, 1996, 1997 and 1998, and the balance sheet data
as of December 31, 1996, 1997 and 1998, are derived from, and are qualified by
reference to, our audited financial statements included elsewhere in the
prospectus. The financial information for the years ended December 31, 1994 and
1995 are derived from our unaudited financial statements. The financial
information as of March 31, 1999 and for the three months ended March 31, 1998
and 1999 has been derived from our unaudited financial information. In the
opinion of management, the unaudited financial information has been prepared on
a basis consistent with the annual audited financial statements that appear
elsewhere in this prospectus, and include all adjustments, consisting only of
normal recurring adjustments necessary for a fair statement of the financial
position and results of operations for these unaudited years. Historical results
are not necessarily indicative of results to be expected in the future.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue........................ $ 3,196 $ 3,750 $ 3,785 $ 4,890 $ 5,450 $ 1,369 $ 1,365
Service revenue........................ 1,858 2,549 3,114 4,058 4,932 1,138 1,293
---------- ---------- --------- --------- --------- --------- ---------
Total revenue.................... 5,054 6,299 6,899 8,948 10,382 2,507 2,658
Cost of revenue:
Product costs.......................... 532 609 574 736 923 192 265
Service costs.......................... 395 514 761 1,053 1,274 317 339
---------- ---------- --------- --------- --------- --------- ---------
Total cost of revenue............ 927 1,123 1,335 1,789 2,197 509 604
---------- ---------- --------- --------- --------- --------- ---------
Gross profit............................. 4,127 5,176 5,564 7,159 8,185 1,998 2,054
Operating expenses:
Research and development............... 351 480 603 1,387 1,845 399 379
Sales and marketing.................... 1,535 2,120 2,979 3,522 4,613 983 979
General and administrative............. 1,330 1,526 1,861 2,231 2,926 717 966
---------- ---------- --------- --------- --------- --------- ---------
Total operating expenses......... 3,216 4,126 5,443 7,140 9,384 2,099 2,324
---------- ---------- --------- --------- --------- --------- ---------
Operating income (loss).................. 911 1,050 121 19 (1,199) (101) (270)
Interest income (expense):
Increase in common stock put warrant... -- -- -- -- -- -- (734)
Other interest......................... 15 26 15 19 (107) (1) (40)
---------- ---------- --------- --------- --------- --------- ---------
Total interest income
(expense)...................... 15 26 15 19 (107) (1) (774)
---------- ---------- --------- --------- --------- --------- ---------
Net income (loss)........................ $ 926 $ 1,076 $ 136 $ 38 $ (1,306) $ (102) $ (1,044)
========== ========== ========= ========= ========= ========= =========
Basic net income (loss) per share........ $ 0.93 $ 1.03 $ 0.13 $ 0.04 $ (1.20) $ (0.09) $ 0.96)
========== ========== ========= ========= ========= ========= =========
Diluted net income (loss) per share...... $ 0.93 $ 1.03 $ 0.12 $ 0.03 $ (1.20) $ (0.09) $ (0.96)
========== ========== ========= ========= ========= ========= =========
Weighted average shares outstanding
Basic.................................. 1,000,000 1,052,050 1,067,248 1,087,271 1,087,271 1,087,271 1,087,271
========== ========== ========= ========= ========= ========= =========
Diluted................................ 1,000,000 1,052,050 1,144,801 1,244,256 1,087,271 1,087,271 1,087,271
========== ========== ========= ========= ========= ========= =========
Pro forma provision for (benefit from)
income taxes........................... 364 412 98 (4) (98) (8) --
Pro forma net income (loss).............. $ 562 $ 664 $ 38 $ 42 $ (1,208) $ (94) $ (1,044)
========== ========== ========= ========= ========= ========= =========
Pro forma net income (loss) per share
Basic.................................. $ 0.56 $ 0.63 $ 0.04 $ 0.04 $ (1.11) $ (0.09) $ (0.96)
========== ========== ========= ========= ========= ========= =========
Diluted................................ $ 0.56 $ 0.63 $ 0.03 $ 0.03 $ (1.11) $ (0.09) $ (0.96)
========== ========== ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
------- ------ ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 455 $ 818 $ 245 $ 78 $ 46 $ 10
Working capital (deficit)................................... (411) (449) (1,429) (1,472) (1,726) (1,970)
Total assets................................................ 1,907 2,273 2,186 2,582 2,675 2,536
Long-term liabilities....................................... 31 12 -- -- 1,032 1,776
Total shareholders' equity (deficit)........................ (200) (163) (686) (743) (2,065) (3,116)
</TABLE>
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Telemate.Net is a leading provider of network usage management solutions.
From our inception in 1986, through 1996, we focused exclusively on providing
call accounting software solutions. By the early 1990s, we had emerged as a call
accounting market leader by evolving our product line to meet the functionality
and price performance requirements of our customers. In 1996, seeking to
capitalize on the opportunity the Internet would present, we began researching
and developing an Internet usage management solution. In mid-1997, we released
the initial version of our Internet usage management solution, which we believe
was the first such product on the market. In May 1998, we began shipping our
latest generation of Internet usage management software. In November 1998, we
introduced our integrated network usage management product suite, which can be
used by our customers for Internet usage management only, call accounting only,
or a combination of both.
In 1996, our management decided to invest the cash flow from our call
accounting business in the development of an Internet usage management solution.
From 1990 to 1995, our call accounting business generated average pre-tax profit
margins above 20%. Our focus on developing an Internet product included
sacrificing potential profits and borrowing $1.0 million in 1998. The refocusing
of our business resulted in reduced call accounting revenue growth. From 1996
through 1998, average annual call accounting revenue growth was 16%, whereas
from 1990 through 1995, it was 39%. We believe the investments we have made have
positioned us for future growth in the emerging integrated network usage
management market.
Our revenue consists of product and service revenue. Our product revenue is
derived primarily from licensing our software products. We also resell
complementary hardware, which accounts for less than 10% of our total revenue.
In 1998, we had orders ranging from an order for the basic QuickView product for
$995 to a multi-site order for our Enterprise product for approximately
$150,000. Service revenue consists of fees paid for support services and
professional services. Support service revenue consists of fees paid for
maintenance services and product updates. Maintenance services include diagnosis
and correction of errors in the product and telephone consultation to discuss
general support questions. Product updates include error correction, minor
enhancements to the product models purchased, and periodic updates to tariff
information for call accounting products. Professional services include
installation, training and custom report generation. Substantially all of our
license agreements are perpetual. Support agreements are typically for a term of
one year and renew automatically upon payment of an annual maintenance fee by
the customer. This support fee typically represents 20% of the current list
price of the products licensed.
We recognize revenue from software licenses in accordance with the American
Institute of Certified Public Accountants Statement of Position 97-2, Software
Revenue Recognition and Statement of Position 98-4, Deferral of the Effective
Date of a Provision of SOP 97-2. Revenue derived from software license fees and
hardware is recognized upon shipment. Revenue derived from software support
services primarily involves annual contracts and is recognized ratably over the
service period. Revenue related to professional services is recognized as
services are provided. Deferred revenue generally represents advance payments
received from customers and billings invoiced to customers for software support
and professional services in advance of the time revenue is recognized.
We identify revenue as call accounting revenue or Internet/integrated
revenue based upon data sources licensed and delivery of certain required call
accounting product features, consisting of tariff information. If a customer is
delivered tariff information for all data sources they have licensed, the
product revenue is identified as call accounting. All other product revenue is
identified as Internet/integrated. Service revenue is identified based on the
associated product identification.
We sell our products through a combination of direct sales, resellers and
distributors. While our direct sales force is expected to continue to generate a
large proportion of future revenue, we are increasingly employing indirect
distribution channels as an important complement to our direct sales force.
While most of our past indirect distribution efforts were focused on the U.S.
market, we added three distributors in
17
<PAGE> 22
Europe during the first three months of 1999. We expect to grow our
international distribution significantly during the next few years. Distributors
and resellers purchase the product for resale at a discount from our standard
price list. This discount varies based on a number of factors including their
volume of business, whether they distribute to other resellers and whether they
provide product support.
We also maintain relationships with leading networking and network security
product vendors that help to market and distribute our products. Our strategic
partners assist in the sales and marketing of our products by bundling them with
their own products, selling our products through their sales forces and
promoting our products at trade shows, seminars and through their web sites. We
intend to continue to focus sales resources on strengthening existing
relationships and creating new relationships with strategic organizations.
Since our inception in 1986, we have elected to operate under subchapter S
of the Internal Revenue Code of 1986, as amended, and comparable provisions of
certain state income tax laws. An S corporation generally is not subject to
income tax at the corporate level. The S corporation's income generally passes
through to shareholders and is taxed on their personal income tax returns. As a
result, our earnings have been taxed directly to our existing shareholders. On
June 16, 1999, we terminated our status as an S corporation under the tax code.
In connection with the termination of our S corporation status, we distributed
$270,000 and we reclassified the accumulated deficit through the S corporation
termination date ($3.2 million, estimated) to additional paid-in capital.
The accompanying statements of income (loss) for each of the years ended
December 31, 1996, 1997 and 1998, and the three months ended March 31, 1998 and
1999, reflect provisions for income taxes on an unaudited pro forma basis, using
the asset and liability method, as if we were a C corporation fully subject to
federal and state income taxes. The unaudited pro forma provision for (benefit
from) income taxes was $98,000, $(4,000) and $(98,000) for the years ended
December 31, 1996, 1997 and 1998, respectively, and $(8,000) and none for the
three months ended March 31, 1998 and 1999, respectively.
On June 16, 1999, our S corporation status terminated upon closing of the
sale of 300,000 shares of Series A Preferred Stock. At that time, we established
our net deferred tax assets and liabilities and recorded an accompanying charge
to income tax expense. No net deferred tax assets or liabilities were recorded
because the realization of deferred tax assets was not considered to be likely.
RESULTS OF OPERATIONS
The following tables set forth our call accounting and Internet/integrated
revenue, both in absolute dollars and as a percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ------------------
1996 1997 1998 1998 1999
------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
Call accounting:
Product revenue......................... $3,785 $4,620 $ 4,479 $1,193 $ 995
Service revenue......................... 3,114 4,053 4,850 1,130 1,241
------ ------ ------- ------ ------
Total call accounting revenue......... 6,899 8,673 9,329 2,323 2,236
Internet/integrated:
Product revenue......................... -- 270 971 176 370
Service revenue......................... -- 5 82 8 52
------ ------ ------- ------ ------
Total Internet/integrated revenue..... -- 275 1,053 184 422
------ ------ ------- ------ ------
Total revenue...................... $6,899 $8,948 $10,382 $2,507 $2,658
====== ====== ======= ====== ======
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ------------------
1996 1997 1998 1998 1999
------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Percentage of total revenue:
Call accounting:
Product revenue......................... 54.9% 51.6% 43.1% 47.6% 37.4%
Service revenue......................... 45.1 45.3 46.7 45.1 46.7
------ ------ ------- ------ ------
Total call accounting revenue......... 100.0 96.9 89.8 92.7 84.1
Internet/integrated:
Product revenue......................... -- 3.0 9.4 7.0 13.9
Service revenue......................... -- 0.1 0.8 0.3 2.0
------ ------ ------- ------ ------
Total Internet/integrated revenue..... -- 3.1 10.2 7.3 15.9
------ ------ ------- ------ ------
Total revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ======= ====== ======
</TABLE>
The following table sets forth for the periods indicated certain statement
of operations data expressed as a percentage of total revenue:
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- ---------------
1996 1997 1998 1998 1999
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue................................. 54.9% 54.6% 52.5% 54.6% 51.4%
Service revenue................................. 45.1 45.4 47.5 45.4 48.6
----- ----- ----- ----- ------
Total revenue........................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ------
Cost of revenue:
Product costs................................... 8.3 8.2 8.9 7.7 10.0
Service costs................................... 11.0 11.8 12.3 12.6 12.8
----- ----- ----- ----- ------
Total cost of revenue................... 19.3 20.0 21.2 20.3 22.8
----- ----- ----- ----- ------
Gross profit...................................... 80.7 80.0 78.8 79.7 77.2
Operating expenses:
Research and development........................ 8.7 15.5 17.8 15.9 14.3
Sales and marketing............................. 43.2 39.4 44.4 39.2 36.8
General and administrative...................... 27.0 24.9 28.2 28.6 36.3
----- ----- ----- ----- ------
Total operating expenses................ 78.9 79.8 90.4 83.7 87.4
----- ----- ----- ----- ------
Operating income (loss)........................... 1.8 0.2 (11.6) (4.0) (10.1)
----- ----- ----- ----- ------
Interest income (expense):
Increase in common stock put warrant............ -- -- -- -- (27.6)
Other interest.................................. 0.2 0.2 (1.0) -- (1.5)
----- ----- ----- ----- ------
Total interest.......................... 0.2 0.2 (1.0) -- (29.1)
----- ----- ----- ----- ------
Net income (loss)................................. 2.0% 0.4% (12.6)% (4.0)% (39.3)%
===== ===== ===== ===== ======
Pro forma provision for (benefit from) income
taxes........................................... 1.4 (0.1) (1.0) (0.3) --
----- ----- ----- ----- ------
Pro forma net income (loss)....................... 0.6% 0.5% (11.6)% (3.7)% (39.3)%
===== ===== ===== ===== ======
</TABLE>
Three Months Ending March 31, 1999 and 1998
Total Revenue. Total revenue was $2.7 million for the first three months
of 1999, representing a 6.0% increase from $2.5 million for the same period in
1998. Total product revenue was $1.4 million, or 51.4% of total revenue, in the
first three months of 1999, which was unchanged from $1.4 million, or 54.6% of
total revenue, for the same period in 1998. Total service revenue was $1.3
million, or 48.6% of total revenue, in the first three months of 1999,
representing a 13.6% increase from $1.1 million, or 45.4% of total revenue, for
the same period in 1998. The increase in total revenue was primarily the result
of the
19
<PAGE> 24
increase in service revenue in the first three months of 1999. Increased service
revenue resulted from our increase in installation revenue and a slight increase
in maintenance revenue. Total product revenue remained unchanged as we shifted
the focus of our sales force from selling call accounting to Internet/integrated
products.
Call Accounting Revenue. Total call accounting revenue was $2.2 million, or
84.1% of total revenue, for the first three months of 1999, representing a 3.7%
decrease from $2.3 million, or 92.7% of total revenue for the same period in
1998. Call accounting product revenue was $1.0 million, or 37.4% of total
revenue, for the first three months of 1999, representing a 16.6% decrease from
$1.2 million, or 47.6% of total revenue, for the same period in 1998. Call
accounting service revenue was $1.2 million, or 46.7% of total revenue, in the
first three months of 1999, representing a 9.8% increase from $1.1 million, or
45.1% of total revenue, for the same period in 1998. The decline in call
accounting product revenue in absolute dollars and as a percentage of total
revenue in the first three months of 1999 was due to the increased focus of our
sales force on selling Internet/integrated as compared to selling call
accounting products and an increase in the provision for product returns. The
increase in call accounting service revenue was primarily attributable to
increased installation revenue and a slight increase in maintenance revenue.
Internet/Integrated Revenue. Total Internet/integrated revenue was
$422,000, or 15.9% of total revenue, in the first three months of 1999,
representing a 129.3% increase from $184,000, or 7.3% of total revenue, for the
same period in 1998. Internet/integrated product revenue was $370,000, or 13.9%
of total revenue, in the first three months of 1999, representing a 110.2%
increase from $176,000, or 7.0% of total revenue, for the same period in 1998.
Internet/integrated service revenue was $52,000, or 2.0% of total revenue, in
the first three months of 1999, representing a 550.0% increase from $8,000, or
0.3% of total revenue, for the same period in 1998. The increase in
Internet/integrated product revenue in absolute dollars and as a percentage of
total revenue was due to the increased focus of our sales force on selling our
Internet/integrated products. The increase in Internet/integrated service
revenue was driven by the increase in Internet/integrated product sales.
Cost of Product Revenue. Cost of product revenue includes employee
compensation, costs of materials related to product production, shipment and
fulfillment, and payments under third-party licensing agreements. Cost of
product revenue was $265,000, or 10.0% of total revenue, in the first three
months of 1999, representing a 38.0% increase from $192,000, or 7.7% of total
revenue, for the same period in 1998. This increase in cost and the
corresponding increase in percentage of revenue was primarily attributable to an
increase in the percentage of total costs for royalty payments for third-party
licensing and an increase in product shipments.
Cost of Service Revenue. Cost of service revenue is comprised primarily of
service employee compensation. Cost of service revenue was $339,000, or 12.8% of
total revenue, in the first three months of 1999, representing a 6.9% increase
from $317,000, or 12.6% of total revenue, for the same period in 1998. This
increase was primarily due to an expansion of the number of companies under
annual support contracts.
Research and Development Expenses. Research and development expenses
include salaries and related costs for software developers, quality assurance
and documentation personnel involved in our research and development efforts.
Research and development expenses were $379,000, or 14.3% of total revenue, for
the first three months of 1999, representing a 5.0% decrease from $399,000, or
15.9% of total revenue, for the same period in 1998. The decrease in total
research and development expenses reflects the reduction in outside contractors
used in 1998 to accelerate the development of our Internet/integrated product
line.
Sales and Marketing Expenses. Sales and marketing expenses include
salaries and related costs, commissions, travel, facilities, communications
costs and promotional expenses for our sales organization and marketing staff.
Sales and marketing expenses were $979,000, or 36.8% of total revenue, in the
first three months of 1999, representing a 0.4% decrease from $983,000, or 39.2%
of total revenue, for the same period in 1998. These expenses remained
relatively unchanged due to limited growth in sales and marketing personnel and
promotional expenses, coupled with decreased travel expenses in 1999.
20
<PAGE> 25
General and Administrative Expenses. General and administrative expenses
include administrative salaries and related benefits, depreciation and
amortization, recruiting and relocation expenses, as well as legal, accounting
and other professional fees. General and administrative expenses were $966,000,
or 36.3% of total revenue, in the first three months of 1999, representing a
34.7% increase from $717,000, or 28.6% of total revenue, for the same period in
1998. This increase was primarily due to an increased provision for
uncollectable accounts and an increase in a sales tax provision.
Pro Forma Provision for (Benefit from) Income Taxes. The pro forma
effective tax rate for the three months ended March 31, 1999 was none compared
to a pro forma tax rate of 7.9% for the three months ended March 31, 1998. There
was no pro forma income tax benefit for the March 31, 1999 period because there
were no taxes recoverable in the two-year carryback period to which losses
incurred in the March 31, 1999 period could be applied. The pro forma income tax
benefit for the March 31, 1998 period was limited to the amount of pro forma
income tax recoverable in the two-year carryback period of $98,000.
Years Ended December 31, 1998 and 1997
Total Revenue. Total revenue was $10.4 million in 1998, representing a
16.0% increase from $8.9 million in 1997. Total product revenue was $5.5
million, or 52.5% of total revenue, in 1998, representing an 11.5% increase from
$4.9 million, or 54.6% of total revenue, in 1997. Total service revenue was $4.9
million, or 47.5% of total revenue, in 1998, representing a 21.5% increase from
$4.1 million, or 45.4% of total revenue, in 1997. These increases were primarily
the result of an increase in our Internet/integrated revenue and an increase in
call accounting service revenue.
Call Accounting Revenue. Total call accounting revenue was $9.3 million,
or 89.8% of total revenue, in 1998, representing a 7.6% increase from $8.7
million, or 96.9% of total revenue, in 1997. Call accounting product revenue was
$4.5 million, or 43.1% of total revenue, in 1998, representing a 3.1% decrease
from $4.6 million, or 51.6% of total revenue, in 1997. Call accounting service
revenue was $4.9 million, or 46.7% of total revenue, in 1998, representing a
19.7% increase from $4.1 million, or 45.3% of total revenue, in 1997. The
decline in call accounting product revenue in absolute dollars and as a percent
of total revenue reflects our decision to focus some of our call accounting
resources on developing the Internet/integrated market opportunity. The
increased call accounting service revenue reflects the continued historical
renewal rate on annual maintenance contracts and a significant increase in
installation and training service revenue.
Internet/Integrated Revenue. Total Internet/integrated revenue was $1.1
million, or 10.2% of total revenue, in 1998, representing a 282.9% increase from
$275,000, or 3.1% of total revenue, in 1997. Internet/integrated product revenue
was $971,000, or 9.4% of total revenue, in 1998, representing a 260.0% increase
from $270,000, or 3.0% of total revenue, in 1997. Internet/integrated service
revenue was $82,000, or 0.8% of total revenue, in 1998, representing an increase
from $5,000, or 0.1% of total revenue, in 1997. The increase in
Internet/integrated revenue and percentage of total revenue was due to the
increased focus of our sales force on selling our Internet/integrated products
and an increase in revenue from third-party distributors put in place during
1997.
Cost of Product Revenue. Cost of product revenue was $923,000, or 8.9% of
total revenue, in 1998, representing a 25.4% increase from $736,000, or 8.2% of
total revenue, in 1997. The increase was primarily attributable to an increase
in product shipments. The increased percentage of revenue reflects a slight
increase in the percentage of sales derived from third-party products.
Cost of Service Revenue. Cost of service revenue was $1.3 million, or
12.3% of total revenue, in 1998, representing a 21.0% increase from $1.1
million, or 11.8% of total revenue, in 1997. The dollar increase was primarily
due to growth in services staff needed to support the additional customers under
annual maintenance contracts. The increased percentage of revenue reflects a
slight increase in the services staff necessary to meet the expected support and
service requirements for the new Internet product.
21
<PAGE> 26
Research and Development Expenses. Research and development expenses were
$1.8 million, or 17.8% of total revenue, in 1998, representing a 33.0% increase
from $1.4 million, or 15.5% of total revenue, for 1997. The absolute and
percentage increases reflect the growth in research and development staff to
maintain and continue to expand our Internet/integrated product line.
Sales and Marketing Expenses. Sales and marketing expenses were $4.6
million, or 44.4% of total revenue, in 1998, representing a 30.9% increase from
$3.5 million, or 39.4% of total revenue, in 1997. The increase in absolute
dollars was attributable primarily to increased commission expenses associated
with increased sales and personnel costs resulting from an increase in our sales
and marketing staff. The increased percentage of total revenue was attributable
to sales staff focusing on developing new Internet distribution channels.
General and Administrative Expenses. General and administrative expenses
were $2.9 million, or 28.2% of total revenue, in 1998, representing a 31.2%
increase from $2.2 million, or 24.9% of total revenue, in 1997. The absolute and
percentage increases were primarily attributable to increased costs of
personnel, rent and professional fees to accommodate our growth.
Pro Forma Provision for (Benefit from) Income Taxes. The pro forma
effective tax rate for the year ended December 31, 1998 was 7.5% compared to
(10.5)% for the year ended December 31, 1997. The pro forma income tax benefit
for the year ended December 31, 1998 was limited to the amount of pro forma
income tax expense in the two-year carryback period. The pro forma income tax
benefit for the year ended December 31, 1997 was primarily a result of a
decrease in the valuation allowance.
Years Ended December 31, 1997 and 1996
Total Revenue. Total revenue was $8.9 million in 1997, representing a
29.7% increase from $6.9 million in 1996. Total product revenue was $4.9
million, or 54.6% of total revenue, in 1997, representing a 29.2% increase from
$3.8 million, or 54.9% of total revenue, in 1996. Total service revenue was $4.1
million, or 45.4% of total revenue, in 1997, representing a 30.3% increase from
$3.1 million, or 45.1% of total revenue, in 1996. These increases were primarily
the result of the increase in call accounting revenue and the introduction of
our Internet product.
Call Accounting Revenue. Total call accounting revenue was $8.7 million,
or 96.9% of total revenue, in 1997, representing a 25.7% increase from $6.9
million, or 100% of revenue, in 1996. Call accounting product revenue was $4.6
million, or 51.6% of total revenue, in 1997, representing a 22.1% increase from
$3.8 million, or 54.9% of total revenue, in 1996. Call accounting service
revenue was $4.1 million, or 45.3% of total revenue, in 1997, representing a
30.2% increase from $3.1 million, or 45.1% of total revenue, in 1996. All call
accounting revenue growth reflected increased product sales and our continued
historical support renewal rate.
Internet/Integrated Revenue. Total Internet/integrated revenue was
$275,000, or 3.1% of total revenue, in 1997, compared to no revenue in 1996.
Internet/integrated product revenue increased to $270,000, or 3.0% of total
revenue, in 1997 from no revenue in 1996. Internet/integrated service revenue
increased to $5,000, or 0.1% of total revenue, in 1997 from no revenue in 1996.
This increase was a result of the introduction of our Internet product in
mid-1997.
Cost of Product Revenue. Cost of product revenue was $736,000, or 8.2% of
total revenue, in 1997, representing a 28.2% increase from $574,000, or 8.3% of
total revenue, in 1996. This increase reflects growth in our product shipments.
Cost of Service Revenue. Cost of service revenue was $1.1 million, or
11.8% of total revenue, in 1997, representing a 38.4% increase from $761,000, or
11.0% of total revenue, in 1996. This increase was primarily due to the addition
of customer support personnel to support our growing customer base.
Research and Development Expenses. Research and development expenses were
$1.4 million, or 15.5% of total revenue, in 1997, representing a 130.0% increase
from $603,000, or 8.7% of total revenue, in 1996. The absolute and percentage
increases in total expenses were primarily attributable to increased
22
<PAGE> 27
research and development personnel required to develop the new generation of our
Internet/integrated software products.
Sales and Marketing Expenses. Sales and marketing expenses were $3.5
million, or 39.4% of total revenue, in 1997, representing an 18.2% increase from
$3.0 million, or 43.2% of total revenue, in 1996. The absolute increase was
primarily attributable to increased commissions due to increased sales. The
decrease as a percentage of revenue was due to an increase in the number of
sales per sales person.
General and Administrative Expenses. General and administrative expenses
were $2.2 million, or 24.9% of total revenue, in 1997, representing a 19.9%
increase from $1.9 million, or 27.0% of total revenue, in 1996. General and
administrative expenses grew in absolute dollars as we added personnel to
administrative areas but declined as a percentage of total revenue principally
due to economies of scale associated with increased revenue.
Pro Forma Provision for (Benefit from) Income Taxes. The pro forma
effective tax rate for the year ended December 31, 1997 was (10.5)% compared to
72.0% for the year ended December 31, 1996. The pro forma income tax benefit for
the year ended December 31, 1997 was primarily a result of a change in the
valuation allowance. The pro forma income tax expense for the year ended
December 31, 1996 was primarily a result of income before income taxes and the
change in the valuation allowance.
QUARTERLY RESULTS OF OPERATIONS
The following tables present certain unaudited quarterly statements of
operations data for each of our last nine quarters, including the period ended
March 31, 1999, as well as the percentage of our total revenue represented by
each item and certain revenue information for the same periods expressed in
dollars and as a percentage of total revenue. All information other than the
tables of revenue information have been derived from our financial statements.
The unaudited quarterly financial statements have been prepared on substantially
the same basis as the audited financial statements contained herein. In the
opinion of management, the unaudited quarterly financial statements include all
adjustments, consisting only of normal recurring adjustments, that we consider
to be necessary to fairly present this information when read in conjunction with
our financial statements and related notes appearing elsewhere in this
prospectus. The results of operations for any quarter are not necessarily
indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue........... $1,023 $1,050 $1,253 $1,564 $1,369 $1,197 $1,407 $1,477 $ 1,365
Service revenue........... 969 1,036 1,103 950 1,138 1,320 1,303 1,171 1,293
------ ------ ------ ------ ------ ------ ------ ------ -------
Total revenue......... 1,992 2,086 2,356 2,514 2,507 2,517 2,710 2,648 2,658
Cost of revenue:
Product costs............. 170 171 160 235 192 240 210 281 265
Service costs............. 243 238 275 297 317 309 324 324 339
------ ------ ------ ------ ------ ------ ------ ------ -------
Total cost of
revenue............. 413 409 435 532 509 549 534 605 604
------ ------ ------ ------ ------ ------ ------ ------ -------
Gross profit................. 1,579 1,677 1,921 1,982 1,998 1,968 2,176 2,043 2,054
Operating expenses:
Research and
development............. 225 328 377 457 399 483 495 468 379
Sales and marketing....... 691 807 878 1,146 983 1,252 1,216 1,162 979
General and
administrative.......... 533 536 546 616 717 806 711 692 966
------ ------ ------ ------ ------ ------ ------ ------ -------
Total operating
expenses............ 1,449 1,671 1,801 2,219 2,099 2,541 2,422 2,322 2,324
------ ------ ------ ------ ------ ------ ------ ------ -------
Operating income (loss)...... 130 6 120 (237) (101) (573) (246) (279) (270)
Interest income (expense):
Increase in common stock
put warrant............. -- -- -- -- -- -- -- -- (734)
Other interest............ 6 7 4 2 (1) (39) (32) (35) (40)
------ ------ ------ ------ ------ ------ ------ ------ -------
Total interest........ 6 7 4 2 (1) (39) (32) (35) (774)
------ ------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)............ $ 136 $ 13 $ 124 $ (235) $ (102) $ (612) $ (278) $ (314) $(1,044)
====== ====== ====== ====== ====== ====== ====== ====== =======
Pro forma provision for
(benefit from) income
taxes....................... 14 1 13 (32) (8) (46) (21) (23) --
------ ------ ------ ------ ------ ------ ------ ------ -------
Pro forma net income
(loss)...................... $ 122 $ 12 $ 111 $ (203) $ (94) $ (566) $ (257) $ (291) $(1,044)
====== ====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
23
<PAGE> 28
<TABLE>
<CAPTION>
REVENUE INFORMATION
-------------------
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Call accounting:
Product revenue........... $1,023 $1,025 $1,217 $1,355 $1,193 $1,064 $1,073 $1,149 $ 995
Service revenue........... 969 1,036 1,103 945 1,130 1,307 1,278 1,135 1,241
------ ------ ------ ------ ------ ------ ------ ------ ------
Total call accounting
revenue............. 1,992 2,061 2,320 2,300 2,323 2,371 2,351 2,284 2,236
Internet/integrated:
Product revenue........... -- 25 36 209 176 133 334 329 370
Service revenue........... -- -- -- 5 8 13 25 35 52
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
Internet/integrated
revenue............. -- 25 36 214 184 146 359 364 422
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenue....... $1,992 $2,086 $2,356 $2,514 $2,507 $2,517 $2,710 $2,648 $2,658
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Expressed as a percentage of revenue, our quarterly results were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue.......... 51.4% 50.3% 53.2% 62.2% 54.6% 47.6% 51.9% 55.8% 51.4%
Service revenue.......... 48.6 49.7 46.8 37.8 45.4 52.4 48.1 44.2 48.6
----- ----- ------ ------ ------ ------ ------ ------ ------
Total revenue........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ------ ------ ------ ------ ------ ------ ------
Cost of revenue:
Product cost............. 8.5 8.2 6.8 9.3 7.7 9.5 7.7 10.6 9.9
Service cost............. 12.2 11.4 11.7 11.9 12.6 12.3 12.0 12.2 12.8
----- ----- ------ ------ ------ ------ ------ ------ ------
Total cost of
revenue............ 20.7 19.6 18.5 21.2 20.3 21.8 19.7 22.8 22.7
----- ----- ------ ------ ------ ------ ------ ------ ------
Gross profit................. 79.3 80.4 81.5 78.8 79.7 78.2 80.3 77.2 77.3
Operating expenses:
Research and
development............ 11.3 15.7 16.0 18.1 15.9 19.3 18.3 17.7 14.3
Sales and marketing...... 34.7 38.7 37.3 45.6 39.2 49.7 44.9 43.9 36.9
General and
administrative......... 26.8 25.7 23.1 24.5 28.6 32.0 26.2 26.1 36.3
----- ----- ------ ------ ------ ------ ------ ------ ------
Total operating
expenses........... 72.8 80.1 76.4 88.2 83.7 101.0 89.4 87.7 87.5
----- ----- ------ ------ ------ ------ ------ ------ ------
Operating income (loss)...... 6.5 0.3 5.1 (9.4) (4.0) (22.8) (9.1) (10.5) (10.2)
Interest income (expense):
Increase in common stock
put warrant............ -- -- -- -- -- -- -- -- (27.6)
Other interest........... 0.3 0.3 0.2 0.1 (0.1) (1.5) (1.2) (1.4) (1.5)
----- ----- ------ ------ ------ ------ ------ ------ ------
Total interest income
(expense).......... 0.3 0.3 0.2 0.1 -- (1.5) (1.2) (1.4) (29.1)
----- ----- ------ ------ ------ ------ ------ ------ ------
Net income (loss)............ 6.8% 0.6% 5.3% (9.3)% (4.1)% (24.3)% (10.3)% (11.9)% (39.3)%
----- ----- ------ ------ ------ ------ ------ ------ ------
Pro forma provision for
(benefit from) income
taxes...................... 0.7 -- 0.6 (1.3) (0.3) (1.8) (0.8) (1.0) --
----- ----- ------ ------ ------ ------ ------ ------ ------
Pro forma net income
(loss)..................... 6.1% 0.6% 4.7% (8.0)% (3.8)% (22.5)% (9.5)% (10.9)% (39.3)%
===== ===== ====== ====== ====== ====== ====== ====== ======
</TABLE>
REVENUE INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Call accounting:
Product revenue.......... 51.4% 49.1% 51.7% 53.9% 47.6% 42.3% 39.6% 43.4% 37.4%
Service revenue.......... 48.6 49.7 46.8 37.6 45.1 51.9 47.2 42.9 46.7
----- ----- ------ ------ ------ ------ ------ ------ ------
Total call accounting
revenue............ 100.0 98.8 98.5 91.5 92.7 94.2 86.8 86.3 84.1
Internet/integrated:
Product revenue.......... -- 1.2 1.5 8.3 7.0 5.3 12.3 12.4 13.9
Service revenue.......... -- -- -- 0.2 0.3 0.5 0.9 1.3 2.0
----- ----- ------ ------ ------ ------ ------ ------ ------
Total
Internet/integrated
revenue............ -- 1.2 1.5 8.5 7.3 5.8 13.2 13.7 15.9
----- ----- ------ ------ ------ ------ ------ ------ ------
Total revenue...... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ====== ====== ====== ====== ====== ====== ======
</TABLE>
24
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our operations from cash generated from
operations and the issuance of long-term debt. We had cash and cash equivalents
of $10,000 at March 31, 1999, $46,000 at December 31, 1998 and $78,000 at
December 31, 1997.
Cash provided by operating activities during the three months ended March
31, 1999 and March 31, 1998 was $56,000, and $126,000, respectively. This
decrease was primarily a result of a decrease in net operating income. Cash
provided by (used in) operating activities during the years ended December 31,
1998 and 1997 was $(771,000) and $121,000, respectively. This decrease was
primarily a result of a $1.3 million decrease in net income.
Our investing activities primarily include expenditures for fixed assets in
support of our product development activities and infrastructure. Net cash used
in investing activities decreased to $12,000 in the three months ended March 31,
1999 compared to $101,000 for the same period in 1998. This decrease resulted
primarily from a decrease in fixed assets purchased. Net cash used in investing
activities increased to $306,000 in 1998 from $210,000 in 1997. This increase
resulted primarily from an increase in purchases of property and equipment.
Net cash used in financing activities was $80,000 in the three months ended
March 31, 1999, compared to net cash provided by financing activities of
$965,000 for the same period in 1998. This change was due primarily to the
repayment of our line of credit with Silicon Valley Bank in the three months
ended March 31, 1999 and the issuance of long-term debt in 1998. Net cash
provided by (used in) financing activities was $1.0 million in 1998 and
($79,000) in 1997. This change was due primarily to the issuance of long-term
debt in 1998 resulting in net proceeds of $965,000. We also have a $750,000 bank
line of credit with Silicon Valley Bank, which expires in November 1999. As of
June 20, 1999, there were no monies outstanding under this line of credit.
On June 16, 1999, we completed the private placement of 300,000 shares of
Series A Preferred Stock, resulting in gross proceeds to us of $6.0 million and
net proceeds of approximately $5.9 million after payment by us of expenses
relating to the transaction. Of these funds, $4.0 million was used to redeem an
aggregate of 600,000 shares of common stock from David Couchman, our Chairman
and founder, and his spouse. The balance of the net proceeds will be used to
fund our operational growth. The Series A Preferred Stock will automatically
convert to 900,000 shares of common stock concurrently with the consummation of
this offering.
On June 21, 1999, we sold 75,000 shares of common stock for $500,000 to a
nominee to our Board of Directors.
Since we have not generated significant revenue from sales outside the
United States, we have not sustained material foreign currency exchange losses
and presently do not attempt to hedge our exposure to fluctuations in foreign
currency exchange rates. Should our revenue from international sales increase,
and should such sales be denominated in foreign currencies, we intend to adopt a
hedging strategy against foreign currency fluctuations.
We believe that our existing liquidity and capital resources, including the
proceeds resulting from the sale of our common stock in this offering, will be
sufficient to satisfy our cash requirements for at least the next 12 months. To
the extent that such amounts are insufficient, we may be required to raise
additional funds through equity or debt financing. There can be no assurance
that we will be able to raise these additional funds on terms acceptable to us,
or at all.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all
25
<PAGE> 30
fiscal years beginning after June 15, 1999. We are in the process of evaluating
this pronouncement and will adopt it upon its effective date.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions. This SOP
amends SOP 97-2 to, among other things, require recognition of revenue using the
"residual method" in circumstances outlined in the SOP. Under the residual
method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections of
SOP 97-2, and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related to
the delivered elements. SOP 98-9 is effective for fiscal years beginning after
March 15, 1999. We do not anticipate any impact from the provisions of the new
pronouncement.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
State of Readiness of our Products. All new products introduced by us will
be year 2000 compliant. We have been testing our existing products for use in
the year 2000 and beyond. The results suggest that current versions of our
products are year 2000 compliant. However, our testing does not cover every
possible computing environment. Accordingly, some customers may have year 2000
problems with products that we believe are year 2000 compliant.
Previous purchasers may be using older versions of our products. We believe
problems encountered by such users could be quickly remedied with our year 2000
upgrades for those products. In addition, we have not tested discontinued
products for year 2000 compliance, some of which are still in use. We are
attempting to identify and inform current customers that rely on such
discontinued products of their lack of compliance and are working with them to
provide alternate operating arrangements. We cannot guarantee that we will be
able to locate all users of our older, non-compliant products. Our experience in
developing year 2000 compliant versions of our existing products suggests that
we can correct year 2000 problems in our discontinued products without incurring
material expenses.
State of Readiness of our Internal Systems. We may be affected by year
2000 issues related to non-compliant internal systems developed by us or by
third-party vendors. We have completed testing all material internal systems for
year 2000 compliance. We are not currently aware of any year 2000 problem
relating to any internal systems material to the operation of our business. We
have also received assurances from our third-party vendors for all material
systems in use by us that such systems are year 2000 compliant, except with
respect to an application for customer order tracking. We anticipate that the
non-compliant application for customer order tracking will be made year 2000
compliant or replaced before December 31, 1999.
Our internal operations and business are also dependent upon the
computer-controlled systems of third parties such as suppliers, customers, and
service providers. We believe that absent a critical failure beyond our control,
such as a prolonged loss of electrical or telephone service, year 2000 problems
experienced by third parties will not have a material impact on us. We have no
contingency plan for critical failures in third-party products. Our contingency
plan in the event of a non-critical failure is to establish relationships with
alternative suppliers or vendors to replace failed suppliers or vendors.
Cost. We do not separately track expenditures relating to year 2000
compliance. Such expenditures are primarily absorbed within our development
organization. To date, our costs related to year 2000 compliance have not been
material relative to our overall development expenditures. Furthermore, based on
our experience to date, and our assessment that all material internal systems
other than the order tracking application and all currently marketed products
are year 2000 compliant, we do not anticipate that costs associated with
remediating our non-compliant products or internal systems will be material.
Risks. Any failure by us to make our products year 2000 compliant could
result in a decrease in sales of our products, an increase in allocation of
resources to address year 2000 problems of our customers without additional
revenue commensurate with such dedication of resources, or an increase in
litigation
26
<PAGE> 31
costs relating to losses suffered by our customers due to such year 2000
problems. Failures of our internal systems could prevent us from processing
orders, issuing invoices, and developing products, and could require us to
devote significant resources to correcting such problems. Due to the general
uncertainty inherent in the year 2000 computer problem, resulting from the
uncertainty of the year 2000 readiness of third-party suppliers and vendors, we
are unable to determine at this time whether the consequences of year 2000
failures will have a material impact on our business, results of operations, and
financial condition.
27
<PAGE> 32
BUSINESS
OVERVIEW
Telemate.Net Software, Inc. is a leading provider of Internet usage
management and telephone call accounting solutions. Our Telemate.Net network
usage management product suite provides an integrated solution that enables
businesses to monitor, analyze and manage the use of their Internet and voice
networks. We believe our patent-pending software is the first product to
integrate Internet usage management and call accounting capabilities. Our
Telemate.Net family of products enables businesses to optimize bandwidth
utilization, improve employee productivity, enhance network security, improve
e-commerce effectiveness, and control, allocate and recover network costs.
We sell our products through a combination of direct sales, resellers and
strategic distribution and marketing partners. Our customers represent all major
commercial, industrial and service categories, and include:
<TABLE>
<S> <C>
Arthur Andersen Georgia-Pacific
AT&T Merck
Avon Philip Morris
British Broadcasting Corporation PricewaterhouseCoopers
Cox Communications Sears Roebuck
Eastman Kodak Tommy Hilfiger
Ericsson U.S. Army
</TABLE>
INDUSTRY BACKGROUND
Emergence of the Internet as a Global Communications and Commerce Medium
The Internet has emerged as a rapidly growing global communications and
commerce medium. International Data Corporation, a market research organization,
estimates that the number of Internet users worldwide will grow from
approximately 97 million in 1998 to 320 million in 2002. The U.S. Department of
Commerce estimates that Internet traffic doubles every 100 days. In addition,
Forrester Research, a market research organization, estimates that consumer
electronic transactions worldwide will grow fivefold to $108 billion in the next
five years, while business to business electronic transactions are expected to
grow tenfold to $1.3 trillion over the next five years.
Due to the growth in the number of web users and the increasing use of the
Internet to conduct business, many organizations now recognize the Internet and
their intranets and extranets as strategic assets. The web is a valuable medium
through which businesses can increase sales, reduce costs and improve customer
service. Organizations are capitalizing on the global reach of the Internet to
expand into new markets and acquire and retain customers, and are utilizing the
web as a powerful distribution channel to market and deliver goods and services.
Also, businesses are increasingly using the web to interact with suppliers,
distributors and other business partners, often establishing secure extranets,
to effect a more efficient supply chain. Furthermore, intranets are being used
to foster internal communications, disseminate information and improve business
operations. Virtual private networks, or VPNs, are in many instances replacing
wide-area-networks as a cost-effective means of establishing secure
communication with remote employees and business partners. Internet access is
also being provided to many employees as a necessary component of their jobs. As
a result, organizations have begun to invest heavily in Internet technology and
infrastructure.
The Need for an Internet Usage Management Solution
While the Internet offers significant opportunities for businesses, the use
of the Internet involves certain business risks as well, including the potential
for employee abuse, reduced productivity, legal liabilities, theft or loss of
data, business interruption, excessive bandwidth use and unnecessary expense. As
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<PAGE> 33
a result, organizations are faced with the challenge of exploiting the
Internet's potential while mitigating the risks associated with this new
technology.
Businesses seek management and reporting solutions that can analyze
Internet usage patterns and provide comprehensive, detailed reports that enable
companies to more effectively utilize the Internet. Managers need to be able to
determine whether their employees are using the Internet productively and how
best to manage Internet traffic to meet the constraints of the network. Also,
just as companies have attempted to manage telephone costs, the rapid adoption
of the Internet for business purposes will ultimately require companies to
manage the costs of using the Internet.
As businesses increasingly use the Internet for marketing, e-commerce and
customer support, managers need to understand how customers and business
partners are interacting with their web site. For instance, a company can
determine which web site visitors are purchasing products and which pages they
visited before doing so, thus providing valuable information to managers on the
effectiveness of their web marketing efforts. GartnerGroup, a market research
organization, predicts that by year-end 2000, approximately 70% of Global 1000
companies will adopt web measurement and tracking functionality, as compared to
approximately 35% of Global 1000 companies that had adopted this functionality
as of year-end 1998.
In addition, as greater network access increases exposure to network
security breaches, network managers need a software solution that can analyze
the large amounts of data collected by network security devices to help
determine if their existing Internet infrastructure is secure. Consequently,
companies are seeking a management and reporting system that provides the
network intelligence they require to maximize their investment in the Internet.
The Trend Toward Convergence of Voice and Data Networks
Historically, voice and data networks have developed separately, with voice
traffic carried on the circuit-switched telephony network and data traffic
carried over the packet-switched computer network. During the 1960's,
enterprises increasingly deployed private branch exchanges, known as PBXs, that
were able to collect substantial amounts of data on telephony network usage. As
a result, in the 1970's, software solutions were developed that could access,
process and analyze this data to address the needs of enterprises to monitor and
manage telephone usage and to allocate the costs associated with such usage.
Throughout the 1980's and 1990's, emerging technology, deregulation and
increasing competition in the telecommunications industry coupled with the
growth in Internet usage and data traffic have led to a growing trend toward
convergence of voice and data networks. Today's Internet technology enables
voice and data transmissions to be pooled and routed over packet-switched
computer networks. Internet telephony has emerged as a low-cost alternative to
traditional long distance communications. International Data Corporation
projects that the market for Internet telephony will grow rapidly to over $23.4
billion in 2003.
The emerging convergence of voice and data networks has created additional
challenges for organizations. As voice over the Internet, or VoIP, applications
are implemented, companies will want to manage their use, just as they have for
traditional PBX networks. Many organizations will operate in a hybrid
environment for many years, with some voice traffic going through traditional
voice PBX networks and the remainder through VoIP servers. Organizations are
also encountering security risks as employees have the ability to access the
Internet directly over voice lines, thereby bypassing established security
firewalls that control the flow of data between an internal network and the
Internet. To address this converging network environment, businesses will need a
monitoring and reporting system capable of providing usage information for both
their Internet and voice networks.
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<PAGE> 34
The Need for an Integrated Network Usage Management Solution
The rapid expansion of the Internet as a significant medium for e-commerce
and the convergence of Internet and voice networks are creating an increasing
need for an integrated network usage management solution. Enterprises require
that these solutions:
- provide flexible reporting capabilities that can be easily modified to
obtain the desired information;
- be easy to implement and use;
- interface with a large number of data sources from a wide range of
manufacturers;
- collect data in a variety of formats;
- process large volumes of detailed data and track this data to specific
departments and individuals within the organization or visitors to the
network; and
- be scalable to accommodate the needs of businesses of all sizes.
THE TELEMATE.NET SOLUTION
Our Telemate.Net network usage management product suite provides an
integrated solution that enables businesses to monitor, analyze and manage the
use of their Internet and voice networks. We believe our patent-pending software
is the first product to integrate Internet usage management and call accounting
capabilities. The Telemate.Net solution provides the following key advantages:
Network Optimization. Telemate.Net can be used by managers throughout an
organization to maximize the effectiveness of their Internet and voice networks.
Telemate.Net enables businesses to optimize bandwidth utilization, improve
employee productivity, enhance network security, improve e-commerce
effectiveness, and control, allocate and recover network costs. For example:
- information technology managers can monitor network usage, resolve
bottlenecks and be alerted to security breaches;
- financial officers can manage and allocate network costs;
- human resources managers can monitor compliance with network use policies
and detect abuse;
- sales managers can measure productivity of Internet and telephone-based
sales activities; and
- marketing managers can analyze the effectiveness of Internet marketing
campaigns.
Comprehensive Reporting. Telemate.Net's reporting engine incorporates over
200 standard report templates and provides access not only to summary data on
network usage and activity but also to the detailed information supporting the
summary data. For example, a network manager can use the summary information to
detect network bottlenecks and access detailed data to identify which
department, individual or type of usage has caused the bottleneck. Our solutions
also provide an extensive filtering capability that allows users to modify the
standard report templates to incorporate additional information or exclude
unwanted data. The automation capabilities of Telemate.Net's reporting engine
also allow users to define who receives reports and schedule how and when they
are delivered.
Ease of Implementation and Use. Telemate.Net delivers the benefits of a
high performance application in a manner that simplifies product installation
and use. By embedding the Microsoft SQL Server(TM) database within Telemate.Net,
we eliminate much of the complexity usually associated with installing a robust
database. Telemate.Net's data collection engine can easily import data directly
from a wide variety of network devices into a single consolidated database. By
extracting data already being collected by existing network devices, our
products eliminate the need to install additional software and hardware
throughout the network or on each network device. Telemate.Net's simple,
point-and-click, multi-panel user interface allows customers to easily access,
analyze and process network usage data.
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<PAGE> 35
Flexible Data Collection and Reformatting. The Telemate.Net data
collection and reformatting module extracts data in many formats from a variety
of sources, including firewalls, proxy servers, intrusion detection products and
PBXs from a wide range of manufacturers, and converts this data into a standard
format. Once standardized, data from many sources can be integrated into a
single database to enable consolidated reporting. We initially developed this
technology to allow us to collect data from a wide variety of PBX types and
formats. The flexibility of the Telemate.Net technology enables us to quickly
provide data collection and reformatting capabilities for additional network
devices such as web servers, VoIP routers and e-mail servers and network
security devices such as firewalls.
Robust Data Storage, Management and Processing. Telemate.Net's embedded
relational database can efficiently store large amounts of detailed data
gathered by networking and network security devices. This permits flexibility to
provide both summary and detailed reporting. Telemate.Net's processing and
database module incorporates an organizational directory that tracks network
usage data by user, department or other group within the organization. This
organizational directory also maintains historical links between users and their
network activity. The database also allows Telemate.Net to provide extensive
cost allocation based on user-determined parameters.
Scalability. Telemate.Net provides an integrated solution for network
usage management that is highly scalable to accommodate the needs of enterprises
of all sizes. Its database is scalable from a low volume, desktop application to
a high volume, high performance network environment. An organization can select
the model with the capacity, functionality, reports and number of data sources
it currently requires, knowing that with a simple activation code it can easily
upgrade to other models and additional data sources.
STRATEGY
Our objective is to capitalize on our expertise and leadership in call
accounting and early entry into Internet usage management to become the leading
provider of integrated network usage management software. Our strategy to
achieve this objective includes the following:
Extend Our Technology Leadership. We believe that Telemate.Net offers the
highest level of network usage reporting detail, flexibility and scalability
available today. We believe we are currently the only company offering an
integrated product that provides both Internet usage management and telephone
call accounting capabilities. We intend to capitalize on the core technology of
our existing products to provide additional functionality, such as management
and analysis of data from web servers, VoIP switches and routers, and e-mail
servers. In addition, we will continue to expand the number of data source
manufacturers and models that we support. We believe that our experience in the
network usage management industry and flexible core technology will enable us to
continue to adapt our solutions as the network usage management needs of
enterprises evolve.
Expand Our Direct Sales Force and Capitalize on Our Direct Sales
Approach. Our direct sales organization currently consists of 38 sales
professionals primarily employing a highly productive telephone and online sales
approach. We have refined this approach over the past decade so that we can
complete sales with little or no face-to-face contact, often performing online
product demonstrations. This has allowed us to avoid expensive field office
operations and travel. We routinely close transactions ranging from $1,000 to
$50,000 over the telephone. Orders over $50,000 typically require only one or
two direct visits with the customer. Web-based marketing is making our direct
sales operation even more productive by delivering sales information and even
trial products in a more timely and efficient manner. We intend to continue to
expand our direct sales force rapidly in the next few years to increase sales of
our Internet and integrated products.
Increase Sales to Existing Customers. We have installed our products in
over 14,000 customer locations. Prior to 1999, our sales efforts were focused
primarily on call accounting. As a result, most of our customers have only
purchased our call accounting products. We have been successful selling call
accounting upgrades to this customer base in a cost effective manner. We believe
this large base of existing call accounting customers represents an excellent
opportunity to sell Internet usage management products as well. In 1999, we
began to focus a portion of our direct sales force on generating additional
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<PAGE> 36
sales from our existing customer base. This group will continue to place primary
emphasis on selling our Internet and integrated network usage management
solutions.
Strengthen and Expand Strategic Distribution and Marketing
Relationships. A number of leading networking and network security product
vendors, including AXENT Technologies, Check Point Software, Cisco Systems,
Lucent Technologies, Microsoft and Network Associates, help us distribute and
market our products. These companies assist in the sales and marketing of our
products by bundling them with their own products, selling our products through
their sales forces and promoting our products at trade shows, seminars and
through their web sites. We also sell our products worldwide through a growing
number of network resellers, systems integrators and distributors. We intend to
pursue additional strategic distribution and marketing relationships both
domestically and internationally, and to expand the scope of our existing
relationships in order to complement our direct sales capabilities and expand
our customer base.
Expand Internet Marketing and E-Commerce Capabilities. We intend to
continue to use the Internet to build our brand awareness, generate leads for
our direct sales force and resellers and generate web sales. We utilize a
variety of web-based advertising and marketing programs along with links from
our strategic partners' web sites and other traditional marketing programs to
attract prospects and customers to our web site. In addition to obtaining
general information about our products, users are able to download our products
for a 30-day trial period. Our web site has proved to be the most productive
source of prospects for our direct sales force and therefore, we expect to
significantly expand our web marketing programs. We also plan to begin accepting
and fulfilling orders via the Internet before the end of 1999.
PRODUCTS
We develop, market, license and support products for network usage
management. Our principal Telemate.Net products and third-party products that we
incorporate into our product line are as follows:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
<S> <C>
TELEMATE.NET QUICKVIEW Our QuickView product provides basic network usage
management and reporting functionality for a single data
source. It has sufficient capacity to handle the needs of
small businesses or serve as an entry-level product for
large ones.
TELEMATE.NET QUICKVIEW PLUS QuickView Plus provides the same functionality as the
standard QuickView product, as well as the ability to
collect data from multiple data sources and
manufacturers.
TELEMATE.NET WORKGROUP WorkGroup is targeted at small to mid-size enterprises
that require the ability to store, manage and process
large volumes of data from multiple data sources and seek
more extensive network usage reporting. It improves upon
QuickView by providing additional features and expanded
reporting.
TELEMATE.NET ENTERPRISE Enterprise incorporates all of the functionality of
WorkGroup plus additional features in order to meet the
needs of most mid-size to large enterprises seeking a
comprehensive network usage management solution.
ADD-ON FUNCTIONALITY:
- Additional Data Source -- allows our products to collect and process data from
Modules additional network devices.
-URL Categorization -- provides usage information based upon the types of web
sites accessed.
- Advanced Asset Manager -- enables management of network device inventory, cable
route structure and service work orders.
- 2nd Nature(R) -- provides PBX configuration management integrated with
our call accounting product.
</TABLE>
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<PAGE> 37
TELEMATE.NET QUICKVIEW
QuickView is targeted at organizations that require data collection from a
single data source, have moderate usage data storage requirements and are
satisfied with basic usage reports. Because QuickView operates on Microsoft's
Windows 95, 98 and NT operating systems, it is suitable for users seeking a
standard desktop solution. It is built around an embedded Microsoft SQL 7.0 MSDE
desktop database that provides the benefits of a relational database at a more
affordable price. Customers may choose to report on one of the following data
sources from a variety of manufacturers: firewalls, proxy servers, intrusion
detection products or PBXs. QuickView may be easily upgraded to QuickView Plus,
WorkGroup or Enterprise using an activation code.
All of our QuickView products:
<TABLE>
<S> <C>
- - Operate on a single desktop PC - Link usage data to an organizational
directory
- - Collect data from one data source - Store up to one gigabyte of information
- - Store and report on extensions, IP - Include an embedded Microsoft MSDE for
addresses or user identifications Visual Studio 6 database
- - Operate on Microsoft NT 4.0 or Microsoft - Automatically schedule reports and other
Windows 9x operating systems important system functions
- - Include a Report Finder Wizard that - Allow reports to be printed or
simplifies report selection distributed via e-mail or in HTML format to
a web server
- - Contain standard reports that may be - Include variable currency support for
customized with extensive filtering international applications
</TABLE>
QuickView for Firewall/Proxy Server:
- - Includes 14 standard reports
- - Provides graphical and tabular summary and detailed reports on Internet usage
- - Includes proxy server effectiveness statistic reporting
- - Supports most major firewalls and proxy servers
- - Reports usage by URL category (URL destination database is optional)
- - Contains basic reports on Internet security statistics
QuickView for Intrusion Detection:
- - Includes 14 standard reports
- - Provides intrusion detection statistical trends
- - Initially supports Cisco NetRanger
QuickView for Call Accounting:
- - Includes eight standard reports
- - Provides graphical and tabular summary and detailed reports on call activity
- - Enables flat-rate costing of all calls
- - Supports most PBXs
QuickView for VoIP and QuickView for Web Servers are expected to be
available in the first half of 2000.
TELEMATE.NET QUICKVIEW PLUS
QuickView Plus is targeted at customers that have basic reporting needs and
moderate data storage requirements but also require reporting on multiple data
sources. QuickView Plus allows a user to have multiple firewalls, proxy servers,
intrusion detection devices or PBXs. Data sources may be of a single type or a
combination of types and manufacturers. QuickView Plus is built around the same
database as the standard QuickView product. QuickView Plus may be easily
upgraded to WorkGroup or Enterprise using an activation code.
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<PAGE> 38
QuickView Plus includes all features of the standard QuickView product, as well
as the following features:
- - Collects data from multiple firewalls, proxy servers, intrusion detection
products and PBXs
- - Collects data from two data sources as a standard feature, with additional
data sources optional
- - Provides three additional reports that integrate Internet and voice usage
- - Allows calling cards to be used as a data source
TELEMATE.NET WORKGROUP
WorkGroup is targeted at small to mid-size organizations that require large
volumes of data storage and seek extensive network usage reporting. It builds
upon QuickView by providing additional features. It also provides additional
information and reports on usage, traffic and security violations. WorkGroup
allows allocation of Internet usage costs and includes more than one hundred
standard reports. WorkGroup embeds the Microsoft SQL Server 7 database, which is
a high performance, scalable relational database capable of storing and
processing large volumes of data. WorkGroup integrates the features of the
QuickView products to provide one solution for multiple data sources. WorkGroup
may be easily upgraded to Enterprise using an activation code.
WorkGroup includes all of the general features of QuickView Plus, as well as the
following features:
- - Operates in a single workstation or multiple workstation/server environment
- - Collects data from multiple data sources. One data source standard, others
optional
- - Stores and reports on unlimited extensions, IP addresses or user
identifications
- - Includes an embedded Microsoft SQL Server 7 database
Additional firewall and proxy server usage management features of WorkGroup are
as follows:
- - Includes 69 additional firewall and proxy server reports, for a total of 83
reports
- - Contains more Internet security statistics than QuickView
- - Allows variable Internet costing by protocol, time of day, day of week, etc.
- - 17 additional reports are available that integrate Internet and voice usage
Intrusion detection usage management includes all the features of QuickView
Plus. Additional features and reports are expected to be available in the first
half of 2000.
Additional call accounting features of WorkGroup are as follows:
- - Includes 63 additional call accounting reports, for a total of 71 reports
- - Cell phone usage data may be imported if available electronically from carrier
- - Provides telephone toll fraud detection
- - Meter pulse costing for international corporations
- - Expanded costing includes long-distance tariffs, AT&T Uniplan and MCI Vision
VoIP and web server features are expected to be available in the first half of
2000.
TELEMATE.NET ENTERPRISE
Enterprise is aimed at most mid-size to large enterprises seeking a more
complete network usage management solution. It includes over 200 reports, a URL
categorization database, third-party billing, allocation of equipment and
overhead costs, and a custom report writing tool, currently Seagate Software,
Inc.'s Crystal Reports Professional 7.
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Enterprise includes all the general features of WorkGroup, as well as the
following features:
<TABLE>
<S> <C>
- - Allows allocation, by usage, of network - Includes Crystal Reports Professional,
expenditures, including network overhead custom report writer
costs, to departments and users
- - Provides seven additional expense - Expands cost allocation and billing
allocation reports reporting
- - Permits two concurrent users
</TABLE>
Additional firewall and proxy server usage management features of Enterprise are
as follows:
- - Includes 14 additional firewall and proxy server reports, for a total of 97
reports
- - Provides additional Internet security reporting
- - Includes URL categorization database subscription for one year
Intrusion detection features are the same as those found in WorkGroup.
Additional features are expected to be available in the first half of 2000.
Additional call accounting features are as follows:
- - Includes 26 additional call accounting reports, for a total of 97 reports
VoIP and web server features are expected to be available in the first half of
2000.
ADD-ON FUNCTIONALITY
Additional Data Source Modules. Additional data source modules may be
purchased to expand QuickView Plus, WorkGroup or Enterprise to collect data from
additional firewalls, proxy servers, intrusion detection products or PBXs.
URL Categorization. Telemate.Net offers a URL categorization database,
which groups hundreds of thousands of URLs into 28 categories such as travel,
shopping, hate and discrimination, pornography, sports, gambling and employment
agency sites. Telemate.Net then reports on Internet usage by category, thus
allowing companies to identify misuse and abuse of their networks. These URLs
are updated on a daily basis.
Advanced Asset Manager. Advanced Asset Manager is a cable and connectivity
management software solution that features network schematics and a
computer-aided-design interface. Advanced Asset Manager aids enterprises in
managing their extensive physical voice or data cable network. Advanced Asset
Manager documents device configurations, cable and circuit routes, port and pair
assignments, multiple network layouts, availability of spare circuits, work
orders, technician assignment, and inventory. It includes an easy-to-use Windows
NT or 9x interface.
2nd Nature. 2nd Nature is a third-party product that we integrate with our
call accounting product to create a single, integrated database for the
management of PBX and voice mail systems. The 2nd Nature PBX Move/Add/Change
Manager provides accurate, efficient configuration management for many Nortel
and Siemens PBXs, as well as Octel and Siemens voice-mail systems.
SERVICES
We currently provide installation, training and technical support services
for our customers. These services have been a growing source of recurring
revenue for us. We intend to continue to improve our support staff's technical
knowledge and problem solving abilities to ensure that our customers remain
satisfied with our products and services. In addition, we intend to develop
web-based training, installation and custom report generation services that will
expand current customer training seminars and installation
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services. Technical support is provided under annual maintenance contracts that
provide customers with access to telephone support and product updates. In
addition, we intend to expand the customer service capabilities of our web site
to enable customers to initiate service requests, obtain answers to frequently
asked questions, and obtain product updates over the Internet.
TECHNOLOGY
Our core technology is designed to allow businesses to easily extract
needed data from a wide range of network data sources and translate it into a
standardized format. This standardized data is then enhanced by linking it to an
organizational directory and other relevant information and storing it in a
relational database. Our flexible and powerful reporting engine allows
extraction of the specific summary or detailed information needed, which then
can be distributed to management in a variety of manners.
Telemate.Net's core technology has four major components:
Data Collection and Reformatting Module. The data collection and
reformatting module extracts data from a variety of data sources including
PBXs, firewalls, proxy servers, and intrusion detection products. Because
the data is initially extracted in different formats, Telemate.Net converts
it into a standard format so the data can be integrated for use within our
application. Over the past decade, we have developed a flexible data
collection capability in order to adapt to the wide variety of PBX types
and formats. This flexibility has been incorporated into Telemate.Net to
allow the extraction of data from firewall, proxy server, and intrusion
detection logs, which store usage data within these devices. Because these
Internet usage logs often contain large amounts of data, Telemate.Net has a
feature that enables an organization to limit the number of records that
are stored for a given visit to a web site page. We are now focusing on
adding other network data sources including web servers, VPN devices, VoIP
devices, e-mail servers and routers.
Processing and Database Module. The processing and database module
has the following components:
- Directory: At the heart of this module is the directory, which allows
Telemate.Net to link sources of network activity, such as user
identifications, IP addresses and extensions, to specific individuals,
departments, divisions and companies. The directory also contains a
history function that keeps track of these links as they change so
that when looking back in history these sources are properly linked to
the owner of the source at that time.
- Costing: Our extensive costing capability assigns a cost to each voice
or data transaction, which allows organizations to allocate network
expenses. A variety of costing methods are available that can be
tailored to the organization's needs and preferences. We also provide
a feature in our Enterprise product that allows organizations to
allocate, based on network usage, overhead expenses associated with an
organization's network.
- Alarms: Our product has the ability to establish PBX activity levels
and, if these levels are exceeded, alert management of this occurrence
via e-mail or beeper. This feature learns patterns in an
organization's network usage and sends an alarm if there is a change
from these patterns. This feature aids in the detection of hacking and
potential fraud conditions. We plan to extend this alarm functionality
to Internet data sources during the first half of 2000.
- Domain Name Server Lookup: Telemate.Net performs several types of
Domain Name Server, or DNS, lookup. If the data collected from a data
source includes only the IP address of a destination web site,
Telemate.Net will search the external DNS to obtain the equivalent URL
address and include it in the data record. For example, if the data
collected reveals an IP address of 209.17.193.130, the DNS lookup
function will provide the more commonly used URL address of
www.telemate.net. Telemate.Net is designed to perform multiple
searches simultaneously. Telemate.Net also performs reverse DNS
lookups to acquire the IP address when only the destination URL is
available. We also perform an internal DNS lookup when
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the user identification of the source is not available. This enables
us to correlate a dynamic IP address to a machine name.
- URL Categorization: We provide a database of several hundred thousand
URLs that is updated daily. These URLs are grouped into 28 different
categories, including travel, shopping, hate and discrimination,
pornography, sports, gambling and employment agency sites. This allows
companies to detect unwanted usage of their networks. As information
from a data source is added to the activity database, this URL
categorization database is searched and the proper category is added
to the record.
- Automated Operations: Most application functions may be automated to
be executed on a specific schedule without requiring any user
intervention. This includes the collection of data from a data source,
the processing of that data, the generation and distribution of
specific reports to management and the purging of processed data to
manage the size of the database. For example, the user can specify
that on the tenth of each month the system will purge all of the
detailed records older than 60 days, or that every Monday the system
will distribute a weekly departmental summary via e-mail to all
department managers.
- Embedded Database: Under an original equipment manufacturer agreement
with Microsoft, we embed Microsoft's SQL database in our Telemate.Net
products. Our QuickView product includes the Microsoft SQL 7.0 MSDE
desktop database while our WorkGroup and Enterprise products include
the full Microsoft SQL 7.0 Server database. The recently released
version 7.0 of Microsoft's database is expected to have the
scalability to handle the extensive requirements of our largest
customers. In addition, we have
-- developed proprietary processing algorithms to improve
performance;
-- eliminated much of SQL Server's complexity and administration for
the user; and
-- removed the need to purchase, configure or manage a separate
database.
This approach is designed to decrease a user's overall investment,
support, IT staffing and training. Telemate.Net is designed to allow us
to efficiently integrate other databases, such as a UNIX-based Oracle
database, in the future.
- Multiprocessing: As the number of data sources and the volume of data
on a network increase, Telemate.Net has the ability to distribute both
processing and reporting onto multiple PCs to balance the workload and
further enhance scalability.
Reporting Engine Module. Our reporting engine is currently designed
for use with Seagate's Crystal Reports, a reporting tool. We augment the
Crystal functionality so that users do not have to learn Crystal's command
language or the structure of the SQL Server database. Telemate.Net's
reporting engine:
- incorporates more than 200 standard reports and templates designed and
refined over time with input from our customers;
- provides an extensive filtering capability that allows the user, with
a few simple selections, to modify the standard reports thereby
customizing the report to provide the specific information needed;
- allows users to create new reports or to modify existing report
templates using Crystal Reports Professional;
- allows any customized report format to be stored and accessed at a
future time or scheduled for automated execution and distribution; and
- allows reports to be delivered via printers, e-mail, or as an HTML
file.
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To ensure that reports run efficiently, we often incorporate special stored
procedures that facilitate the interaction between SQL Server and Crystal.
The automated capabilities of our reporting engine allow users to define
who receives which reports, how they are to be received, and when they are
to be delivered.
Interface Module. Telemate.Net employs an easy to use,
functionally-rich user interface, featuring the multi-paneled style used in
the latest Windows applications. We utilize third-party interface tools to
create a familiar "look and feel" to the product. The interface is designed
so that users can operate our application and generate reports with a
minimal amount of training. Our design also allows for the graphical user
interface to be installed on many client desktops for reporting, while the
processing and database module resides on a server.
CUSTOMERS
We have installed our products in over 14,000 customers sites. Our
customers represent all major commercial, industrial and service categories and
typically have more than 100 employees. In 1998, no one customer accounted for
more than 5% of our annual revenue. Set forth below is a list of some of our
customers:
<TABLE>
<S> <C>
CALL ACCOUNTING: INTERNET/INTEGRATED:
American Red Cross Arrow Electronics
AT&T Arthur Andersen
British Broadcasting Corporation Avon Products
Dun and Bradstreet Baltimore Gas and Electric
Eastman Kodak Bell Atlantic Mobile
Ericsson Bell South Information Systems
Federal Reserve Bank Atlanta Coca-Cola Bottling
Kaiser Permanente Cox Communications
Merck Dayton Hudson
Miller Brewing Deloitte & Touche
PricewaterhouseCoopers Enterprise Rent-a-Car
Snap-On Florida Department of Corrections
Solo Cup Georgia-Pacific
Southern Company H&R Block
Tommy Hilfiger USA International Paper
U.S. Air National Guard Maytag
New Balance Athletics
Parke-Davis Pharmaceutical Research
Philip Morris
Powertel
Sears Roebuck
U.S. Army
</TABLE>
SALES AND MARKETING
We conduct our sales efforts through a combination of direct sales, network
resellers and arrangements with strategic distribution and marketing partners.
Our direct sales force primarily employs a telephone and online sales approach
and prior to 1999 was primarily focused on the sale of our call accounting
applications. We have recently developed sales teams focused on large account
and government agency sales, sales of our Internet and integrated products and
sales of additional products and functionality to our existing customer base.
Large Enterprise and Government Sales. We expect that enterprises with
more than 1,000 employees will comprise almost half of the revenue opportunity
in the network usage management market over the next five years. According to
the most recent U.S. census data, these 6,700 large enterprises represent
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more than 650,000 potential installations in the United States. In recent years
we have enhanced the scalability and functionality of our products to better
address the needs of these large enterprises. As a result, our sales to large
enterprises have increased over the past several years, leading to an increase
in our average sales price.
Mid-size Enterprise Sales. We continue to focus on enterprises with 100 to
1,000 employees. We expect these mid-size enterprises will represent almost half
of the revenue opportunity in the network usage management market over the next
five years. Since this market segment includes over 70,000 companies, we intend
to increase our use of web-based marketing to pursue these mid-size enterprises.
Installed Base Sales. We have established a separate sales team that
focuses exclusively on selling additional products to our existing customers. We
believe there is a significant opportunity to upgrade our installed base of
customers to the latest generation of our software. In addition, as our
customers' networks grow, we expect to sell additional functionality and data
sources to these customers. As we expand our web-based marketing and customer
support activities, we expect to be able to more efficiently identify qualified
prospects for upgrades.
E-Commerce Sales. To augment our direct sales efforts, we are expanding
our capabilities to market and execute sales transactions via our web site. Our
initial e-commerce sales focus will address support renewals, low-priced
upgrades and entry-level products. Over time, as customers become accustomed to
e-commerce transactions, we expect that some of our mid-sized and large
enterprise business will flow through our web site. Because features or data
sources can be upgraded by sending an existing customer an activation code, we
expect installed base e-commerce to grow rapidly over the next few years.
Network Resellers and Distributors. While our direct sales force is
expected to continue to generate a large proportion of our future revenue, we
are increasingly employing indirect distribution channels worldwide as an
important complement to our direct sales force. We have established a team of
distribution sales representatives that is developing relationships with and
providing sales support to network resellers, systems integrators and
distributors. While most of our efforts have been focused within the U.S., we
added three European distributors in the first three months of 1999. We intend
to accelerate the expansion of both our international and U.S. distribution
channels over the next few years.
Strategic Distribution and Marketing Relationships. Leading networking and
network security product vendors, including AXENT Technologies, Check Point
Software, Cisco Systems, Lucent Technologies, Microsoft and Network Associates,
help to market and distribute our products. We are currently working to expand
our existing relationships and develop additional strategic relationships. Our
strategic partners assist in the sales and marketing of our products by bundling
them with their own products, selling our products through their sales forces
and promoting our products at trade shows, seminars and through their web sites.
Marketing. Our marketing efforts are focused on creating brand awareness
and attracting prospective customers to our web site. While a large portion of
our marketing budget will be dedicated to web-based and electronic marketing, we
will continue to employ traditional marketing programs such as direct mail,
trade shows, public relations and print advertising. However, these traditional
marketing programs will focus on encouraging customers and prospects to visit
our web site. As we expand our web-based marketing activities and add content
relating to network usage management, we expect to attract more customers and
prospective customers to our site. We anticipate this will generate qualified
leads for our sales force to pursue as well as direct e-commerce business.
COMPETITION
We believe that we are the only company that has developed an integrated
network usage management solution for the Internet and voice networks. However,
we do experience competition with companies that offer either Internet usage
management or call accounting software.
Our Internet usage management products primarily compete with other
providers of Internet management software, including WebTrends, the SecureIT
division of VeriSign, Elron Software, Talley
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Systems and Sequel Technology. Many of our competitors offer point products that
only address a small segment of the market or only provide low-end summarization
capabilities. Telemate.Net is scalable to large numbers of users while
maintaining substantial amounts of data on each user and provides significantly
more detail, history, organizational linking and flexible reporting capabilities
than competing solutions.
Our primary call accounting software competitors include IntegraTrak, ISI,
MicroTel, Switchview, Telco Research, Verimark, Xiox and Xtend. Most of these
companies offer products that are functionally similar to Telemate.Net's prior
generation of software. With the introduction of our integrated Internet usage
management and call accounting product, we believe we have a competitive
advantage over those companies that offer call accounting-only software.
INTELLECTUAL PROPERTY
We currently have a pending United States patent application that seeks to
protect inventions underlying the integration of voice and network data
reporting technology in our Telemate.Net product. We currently do not have any
issued patents. We have obtained federal registration for the Telemate and
Telemate.Net marks. We view our technology as proprietary and rely on a
combination of trade secret, copyright, patent and trademark laws,
non-disclosure agreements and contractual provisions to establish and protect
our proprietary rights. When we license our products, we use a signed license
agreement with a select number of our customers and a standard printed or
electronic license containing confidentiality terms customary in the industry
for all other users in order to protect the proprietary rights in our
technology. We license our products in a format that does not permit the user to
change the software code. In addition, because we treat the source code for our
products as a trade secret, all employees and third parties who require access
to the source code are first required to sign non-disclosure agreements.
HUMAN RESOURCES
As of June 15, 1999, we employed 129 persons, including 17 in product
development, 41 in services and support, 50 in sales and marketing, 10 in
operations and 11 in finance and administration. None of our employees is
subject to a collective bargaining agreement. We consider our relations with our
employees to be good.
FACILITIES
We are headquartered in Atlanta, Georgia, where we lease approximately
33,000 square feet under a lease agreement expiring in September 2003. We have
options to lease additional space in our current office complex, which should
allow us to accommodate growth in the immediately foreseeable future. All of our
employees work in the corporate headquarters.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their respective ages as of the
date of this prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David H. Couchman............................ 53 Chairman of the Board
Richard L. Mauro............................. 56 Chief Executive Officer, President and Director
Richard J. Post.............................. 43 Chief Financial Officer and Treasurer
James A. Kranzusch........................... 54 Senior Vice President-Sales
Dean D. Rau.................................. 63 Vice President-Technology
L. Mark Newton............................... 46 Senior Vice President-Customer Support Services
</TABLE>
- ---------------
David H. Couchman is our founder and has served as Chairman of our Board of
Directors since our inception in January 1986. Mr. Couchman served as our Chief
Executive Officer from January 1986 until December 1996. Mr. Couchman has 29
years of computer sales and product management experience. Before founding
Telemate.Net, Mr. Couchman held a number of executive systems, sales and
marketing positions in several large corporations and startup companies,
including Burroughs Corporation (now Unisys) and On-Line Software International
(acquired by Computer Associates). Mr. Couchman holds a bachelor's degree in
Business Administration and Industrial Relations from the University of
Maryland.
Richard L. Mauro has served as our Chief Executive Officer and President
since December, 1996. He has served as a director of Telemate.Net since June
1999. He was President and Chief Operating Officer from March 1994, when he
joined Telemate.Net, until December 1996. Mr. Mauro has 35 years of general
management and sales, marketing, and engineering management experience. Prior to
joining Telemate.Net, Mr. Mauro served as Chief Executive Officer and President
of Insight Marketing Partners, Inc., a marketing and management consulting
company he founded that focused on assisting early-stage software companies,
from March 1990 until March 1994. From January 1986 until March 1990, Mr. Mauro
was Vice President-Marketing for the INFORUM technology center in Atlanta. He
began his career with the IBM Corporation in June 1964 where he held a variety
of engineering, sales and product marketing management positions. During his
last eight years at IBM, he focused on PC-related products, including leading
the PC merchandising function for IBM's retail product centers. Mr. Mauro holds
a bachelor's degree in Electronic Engineering from Manhattan College and a
master's degree in Industrial Administration from Union College.
Richard J. Post has served as our Chief Financial Officer and Treasurer
since June 1999. From September 1996 until February 1999, Mr. Post served as
Senior Vice President, Chief Financial Officer, Secretary and Treasurer of
MedCath Incorporated, a cardiovascular services company. From 1986 to 1996, Mr.
Post was employed as an investment banker, assisting clients with a wide variety
of public and private debt and equity financings and merger and acquisition
transactions. From January 1994 until September 1996, he served as Senior Vice
President, Investment Banking, Corporate Finance Group of Price Waterhouse LLP.
From February 1992 until January 1994, he served as Senior Manager in the
Corporate Finance Department of Ernst & Young. From August 1988 until February
1992, he served as Vice President in the Investment Banking Department of Bear,
Stearns & Co., Inc. From September 1986 until August 1988, Mr. Post was an
Investment Banking Associate at The First Boston Corporation. Prior to his
investment banking career, Mr. Post served as a Military Intelligence Officer in
the United States Army. Mr. Post holds a bachelor's degree in English and
Philosophy from the University of Notre Dame and an MBA from the Harvard
Graduate School of Business Administration.
James A. Kranzusch has served as our Senior Vice President-Sales since
March 1998. Mr. Kranzusch has 29 years of sales management experience with both
large corporations and early-stage ventures. Prior to joining Telemate.Net, Mr.
Kranzusch served as founder and President of ClientView, Inc., an Atlanta
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sales consulting company, from March 1995 until March 1998. From March 1992 to
March 1995, Mr. Kranzusch was Director of Major Accounts at Carter & Associates,
a commercial real estate company in Atlanta. From September 1985 until February
1992, he was Executive Vice-President and General Manager for the INFORUM
technology center in Atlanta. Mr. Kranzusch was employed by the IBM Corporation
from March 1970 until August 1985, most recently as Division Sales Director. Mr.
Kranzusch holds a bachelor's degree in Business Administration from Auburn
University and a master's degree in Business Policy from Columbia University.
Dean D. Rau has served as our Vice President-Technology since September
1996. Mr. Rau has 40 years of experience managing the planning, design,
development, testing and support of software products. Prior to joining
Telemate.Net, Mr. Rau served as a Senior Project Manager with the Atlanta
Committee for the Olympic Games from May 1993 until August 1996. Mr. Rau also
served as Vice President-Development with Coin Dealership Systems, Inc., a
software company, from August 1990 until May 1993. In addition, Mr. Rau was
employed by the IBM Corporation from June 1959 until December 1989 in a number
of application development management positions, including Senior Applications
Development Manager. Mr. Rau holds a bachelor's degree in Business
Administration from the University of Washington.
L. Mark Newton has served as our Senior Vice President-Customer Support
Services since September 1988. Mr. Newton has more than 20 years of experience
in systems development and support management services. Prior to joining
Telemate.Net, Mr. Newton served as Director of Telecommunications and Biomedical
Electronics with Southern Baptist Hospital in New Orleans from February 1981
until September 1988. Mr. Newton has an associate's degree in Electronics
Technology from the Oklahoma City Technical Center.
OTHER KEY MANAGEMENT PERSONNEL
Joseph P. Wilder has served as our Assistant Treasurer and Secretary since
June 1999, Director of Finance since May 1999 and Controller since June 1998. He
joined the Company as Assistant Controller in November 1997. Mr. Wilder has 25
years of accounting management experience. Prior to joining Telemate.Net, Mr.
Wilder was Director-Finance with Mast Advertising & Publishing, Inc., an Atlanta
directory publishing company, from May 1992 until July 1997 and served as an
independent consultant from July 1997 until November 1997. From October 1977
until April 1992, Mr. Wilder was employed by Contel Corporation, a diversified
telecommunications company, in a number of positions including Director-Internal
Audit. He started his career with Price Waterhouse in St. Louis in 1973. Mr.
Wilder has a bachelor's degree in Accounting from St. Louis University and is a
CPA.
Morten S. Jensen has served as our Director of Product Management since
October 1998. He joined Telemate.Net in February, 1992 as a programmer and was
promoted to the position of Director of our Internet usage management product
line in February 1997. Prior to joining Telemate.Net, Mr. Jensen was employed as
a programmer at Communications Management, Inc., a voice-mail service company in
Atlanta, from December 1989 to February 1992, Lightnet, Inc. from December 1987
to December 1989 and CNN television network from June 1986 to December 1987. Mr.
Jensen holds an associate's degree in Computer Science from Nicholls State
University in Louisiana.
Randall S. Schiff has served as our Director of Marketing Communications
since May 1998. Prior to joining Telemate.Net, Mr. Schiff served as Director of
Corporate Communications with Harbinger Corporation, an e-commerce company, from
April 1996 to October 1997 and as Director of Marketing with IQ Software, Inc.,
a reporting software company, from February 1993 to April 1996. Mr. Schiff holds
a bachelor's degree in Psychology from Miami University (Ohio) and an MBA from
the Fuqua School of Business at Duke University.
Sean S. O'Shea has served as our Director of Business Plans and Operations
since joining the Company in September 1994. From January 1990 until September
1994, he was a senior accountant in Atlanta with BDO Seidman, an international
public accounting firm. Mr. O'Shea holds a bachelor's degree in Business
Administration, Accounting and Finance from Emory University and is a CPA.
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John P. O'Reilly has served as our Director of Development since February
1997. He joined Telemate.Net in September 1987. He has been involved in the
development of all four generations of our product line and was the overall
project director for the Internet and integrated product introduced in 1998. Mr.
O'Reilly holds a bachelor's degree in Computer Science from the University of
Georgia.
Raphael D. McAbee-Reher has been with us since our inception in January
1986, and, since October 1987, has served as a Vice President in our development
organization. Mr. McAbee-Reher is a graduate of the Control Data Institute.
Kent H. Jones has served as our Executive Director of Distribution Sales
since January 1999. He joined Telemate.Net in October 1990 as a sales associate
and served in a variety of sales and marketing management positions prior to
assuming his most recent position. He received a bachelor's degree from North
Central College and an MBA from Northern Illinois University.
Gary D. Bartnick has served as our Director of National Account and
Government Sales since October 1998. From October 1995 until October 1998, Mr.
Bartnick held various positions with us, including Director of Business
Development, Director of U.S. Sales and Director of Channel Sales. Prior to
joining Telemate.Net in October 1995, Mr. Bartnick was employed as a Major
Account Manager with Siemens AG, an international manufacturer with a focus on
electrical engineering and electronics. Mr. Bartnick holds a bachelor's degree
in Journalism from Ohio University.
Jeff Miller has served as our Director of U.S. Sales since October 1997. He
joined us in March 1995 as a direct sales representative and served as a
Government Sales Manager from January 1996 to December 1996 and a National Sales
Manager from January 1997 to October 1997. From March 1994 to March 1995, Mr.
Miller held sales management positions with Morrison's, Inc., a restaurant
services company in Atlanta. He attended Niagara College's school of management
and business administration.
ELECTION OF DIRECTORS
We intend to add Murali Anantharaman and James C. Davis as members of our
Board of Directors within 90 days after the date of this prospectus. It will be
necessary for us to appoint these or two other independent directors within the
90 day time period in order to maintain our listing on the Nasdaq Stock Market.
Failure to appoint two such directors could result in the delisting of our
common stock.
TERMS OF DIRECTORS
Concurrent with the effective date of this offering, the Board of Directors
will be divided into three classes, with members serving for staggered
three-year terms. Following the proposed election of Messrs. Anantharaman and
Davis to the Board of Directors, it is expected that the Board will be comprised
of one Class I director, Mr. Davis, one Class II director, Mr. Mauro, and two
Class III directors, Messrs. Couchman and Anantharaman. At each annual meeting
of shareholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The terms
of the initial Class I directors, Class II directors and Class III directors
will expire upon the election and qualification of successor directors at the
2000, 2001 and 2002 annual meetings of shareholders, respectively. There are no
family relationships between any of our directors or executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee is expected to consist of Messrs. Couchman,
Anantharaman and Davis. The Audit Committee will review, with our independent
auditors, the scope and timing of audit services and any other services they are
asked to perform. In addition, the Audit Committee will make annual
recommendations to the Board of Directors for the appointment of independent
auditors for the ensuing year. The Compensation Committee is expected to consist
of Messrs. Anantharaman and Davis. The Compensation Committee will review and
evaluate the compensation and benefits of all our officers, review general
policy matters relating to the compensation and benefits of our employees and
make
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<PAGE> 48
recommendations concerning these matters to our Board of Directors. The
Compensation Committee also will administer our stock option plans. The
Executive Committee is expected to consist of Messrs. Mauro and Couchman. The
Executive Committee will have the authority to act on behalf of the Board of
Directors in the management or direction of our business and affairs to the
extent authorized by resolution of a majority of the Board of Directors and
subject to any limitations imposed by the laws of the State of Georgia. We do
not have a standing nominating committee.
COMPENSATION OF DIRECTORS
We reimburse each director for reasonable out-of-pocket expenses incurred
in attending meetings of the Board of Directors and any of its committees. We
may in the future compensate directors who are not employed by us for their
attendance at regular and special meetings. In addition, directors may
participate in our 1999 Stock Incentive Plan. As of June 15, 1999, no options to
acquire shares of common stock have been granted under this plan to directors of
Telemate.Net.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or will be an executive officer
of Telemate.Net.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the year ended
December 31, 1998 for our President and Chief Executive Officer as well as our
four other most highly compensated executive officers whose total annual salary
and bonuses, determined at December 31, 1998, exceeded $100,000 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------------
---------------------- NUMBER OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION(1)
- --------------------------- -------- --------- -------------------- ---------------
<S> <C> <C> <C> <C>
Richard L. Mauro................... $180,000 $ 70,200 -- --
President and Chief Executive
Officer
David H. Couchman.................. 140,000(2) 57,100(2) -- --
Chairman of the Board
L. Mark Newton..................... 100,000 25,750 -- --
Senior Vice President-Support
Services
Dean D. Rau........................ 95,000 26,963 -- --
Vice President-Technology
James A. Kranzusch................. 96,846 18,644 180,000 --
Senior Vice President-Sales
</TABLE>
- ---------------
(1) In accordance with SEC rules, the compensation set forth in the table does
not include compensation in the form of perquisites or other personal
benefits because such perquisites and other personal benefits constituted
less than the lesser of $50,000 or 10% of the total annual salary and bonus
for the Named Executive Officer for such year.
(2) Represents payments for consulting services. As of June 15, 1999, Mr.
Couchman will no longer serve as an employee of or as a consultant to us.
Mr. Couchman does not receive any compensation for his service as Chairman
of the Board other than reimbursement for reasonable out-of-pocket expenses
incurred in attending meetings of the Board or a committee thereof. However,
if the Board determines
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<PAGE> 49
that directors who are not employed by us will be paid for their attendance
at meetings, then it is anticipated that Mr. Couchman would be eligible to
receive such payments.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all individual grants of stock options
during the year ended December 31, 1998, to each of the Named Executive
Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
- ---- ---------- ------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Mauro................ -- -- -- -- -- --
David H. Couchman............... -- -- -- -- -- --
L. Mark Newton.................. -- -- -- -- -- --
Dean D. Rau..................... -- -- -- -- -- --
James A. Kranzusch.............. 180,000 29.0% $0.96 3/10/08 $108,673 $275,399
</TABLE>
- ---------------
(1) All options were granted with exercise prices equal to or in excess of the
fair market value of the common stock on the date of grant as determined by
the Board of Directors.
(2) The potential realizable value is calculated based on the ten-year term of
the option at the time of its grant. It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option. The actual realizable
value of the options based on the price to the public in this offering will
substantially exceed the potential realizable value shown in the table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table summarizes the value of the outstanding options held by
the Named Executive Officers at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT FISCAL YEAR-END FISCAL YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard L. Mauro........................... 725,955 -- $164,550 --
David H. Couchman.......................... -- -- -- --
L. Mark Newton............................. 282,315 -- 63,991 --
Dean D. Rau................................ 193,380 -- 16,760 --
James A. Kranzusch......................... 180,000 -- -- --
</TABLE>
- ---------------
(1) Based on the estimated fair market value of our common stock as of December
31, 1998 of $0.96 per share, less the exercise price payable upon exercise
of such options. Such estimated fair market value as of December 31, 1998 is
substantially lower than the price to the public in this offering.
STOCK OPTION AND OTHER COMPENSATION PLANS
Stock Incentive Plan. Our Stock Incentive Plan became effective on December
29, 1994. The aggregate number of shares of our common stock reserved for
issuance under the plan is 3,900,000 shares. The purpose of the plan is to
provide incentives for our key employees, officers, consultants and directors
and to promote our success, thereby benefiting shareholders and aligning the
economic interests of the
45
<PAGE> 50
participants with those of the shareholders. The plan is administered by the
Compensation Committee of the Board of Directors, which determines eligible
participants, performance goals, measurement criteria, performance ratings and
amount and timing of payments. Option grants under the plan are determined
annually on the basis of our performance over the year in relation to certain
pre-determined financial and operating goals. Options are granted under the plan
at the sole discretion of the Compensation Committee. As of June 15, 1999,
options to purchase 3,258,855 shares of our common stock were outstanding under
the plan at a weighted average exercise price of $1.63 per share, and 261,813
shares of our common stock had been issued upon exercise of options granted
under the plan.
1999 Stock Incentive Plan. Our 1999 Stock Incentive Plan was approved by
our shareholders on June 14, 1999. The aggregate number of shares of our common
stock reserved for issuance under the 1999 Stock Incentive Plan is 1,000,000
shares. The number of shares of common stock available for issuance under the
1999 Stock Incentive Plan shall automatically increase on the first day of each
fiscal year, beginning with fiscal year 2000, by a number of shares equal to 5%
of the total number of shares of our common stock outstanding on the last day of
the preceding fiscal year, unless the Board of Directors determines to limit or
forego this increase. The 1999 Stock Incentive Plan was adopted to provide
incentives for key employees, officers, consultants and directors to promote our
success. Awards granted under the 1999 Stock Incentive Plan may be either
restricted stock or options intended to qualify as "incentive stock options" or
nonqualified stock options. As of June 15, 1999, no shares of our common stock
were subject to outstanding options under the 1999 Stock Incentive Plan.
EMPLOYMENT AGREEMENTS
Both Messrs. Couchman and Mauro have signed agreements with us restricting
their ability to compete with us or to solicit our customers or employees during
their employment with us and for a period of two years thereafter. All of our
principal employees, including other executive officers, are required to sign an
agreement with us restricting the ability of the employee to compete with us or
to solicit our customers or employees during his or her employment and for a
period of one year thereafter. The agreement also provides for our ownership of
the work product of the employee, an assignment to us of intellectual property,
and a prohibition from the disclosure of our trade secrets and confidential
information.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Amended and Restated Articles of Incorporation provide that the
liability of our directors for monetary damages shall be limited to the fullest
extent permissible under Georgia law and that we may indemnify our officers,
employees and agents to the fullest extent permitted under Georgia law.
Our Amended and Restated Bylaws provide that we must indemnify our
directors against all liabilities to the fullest extent permitted under Georgia
law and that we must advance all reasonable expenses incurred in a proceeding
where the director was either a party or a witness because he or she was a
director. In addition, we have entered into indemnification agreements with our
directors and certain of our officers providing indemnification to the fullest
extent permitted by applicable law and also setting forth certain procedures,
including the advancement of expenses, that apply in the event of a claim for
indemnification.
We do not currently maintain a directors' and officers' liability insurance
policy but we intend to purchase such insurance, in the amount of $10.0 million,
in the near future.
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<PAGE> 51
CERTAIN TRANSACTIONS
RELATED PARTY TRANSACTIONS
On June 16, 1999, we issued and sold 150,000 shares of Series A Preferred
Stock in a private placement to LiveOak Equity Partners, L.P. for an aggregate
price of $3.0 million. Murali Anantharaman, a nominee to the Board of Directors,
is a principal of LiveOak. The shares of Series A Preferred Stock held by
LiveOak will automatically convert into 450,000 shares of common stock
concurrently with this offering. The private placement is described more fully
below.
Also on June 16, 1999, Telemate.Net redeemed an aggregate of 600,000 shares
of common stock held by David H. Couchman, our Chairman and a principal
shareholder, and his spouse for $4.0 million. The redemption was funded from our
proceeds from the sale of the Series A Preferred Stock in the private placement.
On June 21, 1999, we issued and sold 75,000 shares of common stock to James
C. Davis, a nominee to the Board of Directors, for an aggregate price of
$500,000.
In the past, we have loaned money to certain of our shareholders for such
purposes as providing funds for the exercise of vested stock options in
accordance with our Stock Incentive Plan and reconciling an S corporation
distribution error. As of June 15, 1999, David H. Couchman and Richard L. Mauro,
our Chief Executive Officer and President, had outstanding balances of $37,000
and $64,000, respectively, pursuant to these loans. The loans were evidenced by
recourse promissory notes and bore interest at rates ranging from 6.0% to 7.1%.
Mr. Mauro's loan, which was made to provide funds for him to exercise stock
options, was a recourse loan and was secured by the stock acquired through the
loan.
Our Board of Directors has adopted a resolution whereby all future
transactions with related parties, including any loans from us to our officers,
directors, principal shareholders or affiliates, must be approved by a majority
of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors, if required by law, or a
majority of the disinterested shareholders and must be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
S CORPORATION DISTRIBUTION AND TERMINATION OF S CORPORATION STATUS
On June 16, 1999, we terminated our S corporation status for federal and
state income tax purposes. We made distributions of $270,000 to those persons
who were shareholders on the date the S corporation status was terminated;
$265,000 of this amount reduced existing loans outstanding and $5,000 was paid
in cash. Our executive officers and directors received an aggregate of $214,000
in this distribution. As a result of our S corporation termination, we
reclassified our accumulated deficit of an estimated $3.2 million on June 16,
1999 to additional paid-in capital.
SERIES A PREFERRED STOCK ISSUANCE
On June 16, 1999, we completed the private placement of 300,000 shares of
our Series A Preferred Stock to three institutional investors. The private
placement resulted in gross proceeds to us of $6.0 million and net proceeds of
approximately $5.9 million after payment of expenses related to the private
placement. Of these proceeds, $4.0 million was used to redeem 600,000 shares of
common stock held by David H. Couchman and his spouse. The remaining proceeds
will be used to fund working capital. The Series A Preferred Stock will convert
to 900,000 shares of common stock concurrently with this offering.
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<PAGE> 52
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of the date of this prospectus, and as adjusted
to reflect the sale of the common stock being offered hereby, by: (a) each of
our directors; (b) each of our Named Executive Officers; (c) all those known by
us to be beneficial owners of more than five percent of the outstanding shares
of our common stock; (d) the selling shareholders; and (e) all of our executive
officers and directors as a group.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES TO BE AFTER THE OFFERING(1)
--------------------- SOLD IN THE ---------------------
NAME SHARES PERCENT OFFERING SHARES PERCENT
- ---- ---------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
OFFICERS AND DIRECTORS:
David H. Couchman(2)........................... 2,023,668 56.3%
Melanie Noble-Couchman(3)...................... 2,023,668 56.3
Richard L. Mauro(4)............................ 885,000 23.0
James A. Kranzusch(5).......................... 180,000 4.9
Dean D. Rau(6)................................. 195,000 5.3
L. Mark Newton(7).............................. 405,000 11.0
Raphael McAbee-Reher(8)........................ 480,000 13.2
LiveOak Equity Partners, L.P.(9)............... 450,000 12.5
Noro-Moseley Partners IV, L.P.(10)............. 450,000 12.5
Noro-Moseley Partners IV-B, L.P.(11)........... 450,000 12.5
Sirrom Investments, Inc.(12)................... 122,448 3.4
John P. O'Reilly(13)........................... 120,000 3.2
All directors and executive officers as a group
(7 persons)(14).............................. 3,712,668 90.2%
</TABLE>
- ---------------
* Less than one percent.
(1) For purposes of calculating the percentage beneficially owned, the number
of shares of common stock deemed outstanding prior to the offering includes
(a) 3,591,813 shares outstanding as of June 15, 1999 and (b) shares
issuable by Telemate.Net pursuant to options held by the respective person
or group that may be exercised within 60 days following June 23, 1999
("Presently Exercisable Options"). The number of shares of common stock
deemed outstanding after this offering includes an additional shares
that are being offered for sale by Telemate.Net in this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person or group who has or shares voting and investment power
with respect to such shares. Presently Exercisable Options are deemed to be
outstanding and to be beneficially owned by the person or group holding
such options for the purpose of computing the percentage ownership of such
person or group but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person or group. Unless
otherwise set forth herein, the mailing address of the named beneficial
owner is c/o Telemate.Net Software, Inc., 4250 Perimeter Park South, Suite
200, Atlanta, Georgia 30341.
(2) Includes 235,668 shares held by Melanie Noble-Couchman, Mr. Couchman's
spouse, with respect to which Mr. Couchman disclaims beneficial ownership.
(3) Includes 1,788,000 shares held by David H. Couchman, Ms. Noble-Couchman's
spouse, with respect to which Ms. Noble-Couchman disclaims beneficial
ownership.
(4) Includes 725,955 shares issuable upon the exercise of Presently Exercisable
Options.
(5) Includes 180,000 shares issuable upon the exercise of Presently Exercisable
Options.
(6) Includes 193,380 shares issuable upon the exercise of Presently Exercisable
Options.
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<PAGE> 53
(7) Includes 282,315 shares issuable upon the exercise of Presently Exercisable
Options.
(8) Includes 170,445 shares issuable upon the exercise of Presently Exercisable
Options.
(9) The mailing address for LiveOak Equity Partners is 2500 North Winds
Parkway, Suite 325, Alpharetta, Georgia 30004.
(10) Includes 75,000 shares held by Noro-Moseley Partners IV-B, an entity
affiliated with Noro-Moseley Partners IV. The mailing address for
Noro-Moseley Partners is 4200 Northside Parkway, NW, Nine North Parkway
Square, Atlanta, Georgia 30327.
(11) Includes 375,000 shares held by Noro-Moseley Partners IV, an entity
affiliated with Noro-Moseley Partners IV-B.
(12) Includes 122,448 shares currently issuable upon exercise of a warrant at an
exercise price of $0.003 per share. The mailing address for Sirrom
Investments, Inc. is 500 Church Street, Suite 200, Nashville, Tennessee
37219.
(13) Includes 102,405 shares issuable upon the exercise of Presently Exercisable
Options.
(14) Includes an aggregate of 1,405,650 shares issuable upon the exercise of
Presently Exercisable Options.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of (a) 100,000,000 shares of common
stock, $.01 par value per share, and (b) 20,000,000 shares of preferred stock,
$.01 par value per share. As of the date of this prospectus, we had 2,766,813
shares of common stock and no shares of preferred stock issued and outstanding.
The following description of our capital stock is a summary and is qualified in
its entirety by the provisions of our Articles of Incorporation and Bylaws,
copies of which have been filed as exhibits to the Registration Statement of
which this prospectus is a part.
COMMON STOCK
Holders of shares of our common stock are entitled to one vote per share
for the election of directors and all matters to be submitted to a vote of our
shareholders. Subject to the rights of any holders of preferred stock, the
holders of shares of common stock are entitled to share ratably in such
dividends as may be declared by the Board of Directors and paid by us out of
funds legally available therefor. In the event of our dissolution, liquidation
or winding up, holders of shares of common stock are entitled to share ratably
in all assets remaining after payment of all liabilities and liquidation
preferences, if any. Holders of shares of our common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of our
common stock are, and the shares of common stock to be issued by us in
connection with this offering will be, duly authorized, validly issued, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by laws, without further shareholder approval, to issue from time to
time up to an aggregate of 20,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions on the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change of control of Telemate.Net. We currently have no plans to issue any
shares of preferred stock.
WARRANT
On March 27, 1998, we issued to Sirrom Investments, Inc. a warrant to
purchase 122,448 shares of our common stock. The number of shares issuable
pursuant to the exercise of this warrant increases on the anniversary date of
the warrant each year that the loan remains outstanding up to May 31, 2003.
Under the warrant, as amended on June 14, 1999, a maximum of 557,376 shares may
be issued under the warrant at an exercise price of $0.003 per share. The
warrant was issued in connection with our loan agreement with Sirrom and expires
on May 31, 2003.
REGISTRATION RIGHTS
The holders of 2,923,668 shares of common stock are entitled to require us
to file a registration statement to register all or a portion of such shares
under the Securities Act. Such request can be made at any time following 180
days after the date of this prospectus. These holders are entitled to make only
two demands for such registration in any 12-month period.
In addition, the holders of 2,923,668 shares of common stock and the
holders of (a) 105,000 additional shares of common stock and (b) a warrant
presently exercisable for 122,448 shares of common stock are entitled to have
such shares included in a registration statement filed by us, subject to certain
restrictions. These rights generally terminate on the date when the holder of
the common stock is able to sell all of its shares without restriction on the
number of shares or manner of sale under Rule 144 of the Securities Act.
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<PAGE> 55
We are required to bear the expense of such registrations except for any
underwriting discounts and commissions, which will be borne by the selling
shareholders in proportion to the number of shares sold.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF AMENDED AND RESTATED ARTICLES OF
INCORPORATION, AMENDED AND RESTATED BYLAWS AND GEORGIA LAW
As noted above, our Board of Directors, without shareholder approval, has
the authority under our Amended and Restated Articles of Incorporation to issue
preferred stock with rights superior to the rights of the holders of common
stock. As a result, preferred stock could be issued quickly and easily, could
adversely affect the rights of holders of our common stock and could be issued
with terms calculated to delay or prevent a change of control of Telemate.Net or
make removal of management more difficult.
Shareholder Meetings. Under our Amended and Restated Bylaws, the
shareholders may call a special meeting only upon the request of holders of at
least 35% of votes entitled to be cast on each issue proposed to be considered
at the special meeting. Additionally, our Board of Directors, the Chairman of
the Board, the Chief Executive Officer or the President may call special
meetings of shareholders.
Requirements for Advance Notification of Shareholder Nominations and
Proposals. Our Amended and Restated Bylaws establish advance notice procedures
with respect to shareholder proposals and the nomination of candidates for
election as directors, other than nominations made by or at the direction of the
Board of Directors or a committee thereof.
Georgia Business Combination Statute. We have elected in our Amended and
Restated Bylaws to be subject to provisions of Georgia law prohibiting various
business combinations involving shareholders that have an economic interest in
the transaction for a period of five years after the shareholder becomes an
interested shareholder of Telemate.Net. A "business combination" includes, among
other things, a merger or consolidation involving Telemate.Net and the
interested shareholder and the sale of 10% or more of our assets. In general,
the Georgia Business Combination Statute defines an "interested shareholder" as
any entity or person beneficially owning 15% or more of a company's outstanding
voting stock and any entity or person affiliated with or controlling or
controlled by such entity or person.
Georgia Fair Price Statute. We have elected in our Amended and Restated
Bylaws to be subject to the "fair price" provisions under Georgia law. These
provisions require that a "business combination" with an "interested
shareholder" must be approved by directors of the company who will continue to
be directors following the business combination and shareholders other than the
interested shareholders. The fair price provisions do not restrict a business
combination if the cash, stock or other property received by the company's
shareholders meets various fair value criteria described in the statute.
These charter provisions and provisions of Georgia law may have the effect
of delaying, deterring or preventing a change of control of Telemate.Net.
LISTING
Application has been made to include our common stock on the Nasdaq Stock
Market under the trading symbol "TMNT."
TRANSFER AGENT AND REGISTRAR
The transfer agent for our common stock is .
51
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for our
common stock will be developed or be sustained after this offering. Sales of
substantial amounts of common stock in the public market after this offering, or
the possibility of these sales occurring, could adversely affect prevailing
market prices for the common stock or our future ability to raise capital
through an offering of equity securities.
After this offering, we will have outstanding an aggregate of shares
of common stock. Of these shares, the shares offered hereby will be
freely tradable in the public market without restriction under the Securities
Act, unless these shares are held by "affiliates" of Telemate.Net, as that term
is defined in Rule 144 under the Securities Act. The remaining shares of
common stock outstanding upon completion of this offering will be "restricted
securities," as that term is defined in Rule 144 under the Securities Act. These
restricted securities were issued and sold by us in private transactions in
reliance upon exemptions from registration under the Securities Act. Restricted
shares may be sold in the public market only if they are registered or if they
qualify for an exemption from registration, such as Rules 144 or 701 under the
Securities Act, which are summarized below.
Pursuant to certain "lock-up" agreements, all our executive officers,
directors and certain shareholders and employees, who collectively hold an
aggregate of 3,620,301 restricted shares of our common stock, have entered into
agreements with SoundView Technology Group, Inc. in which they have agreed not
to offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of any of these shares for a period of 180 days from the date of this
prospectus. SoundView Technology Group, Inc. may, in its sole discretion and at
any time without prior notice, release all or any portion of the common stock
subject to these lock-up agreements. SoundView Technology Group, Inc. currently
has no plans to release any portion of the securities subject to these lock-up
agreements. When determining whether or not to release shares from the lock-up
agreements, SoundView Technology Group, Inc. will consider, among other factors,
market conditions at the time, the number of shares proposed to be released or
for which the release is being requested and a shareholder's reasons for
requesting the release. We have also entered into an agreement with SoundView
Technology Group, Inc. that we will not offer, sell or otherwise dispose of our
common stock for a period of 180 days from the date of this prospectus.
Taking into account the lock-up agreements, the number of shares that will
be available for sale in the public market upon completion of this offering will
be as follows:
- shares eligible for sale without restriction;
- approximately shares will be eligible for sale 180 days after
the date of this prospectus upon the expiration of lock-up agreements
with the underwriters; and
- approximately shares will become eligible for sale thereafter
at various times upon the expiration of their respective one-year holding
periods.
Following the expiration of the lock-up periods, certain shares issued upon
exercise of options granted by us prior to the date of this prospectus will also
be available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of these shares in reliance upon Rule
144 but without compliance with certain restrictions, including the holding
period requirement, imposed under Rule 144. In general, under Rule 144 a person
who has beneficially owned restricted shares for at least one year (including
the holding period of any prior owner who is not an affiliate of Telemate.Net)
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of (a) one percent of the then outstanding shares of
common stock (approximately shares immediately after this offering) or
(b) the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about
Telemate.Net. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Telemate.Net at any time during the 90 days preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner who
52
<PAGE> 57
is not an affiliate of Telemate.Net) is entitled to sell the shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
We intend to file after the effective date of this offering a registration
statement on Form S-8 to register approximately 4,869,662 shares of common stock
issuable upon the exercise of outstanding stock options or reserved for issuance
under our Stock Incentive Plan and 1999 Stock Incentive Plan. This registration
statement will become effective automatically upon filing. Shares issued under
the foregoing plan, after the filing of a registration statement on Form S-8,
may be sold in the open market, subject, in the case of certain holders, to the
Rule 144 limitations applicable to affiliates, the above-referenced lock-up
agreements and vesting restrictions imposed by us.
Following this offering, holders of an aggregate of 3,028,668 shares of
outstanding common stock, and the holder of a warrant exercisable for 122,448
shares, will have rights to require us to register their shares for future sale.
See "Description of Capital Stock" for a more complete description of the
warrant.
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<PAGE> 58
UNDERWRITING
Upon the terms and subject to the conditions set forth in an underwriting
agreement, the underwriters named below, for whom SoundView Technology Group,
Inc., J.C. Bradford & Co. and The Robinson-Humphrey Company, LLC are acting as
representatives, have severally agreed to purchase from us and the selling
shareholders an aggregate of shares of common stock. The number of shares
of common stock that each underwriter has agreed to purchase is set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
SoundView Technology Group, Inc. ...........................
J.C. Bradford & Co. ........................................
The Robinson-Humphrey Company, LLC..........................
Total.............................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of common stock are purchased by the underwriters pursuant to the
underwriting agreement, all such shares of common stock (other than the shares
of common stock covered by the over-allotment option described below) must be so
purchased.
We and the selling shareholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, and
to contribute to payments that the underwriters may be required to make in
respect thereof.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to certain dealers, who may include the underwriters, at
such price less a concession not to exceed $ per share. The underwriters may
allow, and such dealers may reallow, a concession not to exceed $ per share
to any other underwriter and certain other dealers. After the initial public
offering of the shares offered hereby, the offering price and other selling
terms may be changed by the representatives. The representatives have advised us
that the underwriters do not intend to confirm any shares to any accounts over
which they exercise discretionary control.
The following table shows the underwriting fees we are to pay the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total.......................................................
</TABLE>
Other expenses of this offering, including the registration fees and the
fees of financial printers, counsel and accountants, payable by us are expected
to be approximately $ .
54
<PAGE> 59
We have granted the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of additional
shares of common stock at the initial public offering price less underwriting
discounts and commissions. This option may be exercised solely for the purpose
of covering over-allotments, if any, in connection with this offering. To the
extent that the underwriters exercise this option, each of the underwriters will
be committed, subject to certain conditions, to purchase a number of additional
shares proportionate to that underwriter's initial commitment as indicated in
the preceding table.
This offering is made for delivery when, as and if accepted by the
underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We have, along with our executive officers and directors and certain of our
shareholders, agreed, subject to certain exceptions, not to: (1) offer, sell,
dispose of or hedge any shares of common stock or any securities convertible
into or exchangeable for common stock; or (2) enter into any swap or other
arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any common stock (regardless or whether any of
the transactions described in clause (1) or (2) is to be settled by the delivery
of common stock, or such other securities, in cash or otherwise) for a period of
180 days after the date of this prospectus without the prior written consent of
SoundView Technology Group, Inc. In addition, during such period, we have also
agreed not to file any registration statement with respect to, and each of our
executive officers, directors and certain of our shareholders have agreed not to
make any demand for, or exercise any right with respect to, the registration of
any shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of SoundView
Technology Group, Inc.
In connection with this offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the common stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities Exchange Act of 1934,
pursuant to which such persons may bid for or purchase shares of common stock
for the purpose of stabilizing the market price for shares of common stock. The
underwriters also may create a short position for the account of the
underwriters by selling more shares of common stock in connection with this
offering than they are committed to purchase from us and the selling
shareholders, and in such case may purchase shares of common stock in the open
market following the completion of this offering to cover all or a portion of
the shares of common stock or by exercising the underwriters' over-allotment
option referred to above. In addition, SoundView Technology Group, Inc., on
behalf of the underwriters, may impose "penalty bids" under contractual
arrangements with the other underwriters whereby it may reclaim from an
underwriter or a dealer participating in this offering for the account of the
other, the selling concession with respect to shares of common stock that are
distributed in this offering but subsequently purchased for the account of the
underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the common stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph are required and, if they are
undertaken, may be discontinued at any time.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock offered hereby was
determined by negotiation among the selling shareholders, the representatives
and us. Among the factors that were considered in determining the initial public
offering price were prevailing market conditions, our revenue and earnings,
market valuations of other companies engaged in activities similar to ours,
estimates of our business potential and prospects, the present state of our
business operations, the history of and prospects for our business and the
industry in which we compete, our management and other factors deemed relevant.
55
<PAGE> 60
LEGAL MATTERS
The validity of the issuance of the shares of the common stock offered
hereby will be passed upon for us by Morris, Manning & Martin, L.L.P., Atlanta,
Georgia. Certain legal matters in connection with this offering will be passed
upon for the underwriters by Morrison & Foerster LLP, New York, New York.
EXPERTS
The financial statements of Telemate.Net included in this prospectus to the
extent and for the periods indicated in their reports have been audited by KPMG
LLP, independent public accountants and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information with respect to
Telemate.Net and the common stock offered hereby, reference is made to the
registration statement. Statements made in this prospectus as to the contents of
any contract, agreement or other document are not necessarily complete, and in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference. The registration statement and the
exhibits and schedules thereto may be inspected without charge at the public
reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices: Seven World Trade
Center, Room 1400, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, Room 1024, at prescribed rates. In
addition, we are required to file electronic versions of these documents with
the SEC through the SEC's Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system. The SEC maintains a World Wide Web Site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. Information
concerning Telemate.Net is also available for inspection at the offices of the
Nasdaq Stock Market, Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
We intend to furnish to our shareholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information.
56
<PAGE> 61
TELEMATE.NET SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditors' Report................................ F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Shareholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Telemate.Net Software, Inc.:
We have audited the accompanying balance sheets of Telemate.Net Software,
Inc. as of December 31, 1997 and 1998, and the related statements of operations,
shareholders' equity (deficit), and cash flows for each of the years in the
three year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Telemate.Net Software, Inc.
as December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
June 18, 1999
Atlanta, Georgia
F-2
<PAGE> 63
TELEMATE.NET SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(PRO FORMA)
(NOTE 11)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 77,724 $ 45,593 $ 9,985 $ 2,455,266
Trade accounts receivable...................... 1,630,544 1,904,252 1,947,684 1,947,684
Less: allowance for doubtful accounts and
returns...................................... (60,000) (95,000) (215,000) (215,000)
---------- ----------- ----------- -----------
Total accounts receivable............. 1,570,544 1,809,252 1,732,684 1,732,684
Prepaid expenses............................... 52,788 71,330 123,817 123,817
Other current assets........................... 151,259 55,614 39,173 39,173
---------- ----------- ----------- -----------
Total current assets.................. 1,852,315 1,981,789 1,905,659 4,350,940
Property and equipment, net of depreciation and
amortization................................. 629,723 590,910 530,865 530,865
Other assets................................... 99,463 102,218 99,915 219,915
---------- ----------- ----------- -----------
$2,581,501 $ 2,674,917 $ 2,536,439 $ 5,101,720
========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to bank........................... $ -- $ 80,000 $ -- $ --
Accounts payable............................... 450,355 469,213 391,025 391,025
Accrued expenses and other liabilities......... 733,209 768,863 969,904 969,904
Deferred revenue............................... 2,140,754 2,390,071 2,514,887 2,514,887
---------- ----------- ----------- -----------
Total current liabilities............. 3,324,318 3,708,147 3,875,816 3,875,816
---------- ----------- ----------- -----------
Long-term debt................................. -- 908,310 918,891 918,891
---------- ----------- ----------- -----------
Common stock put warrants...................... -- 123,428 857,428 --
---------- ----------- ----------- -----------
Total liabilities..................... 3,324,318 4,739,885 5,652,135 4,794,707
---------- ----------- ----------- -----------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $.01 par value; 20,000,000
authorized, none issued...................... -- -- -- --
Common stock, $.01 par value; 100,000,000
shares authorized, 1,087,271 shares issued at
December 31, 1997, 1998, and March 31, 1999,
and 1,218,271 shares issued, pro forma at
March 31, 1999............................... 10,872 10,872 10,872 12,182
Additional paid-in capital..................... 191,511 197,994 197,994 419,206
Retained earnings (accumulated deficit)........ (584,776) (1,890,536) (2,934,915) --
Notes receivable and accrued interest from
shareholders................................. (360,424) (383,298) (389,647) (124,375)
---------- ----------- ----------- -----------
Total shareholders' equity
(deficit)........................... (742,817) (2,064,968) (3,115,696) 307,013
---------- ----------- ----------- -----------
$2,581,501 $ 2,674,917 $ 2,536,439 $ 5,101,720
========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 64
TELEMATE.NET SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product revenue................ $3,784,898 $4,890,198 $ 5,450,400 $1,368,531 $ 1,364,605
Service revenue................ 3,114,125 4,058,199 4,931,642 1,138,616 1,293,696
---------- ---------- ----------- ---------- -----------
Total revenues............ 6,899,023 8,948,397 10,382,042 2,507,147 2,658,301
---------- ---------- ----------- ---------- -----------
Costs of revenues:
Product costs.................. 574,104 735,773 923,049 191,781 265,260
Service costs.................. 760,868 1,053,121 1,274,341 317,266 339,290
---------- ---------- ----------- ---------- -----------
Total costs of revenues... 1,334,972 1,788,894 2,197,390 509,047 604,550
---------- ---------- ----------- ---------- -----------
Gross profit.............. 5,564,051 7,159,503 8,184,652 1,998,100 2,053,751
---------- ---------- ----------- ---------- -----------
Operating expenses:
Research and development....... 602,934 1,387,147 1,844,645 398,609 378,615
Sales and marketing............ 2,979,143 3,522,496 4,612,483 982,860 978,809
General and administrative..... 1,861,106 2,230,498 2,926,106 717,740 966,184
---------- ---------- ----------- ---------- -----------
Total operating
expenses............... 5,443,183 7,140,141 9,383,234 2,099,209 2,323,608
---------- ---------- ----------- ---------- -----------
Operating income (loss).......... 120,868 19,362 (1,198,582) (101,109) (269,857)
Interest income (expense):
Increase in common stock put
warrants.................... -- -- -- -- (734,000)
Other interest income.......... 19,036 23,312 34,845 1,370 6,349
Other interest expense......... (3,807) (4,483) (142,023) (2,046) (46,871)
---------- ---------- ----------- ---------- -----------
15,229 18,829 (107,178) (676) (774,522)
---------- ---------- ----------- ---------- -----------
Net income (loss)......... $ 136,097 38,191 (1,305,760) (101,785) (1,044,379)
========== ========== =========== ========== ===========
Basic net income (loss) per
share.......................... $ .13 $ .04 $ (1.20) $ (.09) $ (.96)
========== ========== =========== ========== ===========
Diluted net income (loss) per
share.......................... $ .12 $ .03 $ (1.20) $ (.09) $ (.96)
========== ========== =========== ========== ===========
Weighted average shares
outstanding:
Basic.......................... 1,067,248 1,087,271 1,087,271 1,087,271 1,087,271
========== ========== =========== ========== ===========
Diluted........................ 1,144,801 1,244,256 1,087,271 1,087,271 1,087,271
========== ========== =========== ========== ===========
Unaudited pro forma net income
(loss) data:
Pro forma income taxes expense
(benefit)................... $ 98,000 $ (4,000) $ (98,000) $ (8,000) $ --
========== ========== =========== ========== ===========
Pro forma net income (loss).... $ 38,097 $ 42,191 $(1,207,760) $ (93,785) $(1,044,379)
========== ========== =========== ========== ===========
Pro forma net income (loss) per
share:
Basic....................... $ .04 $ .04 $ (1.11) $ (.09) $ (.96)
========== ========== =========== ========== ===========
Diluted..................... $ .03 $ .03 $ (1.11) $ (.09) $ (.96)
========== ========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 65
TELEMATE.NET SOFTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A PREFERRED RETAINED
STOCK - REDEEMABLE COMMON STOCK ADDITIONAL EARNINGS
----------------------------- ------------------- PAID-IN (ACCUMULATED
SHARES AMOUNTS SHARES AMOUNTS CAPITAL DEFICIT)
-------- ------------------ --------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE at December 31, 1995
(unaudited)...................... -- $ -- 1,052,050 $10,521 $ 114,122 $ (242,479)
Issuance of common stock under
stock incentive plan............. -- -- 19,047 190 41,816 --
Purchase and retirement of common
stock............................ -- -- (5,164) (52) (13,209) --
Notes receivable from
shareholders..................... -- -- -- -- -- --
Distributions to shareholders...... -- -- -- -- -- (516,585)
Accrued interest on shareholder
notes............................ -- -- -- -- -- --
Net income......................... -- -- -- -- -- 136,097
-------- ---------- --------- ------- ---------- ----------
BALANCE at December 31, 1996....... -- -- 1,065,933 $10,659 142,729 (622,967)
Issuance of common stock under
stock incentive plan............. -- -- 21,338 213 48,782 --
Notes receivable from
shareholders..................... -- -- -- -- -- --
Accrued interest on shareholder
notes............................ -- -- -- -- -- --
Net income......................... -- -- -- -- -- 38,191
-------- ---------- --------- ------- ---------- ----------
BALANCE at December 31, 1997....... -- -- 1,087,271 10,872 191,511 (584,776)
Grant of compensatory stock
options.......................... -- -- -- -- 6,483 --
Accrued interest on shareholder
notes............................ -- -- -- -- -- --
Net loss........................... -- -- -- -- -- (1,305,760)
-------- ---------- --------- ------- ---------- ----------
BALANCE at December 31, 1998....... -- -- 1,087,271 10,872 197,994 (1,890,536)
Accrued interest on shareholder
notes (unaudited)................ -- -- -- -- -- --
Net loss (unaudited)............... -- -- -- -- -- (1,044,379)
-------- ---------- --------- ------- ---------- ----------
BALANCE at March 31, 1999
(unaudited)...................... -- -- 1,087,271 10,872 197,994 (2,934,915)
Pro forma unaudited:
Issuance of common stock for
software product............. -- -- 6,000 60 119,940 --
Sale of Series A Preferred
Stock........................ 300,000 5,950,000 -- -- -- --
Conversion of Series A
Preferred Stock to common
stock........................ (300,000) (5,950,000) 300,000 3,000 5,947,000 --
Purchase and retirement of
common stock................. -- -- (200,000) (2,000) (3,998,000) --
Effects of change from S
corporation to C corporation
for income taxes:
- Distributions.............. -- -- -- -- -- (269,991)
- Reclassification of
accumulated deficit to
additional paid-in
capital.................... -- -- -- -- (3,204,906) 3,204,906
Recision of put feature on
common stock warrants........ -- -- -- -- 857,428 --
Sale of common stock........... -- -- 25,000 250 499,750 --
-------- ---------- --------- ------- ---------- ----------
BALANCE at March 31, 1999 Pro forma
unaudited........................ -- $ -- 1,218,271 $12,182 $ 419,206 $ --
======== ========== ========= ======= ========== ==========
<CAPTION>
NOTES
RECEIVABLE TOTAL
AND ACCRUED SHAREHOLDERS'
INTEREST FROM EQUITY
SHAREHOLDERS (DEFICIT)
------------- -------------
<S> <C> <C>
BALANCE at December 31, 1995
(unaudited)...................... $ (44,721) $ (162,557)
Issuance of common stock under
stock incentive plan............. (39,294) 2,712
Purchase and retirement of common
stock............................ 11,310 (1,951)
Notes receivable from
shareholders..................... (140,000) (140,000)
Distributions to shareholders...... -- (516,585)
Accrued interest on shareholder
notes............................ (4,077) (4,077)
Net income......................... -- 136,097
--------- ----------
BALANCE at December 31, 1996....... (216,782) (686,361)
Issuance of common stock under
stock incentive plan............. (44,041) 4,954
Notes receivable from
shareholders..................... (83,780) (83,780)
Accrued interest on shareholder
notes............................ (15,821) (15,821)
Net income......................... -- 38,191
--------- ----------
BALANCE at December 31, 1997....... (360,424) (742,817)
Grant of compensatory stock
options.......................... -- 6,483
Accrued interest on shareholder
notes............................ (22,874) (22,874)
Net loss........................... -- (1,305,760)
--------- ----------
BALANCE at December 31, 1998....... (383,298) (2,064,968)
Accrued interest on shareholder
notes (unaudited)................ (6,349) (6,349)
Net loss (unaudited)............... -- (1,044,379)
--------- ----------
BALANCE at March 31, 1999
(unaudited)...................... (389,647) (3,115,696)
Pro forma unaudited:
Issuance of common stock for
software product............. -- 120,000
Sale of Series A Preferred
Stock........................ -- 5,950,000
Conversion of Series A
Preferred Stock to common
stock........................ -- --
Purchase and retirement of
common stock................. -- (4,000,000)
Effects of change from S
corporation to C corporation
for income taxes:
- Distributions.............. 265,272 (4,719)
- Reclassification of
accumulated deficit to
additional paid-in
capital.................... -- --
Recision of put feature on
common stock warrants........ -- 857,428
Sale of common stock........... -- 500,000
--------- ----------
BALANCE at March 31, 1999 Pro forma
unaudited........................ $(124,375) $ 307,013
========= ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 66
TELEMATE.NET SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE THREE
YEAR ENDED DECEMBER 31, MONTHS ENDED MONTHS ENDED
------------------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998 1999
----------- --------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ 136,097 $ 38,191 $(1,305,760) $ (101,785) $(1,044,379)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization........... 217,261 322,591 353,052 85,329 71,802
Provision for bad debts and returns..... 50,000 10,000 35,000 5,000 120,000
Compensation on stock options........... -- -- 6,483 -- --
Accrued interest on shareholder notes... (4,077) (15,821) (22,874) -- (6,349)
Amortization of discount on common stock
put warrants.......................... -- -- 31,738 -- 10,581
Accretion of common stock put
warrants.............................. -- -- -- -- 734,000
Loss on fixed asset disposal............ -- -- 789 -- --
Changes in assets and liabilities:
(Increase) decrease in trade accounts
receivable......................... (86,427) (433,904) (273,708) 348,731 (43,430)
(Increase) decrease in prepaid
expenses and other current
assets............................. 3,363 (251,648) 77,103 23,651 (36,046)
Decrease in other assets.............. -- -- 23,568 39,463 2,303
Increase (decrease) in accounts
payable, accrued expenses, and
other liabilities.................. 153,920 351,313 54,512 (366,087) 122,852
Increase in deferred revenue.......... 282,963 100,292 249,317 91,633 124,816
----------- --------- ----------- ---------- -----------
Net cash provided by (used in)
operating activities............. 753,100 121,014 (770,780) 125,935 56,150
----------- --------- ----------- ---------- -----------
Cash flows from investing activities:
Purchases of property and equipment....... (670,185) (209,659) (312,916) (101,166) (11,934)
Proceeds from sale of asset............... -- -- 7,000 -- --
----------- --------- ----------- ---------- -----------
Net cash used in investing
activities....................... (670,185) (209,659) (305,916) (101,166) (11,934)
----------- --------- ----------- ---------- -----------
Cash flows from financing activities:
Proceeds (payments) from/on credit
facility................................ -- -- 80,000 -- (80,000)
Proceeds from issuance of long-term debt,
net..................................... -- -- 964,565 964,565 --
Proceeds from the exercise of stock
options................................. 2,712 4,954 -- -- --
Shareholder distributions................. (516,585) -- -- -- --
Purchase and retirement of common stock... (1,951) -- -- -- --
Notes receivable from shareholders........ (140,000) (83,780) -- -- --
----------- --------- ----------- ---------- -----------
Net cash provided by (used in)
financing activities............. (655,824) (78,826) 1,044,565 964,565 (80,000)
----------- --------- ----------- ---------- -----------
Net (decrease) increase in cash.... (572,909) (167,471) (32,131) 989,334 (35,784)
Cash and cash equivalents at beginning of
period.................................... 818,104 245,195 77,724 77,724 45,593
----------- --------- ----------- ---------- -----------
Cash and cash equivalents at end of
period.................................... $ 245,195 $ 77,724 $ 45,593 1,067,058 $ 9,809
=========== ========= =========== ========== ===========
Supplemental disclosure of cash -- cash paid
for interest.............................. $ 3,807 $ 4,483 $ 110,283 2,089 $ 36,436
=========== ========= =========== ========== ===========
Supplemental disclosures of significant
noncash investing and financing
activities:
Discount on common stock put warrants..... $ -- $ -- $ 123,428 -- $ --
=========== ========= =========== ========== ===========
Financing costs withheld from long-term
debt proceeds........................... $ -- $ -- $ 35,435 -- $ --
=========== ========= =========== ========== ===========
Cancellation of note from shareholder in
exchange for treasury stock acquired.... $ 11,310 $ -- $ -- -- $ --
=========== ========= =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 67
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Business
Telemate Software, Inc. (the "Company") develops, markets and supports
network usage management software which allows customers to manage the use of
their voice and data networks. Organizations utilize the Company's products to
help improve employee productivity, enhance network security, and control and
recover network costs. In November 1998, the Company released its patent-pending
software product, Telemate.Net(TM), which integrates call accounting and
Internet usage management.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as of the balance sheet dates and revenues and
expenses for the reporting periods to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
On May 7, 1999, the Company changed its name to Telemate.Net Software, Inc.
from Telemate Software, Inc.
(b) Summary of Significant Accounting Policies
Unaudited Interim Information
The interim financial statements (including notes to financial statements)
of the Company for the three months ended March 31, 1998 and 1999, included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). In the
opinion of management, the accompanying unaudited interim financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company at March 31,
1999, and the results of its operations and its cash flows for the three months
ended March 31, 1998 and 1999. Historical results are not necessarily indicative
of the results to be expected in the future.
Revenue Recognition and Deferred Revenues
The Company recognizes revenue in accordance with The American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") No.
97-2, Software Revenue Recognition, and Statement of Position 98-4, Deferral of
the Effective Date of a Provision of SOP 97-2.
Product revenue primarily consists of software license revenue. Hardware
sales are also included in product revenue and represent less than 10% of total
revenue.
Revenues derived from software license fees and hardware are recognized
upon shipment. Revenues derived from software maintenance and support services
involve primarily annual contracts and are recognized ratably over the service
period. Revenues related to installation and training are recognized as services
are provided.
Deferred revenues generally represent advance payments received from
customers and billings invoiced to customers for software maintenance and
support services billed in advance of the time revenues are recognized.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
F-7
<PAGE> 68
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using accelerated
methods over the shorter of the estimated useful life or lease term. The
estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Computer equipment and purchased software................... 3-5 years
Furniture and office equipment.............................. 5-7 years
Automobiles................................................. 3-5 years
Leasehold improvements...................................... 5 years
</TABLE>
Computation of Net Income (Loss) Per Share and Proforma Net Income (Loss) Per
Share
The Company has presented net income (loss) per share pursuant to SFAS No.
128, Earnings Per Share, and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Pursuant to SEC Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued for nominal consideration,
prior to the effective date of the initial public offering ("IPO"), are required
to be included in the calculation of basic and diluted net income (loss) per
share, as if they were outstanding for all periods presented. The Company has
not had any such issuances or grants for nominal consideration.
Pro forma net income (loss) per share is computed on the same basis
described above using pro forma net income. Pro forma net income is actual net
income adjusted for pro forma income tax expense (benefits) as described in
notes 1 and 12.
Following is a reconciliation between basic and diluted shares for the
purposes of calculating the basic and diluted earnings per share in the
accompanying financial statements.
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Shares used in the calculation of net earnings
(loss) per share:
Basic shares outstanding.......................... 1,067,248 1,087,271 1,087,271
Effect of dilutive securities:
Options granted................................. 77,553 156,985 --
--------- --------- ---------
Fully diluted shares outstanding.................. 1,144,801 1,244,256 1,087,271
========= ========= =========
</TABLE>
Potentially dilutive securities include stock options (Note 5), stock
warrants (Note 9) and certain transactions described in subsequent events (Note
10).
Research and Development Costs
Research and development costs are expensed as incurred. Costs incurred
subsequent to establishing technological feasibility, in the form of a working
model, are capitalized and amortized over their estimated useful lives. To date,
software development costs incurred after technological feasibility has been
established have not been material.
Income Taxes
For Federal and state income tax purposes, until June 16, 1999 the
shareholders of the Company elected that the earnings of the Company be taxed
under the S corporation provisions of the Internal Revenue Code. As a result of
this election, the Company has not provided for Federal or state income tax
F-8
<PAGE> 69
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
expense or any deferred income taxes as earnings are passed through to, and the
related income tax liabilities become the individual responsibility of, the
shareholders of the Company.
On June 16, 1999, the Company's S corporation status terminated upon
closing of the Series A Preferred Stock sale (Note 12).
Stock Compensation Plan
The Company accounts for stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
Accounting for Stock Issued to Employees and complies with the disclosure
requirements of SFAS No. 123, Accounting for Stock-Based Compensation, which
encourages entities to recognize as compensation expense over the vesting period
the fair value of all stock-based awards on the date of grant. Under APB No. 25,
compensation cost, if any, for fixed plan accounting, is recognized over the
respective vesting period based on the difference, on the date of grant, between
the fair value of the Company's common stock and the grant price.
Comprehensive Income
No statement of comprehensive income has been included in the accompanying
financial statements since the results would not differ from the accompanying
statements of operations or shareholders equity.
Reclassifications
Certain 1997 and 1996 amounts have been reclassified to conform to the
classifications presented in the 1998 financial statements.
Industry Segment
On January 1, 1998 the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Company operates and
manages its business in one segment, that being a software and services provider
to the network usage management market.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The fair value of each of the following instruments approximates their
carrying value because of the short maturity of these instruments: cash; trade
accounts receivable; accounts payable; accrued expenses and other liabilities.
The fair value of the Company's long-term debt and common stock put
warrants are estimated by discounting the future cash flows of each instrument
at rates currently offered to the Company for similar debt instruments of
comparable maturities by the Company's bankers. The carrying values approximate
fair values at December 31, 1998.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for all fiscal years beginning after June
15, 1999. The Company is in the process of evaluating this pronouncement and
will adopt it upon its effective date.
F-9
<PAGE> 70
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
In December 1998, the AICPA issued SOP No. 98-9, Modification of SOP No.
97-2, Software Revenue Recognition, with Respect to Certain Transactions. This
SOP amends SOP No. 97-2 to, among other matters, require recognition of revenue
using the "residual method" in circumstances outlined in the SOP. Under the
residual method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections of
SOP No. 97-2 and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related to
the delivered elements. SOP No. 98-9 is effective for fiscal years beginning
after March 15, 1999. The Company does not believe that the adoption of SOP No.
98-9 will have a material effect on its revenue recognition.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Computer equipment and purchased software................... $1,191,794 $1,450,933
Furniture and office equipment.............................. 278,411 321,941
Automobiles................................................. 21,638 --
Leasehold improvements...................................... 91,553 101,295
---------- ----------
1,583,396 1,874,169
Less accumulated depreciation and amortization.............. 953,673 1,283,259
---------- ----------
$ 629,723 $ 590,910
========== ==========
</TABLE>
3. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at December
31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Personnel related accruals.................................. $543,184 $496,316
Other accruals.............................................. 190,025 272,547
-------- --------
$733,209 $768,863
======== ========
</TABLE>
4. NOTES RECEIVABLE FROM SHAREHOLDERS
In 1997 and prior years, the Company issued shares of common stock for
options that were exercised under the terms of the Company's Stock Incentive
Plan. Upon exercise, the Company received cash and full recourse promissory
notes payable to the Company secured by this common stock. The notes accrue
interest at 110% of the Long-Term Applicable Federal Rate, as adjusted each
January 1, and are due at variable dates through 2007. In addition, funds were
advanced to certain shareholders in 1997 and prior years. The shareholders have
signed promissory notes for the advanced funds which are due on demand. The
notes bear interest at rates ranging from 6.00% to 7.11%. Total accrued interest
on the notes from shareholders was $20,191 and $43,065 at December 31, 1997 and
1998, respectively.
5. STOCK INCENTIVE PLAN
The Company has a Stock Incentive Plan (the "Plan"), under which the Board
of Directors is authorized to grant selected employees, including officers,
options to purchase the Company's common stock. Options granted pursuant to the
Plan are exercisable for shares of common stock at a price not less
F-10
<PAGE> 71
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
than 100% of the fair market value on the date of grant. In July 1998, the
number of shares of common stock reserved for issuance under the Plan was
increased by 100,000 to an aggregate of 1,100,000 shares. The Plan provides for
the grant of incentive stock options, nonqualified stock options, and restricted
stock awards to selected employees. The stock options are vested and exercisable
over a period determined by the Board of Directors not to exceed ten years after
the date of grant.
During the quarter ended March 31, 1999, 748,635 incentive stock options
became fully vested under the terms of the Plan.
In 1996, 19,047 options were exercised at prices ranging from $2.20 to
$2.42 per share. In 1997, 21,338 options were exercised at prices ranging from
$2.20 to $2.62 per share. The exercise issuance price was $42,006 and $48,995 in
1996 and 1997, respectively. The optionees entered into notes (see note 4) in
the amount of $39,294 and $44,041 payable to the Company for these purchases
during the year ended December 31, 1996 and 1997, respectively. The notes accrue
interest at 110% of the Long-Term Applicable Federal Rate, as adjusted and are
due at variable dates through 2007. During 1998, no options were exercised.
A summary of stock option activity under the Stock Incentive Plan is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OUTSTANDING PRICE
OPTIONS PER SHARE
----------- ---------
<S> <C> <C>
Options outstanding at December 31, 1995.................... 585,450 $2.21
Options granted............................................. 217,500 2.62
Options canceled............................................ (75,336) 2.20
Options exercised........................................... (19,047) 2.21
-------- -----
Options outstanding at December 31, 1996.................... 708,567 2.33
Options granted............................................. 235,000 2.88
Options canceled............................................ (18,000) 2.62
Options exercised........................................... (21,338) 2.30
-------- -----
Options outstanding at December 31, 1997.................... 904,229 2.47
Options granted............................................. 223,675 2.88
Options canceled............................................ (152,675) 2.72
Options exercised........................................... -- --
-------- -----
Options outstanding at December 31, 1998.................... 975,229 2.53
-------- -----
Options exercisable at December 31, 1998.................... -- --
======== =====
Options available for grant at December 31, 1998............ 84,386
========
</TABLE>
At December 31, 1998, the range of exercise prices and weighted-average
remaining contractual life of the outstanding options were $2.20 to $2.88 and
6.98 years, respectively.
The weighted-average fair value of options granted in 1996, 1997, and 1998
was $0.89, $0.97, and $0.97, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
(excluding a volatility assumption) with the following weighted-average
assumptions used for grants in 1996, 1997, and 1998: expected dividend yield of
0%; expected lives of six years; risk-free interest rate of 6.77%, 6.54%, and
5.25% for 1996, 1997, and 1998, respectively.
F-11
<PAGE> 72
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its Plan. Accordingly, no compensation cost has been recognized
for its stock option plans because the exercise price of the option equals or
exceeds the fair value of the underlying stock at the date of grant. Had
compensation costs for the Company's stock-based compensation plan been
determined in accordance with SFAS No. 123, the Company's net income (loss)
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported....................................... $136,097 $38,191 $(1,305,760)
Pro forma......................................... 91,030 (48,421) (1,433,334)
Basic net income (loss) per common share
As reported....................................... .13 .04 (1.20)
Pro forma......................................... .08 (.04) (1.31)
Diluted earnings (loss) per common share
As reported....................................... .12 .03 (1.20)
Pro forma......................................... .07 (.04) (1.31)
</TABLE>
(6) COMMITMENTS
(a) Leases
In the ordinary course of business, the Company enters into noncancelable
operating lease agreements for its office facilities. Management expects that,
as these lease agreements expire, they will be renewed or replaced by similar
operating lease agreements. Rental expense under the operating leases was
$161,504, $263,045 and $324,035 for the years ended December 31, 1996, 1997 and
1998, respectively. During 1998, the Company modified its existing lease
contract to assume additional rental space. The lease term for the entire
facility is through September 2003. The future minimum annual lease payments
under the noncancelable operating lease agreements with remaining terms greater
than one year for the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1999........................................................ $ 412,104
2000........................................................ 426,536
2001........................................................ 441,470
2002........................................................ 456,913
2003........................................................ 352,109
----------
$2,089,132
==========
</TABLE>
(b) Employee Benefit Plan
Effective January 1, 1993, the Company adopted the Telemate Software 401(k)
Savings and Investment Plan (the "401(k) Plan"). In order to participate in the
401(k) Plan, employees must be at least 21 years of age and have completed 90
days of service. The terms of the 401(k) Plan allow employees to contribute up
to 20% of pretax compensation up to the maximum allowed under Internal Revenue
Service ("IRS") regulations. The Company may make discretionary matching
contributions up to the maximum allowed under IRS regulations. In addition, the
Company may make a discretionary profit-sharing contribution to the 401(k) Plan.
The discretionary matching and profit-sharing contributions vest at the rate of
20% per year. For the years ended December 31, 1996, 1997, and 1998, the Company
F-12
<PAGE> 73
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
made discretionary matching contributions of $56,499, $44,585, and $72,571,
respectively, to the Plan. The Company did not make any discretionary profit
sharing contributions during 1996, 1997 or 1998.
(c) Royalty Agreements
The Company has royalty agreements whereby royalties are paid to vendors
for the use of the vendor's software in conjunction with the Company's products.
(7) NOTE PAYABLE TO BANK
On June 1, 1998, the Company increased its credit facility from $500,000 to
$750,000. Originally issued in December 1996, the credit facility is with a
commercial bank, bears interest at the prime rate plus 1 1/4%, (9% at December
31, 1998) and matures on May 31, 1999. The Company extended its line of credit
under similar terms and conditions through November 1999. The credit facility is
secured by substantially all assets of the Company. No amounts were outstanding
at December 31, 1997. At December 31, 1998, $80,000 was outstanding on this
facility.
The terms of this facility also require that the Company maintain a
financial ratio with respect to current assets to current liabilities and
certain other covenants. At December 31, 1998, the Company was in compliance
with these covenants.
(8) NOTE PAYABLE
In March 1998, the Company obtained $1 million from the issuance of a
secured promissory note. The proceeds of the note provided working capital for
the Company's continued product development activities. At December 31, 1998,
the balance outstanding, net of an unaccreted discount of $91,690, totaled
$908,310.
Interest is payable monthly at 14% until maturity, which occurs in March
2003. The note is secured by substantially all of the assets of the Company and
is subordinated to the note payable to bank. The terms of this facility contain
numerous covenants and restrictions including, but not limited to, restrictions
on the Company from paying dividends and from entering into certain transactions
without permission from the lender.
(9) REDEEMABLE STOCK PURCHASE WARRANT
In connection with the $1 million note payable described in note 8, in
March 1998, the Company issued a warrant for the purchase of common stock at an
exercise price of $.01 per share. The terms of the stock purchase warrant
provide for the number of shares available for exercise to increase at certain
future dates if the note payable remains outstanding as follows:
<TABLE>
<CAPTION>
COMMON SHARES INITIALLY
AVAILABLE UNDER EXERCISE
OF WARRANTS
DATE (SUBJECT TO INCREASE)
- ---- -------------------------
<S> <C>
March 27, 1998.............................................. 20,202
March 27, 1999.............................................. 40,816
March 27, 2000.............................................. 61,856
March 27, 2001.............................................. 83,334
March 27, 2002.............................................. 105,264
</TABLE>
The warrant may be exercised at any time from the grant date until May 31,
2003.
F-13
<PAGE> 74
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
The terms of the stock purchase warrants include many rights and privileges
in favor of the lender, including but not limited to, antidilution rights,
certain registration rights and put rights for cash for a period of 30 days
immediately prior to the expiration thereof at a price equal to the fair market
value of the common stock issuable to the holder upon exercise, as defined. In
accordance with Emerging Issues Task Force No. 96-13, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock, the Company estimated the fair value of the warrant at the date of
issuance. The Company anticipates repaying the indebtedness in February 2000;
accordingly, the Company is currently amortizing the fair value of 40,816
warrants ($123,428) over 23 months as additional interest cost. The Company will
continually revise the warrants to fair value with changes in fair value
reported in interest expense. At March 31, 1999, (unaudited) the fair value was
$20 per share; and accordingly, the Company increased the redeemable stock
purchase warrants and recorded a charge of $734,000 to interest expense in the
quarter ended March 31, 1999.
(10) SUBSEQUENT EVENTS (UNAUDITED)
(a) Purchase of Software Product
On June 8, 1999, the Company entered into an asset purchase agreement
whereby the Company issued 6,000 shares of common stock in exchange for a
software product from an unrelated party. The purchase was valued at $120,000
based on the estimated fair value of common stock at the time of the
transaction. The seller has certain rights, privileges and restrictions,
including but not limited to, piggyback registration rights. An additional 4,000
shares were placed in escrow to be released only upon the Company's acceptance
of an additional version of the software product; upon acceptance and release of
the escrow shares, the Company will record the additional product costs based
upon the fair value of the Company's common stock at that time.
(b) Amendment to the Articles of Incorporation and Sale of Series A Preferred
Stock -- Redeemable.
Effective June 16, 1999 the articles of incorporation of the Company were
amended whereby the amount of common stock authorized for issuance was increased
from 10 million shares to 100 million shares. Additionally, the articles of
incorporation were amended whereby 20 million shares of preferred stock with a
par value of $.01 per share were authorized. The accompanying financial
statements reflect the amended authorized shares as though authorized as of
December 31, 1995. Of the preferred shares authorized, the Series A Preferred
Stock (Preferred Stock) was established and has many rights and privileges,
including but not limited to those included herein. The Series A Preferred Stock
is convertible at any time subsequent to closing and is automatically
convertible upon the completion of a registered public offering.
On June 16, 1999, the Company issued 300,000 shares of Series A Preferred
Stock for cash totaling $6,000,000 ($5,950,000 after estimated expenses of
$50,000).
The holders of Preferred Stock shall be entitled to receive a 12% accruing
dividend, compounded annually, payable only upon liquidation or redemption.
Holders of the Preferred Stock shall also be entitled to participate equally (on
an as-converted basis) in any cash dividends paid to any other class of equity
securities of the Company. The Preferred Stock is voting, and the holders of the
Preferred Stock are entitled to representation by two board members. The holders
of Preferred Stock also have the right of first refusal for sale of additional
shares.
At any time on or after March 31, 2004, holders of a majority of the
outstanding shares of Preferred Stock may elect to have the Company redeem all
of the then outstanding shares of Preferred Stock for an
F-14
<PAGE> 75
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
amount per share equal to the greater of (i) the original purchase price plus
all accrued and unpaid dividends or (ii) the fair market value of the securities
on the date the redemption election is made.
The holders of the Preferred Stock have demand and demand piggyback
registration rights. In addition, the holders of Preferred Stock as well as
certain common stock shareholders are parties to a shareholder agreement which,
among other things, grants the Company and certain principal shareholders the
right of first refusal to purchase additional shares. Upon an IPO the
shareholder agreement will be automatically terminated.
The Company is also restricted from entering into certain transactions
without previous consent of the holders of all or a majority of the Preferred
Stock (or common shares upon conversion to common stock) including, but not
limited to, issuing additional shares of Preferred Stock or to sell, assign,
lease or otherwise dispose of twenty-five percent (25%) or more of its assets.
As part of the Series A Preferred Stock sale, an executive and the
principal stockholder became a party to a non-compete agreement.
(c) Purchase and Retirement of Common Stock
On June 16, 1999, the Company purchased and retired an aggregate of 200,000
shares of common stock from two principal shareholders, one of which is a
Director, for $20 per share or $4,000,000.
(d) Change in Income Tax Status to a C Corporation from an S Corporation
On June 16, 1999, the Company converted to a C corporation for income tax
purposes. Telemate.Net declared distributions totaling $269,991, of which
$265,272 was effectively paid by reduction in the outstanding notes receivable
from shareholders and $4,719 was paid in cash. In connection with the change in
income tax status to a C corporation, the Company recorded the following
additional entries on June 16, 1999:
- Reclassified the accumulated deficit totaling approximately $3,204,906
(estimated) on this date to additional paid in capital which represented
undistributed estimated losses during the S corporation period.
- Established net deferred income tax asset/liability since the Company has
assumed the income tax basis on its assets and liabilities. No amount
(estimate) was recorded since the deferred tax assets are fully reserved
(note 12). Assets of $274,878, a liability of $146, and a valuation
allowance of 274,732 were recorded as of June 16, 1999.
(e) Amendments for Stock Purchase Warrant and Put Obligation
On June 14, 1999, the warrant agreement between the Company and the warrant
holder described in note 9 was amended whereby the number of shares available
for exercise at certain dates were revised. The amendment stipulates that, so
long as the note remains outstanding, if a redemption of shares from David H.
Couchman occurs and if an IPO meeting certain criteria does not take place, the
number of shares available for exercise will increase at the future dates listed
below:
<TABLE>
<CAPTION>
COMMON SHARES AVAILABLE
DATE UPON EXERCISE OF WARRANTS
---- -------------------------
<S> <C>
March 27, 2000.............................................. 94,241
March 27, 2001.............................................. 139,037
March 27, 2002.............................................. 185,792
</TABLE>
F-15
<PAGE> 76
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
The amendment provides that the future number of shares available for
exercise will remain unchanged from the original agreement (see note 9) if an
IPO meeting certain criteria does take place by March 30, 2000 and the note
remains outstanding. As described in note 9, the Company believes that the note
will be paid before March 27, 2000.
Concurrently with the amendment to the warrant, a waiver agreement between
the warrant holder and the Company was executed whereby the warrant holder
agreed to waive its right to put the warrant back to the Company upon the
closing of an IPO.
(f) Stock Option Grants
On May 18, 1999 the number of shares of common stock reserved for issuance
under the Plan was increased by 200,000 to an aggregate of 1,300,000 shares.
Concurrently, 147,000 options were granted at an exercise price of $20 per
share. These options vest over 2 years.
(g) Sale of Common Stock
On June 21, 1999, the Company sold 25,000 shares of common stock to a
prospective board member for $20 per share, or $500,000 in total proceeds.
(11) UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma amounts included in the accompanying pro forma
balance sheet as of March 31, 1999, reflect the following unaudited pro forma
adjustments:
- Purchase of software product for 6,000 common shares valued at $120,000.
- Sale of Preferred Stock for $5,950,000 (estimated expenses of $50,000),
net and conversion of Preferred Stock to common stock.
- Purchase of 200,000 shares of common stock for $4,000,000.
- Distribution of $269,991, of which $265,272 was effectively paid by a
reduction in the outstanding notes receivable from shareholders.
- Reclassification of the accumulated deficit totaling $3,204,906
(estimate) on June 16, 1999 to additional paid-in capital, which
represents undistributed losses during the S corporation period.
- Reclassification of common stock put warrant to additional paid-in
capital, which will occur on the IPO date since the holder of the warrant
agreed to rescind the put right upon IPO.
- Sale of common stock for $500,000.
F-16
<PAGE> 77
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(12) UNAUDITED PRO FORMA INCOME TAXES
The unaudited pro forma provision for income taxes reflects the income tax
expense that would have been reported if the Company had been a C Corporation.
The components of unaudited pro forma income taxes are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Pro forma income taxes:
Current:
Federal........................................... $ 81,811 $ (3,325) $(81,811)
State............................................. 16,189 (675) (16,189)
-------- -------- --------
Total current................................ 98,000 (4,000) (98,000)
-------- -------- --------
Deferred:
Federal........................................... -- -- --
State............................................. -- -- --
-------- -------- --------
Total deferred............................... -- -- --
-------- -------- --------
Total pro forma income taxes................. $ 98,000 $ (4,000) $(98,000)
======== ======== ========
</TABLE>
The following table reconciles the expected corporate federal income tax
expense (computed by multiplying the Company's income before income taxes by
34%) to the Company's unaudited pro forma income tax expense:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Expected pro forma income tax expense (benefit)....... $ 46,273 $ 12,984 $(443,958)
State income taxes, net of federal tax effect......... 10,685 (446) (10,685)
Permanent differences................................. 5,959 4,023 51,312
Change in valuation allowance......................... 54,407 (30,504) 352,266
Other, net............................................ (19,324) 9,943 (46,935)
-------- -------- ---------
$ 98,000 $ (4,000) $ (98,000)
======== ======== =========
</TABLE>
On June 16, 1999, the Company's S corporation status terminated upon
closing of the Series A Preferred Stock sale. At this time the Company will
establish its net deferred tax assets/liabilities and record an accompanying
charge to income tax expense. However, no net amount was recorded (estimate)
since the realization of deferred tax assets was not considered more likely than
not. The accompanying statements of income (loss) for each of the years in the
three years ended December 31, 1998 and the three months ended March 31, 1998
and 1999, reflect provisions for income taxes on an unaudited pro forma basis,
using the asset and liability method, as if the Company had been a C
corporation, fully subject to federal and state income taxes.
In accordance with the asset and liability method, deferred income tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of changes in tax rates is recognized in income in the period
that includes the enactment date.
F-17
<PAGE> 78
TELEMATE.NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the unaudited pro forma deferred income tax assets and liability as
of March 31, 1999, are presented below:
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1999
---------
<S> <C>
Pro forma deferred income tax assets:
Allowance and deferrals................................... $172,067
Accrued bonuses and vacation pay.......................... 102,811
--------
Gross deferred income tax assets....................... 274,878
--------
Valuation allowance......................................... 274,732
--------
Net deferred income tax assets............................ 146
Pro forma deferred income tax liability:
Depreciation.............................................. 146
--------
Deferred income tax liability............................. 146
--------
Net deferred income tax asset (liability)................. $ --
========
</TABLE>
F-18
<PAGE> 79
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $16,700
National Association of Securities Dealers, Inc. fee........ $ 6,500
Nasdaq Stock Market listing fee............................. $ *
Accountants' fees and expenses.............................. $ *
Legal fees and expenses..................................... $ *
Transfer Agent's fees and expenses.......................... $ *
Printing and engraving expenses............................. $ *
Miscellaneous............................................... $ *
Total expenses.................................... $ *
-------
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended and Restated Articles of Incorporation provide that the
liability of the directors for monetary damages shall be eliminated to the
fullest extent permissible under the Georgia Business Corporation Code (the
"GBCC") and that we may indemnify our officers, employees and agents to the
fullest extent permitted under the GBCC.
Telemate.Net's Amended and Restated Bylaws provide that we must indemnify
its directors against all liabilities to the fullest extent permitted under the
GBCC and that we must advance all reasonable expenses incurred in a proceeding
in which the director was either a party or a witness because he or she was a
director. We have entered into indemnification agreements with our directors and
certain of our officers that provide indemnification similar to that provided in
the Amended and Restated Bylaws.
The GBCC provides that, in general, a corporation may indemnify an
individual who is or was a party to any proceeding (other than action by, or in
the right of, such corporation) by reason of the fact that he or she is or was a
director of the corporation, against liability incurred in connection with such
proceeding, including any appeal thereof, provided certain standards are met,
including that such officer or director acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation, and provided further that, with respect to any criminal action
or proceeding, the officer or director had no reasonable cause to believe his or
her conduct was unlawful. In the case of proceedings by or in the right of the
corporation, the GBCC provides that, in general, a company may indemnify an
individual who was or is a party to any such proceeding by reason of the fact
that he or she is or was a director of the corporation against reasonable
expenses incurred in connection with such proceeding, if it is determined that
the director has met the relevant standard of conduct. To the extent that any
directors are successful on the merits or otherwise in the defense of any of the
proceedings described above, the GBCC provides that a corporation is required to
indemnify such officers or directors against reasonable expenses incurred in
connection therewith. The GBCC further provides, in general, for the advancement
of reasonable expenses incurred by a director who is a party to a proceeding if
the director furnishes the corporation (1) a written affirmation of his good
faith belief that he or she has met the standard of conduct under the GBCC or
that the proceeding involves conduct for which liability has been eliminated
under the corporation's articles of incorporation; and (2) a written undertaking
to repay any advances if it is ultimately determined that he or she is not
entitled to indemnification. In addition, the GBCC provides for the
indemnification of officers, employees and agents in certain circumstances.
Section of the Underwriting Agreement filed as Exhibit 1.1
hereto also contains certain provisions pursuant to which certain of our
officers, directors and controlling persons may be entitled to be indemnified by
the underwriters named therein.
II-1
<PAGE> 80
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, we have issued the securities set forth below
that were not registered under the Securities Act of 1933:
(1) We have, over the past three years, issued stock options under our
Stock Incentive Plan to purchase an aggregate of 1,880,025 shares of our common
stock. Options to purchase an aggregate of 1,874,961 of these shares are
currently outstanding at a weighted average exercise price of $2.28 per share.
Over the past three years, we have issued a total of 30,338 shares of our common
stock pursuant to the exercise of options. The options were granted and the
shares were issued upon the exercise of options in reliance on Rule 701 of the
Securities Act.
(2) On March 27, 1998, we issued a warrant to purchase up to 557,376 shares
of our common stock to Sirrom Investments, Inc. pursuant to our loan agreement
with Sirrom Investments. The number of shares issuable pursuant to the exercise
of this warrant increases on the anniversary date of the warrant each year that
the loan remains outstanding up to May 31, 2003. Currently, 122,448 shares of
our common stock are issuable under the warrant at an exercise price of $0.003
per share. We issued this warrant in reliance on Rule 4(2) of the Securities
Act.
(3) On June 8, 1999, we issued 30,000 shares of our common stock, valued at
$6.67 per share, to James A. Myers in connection with our purchase of certain
intellectual property rights owned by Mr. Myers. We sold these shares in
reliance on Regulation D, Rule 506, of the Securities Act.
(4) On June 16, 1999, we issued 300,000 shares of our Series A Preferred
Stock to LiveOak Equity Partners, L.P., Noro-Moseley Partners IV, L.P., and
Noro-Moseley Partners IV-B, L.P. at $6.67 per share, for an aggregate purchase
price of $6.0 million. These shares will be converted into 900,000 shares of our
common stock concurrently with this offering. We sold these shares in reliance
on Regulation D, Rule 506, of the Securities Act.
(5) On June 21, 1999, we issued 75,000 shares of our common stock to James
C. Davis at $6.67 per share, for an aggregate purchase price of $500,000. We
sold these shares in reliance on Regulation D, Rule 506, of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a list of exhibits filed as part of this
registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Articles of Incorporation of the
Registrant.
3.3 -- Amended and Restated Bylaws of the Registrant.
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and Amended and Restated
Bylaws of the Registrant defining rights of the holders of
common stock of the Registrant.
4.2* -- Specimen Stock Certificate.
5.1* -- Opinion of Morris, Manning & Martin, L.L.P., Counsel to the
Registrant, as to the legality of the shares being
registered.
10.1 -- Form of Employment Agreement for Officers and Key Employees.
10.2 -- Lease Agreement, dated January 28, 1992, between KGE
Associates, LP and Complementary Solutions, Inc.
10.3 -- First Amendment to Lease, dated June 11, 1993, between KGE
Associates, LP and Complementary Solutions, Inc.
10.4 -- Second Amendment to Lease, dated June 22, 1994, between KGE
Associates, LP and Complementary Solutions, Inc.
10.5 -- Third Amendment to Lease, dated March 30, 1995, between KGE
Associates, LP and Complementary Solutions, Inc.
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.6 -- Fourth Amendment to Lease, dated June 14, 1996, between KGE
Associates, LP and Telemate Software, Inc.
10.7 -- Fifth Amendment to Lease, dated July 26, 1996, between KGE
Associates, LP and Telemate Software, Inc.
10.8 -- Sixth Amendment to Lease, dated August 2, 1996, between KGE
Associates, LP and Telemate Software, Inc.
10.9 -- Seventh Amendment to Lease, dated July 16, 1998, between KGE
Associates, LP and Telemate Software, Inc.
10.10 -- Telemate Software, Inc. Stock Incentive Plan.
10.11 -- Employment Agreement, dated June 16, 1999, between Richard
L. Mauro and Telemate.Net Software, Inc.
10.12 -- Employment Agreement, dated June 16, 1999, between David H.
Couchman and Telemate.Net Software, Inc.
10.13 -- Telemate.Net Software, Inc. 1999 Stock Incentive Plan.
10.14 -- Amendment to Telemate Software, Inc. Stock Incentive Plan.
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Morris, Manning & Martin, L.L.P. (included in
Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature page).
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules: Schedule I -- Valuation Accounts
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the 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.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act, 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 the 24th day of June, 1999.
TELEMATE.NET SOFTWARE, INC.
By: /s/ RICHARD L. MAURO
------------------------------------
Richard L. Mauro
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David H. Couchman and Richard L. Mauro, and each
of them, 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, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any subsequent registration
statements pursuant to Rule 462 of the Securities Act and to file 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 each of said attorney-in-fact
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID H. COUCHMAN Chairman of the Board June 24, 1999
- -----------------------------------------------------
David H. Couchman
/s/ RICHARD L. MAURO President, Chief Executive June 24, 1999
- ----------------------------------------------------- Officer and Director (Principal
Richard L. Mauro Executive Officer)
/s/ RICHARD J. POST Chief Financial Officer June 24, 1999
- ----------------------------------------------------- (Principal Financial and
Richard J. Post Accounting Officer)
</TABLE>
II-4
<PAGE> 83
SCHEDULE I
TELEMATE.NET SOFTWARE, INC.
VALUATION ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
YEAR ENDED OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR
- ---------- ---------- ---------- ------------- -------
<S> <C> <C> <C> <C>
December 31, 1996.................................... $ -- $71,709 $21,709 $50,000
December 31, 1997.................................... 50,000 33,158 23,158 60,000
December 31, 1998.................................... 60,000 62,349 27,349 95,000
</TABLE>
- ---------------
(1) Write-offs of accounts receivable.
II-5
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TELEMATE.NET SOFTWARE, INC.
The Articles of Incorporation of Telemate.Net Software, Inc., as
amended, are amended and restated as follows:
ARTICLE ONE
NAME
The name of the corporation is Telemate.Net Software, Inc. (the
"Corporation").
ARTICLE TWO
CAPITALIZATION
The Corporation shall have authority, exercisable by its Board of
Directors, to issue up to 100,000,000 shares of common stock, $.01 par value per
share ("Common Stock"), and 20,000,000 shares of preferred stock, $.01 par value
per share ("Preferred Stock"), any part or all of which shares of Preferred
Stock may be established and designated from time to time by the Board of
Directors, in such series and with such preferences, limitations and relative
rights as may be determined by the Board of Directors.
ARTICLE THREE
DESIGNATION OF PREFERRED STOCK
Of the 20,000,000 authorized shares of Preferred Stock, a total of
300,000 shares shall be designated as Series A Preferred Stock and shall have
the terms, preferences, limitations and relative rights set forth on Exhibit "A"
attached hereto and made a part hereof.
ARTICLE FOUR
REGISTERED OFFICE
The registered office of the Corporation shall be at 4250 Perimeter
Park South, Suite 200, Atlanta, Fulton County, Georgia 30341. The registered
agent of the Corporation shall be Richard L. Mauro.
ARTICLE FIVE
PRINCIPAL OFFICE
The mailing address of the principal office of the Corporation shall
be 4250 Perimeter Park South, Suite 200, Atlanta, Fulton County, Georgia 30341.
<PAGE> 2
ARTICLE SIX
DIRECTORS
The Board of Directors of the Corporation is currently composed of
the following Directors: David H. Couchman and Richard L. Mauro. The number of
directors shall be fixed by resolution of the Board of Director or of the
shareholders from time to time, provided that no decrease in the number of
directors shall have the effect of shortening the term of an incumbent director.
ARTICLE SEVEN
LIMITATION ON DIRECTOR LIABILITY
No Director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of the duty of
care or any other duty as a Director, except that such liability shall not be
eliminated for:
(i) any appropriation, in violation of the Director's
duties, of any business opportunity of the Corporation;
(ii) acts or omissions that involve intentional
misconduct or a knowing violation of law;
(iii) liability under Section 14-2-832 (or any successor
provision or redesignation thereof) of the Georgia Business Corporation Code
(the "Code"); and
(iv) any transaction from which the Director received
an improper personal benefit.
If at any time the Code shall have been amended to authorize the
further elimination or limitation of the liability of a Director, then the
liability of each Director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Code, as so amended, without further action
by the shareholders, unless the provisions of the Code, as amended, require
further action by the shareholders.
Any repeal or modification of the foregoing provisions of this
Article Eight shall not adversely affect the elimination or limitation of
liability or alleged liability pursuant hereto of any Director of the
Corporation for or with respect to any alleged act or omission of the Director
occurring prior to such a repeal or modification.
ARTICLE EIGHT
CONSIDERATION OF INTERESTS OF
NON-SHAREHOLDER CONSTITUENCIES
The Board of Directors, any committee of the Board of Directors and
any individual Director, in discharging the duties of its, his or her respective
positions and in determining what is believed to be in the best interest of the
Corporation, may in its, his or her sole discretion consider the interests of
the employees, customers, suppliers and creditors of the Corporation and its
subsidiaries, the communities in which offices or other establishments of the
Corporation and its subsidiaries are located and all other factors such Director
or Directors consider pertinent, in
-2-
<PAGE> 3
addition to considering the effects of any action on the Corporation and its
shareholders. Notwithstanding the foregoing, this Article Ten shall not be
deemed to provide any of the foregoing constituencies any right to be considered
in any such discharging of duties or determination.
ARTICLE NINE
AMENDMENTS
Notwithstanding any other provision of these Articles of
Incorporation, the Corporation's Bylaws or law, neither Articles Seven or Eight
hereof nor this Article Nine may be amended or repealed except upon the
affirmative vote of holders of at least 66-2/3% of the total number of votes of
the then outstanding shares of capital stock of the Company that are entitled to
vote generally in the election of Directors, voting together as a single class.
IN WITNESS WHEREOF, Telemate.Net Software, Inc. has caused these
Articles of Incorporation to be executed by a duly authorized officer on June
16, 1999.
/s/ Richard L. Mauro
-----------------------------------
Richard L. Mauro, President
-3-
<PAGE> 4
DESIGNATIONS OF PREFERENCES,
LIMITATIONS, AND RELATIVE RIGHTS OF SERIES A
PREFERRED STOCK OF TELEMATE.NET SOFTWARE, INC.
Pursuant to authority granted in the charter, as amended and restated
(the "Articles of Incorporation"), of Telemate.Net Software, Inc. (the
"Corporation") and Section 14-2-601 of the Georgia Business Corporation Code,
the Corporation has been authorized to issue in series 20,000,000 shares of
Preferred Stock and to designate the terms, preferences, limitations and
relative rights of each series established. By resolution of the required vote
of the shareholders of the Corporation, the Corporation has established and
fixed the relative preferences, powers, limitations and relative rights of
300,000 shares of Preferred Stock designated the "Series A Preferred Stock,"
$0.01 par value.
For the purposes of these designations, the following terms shall have
the meanings specified:
"Authorized Option Plan or Agreement" shall have the meaning provided
in Section (d)(7)(E)(z) hereof.
"Board of Directors" shall mean the board of directors of the
Corporation.
"Common Stock" shall mean the common stock, $0.01 par value per share,
of the Corporation.
"Conversion Price" shall have the meaning provided in Subsection (d)(1)
hereof.
"Conversion Rate" shall have the meaning provided in Subsection (d)(1)
hereof.
"Corporation" shall mean Telemate.Net Software, Inc., a Georgia
corporation.
"Designations" shall mean the terms, preferences, limitations and
relative rights of the Series A Preferred Stock established hereby and set forth
hereinafter.
"Invested Amount" per share of Series A Preferred Stock shall mean
$20.00 (as adjusted for changes in the Series A Preferred Stock by stock split,
stock dividend, or the like occurring after the Original Issue Date).
"Liquidation" shall have the meaning specified in Section (b).
"Original Issue Date" shall mean the date on which shares of Series A
Preferred Stock are first actually issued by the Corporation pursuant to the
Purchase Agreement.
"Preferred Directors" shall have the meaning provided in Section (c)
hereof.
<PAGE> 5
"Purchase Agreement" shall mean that certain Stock Purchase Agreement
to be dated on or about June 16, 1999, among the Corporation, Live Oak Equity
Partners, L.P., Noro-Moseley Partners IV, L.P., Noro-Moseley Partners IV-B,
L.P., and David H. Couchman, pursuant to which the initial issuance of shares of
Series A Preferred Stock is to occur.
"Qualified Public Offering" shall mean the underwritten offer and sale
of Common Stock to the public having aggregate proceeds to the Corporation of
not less than $20,000,000 after deducting underwriters' discounts and
commissions.
"Redemption Date" shall have the meaning provided in Section (e)
hereof.
"Redemption Exercise Date" shall mean March 31, 2004.
"Sale or Merger" shall have the meaning specified in Section (b).
"Securities Act" shall mean the federal Securities Act of 1933, as
amended.
"Series A Preferred Stock" shall mean the 300,000 shares of Series A
Preferred Stock, $0.01 par value per share, hereby designated.
The Designations granted to and imposed upon the Series A Preferred
Stock are as follows:
(a) Dividend Rights. The holders of record of the Series A
Preferred Stock shall be entitled to receive, when and if declared by the Board
of Directors and out of funds legally available therefor, dividends per share at
a per annum rate of twelve percent (12%) on the Invested Amount (the "Accruing
Dividends"). The Accruing Dividends shall commence accruing on the Series A
Preferred Stock from and after the date of issuance of such shares (the
"Dividend Commencement Date"). The Accruing Dividends shall be cumulative and
shall accrue from the Dividend Commencement Date whether or not declared by the
Board of Directors, but shall only be payable if declared by the Board of
Directors or required to be paid pursuant to the provisions of Sections (b) or
(e). No Accruing Dividends shall be paid on the Series A Preferred Stock upon
the exercise of Conversion Rights (as defined herein) unless previously declared
by the Board of Directors. No dividends shall be declared or paid in respect of
Common Stock unless at the same time dividends are declared and paid as to the
Series A Preferred Stock in equal per-share amounts as if the Series A Preferred
Stock had been converted pursuant to Section (d) to shares of Common Stock.
Dividends on shares of capital stock of the Corporation shall be payable only
out of funds legally available therefor.
(b) Liquidation Rights.
(1) In the event of:
(A) the liquidation, dissolution or winding up of the
Corporation, or such of the Corporation's subsidiaries the
assets of which constitute all or substantially all the assets
of the business of the Corporation and its subsidiaries taken
as a whole (a "Liquidation"), or
A-2
<PAGE> 6
(B) a "Sale or Merger" (defined below), unless, in
the case of a Sale or Merger, the holders of the Series A
Preferred Stock have elected by a vote of at least two-thirds
(66?%) of the total number of shares of such series
outstanding, voting separately as a class, to exclude such
Sale or Merger from the application of this Section (b) (in
which case this Section (b) shall not apply to such
transaction),
the holders of the outstanding shares of the Series A Preferred Stock shall, at
their election, be entitled to receive in exchange for and in redemption of each
share of their Series A Preferred Stock, prior and in preference to the holders
of Common Stock and the holders of any other class or series of stock of the
Corporation ranking junior to the Series A Preferred Stock by reason of their
ownership thereof, (x) in the case of a Liquidation, from any funds legally
available for distribution to shareholders, and (y) in the case of a Sale or
Merger to which this Section (b) applies, from the net proceeds therefrom
(defined for these purposes to mean the proceeds, whether cash, securities or
property, available for distribution to shareholders or payable to the
shareholders by reason of the Sale or Merger), an amount (the "Liquidation
Amount") equal to the Invested Amount per share, plus the aggregate amount of
all declared or accrued, but unpaid, dividends per share, including without
limitation the Accruing Dividends per share to the extent not previously paid
and minus cash dividends, if any, other than Accruing Dividends, previously paid
by the Company per share of Series A Preferred Stock.
(2) To the extent necessary, the Corporation shall cause
such actions to be taken by any of its subsidiaries so as to enable the
proceeds of a Liquidation or a Sale or Merger to be distributed to the
holders of shares of Series B Preferred Stock in accordance with this
Section (b). All the preferential amounts to be paid to the holders of
the Series A Preferred Stock under this Section (b) shall be paid or
set apart for payment before the payment or setting apart for payment
of any amount for, or the distribution of any assets of the Corporation
to, the holders of the Common Stock or any class or series of stock of
the Corporation ranking junior to the Series A Preferred Stock in
connection with a Liquidation or a Sale or Merger as to which this
Section (b) applies. If the assets or surplus funds to be distributed
to the holders of the Series A Preferred Stock are insufficient to
permit the payment to such holders of the full amounts payable to such
holders, the assets and surplus funds legally available for
distribution shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the full amount each such
holder is otherwise entitled to receive.
(3) After the payment or setting apart for payment of all
preferential amounts payable to the holders of Series A Preferred Stock
pursuant to Subparagraph (b)(1), all remaining assets and surplus funds
shall be distributed to the holders of Common Stock and Series A
Preferred Stock on a pro rata basis as though such holders of Series A
Preferred Stock were the holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock were
convertible as of the record date fixed for declaration of such
distribution.
For purposes of these Designations, a "Sale or Merger" shall mean any
of the following:
A-3
<PAGE> 7
(w) the merger, reorganization or consolidation
of the Corporation or such subsidiary or subsidiaries of the
Corporation the assets of which constitute all or
substantially all the assets of the business of the
Corporation and its subsidiaries taken as a whole into or with
another corporation in which the shareholders of the
Corporation or such subsidiaries immediately preceding such
merger, reorganization or consolidation (solely by virtue of
their shares or other securities of the Corporation or such
subsidiaries) shall own less than fifty percent (50%) of the
voting securities of the surviving corporation;
(x) the sale, transfer or lease (but not
including a transfer or lease by pledge or mortgage to a bona
fide lender), whether in a single transaction or pursuant to a
series of related transactions, of all or substantially all
the assets of the Corporation, whether pursuant to a single
transaction or a series of related transactions or plan (which
assets shall include for these purposes fifty percent [50%] or
more of the outstanding voting interests of such of the
Corporation's subsidiaries the assets of which constitute all
or substantially all the assets of the Corporation and its
subsidiaries taken as a whole);
(y) the sale, transfer or lease (but not
including a transfer or lease by pledge or mortgage to a bona
fide lender), whether in a single transaction or pursuant to a
series of related transactions, of all or substantially all
the assets of such of the Corporation's subsidiaries the
assets of which constitute all or substantially all of the
assets of the Corporation and such subsidiaries taken as a
whole; or
(z) the sale or transfer, whether in a single
transaction or pursuant to a series of related transactions,
of securities of the Corporation such that all holders of
securities of the Corporation which are entitled to vote by
virtue of holding such securities with respect to matters
generally that are voted on by stockholders of the Corporation
(and not any matter requiring an additional class or other
special vote) (collectively, the "Corporation's Voting Power")
immediately prior to such transaction or series of related
transactions do not hold after such transaction such
securities of the Corporation that constitute more than a
majority of the Corporation's Voting Power.
Any securities to be delivered to the holders of the Series A Preferred
Stock pursuant to this Section (b) as a consequence of a Sale or Merger shall be
valued as follows:
(i) Securities not subject to investment letter or other
similar restriction on free marketability covered by (ii) below:
(A) if traded on a securities exchange or
through Nasdaq Stock Market, by averaging the closing prices
of the securities on such exchange over the thirty (30)-day
period ending three (3) days prior to the closing;
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(B) if actively traded over-the-counter, by
averaging the closing bid or sale prices (whichever are
applicable) over the thirty (30)-day period ending three (3)
days prior to the closing; and
(C) if there is no active public market, at the
fair market value thereof, as mutually determined by the
Corporation and the holders of Series A Preferred Stock who
would be entitled to receive such securities or the same type
of securities and which Series A Preferred Stock represents at
least a majority of the voting power of all then outstanding
shares of such series.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a shareholder's status as
an affiliate or former affiliate) shall be to make an appropriate
discount from the market value determined as above in (i) (A), (B) or
(C) to reflect the approximate fair market value thereof, as mutually
determined by the Corporation and the holders of a majority of the then
outstanding shares of Series A Preferred Stock.
In the event the requirements of this Section (b) with respect to a
Sale or Merger are not complied with, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as
the requirements of this Section (b) have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred
Stock shall revert to and be the same such rights, preferences and
privileges existing immediately prior to the date of the first notice
referred to in the following paragraph.
The Corporation shall give each holder of record of Series A Preferred
Stock written notice of any impending Sale or Merger not later than twenty (20)
days prior to the shareholders' meeting called to approve such transaction, or
twenty (20) days prior to the closing of such transaction, whichever is earlier,
and shall also notify such holder in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending Sale or Merger and the provisions of this Section
(b), and the Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the Corporation has given the first notice provided for
herein or sooner than ten (10) days after the Corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of a majority of the
then outstanding shares of Series A Preferred Stock.
The provisions of this Section (b) are in addition to and not in
limitation of the protective provisions of Section (g).
(c) Voting Rights. Except as set forth specifically below, each
holder of a share of the Series A Preferred Stock shall be entitled to the
number of votes equal to the number of shares of Common Stock into which such
share of Series A Preferred Stock would be convertible under the
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circumstances described in Section (d) hereof on the record date for the vote or
consent of shareholders, and shall otherwise have voting rights and powers equal
to the voting rights and powers of the Common Stock; provided, however, that,
with respect to the election of directors, (i) the holders of Series A Preferred
Stock shall vote together as a single class to elect two (2) individuals to
serve as members of the Board of Directors (the "Preferred Directors"), and (ii)
the holders of Series A Preferred Stock shall vote together with the holders of
Common Stock to elect the remaining members of the Board of Directors. Each
holder of a share of the Series A Preferred Stock shall be entitled to receive
the same prior notice of any shareholders' meeting as provided to the holders of
Common Stock in accordance with the Bylaws of the Corporation, as well as prior
notice of all shareholder actions to be taken by legally available means in lieu
of meeting, and shall vote with holders of the Common Stock upon any matter
submitted to a vote of shareholders, except those matters required by law, or by
the terms hereof, to be submitted to a class vote of the holders of Series A
Preferred Stock. Fractional votes shall not, however, be permitted, and any
fractions shall be disregarded in computing voting rights.
Notwithstanding anything contained in this Section (c) to the contrary,
should the Corporation fail for any reason (i) to redeem the Series A Preferred
Stock under the conditions and in accordance with the terms of Section (b), (ii)
to issue Common Stock in conversion of the Series A Preferred Stock as provided
in Section (d), (iii) to redeem the Series A Preferred Stock under the
conditions and in accordance with the terms of Section (e) hereof, (iv) to honor
the preemptive rights granted to holders of Series A Preferred Stock in Section
(f), or (v) to comply with the protective provisions of Section (g) hereof, and
should such failure continue for a period of thirty (30) consecutive days, then,
at the end of such period and for so long as said failure remains uncured, the
holders of Series A Preferred Stock shall be entitled, at any annual meeting of
the shareholders or any special meeting called for such purpose, voting together
as a single class, to elect the smallest number of members of the Board of
Directors necessary to constitute a majority of the full Board of Directors, and
the holders of Common Stock, voting as a single class, shall elect the remaining
directors. If, prior to the end of the term of any director elected as aforesaid
by the holders of shares of the Series A Preferred Stock, a vacancy in the
office of such director shall occur by reason of death, resignation, removal or
disability, or for any other reason, the right to fill such vacancy shall be
vested in the holders of the Series A Preferred Stock unless the right of such
holders to elect such director shall have ceased as provided hereafter.
At any time after such power to elect a majority of directors shall
have so vested in the Series A Preferred Stock, the Secretary of the Corporation
may, and, upon the written request of the holders of record of ten percent (10%)
or more of the then outstanding shares of the Series A Preferred Stock,
addressed to the Secretary at the principal office of the Corporation, shall,
call a special meeting of the holders of Series A Preferred Stock for the
election of the directors to be elected by them as hereinabove provided, to be
held within thirty (30) days after such call and at the place and upon the
notice provided by law and in the Bylaws of the Corporation for the holding of
meetings of shareholders. If any such special meeting required to be called as
above provided shall not be called by the Secretary within thirty (30) days
after receipt of any such request, then the holders of record of ten percent
(10%) or more in amount of the Series A Preferred Stock then outstanding may
designate in writing one of their number to call such meeting, and the person so
designated may call such meeting to be held at the place and upon the notice
above provided, and for that purpose shall have access to the stock ledger of
the Corporation. If any such special meeting
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shall be called by the Secretary of the Corporation or by the holders of the
Series A Preferred Stock as above provided, a quorum shall consist of the
holders of at least a majority of the Series A Preferred Stock then outstanding
in person or represented by proxy at such meeting or any adjournment thereof. By
vote of the holders of at least a majority of such Series A Preferred Stock
present or so represented at such meeting, the then authorized number of
directors of the Corporation shall be increased by twofold plus one and, at such
meeting, the holders of the Series A Preferred Stock shall be entitled to elect
the additional directors so provided for, but any directors so elected shall
hold office only until their respective successors are duly elected and
qualified at the annual meeting of shareholders or special meeting held in place
thereof next succeeding their election (giving effect to the foregoing rights of
the holders of Series A Preferred Stock).
At such time, if any, as the holders of the Series A Preferred Stock
shall obtain the redemption referred to in (i) above, receive the Common Stock
specified in (ii) above, or obtain rectification of the failure to respect, or
restoration of, the rights referenced in (iv) or (v) above, then the terms of
office of all persons elected as directors by such holders shall forthwith
terminate, the number of directors shall be reduced accordingly, and the holders
of Series A Preferred Stock, if any, shall once again have rights with respect
to the election of directors as are provided in the first sentence of this
Section (c). The foregoing remedy shall not be deemed exclusive and shall be in
addition to all other rights and remedies available at law or equity to the
holders of Series A Preferred Stock.
(d) Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(1) Conversion Rate. For purposes of this Section (d), the
shares of Series A Preferred Stock shall be convertible, at the times
and under the conditions described in this Section (d) hereafter, at
the rate (the "Conversion Rate") of one share of Series A Preferred
Stock to the number of shares of Common Stock that equals the quotient
obtained by dividing the Invested Amount by the Conversion Price
(defined hereinafter). Thus, the number of shares of Common Stock to
which a holder of Series A Preferred Stock shall be entitled upon any
conversion provided for in this Section (d) shall be the product
obtained by multiplying the Conversion Rate by the number of shares of
Series A Preferred Stock being converted. Such conversion shall be
deemed to have been made immediately prior to the close of business on
the date of the surrender of the shares of Series A Preferred Stock to
be converted in accordance with the procedures described in Subsection
(d)(4) below. The "Conversion Price" shall be equal to the Invested
Amount, except as otherwise adjusted as provided hereafter in this
Section (d). The initial Conversion Rate shall be one share of Series A
Preferred Stock for one share of Common Stock.
(2) Optional. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any
transfer agent for the Series A Preferred Stock, into Common Stock at
the then effective Conversion Rate.
(3) Automatic.
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(A) The outstanding Series A Preferred Stock shall
automatically convert into Common Stock at the then effective
Conversion Rate upon the earliest to occur of: (i) the
election by the holders of at least two-thirds (66-2/3%) of
the then outstanding shares of Series A Preferred Stock by
delivery of written notice or notices to the Corporation or
(ii) the conversion of at least two-thirds (66-2/3%) of the
originally issued Series A Preferred Stock in one or more
transactions. Each and every outstanding share of Series A
Preferred Stock held by all holders of Series A Preferred
Stock (whether or not so electing) shall automatically be
converted into Common Stock at the then effective Conversion
Rate pursuant to the events described in this Subsection
(d)(3). Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of
receipt of the last written notice described above necessary
to effect such request by a majority of holders. Such
conversion shall be automatic, without need for any further
action by the holders of shares of Series A Preferred Stock
and regardless of whether the certificates representing such
shares are surrendered to the Corporation or its transfer
agent; provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless certificates
evidencing such shares of Series A Preferred Stock so
converted are surrendered to the Corporation in accordance
with the procedures described in Subsection (d)(4) below. Upon
the conversion of the Series A Preferred Stock pursuant to
this Subsection (d)(3)(A), the Corporation shall promptly send
written notice thereof, by registered or certified mail,
return receipt requested and postage prepaid, by hand delivery
or by overnight delivery, to each holder of record of Series A
Preferred Stock at his or its address then shown on the
records of the Corporation, which notice shall state that
certificates evidencing shares of Series A Preferred Stock
must be surrendered at the office of the Corporation (or of
its transfer agent for the Common Stock, if applicable) in the
manner described in Subsection (d)(4) below.
(B) The Corporation shall notify each holder of
Series A Preferred Stock at least ninety (90) days prior to
the anticipated effective date of a registration statement
filed by the Corporation under the Securities Act covering a
Qualified Public Offering. Upon the closing of, but effective
immediately prior to, the first sale in a Qualified Public
Offering, each and every share of outstanding Series A
Preferred Stock held by all holders of Series A Preferred
Stock shall automatically be converted into Common Stock at
the then effective Conversion Rate. Such conversion shall be
automatic, without need for any further action by the holders
of shares of Series A Preferred Stock and regardless of
whether the certificates representing such shares are
surrendered to the Corporation or its transfer agent;
provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing
such shares of Series A Preferred Stock so converted are
surrendered to the Corporation in accordance with the
procedures described in Subsection (d)(4) below. Upon the
conversion of the Series A Preferred Stock pursuant to this
Subsection (d)(2)(B), the Corporation shall promptly send
written notice thereof, by registered or certified mail,
return receipt requested and postage
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prepaid, by hand delivery or by overnight delivery, to each
holder of record of Series A Preferred Stock at his or its
address then shown on the records of the Corporation, which
notice shall state that certificates evidencing shares of
Series A Preferred Stock must be surrendered at the office of
the Corporation (or of its transfer agent for the Common
Stock, if applicable) in the manner described in Subsection
(d)(4) below.
(C) No fractional shares of Common Stock shall be
issued upon conversion of Series A Preferred Stock, and any
shares of Series A Preferred Stock surrendered for conversion
that would otherwise result in a fractional share of Common
Stock shall be redeemed at the then effective Conversion Price
per share, payable as promptly as possible when funds are
legally available therefor.
(4) Mechanics of Conversion. Before any holder of Series
A Preferred Stock shall be entitled to receive certificates
representing the shares of Common Stock into which shares of Series A
Preferred Stock are converted in accordance with Subsections (d)(2) or
(d)(3) above, such holder shall surrender the certificate or
certificates for such shares of Series A Preferred Stock, duly
endorsed, at the office of the Corporation or of any transfer agent for
the Series A Preferred Stock, and shall give written notice to the
Corporation at such office of the name or names in which such holder
wishes the certificate or certificates for shares of Common Stock to be
issued, if different from the name shown on the books and records of
the Corporation. Said conversion notice shall also contain such
representations as may reasonably be required by the Corporation to the
effect that the shares to be received upon conversion are not being
acquired and will not be transferred in any way that might violate the
then applicable securities laws. The Corporation shall, as soon as
practicable thereafter and in no event later than thirty (30) days
after the delivery of said certificates, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or
nominees of such holder as provided in such notice, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled as aforesaid. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion
pursuant to Subsections (d)(2) or (d)(3) shall be treated for all
purposes as the record holder or holders of such shares of Common Stock
as of the effective date of conversion specified in such section. All
certificates issued upon the exercise or occurrence of the conversion
shall contain a legend governing restrictions upon such shares imposed
by law or agreement of the holder or his or its predecessors.
(5) Adjustment for Subdivisions or Combinations of Common
Stock. In the event the Corporation at any time or from time to time
after the Original Issue Date effects a subdivision or combination of
the outstanding Common Stock into a greater or lesser number of shares
without a proportionate and corresponding subdivision or combination of
the outstanding Series A Preferred Stock, then and in each such event
the Conversion Price (and the corresponding Conversion Rate) shall be
increased or decreased proportionately.
(6) Adjustments for Dividends, Distributions and Common
Stock Equivalents. In the event that the Corporation at any time or
from time to time after the Original Issue Date shall make or issue, or
fix a record date for the determination of holders of Common
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Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights
convertible into or entitling the holder thereof to receive additional
shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder of
such Common Stock Equivalents or the additional shares of Common Stock,
and without a proportionate and corresponding dividend or other
distribution to holders of Series A Preferred Stock, then and in each
such event the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for
subsequent adjustment of such number) of Common Stock issuable in
payment of such dividend or distribution or upon conversion or exercise
of such Common Stock Equivalents shall be deemed, for purposes of this
Subsection (d)(6), to be issued and outstanding as of the time of such
issuance or, in the event such a record date shall have been fixed, as
of the close of business on such record date. In each such event the
Conversion Price shall be decreased as of the time of such issuance or,
in the event such a record date shall have been fixed, as of the close
of business on such record date, by multiplying the Conversion Price by
a fraction,
(A) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding or deemed to
be issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date;
and
(B) the denominator of which shall be the total
number of shares of Common Stock (x) issued and outstanding or
deemed pursuant to the terms hereof to be issued and
outstanding (not including any shares described in clause (y)
immediately below), immediately prior to the time of such
issuance or the close of business on such record date, plus
(y) the number of shares of Common Stock issuable in payment
of such dividend or distribution or upon conversion or
exercise of such Common Stock Equivalents;
provided, however, that (i) if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Conversion Price (and the
corresponding Conversion Rate) shall be recomputed accordingly as of
the close of business on such record date and thereafter the Conversion
Price (and the corresponding Conversion Rate) shall be adjusted
pursuant to this Subsection (d)(6) as of the time of actual payment of
such dividend or distribution; or (ii) if such Common Stock Equivalents
provide, with the passage of time or otherwise, for any decrease in the
number of shares of Common Stock issuable upon conversion or exercise
thereof (or upon the occurrence of a record date with respect thereto),
the Conversion Price (and the corresponding Conversion Rate) computed
upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such decrease becoming effective, be
recomputed to reflect such decrease insofar as it affects the rights of
conversion or exercise of the Common Stock Equivalents then
outstanding; or (iii) upon the expiration of any rights of conversion
or exercise under any unexercised Common Stock Equivalents, the
Conversion Price (and the corresponding Conversion Rate) computed upon
the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based
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thereon, shall, upon such expiration, be recomputed as if the only
additional shares of Common Stock issued were the shares of such stock,
if any, actually issued upon the conversion or exercise of such Common
Stock Equivalents; or (iv) in the event of issuance of Common Stock
Equivalents that expire by their terms not more than sixty (60) days
after the date of issuance thereof, no adjustments of the Conversion
Price (or the corresponding Conversion Rate) shall be made until the
expiration or exercise of all such Common Stock Equivalents, whereupon
the adjustment otherwise required by this Subsection (d)(6) shall be
made in the manner provided herein.
(7) Adjustment of Conversion Rate for Diluting Issues.
Except as otherwise provided in this Subsection (d)(7), in the event,
and each time as, the Corporation sells or issues any Common Stock or
Common Stock Equivalents following the Original Issue Date, at a per
share consideration (as defined below) less than the Conversion Price
then in effect, then the Conversion Price shall be adjusted as provided
in this Subsection (d)(7), and the Conversion Rate shall be
appropriately adjusted. For purposes of the foregoing, the per share
consideration with respect to the sale or issuance of a share of Common
Stock shall be the price per share received by the Corporation, prior
to the payment of any expenses, commissions, discounts and other
applicable costs. With respect to the sale or issuance of Common Stock
Equivalents that are convertible into or exchangeable for Common Stock
without further consideration, the per share consideration shall be
determined by dividing the maximum number of shares (as set forth in
the instrument relating thereto without regard to any provisions
contained therein for subsequent adjustment of such number) of Common
Stock issuable with respect to such Common Stock Equivalents into the
aggregate consideration received by the Corporation upon the sale or
issuance of such Common Stock Equivalents. With respect to the issuance
of other Common Stock Equivalents, the per share consideration shall be
determined by dividing the maximum number of shares (as set forth in
the instrument relating thereto without regard to any provisions
contained therein for subsequent adjustment of such number) of Common
Stock issuable with respect to such Common Stock Equivalents into the
aggregate consideration received by the Corporation upon the sale or
issuance of such Common Stock Equivalents plus the total consideration
receivable by the Corporation upon the conversion or exercise of such
Common Stock Equivalents. The issuance of Common Stock or Common Stock
Equivalents for no consideration shall be deemed to be an issuance at a
per share consideration of $.01. In connection with the sale or
issuance of Common Stock and/or Common Stock Equivalents for non-cash
consideration, the amount of consideration shall be determined by the
Board of Directors of the Corporation in good faith.
As used herein, "Additional Shares of Common Stock" shall mean
either shares of Common Stock issued, with respect to such adjustments
to be made to the Conversion Price and the Conversion Rate, subsequent
to the Original Issue Date, or, with respect to the issuance of Common
Stock Equivalents, the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained
therein for subsequent adjustment of such number) of Common Stock
issuable in exchange for, upon conversion of, or upon exercise of such
Common Stock Equivalents.
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(A) Upon each issuance of Common Stock for a per
share consideration less than the Conversion Price as in
effect on the date of such issuance, the Conversion Price as
in effect on such date shall be adjusted by multiplying it by
a fraction:
(x) the numerator of which shall be the
number of shares of Common Stock deemed outstanding
(as defined below) immediately prior to the issuance
of such Additional Shares of Common Stock plus the
number of shares of Common Stock that the aggregate
net consideration received by the Corporation for the
total number of such Additional Shares of Common
Stock so issued would purchase at the Conversion
Price then in effect; and
(y) the denominator of which shall be the
number of shares of Common Stock deemed outstanding
(as defined below) immediately prior to the issuance
of such Additional Shares of Common Stock plus the
number of shares of Common Stock so issued.
For the purposes of this Subsection (d)(7)(A), the number of shares of Common
Stock deemed to be outstanding as of a given date shall be the sum of (i) the
number of shares of Common Stock actually outstanding, (ii) the number of shares
of Common Stock into which the then outstanding shares of Series A Preferred
Stock could be converted if fully converted on the day immediately preceding the
given date, and (iii) the number of shares of Common Stock that could be
obtained through the exercise or conversion of all other rights, options and
convertible securities on the day immediately preceding the given date.
(B) Upon each issuance of Common Stock
Equivalents that are exchangeable without further
consideration into Common Stock, for a per share consideration
less than the Conversion Price as in effect on the date of
such issuance, the Conversion Price shall be adjusted as
provided in paragraph (A) of this Subsection (d)(7) on the
basis that the Additional Shares of Common Stock are to be
treated as having been issued on the date of issuance of the
Common Stock Equivalents, and the aggregate consideration
received by the Corporation for such Common Stock Equivalents
shall be deemed to have been received for such Additional
Shares of Common Stock.
(C) Upon each issuance of Common Stock
Equivalents other than those described in paragraph (B) of
this Subsection (d)(7) for a per share consideration less than
the Conversion Price as in effect on the date of such
issuance, the Conversion Price shall be adjusted as provided
in paragraph (A) of this Subsection (d)(7) on the basis that
the Additional Shares of Common Stock are to be treated as
having been issued on the date of issuance of such Common
Stock Equivalents, and the aggregate consideration received
and receivable by the Corporation on conversion or exercise of
such Common Stock Equivalents shall be deemed to have been
received for such Additional Shares of Common Stock.
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(D) Once any Additional Shares of Common Stock
have been treated as having been issued for the purpose of
this Subsection (d)(7), they shall be treated as issued and
outstanding shares of Common Stock whenever any subsequent
calculations must be made pursuant hereto; provided that on
the expiration of any options, warrants or rights to purchase
Additional Shares of Common Stock, the termination of any
rights to convert or exchange for Additional Shares of Common
Stock, or the expiration of any options or rights related to
such convertible or exchangeable securities on account of
which an adjustment in the Conversion Price has been made
previously pursuant to this Subsection (d)(7), such Conversion
Price shall forthwith be readjusted to the Conversion Price as
would have obtained had the adjustment made upon the issuance
of such options, warrants, rights, securities or options or
rights related to such securities been made upon the basis of
the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options, warrants or
rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such
securities.
(E) The foregoing notwithstanding, no adjustment
of the Conversion Price and the Conversion Rate shall be made
pursuant to this Subsection (d)(7) as a result of the issuance
of:
(u) any shares of Common Stock upon the
conversion of shares of Series A Preferred Stock;
(v) any shares of Common Stock pursuant to
which the Conversion Price and the Conversion Rate
are adjusted under Subsection (5) or (6) of this
Section (d);
(w) any shares of Common Stock issued
pursuant to the exchange, conversion or exercise of
any Common Stock Equivalents that have previously
been incorporated into computations hereunder on the
date when such Common Stock Equivalents were issued;
(x) any shares of Common Stock issued
pursuant to exercise of the preemptive rights granted
in Section (f) hereof;
(y) up to 40,816 shares of Common Stock
pursuant to the warrant granted to Sirrom
Investments, Inc. prior to the Original Issue Date
(which number shall be appropriately adjusted for any
stock splits, stock dividends, recapitalizations or
similar events to the extent provided in such
warrant); or
(z) up to 1,086,285 shares of Common Stock
(which number shall be appropriately adjusted for any
stock splits, stock dividends, recapitalizations or
similar events), issued at any time after the
Original Issue Date pursuant to options, warrants or
rights that were granted prior to the Original Issue
Date to purchase shares of Common Stock and up to
213,715 shares of Common Stock (subject to such
adjustment) issued at any time after
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the Original Issue Date pursuant to options, warrants
or rights that may be granted at any time after the
Original Issue Date to purchase shares of Common
Stock, less the number of any such options, warrants
or rights that are repurchased by the Company, are
canceled or expire, in each case in favor of
employees, directors, officers or consultants of the
Corporation or any subsidiary thereof pursuant to
bona fide employee stock option plans created in
accordance with Section 422 of the Internal Revenue
Code of 1986, as amended, or similar subsequent
legislation or pursuant to a non-statutory stock
option plan or non-statutory stock option agreements
with terms substantially similar to such statutory
plan or plans, provided that any such non-statutory
stock option plan or agreements shall provide that
any options thereunder not be granted at an exercise
price of less than the fair market value of the stock
into which they are exercisable (any such stock
option plan or agreement described in this clause (z)
being referred to as an "Authorized Option Plan or
Agreement").
(8) Adjustment on or Before April 1, 2000. Upon the
earlier to occur of April 1, 2000, or the completion of the Qualified
Public Offering, the Conversion Price shall be adjusted as follows:
(A) if the Qualified Public Offering does not occur
before April 1, 2000, then the Conversion Price shall be
adjusted to $13.50 (which number shall be appropriately
adjusted for by stock splits, stock dividends,
recapitalizations or similar events), subject to the proviso
below; or
(B) if the Qualified Public Offering is completed on
or before April 1, 2000, at a price per share of common stock
of less than $39.00 (which number shall be appropriately
adjusted for by stock splits, stock dividends,
recapitalizations or similar events), then the Conversion
Price shall be adjusted to equal one-half (1/2) of the
mid-point of the offering price range (i.e., average of the
highest price and lowest price of such range), as set forth in
the preliminary prospectus widely distributed in such
underwriting, subject to the proviso below;
provided, however, should any adjustment to the Conversion Price have previously
been made pursuant to Subsections (d)(6) or (7), then the Conversion Price as
determined pursuant to this Subsection (d) (8) shall be further adjusted to give
effect to such prior adjustment, with such prior adjustment being made
subsequent to, and after giving effect to, the adjustment to the Conversion
Price pursuant to this Subsection (d)(8).
(9) De Minimis Adjustments. No adjustment to the
Conversion Price (and, thereby, the Conversion Rate) shall be made if
such adjustment would result in a change in the Conversion Price of
less than $.01. Any adjustment of less than $.01 that is not made shall
be carried forward and shall be made at the time of and together with
any subsequent adjustment that, on a cumulative basis, amounts to an
adjustment of $.01 or more in the Conversion Price.
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<PAGE> 18
(10) No Impairment. Except as provided in Section (g)
hereof, the Corporation shall not, by amendment of its Articles of
Incorporation or Bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Corporation, but shall at all times in good faith assist in the
carrying out of all the provisions of this Section (d) and in the
taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the Series A
Preferred Stock against impairment.
(11) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to
this Section (d), the Corporation at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and
cause independent public accountants selected by the Corporation to
verify such computation and prepare and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment
or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Price
and the Conversion Rate at that time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property that
at that time would be received upon the conversion of Series A
Preferred Stock.
(12) Notices of Record Date. In the event of any taking by
the Corporation of a record of the holders of any class of securities
other than Series A Preferred Stock for the purpose of determining the
holders thereof who are entitled to receive any dividend or other
distribution, any Common Stock Equivalents or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Series A Preferred Stock, at
least twenty (20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or rights, and the amount and
character of such dividend, distribution or rights.
(13) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose
of effecting the conversion of the shares of the Series A Preferred
Stock such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares
of the Series A Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall be insufficient to
effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation shall take such corporate action as
may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares
as shall be sufficient for such purpose.
(e) Redemption of Preferred Stock. In the event that at any time
subsequent to the Redemption Exercise Date (i) the holders of Series A Preferred
Stock have elected, by a vote of at
A-15
<PAGE> 19
least sixty percent (60%) of the total number of such series outstanding, to
cause a redemption of such shares, and (ii) neither a Sale or Merger of the
Corporation has occurred that has been treated like a Liquidation in accordance
with Section (b) nor has a Qualified Public Offering been effected prior to such
date, then such holders (the "Electing Holders") shall so notify the Corporation
by delivery of written notice or notices to the Corporation. The Corporation
shall, within ninety (90) days of such notice, redeem all the then outstanding
shares of Series A Preferred Stock by paying in cash to the holders thereof in
respect of each such share the Redemption Price (defined below; such date of
redemption being hereinafter referred to as the "Redemption Date"). The price
payable for each redeemed share of Series A Preferred Stock (the "Redemption
Price") shall be equal to the greater of the Liquidation Amount or the Appraised
Value (defined below) of each such share as of the date of the request for
redemption.
Should the Electing Holders not notify the Corporation of their
election to cause a redemption of the shares of Series A Preferred Stock on or
prior to June 30, 2004, then at any time thereafter the Corporation may elect to
cause such redemption by delivery of written notice (by registered or certified
mail, return receipt requested and postage prepaid, by hand delivery or
overnight delivery) to all holders of Series A Preferred Stock, at their
respective addresses then shown on the records of the Corporation. The
Corporation shall, no sooner than thirty (30) nor later than ninety (90) days
after such notice, redeem all the then outstanding shares of Series A Preferred
Stock by paying cash to the holders thereof in respect of each such share at the
Redemption Price. The date of redemption is referred to herein as the
"Redemption Date." Any shares of Series A Preferred Stock as to which notice of
optional conversion pursuant to Section (d)(2) hereof is given prior to the
Redemption Date shall not be so redeemed, but shall be converted in accordance
with the provisions of Section (d).
The Appraised Value shall be the fair market value of such shares, as
established by the Board of Directors in good faith following such request for
redemption (which Appraised Value shall not include a discount for minority
ownership interest or illiquidity), and each holder of the Series A Preferred
Stock shall be notified in writing of such value at least eighty (80) days prior
to the scheduled redemption. If, however, any Electing Holder or Holders shall
give the Corporation written notice at least sixty (60) days' prior to the
scheduled redemption that he, it or they disagree with the value placed upon the
Series A Preferred Stock, then the Electing Holders and the Corporation shall
attempt to agree upon an Appraised Value. Should the Electing Holders and the
Corporation be unable to agree during the twenty (20)-day period immediately
following the giving of the written notice of such disagreement as to the
Appraised Value without the employment of appraisers, then they shall each
select an appraiser experienced in the business of evaluating or appraising the
market value of stock. The appraisers so selected (the "Initial Appraisers")
shall, on or prior to the scheduled redemption, appraise such shares to be
redeemed as of the date of the scheduled redemption. The appraisers shall not
discount the shares of Series A Preferred Stock for minority ownership interest
or illiquidity. If the difference between the resulting appraisals is no greater
than ten percent (10%) of the higher appraisal, then the average of the
appraisals shall be deemed the Appraised Value; otherwise, the Initial
Appraisers shall select an additional appraiser (the "Additional Appraiser"),
who shall be experienced in a manner similar to the Initial Appraisers. If they
fail to select such Additional Appraiser as provided above, then either the
Electing Holders or the Corporation may apply, after written notice to the
other, to the Atlanta, Georgia, office of the American Arbitration Association
for the appointment of such Additional Appraiser. The Additional
A-16
<PAGE> 20
Appraiser shall then choose from the values determined by the Initial Appraisers
the value that the Additional Appraiser considers closest to the fair market
value of the Series A Preferred Stock, and such value shall be the Appraised
Value. The Additional Appraiser shall forthwith give written notice of his
determination to the Corporation and the Electing Holders. Each party shall pay
the expenses and fees of the appraiser selected by him or it, and, if an
Additional Appraiser is employed, the party who selected the Initial Appraiser
whose value determination was rejected by the Additional Appraiser shall pay all
the expenses and fees of the Additional Appraiser.
On or before the scheduled Redemption Date, each holder of shares
required to be redeemed shall surrender the certificate representing such shares
to the Corporation and shall receive payment of the Redemption Price in cash. If
fewer than all the shares represented by a surrendered certificate are redeemed,
the Corporation shall issue a new certificate representing the unredeemed
shares.
From and after the scheduled Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
shares of Series A Preferred Stock designated for redemption on such date
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the Corporation legally available for redemption of shares of Series A
Preferred Stock on the date scheduled for a redemption are insufficient to
redeem the total number of shares of Series A Preferred Stock to be redeemed on
such date, those funds that are legally available will be used to redeem the
maximum possible number of such shares ratably among the holders of such shares
to be redeemed based upon their holdings of Series A Preferred Stock. The shares
of Series A Preferred Stock not redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately be used to
redeem the balance of the shares that the Corporation has become obliged to
redeem on any scheduled redemption date but that it has not redeemed, plus the
post Redemption Date dividend described in Section (a) hereof.
(f) Preemptive Rights. The holders of Series A Preferred Stock
shall have the right of first refusal to purchase any New Securities (as defined
in this Section (f)) that the Corporation may, from time to time, propose to
sell and issue. This right shall be subject to the following provisions:
(1) New Securities Defined. "New Securities" shall mean
any common stock or preferred stock of the Corporation, whether now
authorized or not, and rights, options or warrants to purchase said
common stock or preferred stock, and securities of any type whatsoever
that are, or may become, convertible into said common stock or
preferred stock; provided that "New Securities" does not include (A)
any shares of Common Stock issuable upon the conversion of shares of
Series A Preferred Stock; (B) securities offered to the public pursuant
to a registration statement under the federal Securities Act of 1933,
as amended; (C) securities issued pursuant to the acquisition by the
Corporation of any product, technology, know-how or another corporation
by merger, purchase of all or substantially all of the assets, or any
other reorganization whereby the Corporation owns over fifty percent
(50%) of the voting power of such corporation; (D) shares of the Common
Stock or the Corporation's Series A Preferred Stock issued in
connection with any stock split, stock
A-17
<PAGE> 21
dividend or recapitalization by the Corporation; (E) up to 1,086,285
shares of Common Stock (which number shall be appropriately adjusted
for any stock splits, stock dividends, recapitalizations or similar
events), issued at any time following the Original Issue Date pursuant
to options, warrants or rights that were granted at any time prior to
the Original Issue Date to purchase shares of Common Stock, and up to
213,715 shares of Common Stock (subject to such adjustment) issued at
any time after the Original Issue Date pursuant to options, warrants or
rights that may be granted at any time after the Original Issue Date to
purchase shares of Common Stock, less the number of any such options,
warrants or rights that are repurchased by the Company, are canceled or
expire, in each case in favor of employees, directors, officers or
consultants of the Corporation or any subsidiary thereof pursuant to an
Authorized Option Plan or Agreement; (F) up to 40,816 shares of Common
Stock issued pursuant to the warrant granted to Sirrom Investments,
Inc. prior to the Original Issue Date (which number shall be
appropriately adjusted for any stock splits, stock dividends,
recapitalizations or similar events to the extent provided in such
warrant); or (G) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of New
Securities pursuant to clauses (A) through (F).
(2) In the event the Corporation proposes to undertake an
issuance of New Securities, it shall give each holder of Series A
Preferred Stock written notice of its intention, describing the type of
New Securities, the price, the proposed closing date of the offering
thereof, and the general terms upon which the Corporation proposes to
issue the same. Such holder shall be entitled at any time during the
offering of the New Securities to purchase some or all of his or its
pro rata portion of such New Securities for the price and upon the
general terms specified in the notice (and in any case at a price and
upon general terms no more favorable to any of the other purchasers in
such offering), by giving, within ten (10) days after receiving such
notice from the Corporation, written notice to the Corporation of such
election stating therein the time and place of the closing of such
purchase, which must be a date no later than three (3) business days
following the closing date of the offering specified in the notice
given by the Corporation or any extended closing date thereof. For
purposes of this Section (f), each holder's pro rata portion of New
Securities shall be equal to a fraction, the numerator of which is the
sum of
(i) the number of shares of Common Stock into
which shares of Series A Preferred Stock held by such holder
immediately prior to such issuance have been converted since
the Original Issuance Date, and
(ii) the number of shares of Common Stock into
which such holder's shares of Series A Preferred Stock could
be converted if fully converted immediately prior to such
issuance
and the denominator of which is the sum of
(y) the number of shares of Common Stock
actually outstanding immediately prior to such issuance, and
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<PAGE> 22
(z) the number of shares of Common Stock into
which the then outstanding shares of Series A Preferred Stock
could be converted if fully converted immediately prior to
such issuance.
Should any holder of Series A Preferred Stock not elect to purchase his or its
pro rata portion of such New Securities in full, the remaining holders of Series
A Preferred Stock having elected to purchase their respective pro rata portions
shall have the right to purchase such remaining, unpurchased portion in addition
to their own, with each such holder having the right to purchase in the
proportion that the number of shares of Series A Preferred Stock owned by such
holder (prior to receipt of the above described written notice by the
Corporation) bears to the number of shares owned by all holders of Series A
Preferred Stock also electing to purchase such remaining New Securities. All
such purchases shall be made within the same period specified for closing above.
(3) Any offer by the Corporation of securities in
addition to those specified in the notice described in Subsection
(f)(2) above, whether on the same or different terms as are specified
therein, shall again require compliance by the Corporation with the
terms of this Section (f).
(4) The rights granted in this Section (f) shall
terminate immediately prior to a Qualified Public Offering.
(g) Protective Provisions.
(1) Actions Requiring Approval of Series A Preferred
Stock. In addition to any other rights provided by law, for so long as
no fewer than 150,000 shares of the Series A Preferred Shares (as such
number is adjusted for stock dividends, stock splits, combinations, and
the like occurring after the Original Date Issue) remain outstanding,
except where the vote or written consent of the holders of a greater
number of shares is required by law or by another provision of the
Articles of Incorporation, without first obtaining the affirmative vote
or written consent of the holders of at least sixty percent (60%) of
the total number of shares of Series A Preferred Stock outstanding,
voting together as a single class, the Corporation shall not:
(A) sell, assign, lease or otherwise dispose of
twenty-five percent (25%) or more of its assets or those of
any subsidiary, including its receivables, whether by means of
merger, consolidation, liquidation, or otherwise, other than
(i) sales, assignments, leases or other dispositions in the
ordinary course of business or (ii) sales, assignments, leases
or other dispositions to wholly owned subsidiaries of the
Corporation or one of such subsidiaries;
(B) make any loans to any officer or director or
their affiliates and family members, involving $100,000 per
year individually in respect of any such officer or director
or $500,000 or more in the aggregate per year;
(C) enter into any agreement or commitment that
would restrict or limit the ability of the Corporation to
perform its obligations under the Purchase
A-19
<PAGE> 23
Agreement, or any agreement referred to therein to which the
Corporation is a party, or pursuant to these Designations;
(D) amend or repeal any provision of, or add any
provision to, the Corporation's Articles of Incorporation or
Bylaws, or file any certificate of designations, preferences,
limitations and relative rights of any series of preferred
stock, if such action would adversely alter or change the
preferences, rights, privileges or powers of, or restrictions
provided for the benefit of the Series A Preferred Stock;
regardless of whether any such action shall be by means of
amendment to the Articles of Incorporation or by merger,
consolidation or otherwise;
(E) for so long as no fewer than 150,000 shares
of the Series A Preferred Shares (as such number is adjusted
for stock dividends, stock splits, combinations, and the like
occurring after the Original Issue Date) remain outstanding,
create or authorize the creation or increase the authorized
amount of any additional class or series of shares of stock,
unless the same ranks junior or pari passu to the Series A
Preferred Stock as to dividends, redemption and the
distribution of assets on the liquidation, dissolution or
winding up of the Corporation; increase the authorized amount
of any additional class or series of shares of stock unless
the same ranks junior to the Series A Preferred Stock as to
dividends, redemption and the distribution of assets on the
liquidation, dissolution or winding up of the Corporation; or
create or authorize any obligation or security convertible
into shares of Common Stock, Series A Preferred Stock or any
other class or series of stock, whether voting or non-voting;
regardless of whether any such creation, authorization or
increase shall be by means of amendment to the Articles of
Incorporation, or by merger, consolidation or otherwise;
(F) increase or decrease (other than by
redemption or conversion) the authorized number of shares of
the Series A Preferred Stock;
(G) except as contemplated pursuant to the
Purchase Agreement, redeem or repurchase or otherwise acquire
any shares of capital stock, other than as required by
existing contractual commitments or pursuant to any Authorized
Option Plan or Agreement or required in Section (e) or Section
(g)(2) hereof; or
(H) amend the provisions of this Subsection
(g)(1).
(2) Right of Co-Sale on Redemptions. The Corporation
shall not purchase, redeem or otherwise acquire for value any shares of any
class of its capital stock or cause or permit any employee stock ownership plan,
including any Employee Stock Ownership Plan as defined in ? 4975(e)(7) of the
Internal Revenue Code of 1986, as amended, to purchase shares of any class of
its capital stock, except pursuant to a stock option or employee stock ownership
plans or restricted stock agreements, or in exercise of any right of first
refusal of the Corporation upon a proposed transfer that is, in each case, in
existence on the Original Issue Date; provided, however, that such restriction
shall not apply in the event that either (i) the holders of Series A Preferred
Stock are permitted to participate in such purchase, redemption, or acquisition
on the pro rata basis described
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<PAGE> 24
in Subsection (f)(2) with respect to the issuance of New Securities, or (ii)
such purchase, redemption or acquisition has received the prior affirmative vote
or written consent of the holders of a majority of the total number of shares of
Series A Preferred Stock outstanding, voting together as a single class.
(h) Notices. Any notice required by the provisions hereof to be
given to the holders of shares of Series A Preferred Stock shall be deemed given
on the third business day following (and not including) the date on which such
notice is deposited in the United States Mail, first-class, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation. Notice by any other means shall not be deemed effective until
actually received.
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<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
TELEMATE.NET SOFTWARE, INC.
EFFECTIVE JUNE 14, 1999
<PAGE> 2
AMENDED AND RESTATED
BYLAWS
OF
TELEMATE.NET SOFTWARE, INC.
- --------------------------------------------------------------------------------
References in these Bylaws of TELEMATE.NET SOFTWARE, INC., a Georgia
corporation (the "Corporation") (these "Bylaws") to "Articles of Incorporation"
are to the Articles of Incorporation of the Corporation as amended and restated
from time to time.
All of these Bylaws are subject to contrary provisions, if any, of
the Articles of Incorporation (including provisions designating the preferences,
limitations, and relative rights of any class or series of shares), the Georgia
Business Corporation Code (the "Code"), and other applicable law, as in effect
on and after the effective date of these Bylaws. References in these Bylaws to
"Sections" shall refer to sections of the Bylaws, unless otherwise indicated.
- --------------------------------------------------------------------------------
ARTICLE ONE
OFFICE
1.1 REGISTERED OFFICE AND AGENT. The Corporation shall maintain a
registered office and shall have a registered agent whose business office is the
same as the registered office.
1.2 PRINCIPAL OFFICE. The principal office of the Corporation shall
be at the place designated in the Corporation's annual registration with the
Georgia Secretary of State.
1.3 OTHER OFFICES. In addition to its registered office and
principal office, the Corporation may have offices at other locations either in
or outside the State of Georgia.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 PLACE OF MEETINGS. Meetings of the Corporation's shareholders
may be held at any location inside or outside the State of Georgia designated by
the Board of Directors or any other person or persons who properly call the
meeting, or if the Board of Directors or such other person or persons do not
specify a location, at the Corporation's principal office.
2.2 ANNUAL MEETINGS. The Corporation shall hold an annual meeting of
shareholders, at a time determined by the Board of Directors, to elect directors
and to transact any business that
<PAGE> 3
properly may come before the meeting. The annual meeting may be combined with
any other meeting of shareholders, whether annual or special.
2.3 SPECIAL MEETINGS. Special meetings of shareholders of one or
more classes or series of the Corporation's shares may be called at any time by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer
or the President, and shall be called by the Corporation upon the written
request (in compliance with applicable requirements of the Code) of the holders
of shares representing not less than 50% or more of the votes entitled to be
cast on each issue proposed to be considered at the special meeting. The
business that may be transacted at any special meeting of shareholders shall be
limited to that proposed in the notice of the special meeting given in
accordance with Section 2.4 (including related or incidental matters that may be
necessary or appropriate to effectuate the proposed business).
2.4 NOTICE OF MEETINGS. In accordance with Section 9.5 and subject
to waiver by a shareholder pursuant to Section 2.5, the Corporation shall give
written notice of the date, time, and place of each annual and special
shareholders' meeting no fewer than 10 days nor more than 60 days before the
meeting date to each shareholder of record entitled to vote at the meeting. The
notice of an annual meeting need not state the purpose of the meeting unless
these Bylaws require otherwise. The notice of a special meeting shall state the
purpose for which the meeting is called. If an annual or special shareholders'
meeting is adjourned to a different date, time, or location, the Corporation
shall give shareholders notice of the new date, time, or location of the
adjourned meeting, unless a quorum of shareholders was present at the meeting
and information regarding the adjournment was announced before the meeting was
adjourned; provided, however, that if a new record date is or must be fixed in
accordance with Section 7.6, the Corporation must give notice of the adjourned
meeting to all shareholders of record as of the new record date who are entitled
to vote at the adjourned meeting.
2.5 WAIVER OF NOTICE. A shareholder may waive any notice required by
the Code, the Articles of Incorporation, or these Bylaws, before or after the
date and time of the matter to which the notice relates, by delivering to the
Corporation a written waiver of notice signed by the shareholder entitled to the
notice. In addition, a shareholder's attendance at a meeting (in person or by
proxy) shall be (a) a waiver of objection to lack of notice or defective notice
of the meeting unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting, and (b) a waiver of
objection to consideration of a particular matter at the meeting that is not
within the purpose stated in the meeting notice, unless the shareholder objects
to considering the matter when it is presented. Except as otherwise required by
the Code, neither the purpose of nor the business transacted at the meeting need
be specified in any waiver.
2.6 VOTING GROUP; QUORUM; VOTE REQUIRED TO ACT. (a) Unless otherwise
required by the Code or the Articles of Incorporation, all classes or series of
the Corporation's shares entitled to vote generally on a matter shall for that
purpose be considered a single voting group (a "Voting Group"). If either the
Articles of Incorporation or the Code requires separate voting by two or more
Voting Groups on a matter, action on that matter is taken only when voted upon
by each such Voting Group separately. At all meetings of shareholders, any
Voting Group entitled
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<PAGE> 4
to vote on a matter may take action on the matter only if a quorum of that
Voting Group exists at the meeting, and if a quorum exists, the Voting Group may
take action on the matter notwithstanding the absence of a quorum of any other
Voting Group that may be entitled to vote separately on the matter. Unless the
Articles of Incorporation, these Bylaws, or the Code provides otherwise, the
presence (in person or by proxy) of shares representing at least one-third of
the votes entitled to be cast on a matter by a Voting Group shall constitute a
quorum of that Voting Group with regard to that matter. Once a share is present
at any meeting other than solely to object to holding the meeting or transacting
business at the meeting, the share shall be deemed present for quorum purposes
for the remainder of the meeting and for any adjournments of that meeting,
unless a new record date for the adjourned meeting is or must be set pursuant to
Section 7.6 of these Bylaws.
(b) Except as provided in Section 3.4, if a quorum exists, action on
a matter by a Voting Group is approved by that Voting Group if the votes cast
within the Voting Group favoring the action exceed the votes cast opposing the
action, unless the Articles of Incorporation, a provision of these Bylaws that
has been adopted pursuant to Section 14-2-1021 of the Code (or any successor
provision), or the Code requires a greater number of affirmative votes.
2.7 VOTING OF SHARES. Unless otherwise required by the Code or the
Articles of Incorporation, each outstanding share of any class or series having
voting rights shall be entitled to one vote on each matter that is submitted to
a vote of shareholders.
2.8 PROXIES. A shareholder entitled to vote on a matter may vote in
person or by proxy pursuant to an appointment executed in writing by the
shareholder or by his or her attorney-in-fact. An appointment of a proxy shall
be valid for 11 months from the date of its execution, unless a longer or
shorter period is expressly stated in the appointment form.
2.9 PRESIDING OFFICER. Except as otherwise provided in this Section
2.9, the Chairman of the Board, and in his or her absence or disability the
Chief Executive Officer, and in his or her absence or disability the President,
shall preside at every shareholders' meeting (and any adjournment thereof) as
its chairman, if either of them is present and willing to serve. If neither the
Chairman of the Board, nor the Chief Executive Officer nor the President is
present and willing to serve as chairman of the meeting, and if the Chairman of
the Board has not designated another person who is present and willing to serve,
then a majority of the Corporation's directors present at the meeting shall be
entitled to designate a person to serve as chairman. If no director of the
Corporation is present at the meeting or if a majority of the directors who are
present cannot be established, then a chairman of the meeting shall be selected
by a majority vote of (a) the shares present at the meeting that would be
entitled to vote in an election of directors, or (b) if no such shares are
present at the meeting, then the shares present at the meeting comprising the
Voting Group with the largest number of shares present at the meeting and
entitled to vote on a matter properly proposed to be considered at the meeting.
The chairman of the meeting may designate other persons to assist with the
meeting.
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<PAGE> 5
2.10 ADJOURNMENTS. At any meeting of shareholders (including an
adjourned meeting), a majority of shares of any Voting Group present and
entitled to vote at the meeting (whether or not those shares constitute a
quorum) may adjourn the meeting, but only with respect to that Voting Group, to
reconvene at a specific time and place. If more than one Voting Group is present
and entitled to vote on a matter at the meeting, then the meeting may be
continued with respect to any such Voting Group that does not vote to adjourn as
provided above, and such Voting Group may proceed to vote on any matter to which
it is otherwise entitled to do so; provided, however, that if (a) more than one
Voting Group is required to take action on a matter at the meeting and (b) any
one of those Voting Groups votes to adjourn the meeting (in accordance with the
preceding sentence), then the action shall not be deemed to have been taken
until the requisite vote of any adjourned Voting Group is obtained at its
reconvened meeting. The only business that may be transacted at any reconvened
meeting is business that could have been transacted at the meeting that was
adjourned, unless further notice of the adjourned meeting has been given in
compliance with the requirements for a special meeting that specifies the
additional purpose or purposes for which the meeting is called. Nothing
contained in this Section 2.10 shall be deemed or otherwise construed to limit
any lawful authority of the chairman of a meeting to adjourn the meeting.
2.11 CONDUCT OF THE MEETING. At any meeting of shareholders, the
chairman of the meeting shall be entitled to establish the rules of order
governing the conduct of business at the meeting.
2.12 INSPECTOR OF ELECTION. The Corporation shall appoint one or
more persons, each of whom may be an officer or employee of the Corporation, to
act as an inspector at each meeting of shareholders. At each such meeting of
shareholders, the inspector shall be responsible for (i) ascertaining the number
of shares outstanding and the voting power of each: (ii) determining the shares
represents at such meeting; (iii) determining the validity of proxies and
ballots; (iv) counting all votes; (v) determining the result of all votes; and
(vi) making a written report of his or her determinations. In addition, such
inspector shall take and sign an oath to execute faithfully his or her duties
with strict impartiality and according to the best of his or her ability.
2.13 ACTION OF SHAREHOLDERS WITHOUT A MEETING. Action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if the action is taken by all shareholders entitled to vote on the
action or, if permitted by the Articles of Incorporation, by persons who would
be entitled to vote at a meeting shares having voting power to cast the
requisite number of votes (or numbers, in the case of voting by groups) that
would be necessary to authorize or take the action at a meeting at which all
shareholders entitled to vote were present and voted. The action must be
evidenced by one or more written consents describing the action taken, signed by
shareholders entitled to take action without a meeting, and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records.
Such consents shall be executed by shareholders sufficient to act by written
consent and received by the Corporation within sixty days of the date upon which
such consent is dated. Where required by Section 14-2-704 or other applicable
provision of the Code, the Corporation shall provide shareholders with written
notice of actions taken without a meeting.
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2.14 MATTERS CONSIDERED AT ANNUAL MEETINGS. Notwithstanding anything
to the contrary in these Bylaws, the only business that may be conducted at an
annual meeting of shareholders shall be business brought before the meeting (a)
by or at the direction of the Board of Directors prior to the meeting, (b) by or
at the direction of the Chairman of the Board, the Chief Executive Officer or
the President, or (c) by a shareholder of the Corporation who is entitled to
vote with respect to the business and who complies with the notice procedures
set forth in this Section 2.14. For business to be brought properly before an
annual meeting by a shareholder, the shareholder must have given timely notice
of the business in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered or mailed to and received at the
principal offices of the Corporation, not less than 60 days before the date of
the meeting at which the director(s) are to be elected or the proposal is to be
considered; however, if less than 70 days notice or prior public disclosure of
the date of the scheduled meeting is given or made, notice by the shareholder,
to be timely, must be delivered or received not later than the close of business
on the tenth day following the earlier of the day on which notice of the date of
the meeting is mailed to shareholders or public disclosure of the date of such
meeting is made. A shareholder's notice to the Secretary shall set forth a brief
description of each matter of business the shareholder proposes to bring before
the meeting and the reasons for conducting that business at the meeting; the
name, as it appears on the Corporation's books, and address of the shareholder
proposing the business; the series or class and number of shares of the
Corporation's capital stock that are beneficially owned by the shareholder; and
any material interest of the shareholder in the proposed business. The chairman
of the meeting shall have the discretion to declare to the meeting that any
business proposed by a shareholder to be considered at the meeting is out of
order and that such business shall not be transacted at the meeting if (i) the
chairman concludes that the matter has been proposed in a manner inconsistent
with this Section 2.14 or (ii) the chairman concludes that the subject matter of
the proposed business is inappropriate for consideration by the shareholders at
the meeting.
ARTICLE THREE
BOARD OF DIRECTORS
3.1 GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed by, the Board of Directors, subject to any limitation set forth in the
Articles of Incorporation, in bylaws approved by the shareholders, or in
agreements among all the shareholders that are otherwise lawful.
3.2 NUMBER, ELECTION AND STAGGERED TERM. The number of directors of
the Corporation shall be fixed by resolution of the Board of Directors or of the
shareholders from time to time and, until otherwise determined, shall be two;
provided, however, that no decrease in the number of directors shall have the
effect of shortening the term of an incumbent director. Except as provided
elsewhere in this Section 3.2 and in Section 3.4, the directors shall be elected
at each annual meeting of shareholders, or at a special meeting of shareholders
called for purposes that include the election of directors, by a plurality of
the votes cast by the shares entitled to vote
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and present at the meeting. Despite the expiration of a director's term, he or
she shall continue to serve until his or her successor, if there is to be any,
has been elected and has qualified. The Board of Directors shall be divided into
three classes to be known as Class I, Class II and Class III, which shall be as
nearly equal in number as possible. Except in case of death, resignation,
disqualification or removal, each Director shall serve for a term ending on the
date of the third annual meeting of shareholders following the annual meeting at
which the Director was elected; provided, however, that any initial Director in
Class I shall hold office until the 2000 annual meeting of shareholders; any
initial Director in Class II shall hold office until the 2001 annual meeting of
shareholders; and any initial Director in Class III shall hold office until the
2002 annual meeting of shareholders. In the event of any increase or decrease in
the authorized number of Directors, the newly created or eliminated
directorships resulting from such an increase or decrease shall be apportioned
among the three classes of Directors so that the three classes remain as nearly
equal in size as possible; provided, however, that there shall be no
classification of additional Directors elected by the Board of Directors until
the next meeting of shareholders called for the purposes of electing Directors,
at which meeting the terms of all such additional Directors shall expire, and
such additional Director positions, if they are to be continued, shall be
apportioned among the classes of Directors, and nominees therefor shall be
submitted to the shareholders for their vote.
3.3 REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed, with or without cause, by the shareholders,
provided that Directors elected by a particular Voting Group may be removed only
by the shareholders in that Voting Group. Removal action may be taken only at a
shareholder's meeting for which notice of the removal action has been given. A
removed director's successor, if any, may be elected at the same meeting to
serve the unexpired term.
3.4 VACANCIES. A vacancy occurring in the Board of Directors may be
filled for the unexpired term, unless the shareholders have elected a successor,
by the affirmative vote of a majority of the remaining directors, whether or not
the remaining directors constitute a quorum; provided, however, that if the
vacant office was held by a director elected by a particular Voting Group, only
the holders of shares of that Voting Group or the remaining directors elected by
that Voting Group shall be entitled to fill the vacancy; provided further,
however, that if the vacant office was held by a director elected by a
particular Voting Group and there is no remaining director elected by that
Voting Group, the other remaining directors or director (elected by another
Voting Group or Groups) may fill the vacancy during an interim period before the
shareholders of the vacated director's Voting Group act to fill the vacancy. A
vacancy or vacancies in the Board of Directors may result from the death,
resignation, disqualification, or removal of any director, or from an increase
in the number of directors.
3.5 COMPENSATION. Directors may receive such compensation for their
services as directors as may be fixed by the Board of Directors from time to
time. A director may also serve the Corporation in one or more capacities other
than that of director and receive compensation for services rendered in those
other capacities.
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3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may
designate from among its members an executive committee or one or more other
standing or ad hoc committees, each consisting of one or more directors, who
serve at the pleasure of the Board of Directors. Subject to the limitations
imposed by the Code, each committee shall (i) have the authority set forth in
the resolution establishing the committee or in any other resolution of the
Board of Directors specifying, enlarging, or limiting the authority of the
committee and (ii) conduct itself in accordance with the mechanical requirements
of this Article Three.
3.7 QUALIFICATION OF DIRECTORS. No person elected to serve as a
director of the Corporation shall assume office and begin serving unless and
until duly qualified to serve, as determined by reference to the Code, the
Articles of Incorporation, and any further eligibility requirements established
in these Bylaws.
3.8 CERTAIN NOMINATION REQUIREMENTS. No person may be nominated for
election as a director at any annual or special meeting of shareholders unless
(a) the nomination has been or is being made pursuant to a recommendation or
approval of the Board of Directors of the Corporation or a properly constituted
committee of the Board of Directors previously delegated authority to recommend
or approve nominees for director; (b) the person is nominated by a shareholder
of the Corporation who is entitled to vote for the election of the nominee at
the subject meeting, and the nominating shareholder has furnished written notice
to the Secretary of the Corporation, at the Corporation's principal office, not
less than 60 days before the date of the meeting at which the director(s) are to
be elected or the proposal is to be considered; however, if less than 70 days
notice or prior public disclosure of the date of the scheduled meeting is given
or made, notice by the shareholder, to be timely, must be delivered or received
not later than the close of business on the tenth day following the earlier of
the day on which notice of the date of the meeting is mailed to shareholders or
public disclosure of the date of such meeting is made and the notice (i) sets
forth with respect to the person to be nominated his or her name, age, business
and residence addresses, principal business or occupation during the past five
years, any affiliation with or material interest in the Corporation or any
transaction involving the Corporation, and any affiliation with or material
interest in any person or entity having an interest materially adverse to the
Corporation, and (ii) is accompanied by the sworn or certified statement of the
shareholder that the nominee has consented to being nominated and that the
shareholder believes the nominee will stand for election and will serve if
elected; or (c) (i) the person is nominated to replace a person previously
identified as a proposed nominee (in accordance with the provisions of subpart
(b) of this Section 3.8) who has since become unable or unwilling to be
nominated or to serve if elected, (ii) the shareholder who furnished such
previous identification makes the replacement nomination and delivers to the
Secretary of the Corporation (at the time of or prior to making the replacement
nomination) an affidavit or other sworn statement affirming that the shareholder
had no reason to believe the original nominee would be so unable or unwilling,
and (iii) such shareholder also furnishes in writing to the Secretary of the
Corporation (at the time of or prior to making the replacement nomination) the
same type of information about the replacement nominee as required by subpart
(b) of this Section 3.8 to have been furnished about the original nominee. The
chairman of any meeting of shareholders at which one or more directors are to be
elected, for good cause shown and with proper regard for the orderly conduct of
business at the meeting, may waive in whole or in part the operation of this
Section 3.8.
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ARTICLE FOUR
MEETINGS OF THE BOARD OF DIRECTORS
4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held in conjunction with each annual meeting of shareholders. In
addition, the Board of Directors may hold regular meetings at other times
established by prior resolution.
4.2 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, the Chief Executive
Officer, the President, or any two directors in office at that time.
4.3 PLACE OF MEETINGS. Directors may hold their meetings at any
place in or outside the State of Georgia that the Board of Directors may
establish from time to time.
4.4 NOTICE OF MEETINGS. Directors need not be provided with notice
of any regular meeting of the Board of Directors. Unless waived in accordance
with Section 4.10, the Corporation shall give at least two days' notice to each
director of the date, time, and place of each special meeting. Notice of a
meeting shall be deemed to have been given to any director in attendance at any
prior meeting at which the date, time, and place of the subsequent meeting was
announced.
4.5 QUORUM. At meetings of the Board of Directors, the greater of
(a) a majority of the directors then in office, or (b) one-third of the number
of directors fixed in accordance with these Bylaws shall constitute a quorum for
the transaction of business.
4.6 VOTE REQUIRED FOR ACTION. If a quorum is present when a vote is
taken, the vote of a majority of the directors present at the time of the vote
will be the act of the Board of Directors, unless the vote of a greater number
is required by the Code, the Articles of Incorporation, or these Bylaws. A
director who is present at a meeting of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless (a) he or
she objects at the beginning of the meeting (or promptly upon his or her
arrival) to holding the meeting or transacting business at it; (b) his or her
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) he or she delivers written notice of dissent or abstention to
the presiding officer of the meeting before its adjournment or to the
Corporation immediately after adjournment of the meeting. The right of dissent
or abstention is not available to a director who votes in favor of the action
taken.
4.7 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment through which all persons
participating may hear and speak to each other. Participation in a meeting
pursuant to this Section 4.7 shall constitute presence in person at the meeting.
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4.8 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent, describing the action taken, is signed
by each director and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. The consent may be executed in
counterpart, and shall have the same force and effect as a unanimous vote of the
Board of Directors at a duly convened meeting.
4.9 ADJOURNMENTS. A meeting of the Board of Directors, whether or
not a quorum is present, may be adjourned by a majority of the directors present
to reconvene at a specific time and place. It shall not be necessary to give
notice to the directors of the reconvened meeting or of the business to be
transacted, other than by announcement at the meeting that was adjourned, unless
a quorum was not present at the meeting that was adjourned, in which case notice
shall be given to directors in the same manner as for a special meeting. At any
such reconvened meeting at which a quorum is present, any business may be
transacted that could have been transacted at the meeting that was adjourned.
4.10 WAIVER OF NOTICE. A director may waive any notice required by
the Code, the Articles of Incorporation, or these Bylaws before or after the
date and time of the matter to which the notice relates, by a written waiver
signed by the director and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records. Attendance by a director at a
meeting shall constitute waiver of notice of the meeting, except where a
director at the beginning of the meeting (or promptly upon his or her arrival)
objects to holding the meeting or to transacting business at the meeting and
does not thereafter vote for or assent to action taken at the meeting.
ARTICLE FIVE
OFFICERS
5.1 OFFICERS. The officers of the Corporation shall consist of a
President, a Secretary, and a Treasurer, and may include a Chief Executive
Officer separate from the President, each of whom shall be elected or appointed
by the Board of Directors. The Board of Directors may also elect a Chairman of
the Board from among its members. The Board of Directors from time to time may,
or may authorize the Chief Executive Officer or the President to, create and
establish other offices and the duties thereof and may, or may authorize the
Chief Executive Officer or the President to, elect or appoint, or authorize
specific senior officers to appoint, the persons who shall hold such other
offices, including one or more Vice Presidents (including Executive Vice
Presidents, Senior Vice Presidents, Assistant Vice Presidents, and the like),
one or more Assistant Secretaries, and one or more Assistant Treasurers. Whether
or not so provided by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer or the President may appoint one or more Assistant
Secretaries, and one or more Assistant Treasurers. Any two or more offices may
be held by the same person.
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5.2 TERM. Each officer shall serve at the pleasure of the Board of
Directors (or, if appointed by the Chief Executive Officer, the President, or a
senior officer pursuant to this Article Five, at the pleasure of the Board of
Directors, the Chief Executive Officer, the President, or the senior officer
authorized to have appointed the officer) until his or her death, resignation,
or removal, or until his or her replacement is elected or appointed in
accordance with this Article Five.
5.3 COMPENSATION. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors or by a committee or
officer appointed by the Board of Directors. Officers may serve without
compensation.
5.4 REMOVAL. All officers (regardless of how elected or appointed)
may be removed, with or without cause, by the Board of Directors, and any
officer appointed by the Chief Executive Officer, the President, or another
senior officer may also be removed, with or without cause, by the Chief
Executive Officer, the President, or by any senior officer authorized to have
appointed the officer to be removed. Removal will be without prejudice to the
contract rights, if any, of the person removed, but shall be effective
notwithstanding any damage claim that may result from infringement of such
contract rights.
5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be
one) shall preside at and serve as chairman of meetings of the shareholders and
of the Board of Directors (unless another person is selected under Section 2.9
to act as chairman). The Chairman of the Board shall perform other duties and
have other authority as may from time to time be delegated by the Board of
Directors.
5.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
charged with the general and active management of the Corporation, shall see
that all orders and resolutions of the Board of Directors are carried into
effect, shall have the authority to select and appoint employees and agents of
the Corporation, and shall, in the absence or disability of the Chairman of the
Board, perform the duties and exercise the powers of the Chairman of the Board.
The Chief Executive Officer shall perform any other duties and have any other
authority as may be delegated from time to time by the Board of Directors, and
shall be subject to the limitations fixed from time to time by the Board of
Directors.
5.7 PRESIDENT. If there shall be no separate Chief Executive Officer
of the Corporation, then the President shall be the chief executive officer of
the Corporation and shall have all the duties and authority given under these
Bylaws to the Chief Executive Officer. The President shall otherwise be the
chief operating officer of the Corporation and shall, subject to the authority
of the Chief Executive Officer, have responsibility for the conduct and general
supervision of the business operations of the Corporation. The President shall
perform such other duties and have such other authority as may from time to time
be delegated by the Board of Directors or the Chief Executive Officer. In the
absence or disability of the Chief Executive Officer, the President shall
perform the duties and exercise the powers of the Chief Executive Officer.
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5.8 VICE PRESIDENTS. The Vice President (if there be one) shall, in
the absence or disability of the President, perform the duties and exercise the
powers of the President, whether the duties and powers are specified in these
Bylaws or otherwise. If the Corporation has more than one Vice President, the
one designated by the Board of Directors or the Chief Executive Officer (in that
order of precedence) shall act in the event of the absence or disability of the
President. Vice Presidents shall perform any other duties and have any other
authority as from time to time may be delegated by the Board of Directors, the
Chief Executive Officer, or the President.
5.9 SECRETARY. The Secretary shall be responsible for preparing
minutes of the meetings of shareholders, directors, and committees of directors
and for authenticating records of the Corporation. The Secretary or any
Assistant Secretary shall have authority to give all notices required by law or
these Bylaws. The Secretary shall be responsible for the custody of the
corporate books, records, contracts, and other documents. The Secretary or any
Assistant Secretary may affix the corporate seal to any lawfully executed
documents requiring it, may attest to the signature of any officer of the
Corporation, and shall sign any instrument that requires the Secretary's
signature. The Secretary or any Assistant Secretary shall perform any other
duties and have any other authority as from time to time may be delegated by the
Board of Directors, the Chief Executive Officer, or the President.
5.10 TREASURER. Unless otherwise provided by the Board of Directors,
the Treasurer shall be responsible for the custody of all funds and securities
belonging to the Corporation and for the receipt, deposit, or disbursement of
these funds and securities under the direction of the Board of Directors. The
Treasurer shall cause full and true accounts of all receipts and disbursements
to be maintained and shall make reports of these receipts and disbursements to
the Board of Directors, the Chief Executive Officer and President upon request.
The Treasurer or Assistant Treasurer shall perform any other duties and have any
other authority as from time to time may be delegated by the Board of Directors,
the Chief Executive Officer, or the President.
ARTICLE SIX
DISTRIBUTIONS AND DIVIDENDS
Unless the Articles of Incorporation provide otherwise, the Board of
Directors, from time to time in its discretion, may authorize or declare
distributions or share dividends in accordance with the Code.
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ARTICLE SEVEN
SHARES
7.1 SHARE CERTIFICATES. The interest of each shareholder in the
Corporation shall be evidenced by a certificate or certificates representing
shares of the Corporation, which shall be in such form as the Board of Directors
from time to time may adopt in accordance with the Code. Share certificates
shall be in registered form and shall indicate the date of issue, the name of
the Corporation, that the Corporation is organized under the laws of the State
of Georgia, the name of the shareholder, and the number and class of shares and
designation of the series, if any, represented by the certificate. Each
certificate shall be signed by the President or a Vice President (or in lieu
thereof, by the Chairman of the Board or Chief Executive Officer, if there be
one) and may be signed by the Secretary or an Assistant Secretary; provided,
however, that where the certificate is signed (either manually or by facsimile)
by a transfer agent, or registered by a registrar, the signatures of those
officers may be facsimiles.
7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS. Prior
to due presentation for transfer of registration of its shares, the Corporation
may treat the registered owner of the shares (or the beneficial owner of the
shares to the extent of any rights granted by a nominee certificate on file with
the Corporation pursuant to any procedure that may be established by the
Corporation in accordance with the Code) as the person exclusively entitled to
vote the shares, to receive any dividend or other distribution with respect to
the shares, and for all other purposes; and the Corporation shall not be bound
to recognize any equitable or other claim to or interest in the shares on the
part of any other person, whether or not it has express or other notice of such
a claim or interest, except as otherwise provided by law.
7.3 TRANSFERS OF SHARES. Transfers of shares shall be made upon the
books of the Corporation kept by the Corporation or by the transfer agent
designated to transfer the shares, only upon direction of the person named in
the certificate or by an attorney lawfully constituted in writing. Before a new
certificate is issued, the old certificate shall be surrendered for cancellation
or, in the case of a certificate alleged to have been lost, stolen, or
destroyed, the provisions of Section 7.5 of these Bylaws shall have been
complied with.
7.4 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any of
the provisions of Section 7.3 of these Bylaws, the Corporation is under a duty
to register the transfer of its shares only if: (a) the share certificate is
endorsed by the appropriate person or persons; (b) reasonable assurance is given
that each required endorsement is genuine and effective; (c) the Corporation has
no duty to inquire into adverse claims or has discharged any such duty; (d) any
applicable law relating to the collection of taxes has been complied with; (e)
the transfer is in fact rightful or is to a bona fide purchaser; and (f) the
transfer is in compliance with applicable provisions of any transfer
restrictions of which the Corporation shall have notice.
7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming a
share certificate to be lost, stolen, or destroyed shall make an affidavit or
affirmation of this claim in such a manner as the Corporation may require and
shall, if the Corporation requires, give the Corporation a bond of indemnity in
form and amount, and with one or more sureties satisfactory to the Corporation,
as the Corporation may require, whereupon an appropriate new certificate may be
issued in lieu of the one alleged to have been lost, stolen or destroyed.
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7.6 FIXING OF RECORD DATE. For the purpose of determining
shareholders (a) entitled to notice of or to vote at any meeting of shareholders
or, if necessary, any adjournment thereof, (b) entitled to receive payment of
any distribution or dividend, or (c) for any other proper purpose, the Board of
Directors may fix in advance a date as the record date. The record date may not
be more than 70 days (and, in the case of a notice to shareholders of a
shareholders' meeting, not less than 10 days) prior to the date on which the
particular action, requiring the determination of shareholders, is to be taken.
A separate record date may be established for each Voting Group entitled to vote
separately on a matter at a meeting. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting, unless the Board of Directors shall fix a new record
date for the reconvened meeting, which it must do if the meeting is adjourned to
a date more than 120 days after the date fixed for the original meeting.
7.7 RECORD DATE IF NONE FIXED. If no record date is fixed as
provided in Section 7.6, then the record date for any determination of
shareholders that may be proper or required by law shall be, as appropriate, the
date on which notice of a shareholders' meeting is mailed, the date on which the
Board of Directors adopts a resolution declaring a dividend or authorizing a
distribution, or the date on which any other action is taken that requires a
determination of shareholders.
ARTICLE EIGHT
INDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify
and hold harmless any director of the Corporation (an "Indemnified 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, whether formal or informal, including any
action or suit by or in the right of the Corporation (for purposes of this
Article Eight, collectively, a "Proceeding") because he or she is or was a
director, officer, employee, or agent of the Corporation, against any judgment,
settlement, penalty, fine, or reasonable expenses (including, but not limited
to, attorneys' fees and disbursements, court costs, and expert witness fees)
incurred with respect to the Proceeding (for purposes of this Article Eight, a
"Liability"), provided, however, that no indemnification shall be made for: (a)
any appropriation by a director, in violation of the director's duties, of any
business opportunity of the corporation; (b) any acts or omissions of a director
that involve intentional misconduct or a knowing violation of law; (c) the types
of liability set forth in Code Section 14-2-832; or (d) any transaction from
which the director received an improper personal benefit.
8.2 INDEMNIFICATION OF OTHERS. The Board of Directors shall have the
power to cause the Corporation to provide to officers, employees, and agents of
the Corporation all or any part of the right to indemnification permitted for
such persons by appropriate provisions of the Code. Persons to be indemnified
may be identified by position or name, and the right of indemnification may be
different for each of the persons identified. Each officer, employee, or
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agent of the Corporation so identified shall be an "Indemnified Person" for
purposes of the provisions of this Article Eight.
8.3 OTHER ORGANIZATIONS. The Corporation shall provide to each
director, and the Board of Directors shall have the power to cause the
Corporation to provide to any officer, employee, or agent, of the Corporation
who is or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise all or any part of
the right to indemnification and other rights of the type provided under
Sections 8.1, 8.2, 8.4, and 8.10 of this Article Eight (subject to the
conditions, limitations, and obligations specified in those Sections) permitted
for such persons by appropriate provisions of the Code. Persons to be
indemnified may be identified by position or name, and the right of
indemnification may be different for each of the persons identified. Each person
so identified shall be an "Indemnified Person" for purposes of the provisions of
this Article Eight.
8.4 ADVANCES. Expenses (including, but not limited to, attorneys'
fees and disbursements, court costs, and expert witness fees) incurred by an
Indemnified Person in defending any Proceeding of the kind described in Sections
8.1 or 8.3, as to an Indemnified Person who is a director of the Corporation, or
in Sections 8.2 or 8.3, as to other Indemnified Persons, if the Board of
Directors has specified that advancement of expenses be made available to any
such Indemnified Person, shall be paid by the Corporation in advance of the
final disposition of such Proceeding as set forth herein. The Corporation shall
promptly pay the amount of such expenses to the Indemnified Person, but in no
event later than 10 days following the Indemnified Person's delivery to the
Corporation of a written request for an advance pursuant to this Section 8.4,
together with a reasonable accounting of such expenses; provided, however, that
the Indemnified Person shall furnish the Corporation a written affirmation of
his or her good faith belief that he or she has met the applicable standard of
conduct and a written undertaking and agreement to repay to the Corporation any
advances made pursuant to this Section 8.4 if it shall be determined that the
Indemnified Person is not entitled to be indemnified by the Corporation for such
amounts. The Corporation may make the advances contemplated by this Section 8.4
regardless of the Indemnified Person's financial ability to make repayment. Any
advances and undertakings to repay pursuant to this Section 8.4 may be unsecured
and interest-free.
8.5 NON-EXCLUSIVITY. Subject to any applicable limitation imposed by
the Code or the Articles of Incorporation, the indemnification and advancement
of expenses provided by or granted pursuant to this Article Eight shall not be
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under any provision of the Articles of
Incorporation, or any Bylaw, resolution, or agreement specifically or in general
terms approved or ratified by the affirmative vote of holders of a majority of
the shares entitled to be voted thereon.
8.6 INSURANCE. The Corporation shall have the 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 who, while serving in such a capacity,
is also or was also serving at the request of
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<PAGE> 16
the Corporation as a director, officer, trustee, partner, employee, or agent of
any corporation, partnership, joint venture, trust, employee benefit plan, or
other enterprise, against any Liability that may be asserted against or incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of this Article Eight.
8.7 NOTICE. If the Corporation indemnifies or advances expenses to a
director under any of Sections 14-2-851 through 14-2-854 of the Code in
connection with a Proceeding by or in the right of the Corporation, the
Corporation shall, to the extent required by Section 14-2-1621 or any other
applicable provision of the Code, report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting.
8.8 SECURITY. The Corporation may designate certain of its assets as
collateral, provide self-insurance, establish one or more indemnification
trusts, or otherwise secure or facilitate its ability to meet its obligations
under this Article Eight, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article Eight, as the Board of Directors deems appropriate.
8.9 AMENDMENT. Any amendment to this Article Eight that limits or
otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to such
Indemnified Person, apply only to Proceedings based on actions, events, or
omissions (collectively, "Post Amendment Events") occurring after such amendment
and after delivery of notice of such amendment to the Indemnified Person so
affected. Any Indemnified Person shall, as to any Proceeding based on actions,
events, or omissions occurring prior to the date of receipt of such notice, be
entitled to the right of indemnification, advancement of expenses, and other
rights under this Article Eight to the same extent as if such provisions had
continued as part of the Bylaws of the Corporation without such amendment. This
Section 8.9 cannot be altered, amended, or repealed in a manner effective as to
any Indemnified Person (except as to Post Amendment Events) without the prior
written consent of such Indemnified Person.
8.10 AGREEMENTS. The provisions of this Article Eight shall be
deemed to constitute an agreement between the Corporation and each Indemnified
Person hereunder. In addition to the rights provided in this Article Eight, the
Corporation shall have the power, upon authorization by the Board of Directors,
to enter into an agreement or agreements providing to any Indemnified Person
indemnification rights substantially similar to those provided in this Article
Eight.
8.11 CONTINUING BENEFITS. The rights of indemnification and
advancement of expenses permitted or authorized by this Article Eight shall,
unless otherwise provided when such rights are granted or conferred, continue as
to a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such
person.
8.12 SUCCESSORS. For purposes of this Article Eight, the term
"Corporation" shall include any corporation, joint venture, trust, partnership,
or unincorporated business association
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<PAGE> 17
that is the successor to all or substantially all of the business or assets of
this Corporation, as a result of merger, consolidation, sale, liquidation, or
otherwise, and any such successor shall be liable to the persons indemnified
under this Article Eight on the same terms and conditions and to the same extent
as this Corporation.
8.13 SEVERABILITY. Each of the Sections of this Article Eight, and
each of the clauses set forth herein, shall be deemed separate and independent,
and should any part of any such Section or clause be declared invalid or
unenforceable by any court of competent jurisdiction, such invalidity or
unenforceability shall in no way render invalid or unenforceable any other part
thereof or any separate Section or clause of this Article Eight that is not
declared invalid or unenforceable.
8.14 ADDITIONAL INDEMNIFICATION. In addition to the specific
indemnification rights set forth herein, the Corporation shall indemnify each of
its directors and such of its officers as have been designated by the Board of
Directors to the full extent permitted by action of the Board of Directors
without shareholder approval under the Code or other laws of the State of
Georgia as in effect from time to time.
ARTICLE NINE
MISCELLANEOUS
9.1 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall
have the power to determine which accounts, books, and records of the
Corporation shall be available for shareholders to inspect or copy, except for
those books and records required by the Code to be made available upon
compliance by a shareholder with applicable requirements, and shall have the
power to fix reasonable rules and regulations (including confidentiality
restrictions and procedures) not in conflict with applicable law for the
inspection and copying of accounts, books, and records that by law or by
determination of the Board of Directors are made available. Unless required by
the Code or otherwise provided by the Board of Directors, a shareholder of the
Corporation holding less than two percent of the total shares of the Corporation
then outstanding shall have no right to inspect the books and records of the
Corporation.
9.2 FISCAL YEAR. The Board of Directors is authorized to fix the
fiscal year of the Corporation and to change the fiscal year from time to time
as it deems appropriate.
9.3 CORPORATE SEAL. The corporate seal will be in such form as the
Board of Directors may from time to time determine. The Board of Directors may
authorize the use of one or more facsimile forms of the corporate seal. The
corporate seal need not be used unless its use is required by law, by these
Bylaws, or by the Articles of Incorporation.
9.4 ANNUAL STATEMENTS. Not later than four months after the close of
each fiscal year, and in any case prior to the next annual meeting of
shareholders, the Corporation shall prepare (a) a balance sheet showing in
reasonable detail the financial condition of the Corporation as of the
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<PAGE> 18
close of its fiscal year, and (b) a profit and loss statement showing the
results of its operations during its fiscal year. Upon receipt of written
request, the Corporation promptly shall mail to any shareholder of record a copy
of the most recent such balance sheet and profit and loss statement, in such
form and with such information as the Code may require.
9.5 NOTICE. (a) Whenever these Bylaws require notice to be given to
any shareholder or to any director, the notice may be given by mail, in person,
by courier delivery, by telephone, or by telecopier, telegraph, or similar
electronic means. Whenever notice is given to a shareholder or director by mail,
the notice shall be sent by depositing the notice in a post office or letter box
in a postage-prepaid, sealed envelope addressed to the shareholder or director
at his or her address as it appears on the books of the Corporation. Any such
written notice given by mail shall be effective: (i) if given to shareholders,
at the time the same is deposited in the United States mail; and (ii) in all
other cases, at the earliest of (x) when received or when delivered, properly
addressed, to the addressee's last known principal place of business or
residence, (y) five days after its deposit in the mail, as evidenced by the
postmark, if mailed with first-class postage prepaid and correctly addressed, or
(z) on the date shown on the return receipt, if sent by registered or certified
mail, return receipt requested, and the receipt is signed by or on behalf of the
addressee. Whenever notice is given to a shareholder or director by any means
other than mail, the notice shall be deemed given when received.
(b) In calculating time periods for notice, when a period of time
measured in days, weeks, months, years, or other measurement of time is
prescribed for the exercise of any privilege or the discharge of any duty, the
first day shall not be counted but the last day shall be counted.
9.6 ELECTION OF FAIR PRICE STATUTE. The provisions of Sections
14-2-1110 through 14-2-1113 of the Code, as they may be amended from time to
time, shall apply to the Corporation, to the extent permitted.
9.7 ELECTION OF BUSINESS COMBINATION STATUTE. The provisions of
Section 14-2-1131 through 14-2-1133 of the Code, as they may be amended from
time to time, shall apply to the Corporation, to the extent permitted.
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<PAGE> 19
ARTICLE TEN
AMENDMENTS
Except as otherwise provided below or under the Code, the Board of
Directors shall have the power to alter, amend, or repeal these Bylaws or adopt
new Bylaws. Notwithstanding any other provision of these Bylaws, the
Corporation's Articles of Incorporation or law, neither Section 2.3, 2.14 or
3.8, nor Article Eight hereof nor this Article Ten may be amended or repealed
except upon the affirmative vote of holders of at least a majority of the total
number of votes of the then outstanding shares of capital stock of the Company
that are entitled to vote generally in the election of directors, voting
together as a single class. Any Bylaws adopted by the Board of Directors may be
altered, amended, or repealed, and new Bylaws adopted, by the shareholders. The
shareholders may prescribe in adopting any Bylaw or Bylaws that the Bylaw or
Bylaws so adopted shall not be altered, amended, or repealed by the Board of
Directors.
Dated: June 14, 1999
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<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of date set forth below
("Effective Date"), by and between TELEMATE.NET SOFTWARE, INC., a Georgia
corporation ("Company"), and the undersigned employee ("Employee"), an
individual. For and in consideration of Employee's employment and continued
employment and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Defined terms used herein are defined in the recitals and at the
bottom of this Agreement.
2. DUTIES. Employee agrees that he or she will devote his or her full working
time to the services of Company in such capacities as Company shall direct, and
he or she will perform his or her duties faithfully, diligently and to the best
of his or her ability.
3. OWNERSHIP. (a) All Work Product will be considered work made for hire by
Employee and owned by Company. To the extent that any Work Product may not by
operation of law be considered work made for hire or if ownership of all rights
therein will not vest exclusively in Company, Employee assigns to Company, now
or upon its creation without further consideration, the ownership of all such
Work Product. Company has the right to obtain and hold in its own name
copyrights, patents, registrations, and any other protection available in the
Work Product. Employee agrees to perform any acts as may be reasonably requested
by Company to transfer, perfect, and defend Company's ownership of the Work
Product.
(b) To the extent any materials other than Work Product are contained in
the materials Employee delivers to Company or its Customers, Employee grants to
Company an irrevocable, nonexclusive, worldwide, royalty-free license to use and
distribute (internally or externally) or authorize others to use and distribute
copies of, and prepare derivative works based upon, such materials and
derivative works thereof. Employee agrees that during his or her employment, any
money or other remuneration received by Employee for services rendered to a
Customer belong to Company.
4. TRADE SECRETS AND CONFIDENTIAL INFORMATION. (a) Company may disclose to
Employee certain Proprietary Information. Employee agrees that the Proprietary
Information is the exclusive property of Company (or a third party providing
such information to Company) and Company (or such third party) owns all
worldwide copyrights, trade secret rights, confidential information rights, and
all other property rights therein.
(b) Company's disclosure of the Proprietary Information to Employee does
not confer upon Employee any license, interest or rights in or to the
Proprietary Information. Except in the performance of services for Company,
Employee will hold in confidence and will not, without Company's prior written
consent, use, reproduce, distribute, transmit, reverse engineer, decompile,
disassemble, or transfer, directly or indirectly, in any form, or for any
purpose, any Proprietary Information communicated or made available by Company
to or received by Employee. Employee agrees to notify Company immediately if he
or she discovers any unauthorized use or disclosure of the Proprietary
Information.
(c) Employee's obligations under this Agreement with regard to (i) Trade
Secrets shall remain in effect for as long as such information remains a trade
secret under applicable law, and (ii) Confidential Information shall remain in
effect during Employee's employment with Company and for three years thereafter.
These obligations will not apply to the extent that Employee establishes that
the information communicated (1) was already known to Employee, without an
obligation to keep it confidential at the time of its receipt from Company; (2)
was received by Employee in good faith from a third party lawfully in possession
thereof and having no obligation to keep such information confidential; or (3)
was publicly known at the time of its receipt by Employee or has become publicly
known other than by a breach of this Agreement or other action by Employee.
5. CUSTOMER NON-SOLICITATION. The relationships made or enhanced during
Employee's employment with Company belong to Company. During Employee's
employment and the One Year Limitation Period, Employee will not, without
Company's prior consent, contact, solicit or attempt to solicit, on his or her
own or another's behalf, any Customer with whom Employee had contact in the Two
Year Restrictive Period with a view of offering, selling or licensing any
program, product or service that is competitive with the Company Business.
6. EMPLOYEE NON-SOLICITATION. During Employee's employment and the One Year
Limitation Period, Employee agrees not to call upon, solicit, recruit, or assist
others in calling upon, soliciting or recruiting any person who is or was an
employee of Company during the Two Year Restrictive Period for the purpose of
having such person work in any other corporation, entity, or business that is
competitive with the Company Business.
7. NON-COMPETITION. During the One Year Limitation Period, Employee agrees that,
without the prior written consent of Company, Employee shall not perform any of
the duties he or she performed on behalf of the Company during the Two Year
Restrictive Period for any person or entity competing with the Company in the
Company Business in the Restricted Territory. The parties agree and acknowledge
that: (i) the length of the One Year Limitation Period and the size of the
Restricted Territory are fair and reasonable in that they are reasonably
required for the protection of Company and that the Restricted Territory is the
area in which Employee shall perform (or currently performs) services for
Company; and (ii) by having access to information concerning employees and
actual or prospective customers of Company, Employee shall obtain a competitive
advantage as to such parties.
8. WARRANTIES OF EMPLOYEE. Employee warrants that he or she is not presently
under any agreement that will prevent him or her from the performance of duties
for Company, and is not in breach of any agreement with respect to any trade
secrets or confidential information owned by any other party.
9. INJUNCTIONS. Employee agrees that certain breaches by Employee of this
Agreement will result in irreparable harm to Company and that the remedies at
law for such breaches may not adequately compensate Company for its damages.
Employee agrees that in the event of any such breaches, Company shall be
entitled to an injunction in addition to any other remedies at law.
10. SEVERABILITY. Any holding that a provision of this Agreement is invalid or
unenforceable by a court of competent jurisdic-
<PAGE> 2
tion shall not affect the enforceability of any other provisions. If for any
reason the restrictions in Sections 4 through 7 are held to be invalid or
unenforceable, then such restrictions shall be interpreted or modified to
include as much of the duration and scope as will render such restrictions valid
and enforceable.
11. TERM. This Agreement is effective when signed by both parties and will
remain in effect for an indefinite period of time. The parties agree that
Employee's employment may be terminated at any time, for any reason or for no
reason, for cause or not for cause, with or without notice, by Company or
Employee. Upon any such termination, Employee shall return immediately to
Company all documents and other property of Company, together with all copies
thereof, including all Work Product and Proprietary Information, within
Employee's possession or control.
12. MISCELLANEOUS. This Agreement may not be modified except by a writing signed
by both parties, except that it may be supplemented by rules and regulations
described in Company employee handbook and other documents provided to Employee
from time to time, and Employee agrees to follow such rules and regulations. Due
to the personal nature of this Agreement, Employee may not assign his or her
rights or obligations under this Agreement without the prior written consent of
Company. This Agreement will be governed by the laws of the State of Georgia
without regard to its rules governing conflicts of law. This Agreement
represents the entire understanding of the parties concerning its subject matter
and supersedes and terminates all prior communications, agreements and
understandings relating to the same. All communications concerning or required
by this Agreement shall be in writing and shall be deemed given when delivered
to the address listed below (as may be amended by notice), by hand, courier or
express mail, or by registered or certified United States mail, return receipt
requested, postage prepaid.
The parties have executed this Agreement effective as of the _____ day of
________________, 199__ ("Effective Date").
<TABLE>
<CAPTION>
COMPANY: EMPLOYEE:
<S> <C>
TELEMATE.NET SOFTWARE, INC.
-----------------------------------------
By: (Print Name)
--------------------------------------------------
Title: -----------------------------------------
---------------------------------------------- Signature
Date:
--------------------------------------------- Date:
Address: 4250 Perimeter Park South -------------------------------------
Suite 200 SSN:
Atlanta, Georgia 30341-1201 ------------------------------------
Attention: Address:
------------------------- --------------------------------
</TABLE>
DEFINITIONS
"Company Business" shall be communications accounting software.
"Confidential Information" means Company information in whatever form, other
than Trade Secrets, that is of value to its owner and is treated as
confidential.
"Customer" means any current customer or prospective customer of Company.
"One Year Limitation Period" shall mean the twelve month period beginning
immediately upon the termination of Employee's employment with Company for any
reason.
"Proprietary Information" means all Trade Secrets and Confidential Information
of Company.
"Restricted Territory" shall mean the United States.
"Trade Secrets" means information of Company constituting a trade secret within
the meaning of Section 10-1-761(4) of the Georgia Trade Secrets Act of 1990,
including all amendments hereafter adopted.
"Two Year Restrictive Period" shall mean the twenty-four months prior to the end
of Employee's employment with Company for any reason.
"Work Product" shall mean the data, materials, documentation, computer programs,
inventions (whether or not patentable), and all works of authorship, including
all worldwide rights therein under patent, copyright, trade secret, confidential
information, or other property right, created or developed in whole or in part
by Employee while performing services in furtherance of or related to the
Company Business.
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<PAGE> 1
EXHIBIT 10.2
STANDARD OFFICE LEASE
COVER PAGE
The capitalized terms in this Lease shall have the meanings ascribed to
them below, and each reference to such term in the Lease shall incorporate such
meaning therein as if fully set forth therein.
TERMS:
LANDLORD: KGE Associates, LP with its principal office at 855 Mt. Vernon
Highway, N.E., Atlanta, Georgia, 30328.
TENANT: Complementary Solutions, Inc., a Corporation duly organized
and existing under the laws of the State of Georgia with its
principal office at 4250 Perimeter Park South, Suite 200,
Atlanta. Georgia.
PREMISES: (a) Suite: 200
(b) Rentable Area: 9,228 square feet
(c) See Floor Plan attached hereto as Exhibit "A."
BUILDING: 4250 Perimeter Park South, Dekalb County, Georgia, which is
located within the Project.
PROJECT: Those certain tracts or parcels of land owned by Landlord from
time to time, together with all improvements located thereon
or which may hereafter be constructed thereon.
COMMENCEMENT DATE: April 10, 1992
TERMINATION DATE: March 31, 1997
FIRST LEASE YEAR BASE RENT (PER YEAR): $87,666.00
BASE TAXES AND ASSESSMENTS: 1992 Base Year
FIRST MONTH'S RENT: $7,305.50
SECURITY DEPOSIT: $8,220.61
AGENT: The Wesley Company - Ed Easterlin & John Goodhew
1
<PAGE> 2
LEASE AGREEMENT
SUITE 200; PERIMETER CREST OFFICE PARK
THIS LEASE AGREEMENT is made and entered into on the 28th day of January,
1992, by and between KGE Associates, a Limited Partnership as landlord (the
"Landlord") and Complementary Solutions, Inc. a Corporation as tenant (the
"Tenant").
IN CONSIDERATION of the promises and covenants contained herein and for
other good and valuable considerations, the sufficiency and receipt of which are
hereby acknowledged, the parties agree as follows:
1. PREMISES.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, for the term and upon the terms and conditions contained herein, those
certain premises (the "Premises") shown on the floor plan attached hereto as
Exhibit "A" and incorporated herein by reference, containing approximately 9,228
square feet and located in the building 4250 Perimeter Park South (the
"Building") in Perimeter Park Office Park (the "Project") at 4250 Perimeter Park
South, Suite 200, Atlanta, Dekalb County, Georgia. No easement for light, air or
view is included.
2. TERM.
The term of this Lease shall be for 60 months and shall commence on the
date the Premises are ready for occupancy by Tenant or the date Tenant shall
first occupy the Premises, whichever shall first occur, provided that should the
term of this Lease commence on a day other than the first day of the calendar
month, the term of this Lease shall continue for 60 months from the first day of
the calendar month following said "date of commencement," but in no event shall
said date of commencement be later than the 10th day of April 1992. If Landlord
for any reason whatsoever cannot prepare the Premises for occupancy on or before
such date, this Lease shall not be void or voidable, nor shall Lessor be liable
to Tenant for any damage resulting therefor. Tenant agrees to confirm the date
of commencement in writing if and when requested to do so by Landlord.
Notwithstanding anything to the contrary contained in this Lease the term of
this Lease shall expire at 11:59 p.m. on March 31, 1997. If the premises is
ready before the date of commencement, the Tenant may begin moving in early, and
no rent shall be due except that all other terms and conditions of this lease
shall be in full force and effect.
3. RENT.
(a) Beginning Rent. Tenant shall pay to Landlord as rent, in legal
tender, without set-off or counterclaim at 855 Mount Vernon, NE, Atlanta,
Georgia 30328, or such other place as Landlord shall designate in writing an
annual rental of eighty seven thousand six hundred sixty-six dollars and no/100
($87,666.00), payable monthly in equal installments of seven thousand three
hundred five dollars and 50/100 ($7,305.50), each in advance on the first day of
every calendar month during the term of this Lease. If the term of this Lease
shall commence on a day other than the first day of a calendar month, the rental
payment for such month shall be proportionately reduced. Rental payments not
received by Landlord within ten (10) calendar days of the due date thereof shall
be subject to a late charge due and payable by Tenant to Landlord on the
eleventh (11th) calendar day after the due date thereof in an amount equal to
twenty-five dollars ($25.00) or five percent (5%) of such past due rental,
whichever amount is greater.
(b) Taxes. Tenant shall pay upon demand as additional rent during the
term of this Lease (and during each renewal term), the amount by which all taxes
(including, but not limited to, ad valorem taxes, special assessments,
betterment assessments and governmental charges) on
2
<PAGE> 3
the premises for each tax year exceed all taxes on the premises for the 1992 tax
year. In the event the premises are less than the entire property assessed for
such taxes for any such tax year, then the tax applicable to the premises shall
be determined by proration which shall be computed on the basis of the rentable
floor area of the premises bears to the rentable floor area of the entire
property assessed. If the final year of the lease term fails to coincide with
the applicable tax year, then any excess for such tax year during which the term
ends shall be reduced by the prorate part of the tax year beyond the end of the
lease term. Any real estate agent's commission shall not apply to any such
additional rent resulting from the provisions of this paragraph.
4. USE.
The Premises shall be used for general office purpose and for no other
purpose. Tenant shall not do or permit to be done in or about the premises, nor
bring or keep or permit to be brought or kept therein, anything which is
prohibited by or will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now or hereafter in force, or which is
prohibited by the standard form of fire insurance policy or will in any way
increase the existing rate of or affect any fire or other insurance upon the
Project or Building or any part thereof or any of its contents, or cause a
cancellation of any Insurance policy covering the Project or Building or any
part thereof or any of its contents. Tenant shall not do or permit anything to
be done in or about the Premises which will in any way obstruct or interfere
with the rights of other tenants of the Project, or injure or annoy them, or use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises.
5. ALTERATIONS AND IMPROVEMENTS.
Tenant will not make or suffer to be made any alterations, additions or
improvements to or of the Premises or any part thereof, or attach any fixtures,
equipment or signs thereto, without first obtaining Landlord's written consent.
Said consent shall not be unreasonably withheld and shall be delivered to Tenant
within ten (10) business days from receipt of written notice by Tenant. If
Tenant does not receive notice from Landlord within ten (10) business days then
Tenant shall deem that Landlord has accepted Tenants notice. All alterations,
additions and improvements, whether temporary or permanent in character, made in
or upon the Premises either by Tenant or Landlord (other than Tenant's movable
office furniture or other items put in at Landlord's expense and identified by
Landlord and Tenant as personalty) shall, at the termination or expiration of
this Lease, for whatever reason, become Landlord's property and remain on the
Premises without compensation to Tenant, unless there is a written agreement
between the parties providing for such removal. Landlord hereby agrees that
Tenant may install a security system in the Premises and install sound
attenuation material on the walls of the open areas.
6. LIENS.
Tenant shall keep the premises, the Building, the Project and the
property upon which the Project is situated free from any liens or claims of
lien arising out of work performed, materials furnished or obligations incurred
by, for or at the instance of Tenant, its assignees or subtenants. Should any
such lien or claim of lien be filed or recorded, Tenant shall bond against or
discharge the same within ten days after written request of Landlord; provided
that Tenant shall have the right to contest the validity of any lien or claim if
the Tenant shall first have posted a bond to insure that upon final
determination of the validity of such lien or claim the Tenant shall immediately
pay any judgment rendered against it with all proper costs and charges, and
shall have such lien released without costs to the Landlord.
Nothing contained in this Lease shall be deemed or construed as
constituting the consent or request of Landlord, express or implied, to any
contractor, subcontractor, laborer, mechanic or
3
<PAGE> 4
materialman for the performance of any labor or the furnishing of any materials
for any specific improvement, alteration or repair of or to the Premises or any
part thereof, nor as giving Tenant a right, power or authority to contract for
or permit the rendering of any services or the furnishing of any materials that
would give rise to the filing of any mechanic's or materialman lien or claim of
lien against the Premises or the Tenant's interest therein, the Building, the
Project or the property upon which the Project is located.
7. REPAIR.
By entry hereunder Tenant accepts the Premises as being in good and
sanitary order, condition and repair. Tenant shall, at all times during the
terms hereof and at Tenant's sole cost and expense, keep the Premises in good
and sanitary conditions and repair, damage thereto by fire, earthquake, act of
God or the elements excepted. Tenant hereby waives all rights to make repairs at
the expense of Landlord as provided by any law, statute or ordinance now or
hereafter in effect. Tenant shall at the end of the term hereof surrender to
Landlord the Premises and all alterations, additions and improvements thereto in
the same condition as when received, ordinary wear and tear and damage by fire,
earthquake, act of God or the elements excepted. Landlord shall make any
structural repairs necessary for safety and tenantability and necessary repairs
of the Building's fixtures and electrical, heating, cooling and plumbing systems
in the premises and will maintain the appearance and grounds of the Building in
a manner consistent with other quality office buildings in Atlanta, Georgia,
unless the damage to be repaired is attributable to any act or neglect of Tenant
its agents, employees or visitors, in which event Tenant shall be responsible
for repairing such damage. Tenant shall at once report in writing to Landlord
any defective condition known to it which Landlord may be required to repair.
8. SERVICES.
Landlord agrees to provide Tenant, as Landlord deems necessary and
subject to limitations contained in any governmental controls now or hereafter
imposed or matters beyond Landlord's control and subject to cessation for
reasonable necessity the following services:
(a) General cleaning and janitorial service including trash removal.
(b) General maintenance of the Building and landscaping and
maintenance of the grounds around the Building.
(c) Heating and air-conditioning service daily on Mondays through
Fridays inclusive (national holidays excepted), from 8:00 a.m. to 6:00 p.m. and
on Saturdays, if not a holiday, from 8:00 a.m. to 1:00 p.m. Without the express
written consent of Landlord, Tenant shall not install or use heat generating
machines and similar equipment or supplementary air-conditioning equipment. In
the event Landlord consents to such installation, the costs of operation and
maintenance of such equipment shall be paid by Tenant to Landlord. Should Tenant
desire either heating or air-conditioning at times when such services are not
famished by Landlord under the terms of the lease, Landlord will furnish such
services as requested by Tenant, at Tenant's expense and at a reasonable hourly
charge as is from time to time determined by Landlord, which charges Tenant
shall promptly pay on being billed by Landlord.
(d) Reasonable facilities for furnishing light and electric power for
the operation of primary office equipment such as personal computers,
typewriters, lamps, adding machines, and calculators, dictating equipment, and
clocks. Tenant shall bear the cost of electrical current required to operate any
other equipment, which cost shall be reasonably determined by Landlord.
(e) Water and sewer costs for water reasonably used in the Premises.
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(f) Elevator service during reasonable hours, 7 days per week.
(g) Landlord shall, when advised or requested by Tenant, provide and
replace fluorescent tubes or incandescent bulbs for fixtures in the Premises.
9. PEACEFUL POSSESSION.
So long as the Tenant shall observe and perform the covenants and
agreements binding on it hereunder, the Tenant shall at all times during the
term of this Lease peacefully and quietly have and enjoy possession of the
Premises.
10. LIABILITY OF LANDLORD AND TENANT.
Except as provided for in the final paragraph of this paragraph #10,
Landlord shall not be liable to Tenant in any manner whatsoever for failure to
furnish or delay in furnishing any service provided for in this Lease and no
such failure or delay shall constitute an actual or constructive eviction of
Tenant nor shall any such failure or delay operate to relieve Tenant from the
prompt and punctual performance of each and all the covenants to be performed
herein by Tenant. Except as provided in the final paragraph of this paragraph
#10, Landlord shall not be liable to Tenant for damage to person or property
caused by defects in the cooling, heating, electric, water or other system or
apparatus or by water discharged from sprinkler systems, if any, in the Building
or from any water pipes nor for the theft, mysterious disappearance, or loss of
any property of Tenant whether from the Premises or any part of the Building or
property adjoining the Building. Landlord agrees to make reasonable efforts to
protect Tenant from interference or disturbance by third persons including other
tenants. Landlord shall not, however, be liable for any such interference or
disturbance whether caused by another tenant or tenants of Landlord or other
person, nor shall Tenant be relieved from any obligation herein because of such
interference, disturbance or breach.
Tenant and Landlord shall indemnify each other against any liability or
expense of any nature due to the breach of any covenant in this Lease required
to be performed by the Indemnitor. Tenant shall indemnify the Landlord against
any liability or expense of any nature due to Tenants use or occupancy of the
premises.
Landlord shall not be liable, responsible or in any way accountable for
any loss, injury, death or damage to persons or property which at any time may
be suffered or sustained by Tenant or by any person who may at any time be using
or occupying or visiting the Premises, the Building or the Project or be in, on
or about the same, whether such loss, injury, death or damage shall be caused by
or in any way result from or arise out of any act, omission or negligence of
Tenant or of any occupancy, tenant, visitor or user of any portion of the
Premises, the Building or the Project, except those arising by reason of the
negligence or willful act of Landlord, its agents or employees. Tenant shall
forever indemnify, defend, hold and save Landlord free and harmless of, from and
against any and all claims, liabilities, actions, expenses, losses or damages
whatsoever on account of or in connection with any such loss, injury, death or
damage, except those arising by reason of the negligence or willful act of
Landlord, its agents or employees. Tenant hereby waives all claims against
Landlord for damages to the furniture, furnishings or other property of Tenant
in, upon or about the Premises, and for injuries to persons or property in or
about the Premises, the Building or the Project, from any cause arising at any
time, except those arising by reason of the negligence or willful act of
Landlord, its agents or employees.
Notwithstanding any provision of the Lease to the contrary, if Landlord
fails to provide Tenant with any of the services required of Landlord herein,
then Tenant shall provide Landlord with written notice of such failure, and,
provided such failure is a result of a cause within the reasonable control of
Landlord, if Landlord has not diligently commenced to cure such failure
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within ten (10) days after receipt of Tenant's notice, then Tenant shall have
the right to expend any reasonable sums to cure such failure and invoice
Landlord for the actual reasonable costs so incurred, which costs Landlord shall
reimburse to Tenant within thirty (30) days of receipt of Tenant's invoice
therefore, failing which Tenant may pursue such remedies as Tenant may have at
law or in equity.
11. ASSIGNMENT AND SUBLETTING.
Tenant shall not, without the prior written consent of Landlord (which
consent shall not be unreasonably withheld) assign, transfer, mortgage, pledge,
hypothecate or encumber this Lease or any interest herein or sublet the Premises
or any part thereof, or permit the use of the Premises by any party other than
Tenant.
12. SUBORDINATION OF LEASE.
The rights of the Tenant under this Lease shall be and are subject and
subordinate at all time to the lien of any and all mortgages, security deeds,
deeds to secure debt or loan deeds in any amount or amounts whatsoever now or
hereafter placed on Landlord's interest in the Project or the Building, or both,
and to all advances made or hereafter to be made upon the security thereof.
Although such subordination shall be self-operative, the Tenant shall execute
such further instruments confirming such subordination as may be requested by
the Landlord. If any such mortgage, security deed, deed to secure debt or loan
deed shall be foreclosed, upon request to the mortgagee or the purchaser on
foreclosure, the Tenant will recognize as the Landlord and new owner of the
Building the purchaser on foreclosure sale thereunder (or purchaser by deed in
lieu of foreclosure) and will execute such instruments as may be necessary or
appropriate to evidence such attornment. Notwithstanding any of the above,
Tenant agrees that Landlord or his successor in interest shall have the right to
declare this Lease prior and superior to any such mortgage, security deed, deed
to secure debt or loan deed and Tenant agrees, upon request, to execute any
instrument or instruments requested by Landlord or such first mortgagee to
confirm same.
This Lease shall be subject and subordinate to all underlying leases
and to security deeds which may now or hereafter affect such leases or the real
property of which premises form a part, and also to all renewals, modifications,
extensions, consolidations and replacements of such underlying leases and such
security deeds. Although no instrument or act on the part of Tenant shall be
necessary to effectuate such subordinations, Tenant will, nevertheless, execute
and deliver such further instruments confirming such subordination of this Lease
as may be desired by the holders of said security deeds or by any of the
Landlords under such underlying leases. If any underlying lease to which this
Lease is subject terminates, Tenant shall on timely request attorn to the owner
of the reversion.
13. INSPECTIONS.
Landlord may enter the Premises at reasonable hours to (a) inspect the
Premises, (b) exhibit the Premises to prospective purchasers or tenants, (c)
determine whether Tenant is complying with all its obligations hereunder, (d)
supply any service to be provided by Landlord to Tenant hereunder, (e) post "For
Lease" signs of reasonable size upon or within the Premises during the last
ninety (90) days of the term hereof and during any period of holding over by
Tenant, and (f) make repairs required of Landlord under the term hereof or
repairs to any adjoining space or utility services or make repairs, alterations
or additions to any other portion of the Building, provided, however, that all
such work shall be done as promptly as reasonably possible and so as to cause as
little interference to Tenant as reasonably possible.
14. DAMAGE AND DESTRUCTION.
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If either the Premises or the Building containing the Premises is
totally destroyed or so substantially damaged as to be untenantable by fire,
lightning, earthquake, windstorm or other casualty, and cannot be repaired
within one hundred twenty (120) days, this Lease may be terminated by either
party upon thirty (30) days written notice to the other, and rent shall be
accounted for between the Lessor and Lessee as the termination date. In the
event of partial destruction or damage to the Premises, so as to render the
Premises partially, but not wholly untenantable, this Lease shall not terminate
but the annual rental rate shall be reduced in proportion to the area of the
Premises which cannot be used or occupied by Tenant as a result of such fire or
other casualty. Landlord shall, in the event of such partial damage or
destruction, and within a reasonable time after said fire or other casualty,
subject to matters beyond Landlord's control and to the extent availability of
insurance proceeds, restore the Premises to as near the same structural
condition as existed prior to said fire or other casualty, but without prejudice
to Tenant's responsibility therefor should the fire or other casualty have
resulted from the act, negligence, or fault of Tenant or its representatives,
agents, or invitees. In the event of partial damage or destruction of the
Premises (not caused by act, negligence, or fault of Tenant or its
representatives, agents or invitees) which renders the remainder of the Premises
impractical for use during restoration, the whole of the rent shall abate during
the restoration period. In the event of partial damage or destruction of the
Premises, should the repairs or restoration not be completed for any reason
within one hundred twenty (120) days from the date of said fire or casualty,
Tenant may terminate this Lease by giving the Landlord written notice to
terminate not later that one hundred (100) days after the fire or other
casualty. In no event shall Tenant have any option to terminate nor shall rent
abate if the fire or other casualty be the result of the act, negligence or
fault of Tenant, or its representatives, agents, employees or invitees.
15. EMINENT DOMAIN.
(a) If title to any part of the Premises is taken for any public or
quasi-public use by eminent domain or by private purchase in lieu thereof, or if
title to so much of the Building is taken that a reasonable amount of
reconstruction thereof will not, in Landlord's sole discretion, result in the
Premises or the Building being a practical improvement and reasonably suitable
for use for the purpose for which they are designed, then, in either event this
Lease shall terminate at the option of Landlord on the date the condemning
authority actually takes possession to the part condemned. If title to the whole
of the Premises is taken by eminent domain then this Lease shall terminate as of
the date possession of the Premises is taken by the condemning authority.
(b) If the Lease is terminated under the provisions of this Paragraph
15, rent shall be apportioned and adjusted as of the date of termination.
(c) If there is a partial taking of the Premises or the Building and
this Lease is not thereby terminated under the provisions of this Paragraph 15,
then this Lease shall remain in full force and effect, and Landlord shall,
within a reasonable time thereafter, repair and restore the remaining portion of
the Premises, should they be affected, to the extent necessary to render the
same tenantable and shall repair or reconstruct the remaining portion of the
Building to the extent necessary to make the same a complete structural unit.
(d) All compensation awarded or paid upon a total or partial taking
of the Premises, the Land or Building shall belong to and be the property of
Landlord without any participation by Tenant. Nothing herein shall be construed
to preclude Tenant from prosecuting any claim directly against the condemning
authority for loss of business, damage to, and cost of removal of trade
fixtures, furniture and other personal property belonging to Tenant; provided,
however, that no such claim shall diminish or adversely affect Landlord's award.
(e) After any partial taking of the Premises which does not result in
a termination of this Lease, the Base Annual Rental for the remainder of the
Lease Term shall be reduced by the
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same percentage as the rentable area of the space taken bears to the total
rentable area originally in the Premises. In the event that a partial taking
renders the remainder of the Premises impractical for use, then Tenant shall
have the option to cancel this Lease.
16. HOLDING OVER. If Tenant remains in possession of the Premises after
expiration of the term of this Lease, with Landlord's acquiescence and without
any express agreement of the parties, Tenant shall be a tenant at will at a
rental rate equal to one and one-half times the rental rate, adjusted pursuant
to paragraph 3(b), in effect at the end of this Lease and there shall be no
renewal of this Lease by operation of law.
17. RULES AND REGULATIONS. Tenant shall faithfully observe and comply
with the rules and regulations attached as Exhibit "B" to this Lease and all
reasonable modifications of and additions thereto of general application from
time to time put into effect by Landlord. Landlord shall not be responsible to
Tenant for nonperformance by any other tenant or occupant of the Project or the
Building of any of said rules and regulations.
18. HAZARDOUS SUBSTANCES. Tenant represents and warrants that it will
not, on or about the Premises, make, store, use, treat, transport or dispose of
any hazardous or toxic waste, contaminants, oil, radioactive or other materials
the removal of which is required or the maintenance of which is prohibited,
regulated (unless such regulations are adhered to and Landlord is notified
thereof) or penalized by any local, state or federal agency, authority or
governmental unit.
19. DEFAULTS. The following shall constitute events of Default
hereunder:
(a) Failure by Tenant to pay any rent or other sum payable hereunder
on or before the date due;
(b) Default by Tenant in the observance or performance of any of the
other terms, covenants, agreements or conditions contained herein or in the
rules and regulations incorporated herein;
(c) Filing by the Tenant or any guarantor or surety with respect to
this Lease of a voluntary petition in bankruptcy or a voluntary petition or
answer seeking reorganization, arrangement, readjustment of its debts or for any
other relief under the Bankruptcy Act, as amended, or under any other insolvency
act or law, state or federal, now or hereafter existing, or any action by the
Tenant or any guarantor or surety with respect to the Lease indicating its
content to, approval of or acquiescence in, any such petition or proceeding; the
application by the Tenant or any guarantor or surety with respect to this Lease
for or the appointment by consent or acquiescence of a receiver or trustee of
the Tenant or any guarantor or surety with respect to this Lease or for all or a
substantial part of its property; the making by the Tenant or any guarantor or
surety with respect to this Lease or any assignment for the benefit of its
creditors; or the inability of the Tenant or any guarantor or surety with
respect to this Lease, or the admission by the Tenant or any guarantor or surety
with respect to this Lease of its inability, to pay its debts as they mature.
(d) The filing of any involuntary petition against the Tenant or any
guarantor or surety with respect to this Lease in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts or for any other relief
under the Bankruptcy Act, as amended, or under any other insolvency act or law,
state or federal, now or hereafter existing, or the involuntary appointment of a
receiver or trustee of the Tenant or any guarantor or surety with respect to
this Lease or for all or a substantial part of its property; or the issuance of
attachment, execution or other similar process against substantial part of the
property of the Tenant or any guarantor or surety with respect to this Lease and
the continuation of any of such for a period of thirty (30) days undismissed,
unbonded or undischarged.
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(e) The insolvency of Tenant or any guarantor or surety with respect
to this Lease; or the withdrawal or revocation of any guaranty or suretyship
agreement regarding this Lease.
Upon the occurrence or existence of any Event of Default, Landlord
shall have the option to exercise any or all of the following remedies:
(i) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, but if Tenant shall fail to do so, Landlord
may, without further notice and without prejudice to any other remedy Landlord
may have for possession or arrearages in rent or damages for breach of contract,
enter upon the Premises and expel or remove Tenant and its effects, and Tenant
agrees to indemnify Landlord for all loss and damage which Landlord may suffer
by reason of such Lease termination, whether through inability to relet the
Premises, or through decrease in rent, or otherwise;
(ii) Enter the Premises as the agent of the Tenant on Tenant's
account, and relet the Premises as the agent of the Tenant, and receive the rent
therefor, and the Tenant shall pay the Landlord any deficiency that may arise by
reason of such reletting, on demand at any time and from time to time at the
office of Landlord. This reletting is for the benefit of the Tenant and does not
relieve him of his obligations under the Lease whether or not notice of the
reletting is given to the Tenant. It is hereby agreed that this may be done
without effecting a surrender of the Premises;
(iii) Refuse to accept a surrender of the Premises in which event the
Landlord may allow the premises to remain idle and hold the Tenant for rent, or,
in the alternative the Landlord may sue for breach of contract before the
expiration of the term.
(iv) Re-rent the Premises, calculate the amount by which the rent for
the re-rented Premises is less than that provided by this Lease and immediately
be entitled to such difference reduced to its then present value.
The foregoing remedies of Landlord shall not be exclusive but shall be
cumulative and in addition to all other remedies now or hereafter allowed by law
or elsewhere provided for. Nothing herein contained shall limit or prejudice
Landlord's right to prove and obtain as liquidated damages arising out of any
default or termination of this Lease the maximum amount allowed by law.
20. TENANT'S PERSONALTY.
The Tenant shall, on or before the expiration of the Lease term,
surrender the Leased Premises and the keys and mailbox keys thereto to the
Landlord free of subtenancies, together with alterations, additions, and
improvements which may have been made upon the Premises, except movable
furniture, movable personal property, or movable trade fixtures put in at the
expense of the Tenant, subject, however, to the subsequent provisions hereof.
All of the property removable pursuant to the provisions of this paragraph shall
be removed by the Tenant on or before the expiration of the Lease term, and all
property not so removed shall be deemed abandoned by the Tenant. Landlord may
remove and immediately dispose of such property in a manner set forth below at
Tenant's expense.
Tenant hereby irrevocably appoints Landlord as agent and attorney in
fact of Tenant to enter upon the Premises, upon the occurrence or existence of
any Event of Default, and to remove any personal property situated upon the
Premises, and place such property in storage for the account of and at the
expense of Tenant. In the event that Tenant shall not claim such property and
pay the cost of storing such property after the property has been stored for a
period of thirty (30) days or more, Landlord may sell any or all of such
property at public or private sale in such
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manner and at such times and places as Landlord in its sole discretion may deem
proper without notice to Tenant or any demand upon Tenant for the payment of any
part of such charges or the removal of any of such property, and shall apply the
proceed of such sale; first, to the cost and expenses of such sale, including
reasonable attorney's fees actually incurred; second, to the payment of the
costs of or charges for storing any such property; third, to the payment of any
other sums of money which may then or thereafter be due to Landlord from Tenant
under any of the terms hereof; and fourth, the balance, if any, to Tenant.
21. ATTORNEY'S FEES.
In the event any sums payable to Landlord hereunder are collected at
law or through any attorney at law, Tenant or Landlord shall pay, in addition to
such sums, fifteen percent (15%) thereof for attorneys fees. Tenant or Landlord
shall pay all reasonable attorney's fees and expenses Landlord or Tenant incurs
in enforcing any other obligation of Tenant or Landlord hereunder, or in
connection with any litigation or negotiations in which Landlord or Tenant
shall, without its fault, become involved through or on account of this Lease.
22. NOTICES.
All notices and demands permitted or required to be given by either
party to the other hereunder shall be deemed to have been fully given when in
writing and deposited in the United States mail, certified or registered,
postage prepaid, and addressed as follows:
(a) to Tenant at the Premises, or to such other place as Tenant may
from time to time designate in a written notice to Landlord;
(b) to Landlord at 855 Mt. Vernon, NE, Atlanta, Georgia 30328, or to
such other place as Landlord may from time to time designate in a notice to
Tenant.
23. NO ESTATE.
This contract and lease shall create the relationship of landlord and
tenant; no estate shall pass out of Landlord; and Tenant shall have only a
usufruct which is not subject to levy and sale.
24. SECURITY DEPOSIT.
(a) As security for the faithful performance of the terms, covenants,
conditions and provisions of this Lease, as well as to indemnify Landlord from
any damage, costs, expenses, real estate brokerage commissions or attorneys'
fees to which Landlord may be put by reason of any default by Tenant, Tenant
hereby agrees to deposit with Landlord, no later that thirty (30) days prior to
the commencement date of the Lease Term, and unconditional and irrevocable
letter of credit issued by NationsBank (in a form acceptable to Landlord) in the
amount of eight thousand two hundred twenty dollars and 61/100 ($8,220.61) which
letter of credit shall be renewed annually, at least thirty (30) days prior to
the expiry date thereof for additional one-year periods until the expiration of
the Lease Term (or the Extended Term, if any). If such letter of credit has not
been renewed at least thirty (30) days prior to the expiry date thereof,
Landlord may immediately draw on such letter of credit and hold the cash
proceeds thereof in lieu of such letter of credit.
(b) As additional security for Tenant's obligation to take possession
of the Premises on the Commencement Date and to comply with all of Tenant's
covenants, warranties, agreements and provisions from even date herewith until
said Commencement Date, Tenant has deposited with Landlord the sum of $7,305.50.
Such amount shall be applied to the first two (2) month's rent upon Tenant's
timely taking possession or alternatively, in the event Tenant fails to take
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possession of the Premises as aforesaid, said sum shall be retained by Landlord
for application in reduction, but not in satisfaction, of damages suffered by
Landlord as a result of Tenant's failure to take possession timely.
(c) In the event of a sale or transfer of Landlord's interest in the
Premises or the Building, or the Land; or a lease for years by Landlord of the
Premises or of the Building substantially as an entirety, Landlord shall have
the obligation to transfer the within described security deposits to the vendee
or Tenant for years of Landlord, as the case may be, and Landlord shall be
relieved from all liability to Tenant for the return of such deposits. Tenant
shall look solely to the new owner or to Landlord's tenant for years for the
return of said deposit. The provisions of this Paragraph 24 shall apply to every
assignment to the aforesaid security deposits made to any new owner or tenant
for years of Landlord. The security deposited under this Lease shall not be
mortgaged, assigned or encumbered by Tenant. In the event of a permitted
assignment or subletting under this Lease by Tenant, the security deposits shall
be held by Landlord as a deposit made by the permitted assignee or subtenant and
Landlord shall have no further liability with respect to the return of said
security deposits to Tenant.
(d) Landlord may commingle with other funds of Landlord the deposits
provided for herein. Said deposits shall not bear interest. Tenant, waives the
provisions of all present or future laws contrary to the provisions of this
paragraph 24.
25. BINDING EFFECT.
The provisions of this Lease shall bind and inure to the benefit of
Landlord and Tenant, and their respective successors, heirs, legal
representatives and permitted assigns; it being understood that the term
"Landlord," as used in this Lease, means only the owner for the time being of
the Building of which the Premises are a part, so that in the event of any sale
or sales of said Building or of any lease for years thereof, the Landlord named
herein shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder accruing thereafter, and it shall be deemed
without further agreement. that the purchaser, or the tenant for years, of or
from Landlord, as the case may be, has assumed and agreed to carry out any and
all covenants and obligations of Landlord hereunder during the period such party
has possession of the Building. Should the entire Building be severed from the
Land as to ownership by sale and/or lease, then the owner of the entire Building
or tenant for years of the entire Building that has the right to lease space in
the Building to other tenants shall be deemed the "Landlord." Tenant shall be
bound to any succeeding party of Landlord for all the terms, covenants and
conditions hereof and shall execute any attornment agreement not in conflict
herewith at the request of any succeeding party of "Landlord" or Tenant.
26. ESTOPPEL CERTIFICATES.
Tenant shall, from time to time, and upon ten (10) days prior written
request by Landlord or by a holder of a deed to secure debt on the Building
("Mortgagee") execute, acknowledge and deliver, in recordable form, to Landlord
or as Landlord may direct or to a Mortgagee, as the case may be, a written
statement certifying that this Lease is unmodified and in full force and effect
(or if there have been modifications that the same is in full force and effect
as modified and stating the modifications), the date of commencement of this
Lease, the dates to which annual rental, additional rental and other charges
have been paid, that this Lease is in full force and effect, that Tenant is in
possession of the Premises paying the full lease rental, that no rental payments
have been made in advance except as stated in the, Lease, and whether, to the
best knowledge of Tenant, Landlord is in default hereunder (and if so,
specifying the nature of the default and the steps, if any, being taken to cure
same), it being intended that any such statement delivered pursuant to this
paragraph may be relied upon any person dealing with Landlord with respect to
Landlord's interest in the Premises.
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27. RENT CONTROL.
Tenant hereby waives the benefits of all existing and future Rent
Control Legislation and similar government regulations (which may be applicable
with respect to this Lease, or Tenant's rights hereunder), whether in time of
war or not, to the extent not prohibited by law.
28. OWNER AND MANAGER.
Landlord gives to Tenant and Tenant acknowledges having the following
information:
(a) the name of the owner of record of the Building in which the
Premises are located is KGE Associates, LP and its address is 855 Mt. Vernon,
NE, Atlanta, Georgia 30328.
(b) the names of the persons authorized to manage the Building in
which the Premises are located are Anderson Properties, Inc., and their address
is 855 Mt. Vernon, NE, Atlanta, Georgia 30328.
29. APPLICATION OF TENANT'S PAYMENTS.
Landlord may accept any and all payments by or for the account of
Tenant, without prejudice to the claims of Landlord; and Landlord may apply the
same to or for the account of Tenant in such manner, order or priority as
Landlord may determine in Landlord's sole discretion notwithstanding any
designation by Tenant of application to the contrary or whether a different
amount than that demanded, claimed or anticipated by Landlord.
30. WAIVER OF CERTAIN RIGHTS.
Tenant waives the rights and benefits of Section VI of Georgia Laws
1970, page 968 at page 972 (which section provides that tender of rents and
costs within seven days of service of a dispossessory summons is a defense to
said summons), and any amendments thereto.
31. MISCELLANEOUS
(a) The words "Landlord" and "Tenant" as used herein shall include
the plural as well as the singular. Words used in masculine gender include the
feminine and neuter and words used in the neuter include the masculine and
feminine. If there be more than one Tenant, the obligations hereunder imposed
upon Tenant shall be joint and several.
(b) The paragraph headings of this Lease are for reference
convenience only, and are not a part of this Lease and shall have no effect upon
the construction or interpretation of any part hereof.
(c) Time is of the essence of this Lease and each and all of its
provisions.
(d) Submission of this instrument for examination or signature by
Tenant does not constitute a reservation of or option to lease, and it is not
effective as a lease or otherwise until execution and delivery by both Landlord
and Tenant. Landlord and Tenant agree that each lease draft submitted for
consideration by the other shall be null and void if a response has not been
given back to the other within forty-eight (48) hours.
(e) The terms, covenants, agreements and conditions herein contained,
shall, subject to the provisions as to assignment and subletting apply to and
bind the heirs, successors,
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executors, administrators, assigns and subtenants of the parties hereto, unless
otherwise provided herein.
(f) As used in this Lease, the term "rent" or "rental" shall include
all amounts payable pursuant to Paragraph 3 and all other additional charges or
sums payable to Landlord hereunder.
(g) This Lease is made and entered into in the State of Georgia,
relates to premises located and duties to be performed in the State of Georgia,
and shall, in all respects, be interpreted in accordance with the laws of the
State of Georgia.
(h) This Lease represents the entire understanding and agreement
between the parties relating to the subject matter hereof and supersedes all
prior negotiations and agreements relative thereto. The language in all parts of
this Lease shall in all cases be construed as a whole according to its fair
meaning and not strictly for or against either Landlord or Tenant.
(i) This Lease may be executed in counterparts, each of which, when
fully executed, shall be deemed an original, and all of which shall be but one
Agreement. In the event of any conflict between any of such counterparts, the
original or copy hereof held by Landlord, including all exhibits thereto, shall
control.
(j) If any term, covenant or condition of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to any other person or circumstance, shall not
be affected thereby and each term, covenant or condition of this Lease shall be
valid and enforceable to the fullest extent permitted by law.
(k) No failure or delay of Landlord to exercise any right or power
given it herein or to insist upon strict compliance by Tenant of any obligation
imposed upon it herein and no course of dealing or custom or practice of either
party hereto at variance with any term hereof shall constitute a waiver or a
modification of the terms hereof by Landlord or its right to demand strict
compliance with the terms hereof by Tenant.
32. SPECIAL STIPULATIONS.
The following Special Stipulations are hereby made a part of this Lease
and shall control in the event they conflict with any of the foregoing
provisions of the Lease.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Lease on the day and
year first above written.
"LANDLORD"
KGE Associates, LP
By: /s/ Perry Fieldmyer
-----------------------------------
Its:
----------------------------
Date Executed by Landlord 1/28/92
-------------
(CORPORATE SEAL)
"TENANT"
Complementary Solutions, Inc.
By: /s/ David H. Couchman
-----------------------------------
Its: President
----------------------------
Attest: /s/ Raphael McAbee-Reher
-------------------------
Its: Vice President
---------------------------
Date Executed by Tenant 1/28/92
---------------
(CORPORATE SEAL)
14
<PAGE> 15
RULES AND REGULATIONS
1. No sign, picture, advertisement or notice of any kind shall be
displayed on the exterior of the Premises, or on any part of the Building unless
the same is first approved by the Landlord.
2. Tenant shall have the right to be furnished with two keys for
every lock on doors in the Premises, however, additional keys must be made at
Tenant's expense. No additional locks shall be placed upon any doors of the
Premises, unless Landlord is provided with keys to the additional locks, and
upon termination of the Lease, Tenant shall surrender to Landlord all keys to
the Premises.
3. The Landlord, its agents and employees, shall be permitted in the
Premises at all reasonable hours for the purpose of making any repairs, and for
any other reasonable purposes.
4. No electric current shall be used by the Tenant except that
furnished or approved by the Landlord, nor shall electric or other wires be
brought into the Premises except upon the written approval of the Landlord, and
any electric current in excess of that considered by Landlord to be normal for
Tenants in the Building shall be paid for by Tenant, under such rates as are
established by Landlord.
5. Tenant shall not without first obtaining Landlord's written
consent, employ or contract with any person to do cleaning or perform janitorial
services in the Premises.
6. The sidewalks, entrances, passages, halls and stairways shall not
be obstructed in any way by Tenant, its agents or employees, or used by them for
purposes other than ingress in and egress from the Premises.
7. All equipment, furnishings or other heavy articles used by the
Tenant in Premises shall be carried into the Premises only at such times and in
such manner as shall be prescribed by Landlord. Any damage done to the Building
or any part thereof by moving or removing said articles or from overloading any
floor in any way shall be paid by Tenant. Defacing or damaging any part of the
Premises or Building in any way by Tenant, its agents or employees shall be
repaired at the expense of Tenant.
8. No animals, birds, bicycles or other vehicles shall be brought
into the offices, halls or elsewhere in the Building by the Tenant, its agents
or employees. Tenant shall be allowed to have an aquarium in the Premises.
9. Restrooms and other water facilities shall not be used for any
purpose other than those for which they are intended and any damage resulting to
them from misuse shall be repaired at the expense of Tenant.
10. In the event Landlord provides venetian blinds or draperies in
the office space used by Tenant, Tenant shall use such care and diligence to
protect them as may be required by Landlord.
11. Outside windows in the Premises shall not be covered or
obstructed by Tenant in any way without first obtaining Landlord's written
consent.
12. The Tenant at its sole expense shall comply with all laws, orders
and regulations of federal, state and municipal authorities, and with any
direction of any public officer, pursuant to law, which shall impose any duty
upon the Landlord or the Tenant with respect to the lease property. The Tenant,
at its sole expense, shall obtain all licenses or permits which may be required
for the conduct of its business within the terms of this Lease, or for the
making of repairs,
15
<PAGE> 16
alternations, improvements or additions and the Landlord, where necessary, will
join with the Tenant in applying for all such permits or licenses.
13. The Landlord reserves the right to make such other and farther
reasonable Rules and Regulations as in the Landlord's judgment may from time to
time be needed for the safety, care and cleanliness of the Building and Project
and for the preservation of good order therein and such other or further Rules
and Regulations shall be binding upon Landlord and Tenant the same as if they
had been inserted herein at time of execution of the Lease Agreement into which
these Rules and Regulations are incorporated.
16
<PAGE> 17
SPECIAL STIPULATIONS
RENTAL SCHEDULE
The following schedule is the base rental payable per Paragraph 3(a) of this
lease:
Year 1 Beginning April 10, 199 through March 31, 1993 the monthly sum of
Seven thousand three hundred five dollars and 50/100 ($7,305.50) for a
total annual base rental of Eighty seven thousand six hundred sixty six
dollars and No/100 dollars ($87,666.00).
Year 2 Beginning April 1, 1993 through March 31, 1994 the monthly sum of
Seven thousand five hundred twenty eight dollars and 51/100 ($7,528.51)
for a total annual base rental of Ninety thousand three hundred forty
two dollars and 12/100 dollars ($90,342.12).
Year 3 Beginning April 1, 1994 through March 31, 1995 the monthly sum of
Seven thousand seven hundred fifty one dollars and 52/100 ($7,751.52)
for a total annual base rental of Ninety three thousand eighteen
dollars and 24/100 dollars ($93,018.24).
Year 4 Beginning April 1, 1995 through March 31, 1996 the monthly sum of
Seven thousand nine hundred eighty two dollars and 22/100 ($7,982.22)
for a total annual base rental of Ninety five thousand seven hundred
eighty six dollars and 64/100 dollars ($95,786.64).
Year 5 Beginning April 1, 1996 through March 31, 1997 the monthly sum of
Eight thousand two hundred twenty dollars and 61/100 ($8,220.61) for a
total annual base rental of Ninety eight thousand six hundred forty
seven dollars and 32/100 dollars ($98,647.32).
* April 10, 1992 - April 30, 1992 is deemed a partial month and rental shall be
prorated accordingly.
RENTAL ABATEMENT
Lessor grants to Lessee the period of April 10, 1992 through February 28, 1993
as ten (10) months of one-half base rent (the "Abated Rent Period"). All other
charges per the Lease Agreement during this period will be due and payable. Per
paragraph 2 of the Lease (Term), the rental abatement period shall be extended
by the amount of time in which the commencement date is extended.
Landlord and Tenant acknowledge that the foregoing Abated Rent Period has been
granted to Tenant as additional consideration for entering into the Lease, and
for agreeing to pay the Base Rent and performing the terms and conditions
otherwise required under the Lease. Accordingly, if Tenant shall default under
the Lease and fail to cure such default within the time permitted for cure
pursuant to the Lease, if any, prior to making fifty (50) full monthly payments
after the ten (10) months of one-half rent, Tenant shall become obligated to pay
to Landlord the, $36,527.50 value of the Base Rent otherwise abated hereunder
during the Abated Rent Period. Said abated rent payable to the Landlord shall be
proportionately reduced according to the amount of months already paid during
the term of the Lease.
AS-IS CONDITION
Except for the improvements as detailed in Exhibit "A", tenant agrees to accept
the leased premised in an "as-is" condition. Landlord agrees that the HVAC,
electrical and plumbing fixtures will be in a satisfactory working condition
throughout the term of the Lease.
Lessee's acceptance of the Premises shall be subject to "punch list items" which
are details of construction, decoration, and mechanical and electrical
adjustments which, in the aggregate, are
17
<PAGE> 18
minor in character and do not materially interfere with the Lessee's use of
enjoyment of the Premises. Within ten (10) days after the date of the
Certificate of Substantial Completion of the improvements to the Premises,
Lessor's representative and Lessee's representative shall inspect the Premises
for purposes of compiling a list of punch list items. Lessor shall be obligated
to begin correcting and diligently pursue the correction of punch items within
thirty (30) days after completion of said punch list, unless any item or items
included on said punch list cannot reasonably be completed within thirty (30)
days, in which case Lessor shall have begun correcting and diligently pursuing
the correction of those items within said thirty (30) day period.
EXPANSION SPACE
Landlord guarantees the availability of 2,000 square feet of contiguous space
for a period of twenty four (24) months. The rental rate for the expansion space
shall be the same as the then prevailing rate Tenant is paying on it's original
premises. Landlord will improve the expansion space in a similar fashion to the
improvements made to Tenant's original premises, but under no circumstances
shall the cost of improvements exceed $7.54 per square foot. Any costs above and
beyond the $7.54 per square foot allowance shall be Tenant's responsibility.
CANCELLATION FEE AND OPTION
Should Tenant elect to terminate the lease after three (3) full years of
occupancy, Tenant shall be obligated to pay to Landlord $32,463.34 in a lump sum
payment. This amount pertains to canceling Tenants original premises only. If
Tenant expands into the adjacent 2,000 square feet after twenty four (24) months
and then cancels the lease, Tenant shall also be obligated to pay the
unamortized improvements for that space. As an example, if the improvements for
the expansion space were $15,080.00 (2,000 square feet x $7.54), the fee would
be $10,594.28. It is acknowledged and agreed by Tenant that the cancellation fee
payable to Landlord in accordance with the provisions hereof is not a penalty
but is a reasonable estimate of the damages to be sustained by Landlord as a
result of such early termination by Tenant, including, but not limited to, the
unamortized costs of concessions and improvements constructed by Landlord within
the Premises. It is otherwise difficult to ascertain precisely the actual
damages to be incurred by Landlord as a result of such early termination, and
Landlord and Tenant hereby agree that the cancellation fee set forth above shall
constitute liquidated damages, and be the sole remedy of Landlord, as a result
of such early termination.
Should Tenant desire to exercise such cancellation right, Tenant shall give
Landlord prior written notice of such exercise at least ninety (90) days prior
to that date upon which Tenant will have occupied the Premises for three (3)
full years. The cancellation fee as set forth above shall be paid by Tenant to
Landlord with such notice of cancellation, and the Lease Term shall end on the
last day of such three (3) year term.
BROKER
The Wesley Company is acting agent for the Tenant in this transaction and is to
be paid a commission by the Landlord according to a separate commission
agreement between Lessor and The Wesley Company, said agreement incorporated
hereto by reference.
INTENT OF THE PARTIES
Landlord and Tenant agree that the prevailing intent of this Lease is for the
Landlord to provide and maintain the structural components of the Premises, the
Building, and the grounds of the Building, in a professional manner in order to
provide a good business environment for the Tenant. In return, the Tenant shall
pay Rent in a timely manner as set forth in this Lease. Both parties agree to
act in a reasonable, lawful manner regarding all aspects of this Lease.
18
<PAGE> 19
EXHIBIT "A"
[Floor Plan]
19
<PAGE> 20
EXHIBIT "B"
[Legal Description]
20
<PAGE> 21
EXHIBIT "C"
TENANT IMPROVEMENTS:
It is understood and agreed by both parties that the following improvements will
be provided by the Landlord:
Landlord will construct the space in accordance with the specifications detailed
in the construction drawings prepared by Research Planning and Design, Inc.
dated January 16, 1992.
Landlord will provide a lift to facilitate access to the second floor of the
building in accordance with governmental codes.
21
<PAGE> 22
DISCLOSURE STATEMENT
RE: KGE Associates, LP and Complementary Solutions, Inc.
Pursuant to Georgia Real Estate Commission Regulation 520-1-.08 The Wesley
Company and Anderson Properties, Inc. make the following disclosures:
I. In the above transaction, The Wesley Company represents:
*(a) the Lessee exclusively
(b) the Landlord exclusively
(c) the Lessee and Landlord jointly and such dual agency is expressly
consented to the parties by their execution hereof.
II. In the above transaction, Anderson Properties, Inc. represents:
(a) the Lessee exclusively
*(b) the Landlord exclusively
(c) the Lessee and Landlord jointly and such dual agency is expressly
consented to the parties by their execution hereof.
III. In the above transaction, The Wesley Company shall receive its
compensation from:
(a) the Lessee exclusively
*(b) the Landlord exclusively
(c) the Lessee and Landlord jointly and such dual agency is expressly
consented to the parties by their execution hereof.
IV. In the above transaction, Anderson Properties. Inc, shall receive its
compensation from:
(a) the Lessee exclusively
*(b) the Landlord exclusively
(c) the Lessee and Landlord jointly and such dual agency is expressly
consented to the parties by their execution hereof.
The parties named below acknowledge, agree with and consent to the
representation and compensation disclosed above.
Lessor: KGE Associates, LP Lessee: Complimentary Solutions, Inc.
By: /s/ Perry Fieldmyer By: /s/ David H. Couchman
-------------------------------- ------------------------------------
Title: Title: President
----------------------------- ---------------------------------
Date: Date: 1/28/92
------------------------------ ----------------------------------
22
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO LEASE
THIS AGREEMENT made this 11th day of June, 1993, by and between KGE
ASSOCIATES LP, a limited partnership hereinafter referred to as "Landlord" and
COMPLEMENTARY SOLUTIONS, INC., a corporation, hereinafter referred to as
"Tenant".
W I T N E S S E T H:
WHEREAS, the parties hereto made and entered into a lease agreement
dated January 28, 1992, for premises located at 4250 Perimeter Park South,
Atlanta, GA 30341, being approximately 9,228 square feet of office space.
WHEREAS, the parties wish to modify the Lease Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the exchange of valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that the said Lease shall be amended as follows:
A. PREMISES
With the addition of 195 square feet, Tenant's total space is now
deemed to be 9,423 square feet of office space.
B. TERM
The term for the space shall be from June 1, 1993 through March 31,
1997.
C. BASE RENTAL
The base rental rate for the space shall be modified according to the
schedule below:
Year 1 Beginning June 1, 1993 through March 31, 1994, the monthly sum of
SEVEN THOUSAND SEVEN HUNDRED AND ONE DOLLAR AND 90/100 ($7,701.90)
for a total base rental of SEVENTY SEVEN THOUSAND AND NINETEEN
DOLLARS AND 00/100 ($77,019.00).
Year 2 Beginning April 1, 1994 through March 31, 1995, the monthly sum of
SEVEN THOUSAND, NINE HUNDRED TWENTY-NINE DOLLARS AND 62/100
($7,929.62) for a total annual base rental of NINETY-FIVE THOUSAND
ONE HUNDRED FIFTY-FIVE DOLLARS AND 44/100 ($95,155.44).
Year 3 Beginning April 1, 1995 through March 31, 1996, the monthly sum of
EIGHT THOUSAND ONE HUNDRED SIXTY-FIVE DOLLARS AND 20/100
($8,165.20) for a total annual base rental of NINETY-SEVEN
THOUSAND NINE HUNDRED EIGHTY-TWO DOLLARS AND 40/100 ($97,982.40).
<PAGE> 2
Year 4 Beginning April 1, 1996 through March 31, 1997, the monthly sum of
EIGHT THOUSAND FOUR HUNDRED EIGHT DOLLARS AND 62/100 ($8,408.62)
for a total annual base rental of ONE HUNDRED THOUSAND NINE
HUNDRED AND THREE DOLLARS AND 44/100 ($100,903.44).
D. LANDLORD IMPROVEMENTS
Landlord will construct an approximately 195 sq. ft. break room
including an exhaust system, that is externally ducted and controlled
by a timer.
All other terms, provisions and covenants of the Lease Agreement dated
January 28, 1992 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties herein have hereto set their hands and
seals, in triplicate, the day and year first above written.
"LANDLORD"
KGE Associates, LP
By: /s/ J. Smith
-----------------------------------
Date Executed by Landlord: 6/11/93
(CORPORATE SEAL)
"TENANT"
COMPLEMENTARY SOLUTIONS, INC.
By: /s/ Robert E. Kalaf
-----------------------------------
Its: Controller
-----------------------------
Attest:
--------------------------
Its:
-----------------------------
Date Executed by Tenant
---------------
(CORPORATE SEAL)
-2-
<PAGE> 1
EXHIBIT 10.4
SECOND AMENDMENT TO LEASE
THIS AGREEMENT made this 22nd day of June 1994, by and between KGE
Associates LP, a partnership hereinafter referred to as "Landlord" and
Complementary Solutions. Inc., a corporation, hereinafter referred to as
"Tenant".
WITNESSETH:
WHEREAS, the parties hereto made and entered into a lease agreement
dated January 28, 1992 and amended June 11, 1993, for premises located at 4250
Perimeter Park South. Suite 200, Atlanta. Georgia 30341, being approximately
9,423 square feet of office space.
WHEREAS, the parties wish to modify the Lease Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the exchange of valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that the said lease shall be amended as follows:
A. PREMISES
With the addition of 4,792 square feet, Tenant's total space is now
deemed to be 14,215 square feet of office space.
B. TERM
The term for the total space shall be from August 1, 1994 through July
31, 1999.
C. BASE RENTAL
The base rental rate for the space shall be modified according to the
schedule below:
* Beginning August 1, 1994 through March 31, 1995, the monthly sum
of Ten Thousand Three Hundred Twenty-Two and 80/100 Dollars
($10,322.80) for a total base rental of Eighty-Two Thousand Five
Hundred Eighty-Two and 40/100 Dollars ($82,582.40).
* Beginning April 1, 1995 through July 31, 1995, the monthly sum of
Ten Thousand Six Hundred Seventy-Seven and 40/100 Dollars
($10,677.40) for a total base rental of Forty-Two Thousand Seven
Hundred Nine and 60/100 Dollars ($42,709.60).
Beginning August 1, 1995 through March 31, 1996, the monthly sum
of Twelve Thousand Eight Hundred Forty and 88/100 Dollars
($12,840.88) for a total base rental of One Hundred Two Thousand
Seven Hundred Twenty-Seven and 07/100 Dollars ($102,727.07).
Beginning April 1, 1996 through March 31, 1997, the monthly sum of
Thirteen Thousand Two Hundred Seventy-Nine and 18/10 Dollars
($13,279.18) for a total annual base rental of One Hundred
Fifty-Nine Thousand Three Hundred Fifty and 15/100 Dollars
($159,350.15).
Beginning April 1, 1997 through March 31, 1998, the monthly sum of
Thirteen Thousand Eight Hundred Twenty-Four and 09/100 Dollars
($13,824.09) for a total
<PAGE> 2
annual base rental of One Hundred Sixty-Five Thousand Eight
Hundred Eighty-Nine and 05/100 dollars ($165,889.05).
Beginning April 1, 1998 through March 31, 1999, the monthly sum of
Fourteen Thousand Three Hundred Ninety-Two and 69/100 Dollars
($14,392.69) for a total annual base rental of One Hundred
Seventy-Two Thousand Seven Hundred Twelve and 25/100 Dollars
($172,712.25).
Beginning April 1, 1999 through June 30, 1999, the monthly sum of
Fourteen Thousand Three Hundred Ninety-Two and 69/100 Dollars
($14,392.69) for a total base rental of Forty-Three Thousand One
Hundred Seventy-Eight and 06/100 Dollars ($43,178.06).
* It is understood by both parties that Tenant is only occupying
and only paying for 11,820 sq. ft., which includes one-half of the
4,792 sq. ft. expansion space, through July 31, 1995. Tenant will
begin paying for the entire space beginning August 1, 1995. Tenant
may occupy and begin paying for the unused portion of the
expansion at any time during the first 12-1/2 months of the term.
D. AFTER HOURS HVAC
From June 1 through August 31 of each year of the lease term, Landlord
will provide extended air conditioning until 7:00 p.m., five (5) days
per week (Monday - Friday), if requested by Tenant. Tenant shall give
Landlord at least 24 hours advance notification of it's request and
shall pay Landlord $10.00 per hour at the end of the month for the
total number of extra air conditioning hours accrued.
E. NEW BASE YEAR FOR TAXES
It is understood by both parties that Tenant's base year for
calculating future property tax obligations is hereby changed to the
1994 tax year.
F. LANDLORD IMPROVEMENTS
Landlord will make the improvements as detailed on the revised June 16,
1994 Construction Documents prepared by Michael Loia & Assoc. dated
June 6, 1994, and attached hereto. Tenant shall pay separately for the
costs of certain improvements which are included in the aforementioned
construction documents and itemized separately on the bid changes by
B.J. Gunter Co., Inc. dated June 15, 1994 and June 21, 1994 attached
hereto for reference.
G. CANCELLATION FEE AND OPTION
Should Tenant elect to terminate the lease effective March 31, 1997,
Tenant shall be obligated to pay Landlord Thirty-Three Thousand Nine
Hundred Forty-Two and 00/100 ($33,942.00) in a lump sum payment. It is
acknowledged and agreed by Tenant that the cancellation fee payable to
Landlord in accordance with the provisions hereof is not a penalty but
is a reasonable estimate of the damages to be sustained by Landlord as
a result of such early termination by Tenant, including, but not
limited to, the unamortized costs of improvements constructed by
Landlord within the Premises. It is otherwise difficult to ascertain
precisely the actual damages to be incurred by Landlord as a result of
such early termination, and Landlord and Tenant hereby agree that the
cancellation fee set forth above is a reasonable estimate thereof and
shall constitute liquidated damages, and be the sole remedy of Landlord
as a result of such early termination. Should Tenant
2
<PAGE> 3
desire to exercise such cancellation right, Tenant shall give Landlord
prior written notice of such exercise at least ninety (90) days prior
to March 31, 1997. The cancellation fee as set forth above shall be
paid by Tenant to Landlord with such notice of cancellation, and the
Lease Term shall end on March 31, 1997.
H. FIRST RIGHT OF REFUSAL
Landlord hereby grants Tenant a First Right of Refusal on Suite 125
(2,348 sq. ft. currently occupied by Freedom Recovery with an
expiration date of May 31, 1997) and Suite 131 (3,319 sq. ft. currently
occupied by Center For Effective Performance with an expiration date of
March 31, 1997). If Landlord has a bona fide offer to lease from a
third party, Tenant shall have five (5) business days from written
notification by Landlord to match the offer and lease the space or
waive this Right of Refusal.
The monthly rental shall be paid under the same terms and conditions as
specified in the lease agreement, except as provided herein, dated January 28,
1992 and amended June 11, 1993.
All other terms, provisions and covenants of the Lease Agreement dated January
28, 1992 and amended June 11, 1993 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties herein have hereto set their hands and
seals, in triplicate, the day and year first above written.
"LANDLORD"
KGE Associates, LP
By: /s/ Edna K. Speer
-----------------------------------------
VP - Finance of Anderson Properties, Inc.
Agent for KGE Associates, LP
Date Executed by Landlord: 7/14/94
"TENANT"
Complementary Solutions
By: /s/ Robert E. Kalaf
-----------------------------------------
Its: Controller
-----------------------------------
Attest: /s/Laura Smith
--------------------------------
Its: Asst. Admin. Coordinator
-----------------------------------
Date Executed by Tenant:
(CORPORATE SEAL)
3
<PAGE> 1
EXHIBIT 10.5
THIRD AMENDMENT TO LEASE
THIS AGREEMENT, made this 30th day of March 1995, by and between KGE
Associates L.P., a Partnership, hereinafter referred to as "Landlord", and
Complementary Solutions, Inc., a corporation, hereinafter referred to as
"Tenant".
W I T N E S S E T H:
WHEREAS, the parties hereto made and entered into a Lease Agreement
dated January 28, 1992 and amended June 11, 1993 and June 22, 1994, for premises
located at 4250 Perimeter Park South, Suite 200, Atlanta, Georgia, being
approximately 14,215 square feet of office space.
WHEREAS, the parties wish to amend this Lease Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the exchange of valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that the said Lease shall be amended as follows:
A. CHANGE OF TENANT NAME
THE NAME OF THE TENANT AS SPECIFIED IN THE LEASE AGREEMENT SHALL BE
AMENDED TO REFLECT A NEW TENANT NAME KNOWN AS TELEMATE SOFTWARE.
All other terms, provisions and covenants of the Lease Agreement dated
January 28, 1992 and amended June 11, 1993 and June 22, 1994 shall remain in
full force and effect.
LANDLORD: TENANT:
KGE ASSOCIATES, L.P. TELEMATE SOFTWARE
By: /s/ Edna K. Speer By: /s/ Robert E. Kalaf
-------------------------------------- -------------------------
VP - Finance of Anderson Properties
As Agent for KGE Associates, LP
/s/ Kathy K. Cook
- ----------------------------------------- ----------------------------
(Witness) (Witness)
<PAGE> 1
EXHIBIT 10.6
FOURTH AMENDMENT TO LEASE
THIS AGREEMENT made this 14th day of June 1996, by and between KGE
Associates, LP, a partnership hereinafter referred to as "Landlord" and Telemate
Software, a corporation, hereinafter referred to as "Tenant".
W I T N E S S E T H:
WHEREAS, the parties hereto made and entered into a lease agreement
dated January 28, 1992 and amended June 11, 1993, June 22, 1994 and March 30,
1995, for premises located at 4250 Perimeter Park South, Suite 200, Atlanta, GA,
being approximately 14,215 square feet of office space.
WHEREAS, the parties wish to modify the Lease Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the exchange of valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that the said lease shall be amended as follows:
A. TEMPORARY ADDITIONAL SPACE
Tenant is now leasing Suite 104 in Building 4250 which is deemed to be
1,827 square feet on a month to month basis in accordance with the Rent
Schedule below.
B. TERM
The term for the additional temporary space shall begin June 15, 1996
and continue on a month-to-month basis until such time as either
Landlord or Tenant gives the other party two weeks prior written notice
of its intent to end this temporary Lease.
C. BASE RENTAL
The base rental rate for the space shall be modified according to the
schedule below:
Beginning June 15, 1996, tenant's per square foot rental rate for
this space shall be the same as its current rate for the space it
occupies upstairs. Therefore, if Tenant is in this space when its
upstairs rent rate increases, the rate for Suite 104 shall also
increase by the same amount per square foot. As of June 15, 1996,
the rate is ($11.21) per square foot.
D. LANDLORD IMPROVEMENTS
N/A - Leased "as is".
The monthly rental shall be paid under the same terms and conditions as
specified in the lease agreement, except as provided herein, dated
January 28, 1992 and amended June 11, 1993, June 22, 1994 and March 30,
1995.
<PAGE> 2
All other terms, provisions and covenants of the Lease Agreement dated
January 28, 1992 and amended June 11, 1993, June 22, 1994 and March 30,
1995 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties herein have hereto set their hands and
seals, in triplicate, the day and year first above written.
"LANDLORD"
KGE Associates, LP
By: /s/ Edna K. Speer
--------------------------------------------
Vice President - Finance of Anderson
Properties as Agent for KGE Associates, LP
Date Executed by Landlord: 6/21/96
"TENANT"
Telemate Software
By: /s/ Robert E. Kalaf, Sr.
--------------------------------------------
Its: Controller
-------------------------------------
Attest: /s/ Kathy K. Cook
----------------------------------
Its: Program Manager
-------------------------------------
Date Executed by Tenant: June 14, 1996
(CORPORATE SEAL)
-2-
<PAGE> 1
EXHIBIT 10.7
FIFTH AMENDMENT TO LEASE
THIS AGREEMENT made this 26th day of July, 1996, by and between KGE
Associates LP, a Limited Partnership, hereinafter referred to as "Landlord" and
Telemate Software, a Corporation, hereinafter referred to as "Tenant".
WITNESSETH:
WHEREAS, the parties hereto made and entered into a lease agreement dated
January 28, 1992 and amended June 11, 1993, June 22, 1994, March 30, 1995 and
June 14, 1996, for premises located at 4250 Perimeter Park South, Suite 200,
Atlanta, Georgia, being approximately 16,042 square feet of office space.
WHEREAS, the parties wish to modify the Lease Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the exchange of valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree that the said Lease shall be amended as follows:
A. TEMPORARY ADDITIONAL SPACE
Tenant is now leasing Suite 138 in Building 4250 which is deemed to be 298
square feet on a month-to-month basis in accordance with the Rent Schedule
below.
B. TERM
The term for the additional temporary space shall begin July 1, 1996 and
continue on a month-to-month basis until such time as either Landlord or
Tenant gives the other party two weeks prior notice of its intent to end this
temporary Lease.
C. BASE RENTAL
The base rental for the space shall be modified according to the schedule
below.
Beginning July 1, 1996, tenant's per square foot rental rate for this
space shall be the same as its current rate for Suite 200. Therefore, if
Tenant is occupying Suite 138 when the rental rate increases for Suite
200, the rate for Suite 138 shall also increase by the same amount per
square foot. As of July 1, 1996, the rate is ($11.21) per square foot.
<PAGE> 2
D. LANDLORD IMPROVEMENTS
N/A - Leased "as is".
The monthly rental shall be paid under the same terms and conditions as
specified in the Lease Agreement, except as provided herein, dated
January 28, 1992 and amended June 11, 1993, June 22, 1994, March 30, 1995
and June 14, 1996.
All other terms, provisions and covenants of the Lease Agreement dated
January 28, 1992 and amended June 11, 1993, June 22, 1994, March 30, 1995
and June 14, 1996, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties herein have hereto set their hands and
seals, in triplicate, the day and year first above written.
"LANDLORD"
KGE Associates, LP
By: /s/ Edna K. Speer
-------------------------------------------------
Vice President -- Finance of Anderson Properties,
Inc. as Agent for KGE Associates, LP
Date Executed by Landlord: 7/26/96
"TENANT"
Telemate Software
By: /s/ Robert E. Kalaf Sr.
-------------------------------------------------
Its: Controller
------------------------------------------
Attest: /s/ Kathy K. Cook
---------------------------------------
Its: Program Manager
------------------------------------------
Date Executed by Tenant: June 26, 1996
[(CORPORATE SEAL)]
-2-
<PAGE> 1
EXHIBIT 10.8
SIXTH AMENDMENT TO LEASE
THIS AGREEMENT made this 2nd day of August 1996, by and between KGE
Associates, LP, a partnership hereinafter referred to as "Landlord" and Telemate
Software, hereinafter referred to as "Tenant".
WITNESSETH:
WHEREAS, the parties hereto made and entered into a lease agreement
dated January 28, 1992 and amended June 11, 1993, June 24, 1994, March 30, 1995,
June 14, 1996 and July 26, 1996, for premises located at 4250 Perimeter Park
South, Suite 200, Atlanta, GA, being approximately 14,215 square feet of office
space.
WHEREAS, the parties wish to modify the Lease Agreement as hereinafter
provided.
NOW, THEREFORE, in consideration of the exchange of valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that the said lease shall be amended as follows:
I. EXISTING SPACE
A. PREMISES
Tenant's existing space is deemed to be 14,215 square feet.
B. TERM
The extended term for the existing space shall be extended
from August 1, 1999 through September 30, 2003.
C. BASE RENTAL
The base rental rate for the existing space shall be modified
according to the schedule below:
Beginning August 1, 1999 through July 31, 2000, the monthly
sum of fourteen thousand eight hundred ninety-six and 43/100
Dollars ($14,896.43) for a total annual base rental of one
hundred seventy-eight thousand seven hundred fifty-seven and
18/100 Dollars ($178,757.18).
Beginning August 1, 2000 through July 31, 2001, the monthly
sum of fifteen thousand four hundred seventeen and 81/100
Dollars ($15,417.81) for a total annual base rental of one
hundred eighty-five thousand thirteen and 68/100 Dollars
($185,013.68).
Beginning August 1, 2001 through July 31, 2002, the monthly
sum of fifteen thousand nine hundred fifty-seven and 43/100
Dollars ($15,957.43) for a total annual base rental of
<PAGE> 2
one hundred ninety-one thousand four hundred eighty-nine and
16/100 Dollars ($191,489.28).
Beginning August 1, 2002 through July 31, 2003, the monthly
sum of sixteen thousand five hundred fifteen and 94/100
Dollars ($16,515.94) for a total annual base rental of one
hundred ninety-eight thousand one hundred ninety-one and
28/100 Dollars ($198,191.28).
Beginning August 1, 2003 through September 30, 2003, the
monthly sum of seventeen thousand ninety-four and 00/100
Dollars ($17,094.00).
D. LANDLORD IMPROVEMENTS
Upon execution of this Amendment, Landlord will paint the
currently painted walls in the common area hallways of
Tenant's original 9,423 sq.ft. space only.
II. PHASE I EXPANSION SPACE (Effective October 1, 1996)
A. PREMISES
Tenant will now be leasing the space located on the first
floor of Building 4250 as shown on the attached Exhibit "A".
Said space includes suites currently known as 116, 118, 120,
124, 125, 126 and 127. The Phase I expansion space is deemed
to be 9,980 sq.ft.
B. TERM
The term for the Phase I expansion space shall be from October
1, 1996 through September 30, 2003,
C. BASE RENTAL
The base rental rate for the Phase I Expansion space shall be
according to the schedule below:
Beginning October 1, 1996 through September 30, 1997, the
monthly sum of nine thousand five hundred sixty-four and
17/100 Dollars ($9,564.17) for a total annual base rental of
one hundred fourteen thousand seven hundred seventy and 00/100
Dollars ($114,770.00).
Beginning October 1, 1997 through September 30, 1998, the
monthly sum of nine thousand eight hundred ninety-eight and
91/100 Dollars ($9,898.91) for a total annual base rental of
one hundred eighteen thousand seven hundred eighty-six and
95/100 Dollars ($118,786.95).
Beginning October 1, 1998 through September 30, 1999, the
monthly sum of ten thousand two hundred forty-five and 37/100
Dollars ($10,245.37) for a total annual base rental of one
hundred twenty-two thousand nine hundred forty-four and 49/100
Dollars ($122,944.49).
-2-
<PAGE> 3
Beginning October 1, 1999 through September 30, 2000, the
monthly sum of ten thousand six hundred three and 96/100
Dollars ($10,603.96) for a total annual base rental of one
hundred twenty-seven two hundred forty-seven and 55/100
Dollars ($127,247.55).
Beginning October 1, 2000 through September 30, 2001, the
monthly sum of ten thousand nine hundred seventy-five and
10/100 Dollars ($10,975.10) for a total annual base rental of
one hundred thirty-one thousand seven hundred one and 21/100
Dollars ($131,701.21).
Beginning October 1, 2001 through September 30, 2002, the
monthly sum of eleven thousand three hundred fifty-nine and
23/100 Dollars ($11,359.23) for a total annual base rental of
one hundred thirty-six thousand three hundred ten and 75/100
Dollars ($136,310.75).
Beginning October 1, 2002 through September 30, 2003, the
monthly sum of eleven thousand seven hundred fifty-six and
80/100 Dollars ($11,756.80) for a total annual base rental of
one hundred forty-one thousand eighty-one and 63/100 Dollars
($141,081.63).
D. LANDLORD IMPROVEMENTS
Landlord will make the improvements as detailed on the
attached drawing dated April 11, 1996 as prepared by
Loia/Budde & Associates. Tenant shall pay Landlord directly
for "upgrades" including a staircase, parawedge light lenses,
full height doors, down lights and wall washers. Said payments
shall be made on a pro rata basis of the total cost as
Landlord pays the contractor performing the work.
E. BASE YEAR
Tenant's base year for calculating tax increases for Phase I
Expansion Space shall be 1996.
III. PHASE II EXPANSION SPACE (Effective 5/1/97)
A. PREMISES
Tenant will begin leasing Suite 131 on the first floor of
Building 4250. Said space is deemed to contain 4,023 square
feet.
B. TERM
The term for the Phase II Expansion space shall be from May 1,
1997 through September 30, 2003.
C. BASE RENTAL
The base rental rate for the Phase II Expansion space shall be
according to the schedule below:
-3-
<PAGE> 4
Beginning May 1, 1997 through April 30, 1998, the monthly sum
of three thousand eight hundred fifty-five and 38/100 Dollars
($3,855.38) for a total base rental of forty-six thousand two
hundred sixty-four and 50/100 Dollars ($46,264.50).
Beginning May 1, 1998 through April 30, 1999, the monthly sum
of three thousand nine hundred ninety and 31/100 Dollars
($3,990.31) for a total annual base rental of forty-seven
thousand eight hundred eighty-three and 76/100 Dollars
($47,883.76).
Beginning May 1, 1999 through April 30, 2000, the monthly sum
of four thousand one hundred twenty-nine and 97/100 Dollars
($4,129.97) for a total annual base rental of forty-nine
thousand five hundred fifty-nine and 69/100 Dollars
($49,559.69).
Beginning May 1, 2000 through April 30, 2001, the monthly sum
of four thousand two hundred seventy-five and 52/100 Dollars
($4,275.52) for a total annual base rental of fifty-one
thousand two hundred ninety-four and 28/100 Dollars
($51,294.28).
Beginning May 1, 2001 through April 30, 2002, the monthly sum
of four thousand four hundred twenty-four and 13/100 Dollars
($4,424.13) for a total annual base rental of fifty-three
thousand eighty nine and 58/100 Dollars ($53,089.58).
Beginning May 1, 2002 through April 30, 2003, the monthly sum
of four thousand five hundred seventy-eight and 98/100 Dollars
($4,578.98) for a total annual base rental of fifty-four
thousand nine hundred forty-seven and 72/100 Dollars
($54,947.72).
Beginning May 1, 2003 through September 30, 2003, the monthly
sum of four thousand seven hundred thirty-nine and 24/100
Dollars ($4,739.24).
D. LANDLORD IMPROVEMENTS
Landlord will provide improvements to the Phase II Expansion
Space at a cost not to exceed $14 psf or $56,322. If the
improvement cost exceeds the total budget, Tenant's rate on
the Phase II Expansion Space shall increase the same
percentage that the cost exceeds the budgeted allowance.
E. BASE YEAR
Tenant's base year for calculating tax increases for Phase II
Expansion Space shall be 1997.
IV. SPECIAL STIPULATIONS
A. FUTURE EXPANSION
Landlord shall grant Tenant a First Right of Refusal on all
other space in Building 4250 except for the space currently
occupied by tenants that have existing Options to Renew.
1. First Right of Refusal. Tenant shall have first right of
refusal to rent all other space in Building 4250, except
for the spaces currently occupied by tenants that have
-4-
<PAGE> 5
existing Options to Renew, in which case, said first right
of refusal shall be subordinate to the pre-existing
options to renew. If Landlord receives a bona fide written
offer from a third party for this space, Landlord will
provide written notice via certified mail to the tenant of
the receipt of the bona fide written offer from a third
party and Tenant shall have seven business days from
receipt of notice to match the third party offer. If
Tenant fails to respond to the third parties offer in
writing via certified mail within seven business days,
Tenant's right under this clause will cease to exist.
If Telemate waives its First Right of Refusal at any time,
Landlord shall not lease to any new Tenants for a term longer
than thirty-six (36) months. If Telemate waives its First
Right of Refusal at any time on then occupied space, Landlord
shall not renew existing tenants for a term longer than
twenty-four (24) months, except for Tenant's that have
existing Options to Renew.
Any future expansions will be at Telemate's then prevailing
rental rate on Phases I and II and will include a $14 psf
improvement budget. Any percentage increases above the $14 psf
allowance will result in an equal percentage increase in the
then prevailing rental rate.
B. LANDLORD SERVICES
Landlord will provide the services as called for in Paragraph
8 of the original Lease Agreement dated January 28, 1991 and
Paragraph D of the Second Amendment dated June 22, 1994, which
pertains to after hours HVAC requests by Tenant.
C. CANCELLATION OPTION(S)
1. Tenant may cancel this Lease effective at the end of the
60th month by giving Landlord at least six (6) months
prior written notice of its intent along with a lump sum
payment for the unamortized portion of all Tenant
Improvements paid for by Landlord (amortized at 14%) for
Phase I and Phase II expansions, and by paying an
additional payment equal to the actual, verifiable cost of
eliminating the staircase and returning the space into two
separate floors.
2. Tenant may cancel this Lease effective at the end of the
36th month by giving Landlord at least six (6) months
prior written notice of its intent along with a lump sum
payment for the unamortized portion of all Tenant
Improvements paid for by Landlord (amortized at 14%) for
Phase I and Phase II expansions, and by paying additional
payments equal to the actual, verifiable cost of
eliminating the staircase and returning the space into two
separate floors, and an additional payment equal to six
(6) months of Telemate's then prevailing rent for Phases I
and II.
D. OPTION TO RENEW
Landlord grants Tenant the right and option to extend the term of the
Lease based on the following terms and conditions:
1. Provided the Tenant is not in default with respect to
this Lease, and has kept and performed all its
obligations under this Lease.
-5-
<PAGE> 6
2. The renewal period will be for five (5) years
commencing from the expiration date of this Lease.
3. Tenant shall notify Landlord of its intent to
exercise said option to renew by written notice to
Landlord via certified mail one hundred fifty (150)
days prior to the expiration of this Lease.
4. Rent - the monthly rent shall be negotiated by
Landlord and Tenant.
The monthly rental shall be paid under the same terms and conditions as
specified in the lease agreement, except as provided herein, dated January 28,
1992 and amended June 11, 1993, June 24, 1994, March 30, 1995, June 14, 1996 and
July 26, 1996.
All other terms, provisions and covenants of the Lease Agreement dated January
28, 1992 and amended June 11, 1993, June 24, 1994, March 30, 1995, June 14, 1996
and July 26, 1996 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties herein have hereto set their hands and
seals, in triplicate, the day and year first above written.
"LANDLORD" "TENANT"
KGE Associates, LP Telemate Software
By: /s/ Edna K. Speer By: /s/ Robert E. Kalaf Sr.
---------------------------------------- -------------------------------
Vice President - Finance of Anderson Its: Controller
Properties as Agent for KGE ------------------------------
Associates, LP
Date Executed by Landlord: 8/23/96 Attest: /s/ Kathy K. Cook
---------------------------
Its: Program Manager
------------------------------
Date Executed by Tenant: August 2,
1996
(CORPORATE SEAL)
-6-
<PAGE> 7
EXHIBIT "A"
[Architectural Design of Space]
<PAGE> 8
EXHIBIT "B"
[Rent Schedule-Current, Phase I and Phase II]
<PAGE> 1
EXHIBIT 10.9
SEVENTH AMENDMENT TO LEASE
THIS AGREEMENT made this 16th day of July, 1998 by and between KGE
Associates, L.P., a partnership hereinafter referred to as "Landlord" and
Telemate Software, a Georgia Corporation hereinafter referred to as "Tenant".
WHEREAS, the parties hereto made and entered into a Lease Agreement
dated January 28, 1992 and as amended June 11, 1993, June 22, 1994, March 30,
1995, June 14, 1996, July 26, 1996 and August 2, 1996; for certain premises
(hereinafter referred to as the "Premises") situated at Perimeter Crest Office
Park, 4250 Perimeter Park South, Suite 200, Atlanta, Georgia 30341; and
NOW, THEREFORE, in consideration of the mutual promises given one to
the other, the parties hereto intending to be legally bound, do hereby covenant
and agree as follows:
1. PREMISES.
The Premises currently being leased by Tenant under the Lease is 28,218
square feet.
2. EXPANSION SPACE.
a. The Premises shall be expanded to include an additional 1,136
square feet. "Commencement Date" means the earlier of (i) Landlord's
delivery of possession of the "Expansion Space" to Tenant, or (ii)
September 15, 1998. If by the Commencement Date Landlord has not
substantially completed the improvements to the Expansion Premises
required to be made by Landlord pursuant to Exhibit "A" attached hereto
and made a part hereof or if Landlord, for any reason whatsoever cannot
deliver possession of the Expansion Premises to Tenant by the
Commencement Date, then the Commencement Date shall be postponed (and
rent herein provided, pro-rata to the Expansion Premises, shall not
commence) until the earlier of either (i) the date of actual occupancy
of the Expansion Premises by Tenant or (ii) the date immediately
following the day Landlord has achieved substantial completion of such
improvements.
b. If, and to the extent, Landlord's substantial completion of the
improvements to the Expansion Premises pursuant to Exhibit "A" attached
hereto is delayed due to any act or omission of Tenant or anyone acting
under or for Tenant (any such delay being hereinafter referred to as
"Tenant's Delay"), then the Commencement Date shall be the date
specified above, subject to adjustment as provided therein, but without
extension as a result of Tenant's Delay; provided that from the
Commencement Date, as so determined, until the earlier of (i) the date
of actual occupancy of the Expansion Premises by Tenant or (ii) the
date immediately following the date Landlord should have achieved
substantial completion of such improvements but for Tenant's Delay,
Tenant's obligations under this Lease shall be to the payment of any
and all Rent due hereunder.
c. Within five (5) days of written request by Landlord, Tenant
agrees to execute and deliver to Landlord a Letter Agreement As To Term
and Premises pursuant to Exhibit "B" attached hereto and made a part
hereof, setting forth the exact Commencement Date of the Expansion and
stating
1
<PAGE> 2
that all tenant improvements to be constructed by Landlord have been
substantially completed, subject to any outstanding punch-list items.
3. ALTERATIONS AND IMPROVEMENTS.
a. Landlord will make available a Tenant Improvement Allowance
("Landlord's Tenant Improvement Allowance") of $14.00 per square foot
of Expansion Space. Included as part of the "Tenant Improvement
Allowance" shall be a construction management fee in the amount of five
percent (5%) of the actual improvement cost, and all costs associated
with architectural drawings. The design and construction of the Tenant
Improvements shall be in accordance with working drawings to be
approved by Landlord and Tenant prior to commencement of construction.
The Premises will be prepared in accordance with Exhibit "A" attached
hereto and by this reference made a part hereof ("Landlord's
Construction"). Landlord shall have such work performed promptly,
diligently and in a good and workmanlike manner.
b. Upon the substantial completion of Landlord's Construction,
Tenant shall inspect the Premises and identify "punch list" items for
Tenant's final acceptance. "Substantial Completion" means the Premise
is reasonably satisfactory for acceptance and in accordance with the
work depicted on Exhibit "A".
c. Tenant may request substitutions, additional or extra work and/or
materials over and above that required as depicted and described on
Exhibit "A" hereof and/or under Tenant's approved Plans to be performed
by Landlord, provided that the Extra Work, at Landlord's option, (i)
shall not require the use of contractors or types of contractors other
than those normally engaged by Landlord in the Building; (ii) shall not
delay completion of Landlord's Construction or the Commencement Date;
(iii) shall be practicable and consistent with existing physical
conditions in the Building and with plans for the Building which have
been filed with the applicable governmental authorities having
jurisdiction thereover; (iv) shall not impair Landlord's ability to
perform any of Landlord's obligations hereunder or under this Lease or
any other Agreement with respect to space in the Building; (v) shall
not affect any portion of the Building other than the Premises: and (v)
any such work requested by Tenant and approved by Landlord, shall not
cause Landlord's Construction to exceed the Tenant Improvement
Allowance provided for herein. All Extra Work shall require the
installation of new materials and shall be otherwise subject to
Landlord's reasonable approval.
d. In the event that Landlord's Construction, as depicted and
described on Exhibit "A", does not exceed the Tenant Improvement
Allowance of $14.00 per square foot of Expansion Space ($15,904.00) or
Phase II Expansion Space ($56,322.00) defined in Paragraph III
Subparagraph D of that certain Sixth Amendment To Lease dated August 2,
1996; Landlord acknowledges and agrees to allow Tenant to utilize any
excess Tenant Improvement Allowance within the existing Premises or
within the Additional Expansion Space described in Paragraph 6 herein;
for improvements to the Premises. Tenant acknowledges and agrees that
any such work to be performed pursuant to the herein defined excess
Tenant Improvement Allowance, shall be subject to Landlord's reasonable
approval and in the event Tenant does not utilize the excess Tenant
Improvement Allowance prior to November 1, 1999; this obligation of the
Landlord shall be null and void and of no further force or effect.
2
<PAGE> 3
4. TERM.
This Seventh Lease Amendment shall Commence on the Commencement Date as
defined herein and terminate September 30, 2003.
5. BASE RENTAL.
Tenant agrees to pay base rental for the Premises (28,218 square feet)
in accordance with the base rental schedules, and during the term, as
defined in the Sixth Amendment To Lease; and for this Seventh
Amendment, Tenant agrees to pay base rental for the Expansion Space
(1,136 square feet) to Landlord during the term as defined in this
Seventh Amendment To Lease, payable on or before the first day of each
and every month, in advance, in accordance with the following schedule:
<TABLE>
<CAPTION>
Payment Periods Monthly Rent Annual Base Rent Base Rent/SF
--------------- ------------ ---------------- ------------
<S> <C> <C> <C>
9/15/98 - 9/30/98 $1,126.77 $13,521.24 $11.90
10/1/98 - 9/30/99 $1,166.21 $13,994.48 $12.32
10/1/99 - 9/30/00 $1,207.02 $14,484.29 $12.75
10/1/00 - 9/30/01 $1,249.27 $14,991.24 $13.20
10/1/01 - 9/30/02 $1,292.99 $15,515.93 $13.66
10/1/02 - 9/30/03 $1,338.25 $16,058.99 $14.14
</TABLE>
6. ADDITIONAL EXPANSION SPACE.
a. Tenant will begin leasing 4,002 square feet on the second floor
of Building 4250, as outlined on Exhibit "C", attached hereto and
incorporated herein by reference. The term for the Additional Expansion
Space shall be from October 1, 1998 through September 30, 2003.
b. Tenant agrees to pay base rental for the Additional Expansion
Space (4,002 square feet) to Landlord during the term as defined in
this Seventh Amendment To Lease, payable on or before the first day of
each and every month, in advance, in accordance with the following
schedule:
<TABLE>
<CAPTION>
Payment Periods Monthly Rent Annual Base Rent Base Rent/SF
--------------- ------------ ---------------- ------------
<S> <C> <C> <C>
10/1/98 - 9/30/99 $4,108.72 $49,304.64 $12.32
10/1/99 - 9/30/00 $4,252.12 $51,025.50 $12.75
10/1/00 - 9/30/01 $4,402.20 $52,826.40 $13.20
10/1/01 - 9/30/02 $4,555.61 $54,667.32 $13.66
10/1/02 - 9/30/03 $4,715.69 $56,588.28 $14.14
</TABLE>
c. Landlord will make available a tenant improvement allowance
("Landlord's Tenant Improvement Allowance") of $14.00 per square foot
of "Additional Expansion Space", in accordance with Paragraph 3 above.
The design and construction of the Tenant Improvements shall be in
accordance with working drawings to be approved by Landlord and Tenant
prior to commencement of construction. The Premises will be prepared
generally in accordance with the approved plans ("Landlord's
Construction"). Landlord shall have such work performed promptly,
diligently and in a good and workmanlike manner.
3
<PAGE> 4
7. SIGNAGE.
At Tenant's sole cost and expense and subject to Dekalb County
Ordinances, Landlord shall approve signage as depicted on Exhibit "D",
with the following signage specifications: one (1) single-faced 3' high
x 7' wide internally illuminated sign cabinet with flat plastic facing
with mixed translucent and opaque copy reading TELEMATE SOFTWARE
coupled with the Company logo. Sign to be attached in accordance with
that depicted on Exhibit "D". All necessary electrical connections
shall be provided and paid for by Tenant, subject to Landlord's
reasonable approval, as to the method and placement of electrical
connections and hookups. The installation, maintenance and electrical
fees associated with said signage herein approved shall be at Tenant's
sole cost and expense. Foliage shall be maintained in front of the sign
location at a level below the signage as part of normal landscape
maintenance. In addition to the signage depicted on Exhibit "D",
Landlord shall approve additional signage of building standard material
and design to be placed consistent with other monument signage existing
within Perimeter Crest Office Park. The content, design, materials,
attachment, and location of additional signage shall be subject to
Landlord's reasonable prior written approval.
If requested in writing by Landlord, Tenant agrees to remove the
approved signage at Tenant's expense upon the expiration or early
termination of this Lease. Tenant shall repair all material damage
caused by such removal of signage.
By executing this Lease Amendment, Tenant agrees to maintain the
signage in good repair and condition during the term of the Lease. In
the event that Tenant does not keep the signage in good repair and
condition, Landlord shall make such necessary repairs and Tenant will
be obligated to reimburse Landlord as costs are incurred and bills are
received by Landlord for any necessary repairs. Tenant shall make
payments to Landlord within ten (10) days after receipt by Tenant of a
statement therefore from Landlord.
By executing this Lease Amendment, Tenant agrees that the failure to
render full and complete payment, when due, for expenses associated
with this Paragraph 6, shall constitute a default under the Lease.
8. TEMPORARY STORAGE.
Landlord agrees to provide approximately 300 square feet of "Temporary
Storage" to Tenant at no cost or expense until January 1, 1999.
Landlord and Tenant shall agree as to the location of the storage area
and Tenant acknowledges and agrees that in the event that Landlord
leases the Temporary Storage space, Tenant at Tenant's sole cost and
expense, shall move the stored items to another location to be provided
by Landlord.
Unless modified herein, all other terms, provisions and covenants of
the Lease Agreement dated January 28, 1992 and as amended June 11,
1993, June 22, 1994, March 30, 1995, June 14, 1996, July 26, 1996 and
August 2, 1996 (the "Lease") shall remain in full force and effect.
Landlord and Tenant do hereby ratify and confirm the Lease, as amended
hereby. This Amendment shall be governed by and construed under the
laws of the State of Georgia.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties herein have hereto set their hands and
seals, in duplicate, the day and year first above written.
"LANDLORD"
KGE ASSOCIATES, L.P.
By: /s/ Elizabeth B. Hawkins
-----------------------------------
Secretary of G.P.
Date Executed by Landlord: 7/17/98
"TENANT"
TELEMATE SOFTWARE
By: /s/ Richard L. Mauro
-----------------------------------
Its: CEO/President
----------------------------
Date Executed by Tenant: 7/16/98
(CORPORATE SEAL)
5
<PAGE> 1
EXHIBIT 10.10
TELEMATE SOFTWARE, INC.
STOCK INCENTIVE PLAN
SECTION 1.
PURPOSE
The purpose of this Plan is to promote the interests of the Company by
granting Options to purchase Shares to: (i) Employees in order (a) to attract
and retain Employees, (b) to provide an additional incentive to each Employee to
work to increase the value of Shares and (c) to provide each Employee with a
stake in the future of the Company which corresponds to the stake of each of the
Company's shareholders; and (ii) Key Persons who have rendered valuable services
to the Company and to provide such Key Persons with a stake in the future of the
Company which corresponds to each of the Company's shareholders.
SECTION 2.
DEFINITIONS
Each term set forth in this Section shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular.
2.1 Aggregate Purchase Price means the Option Price Per Share
multiplied by the number of Shares for which a Participant exercises all or any
part of an Option.
2.2 Available Shares means, for the most recent calendar year as
to a Participant, a number of Shares equal to (i) the number of Shares subject
to the Participant's Option or Restricted Stock Award (determined separately as
to the Option and Restricted Stock Award, respectively), multiplied by (ii) the
Participant's Growth Percentage, (iii) minus the number of Available Shares as
determined for all previous calendar years in accordance with this Section.
2.3 Board means the Board of Directors of the Company.
2.4 Cause means conduct amounting to (i) fraud or dishonesty
against the Company, (ii) Participant's willful misconduct, repeated refusal to
follow the reasonable directions of the Board, or knowing violation of law in
the course of performance of the duties of Participant's employment, or other
relationship with, the Company, (iii) repeated absences from work without a
reasonable excuse, (iv) repeated intoxication with alcohol or drugs while
conducting Company business, (v) a conviction or plea of guilty or nolo
contendere to a felony or a crime involving dishonesty, or (vi) a breach or
violation of the terms of any employment or other agreement to which a
Participant and the Company are party.
2.5 Code means the Internal Revenue Code of 1986, as amended.
2.6 Committee means the Committee appointed under Section 5 by the
Board.
2.7 Common Stock means the $.01 par value voting common stock of
the Company.
2.8 Company means Telemate Software, Inc., an "S" corporation
under Code Section 1362, and any successor to such organization.
2.9 Employee means an employee of the Company, a Subsidiary or a
Parent.
<PAGE> 2
2.10 Exchange Act means the Securities Exchange Act of 1934, as
amended.
2.11 Fair Market Value means a value, determined as follows:
(a) The average of the closing sales prices per Share
over the thirty (30) day period immediately preceding the date of grant or
award, regular way, or in the absence thereof, the average of the means of the
last reported bid and asked quotations over such thirty (30) day period on the
exchange having the greatest volume of trading in the Shares during such thirty
(30) day period, multiplied by the number of Shares outstanding as of the date
of grant or award; or
(b) If there is no value as specified in (a), the average
of the final reported sales prices per Share during the thirty (30) day period
immediately preceding the date of grant or award, or, if not reported, the
average of the means of the closing high bid and low asked prices over such
thirty (30) day period in the over-the-counter market for the Shares as reported
by the National Association of Securities Dealers Automatic Quotation System,
or, if not so reported, then as reported by the National Quotation Bureau
Incorporated, or, if such organization is not in existence, by an organization
providing similar services, multiplied by the number of Shares outstanding as of
the date of grant or award; or
(c) If there also is no value as specified in (b), the
value as determined by the Committee by reference to the average of the
bid-and-asked quotations for the Shares during the thirty (30) day period
immediately preceding the date of grant or award provided by members of an
association of brokers and dealers registered pursuant to Section 15(b) of the
Exchange Act, which members make a market in the Shares, multiplied by the
number of Shares outstanding as of the date of grant or award; or
(d) If there is also no value as specified in (c), a
value as determined in good faith by the Board based on such relevant facts,
which may include opinions of independent experts, as may be available to the
Board, including, but not limited to, the Company's Net Earnings Before Taxes,
market conditions, profits and earnings of similarly situated companies in
similar industries, risk factors, dividend yields, stockholder liquidity and the
restrictions placed on any stock sold or granted.
2.12 Fair Market Value Per Share means, with respect to any date,
the Fair Market Value divided by the number of outstanding Shares as of such
date.
2.13 Growth Goal means, for any Participant, the difference between
the Target Future Value and the Participant's Initial Internal Value.
2.14 Growth Percentage means, for any Participant, the
Participant's Growth Value divided by the Participant's Growth Goal.
2.15 Growth Value means, at any time as to a Participant, the
difference between the Internal Value, determined as of the first day of trading
in January following the most recently completed calendar year, and the
Participant's Initial Internal Value.
2.16 Immediate Vesting Plan means the Telemate Software, Inc.
Immediate Vesting Stock Incentive Plan, as amended from time to time.
2.17 Initial Internal Value means, for any Participant, the
Internal Value determined as of the Participant's Participation Date, rather
than the date of grant or award.
2.18 Internal Value means the Fair Market Value Per Share
multiplied by the sum of (a) the number of outstanding Shares, plus (b) the
number of Shares subject to Options and Restricted Stock Awards, plus (c) the
number of Shares which are reserved under the Plan pursuant to Section 3, as
adjusted, but which are not
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<PAGE> 3
subject to Options or Restricted Stock Awards; provided, however, that in the
event that Fair Market Value is determined pursuant to Section 2.11(d), the
Initial Value shall not be less than three and thirty-three hundredths (3.33)
multiplied by the Company's Net Earnings Before Taxes for the immediately
preceding twelve (12) months; provided further, however, that in the event of
extraordinary circumstances beyond the reasonable control of the Company, such
as an act of God or a change in the laws affecting the Company, which are
unforeseeable as of the date of adoption of the Plan, the minimum Initial Value
may be less than three and thirty-three hundredths (3.33) multiplied by the
Company's Net Earnings Before Taxes for the immediately preceding twelve (12)
months; provided, further, that in the event of an initial public offering,
Internal Value shall equal Fair Market Value effective after the consummation of
the initial public offering.
2.19 Internal Value Per Share means the Internal Value divided by
the sum of (a) the number of outstanding Shares, plus (b) the number of Shares
subject to Options and Restricted Stock Awards, plus (c) the number of Shares
which are reserved under the Plan pursuant to Section 3, as adjusted, but which
are not subject to Options or Restricted Stock Awards.
2.20 ISO means an option granted under this Plan to purchase Shares
which is intended by the Company to satisfy the requirements of Code Section 422
as an incentive stock option.
2.21 Key Person means (a) a member of the Board who is not an
Employee, (b) a consultant, distributor or other person who has rendered
valuable services to the Company, a Subsidiary or a Parent, (c) a person who has
incurred, or is willing to incur, financial risk in the form of guaranteeing or
acting as co-obligor with respect to debts or other obligations of the Company,
or (d) a person who has extended credit to the Company.
2.22 Net Earnings Before Taxes means, for a particular fiscal year,
the net earnings before provision for income taxes as calculated in accordance
with generally accepted accounting principles, but subject to the following
special allocations and adjustments:
(a) With respect to sales of products, revenue shall be recognized
as of the date of shipment of such product, notwithstanding any generally
accepted accounting principles to the contrary; and
(b) With respect to services provided, revenue shall be recognized
as of the date payment for such services is received by the Company,
notwithstanding any generally accepted accounting principles to the contrary.
In the event that the Net Earnings Before Taxes for a fiscal year must be
determined for purposes of this Plan before the end of the then current fiscal
year end, the Net Earnings Before Taxes shall be determined by annualizing net
earnings before taxes for the year to date, as determined in accordance with
this Section, if six (6) or more months have elapsed, and net earnings before
taxes for the previous fiscal year, as determined in accordance with this
Section, if less than six (6) months have elapsed.
2.23 Non-ISO means an option granted under this Plan to purchase
Shares which is not intended by the Company to satisfy the requirements of Code
Section 422.
2.24 Option means an ISO or a Non-ISO.
2.25 Option Price Per Share means the price which shall be paid to
purchase one (1) Share upon the exercise of an Option granted under this Plan.
The Option Price Per Share for any Option shall be equal to the Fair Market
Value Per Share, determined as of the date of grant of the Option.
2.26 Parent means any corporation which is a parent of the Company
within the meaning of Code Section 424(e).
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<PAGE> 4
2.27 Participant means the grantee of an Option or a Restricted
Stock Award.
2.28 Participation Date means January 1 of the calendar year in
which an Employee or Key Person is enrolled in the Plan.
2.29 Plan means the Telemate Software, Inc. Stock Incentive Plan,
as amended from time to time.
2.30 Remaining Shares means, for any calendar year as to a
Participant, the number of Available Shares in which the Participant did not
become vested during prior calendar years in accordance with Section 9.2(b).
2.31 Restricted Stock Award means a restricted stock award under
the Plan.
2.32 Restricted Stock Award Agreement means the written agreement
or instrument which sets forth the terms of a Restricted Stock Award granted to
a Participant.
2.33 Share means a share of the Common Stock of the Company.
2.34 Stock Option Grant means the written agreement or instrument
which sets forth the terms of an Option granted to a Participant under this
Plan.
2.35 Subsidiary means any corporation which is a subsidiary
corporation of the Company within the meaning of Code Section 424(f).
2.36 Surrendered Shares means the Shares described in Section 15.2
which (in lieu of being purchased) are surrendered for cash or Shares, or for a
combination of cash and Shares, in accordance with Section 15.
2.37 Target Future Value means, as to any Participant, a value as
determined by the Board, in its sole discretion, and as set forth in the
Participant's Stock Option Grant or Restricted Stock Award Agreement.
2.38 Tax Distributions means such amounts as are distributed to a
Participant which are designated by the Board as such distributions.
2.39 Ten Percent Shareholder means a person who owns (after taking
into account the attribution rules of Code Section 424(d)) more than ten percent
(10%) of the total combined voting power of all classes of shares of either the
Company, a Subsidiary or a Parent.
2.40 Termination Date means the date on which a Participant ceases
to perform services for the Company, or any Parent or Subsidiary, as determined
by the Board in its sole discretion.
2.41 Without Cause means a termination of employment, or other
relationship, with the Company due to (a) the death or disability (as determined
by the Board in its sole discretion) of the Participant, (b) the Company's
termination of the Participant for reasons other than for Cause, (c) mutual
agreement between the Company and the Participant, or (d) where the corporate
position of the Participant is altered or revised such that the Participant's
responsibilities are materially reduced or decreased during the previous sixty
(60) days.
SECTION 3.
SHARES SUBJECT TO PLAN
The total number of Shares that may be issued pursuant to ISO's,
Non-ISO's or Restricted Stock Awards granted under the Plan and under the
Immediate Vesting Plan shall not, in the aggregate, exceed one million
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<PAGE> 5
(1,000,000) as adjusted below and pursuant to Section 18 of this Plan and
pursuant to Sections 3 and 17 of the Immediate Vesting Plan. Such Shares shall
be reserved to the extent that the Company deems appropriate from authorized but
unissued Shares and from Shares which have been reacquired by the Company.
Furthermore, any Shares subject to an Option or a Restricted Stock Award granted
hereunder which remain after the cancellation, expiration or exchange of such
Option or Restricted Stock Award shall again become available for use under this
Plan, but any Surrendered Shares which remain after the surrender of an Option
under Section 18 shall not again become available for use under this Plan or the
Immediate Vesting Plan.
SECTION 4.
EFFECTIVE DATE
The effective date of the Plan shall be the date on which the Board
adopts the Plan, provided that the shareholders of the Company approve this Plan
within twelve (12) months after such effective date. If such effective date
comes before such shareholder approval, any Options or Restricted Stock Awards
granted under this Plan before the date of such approval automatically shall be
granted subject to such approval.
SECTION 5.
ADMINISTRATION
This Plan shall be administered by the Board. The Board, acting in its
absolute discretion, shall exercise such powers and take such action as
expressly called for under this Plan. The Board shall have the power to
interpret this Plan and, subject to Section 20, to take such other action in the
administration and operation of the Plan as it deems equitable under the
circumstances. The Board's actions shall be binding on the Company, on each
affected Employee or Key Person, and on each other person directly or indirectly
affected by such action.
The Board may delegate its authority under the Plan, in whole or in
part, to a Committee appointed by the Board consisting of one (1) member;
provided, however, that, if the Company becomes subject to Section 16 of the
Exchange Act of 1934, as amended, the Committee appointed by the Board shall
consist of not less than two (2) members. The Committee (if appointed) shall act
according to the policies and procedures set forth in the Plan and to those
policies and procedures established by the Board, and the Committee shall have
such powers and responsibilities as are set forth by the Board. Reference to the
Board in this Plan shall specifically include reference to the Committee where
the Board has delegated it authority to the Committee, and any action by the
Committee pursuant to a delegation of authority by the Board shall be deemed an
action by the Board under the Plan. Notwithstanding the above, the Board may
assume the powers and responsibilities granted to the Committee at any time, in
whole in part.
SECTION 6.
ELIGIBILITY
Except as provided below, only Employees shall be eligible for the
grant of Options and Restricted Stock Awards under this Plan, but no Employee
shall have the right to be granted an Option or a Restricted Stock Award under
this Plan merely as a result of his or her status as an Employee. Key Persons
may be eligible, subject to written approval by the Board, for the grant of
Options and Restricted Stock Awards under this Plan, but only if the Board
determines such Key Person has provided valuable services to the Company, a
Subsidiary or a Parent and only if any Option granted to such Key Person is a
Non-ISO.
SECTION 7.
GRANT OF OPTIONS
The Board, in its absolute discretion, shall grant Options under this
Plan from time to time to purchase Shares. The Board shall have the right to
grant new Options in exchange for outstanding Options; provided that
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<PAGE> 6
the Participant whose outstanding Option is being exchanged consents to such
exchange. The Committee, if appointed, and acting pursuant the procedures
established by the Board, may either grant Options under the Plan or recommend
to the Board that Options be granted under the Plan. Options shall be granted to
Employees or Key Persons selected by the Board, and neither the Board nor the
Committee, if appointed, shall be under any obligation whatsoever to grant
Options to all Employees or Key Persons, or to grant all Options subject to the
same terms and conditions. Each grant of an Option shall be evidenced by a Stock
Option Grant, and each Stock Option Grant shall:
(a) specify whether the Option is an ISO or Non-ISO; and
(b) incorporate such other terms and conditions as the
Board, acting in its absolute discretion, deems consistent with the terms of
this Plan, including (without limitation) a restriction on the number of Shares
subject to the Option which first become exercisable or subject to surrender
during any calendar year.
In determining Employee(s) or Key Person(s) to whom an Option shall be
granted and the number of Shares to be covered by such Option, the Board may
take into account the recommendations of the President of the Company and its
other officers, the duties of the Employee or Key Person, the present and
potential contributions of the Employee or Key Person to the success of the
Company, the anticipated number of years of service remaining before the
attainment by the Employee of retirement age, and other factors deemed relevant
by the Board, in its sole discretion, in connection with accomplishing the
purpose of this Plan. An Employee or Key Person who has been granted an Option
to purchase Shares of the Company, whether under this Plan or otherwise, may be
granted one (1) or more additional Options.
If the Board grants an ISO and a Non-ISO to an Employee on the same
date, the right of the Employee to exercise or surrender one such Option shall
not be conditioned on his or her failure to exercise or surrender the other such
Option.
SECTION 8.
RESTRICTED STOCK AWARDS
The number of Shares as to which a Restricted Stock Award shall be
awarded shall be determined by the Board, in its sole discretion, subject to the
provisions of Section 3 as to the total number of Shares available under the
Plan; provided, however, that, as long as the Company is an "S" corporation, no
Restricted Stock Award shall be awarded that would have the effect of
terminating the Company's "S" corporation status. Each Restricted Stock Award
shall be evidenced by a Restricted Stock Award Agreement executed by the Company
and the Participant, which shall be in such form and contain such terms and
conditions as the Board may determine, in its sole discretion, from time to
time, subject to the provisions of the Plan. Shares awarded pursuant to
Restricted Stock Awards shall be subject to restrictions for periods determined
by the Board. The Board shall have the power to permit, in its discretion, an
acceleration of the expiration of the applicable restriction period with respect
to any part or all of the Shares awarded to a Participant. The Board may require
a cash payment from the Participant in an amount no greater than the Fair Market
Value Per Share, as of the date of award, multiplied by the number of Shares
awarded, in exchange for the grant of a Restricted Stock Award, or may grant a
Restricted Stock Award without the requirement of a cash payment. The Board may,
at any time and in its discretion, approve payment, at such times and in such
amounts as determined by the Board in its discretion, of a cash amount to any
holder of a Restricted Stock Award to reimburse such person for all or a portion
of the federal, state and local income taxes imposed upon such person as a
consequence of the receipt of the Restricted Award or the exercise of rights
thereunder.
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<PAGE> 7
SECTION 9.
VESTING
9.1 General. Each Option and Restricted Stock Award shall become
one hundred percent (100%) vested on the date which occurs nine (9) years and
six (6) months after the date of grant or award; provided, the Participant is
employed by the Company on such date.
9.2 Accelerated Vesting. Notwithstanding Section 9.1 above, the
Board shall, as of the date of grant or award, as the case may be, determine
whether the Shares subject to an Option or Restricted Stock Award shall vest
pursuant to Subsection (a) or (b) below, if at all.
(a) Immediate. The Board may, in its sole discretion,
determine that an Option or Restricted Stock Award will be one hundred percent
(100%) vested upon the date of grant or award.
(b) Formula. The Board may, in its sole discretion, as of
the date of grant, determine that an Option or Restricted Stock Award will vest
according to this Subsection (b) and the terms and conditions set forth in the
Stock Option Grant or Restricted Stock Award Agreement. The Board shall
determine the number of Shares, if any, in which the Participant is vested in
accordance with this Section for each calendar year within ninety (90) days of
the end of such calendar year. The number of such Shares which may be vested in
accordance with this Subsection shall be determined as follows:
(i) Standard Vesting. A Participant shall be
vested as to a percentage, as set forth in the Stock Option Grant or Restricted
Stock Award Agreement, of the Participant's Available Shares for the calendar
year, if any.
(ii) Incentive Vesting. A Participant may become
vested in any or all of the Participant's remaining Available Shares for a
calendar year based on the attainment of certain specified individual
performance goals.
(iii) Additional Incentive Vesting. A Participant
may become vested in any or all of the Participants Remaining Shares based on
the attainment of certain additional individual performance goals.
(iv) Individual Performance Goals. At the
beginning of each of the Company's fiscal years, the Board shall establish the
individual performance goals which a Participant must achieve in order to become
vested in the Participant's Available Shares in accordance with this Subsection.
The individual performance goals may be based on individual or Company
performance goals for the year, or on a combination of such goals.
9.3 Adjustments to Vesting.
(a) Sale or Merger. If the Company agrees to sell
substantially all of its assets for cash or property, or for a combination of
cash and property, or the shareholders agree to any merger, consolidation,
reorganization, division or other transaction in which some or all Shares are
converted into another security or into the right to receive securities or
property, the number of Available and Remaining Shares in which each Participant
is vested pursuant to Sections 9.2(b), shall be determined by the Board on a
date fixed by the Board which comes before such transaction. For purposes of
this Section, Internal Value shall be determined as of such fixed date based on
the terms of transaction. After making such adjustments to the number of vested
Shares, the Board shall determine an additional percentage of the number of
unvested Shares remaining after such adjustments in which each Participant is
vested in accordance with the following schedule:
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<PAGE> 8
<TABLE>
<CAPTION>
Period of Plan Participation Percentage
---------------------------- ----------
<S> <C>
0 to 12 months 10%
13 to 24 months 20%
25 to 36 months 40%
More than 36 months 50%
</TABLE>
(b) Initial Public Offering. If the Company engages in an
initial public offering and, as result of such public offering, the Internal
Value, as of a date within ninety (90) days of such public offering as fixed by
the Board, when compared to the regular determination of Internal Value made
during the first quarter of each calendar year, increases such that the
resulting percentage increase in Internal Value, as of such fixed date, exceeds
the percentage increase, if any, in Net Earnings Before Taxes, over the same
period of time, by more than twenty-five percent (25%), the number of vested
Shares, as determined pursuant to Sections 9.2(b) shall be recalculated as
though the Internal Value was the Internal Value as of the effective date of
such initial public offering.
SECTION 10.
OPTION PRICE
10.1 General. If an Option is an ISO, the Option Price Per Share
shall be no less than the Fair Market Value Per Share, on the date such Option
is granted or, if such Option is granted to a Ten Percent Shareholder, the
Option Price Per Share shall be no less than one hundred ten (110%) of the Fair
Market Value Per Share, on the date such Option is granted. If an Option is a
Non-ISO, the Option Price Per Share shall be no less than the minimum price
required by applicable state law or by the Company's governing instrument or
$0.01, whichever price is greater. However, initially the Company intends to
grant Non-ISOs with an Option Price Per Share equal to the Fair Market Value Per
Share as of the date of grant. The Aggregate Purchase Price shall be payable in
full upon the exercise of any Option, and a Stock Option Grant, at the
discretion of the Board, can provide for the payment of the Aggregate Purchase
Price either in cash or in Shares acceptable to the Board, or in any combination
of cash and Shares acceptable to the Board. Any payment made in Shares shall be
treated as equal to the Aggregate Purchase Price for such Shares on the date the
properly endorsed certificate for such Shares is delivered to the Board (or to
its delegate).
10.2 Promissory Note. Notwithstanding the above, and in the Board's
discretion, an Option may be exercised as to a portion or all of the number of
Shares specified in the Stock Option Grant in which the Participant is vested by
delivery to the Company of (i) a payment equal to at least five percent (5%) of
the Aggregate Purchase Price, and (ii) a promissory note to be executed by the
Participant for the balance of the Aggregate Purchase Price, containing the
following terms and conditions:
(a) Terms. The promissory note shall include, along with
such other terms and conditions as the Board shall determine, provisions in a
form approved by the Board pursuant to which (1) the balance of the Aggregate
Purchase Price, plus any accrued but unpaid interest and any applicable federal
or state withholding taxes due upon exercise, shall be payable in installments
during each calendar year of principal and interest over a period of time which
does not exceed ten (10) years, (2) interest shall accrue at a rate equal to the
Applicable Federal Rate, as the Board shall approve, and (3) the Shares issued
pursuant to the exercise of such Option shall serve as security for the full
payment of the unpaid principal balance, and all accrued but unpaid interest and
applicable withholding taxes, and shall be held in escrow until such time as
full payment of all amounts due under the promissory note is made.
(b) Repayment and Release of Escrow Shares. In addition
to the foregoing, the promissory note shall provide for the minimum annual
principal payment to be made under the promissory note which shall be equal to
twenty-five percent (25%) of any distributions paid by the Company to the
Participant in excess of
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<PAGE> 9
Tax Distributions for such period, if the Company is an "S" corporation, or
fifteen percent (15%) of any corporate dividends paid by the Company to the
Participant if the Company is a "C" corporation. The Board may, in its sole
discretion, from time to time, release Shares from escrow to the Participant as
the Participant makes payments to the Company under the promissory note;
provided, however, that the remaining Shares held in escrow shall be of
sufficient value, as of the date of release, to secure adequately the
obligations of the Participant under the promissory note. The Participant may,
at any time, pay amounts in addition to the required annual payments, or pay the
amount due under the promissory note in full, or provide for payment of the full
amount remaining due under the promissory note by instructing the Company to
accept all or part of the remaining Shares held in escrow in satisfaction of the
remaining outstanding balance due under the promissory note. If the Company
accepts all of the remaining Shares held in escrow pursuant to the Participant's
request, the Participant shall be released from any and all obligations to the
Company to pay any and all amounts remaining due under the promissory note.
(c) Acceleration. The promissory note shall include a
provision, in a form approved by the Board, under which the Company may
accelerate repayment of any loan made pursuant to this Section 10.2 if the
Participant terminates his or her employment with the Company voluntarily or if
the Participant is terminated for Cause. The Company's right to accelerate
repayment of a loan pursuant to this Section 10.2 shall include the right to
offset all or any portion of the outstanding balance of any such loan, plus
interest earned on such loan, against any distributions or other amounts payable
by the Company to the Participant until such time as the outstanding balance of
such loan, plus interest, is repaid in full.
SECTION 11.
EXERCISE PERIOD
Each Option granted under this Plan shall be exercisable in whole or in
part, to the extent to which the Participant is vested in the Shares subject to
the Option, at such time or times as set forth in the related Stock Option
Grant, but no Stock Option Grant shall:
(a) make an Option exercisable before the date such Option is
granted or;
(b) make an Option exercisable after the earlier of the:
(i) the date such Option is exercised in full; or
(ii) the date which is the tenth (10th) anniversary of the
date such Option is granted, if such Option is a Non-ISO or an ISO granted to a
non-Ten Percent Shareholder, or the date which is the fifth (5th) anniversary of
the date such Option is granted, if such Option is an ISO granted to a Ten
Percent Shareholder.
A Stock Option Grant may provide for the exercise of an Option after
the employment of an Employee or Key Person has terminated for any reason
whatsoever, including death or disability.
SECTION 12.
EXERCISE OF OPTIONS
No Option shall be exercisable under this Plan if the result of such
exercise would be to terminate the Company's "S" corporation status. Any such
exercise in violation of this Section shall be null and void, of no force or
effect, and as if such exercise never occurred.
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<PAGE> 10
SECTION 13.
NONTRANSFERABILITY
No Option granted under this Plan shall be transferable by an Employee
or Key Person, other than by will or by the laws of descent and distribution,
and such Option shall be exercisable during an Employee's or Key Person's
lifetime only by the Employee or Key Person, as the case may be. The person or
persons to whom an Option is transferred by will or by the laws of descent and
distribution thereafter shall be treated as the Employee or Key Person.
SECTION 14.
REPURCHASE OPTION
The Company may, at any time, repurchase a Participant's Option, to the
extent the Participant is vested in the Shares subject to the Option pursuant to
Section 9, if the Participant's employment or association with the Company
terminates for any reason. The Company may exercise its right to repurchase such
Option by giving the Participant written notice of the Company's intention to
repurchase the Option.
(a) Calculation of Repurchase Price. If the Company
elects to repurchase a Participant's Option pursuant to this Section, the
Company shall repurchase such Option at a price equal to the difference between
(i) the greater of (A) the Fair Market Value Per Share or (B) the Internal Value
Per Share, as of the date on which the Company repurchases an Option pursuant to
this Section, multiplied by the number of vested Shares subject to the Option,
and (ii) the Option Price Per Share multiplied by the number of vested Shares
subject to the Option.
(b) Payment of Repurchase Price. The repurchase price
shall be payable, at the option of the Company or its assignee, by (i) check,
(ii) by cancellation of all or a portion of any outstanding indebtedness of
Optionee to the Company or such assignee, (iii) in five (5) equal annual
installment payments beginning with on the date of repurchase and at an interest
rate which shall be no less than the prime bank loan rate as determined by the
Board, or (iv) any combination of the above.
(c) Termination of Repurchase Rights. The right of
repurchase shall terminate as to any Option ninety (90) days after the first
sale of common stock of the Company to the general public pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission (other than a registration statement solely covering an
employee benefit plan or corporate reorganization).
SECTION 15.
SURRENDER OF OPTIONS
15.1 General Rule. The Board acting in its absolute discretion may
incorporate a provision in a Stock Option Grant to allow a Participant to
surrender his or her Option, to the extent the Participant is vested in the
Option, in whole or in part, in lieu of the exercise, in whole or in part, of
that Option on any date that:
(a) the Fair Market Value Per Share multiplied by the
number of Shares subject to such Option exceeds the Option Price Per Share
multiplied by the number of such Shares; and
(b) the Option to purchase such Shares is otherwise
exercisable.
15.2 Procedure. The surrender of an Option in whole or in part
shall be effected by the delivery of the Stock Option Grant to the Board
together with a statement signed by the Participant which specifies the number
of Surrendered Shares as to which the Participant surrenders his or her Option
and how he or she desires payment to the Participant to be made for such
Surrendered Shares.
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<PAGE> 11
15.3 Payment. A Participant in exchange for his or her Surrendered
Shares shall receive a payment in cash or in Shares, or in a combination of cash
and Shares, equal in amount on the date such surrender is effected to the excess
of the Fair Market Value Per Share multiplied by the number of Surrendered
Shares on such date over the Option Price Per Share multiplied by the number of
Surrendered Shares. The Board acting in its absolute discretion can approve or
disapprove a Participant's request for payment in whole or in part in cash and
can make that payment in cash or in such combination of cash and Shares as the
Board deems appropriate. A request for payment only in Shares shall be approved
and made in Shares to the extent payment can be made in whole shares of Shares
and (at the Board's discretion) in cash in lieu of any fractional Shares.
15.4 Restrictions. Any Stock Option Grant which incorporates a
provision to allow a Participant to surrender his or her Option in whole or in
part also shall incorporate such additional restrictions on the exercise or
surrender of such Option as the Board deems necessary to satisfy the conditions
to the exemption under Rule 16b-3 (or any successor exemption) to Section 16(b)
of the Exchange Act.
SECTION 16.
SECURITIES REGISTRATION
Each Stock Option Grant may provide that, upon the receipt of Shares as
a result of the surrender or exercise of an Option or pursuant to a Restricted
Stock Award, the Participant shall, if so requested by the Company, hold such
Shares for investment and not with a view of resale or distribution to the
public and, if so requested by the Company, shall deliver to the Company a
written statement satisfactory to the Company to that effect. Each Stock Option
Grant and Restricted Stock Award Agreement may also provide that, if so
requested by the Company, the Participant shall make a written representation to
the Company that he or she will not sell or offer to sell any of such Shares
unless a registration statement shall be in effect with respect to such Shares
under the Securities Act of 1933, as amended ("1933 Act") and any applicable
state securities law, or unless he or she shall have furnished to the Company an
opinion, in form and substance satisfactory to the Company, of legal counsel
acceptable to the Company, that such registration is not required. Certificates
representing the Shares transferred upon the exercise or surrender of an Option
or pursuant to a Restricted Stock Award granted under this Plan may, at the
discretion of the Company, bear a legend to the effect that such Shares have not
been registered under the 1933 Act or any applicable state securities law and
that such Shares may not be sold or offered for sale in the absence of an
effective registration statement as to such Shares under the 1933 Act and any
applicable state securities law, or an opinion, in form and substance
satisfactory to the Company, of legal counsel acceptable to the Company, that
such registration is not required.
SECTION 17.
LIFE OF PLAN
No Option or Restricted Stock Award shall be granted under this Plan on
or after the earlier of:
(a) the tenth (10th) anniversary of the effective date of
the Plan (as set forth in Section 4 of this Plan), in which event this Plan
otherwise thereafter shall continue in effect until all outstanding Options have
been surrendered or exercised in full or no longer are exercisable; or
(b) the date on which all of the Shares reserved under
Section 3 of this Plan have (as a result of the surrender or exercise of Options
and Restricted Stock Awards granted under this Plan) been issued or no longer
are available for use under this Plan, in which event this Plan also shall
terminate on such date.
-11-
<PAGE> 12
SECTION 18.
ADJUSTMENT
The number of Shares reserved under Section 3 of this Plan, the number
of Shares subject to Options granted under this Plan, and the Option Price Per
Share for such Options shall be adjusted by the Board in an equitable manner to
reflect any change in the capitalization of the Company, including, but not
limited to, such changes as stock dividends or stock splits. Furthermore, the
Board shall have the right to adjust (in a manner which satisfies the
requirements of Code Section 424(a)) the number of Shares reserved under Section
3 of this Plan and the number of Shares subject to Options granted under this
Plan and the Option Price Per Share for such Options in the event of any
corporate transaction described in Code Section 424(a) which provides for the
substitution or assumption of such Options. If any adjustment under this Section
creates a fractional Share or a right to acquire a fractional Share, such
fractional Share shall be disregarded and the number of Shares reserved under
this Plan and the number subject to any Options granted under this Plan shall be
the next lower number of Shares, rounding all fractions downward. An adjustment
made under this Section by the Board shall be conclusive and binding on all
affected persons and, further, shall not constitute an increase in the number of
Shares reserved under Section 3 of this Plan.
SECTION 19
SALE OR MERGER OF THE COMPANY
If the Company agrees to sell substantially all of its assets for cash
or property, or for a combination of cash and property, or agrees to any merger,
consolidation, reorganization, division or other transaction in which some, but
not all, Shares are converted into another security or into the right to receive
securities or property, and such agreement does not provide for the assumption
or substitution of the Options granted under this Plan, each Option, to the
extent such Option is vested pursuant to this Section, may, at the direction and
discretion of the Board, or as otherwise provided in the Stock Option Grants, be
canceled unilaterally by the Company in exchange for the whole Shares (or,
subject to satisfying the conditions to the exemption under Rule 16b-3, or any
successor exemption to Section 16(b) of the Exchange Act, for the whole Shares
and the cash in lieu of a fractional Share) which each Participant would receive
if he or she had the right to surrender his or her outstanding Option under
Section 15 of this Plan and he or she exercised that right exclusively for
Shares on a date fixed by the Board which comes before such sale or other
corporate transaction.
SECTION 20.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, no such
amendment shall be made absent the approval of the shareholders of the Company
to (1) increase the number of Shares reserved under Section 3, except as set
forth in Section 18, (2) extend the maximum life of the Plan under Section 17 or
the maximum exercise period under Section 11, (3) decrease the minimum Option
Price Per Share under Section 10, or (4) change the designation of Employees or
Key Persons eligible for Options or Restricted Stock Award. The Board also may
suspend the granting of Options or Restricted Stock Awards under this Plan at
any time and may terminate this Plan at any time; provided, however, the Company
shall not have the right to modify, amend or cancel any Option or Restricted
Stock Award granted before such suspension or termination unless (i) the
Participant consents in writing to such modification, amendment or cancellation,
or (ii) there is a dissolution or liquidation of the Company or a transaction
described in Section 18 or Section 19 of this Plan.
-12-
<PAGE> 13
SECTION 21.
MISCELLANEOUS
21.1 Shareholder Rights. No Participant shall have any rights as a
shareholder of the Company as a result of the grant of an Option to him or to
her under this Plan or his or her exercise or surrender of such Option pending
the actual delivery of Shares subject to such Option to such Participant.
21.2 No Contract of Employment. The grant of an Option or award of
a Restricted Stock Award to a Participant under this Plan shall not constitute a
contract of employment or other association with the Company, and shall not
confer on a Participant any rights upon his or her termination of employment or
other association with the Company, in addition to those rights, if any,
expressly set forth in the Stock Option Grant or Restricted Stock Award
Agreement.
21.3 Withholding. The exercise or surrender of any Option granted
under this Plan shall constitute a Participant's full and complete consent to
whatever action the Board directs to satisfy the federal and state tax
withholding requirements, if any, which the Board in its discretion deems
applicable to such exercise or surrender.
21.4 Transfer. The transfer of an Employee between or among the
Company, a Subsidiary or a Parent shall not be treated as a termination of his
or her employment under this Plan.
21.5 Construction. This Plan shall be construed under the laws of
the State of Georgia.
-13-
<PAGE> 1
EXHIBIT 10.11
TELEMATE.NET SOFTWARE, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of date set forth below
("Effective Date"), by and between TELEMATE.NET SOFTWARE, INC., a Georgia
corporation ("Company"), and the undersigned key executive and employee of the
Company ("Employee"), an individual. For and in consideration of Employee's
employment and continued employment and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. DEFINITIONS. Defined terms used herein are defined in the recitals and at the
bottom of this Agreement.
2. DUTIES. Employee agrees that he or she will devote his or her full
working time to the services of Company in such capacities as Company shall
direct, and he or she will perform his or her duties faithfully, diligently and
to the best of his or her ability.
3. OWNERSHIP. (a) All Work Product will be considered work made for hire by
Employee and owned by Company. To the extent that any Work Product may not by
operation of law be considered work made for hire or if ownership of all rights
therein will not vest exclusively in Company, Employee assigns to Company, now
or upon its creation without further consideration, the ownership of all such
Work Product. Company has the right to obtain and hold in its own name
copyrights, patents, registrations, and any other protection available in the
Work Product. Employee agrees to perform any acts as may be reasonably requested
by Company to transfer, perfect, and defend Company's ownership of the Work
Product.
(b) To the extent any materials other than Work Product are contained in
the materials Employee delivers to Company or its Customers, Employee grants to
Company an irrevocable, nonexclusive, worldwide, royalty-free license to use and
distribute (internally or externally) or authorize others to use and distribute
copies of, and prepare derivative works based upon, such materials and
derivative works thereof. Employee agrees that during his or her employment, any
money or other remuneration received by Employee for services rendered to a
Customer belong to Company.
4. TRADE SECRETS AND CONFIDENTIAL INFORMATION. (a) Company may disclose to
Employee certain Proprietary Information. Employee agrees that the Proprietary
Information is the exclusive property of Company (or a third party providing
such information to Company) and Company (or such third party) owns all
worldwide copyrights, trade secret rights, confidential information rights, and
all other property rights therein.
(b) Company's disclosure of the Proprietary Information to Employee does
not confer upon Employee any license, interest or rights in or to the
Proprietary Information. Except in the performance of services for Company,
Employee will hold in confidence and will not, without Company's prior written
consent, use, reproduce, distribute, transmit, reverse engineer, decompile,
disassemble, or transfer, directly or indirectly, in any form, or for any
purpose, any Proprietary Information communicated or made available by Company
to or received by Employee. Employee agrees to notify Company immediately if he
or she discovers any unauthorized use or disclosure of the Proprietary
Information.
(c) Employee's obligations under this Agreement with regard to (i) Trade
Secrets shall remain in effect for as long as such information remains a trade
secret under applicable law, and (ii) Confidential Information shall remain in
effect during Employee's employment with Company and for three years thereafter.
These obligations will not apply to the extent that Employee establishes that
the information communicated (1) was already known to Employee, without an
obligation to keep it confidential at the time of its receipt from Company; (2)
was received by Employee in good faith from a third party lawfully in possession
thereof and having no obligation to keep such information confidential; or (3)
was publicly known at the time of its receipt by Employee or has become publicly
known other than by a breach of this Agreement or other action by Employee.
5. CUSTOMER NON-SOLICITATION. The relationships made or enhanced during
Employee's employment with Company belong to Company. During Employee's
employment and the Two Year Limitation Period, Employee will not, without
Company's prior consent, contact, solicit or attempt to solicit, on his or her
own or another's behalf, any Customer with whom Employee had contact in the Two
Year Restrictive Period with a view of offering, selling or licensing any
program, product or service that is competitive with the Company Business.
6. EMPLOYEE NON-SOLICITATION. During Employee's employment and the Two Year
Limitation Period, Employee agrees not to call upon, solicit, recruit, or assist
others in calling upon, soliciting or recruiting any person who is or was an
employee of Company during the Two Year Restrictive Period for the purpose of
having such person work in any other corporation, entity, or business that is
competitive with the Company Business.
7. NON-COMPETITION. During the Two Year Limitation Period, Employee agrees
that, without the prior written consent of Company, Employee shall not compete
with the Company, either directly or on behalf of any person or entity competing
with the Company, in the Company Business in the Restricted Territory. The
parties agree and acknowledge that: (i) the length of the Two Year Limitation
Period and the size of the Restricted Territory are fair and reasonable in that
they are reasonably required for the protection of Company and that the
Restricted Territory is the area in which Employee shall perform (or currently
performs) services for Company; and (ii) by having access to information
concerning employees and actual or prospective customers of Company, Employee
shall obtain a competitive advantage as to such parties.
8. WARRANTIES OF EMPLOYEE. Employee warrants that he or she is not
presently under any agreement that will prevent him or her from the performance
of duties for Company, and is not in breach of any agreement with respect to any
trade secrets or confidential information owned by any other party.
9. INJUNCTIONS. Employee agrees that certain breaches by Employee of this
Agreement will result in irreparable harm to Company and that the remedies at
law for such breaches may not adequately compensate Company for its damages.
Employee agrees that in the event of any such breaches, Company shall be
entitled to an injunction in addition to any other remedies at law.
10. SEVERABILITY. Any holding that a provision of this Agreement is invalid
or unenforceable by a court of competent jurisdiction shall not affect the
enforceability of any other provisions. If
<PAGE> 2
for any reason the restrictions in Sections 4 through 7 are held to be invalid
or unenforceable, then such restrictions shall be interpreted or modified to
include as much of the duration and scope as will render such restrictions valid
and enforceable.
11. TERM. This Agreement is effective when signed by both parties and will
remain in effect for an indefinite period of time. The parties agree that
Employee's employment may be terminated at any time, for any reason or for no
reason, for cause or not for cause, with or without notice, by Company or
Employee. Upon any such termination, Employee shall return immediately to
Company all documents and other property of Company, together with all copies
thereof, including all Work Product and Proprietary Information, within
Employee's possession or control.
12. MISCELLANEOUS. This Agreement may not be modified except by a writing
signed by both parties, except that it may be supplemented by rules and
regulations described in Company employee handbook and other documents provided
to Employee from time to time, and Employee agrees to follow such rules and
regulations. Due to the personal nature of this Agreement, Employee may not
assign his or her rights or obligations under this Agreement without the prior
written consent of Company. This Agreement will be governed by the laws of the
State of Georgia without regard to its rules governing conflicts of law. This
Agreement represents the entire understanding of the parties concerning its
subject matter and supersedes and terminates all prior communications,
agreements and understandings relating to the same. All communications
concerning or required by this Agreement shall be in writing and shall be deemed
given when delivered to the address listed below (as may be amended by notice),
by hand, courier or express mail, or by registered or certified United States
mail, return receipt requested, postage prepaid.
The parties have executed this Agreement effective as of the 16th day of June,
1999 ("Effective Date").
<TABLE>
<CAPTION>
<S> <C>
COMPANY: EMPLOYEE:
TELEMATE.NET SOFTWARE, INC.
Richard L. Mauro (Print Name)
By: /s/ Richard L. Mauro ---------------------------------------------
---------------------------------------------
/s/ Richard L. Mauro
---------------------------------------------
Title: President Signature
------------------------------------------
Date: 6/16/99 Date: June 16, 1999
------------------------------------------- -----------------------------------------
Address: 4250 Perimeter Park South
Suite 200
Atlanta, Georgia 30341-1201 SSN: ###-##-####
Attention: Kathy K. Cook ------------------------------------------
Address: 346 Lands Mill
--------------------------------------
Marietta, GA 30067
----------------------------------------------
</TABLE>
DEFINITIONS
"Company Business" shall be communications accounting software.
"Confidential Information" means Company information in whatever form, other
than Trade Secrets, that is of value to its owner and is treated as
confidential.
"Customer" means any current customer or prospective customer of Company.
"Two Year Limitation Period" shall mean the twenty-four month period beginning
immediately upon the termination of Employee's employment with Company for any
reason.
"Proprietary Information" means all Trade Secrets and Confidential Information
of Company.
"Restricted Territory" shall mean UNITED STATES
"Trade Secrets" means information of Company constituting a trade secret within
the meaning of Section 10-1-761(4) of the Georgia Trade Secrets Act of 1990,
including all amendments hereafter adopted.
"Two Year Restrictive Period" shall mean the twenty-four months prior to the end
of Employee's employment with Company for any reason.
"Work Product" shall mean the data, materials, documentation, computer programs,
inventions (whether or not patentable), and all works of authorship, including
all worldwide rights therein under patent, copyright, trade secret, confidential
information, or other property right, created or developed in whole or in part
by Employee while performing services in furtherance of or related to the
Company Business.
-2-
<PAGE> 1
EXHIBIT 10.12
TELEMATE.NET SOFTWARE, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of date set forth below
("Effective Date"), by and between TELEMATE.NET SOFTWARE, INC., a Georgia
corporation ("Company"), and the undersigned key executive and employee of the
Company ("Employee"), an individual. For and in consideration of Employee's
employment and continued employment and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. DEFINITIONS. Defined terms used herein are defined in the recitals and at the
bottom of this Agreement.
2. DUTIES. Employee agrees that he or she will devote his or her full working
time to the services of Company in such capacities as Company shall direct, and
he or she will perform his or her duties faithfully, diligently and to the best
of his or her ability.
3. OWNERSHIP. (a) All Work Product will be considered work made for hire by
Employee and owned by Company. To the extent that any Work Product may not by
operation of law be considered work made for hire or if ownership of all rights
therein will not vest exclusively in Company, Employee assigns to Company, now
or upon its creation without further consideration, the ownership of all such
Work Product. Company has the right to obtain and hold in its own name
copyrights, patents, registrations, and any other protection available in the
Work Product. Employee agrees to perform any acts as may be reasonably requested
by Company to transfer, perfect, and defend Company's ownership of the Work
Product.
(b) To the extent any materials other than Work Product are contained in
the materials Employee delivers to Company or its Customers, Employee grants to
Company an irrevocable, nonexclusive, worldwide, royalty-free license to use and
distribute (internally or externally) or authorize others to use and distribute
copies of, and prepare derivative works based upon, such materials and
derivative works thereof. Employee agrees that during his or her employment, any
money or other remuneration received by Employee for services rendered to a
Customer belong to Company.
4. TRADE SECRETS AND CONFIDENTIAL INFORMATION. (a) Company may disclose to
Employee certain Proprietary Information. Employee agrees that the Proprietary
Information is the exclusive property of Company (or a third party providing
such information to Company) and Company (or such third party) owns all
worldwide copyrights, trade secret rights, confidential information rights, and
all other property rights therein.
(b) Company's disclosure of the Proprietary Information to Employee does
not confer upon Employee any license, interest or rights in or to the
Proprietary Information. Except in the performance of services for Company,
Employee will hold in confidence and will not, without Company's prior written
consent, use, reproduce, distribute, transmit, reverse engineer, decompile,
disassemble, or transfer, directly or indirectly, in any form, or for any
purpose, any Proprietary Information communicated or made available by Company
to or received by Employee. Employee agrees to notify Company immediately if he
or she discovers any unauthorized use or disclosure of the Proprietary
Information.
(c) Employee's obligations under this Agreement with regard to (i) Trade
Secrets shall remain in effect for as long as such information remains a trade
secret under applicable law, and (ii) Confidential Information shall remain in
effect during Employee's employment with Company and for three years thereafter.
These obligations will not apply to the extent that Employee establishes that
the information communicated (1) was already known to Employee, without an
obligation to keep it confidential at the time of its receipt from Company; (2)
was received by Employee in good faith from a third party lawfully in possession
thereof and having no obligation to keep such information confidential; or (3)
was publicly known at the time of its receipt by Employee or has become publicly
known other than by a breach of this Agreement or other action by Employee.
5. CUSTOMER NON-SOLICITATION. The relationships made or enhanced during
Employee's employment with Company belong to Company. During Employee's
employment and the Two Year Limitation Period, Employee will not, without
Company's prior consent, contact, solicit or attempt to solicit, on his or her
own or another's behalf, any Customer with whom Employee had contact in the Two
Year Restrictive Period with a view of offering, selling or licensing any
program, product or service that is competitive with the Company Business.
6. EMPLOYEE NON-SOLICITATION. During Employee's employment and the Two Year
Limitation Period, Employee agrees not to call upon, solicit, recruit, or assist
others in calling upon, soliciting or recruiting any person who is or was an
employee of Company during the Two Year Restrictive Period for the purpose of
having such person work in any other corporation, entity, or business that is
competitive with the Company Business.
7. NON-COMPETITION. During the Two Year Limitation Period, Employee agrees that,
without the prior written consent of Company, Employee shall not compete with
the Company, either directly or on behalf of any person or entity competing with
the Company, in the Company Business in the Restricted Territory. The parties
agree and acknowledge that: (i) the length of the Two Year Limitation Period and
the size of the Restricted Territory are fair and reasonable in that they are
reasonably required for the protection of Company and that the Restricted
Territory is the area in which Employee shall perform (or currently performs)
services for Company; and (ii) by having access to information concerning
employees and actual or prospective customers of Company, Employee shall obtain
a competitive advantage as to such parties.
8. WARRANTIES OF EMPLOYEE. Employee warrants that he or she is not presently
under any agreement that will prevent him or her from the performance of duties
for Company, and is not in breach of any agreement with respect to any trade
secrets or confidential information owned by any other party.
9. INJUNCTIONS. Employee agrees that certain breaches by Employee of this
Agreement will result in irreparable harm to Company and that the remedies at
law for such breaches may not adequately compensate Company for its damages.
Employee agrees that in the event of any such breaches, Company shall be
entitled to an injunction in addition to any other remedies at law.
10. SEVERABILITY. Any holding that a provision of this Agreement is invalid or
unenforceable by a court of competent jurisdiction shall not affect the
enforceability of any other provisions. If
<PAGE> 2
for any reason the restrictions in Sections 4 through 7 are held to be invalid
or unenforceable, then such restrictions shall be interpreted or modified to
include as much of the duration and scope as will render such restrictions valid
and enforceable.
11. TERM. This Agreement is effective when signed by both parties and will
remain in effect for an indefinite period of time. The parties agree that
Employee's employment may be terminated at any time, for any reason or for no
reason, for cause or not for cause, with or without notice, by Company or
Employee. Upon any such termination, Employee shall return immediately to
Company all documents and other property of Company, together with all copies
thereof, including all Work Product and Proprietary Information, within
Employee's possession or control.
12. MISCELLANEOUS. This Agreement may not be modified except by a writing signed
by both parties, except that it may be supplemented by rules and regulations
described in Company employee handbook and other documents provided to Employee
from time to time, and Employee agrees to follow such rules and regulations. Due
to the personal nature of this Agreement, Employee may not assign his or her
rights or obligations under this Agreement without the prior written consent of
Company. This Agreement will be governed by the laws of the State of Georgia
without regard to its rules governing conflicts of law. This Agreement
represents the entire understanding of the parties concerning its subject matter
and supersedes and terminates all prior communications, agreements and
understandings relating to the same. All communications concerning or required
by this Agreement shall be in writing and shall be deemed given when delivered
to the address listed below (as may be amended by notice), by hand, courier or
express mail, or by registered or certified United States mail, return receipt
requested, postage prepaid.
The parties have executed this Agreement effective as of the 16th day of June,
1999 ("Effective Date").
<TABLE>
<S> <C>
COMPANY: EMPLOYEE:
TELEMATE.NET SOFTWARE, INC.
David H. Couchman (Print Name)
------------------------------
By: /s/ Richard L. Mauro
- --------------------------------------------
/s/ David H. Couchman
---------------------------------------
Title: President Signature
--------------------------------------
Date: 6/16/99 Date: June 16, 1999
--------------------------------------- ----------------------------------
Address: 4250 Perimeter Park South
Suite 200
Atlanta, Georgia 30341-1201 SSN: ###-##-####
Attention: Kathy K. Cook -----------------------------------
Address: 8890 Huntcliff Trace
-------------------------------
Atlanta, GA 30350
----------------------------------------
</TABLE>
DEFINITIONS
"Company Business" shall be communications accounting software.
"Confidential Information" means Company information in whatever form, other
than Trade Secrets, that is of value to its owner and is treated as
confidential.
"Customer" means any current customer or prospective customer of Company.
"Two Year Limitation Period" shall mean the twenty-four month period beginning
immediately upon the termination of Employee's employment with Company for any
reason.
"Proprietary Information" means all Trade Secrets and Confidential Information
of Company.
"Restricted Territory" shall mean UNITED STATES
"Trade Secrets" means information of Company constituting a trade secret within
the meaning of Section 10-1-761(4) of the Georgia Trade Secrets Act of 1990,
including all amendments hereafter adopted.
"Two Year Restrictive Period" shall mean the twenty-four months prior to the end
of Employee's employment with Company for any reason.
"Work Product" shall mean the data, materials, documentation, computer programs,
inventions (whether or not patentable), and all works of authorship, including
all worldwide rights therein under patent, copyright, trade secret, confidential
information, or other property right, created or developed in whole or in part
by Employee while performing services in furtherance of or related to the
Company Business.
-2-
<PAGE> 1
EXHIBIT 10.13
TELEMATE.NET SOFTWARE, INC.
1999 STOCK INCENTIVE PLAN
SECTION 1.
PURPOSE
The purpose of this Plan is to promote the interests of the Company by
providing the opportunity to purchase Shares or to receive compensation which is
based upon appreciation in the value of Shares to Employees and Key Persons in
order to attract and retain Employees and Key Persons by providing an incentive
to work to increase the value of Shares and a stake in the future of the Company
which corresponds to the stake of each of the Company's shareholders. The Plan
provides for the grant of Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock Awards and Stock Appreciation Rights to aid the Company in
obtaining these goals.
SECTION 2.
DEFINITIONS
Each term set forth in this Section shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular, and reference to one gender shall include the other gender.
2.1 BOARD means the Board of Directors of the Company.
2.2 CODE means the Internal Revenue Code of 1986, as amended.
2.3 COMMITTEE means the Compensation Committee of the Board.
2.4 COMMON STOCK means the common stock of the Company.
2.5 COMPANY means Telemate.Net Software, Inc., a Georgia
corporation, and any successor to such organization.
2.6 EMPLOYEE means an employee of the Company, a Subsidiary or a
Parent.
2.7 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.8 EXERCISE PRICE means the price which shall be paid to purchase
one (1) Share upon the exercise of an Option granted under this Plan.
2.9 FAIR MARKET VALUE of each Share on any date means the price
determined below on the last business day immediately preceding the date of
valuation:
(a) The closing sales price per Share, regular way, or in the
absence thereof the mean of the last reported bid and asked quotations, on such
date on the exchange having the greatest volume of trading in the Shares during
the thirty-day period preceding such date (or if such exchange was not open for
trading on such date, the next preceding date on which it was open); or
<PAGE> 2
(b) If there is no price as specified in (a), the final
reported sales price per Share, or if not reported, the mean of the closing high
bid and low asked prices in the over-the-counter market for the Shares as
reported by the National Association of Securities Dealers Automatic Quotation
System, or if not so reported, then as reported by the National Quotation Bureau
Incorporated, or if such organization is not in existence, by an organization
providing similar services, on such date (or if such date is not a date for
which such system or organization generally provides reports, then on the next
preceding date for which it does so); or
(c) If there also is no price as specified in (b), the price
per Share determined by the Board by reference to bid-and-asked quotations for
the Shares provided by members of an association of brokers and dealers
registered pursuant to Subsection 15(b) of the Exchange Act, which members make
a market in the Shares, for such recent dates as the Board shall determine to be
appropriate for fairly determining current market value; or
(d) If there also is no price as specified in (c), an amount
per Share determined in good faith by the Board based on such relevant facts,
which may include opinions of independent experts, as may be available to the
Board.
2.10 ISO means an option granted under this Plan to purchase Shares
which is intended by the Company to satisfy the requirements of Code Section 422
as an incentive stock option.
2.11 KEY PERSON means (i) a member of the Board who is not an
Employee, (ii) a consultant, distributor or other person who has rendered
valuable services to the Company, a Subsidiary or a Parent, (iii) a person who
has incurred, or is willing to incur, financial risk in the form of guaranteeing
or acting as co-obligor with respect to debts or other obligations of the
Company, or (iv) a person who has extended credit to the Company. Key Persons
are not limited to individuals and, subject to the preceding definition, may
include corporations, partnerships, associations and other entities.
2.12 NON-ISO means an option granted under this Plan to purchase
Shares which is not intended by the Company to satisfy the requirements of Code
Section 422.
2.13 OPTION means an ISO or a Non-ISO.
2.14 PARENT means any corporation which is a parent of the Company
(within the meaning of Code Section 424).
2.15 PARTICIPANT means an individual who receives a Stock Incentive
hereunder.
2.16 PLAN means the Telemate.Net Software, Inc. 1999 Stock
Incentive Plan, as amended from time to time.
2.17 SHARE means a share of the Common Stock of the Company.
2.18 STOCK INCENTIVE means an ISO, a Non-ISO, a Restricted Stock
Award or a Stock Appreciation Right.
2.19 STOCK INCENTIVE AGREEMENT means an agreement between the
Company and a Participant evidencing an award of a Stock Incentive.
2.20 SUBSIDIARY means any corporation which is a subsidiary of the
Company (within the meaning of Code Section 424(f)).
-2-
<PAGE> 3
2.21 SURRENDERED SHARES means the Shares described in Section 8.2
which (in lieu of being purchased) are surrendered for cash or Shares, or for a
combination of cash and Shares, in accordance with Section 8.
2.22 TEN PERCENT SHAREHOLDER means a person who owns (after taking
into account the attribution rules of Code Section 424(d)) more than ten percent
(10%) of the total combined voting power of all classes of shares of either the
Company, a Subsidiary or a Parent.
SECTION 3.
SHARES SUBJECT TO STOCK INCENTIVES
The total number of Shares that may be issued pursuant to Stock
Incentives under this Plan shall not exceed three hundred thirty-three thousand,
three hundred thirty-three (333,333), as adjusted pursuant to Section 11. Such
Shares shall be reserved, to the extent that the Company deems appropriate, from
authorized but unissued Shares, and from Shares which have been reacquired by
the Company. The number of Shares available for issuance under the Plan shall be
automatically adjusted on the first day of each fiscal year, beginning with the
2000 fiscal year, by a number of shares such that the total number of shares
reserved for issuance under this Plan equals the sum of (i) the aggregate number
of Shares previously issued under this Plan; (ii) the aggregate number of Shares
subject to then outstanding Stock Incentives granted under this Plan; and (iii)
5% of the number of shares of Common Stock outstanding on the last day of the
preceding fiscal year; provided however, that the Board may, in its discretion,
determine to end or suspend or to reinstate the automatic adjustment to the
number of shares reserved for issuance under this Section 3. Notwithstanding the
foregoing, not more than 1,000,000 of the Shares available for grant each year
shall be available for issuance pursuant to ISOs, such that not more than
10,000,000 shares resulting from such automatic adjustments may ever be issued
pursuant to ISOs during the term of the Plan.
Furthermore, any Shares subject to a Stock Incentive which remain after
the cancellation, expiration or exchange of such Stock Incentive thereafter
shall again become available for use under this Plan, but any Surrendered Shares
which remain after the surrender of an ISO or a Non-ISO under Section 8 shall
not again become available for use under this Plan.
SECTION 4.
EFFECTIVE DATE
The effective date of this Plan shall be the date it is adopted by the
Board, provided the shareholders of the Company approve this Plan within twelve
(12) months after such effective date. If such effective date comes before such
shareholder approval, any Stock Incentives granted under this Plan before the
date of such approval automatically shall be granted subject to such approval.
SECTION 5.
ADMINISTRATION
This Plan shall be administered by the Board. The Board, acting in its
absolute discretion, shall exercise such powers and take such action as
expressly called for under this Plan. The Board shall have the power to
interpret this Plan and, subject to Section 13 to take such other action in the
administration and operation of the Plan as it deems equitable under the
circumstances. The Board's actions shall be binding on the Company, on each
affected Employee or Key Person, and on each other person directly or indirectly
affected by such actions.
The Board may delegate its authority under the Plan, in whole or in
part, to a Committee appointed by the Board consisting of not less than two (2)
directors, each of whom does not while a member of the Committee,
-3-
<PAGE> 4
or has not during the one (1) year prior to serving as a member of the
Committee, received equity securities of the Company, Parent or Subsidiary,
pursuant to this Plan or any other plan of the Company, Parent or Subsidiary,
except as may be permitted under Section 16(b)(3) of the Exchange Act. The
Committee (if appointed) shall act according to the policies and procedures set
forth in the Plan and to those policies and procedures established by the Board,
and the Committee shall have such powers and responsibilities as are set forth
by the Board. Reference to the Board in this Plan shall specifically include
reference to the Committee where the Board has delegated it authority to the
Committee, and any action by the Committee pursuant to a delegation of authority
by the Board shall be deemed an action by the Board under the Plan.
Notwithstanding the above, the Board may assume the powers and responsibilities
granted to the Committee at any time, in whole or in part.
SECTION 6.
ELIGIBILITY
Employees and Key Persons selected by the Committee shall be eligible
for the grant of Stock Incentives under this Plan, but no Employee shall have
the right to be granted a Stock Incentive under this Plan merely as a result of
his or her status as an Employee or Key Person. Only Employees shall be eligible
for the grant of ISOs.
SECTION 7
TERMS OF STOCK INCENTIVES
7.1 TERMS AND CONDITIONS OF ALL STOCK INCENTIVES.
(a) The Committee, in its absolute discretion, shall
grant Stock Incentives under this Plan from time to time and shall have the
right to grant new Stock Incentives in exchange for outstanding Stock
Incentives. Stock Incentives shall be granted to Employees or Key Persons
selected by the Committee, and the Committee shall be under no obligation
whatsoever to grant Stock Incentives to all Employees or Key Persons, or to
grant all Stock Incentives subject to the same terms and conditions. Each grant
of a Stock Incentive shall be evidenced by a Stock Incentive Agreement.
(b) The number of Shares as to which a Stock Incentive
shall be granted shall be determined by the Committee in its sole discretion,
subject to the provisions of Section 3 as to the total number of shares
available for grants under the Plan.
(c) Each Stock Incentive shall be evidenced by a Stock
Incentive Agreement executed by the Company and the Participant, which shall be
in such form and contain such terms and conditions as the Committee in its
discretion may, subject to the provisions of the Plan, from time to time
determine.
(d) The date a Stock Incentive is granted shall be the
date on which the Committee has approved the terms and conditions of the Stock
Incentive Agreement and has determined the recipient of the Stock Incentive and
the number of Shares covered by the Stock Incentive and has taken all such other
action necessary to complete the grant of the Stock Incentive.
7.2 TERMS AND CONDITIONS OF OPTIONS. Each grant of an Option shall
be evidenced by a Stock Incentive Agreement which shall:
(I) specify whether the Option is an ISO or Non-ISO; and
(II) incorporate such other terms and conditions as the
Committee, acting in its absolute discretion, deems consistent with the terms of
this Plan, including (without limitation) a restriction on the number of Shares
subject to the Option which first become exercisable or subject to surrender
during any calendar year.
-4-
<PAGE> 5
In determining Employee(s) or Key Person(s) to whom an Option
shall be granted and the number of Shares to be covered by such Option, the
Committee may take into account the recommendations of the President of the
Company and its other officers, the duties of the Employee or Key Person, the
present and potential contributions of the Employee or Key Person to the success
of the Company, the anticipated number of years of service remaining before the
attainment by the Employee of retirement age, and other factors deemed relevant
by the Committee, in its sole discretion, in connection with accomplishing the
purpose of this Plan. An Employee or Key Person who has been granted an Option
to purchase Shares, whether under this Plan or otherwise, may be granted one or
more additional Options.
If the Committee grants an ISO and a Non-ISO to an Employee on
the same date, the right of the Employee to exercise or surrender one such
Option shall not be conditioned on his or her failure to exercise or surrender
the other such Option.
(a) Exercise Price. Subject to adjustment in accordance
with Section 11 and the other provisions of this Section, the Exercise Price
shall be as set forth in the applicable Stock Incentive Agreement. With respect
to each grant of an ISO to a Participant who is not a Ten Percent Shareholder,
the Exercise Price shall not be less than the Fair Market Value on the date the
ISO is granted. With respect to each grant of an ISO to a Participant who is a
Ten Percent Shareholder, a Ten Percent Shareholder shall not be less than one
hundred ten percent (110%) of the Fair Market Value on the date the ISO is
granted. If a Stock Incentive is a Non-ISO, the Exercise Price for each Share
shall be no less than the minimum price required by applicable state law, or by
the Company's governing instrument, or $0.01, whichever price is greater.
(b) Option Term. Each Option granted under this Plan
shall be exercisable in whole or in part at such time or times as set forth in
the related Stock Incentive Agreement, but no Stock Incentive Agreement shall:
(i) make an Option exercisable before the date such
Option is granted; or
(ii) make an Option exercisable after the earlier
of:
(A) the date such Option is exercised in full, or
(B) the date which is the tenth (10th)
anniversary of the date such Option is
granted, if such Option is a Non-ISO or an
ISO granted to a non-Ten Percent Shareholder,
or the date which is the fifth (5th)
anniversary of the date such Option is
granted, if such Option is an ISO granted to
a Ten Percent Shareholder.
A Stock Incentive Agreement may provide for the exercise of an
Option after the employment of an Employee has terminated for any reason
whatsoever, including death or disability.
(c) Payment. Payment for all shares of Stock purchased
pursuant to exercise of an Option shall be made in cash or, if the Stock
Incentive Agreement provides, by delivery to the Company of a number of Shares
which have been owned by the holder for at least six (6) months prior to the
date of exercise having an aggregate Fair Market Value of not less than the
product of the Exercise Price multiplied by the number of Shares the Participant
intends to purchase upon exercise of the Option on the date of delivery. In
addition, the Stock Incentive Agreement may provide for cashless exercise
through a brokerage transaction following registration of the Company's equity
securities under Section 12 of the Securities Exchange Act of 1934. Except as
provided in subparagraph (f) below, payment shall be made at the time that the
Option or any part thereof is
-5-
<PAGE> 6
exercised, and no Shares shall be issued or delivered upon exercise of an Option
until full payment has been made by the Participant. The holder of an Option, as
such, shall have none of the rights of a stockholder.
Notwithstanding the above, and in the sole discretion of the
Committee, an Option may be exercised as to a portion or all (as determined by
the Committee) of the number of Shares specified in the Stock Incentive
Agreement by delivery to the Company of a promissory note, such promissory note
to be executed by the Participant and which shall include, with such other terms
and conditions as the Committee shall determine, provisions in a form approved
by the Committee under which: (i) the balance of the aggregate purchase price
shall be payable in equal installments over such period and shall bear interest
at such rate (which shall not be less than the prime bank loan rate as
determined by the Committee) as the Committee shall approve, and (ii) the
Participant shall be personally liable for payment of the unpaid principal
balance and all accrued but unpaid interest.
(d) Conditions to Exercise of an Option. Each Option
granted under the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee shall
specify in the Stock Incentive Agreement; provided, however, that subsequent to
the grant of an Option, the Committee, at any time before complete termination
of such Option, may accelerate the time or times at which such Option may be
exercised in whole or in part.
(e) Nontransferability of Options. Except as provided in
subparagraph (f) below, an Option shall not be transferable or assignable except
by will or by the laws of descent and distribution and shall be exercisable,
during the Participant's lifetime, only by the Participant, or in the event of
the disability of the Participant, by the legal representative of the
Participant.
(f) Special Provisions for Certain Substitute Options.
Notwithstanding anything to the contrary in this Section, any Option in
substitution for a stock option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in accordance
with such Code Section and the regulations thereunder and may contain such other
terms and conditions as the Committee may prescribe to cause such substitute
Option to contain as nearly as possible the same terms and conditions (including
the applicable vesting and termination provisions) as those contained in the
previously issued stock option being replaced thereby.
7.3 TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right may be granted in connection with all or any portion of a
previously or contemporaneously granted Option or not in connection with an
Option. A Stock Appreciation Right shall entitle the Participant to receive upon
exercise or payment the excess of: (I) the Fair Market Value of a specified
number of Shares at the time of exercise, over (II) a specified price which
shall be not less than the Exercise Price for that number of Shares in the case
of a Stock Appreciation Right granted in connection with a previously or
contemporaneously granted Option, or in the case of any other Stock Appreciation
Right not less than one hundred percent (100%) of the Fair Market Value of that
number of Shares at the time the Stock Appreciation Right was granted. A Stock
Appreciation Right granted in connection with an Option may only be exercised to
the extent that the related Option has not been exercised. The exercise of a
Stock Appreciation Right shall result in a pro rata surrender of the related
Option to the extent the Stock Appreciation Right has been exercised.
(a) Payment. Upon exercise or payment of a Stock
Appreciation Right, the Company shall pay to the Participant the appreciation in
cash or Shares (at the aggregate Fair Market Value on the date of payment or
exercise) as provided in the Stock Incentive Agreement or, in the absence of
such provision, as the Committee may determine.
-6-
<PAGE> 7
(b) Conditions to Exercise. Each Stock Appreciation Right
granted under the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee shall
specify in the Stock Incentive Agreement; provided, however, that subsequent to
the grant of a Stock Appreciation Right, the Committee, at any time before
complete termination of such Stock Appreciation Right, may accelerate the time
or times at which such Stock Appreciation Right may be exercised in whole or in
part.
(c) Nontransferability of Stock Appreciation Right. A
Stock Appreciation Right shall not be transferable or assignable except by will
or by the laws of descent and distribution and shall be exercisable, during the
Participant's lifetime, only by the Participant, or in the event of the
disability of the Participant, by the legal representative of the Participant.
7.4 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. Shares
awarded pursuant to Restricted Stock Awards shall be subject to restrictions for
periods determined by the Committee. The Committee shall have the power to
permit, in its discretion, an acceleration of the expiration of the applicable
restriction period with respect to any part or all of the Shares awarded to a
Participant. The Committee may require a cash payment from the Participant in an
amount no greater than the aggregate Fair Market Value of the Shares awarded
determined at the date of grant in exchange for the grant of a Restricted Stock
Award or may grant a Restricted Stock Award without the requirement of a cash
payment.
SECTION 8.
SURRENDER OF OPTIONS
8.1 GENERAL RULE. The Committee, acting in its absolute
discretion, may incorporate a provision in a Stock Incentive Agreement to allow
an Employee or Key Person to surrender his or Option in whole or in part in lieu
of the exercise in whole or in part of that Option on any date that:
(a) the Fair Market Value of the Shares subject to such
Option exceeds Exercise Price for such Shares, and
(b) the Option to purchase such Shares is otherwise
exercisable.
8.2 PROCEDURE. The surrender of an Option in whole or in part
shall be effected by the delivery of the Stock Incentive Agreement to the
Committee, together with a statement signed by the Participant which specifies
the number of Shares ("Surrendered Shares") as to which the Participant
surrenders his or her Option and how he or she desires payment be made for such
Surrendered Shares.
8.3 PAYMENT. A Participant in exchange for his or her Surrendered
Shares shall receive a payment in cash or in Shares, or in a combination of cash
and Shares, equal in amount on the date such surrender is effected to the excess
of the Fair Market Value of the Surrendered Shares on such date over the
Exercise Price for the Surrendered Shares. The Committee, acting in its absolute
discretion, can approve or disapprove a Participant's request for payment in
whole or in part in cash and can make that payment in cash or in such
combination of cash and Shares as the Committee deems appropriate. A request for
payment only in Shares shall be approved and made in Shares to the extent
payment can be made in whole shares of Shares and (at the Committee's
discretion) in cash in lieu of any fractional Shares.
8.4 RESTRICTIONS. Any Stock Incentive Agreement which incorporates
a provision to allow a Participant to surrender his or her Option in whole or in
part also shall incorporate such additional restrictions on the exercise or
surrender of such Option as the Committee deems necessary to satisfy the
conditions to the exemption under Rule 16b-3 (or any successor exemption) to
Section 16(b) of the Exchange Act.
-7-
<PAGE> 8
SECTION 9.
SECURITIES REGULATION
Each Stock Incentive Agreement may provide that, upon the receipt of
Shares as a result of the surrender or exercise of a Stock Incentive, the
Participant shall, if so requested by the Company, hold such Shares for
investment and not with a view of resale or distribution to the public and, if
so requested by the Company, shall deliver to the Company a written statement
satisfactory to the Company to that effect. Each Stock Incentive Agreement may
also provide that, if so requested by the Company, the Participant shall make a
written representation to the Company that he or she will not sell or offer to
sell any of such Shares unless a registration statement shall be in effect with
respect to such Shares under the Securities Act of 1933, as amended ("1933
Act"), and any applicable state securities law or, unless he or she shall have
furnished to the Company an opinion, in form and substance satisfactory to the
Company, of legal counsel acceptable to the Company, that such registration is
not required. Certificates representing the Shares transferred upon the exercise
or surrender of a Stock Incentive granted under this Plan may at the discretion
of the Company bear a legend to the effect that such Shares have not been
registered under the 1933 Act or any applicable state securities law and that
such Shares may not be sold or offered for sale in the absence of an effective
registration statement as to such Shares under the 1933 Act and any applicable
state securities law or an opinion, in form and substance satisfactory to the
Company, of legal counsel acceptable to the Company, that such registration is
not required.
SECTION 10.
LIFE OF PLAN
No Stock Incentive shall be granted under this Plan on or after the
earlier of:
(a) the tenth (10th) anniversary of the effective date of this Plan (as
determined under Section 4 of this Plan), in which event this Plan otherwise
thereafter shall continue in effect until all outstanding Stock Incentives have
been surrendered or exercised in full or no longer are exercisable, or
(b) the date on which all of the Shares reserved under Section 3 of
this Plan have (as a result of the surrender or exercise of Stock Incentives
granted under this Plan) been issued or no longer are available for use under
this Plan, in which event this Plan also shall terminate on such date.
SECTION 11.
ADJUSTMENT
The number of Shares reserved under Section 3 of this Plan, and the
number of Shares subject to Stock Incentives granted under this Plan, and the
Exercise Price of any Options, shall be adjusted by the Committee in an
equitable manner to reflect any change in the capitalization of the Company,
including, but not limited to, such changes as stock dividends or stock splits.
Furthermore, the Committee shall have the right to adjust (in a manner which
satisfies the requirements of Code Section 424(a)) the number of Shares reserved
under Section 3, and the number of Shares subject to Stock Incentives granted
under this Plan, and the Exercise Price of any Options in the event of any
corporate transaction described in Code Section 424(a) which provides for the
substitution or assumption of such Stock Incentives. If any adjustment under
this Section creates a fractional Share or a right to acquire a fractional
Share, such fractional Share shall be disregarded, and the number of Shares
reserved under this Plan and the number subject to any Stock Incentives granted
under this Plan shall be the next lower number of Shares, rounding all fractions
downward. An adjustment made under this Section by the Committee shall be
conclusive and binding on all affected persons and, further, shall not
constitute an increase in the number of Shares reserved under Section 3.
-8-
<PAGE> 9
SECTION 12.
SALE OR MERGER OF THE COMPANY
If the Company agrees to sell substantially all of its assets for cash
or property, or for a combination of cash and property, or agrees to any merger,
consolidation, reorganization, division or other transaction in which Shares are
converted into another security or into the right to receive securities or
property and such agreement does not provide for the assumption or substitution
of the Stock Incentives granted under this Plan, each Stock Incentive at the
direction and discretion of the Committee, or as is otherwise provided in the
Stock Incentive Agreements, may be canceled unilaterally by the Company in
exchange for the whole Shares (or, subject to satisfying the conditions to the
exemption under Rule 16b-3 or any successor exemption to Section 16(b) of the
Exchange Act, for the whole Shares and the cash in lieu of a fractional Share)
which each Participant otherwise would receive if he or she had the right to
surrender or exercise his or her outstanding Stock Incentive in full and he or
she exercised that right exclusively for Shares on a date fixed by the Committee
which comes before such sale or other corporate transaction.
SECTION 13.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, no such
amendment shall be made absent the approval of the shareholders of the Company:
(a) to increase the number of Shares reserved under Section 3, except as set
forth in Section 11, (b) to extend the maximum life of the Plan under Section 10
or the maximum exercise period under Section 7, (c) to decrease the minimum
Exercise Price under Section 7, or (d) to change the designation of Employees or
Key Persons eligible for Stock Incentives under Section 6. The Board also may
suspend the granting of Stock Incentives under this Plan at any time and may
terminate this Plan at any time; provided, however, the Company shall not have
the right to modify, amend or cancel any Stock Incentive granted before such
suspension or termination unless: (I) the Participant consents in writing to
such modification, amendment or cancellation, or (II) there is a dissolution or
liquidation of the Company or a transaction described in Section 11 or Section
12.
SECTION 14.
MISCELLANEOUS
14.1 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder of the Company as a result of the grant of a Stock Incentive to him
or to her under this Plan or his or her exercise or surrender of such Stock
Incentive pending the actual delivery of Shares subject to such Stock Incentive
to such Participant.
14.2 NO GUARANTEE OF CONTINUED RELATIONSHIP. The grant of a Stock
Incentive to a Participant under this Plan shall not constitute a contract of
employment and shall not confer on a Participant any rights upon his or her
termination of employment or relationship with the Company in addition to those
rights, if any, expressly set forth in the Stock Incentive Agreement which
evidences his or her Stock Incentive.
14.3 WITHHOLDING. The exercise or surrender of any Stock Incentive
granted under this Plan shall constitute a Participant's full and complete
consent to whatever action the Committee directs to satisfy the federal and
state tax withholding requirements, if any, which the Committee in its
discretion deems applicable to such exercise or surrender.
14.4 TRANSFER. The transfer of an Employee between or among the
Company, a Subsidiary or a Parent shall not be treated as a termination of his
or her employment under this Plan.
14.5 CONSTRUCTION. This Plan shall be construed under the laws of the
State of Georgia.
-9-
<PAGE> 1
EXHIBIT 10.14
AMENDMENT TO TELEMATE SOFTWARE, INC.
STOCK INCENTIVE PLAN
THIS AMENDMENT TO THE Telemate Software, Inc. STOCK INCENTIVE PLAN
(the "Amendment") is made effective as of the 14th day of June, 1999 (the
"Effective Date"), by TELEMATE.NET SOFTWARE, INC., a corporation organized under
and doing business under the laws of the State of Georgia (the "Company"). All
capitalized terms in this Amendment have the meaning ascribed to such term as in
the Telemate Software, Inc. Stock Incentive Plan (the "Plan"), unless
otherwise stated herein.
W I T N E S S E T H :
WHEREAS, the Plan was adopted by the Board of Directors and approved by
the shareholders of the Company in December 1994; and
WHEREAS, in the regular course of its business, the Company has granted
options that will soon exhaust the number of shares currently reserved for
issuance of options under the Plan, and the Board of Directors of the Company
deems it in the best interest of the Company to amend the Plan to increase the
number of shares that may be granted under the Plan;
NOW, THEREFORE, BE IT RESOLVED, that, pursuant to Section 20 of the
Plan, the Plan is hereby amended by deleting the first sentence of Section 3 in
its entirety and substituting therefor the following sentence:
"The total number of Shares that may be issued pursuant to ISO's,
Non-ISO's or Restricted Stock Awards granted under the Plan and under the
Immediate Vesting Plan shall not, in the aggregate, exceed one million three
hundred thousand (1,300,000) as adjusted below and pursuant to Section 18 of
this Plan and pursuant to Sections 3 and 17 of the Immediate Vesting Plan."
Except as specifically amended by this Amendment, the Plan shall remain
in full force and effect as prior to this Amendment.
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed on the this 14th day of June, 1999.
TELEMATE.NET SOFTWARE, INC.
By: /s/ Richard L. Mauro
---------------------------------
Richard L. Mauro, President
-2-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF KPMG LLP
The Board of Directors and Shareholders
Telemate.Net Software, Inc.:
The audits referred to in our report dated June 18, 1999, included the related
financial statement schedule as of December 31, 1998, and for each of the years
in the three-year period ended December 31, 1998, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits. In our opinion, this
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Atlanta, GA
June 24, 1999
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<OTHER-EXPENSES> 5,443,183 7,140,141 9,383,234 2,099,209 2,323,608
<LOSS-PROVISION> 71,709 33,158 62,349 5,000 0
<INTEREST-EXPENSE> (15,229) (18,829) 107,178 676 774,522
<INCOME-PRETAX> 136,097 38,191 (1,305,760) (101,785) (1,044,379)
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> 136,097 38,191 (1,305,760) (101,785) (1,044,379)
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 136,097 38,191 (1,305,760) (101,785) (1,044,379)
<EPS-BASIC> 0.13 0.04 (1.20) (.09) (.96)
<EPS-DILUTED> 0.12 0.03 (1.20) (.09) (.96)
</TABLE>
