<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1999
REGISTRATION NO. 333-88437
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CAMINUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 13-4081739
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 888-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID M. STONER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CAMINUS CORPORATION
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 888-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN A. BURGESS, ESQ. STEVEN P. ROSENTHAL, ESQ.
JAMES R. BURKE, ESQ. MINTZ, LEVIN, COHN, FERRIS,
HALE AND DORR LLP GLOVSKY AND POPEO, P.C.
60 STATE STREET ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02111
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 542-6000
TELECOPY: (617) 526-5000 TELECOPY: (617) 542-2241
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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 OFFERS TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1999
[CAMINUS LOGO]
- --------------------------------------------------------------------------------
4,345,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
This is Caminus Corporation's initial public offering. We are offering 3,572,203
shares of common stock, and the selling stockholders identified in this
prospectus are offering 772,797 shares of common stock.
We expect that the public offering price will be between $13.00 and $15.00 per
share.
We have filed an application for our common stock to be quoted on the Nasdaq
National Market under the symbol "CAMZ."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS, PROCEEDS,
PRICE TO DISCOUNTS AND BEFORE EXPENSES, BEFORE EXPENSES,
PUBLIC COMMISSIONS TO CAMINUS TO SELLING STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total $ $ $ $
</TABLE>
We and the selling stockholders have granted the underwriters the right to
purchase up to 651,750 shares to cover any over-allotments, at any time until 30
days after the date of this prospectus.
DEUTSCHE BANC ALEX. BROWN
BEAR, STEARNS & CO. INC.
CIBC WORLD MARKETS
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
[PICTURES AND CAPTIONS FOR INSIDE FRONT COVER.]
[In the top left corner of the page is the Caminus logo. Directly below the logo
is the phrase, "A leading provider of software solutions and strategic advice to
participants in competitive energy markets.
To the right of this phrase are three phrases as follows:
"Make strategic decisions in competitive energy markets"
"Trade energy commodities and manage energy transactions"
"Manage complex energy risk scenarios"
Below the four phrases is a large box. In the center of the box is a large oval
graphic. Against a dark background is a series of interlocking lines connecting
ten terms. The terms are arranged in a circular pattern as follows: "Utilities,"
"Generators," "Processors," "Marketers," "Local Distribution Companies,"
"Retailers," "Pipelines," "Transmission Companies," "Municipalities" and
"Producers."
In the center of the interconnecting lines is the Caminus Corporation logo.
Directly above and below the circular graphic are snapshots of power plants and
workers in the energy industry.
Running along the bottom of the box are five small boxes which contain the
following terms: "Energy Trading," "Risk Management," "Analytics," "Scheduling
Systems" and "Strategic Consulting."]
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary may not contain all of the information that is important to
you. You should read the entire prospectus, including "Risk Factors" and the
financial statements and related notes, before deciding to invest in our common
stock.
CAMINUS CORPORATION
We are a leading provider of software solutions and strategic consulting
services to participants in energy markets throughout North America and Europe,
including utilities, electrical power generating companies, energy marketers,
electric power pools, gas producers, processors and pipelines. We offer a suite
of software solutions and associated services to enable energy market
participants to manage complex risk scenarios and effectively trade and manage
energy transactions, addressing multiple types of risk and energy commodities,
such as electric power, natural gas, crude oil and coal, across varied
geographies. In addition, we provide strategic consulting services to many of
the leading European energy market participants.
The energy industry is currently one of the five largest vertical markets
in the United States, with 1998 revenue of approximately $300 billion. As a
result of global deregulation in the energy industry, vertically integrated
suppliers are breaking up and energy trading is becoming more complex. New
participants are entering the market, and trading volumes, price volatility and
risk exposure are increasing significantly. In order to compete, energy market
participants must find information technology solutions and services that are
targeted to address the risks associated with buying, selling and trading
multiple energy commodities in deregulating markets.
Our Zai*Net suite of software products enables energy market participants
to trade, process transactions and manage risk from the wholesale acquisition of
energy through its sale and scheduling. Using our software solutions, energy
market participants can analyze and manage risk among multiple energy
commodities, traded via various energy trading instruments, across varied
geographies.
Our strategic consulting practice provides energy market participants with
strategic advice on the deregulation and restructuring of the energy industry.
We assist energy companies with global operations in choosing and implementing
long-term strategies to remain competitive, including decisions relating to the
appropriate use of energy assets and the most effective operating strategies in
deregulating energy markets. We have significant expertise in economics,
regulation and strategy, and have been at the forefront of changes in the United
Kingdom energy sector, which has one of the most deregulated natural gas and
electric power markets in the world.
We currently have approximately 100 energy enterprise customers of our
software solutions and strategic consulting services. Many of our customers are
leaders in the energy industry, including American Electric Power, Consolidated
Edison, Conoco, PG&E Energy Trading, Preussen Elektra and TXU Electric and Gas.
3
<PAGE> 5
THIS OFFERING
Common stock offered by Caminus.......... 3,572,203 shares
Common stock offered by the selling
stockholders........................... 772,797 shares
Common stock to be outstanding after this
offering............................... 14,611,022 shares
Use of proceeds.......................... - Repayment of borrowings under
our credit facility
- Payment of a consulting and
advisory termination fee to GFI
- Special bonus payments
- Working capital
- Other general corporate purposes,
including possible acquisitions
Proposed Nasdaq National Market symbol... CAMZ
The number of shares of our common stock that will be outstanding after
this offering excludes 926,258 and 28,572 shares subject to outstanding options
under our 1998 and 1999 stock incentive plans, respectively, at a weighted
average exercise price of $4.76 per share and 568,978 additional shares
available for issuance under our stock plans.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of the common stock.
------------------------
We were originally organized in April 1998 as a Delaware limited liability
company under the name "GFI Caminus LLC." We changed our name to "Caminus Energy
Ventures LLC" in September 1998 and "Caminus LLC" in January 1999. Immediately
prior to this offering, the limited liability company will merge with and into
Caminus Corporation, a Delaware corporation incorporated in September 1999. Our
principal executive offices are located at 747 Third Avenue, New York, New York
10017 and our telephone number is (212) 888-3600. Our World Wide Web site
address is www.caminus.com. The information in the Web site is not incorporated
by reference into this prospectus. For additional information regarding our
initial formation and subsequent acquisitions, please see "Caminus Corporation"
below.
GFI Energy Ventures, LLC and its affiliated entities, which are
collectively referred to in this prospectus as GFI, and an affiliate of Oaktree
Capital Management, LLC originated and were the principal investors in the
transactions that created us. RIT Capital Partners plc -- the publicly traded,
London-based investment company chaired by Lord Rothschild -- is also a
substantial investor.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables present summary consolidated, pro forma and pro forma
as adjusted financial data for us and our predecessor, Zai*Net Software, Inc.
The consolidated financial data, except for the pro forma data, are based on the
historical financial statements of us and our predecessor for the year ended
December 31, 1997, for the four months ended April 30, 1998 and for the period
from our inception (April 29, 1998) through December 31, 1998, which are derived
from the respective audited consolidated financial statements of us and our
predecessor. The consolidated financial data from our inception through
September 30, 1998 and as of and for the nine months ended September 30, 1999
are derived from our unaudited consolidated financial statements and include, in
the opinion of our management, all adjustments, consisting only of normal
recurring adjustments, that are necessary for the fair presentation of our
financial position and results of operations as of and for such periods. The pro
forma financial data give effect to the acquisitions of Zai*Net, Caminus Energy
Limited, which is now known as Caminus Limited, and DC Systems, Inc. as if the
acquisitions had occurred at the beginning of the respective periods presented.
The pro forma financial data do not give retroactive effect to our acquisition
of Positron Energy Consulting, whose results of operations prior to the
acquisition were immaterial to our results of operations. The following summary
historical and pro forma financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included elsewhere in
this prospectus.
In the following table, "Adjusted EBITDA" is defined as earnings before
interest and other income, income taxes, depreciation, amortization, acquired
in-process research and development, non-cash compensation expense and
terminated acquisition costs. Terminated acquisition costs represent costs
associated with a potential acquisition that we ultimately decided not to
pursue. EBITDA is a non-GAAP measure commonly used by investors and analysts to
analyze companies on the basis of operating performance, leverage and liquidity.
We present Adjusted EBITDA, which is also a non-GAAP measure, to enhance the
understanding of our operating results. We believe Adjusted EBITDA is an
indicator of our operating profitability since it excludes items which are not
directly attributable to our ongoing business operations. However, Adjusted
EBITDA relies upon management's judgment to determine which items are directly
attributable to our ongoing business operations and as such is subjective in
nature. Neither EBITDA nor Adjusted EBITDA should be construed as an alternative
to net income as an indicator of a company's operating performance or as an
alternative to cash flow from operations as a measure of a company's liquidity.
For information about cash flows or results of operations in accordance with
generally accepted accounting principles, please see the audited consolidated
financial statements included elsewhere in this prospectus.
5
<PAGE> 7
The pro forma as adjusted balance sheet data as of September 30, 1999 below
give effect to our sale of 3,572,203 shares of common stock in this offering, at
an assumed initial public offering price of $14.00 per share, after deducting
estimated underwriting discounts and our estimated offering expenses and after
the application of a portion of the proceeds to pay a special one-time bonus to
Nigel L. Evans and Michael Morrison, pay GFI a termination fee for its
consulting and advisory services and repay borrowings under our credit facility.
6
<PAGE> 8
<TABLE>
<CAPTION>
ZAI*NET
(PREDECESSOR) CAMINUS
------------------------- -----------------------------------------------------------
INCEPTION PRO FORMA INCEPTION
FOUR (APRIL 29, TWELVE (APRIL 29, NINE
MONTHS 1998) MONTHS 1998) MONTHS
YEAR ENDED ENDED THROUGH ENDED THROUGH ENDED
DECEMBER 31, APRIL 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1998 1998 1999
------------ ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses..................... $1,521,447 $1,495,221 $ 3,639,143 $ 5,455,014 $ 1,925,858 $ 8,088,621
Software services............ 2,667,807 1,334,473 3,090,758 4,947,199 1,881,417 5,679,513
Strategic consulting......... -- -- 2,896,102 4,354,096 1,720,550 4,757,425
---------- ---------- ------------ ------------ ----------- -----------
Total revenues............. 4,189,254 2,829,694 9,626,003 14,756,309 5,527,825 18,525,559
---------- ---------- ------------ ------------ ----------- -----------
Acquired in-process research
and development.............. -- -- 4,822,000 -- 3,053,000 1,000,000
Operating income (loss)........ (4,236) 436,030 (10,133,366) (13,272,778) (4,489,768) (5,781,600)
Net income (loss).............. 13,355 420,508 (10,371,188) (13,319,684) (4,680,440) (6,242,750)
Basic and diluted net loss per
common share................. $ (1.41) $ (1.76) $ (0.65) $ (0.76)
Weighted average shares --
basic and diluted............ 7,360,634 7,578,987 7,215,030 8,264,075
OTHER DATA:
Cash provided by (used in)
operating activities......... $ 401,048 $1,053,662 $ 951,676 $ 456,381 $ (932,513)
Cash used in investing
activities................... 206,245 99,881 10,892,906 10,264,424 10,719,054
Cash provided by (used in)
financing activities......... (290,050) (3,000) 12,699,637 12,874,999 9,693,866
Adjusted EBITDA................ 118,854 482,171 355,155 $ 397,280 382,350 2,079,747
<CAPTION>
CAMINUS
-------------
PRO FORMA
NINE
MONTHS
ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses..................... $ 8,129,621
Software services............ 5,981,134
Strategic consulting......... 4,757,425
-----------
Total revenues............. 18,868,180
-----------
Acquired in-process research
and development.............. --
Operating income (loss)........ (11,843,964)
Net income (loss).............. (12,308,591)
Basic and diluted net loss per
common share................. $ (1.46)
Weighted average shares --
basic and diluted............ 8,405,529
OTHER DATA:
Cash provided by (used in)
operating activities.........
Cash used in investing
activities...................
Cash provided by (used in)
financing activities.........
Adjusted EBITDA................ $ 1,738,853
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 801,351 $ 2,125,329 $44,335,412
Total assets................................................ 40,868,631 42,192,609 84,402,692
Borrowings under credit facility, net of current portion.... 1,000,000 1,000,000 --
Current portion of borrowings under credit facility......... 1,000,000 1,000,000 --
Stockholders' equity........................................ 27,050,273 27,659,247 71,869,330
</TABLE>
------------------------
All information in this prospectus assumes our reorganization as a
corporation immediately prior to this offering, and the conversion of each
membership interest in the limited liability company into .095238 of one share
of common stock of the corporation. Except as set forth in the financial
statements and related notes or as otherwise indicated, all information in this
prospectus assumes:
- no exercise of the underwriters' over-allotment option;
- the issuance of an aggregate of 57,486 shares of common stock in November
1999 to three employees in connection with the acquisition of Positron
Energy Consulting;
- the issuance upon the closing of this offering of 160,209 shares of
common stock to David M. Stoner, our President and Chief Executive
Officer, as a bonus for his services; and
- the exercise prior to or in connection with this offering of options to
purchase common stock issued to GFI, Nigel L. Evans, Michael Morrison and
SS&C Technologies, Inc.
We use the following registered trademarks: Caminus(R) and Zai*Net(R). We
also use the following trademarks: Zai*Net Manager(TM), Zai*Net Risk
Analytics(TM), Zai*Net Physicals(TM), Zai*Net Models(TM), PowerMarkets(TM),
PowerOptions(TM), GasOptions(TM), ProjectFinance(TM), Zai*Net Weather Delta(TM),
Gas*Master(TM), Power*Master(TM) and Plant*Master(TM). This prospectus also
contains trademarks and registered trademarks of other companies, which are the
property of those other companies.
7
<PAGE> 9
RISK FACTORS
You should consider carefully the following Risk Factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially harm our business and could result in a
complete loss of your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED HISTORY AS A COMBINED OPERATING ENTITY THAT PROVIDES BOTH
SOFTWARE SOLUTIONS AND STRATEGIC CONSULTING SERVICES, AND WE MAY FACE
DIFFICULTIES ENCOUNTERED BY RECENTLY COMBINED COMPANIES THAT OPERATE IN
DIFFERENT GEOGRAPHIC REGIONS AND PROVIDE VARIED PRODUCTS AND SERVICES
In April 1998, we were organized as a limited liability company for the
purpose of acquiring Zai*Net Software, L.P., a software company based in New
York, and Caminus Limited, a strategic consulting practice based in Cambridge,
England. Accordingly, we have a limited history of combined operations and may
face difficulties encountered by recently combined companies that operate in
different geographic regions and provide varied products and services,
especially in rapidly evolving markets such as the energy market. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our limited operating history.
YOU SHOULD NOT RELY ON OUR HISTORICAL AND PRO FORMA FINANCIAL INFORMATION IN
DECIDING WHETHER TO INVEST IN OUR COMMON STOCK, BECAUSE SUCH INFORMATION MAY NOT
BE REPRESENTATIVE OF OUR RESULTS AS A COMBINED COMPANY
The pro forma financial information included in this prospectus combines
the operating results of Zai*Net Software, Inc., Caminus Limited and DC Systems,
Inc. This information may not reflect what our results of operations, financial
position and cash flows would have been had we been a combined entity during the
periods presented, or what our results of operations, financial position and
cash flows will be in the future. The historical and pro forma financial
information does not reflect many significant changes that have occurred or may
occur in our operational arrangements as a combined entity. Accordingly, you
should not rely on our historical and pro forma financial information as an
indication of our future operating results or financial performance.
WE EXPECT OUR RESULTS OF OPERATIONS TO FLUCTUATE AND THE PRICE OF OUR COMMON
STOCK COULD FALL IF QUARTERLY RESULTS ARE LOWER THAN THE EXPECTATIONS OF
SECURITIES ANALYSTS
Our revenues and results of operations have fluctuated in the past and may
vary from quarter to quarter in the future. If our quarterly results fall below
the expectations of securities analysts, the price of our common stock could
fall. A
8
<PAGE> 10
number of factors, many of which are outside our control, may cause variations
in our results of operations, including:
- demand for our software solutions and strategic consulting services
- the timing and recognition of sales of our products and services
- unexpected delays in developing and introducing new products and services
- increased expenses, whether related to sales and marketing, product
development or administration
- changes in the rapidly evolving market for products and services in the
energy industry
- the mix of revenues derived from products and services
- the hiring, retention and utilization of personnel
- the mix of domestic and international revenues
- costs related to possible acquisitions of technologies or businesses
- general economic factors
- changes in the revenue recognition policies required by generally
accepted accounting principles
Accordingly, we believe that quarter-to-quarter comparisons of our results
of operations are not necessarily meaningful. You should not rely on the results
of one quarter as an indication of our future performance.
A substantial portion of our operating expenses is related to personnel
costs, marketing programs and overhead, which cannot be adjusted quickly and are
therefore relatively fixed in the short term. Our operating expense levels are
based, in significant part, on our expectations of future revenues on a
quarterly basis. As a result, if revenues for a particular quarter are below our
expectations, we may not be able to reduce operating expenses proportionately
for that quarter, and therefore this revenue shortfall would have a
disproportionately negative effect on our operating results and cash flows for
that quarter.
In addition, we plan to increase our operating expenses to expand our sales
and marketing operations, fund greater levels of research and development,
broaden strategic consulting and software services and improve our operational
and financial systems. If our revenues do not increase as quickly as these
expenses, our results of operations and cash flows may suffer and our stock
price may decline.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY RESULTS AND
THE PRICE OF OUR COMMON STOCK COULD FALL IF QUARTERLY RESULTS ARE LOWER THAN THE
EXPECTATIONS OF SECURITIES ANALYSTS
Our long sales cycle, which can range from six to nine months or more,
makes it difficult to predict the quarter in which sales may occur or revenues
may be recognized. Our sales cycle varies depending on the size and type of
customer considering a purchase and whether we have conducted business with a
potential
9
<PAGE> 11
customer in the past. These potential customers frequently need to obtain
internal approvals from multiple decision makers prior to making purchase
decisions. Delays in sales could cause significant variability in our revenues
and results of operations for any particular period. If our quarterly results
and cash flows fall below the expectations of securities analysts, our stock
price may decline.
WE MAY NOT BE ABLE TO OBTAIN OR SUSTAIN MARKET ACCEPTANCE FOR OUR PRODUCTS AND
SERVICES
Because the market for products and services in the energy industry is
rapidly evolving, a viable market for our products and services may not be
sustainable. We may not be able to continue to develop products and services
that serve the changing needs of energy market participants in this evolving
market. Organizations that have already invested substantial resources in
proprietary or other third-party solutions for buying, selling or trading energy
assets may be reluctant or slow to adopt a new approach that may replace, limit
or compete with their existing systems. These factors could inhibit the market's
acceptance of our products and services in particular.
THE MARKET FOR PRODUCTS AND SERVICES IN THE ENERGY INDUSTRY IS COMPETITIVE, AND
WE EXPECT COMPETITION TO INTENSIFY IN THE FUTURE; WE MAY NOT BE ABLE TO COMPETE
SUCCESSFULLY
The market for products and services in the energy industry is competitive,
and we expect competition to intensify in the future as participants in the
energy industry try to respond to increasing deregulation. Our primary
competition currently comes from internal development efforts of energy
participants for internal use or for sale to other market participants, vendors
of software solutions and providers of strategic consulting services.
Some of our current and many of our potential competitors have or may have
longer operating histories and significantly greater financial, technical,
marketing and other resources than we do, and may be able to respond more
quickly than we can to new or changing opportunities, technologies and customer
requirements. Also, our current and potential competitors have or may have
greater name recognition and more extensive customer bases that they can
leverage to gain market share. These competitors may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies and
offer more attractive terms to purchasers than we can. In addition, our current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their products
and services and expand their markets. Accordingly, new competitors or alliances
among competitors may emerge and rapidly acquire significant market share.
Increased competition could result in price reductions, reduced revenues and the
loss of customers, which could result in increased losses or reduced profits.
10
<PAGE> 12
WE MAY NOT BE ABLE TO SUFFICIENTLY EXPAND OUR SALES AND DISTRIBUTION
CAPABILITIES AND STRATEGIC CONSULTING SERVICES IN ORDER TO INCREASE MARKET
AWARENESS OF OUR PRODUCTS AND SERVICES AND INCREASE OUR REVENUES
We must expand our direct sales operations and strategic consulting
services in order to increase market awareness of our products and services and
generate increased revenues. We require sales and consulting personnel with
significant subject matter expertise in the energy industry. We may not be able
to hire a sufficient number of sales and consulting personnel in a timely,
cost-effective manner. Moreover, all of our strategic consultants are currently
based in Europe, and we may encounter significant start-up costs in connection
with establishing strategic consulting operations in the United States.
OUR REVENUES ARE SUBSTANTIALLY DEPENDENT UPON SALES OF A LIMITED NUMBER OF
SOFTWARE PRODUCTS AND RELATED SERVICES
Factors adversely affecting the pricing of or demand for our products and
services, such as competition or technological change, could have a material
adverse effect on our business, financial condition and results of operations.
To date, a significant percentage of our revenues has come from licensing our
Zai*Net Manager, Zai*Net Risk Analytics, Zai*Net Physicals and Zai*Net Models
software and providing related services. We currently expect that these
activities will account for a significant percentage of our revenues for the
foreseeable future. Our future financial performance will depend, in large part,
on the continued market acceptance of our existing products and the successful
development, introduction and customer acceptance of new or enhanced versions of
our software products and services, including the end-to-end energy software
solution that we are developing with ABB Energy Information Systems. We may not
be successful in developing and marketing our Zai*Net Manager, Zai*Net Risk
Analytics, Zai*Net Physicals and Zai*Net Models software.
WE MAY NOT BE ABLE TO MANAGE OUR EXPANDING OPERATIONS
Rapid growth in numerous geographic regions has placed and will continue to
place a significant demand on our management, financial and operational
resources. Such demands have already required us and may require us in the
future to engage third-party resources over which we have limited control to
assist us in implementing our growth strategy. We have expanded our operations
rapidly and currently have three offices in the United States and two in the
United Kingdom. We intend to continue to expand our U.S. and international
operations in the foreseeable future to pursue existing and potential market
opportunities and to support our growing customer base. In order to manage
growth effectively, we must implement and improve our operational systems,
procedures and controls on a timely and cost-effective basis. If we fail to
improve our operational systems in a timely and cost-effective manner, we could
experience customer dissatisfaction, cost inefficiencies and lost revenue
opportunities.
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WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS AND PLANS FOR
EXPANSION
One of our key strategies is to continue to expand our international
operations and sales and marketing efforts. If we are unsuccessful, we may lose
customers that operate globally, which will adversely affect our results of
operations. In addition, international operations are subject to inherent risks
that may limit our international expansion or cause us to incur significant
costs to compete effectively in international markets. These include:
- the need to comply with the laws and regulations of different countries
- difficulties in enforcing contractual obligations and intellectual
property rights in some countries
- difficulties and costs of staffing and managing foreign operations
- fluctuations in currency exchange rates and the imposition of exchange or
price controls or other restrictions on the conversion of foreign
currencies
- difficulties in collecting international accounts receivable and the
existence of potentially longer payment cycles
- language and cultural differences
- local economic conditions in foreign markets
WE MAY NOT BE ABLE TO INTEGRATE THE OPERATIONS FROM OUR RECENT AND FUTURE
ACQUISITIONS
As part of our business strategy, we have completed and expect to enter
into additional business combinations and acquisitions, such as our July 1999
acquisition of DC Systems, Inc.
Acquisition transactions are accompanied by a number of risks, including,
among other things:
- the difficulty of assimilating the operations and personnel of the
acquired companies
- the potential disruption of our ongoing business
- expenses associated with the transactions, including expenses associated
with amortization of acquired intangible assets
- the potential unknown liabilities associated with acquired businesses
IF NEW MEMBERS OF OUR SENIOR MANAGEMENT ARE NOT SUCCESSFULLY INTEGRATED WITH OUR
MANAGEMENT TEAM, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS
Several members of our senior management recently joined us and have not
previously worked together. David M. Stoner, our chief executive officer, joined
us in October 1998, and Mark A. Herman, our chief financial officer, joined us
in February 1999. In addition, two of our founders, Nigel L. Evans, our senior
vice
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<PAGE> 14
president and head of European operations, and Brian J. Scanlan, our chief
technology officer, have been working together only since our acquisitions of
Caminus Limited and Zai*Net Software, L.P. in May 1998. As a result, our senior
managers are still becoming integrated as a management team and may not work
effectively as a team to successfully manage our business.
IF WE FAIL TO ADAPT TO RAPID CHANGES IN THE ENERGY MARKET, OUR EXISTING PRODUCTS
COULD BECOME OBSOLETE
The market for our products is marked by rapid changes in the regulatory
environment, new product introductions and related technology enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. We may not be able to successfully develop and market new products or
product enhancements that comply with present or emerging technology standards.
Also, any new regulation or technology standard could increase our cost of doing
business.
New products based on new technologies or new industry standards could
render our existing products obsolete and unmarketable. To succeed, we will need
to enhance our current products and develop new products on a timely basis to
keep pace with developments related to the energy market and to satisfy the
increasingly sophisticated requirements of customers. Software addressing the
trading and management of energy assets is complex and can be expensive to
develop, and new products and product enhancements can require long development
and testing periods. Any delays in developing and releasing enhanced or new
products could cause us to lose revenue opportunities and customers and could
increase the cost of doing business.
OUR SOFTWARE PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, DELAYED OR LIMITED MARKET ACCEPTANCE OR PRODUCT LIABILITY CLAIMS WITH
SUBSTANTIAL LITIGATION COSTS
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Despite internal testing and testing by customers, our current and
future products may contain serious defects, including Year 2000 errors. Serious
defects or errors could result in lost revenues or a delay in market acceptance.
Because our customers use our products for critical business applications,
errors, defects or other performance problems could result in damage to our
customers. They could seek significant compensation for losses from us. Although
our license agreements typically contain provisions designed to limit our
exposure to product liability claims, existing or future laws or unfavorable
judicial decisions could negate these limitations. Even if not successful, a
product liability claim brought against us would likely be costly and
time-consuming, which would require our management to spend time defending the
claim rather than operating our business.
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<PAGE> 15
UNAUTHORIZED PARTIES MAY OBTAIN AND PROFIT FROM OUR SOFTWARE, DOCUMENTATION AND
OTHER PROPRIETARY INFORMATION
We seek to protect the source code for our proprietary software both as a
trade secret and as a copyrighted work. Our policy is to enter into
confidentiality agreements with our employees, consultants, vendors and
customers and to control access to our software, documentation and other
proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or obtain and use information that
we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, such piracy can be expected to be a persistent
problem, particularly in international markets where the laws of foreign
countries are not as protective as they are in the U.S. Our trade secrets or
confidentiality agreements may not provide meaningful protection of our
proprietary information. We are aware of competitors which offer similar
functionality in their products. We can provide no assurance that others will
not independently develop similar technologies or duplicate any technology
developed by us.
We rely on outside licensors for technology that is incorporated into and
is necessary for the operation of our products. Our success will depend in part
on our continued ability to have access to such technologies that are or may
become important to the functionality of our products.
OTHERS MAY CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH
MAY LIMIT OUR ABILITY TO CONDUCT OUR BUSINESS
As the number of software products in the energy industry increases and the
functionality of products from different software developers further overlaps,
software developers and publishers may increasingly become subject to claims of
infringement or misappropriation of the intellectual property or proprietary
rights of others. Although we are not currently subject to any claims of
infringement, third parties may assert infringement or misappropriation claims
against us in the future with respect to current or future products. Further, we
may be subject to additional risks as we enter into transactions in countries
where intellectual property laws are not well developed or are poorly enforced.
Legal protections of our rights may be ineffective in such countries, and
technology developed in such countries may not be protectable in jurisdictions
where protection is ordinarily available. In addition, we are obligated to
indemnify customers against claims that we infringe the intellectual property
rights of third parties. The results of any intellectual property litigation to
which we might become a party may force us to do one or more of the following:
- cease selling or using products or services that incorporate the
challenged intellectual property
- obtain a license, which may not be available on reasonable terms or at
all, to sell or use the relevant technology
- redesign those products or services to avoid infringement
- refund license fees that we have previously received
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<PAGE> 16
OUR BUSINESS MAY BE HARMED IF WE LOSE THE SERVICES OF DAVID STONER, BRIAN
SCANLAN, NIGEL EVANS, RICHARD COURON OR OTHER KEY EMPLOYEES
Our success depends largely on the skills, experience and performance of
key employees, particularly David Stoner, our chief executive officer, Brian
Scanlan and Nigel Evans, two of our founders, and Richard Couron, the founder of
DC Systems. These employees have significant expertise in the energy industry
and would be difficult to replace. Our employment agreements with Messrs. Stoner
and Scanlan and Dr. Evans expire in 2001. If we lose one or more of our key
employees, our business could be harmed.
IF WE FAIL TO CONTINUE TO ATTRACT AND RETAIN PERSONNEL WITH SALES EXPERIENCE,
SOFTWARE DEVELOPMENT SKILLS AND SUBJECT MATTER EXPERTISE IN THE ENERGY MARKET,
OUR BUSINESS MAY BE HARMED
Our future success will depend in large part on our ability to continue
attracting and retaining highly skilled personnel, particularly salespeople,
software developers and consultants who are both experts in their particular
fields and have strong customer relationship skills. In particular, the number
of people with significant knowledge about evolving energy markets is limited.
Newly hired employees will require training and it will take time for them to
achieve full productivity. We face intense competition in recruiting and may not
be able to hire enough qualified individuals in the future, and newly hired
employees may not achieve necessary levels of productivity.
WE MAY NEED ADDITIONAL FINANCING WHICH COULD BE DIFFICULT TO OBTAIN AND WHICH
COULD DILUTE YOUR OWNERSHIP INTEREST OR THE VALUE OF YOUR SHARES
We intend to grow our business rapidly and may require significant external
financing in the future. Obtaining additional financing will be subject to a
number of factors, including:
- market conditions
- our operating performance
- investor sentiment, particularly with respect to the emerging energy
market
These factors may make the timing, amount, terms and conditions of
additional financing unattractive for us. If we are unable to raise capital to
fund our operations, we may not be able to successfully grow our business.
If we raise additional funds through the sale of equity or convertible debt
securities, your percentage ownership will be reduced. In addition, these
transactions may dilute the value of our outstanding stock. We may have to issue
securities that have rights, preferences and privileges senior to our common
stock.
WE MAY BE ADVERSELY AFFECTED BY THE YEAR 2000 ISSUE
The "Year 2000 Issue" refers generally to the problems that software may
have in determining the correct century for the year. For example, software with
date-sensitive functions that are not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of
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<PAGE> 17
erroneous results. We are subject to potential Year 2000 problems affecting our
products, our internal systems and the systems of our suppliers and customers,
any of which could disrupt our business and adversely affect our results of
operations.
Although we are not currently aware of any Year 2000 problems relating to
our products, we may discover Year 2000 problems in our products that will
require substantial revision and could subject us to liability claims. Our
products operate in complex network environments and directly or indirectly
interact with a number of other hardware and software systems that we cannot
adequately evaluate for Year 2000 problems. In addition, technology developed by
others and incorporated in our products could have Year 2000 problems. We may
face claims based on Year 2000 problems in other companies' products, or issues
arising from the integration of multiple products within an overall system even
if our products are otherwise year 2000 compliant.
Our failure to fix or replace our internally developed proprietary software
or third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could seriously harm our business. Even if
we do not face Year 2000 problems, customers may delay new purchases of our
products until they have assessed their own Year 2000 exposure, which could
adversely affect our results of operations. Moreover, our failure to adequately
address Year 2000 compliance issues in our internally developed proprietary
software could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
RISKS RELATED TO THE ENERGY INDUSTRY
OUR PERFORMANCE WILL DEPEND ON THE CONTINUED GROWTH IN DEMAND FOR ENERGY
PRODUCTS AND SERVICES
Our future success depends heavily on the continued growth in demand for
energy products and services, which is difficult to predict. If demand for
energy products and services does not continue to grow or grows more slowly than
expected, demand for our products and services will be reduced. Because a
substantial portion of our operating expenses is fixed in the short term, any
unanticipated reduction in demand for our products and services would negatively
impact our operating results. Utilities and other businesses may be slow to
adapt to changes in the energy marketplace or be satisfied with existing
services and solutions. This would cause there to be less demand for our
products and services than we currently expect. The market for energy trading
software and solutions that address the deregulating energy industry is
relatively new, and potential customers may wait for widespread adoption of
products before making purchase commitments. Even if there is significant market
acceptance of products and services for the energy industry, we may incur
substantial expenses adapting our solutions to changing or emerging
technologies.
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<PAGE> 18
THE GLOBAL ENERGY INDUSTRY IS SUBJECT TO EXTENSIVE AND VARIED GOVERNMENTAL
REGULATIONS, AND OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO
SUCCESSFULLY DEVELOP PRODUCTS AND SERVICES THAT ADDRESS NUMEROUS AND RAPIDLY
CHANGING REGULATORY REGIMES
Although the global energy industry is becoming increasingly deregulated,
the energy industry, which includes utilities, producers, energy marketers,
processors, storage operators, distributors, marketers, pipelines and others, is
still subject to extensive and varied local, national and regional regulation.
If we are unable to design and develop software solutions and strategic
consulting services that address the numerous and changing regulatory
requirements, or fail to alter our products and services rapidly enough, our
customers or potential customers may not purchase our products and services.
OUR FINANCIAL SUCCESS IS CLOSELY LINKED TO THE HEALTH OF THE ENERGY INDUSTRY
We currently derive substantially all of our revenues from licensing our
software and providing strategic consulting services to participants in the
energy industry. Our customers include a number of organizations in the energy
industry, and the success of these customers is linked to the health of the
energy market. In addition, because of the capital expenditures required in
connection with investing in our products and services, we believe that demand
for our products and services could be disproportionately affected by
fluctuations, disruptions, instability or downturns in the energy market, which
may cause customers and potential customers to leave the industry or delay,
cancel or reduce any planned expenditures for our software products and related
strategic consulting services.
PROJECTIONS INCLUDED IN THIS PROSPECTUS RELATING TO THE GROWTH OF THE ENERGY
INDUSTRY ARE BASED ON ASSUMPTIONS THAT COULD TURN OUT TO BE INCORRECT AND ACTUAL
RESULTS COULD BE MATERIALLY DIFFERENT FROM THE PROJECTIONS
This prospectus contains various data and projections related to revenues
generated by the market for products and services to the energy industry. These
projections include assumptions regarding the expected growth in information
technology spending by energy market participants. Actual results or
circumstances may be materially different from the projections. This could
reduce our revenues and adversely affect anticipated demand for our products and
services. These data and projections are inherently imprecise, and you should
not place undue reliance on them.
RISKS RELATED TO THIS OFFERING
OUR MANAGEMENT WILL HAVE DISCRETION OVER USING THE NET UNALLOCATED PROCEEDS OF
THIS OFFERING
Our board of directors and management will have significant flexibility in
applying the unallocated net proceeds of this offering. As of the date of this
prospectus, we do not have plans for use of most of the proceeds from this
offering. You will be relying on the judgment of our management about these
uses. See "Use of Proceeds."
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<PAGE> 19
OUR STOCK PRICE MAY BE VOLATILE
Prior to this offering, investors could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering and the market price might fall below the initial
public offering price. We will be negotiating the initial public offering price
with the representatives of the underwriters based on several factors. This
price may vary from the market price of the common stock after this offering.
Fluctuations in market price and volume are particularly common among technology
companies.
The market price of our common stock may fluctuate significantly in
response to the following factors, some of which are beyond our control:
- variations in quarterly operating results
- announcements, by us or our competitors, of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments
- additions or departures of key personnel
- future sales of common stock
- changes in financial estimates by securities analysts
- loss of a major customer
WE MAY INCUR SIGNIFICANT COSTS FROM CLASS ACTION LITIGATION
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
stock. Such volatility has been particularly common in technology companies. We
may in the future be the target of securities litigation. Securities litigation
could result in substantial costs and divert management's attention and
resources.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE
If our existing stockholders sell a large number of shares of our common
stock or the public market perceives that existing stockholders might sell
shares of common stock, the market price of the common stock could significantly
decline. All of the shares offered under this prospectus will be freely tradable
without restriction or further registration under the federal securities laws
unless purchased by our "affiliates" as that term is defined in Rule 144 under
the Securities Act of 1933. Of the remaining 10,266,022 shares outstanding at
the time of this offering:
- 27,356 shares may be sold 90 days after the effective date of this
offering
- 8,513,530 additional shares may be sold upon the expiration of 180-day
lock-up agreements
Deutsche Bank Securities Inc., as lead manager of the underwriters, may
release any or all shares from the lock-up agreements at any time and without
notice.
Existing stockholders holding an aggregate of 10,266,022 shares of common
stock have the right to require us to register their shares of common stock with
the
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<PAGE> 20
Securities and Exchange Commission. If we register their shares of common stock,
they can sell those shares in the public market.
After this offering, we intend to register approximately 1,523,808 shares
of our common stock that we have issued or may issue under our stock plans. Once
we register these shares, they can be freely sold in the public market upon
issuance, subject to the "lock-up" agreements described above and the
restrictions imposed on our affiliates under Rule 144.
OUR EXECUTIVE OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL BE ABLE TO
EXERCISE CONTROL OVER ALL MATTERS REQUIRING STOCKHOLDER APPROVAL AND COULD MAKE
DECISIONS ABOUT OUR BUSINESS THAT CONFLICT WITH OTHER STOCKHOLDERS' INTERESTS
On completion of this offering, our executive officers and directors and
their affiliates will beneficially own approximately 53.9% of our outstanding
common stock. As a result, these stockholders will be able to exercise control
over all matters requiring stockholder approval even if other stockholders
oppose them. These matters include the election of directors, certain amendments
to our charter and bylaws and approval of significant corporate transactions,
such as a merger or a sale of our assets. This could delay or prevent someone
from acquiring or merging with us on terms that other stockholders may find
favorable.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT
OR DELAY A CHANGE IN CONTROL OF US
Certain provisions of our certificate of incorporation and by-laws may
discourage, delay or prevent a merger, acquisition or other change in control,
even if the change in control would be beneficial to stockholders. Any of these
provisions could reduce the market price of our common stock. These provisions
include:
- providing for a classified board of directors with staggered, three-year
terms
- limiting the persons who may call special meetings of stockholders
- prohibiting stockholder action by written consent
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. Section 203 will prohibit us from engaging in certain business
combinations, unless the business combination is approved in a prescribed
manner. Accordingly, Section 203 may discourage, delay or prevent someone from
acquiring or merging with us.
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YOU WILL EXPERIENCE IMMEDIATE DILUTION IN THE BOOK VALUE PER SHARE OF YOUR
COMMON STOCK
The initial public offering price is substantially higher than the book
value per share of the outstanding common stock immediately after this offering.
Accordingly, if you purchase common stock in the offering, you will:
- pay a price per share that substantially exceeds the value of your assets
after subtracting your liabilities; and
- contribute 49.9% of the total amount to fund Caminus Corporation, but
will own only 24.4% of the shares outstanding.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or other comparable expressions. These statements involve known and
unknown risks and uncertainties that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements. These important factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
We cannot guarantee any future results, levels of activity, performance or
achievements. We undertake no obligation to update any of the forward-looking
statements after the date of this prospectus.
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CAMINUS CORPORATION
On April 29, 1998, we were organized as a Delaware limited liability
company under the name "GFI Caminus LLC." We subsequently acquired the assets
and operations of our business through the acquisition of a number of companies
in the energy industry.
On May 12, 1998, we purchased a 1% general partnership interest and a 70%
limited partnership interest in Zai*Net Software, L.P., whose predecessor was
founded in 1987 and was one of the leading providers of electric power and risk
management software in North America and Europe. On December 31, 1998, we
acquired the remaining partnership interest in Zai*Net Software, L.P., and in
March 1999, we merged Zai*Net Software, L.P. into us.
On May 12, 1998, we also purchased 100% of the shares of capital stock of
Cambridge, England-based Caminus Energy Limited, which is now known as Caminus
Limited. Founded in 1985, Caminus Limited is one of the leading European
strategic consultants to energy companies.
On November 13, 1998, we acquired substantially all of the business and
assets of Positron Energy Consulting, a leading risk analytics company founded
in Houston, Texas in 1996.
On July 31, 1999, we acquired all of the outstanding capital stock of DC
Systems, Inc., a Dallas-based software and services company specializing in
physical gas systems.
GFI Caminus LLC changed its name to "Caminus Energy Ventures LLC" on
September 21, 1998 and to "Caminus LLC" on January 12, 1999. On September 30,
1999, Caminus Corporation was formed as a Delaware corporation and wholly owned
subsidiary of Caminus LLC. Immediately prior to this offering, Caminus LLC will
merge with and into Caminus Corporation, which will be the surviving entity and
which is the registrant in connection with this initial public offering. Each
outstanding share of membership interest in Caminus LLC will convert into
.095238 of one share of common stock of Caminus Corporation in connection with
the merger.
All of the acquisitions described above have been accounted for under the
purchase method of accounting and, except as otherwise noted herein, all of the
financial information of the acquired companies has been included in this
prospectus since the respective dates of acquisition. For more information
regarding our initial formation and subsequent acquisitions, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Certain Transactions" and note 3 of the Caminus Corporation
financial statements.
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USE OF PROCEEDS
We estimate that the net proceeds from our sale of 3,572,203 shares of
common stock will be approximately $45,500,000, assuming an initial public
offering price of $14.00 per share and after deducting estimated underwriting
discounts and our estimated offering expenses. We will not receive any of the
net proceeds from the sale of shares by the selling stockholders. See "Principal
and Selling Stockholders."
The principal purposes of this offering are:
- to enhance our ability to use our common stock as a means of attracting
and retaining key employees;
- to raise capital in order to repay bank debt;
- to pay a termination fee for consulting and advisory services;
- to provide increased visibility and credibility in the marketplace;
- to enhance our ability to use our common stock as consideration for
acquisitions;
- to increase our equity capital;
- to facilitate our future access to public capital markets; and
- to provide liquidity to our existing stockholders.
We expect to use the net proceeds received from this offering for the
repayment of bank debt to Fleet Bank, which totaled $2,000,000 at September 30,
1999. The credit agreement with Fleet Bank consists of a revolving loan that
expires on May 31, 2001 and a working capital loan that expires on May 31, 2000
but may be extended to May 31, 2001. The interest rate under the loans was
8 1/4% at September 30, 1999. A portion of the proceeds of the Fleet Bank loans
was used to pay earnout provisions in connection with the acquisition of Zai*Net
Software, L.P. For a description of the bank debt and the acquisition of
Zai*Net, see notes 8 and 3 of the Caminus Corporation financial statements. We
intend to use $1,300,000 of the net proceeds to pay GFI as consideration for
terminating its consulting and advisory arrangements with us. Additionally, we
expect to use approximately $476,000 for a special bonus payment to the former
shareholders of Caminus Limited. We intend to use the remainder of the net
proceeds for working capital and other general corporate purposes, including
possible acquisitions of businesses, products and technologies. See "Certain
Transactions."
From time to time we engage in discussions with potential acquisition
candidates. However, we have no current plans, commitments or agreements with
respect to any acquisitions, and we may not make any acquisitions.
Except as described above, we have not identified specific uses for the net
proceeds of this offering, and we will have discretion over their use and
investment. Pending use of the net proceeds, we intend to invest these proceeds
in short-term, investment grade, interest-bearing instruments.
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DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
intend to retain future earnings, if any, to finance our growth strategy. We do
not anticipate paying cash dividends on our common stock in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of our
board of directors after taking into account various factors, including:
- our financial condition;
- our operating results;
- our current and anticipated cash needs;
- restrictions in our financing agreements; and
- our plans for expansion.
Our existing line of credit prohibits the declaration or payment of cash
dividends to our stockholders so long as any loan amount is outstanding and
until we have paid in full all amounts payable by us under the terms of the
agreement and the related promissory notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and note 8 of the Caminus Corporation financial statements.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 1999:
- On an actual basis, assuming our reorganization as a corporation
immediately prior to this offering, including the issuance of an
aggregate of 9,238,088 shares of common stock to our stockholders in
exchange for their membership interests in the limited liability company;
- On a pro forma basis to give effect to:
(1) the issuance of an aggregate of 57,486 shares of common stock in
November 1999 to three employees in connection with our acquisition of
Positron;
(2) the issuance upon the closing of this offering of 160,209 shares of
common stock to David M. Stoner as a bonus for his services and, in
addition, the forgiveness of his $1,000,000 loan, which was previously
recorded; and
(3) the issuance of an aggregate of 1,583,035 shares of common stock upon
the expected exercise prior to or in connection with this offering of
options to purchase common stock issued to GFI, Nigel L. Evans,
Michael Morrison and SS&C Technologies, Inc., which, in the case of
the options held by Messrs. Evans and Morrison and SS&C Technologies,
would otherwise expire in connection with this offering; and
- On a pro forma as adjusted basis to give effect to the issuance and sale
by us of 3,572,203 shares of common stock in this offering at an assumed
initial public offering price of $14.00 per share and after deducting the
estimated underwriting discounts and our estimated offering expenses and
applying a portion of the net proceeds to pay a special one-time bonus to
Nigel L. Evans and Michael Morrison, pay GFI a termination fee for its
consulting and advisory services, and repay borrowings under our credit
facility.
The number of shares outstanding is based on the number of shares of our
common stock outstanding (pro forma) on September 30, 1999. It excludes 926,258
shares subject to options outstanding under our 1998 stock incentive plan at a
weighted average exercise price of $4.48 per share and 597,550 additional shares
available for issuance under our stock plans. You should read this table
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and related notes included
elsewhere in this prospectus.
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<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents............. $ 801,351 $ 2,125,329 $ 44,335,412
============ ============ ============
Borrowings under credit facility,
including current portion........... $ 2,000,000 $ 2,000,000 $ --
============ ============ ============
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value per
share; 50,000,000 shares authorized;
11,000,389 shares issued and
9,238,088 shares outstanding,
actual; 12,801,120 shares issued and
11,038,819 shares outstanding, pro
forma; and 16,373,323 shares issued
and 14,611,022 shares outstanding,
pro forma as adjusted............... $ 110,004 $ 128,011 $ 163,733
Additional paid-in-capital............ 51,655,763 61,729,494 107,203,855
Treasury stock 1,762,301 shares, at
cost................................ (4,911,205) (4,911,205) (4,911,205)
Subscription receivable............... (2,907,065) (1,907,065) (1,907,065)
Accumulated deficit................... (16,613,938) (27,096,702) (28,396,702)
Unearned compensation................. (287,086) (287,086) (287,086)
Cumulative translation adjustment..... 3,800 3,800 3,800
------------ ------------ ------------
Total stockholders' equity....... 27,050,273 27,659,247 71,869,330
------------ ------------ ------------
Total capitalization, including
current portion of
borrowings..................... $ 29,050,273 $ 29,659,247 $ 71,869,330
============ ============ ============
</TABLE>
25
<PAGE> 27
DILUTION
Our pro forma net tangible book value at September 30, 1999 was
approximately $(3,680,477), or $(0.33) per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
(total assets less intangible assets) reduced by our total liabilities, divided
by the number of shares of common stock outstanding, after giving effect to our
reorganization as a corporation immediately prior to this offering and the
issuance of shares of common stock to David M. Stoner as a bonus for his
services, to three employees in connection with the Positron acquisition and
upon the expected exercise of options by GFI, Nigel L. Evans, Michael Morrison
and SS&C Technologies prior to or in connection with this offering. After giving
effect to our sale of 3,572,203 shares of common stock in this offering at an
assumed initial public offering price of $14.00 per share and our receipt of the
net proceeds, after deducting the estimated underwriting discounts and estimated
offering expenses and after applying a portion of the net proceeds towards the
payment of a termination fee to GFI, the payment of certain one-time bonuses and
the repayment of outstanding bank debt, our pro forma net tangible book value as
of September 30, 1999 would have been approximately $40,529,606, or $2.77 per
share. This represents an immediate increase in pro forma net tangible book
value of $3.10 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $11.23 per share to new investors
purchasing shares in this offering. If the initial public offering price is
higher or lower, the dilution to new investors will be greater or less,
respectively. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Pro forma net tangible book value per share as of
September 30, 1999........................................ $(0.33)
Increase per share attributable to this offering.......... 3.10
------
Pro forma net tangible book value per share after this
offering.................................................. 2.77
------
Dilution per share to new investors......................... $11.23
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the total number of shares of common stock purchased from us, the total
consideration paid and the average consideration paid per share by our existing
stockholders and by the new investors (at an assumed initial public offering
price of $14.00 per share for shares purchased in this offering, before
deducting underwriting discounts and our estimated offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders....... 11,038,819 75.6% $ 50,256,098 50.1% $ 4.55
New investors........ 3,572,203 24.4 50,010,842 49.9 $14.00
---------- ----- ------------ -----
Total........... 14,611,022 100.0% $100,266,940 100.0%
========== ===== ============ =====
</TABLE>
26
<PAGE> 28
Shares owned by existing stockholders will be reduced by the number of
shares sold by them in this offering. As a result, the number of shares owned by
existing stockholders will be reduced to 70.3% of the shares of common stock
after this offering (67.0% if the underwriters' over-allotment option is
exercised in full). As of September 30, 1999, there were outstanding stock
options to purchase 926,258 shares of common stock under our 1998 stock
incentive plan at a weighted average exercise price of $4.48 per share. To the
extent that any of these stock options are exercised, there will be further
dilution to new investors. See "Capitalization," "Management -- Benefit Plans"
and "Description of Capital Stock."
27
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read together
with the consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
are included elsewhere in this prospectus. The statement of operations data for
the years ended December 31, 1994 and 1995 and the balance sheet data at
December 31, 1994 and 1995 are derived from, and are qualified by reference to,
the audited financial statements of Zai*Net Software, Inc., our predecessor, not
included in this prospectus. The statement of operations data for the years
ended December 31, 1996 and 1997 and for the four-month period ended April 30,
1998 and the balance sheet data at December 31, 1996 and 1997 are derived from,
and are qualified by reference to, the audited financial statements of Zai*Net
Software, Inc. included elsewhere in this prospectus, which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The consolidated statement
of operations data for the period from our inception (April 29, 1998) through
December 31, 1998 and the consolidated balance sheet data at December 31, 1998
are derived from, and qualified by reference to, the audited financial
statements of Caminus LLC, included elsewhere in this prospectus, which have
been audited by PricewaterhouseCoopers LLP, independent accountants. The
consolidated statement of operations data for the period from our inception
(April 29, 1998) through September 30, 1998 and for the nine months ended
September 30, 1999 and the consolidated balance sheet data at September 30, 1999
are derived from, and are qualified by reference to, the unaudited financial
statements of Caminus Corporation and include, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, that are necessary
for the fair presentation of our financial position and results of operations.
In the following table, "Adjusted EBITDA" is defined as earnings before
interest and other income, income taxes, depreciation, amortization, acquired
in-process research and development, non-cash compensation expense and
terminated acquisition costs. Terminated acquisition costs represent costs
associated with a potential acquisition that we ultimately decided not to
pursue. EBITDA is a non-GAAP measure commonly used by investors and analysts to
analyze companies on the basis of operating performance, leverage and liquidity.
We present Adjusted EBITDA, which is also a non-GAAP measure, to enhance the
understanding of our operating results. We believe Adjusted EBITDA is an
indicator of our operating profitability since it excludes items which are not
directly attributable to our ongoing business operations. However, Adjusted
EBITDA relies upon management's judgement to determine which items are directly
attributable to our ongoing business operations and as such is subjective in
nature. Neither EBITDA nor Adjusted EBITDA should be construed as an alternative
to net income as an indicator of a company's operating performance or as an
alternative to cash flow from operations as a measure of a company's liquidity.
For information about cash flows or results of operations in accordance with
generally accepted accounting principles, please see the audited consolidated
financial statements included elsewhere in this prospectus.
The pro forma financial data give effect to the acquisitions of Zai*Net,
Caminus Limited and DC Systems, Inc. as if the acquisitions occurred at the
beginning of the respective periods presented. The pro forma as adjusted
financial data give effect to the acquisitions referred to above and our sale of
3,572,203
28
<PAGE> 30
shares of common stock in this offering, at an assumed initial public offering
price of $14.00 per share, after deducting estimated underwriting discounts and
our estimated offering expenses and after the application of a portion of the
proceeds to pay a special one-time bonus to Nigel L. Evans and Michael Morrison,
pay GFI a termination fee for its consulting and advisory services and repay
borrowings under our credit facility.
<TABLE>
<CAPTION>
ZAI*NET
(PREDECESSOR)
--------------------------------------------------------------
FOUR
MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------- APRIL 30,
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Licenses...................... $ 633,750 $1,575,104 $1,291,427 $1,521,447 $1,495,221
Software services............. 781,819 973,235 1,429,860 2,667,807 1,334,473
---------- ---------- ---------- ---------- ----------
Total revenues.............. 1,415,569 2,548,339 2,721,287 4,189,254 2,829,694
---------- ---------- ---------- ---------- ----------
Gross profit.................... 728,201 1,583,758 1,722,145 2,857,772 2,095,452
Operating expenses.............. 1,093,144 1,444,477 1,619,084 2,862,008 1,659,422
---------- ---------- ---------- ---------- ----------
Operating income (loss)......... (364,943) 139,281 103,061 (4,236) 436,030
Other income (expense), net..... 10,327 9,511 (2,197) 17,591 8,294
Provision for income taxes...... -- -- -- -- 23,816
---------- ---------- ---------- ---------- ----------
Net income (loss)............... $ (354,616) $ 148,792 $ 100,864 $ 13,355 $ 420,508
========== ========== ========== ========== ==========
OTHER DATA:
Cash provided by operating
activities.................... $ 96,344 $ 146,142 $ 131,110 $ 401,048 $1,053,662
Cash used in investing
activities.................... 71,197 167,158 100,112 206,245 99,881
Cash provided by (used in)
financing activities.......... (7,373) 22,687 54,450 (290,050) (3,000)
Adjusted EBITDA................. (310,163) 217,426 204,179 118,854 482,171
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1994 1995 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 155,089 $ 156,760 $ 242,208 $ 146,961
Total assets................... 541,410 834,257 1,274,792 2,193,379
Long-term debt................. -- 17,000 3,000 --
Stockholders' equity
(deficit).................... (28,782) 120,010 220,874 234,229
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
CAMINUS
----------------------------------------------------------------------------------
PRO FORMA PRO FORMA
INCEPTION TWELVE INCEPTION NINE NINE
(APRIL 29, 1998) MONTHS (APRIL 29, 1998) MONTHS MONTHS
THROUGH ENDED THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1998 1999 1999
---------------- ------------ ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS:
Revenues:
Licenses............. $ 3,639,143 $ 5,455,014 $ 1,925,858 $ 8,088,621 $ 8,129,621
Software services.... 3,090,758 4,947,199 1,881,417 5,679,513 5,981,134
Strategic
consulting......... 2,896,102 4,354,096 1,720,550 4,757,425 4,757,425
------------ ------------ ----------- ----------- ------------
Total revenues..... 9,626,003 14,756,309 5,527,825 18,525,559 18,868,180
------------ ------------ ----------- ----------- ------------
Gross profit........... 4,940,985 8,126,983 2,855,235 12,673,116 12,733,815
Operating expenses..... 15,074,351 21,399,761 7,345,003 18,454,716 24,577,779
------------ ------------ ----------- ----------- ------------
Operating loss......... (10,133,366) (13,272,778) (4,489,768) (5,781,600) (11,843,964)
Other income (expense),
net.................. 96,909 120,109 56,535 (126,856) (130,333)
Provision for income
taxes................ 35,735 167,015 57,288 334,294 334,294
Minority interest...... (298,996) -- (189,920) -- --
------------ ------------ ----------- ----------- ------------
Net loss............... $(10,371,188) $(13,319,684) $(4,680,440) $(6,242,750) $(12,308,591)
============ ============ =========== =========== ============
Basic and diluted net
loss per share....... $ (1.41) $ (1.76) $ (0.65) $ (0.76) $ (1.46)
Weighted average common
shares -- basic and
diluted.............. 7,360,634 7,578,987 7,215,030 8,264,075 8,405,529
OTHER DATA:
Cash provided by (used
in) operating
activities........... $ 951,676 $ 456,381 $ (932,513)
Cash used in investing
activities........... 10,892,906 10,264,424 10,719,054
Cash provided by
financing
activities........... 12,699,637 12,874,999 9,693,866
Adjusted EBITDA........ 355,155 $ 397,280 382,350 2,079,747 $ 1,738,853
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------
DECEMBER 31, PRO FORMA
1998 ACTUAL PRO FORMA AS ADJUSTED
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 2,770,538 $ 801,351 $ 2,125,329 $44,335,412
Total assets............ 31,069,002 40,868,631 42,192,609 84,402,692
Borrowings under credit
facility, net of
current portion....... -- 1,000,000 1,000,000 --
Current portion of
credit facility....... -- 1,000,000 1,000,000 --
Stockholders' equity.... 17,159,782 27,050,273 27,659,247 71,869,330
</TABLE>
30
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our financial statements and related notes thereto appearing
elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
The actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including but not
limited to those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We are a leading provider of software solutions and strategic consulting
services to participants in energy markets throughout North America and Europe.
We were organized as a limited liability company on April 29, 1998 and acquired
Zai*Net Software, L.P. and Caminus Limited in May 1998, Positron Energy
Consulting in November 1998 and DC Systems in July 1999. Since the completion of
these acquisitions, we expanded our organization by hiring personnel in key
areas, particularly marketing, sales and research and development. Our full-time
employees increased from 116 at December 31, 1998 to 174 at September 30, 1999,
and we intend to continue to increase our number of employees throughout 1999
and 2000.
We generate revenues from licensing our Zai*Net software products,
providing related services for implementation consulting and support and
providing strategic consulting services. We generally license one or more
Zai*Net products to our customers, who typically receive perpetual licenses to
use our products for a specified number of servers and concurrent users. After
the initial license, they may purchase licenses for additional products, servers
and users as needed. In addition, customers often purchase professional services
from us, including implementation and training services, and enter into
automatically renewable maintenance contracts that provide for software upgrades
and technical support over a stated term, typically 12 months. We also provide
strategic advice on deregulation and the restructuring of the energy industry
through our strategic consulting group. Implementation consulting and strategic
consulting are typically billed on a time and materials basis.
Our software license agreements are non-refundable. Payment terms require
that a significant portion of the license fee is payable on delivery of the
licensed product with the balance due in installments over a relatively short
period, generally four months or less.
We follow the provisions of Statement of Position ("SOP") No. 97-2,
"Software Revenue Recognition," as amended by SOP No. 98-4, "Deferral of the
Effective Date of Certain Provisions of SOP No. 97-2 and SOP 98-9, "Modification
of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions."
Under SOP No. 97-2, we recognize license revenues when a license is executed,
the product has been delivered, all significant company obligations are
fulfilled, the fee is fixed or determinable and collectibility is probable.
Under our current standard license agreement, we generally recognize license
revenues upon the execution of a license and delivery of the software. For those
license agreements where customer acceptance is required or the licensee
requires significant
31
<PAGE> 33
enhancements, we recognize license revenues only when our obligations under the
license agreement are completed and the software has been accepted. Accordingly,
for these contracts, payments received are deferred until our obligations under
the license agreement are completed. Maintenance and support revenues associated
with new product licenses and renewals are deferred and recognized ratably over
the contract period. Software services revenues and strategic consulting
revenues are recognized as such services are performed.
We also provide software to customers under long-term development contracts
that can require significant modification to adapt the software to the unique
specifications of the customer. If the service elements are considered essential
to the functionality of the software products, both the software product
revenues and service revenues are recognized using the completed contract method
as prescribed in accordance with the provisions of SOP 81-1, "Accounting for
Performance of Construction Type and Certain Production Type Contracts."
Accordingly, license and software enhancement revenues are recognized under the
completed contract method when all development, testing and installation is
completed and the purchaser formally accepts the software. Revenues and costs
are recognized upon completion of the contract and are based on the labor hours
incurred. Costs of software enhancements include the direct labor component of
programmer and consultant cost to perform the software enhancement or service as
well as the prorated share of technical support and overhead costs associated
with the enhancement and services. Anticipated losses, if any, on uncompleted
contracts are recognized in the period in which such losses are determined.
We sell our products through our direct sales forces in North America and
Europe. Our strategic relationships with third parties assist in generating
sales leads and provide cooperative marketing support. In addition, our
strategic consulting group not only develops its own client base but assists in
generating software sales leads.
Revenues from customers outside the United States represented 46% of our
total revenues for the nine months ended September 30, 1999. A significant
portion of our international revenues have been derived from sales of our
strategic consulting services and software products in the United Kingdom. We
intend to continue to expand our international operations and commit significant
management time and financial resources to developing our direct international
sales channels. International revenues may not, however, increase as a
percentage of total revenues.
We were formed as a limited liability company in April 1998. Accordingly,
we have not been subject to federal and state income taxes, except for certain
New York income taxes on limited liability companies. Immediately prior this
offering, the limited liability company will merge with and into Caminus
Corporation, a Delaware C corporation formed in September 1999. The adjustments
to the income tax provision reflect the additional tax provision we would have
recorded had we been a C corporation for the periods presented. See "Caminus
Corporation" for a description of our corporate history and acquisitions.
Due to our acquisitions and the respective dates of acquisition, and the
significant changes in our operations, the fluctuation of financial results,
including financial data expressed as a percentage of revenues for all periods,
did not necessarily provide a meaningful understanding of the expected future
results of our operations.
32
<PAGE> 34
RESULTS OF OPERATIONS
COMPARISON OF THE PERIOD FROM INCEPTION (APRIL 29, 1998) THROUGH SEPTEMBER 30,
1998 TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The following table sets forth the consolidated financial information
expressed as a percentage of revenues for the period from inception (April 29,
1998) through September 30, 1998 and for the nine months ended September 30,
1999. The consolidated financial information for the period from inception
through September 30, 1998 and the nine months ended September 30, 1999 is
derived from the unaudited consolidated financial statements and includes, in
the opinion of our management, all adjustments, consisting only of normal
recurring adjustments, that are necessary for the fair presentation of our
financial position and results of operations. The period from inception through
September 30, 1998, which is approximately five months, is being compared to the
nine months ended September 30, 1999. Accordingly, increases in revenues and
expenses are primarily attributable to the comparison of periods containing
different numbers of months. The discussion below outlines other trends in the
business.
<TABLE>
<CAPTION>
INCEPTION THROUGH NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Revenues:
Licenses....................................... 35% 44%
Software services............................ 34 31
Strategic consulting......................... 31 26
--- ---
Total revenues............................ 100 100
Cost of revenues:
Cost of licenses............................. 1 4
Cost of software services.................... 22 18
Cost of strategic consulting................. 25 10
--- ---
Gross profit.............................. 52 68
Operating expenses:
Sales and marketing.......................... 5 14
Research and development..................... 12 14
General and administrative................... 30 33
Acquired in-process research and
development............................... 55 5
Amortization of intangible assets............ 31 33
--- ---
Total operating expenses.................. 133 99
--- ---
Loss from operations........................... (81) (31)
Other income (expense)......................... (1) (1)
Provision for income taxes..................... (1) (2)
Minority interest.............................. (3) --
--- ---
Net loss....................................... (85)% (34)%
=== ===
</TABLE>
Revenues
LICENSES. License revenues represented 35% and 44% of the total revenues
for the 1998 and 1999 periods, respectively, and increased $6.2 million, or
320%, from $1.9 million in the 1998 period to $8.1 million in 1999. This
increase was primarily attributable to sales to new customers, additional sales
to existing customers and, to a lesser extent, from an increase in the number of
our sales personnel. See "-- Liquidity and Capital Resources" for a discussion
of deferred revenues.
33
<PAGE> 35
SOFTWARE SERVICES. Software services revenues represented 34% and 31% of
the total revenues for the 1998 and 1999 periods, respectively, and increased by
$3.8 million, or 202%, from $1.9 million in the 1998 period to $5.7 million in
1999. This increase was primarily attributable to the increased licensing
activity described above, which resulted in increased revenues from customer
implementations and maintenance contracts. The greater increase in license
revenues as compared to the increase in software services revenues was
attributable to the increase in sales of licenses whereby the revenues were
recognized upon the execution of the license agreement and delivery of the
software to the client. Typically, software services are provided subsequent to
the recognition of the license revenues.
STRATEGIC CONSULTING. Strategic consulting revenues represented 31% and
26% of the total revenues for the 1998 and 1999 periods, respectively, and
increased $3.0 million, or 177%, from $1.7 million in the 1998 period to $4.8
million in 1999 and are derived from the Caminus Limited subsidiary acquired in
May 1998. This increase was primarily attributable to an increased number of
engagements, which was partially attributable to an increase in the number of
our consultants.
Cost of Revenues
COST OF LICENSES. Cost of licenses primarily consists of the personnel
costs associated with completing product enhancements and the software license
costs associated with third-party software that is integrated into our products.
Cost of licenses as a percentage of revenues was 1% and 4% for the 1998 and 1999
periods, respectively, and increased $0.6 million, or 679%, from $0.1 million in
the 1998 period to $0.7 million in 1999. The increase was primarily attributable
to the costs of product enhancements performed by DC Systems subsequent to our
July 1999 acquisition of DC Systems.
COST OF SOFTWARE SERVICES. Cost of software services consists primarily of
personnel costs associated with providing implementations, support under
maintenance contracts and training through our professional service group. Cost
of software services as a percentage of revenues was 22% and 18% for the 1998
and 1999 periods, respectively, and increased $2.0 million, or 166%, from $1.2
million in the 1998 period to $3.2 million in 1999. This increase was primarily
attributable to the increase in the number of implementations, training and
technical support personnel, and related recruiting expenses, to support the
growth of the implementations and the installed customer base. During 1999, we
established a dedicated customer support desk, which also required additional
personnel. We plan to continue expanding our implementation and support services
group and, accordingly, expect the dollar amount of our cost of software
implementation and support services to increase.
COST OF STRATEGIC CONSULTING. Cost of strategic consulting consists of
personnel costs incurred in providing professional consulting services. Cost of
strategic consulting as a percentage of revenues was 25% and 10% for the 1998
and 1999 periods, respectively, and increased $0.6 million, or 41%, from $1.4
million in the 1998 period to $1.9 million in 1999. This increase was
principally attributable to an increase in the number of our consultants, and
related recruiting expenses, to support the growth in revenues. We plan to
continue expanding our strategic consulting organization and expect these
expenses to increase.
34
<PAGE> 36
Operating Expenses
SALES AND MARKETING. Sales and marketing expenses consist primarily of
sales and marketing personnel costs, promotional and travel expenses and
commissions. Sales and marketing expenses as a percentage of revenues was 5% and
14% for the 1998 and 1999 periods, respectively, and increased $2.3 million, or
860%, from $0.3 million in the 1998 period to $2.5 million in 1999. This
increase was primarily due to an increase in headcount, recruiting expenses and
promotional and travel expenses associated with the hiring of additional sales
and marketing personnel to support the expansion of our domestic and
international sales organizations. We plan to continue expanding our sales and
marketing organization and expect our sales and marketing expenses to increase.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel costs for product development personnel and other related
direct costs associated with the development of new products, the enhancement of
existing products, quality assurance and testing. Research and development
expenses as a percentage of revenues was 12% and 14% for the 1998 and 1999
periods, respectively, and increased $2.0 million, or 320%, from $0.6 million in
the 1998 period to $2.7 million in 1999. This increase was primarily due to an
increased hiring of personnel and to other expenses associated with the
development of new products and enhancements of existing products. We plan to
continue expanding our research and development organization and expect our
research and development expenses to increase.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel costs of executive, financial, human resource and
information services personnel as well as facility costs and related office
expenses, management fees and outside professional fees. General and
administrative expenses as a percentage of revenues was 30% and 33% for the 1998
and 1999 periods, respectively, and increased $4.5 million, or 269%, from $1.7
million in the 1998 period to $6.2 million in 1999. This increase was primarily
due to increased staffing required to support our expanded operations in the
United States and internationally and, to a lesser extent, increased costs of
outside professional services and management fees, which include $0.4 million of
professional fees associated with a 1999 acquisition that was never consummated.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. Acquired in-process research
and development as a percentage of revenues was 55% and 5% for the 1998 and 1999
periods, respectively, and was $3.1 million in the 1998 period and $1.0 million
in 1999. Acquired in-process research and development represents the fair value
of the in-process research and development acquired during the 1998 purchase of
Zai*Net and the 1999 purchase of DC Systems, respectively. In the opinion of
management, the acquired in-process research and development had not yet reached
technological feasibility and had no alternative future uses. Accordingly, such
amount was expensed on the date of acquisition. Zai*Net had two major projects
in progress at the time of the acquisition: power trading and scheduling; and
gas trading and scheduling. Development of power trading and scheduling
proceeded as anticipated in our year end appraisal and began generating revenues
this year consistent with our appraisal. Gas trading and scheduling projects
were more complex than anticipated. Therefore, we revised the original estimated
completion date of April 1999 to mid-1999 and further revised this estimate in
conjunction with the DC Systems acquisition in July 1999. In conjunction with
the acquisition of DC Systems, we postponed this project in
35
<PAGE> 37
order to evaluate comparable products of DC Systems. DC Systems had one major
project in progress at the time of the acquisition. This project added
functionality to Plant Master, and we estimate to complete this project in 2000.
We believe there have been no significant changes to these estimates as of
September 30, 1999. See note 3 of the Caminus Corporation financial statements
for a discussion of the calculation of acquired in-process research and
development.
AMORTIZATION OF INTANGIBLE ASSETS. The amortization of the intangible
assets represents the amortization of goodwill, which is the excess of the
purchase price over the net assets acquired from the acquisitions of Zai*Net,
Caminus Limited, Positron and DC Systems, and other intangible assets.
Amortization of intangibles as a percentage of revenues was 31% and 33% for the
1998 and 1999 periods, respectively, and increased $4.4 million, or 254%, from
$1.7 million in the 1998 period to $6.1 million in 1999. The increase was
primarily attributable to our incurring amortization expense related to the 1998
acquisitions for a full nine months versus five months in the 1998 period, and
the additional amortization expense related to the DC Systems acquisition in the
1999 period.
Loss From Operations
As a result of the variances described above, operating loss increased by
$1.3 million, or 29%, from $4.5 million in the 1998 period to $5.8 million in
1999. Operating expenses as a percentage of revenues was 133% and 99% for the
1998 and 1999 periods, respectively.
Adjusted EBITDA
Adjusted EBITDA as a percentage of revenues was 7% and 11% for the 1998 and
1999 periods, respectively. Adjusted EBITDA increased $1.7 million, or 444%,
from $0.4 million in the 1998 period to $2.1 million in 1999.
Provision for Income Taxes
Our provision for income taxes for 1999 was $0.3 million and related
primarily to foreign income taxes. Our provision for income taxes for the 1998
period related to state and local taxes and was not significant. If we had been
a C-corporation, our provision for income taxes would have been $0.4 million and
$0.5 million for the 1998 and 1999 periods, respectively.
Minority Interest
Minority interest represents the earnings attributable to the 29% of
Zai*Net that we did not own during the 1998 period.
Contingent IPO expenses
As a result of our initial public offering, certain events will occur which
will require us to record significant charges. These transactions include the
earning of an option granted to the former shareholders of Caminus Energy
Limited, which will result in a charge of approximately $6.4 million including
taxes, a payment of approximately $0.5 million for a special one-time bonus to
the former shareholders of Caminus Energy Limited, a payment of $1.3 million for
a termination fee to GFI to cancel its consulting and advisory agreement and the
granting of shares and the forgiveness of a loan to our President and Chief
Executive Officer, which will result in a charge of approximately $3.2 million.
The charges related to the granting of equity are based on the mid-point of the
initial public offering filing range.
36
<PAGE> 38
COMPARISON OF THE ZAI*NET (PREDECESSOR) YEAR ENDED DECEMBER 31, 1997 TO THE
PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1998
The following table sets forth the consolidated financial information as a
percentage of revenues for the year ended December 31, 1997 of Zai*Net, our
predecessor, and for the period from our inception through December 31, 1998.
The consolidated financial information for us and Zai*Net is derived from the
audited consolidated financial statements included elsewhere in this prospectus.
The period from inception though December 31, 1998 is approximately eight months
and includes the consolidated results of operations of Zai*Net and Caminus
Limited, which is being compared to Zai*Net for the year ended December 31,
1997. Accordingly, there are fluctuations within the revenues and expenses which
are primarily attributable to the disparity between the periods and the bases of
the companies. The discussion below outlines other trends in our business.
<TABLE>
<CAPTION>
CAMINUS
----------------
ZAI*NET INCEPTION
(PREDECESSOR) (APRIL 29, 1998)
----------------- THROUGH
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1997 1998
----------------- ----------------
<S> <C> <C>
Revenues:
Licenses........................................ 36% 38 %
Software services............................. 64 32
Strategic consulting.......................... -- 30
--- -----
Total revenues............................. 100 100
Cost of revenues:
Cost of licenses.............................. -- 2
Cost of software services..................... 32 24
Cost of strategic consulting.................. -- 23
--- -----
Gross profit............................... 68 51
Operating expenses:
Research and development...................... 29 12
Selling, general and administrative........... 39 38
Acquired in-process research and development.. -- 50
Amortization of intangible assets............. -- 57
--- -----
Total operating expenses................... 68 157
--- -----
Loss from operations............................ -- (106)
--- -----
Other income.................................... -- 1
Provision for income taxes...................... -- --
Minority interest............................... -- (3)
--- -----
Net income (loss)............................... --% (108)%
=== =====
</TABLE>
Revenues
LICENSE. License revenues represented 36% and 38% of the total revenues
for the 1997 and 1998 periods, respectively, and increased $2.1 million, or
139%, from $1.5 million in 1997 to $3.6 million in 1998. This increase was
primarily
37
<PAGE> 39
attributable to sales to new customers, additional sales to existing customers
and, to a lesser extent, from an increase in the number of our sales personnel.
SOFTWARE SERVICES. Software services revenues represented 64% and 32% of
the total revenues for the 1997 and 1998 periods, respectively, and increased
$0.4 million, or 16%, from $2.7 million in 1997 to $3.1 million in 1998. This
increase was primarily attributable to the increased licensing activity
described above, which resulted in increased revenues from customer
implementations and maintenance contracts. The greater increase in license
revenues as compared to the increase in software services revenues was
attributable to the disproportional timing of the recognition of the respective
revenues. During 1997 many of our sales of licenses had acceptance criteria and,
accordingly, license revenues were deferred and the recognition of such revenues
occurred during 1998 when we completed our obligations under the license
agreement and the software had been accepted. Software services revenues were
recognized ratably over the implementation as such services were performed.
STRATEGIC CONSULTING. Strategic consulting revenues represented 0% and 30%
of the total revenues for the 1997 and 1998 periods, respectively, and were $2.9
million in 1998. There were no strategic consulting revenues in 1997 as the
predecessor company was not in that business.
Cost of Revenues
COST OF REVENUES. Cost of revenues during 1998 consisted primarily of
personnel costs associated with providing implementations, strategic consulting,
support under maintenance contracts and training through our professional
service group and the cost of licensing third-party software. Cost of revenues
during 1997 consisted primarily of personnel costs associated with providing
implementations, support under maintenance contracts and training through our
professional service group. Cost of licenses was insignificant for the
respective periods ended 1997. Cost of revenues as a percentage of revenues was
32% and 49% for the 1997 and 1998 periods, respectively, and increased $3.4
million, or 252%, from $1.3 million in 1997 to $4.7 million in 1998. This
increase was primarily attributable to the increase in the number of
implementation, training and technical support personnel, and related recruiting
expenses, to support the growth of the implementations and the installed
customer base. Additionally, there was no cost associated with the strategic
consulting business during 1997.
Operating Expenses
RESEARCH AND DEVELOPMENT. Research and development expenses as a
percentage of revenues were 29% and 12% for the 1997 and 1998 periods,
respectively, and was approximately $1.2 million in each of 1997 and 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses as a percentage of revenues were 39% and 38% for the 1997 and 1998
periods, respectively, and increased $2.0 million, or 120%, from $1.6 million in
1997 to $3.6 million in 1998. This increase was primarily due to increased
staffing required to support our expanded operations in the United States and
internationally and, to a lesser extent, increased costs of outside professional
services and management fees.
38
<PAGE> 40
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. Acquired in-process research
and development expenses as a percentage of revenues were 0% and 50% for the
1997 and 1998 periods, respectively, and $4.8 million during 1998 represented
the in-process research and development costs related to the acquisition of
Zai*Net. In the opinion of management and the third-party appraiser, the
acquired in-process research and development had not yet reached technological
feasibility and had no alternative future uses. See note 3 of the Caminus LLC
financial statements for a discussion of the calculation of acquired in-process
research and development.
AMORTIZATION OF INTANGIBLE ASSETS. The amortization of the intangible
assets represents the amortization of goodwill, which is the excess of the
purchase price over the net assets acquired from the acquisitions of Zai*Net,
Caminus Limited and Positron, the amortization of intangible assets and the
write-off of the value of the SS&C Technologies, Inc. distribution agreement.
For a discussion of the SS&C distribution agreement, see note 13 of the Caminus
Corporation financial statements. Amortization of intangible assets as a
percentage of revenues was 0% and 57% for the 1997 and 1998 periods,
respectively, and was $5.5 million in 1998. There was no intangible asset
amortization in 1997.
Loss From Operations
As a result of the write-off of the acquired in-process research and
development and the amortization of intangible assets during 1998, operating
loss increased from $0.0 million in 1997 to $10.1 million in 1998. Operating
expenses as a percentage of revenues were 68% and 157% for the 1998 and 1999
periods, respectively.
Adjusted EBITDA
Adjusted EBITDA as a percentage of revenues was 3% and 4% for the 1997 and
1998 periods, respectively. Adjusted EBITDA increased $0.2 million, or 199%, to
$0.4 million in 1998.
Minority Interest
Minority interest in 1998 represents the earnings attributable to the 29%
of Zai*Net that we did not own.
39
<PAGE> 41
COMPARISON OF THE ZAI*NET SOFTWARE YEAR ENDED DECEMBER 31, 1996 TO THE ZAI*NET
SOFTWARE YEAR ENDED DECEMBER 31, 1997
The following table sets forth the consolidated financial information as a
percentage of revenues of Zai*Net, our predecessor company, for the years ended
December 31, 1996 and 1997, which are derived from the audited financial
statements of Zai*Net.
<TABLE>
<CAPTION>
ZAI*NET (PREDECESSOR)
--------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Revenues:
Licenses...................................... 47% 36%
Software services........................... 53 64
Strategic consulting........................ -- --
--- ---
Total revenues........................... 100 100
Costs of revenues............................. 37 32
--- ---
Gross profit............................. 63 68
Operating expenses:
Research and development.................... 23 29
Selling, general and administrative......... 36 39
--- ---
Total operating expenses................. 59 68
--- ---
Income (loss) from operations................. 4 --
Other income.................................. -- --
--- ---
Net income.................................... 4% --%
=== ===
</TABLE>
Revenues
LICENSE. License revenues represented 47% and 36% of the total revenues
for the 1996 and 1997 periods, respectively, and increased $0.2 million, or 18%,
from $1.3 million in 1996 to $1.5 million in 1997. This increase was primarily
attributable to sales to new customers and additional sales to existing
customers.
SOFTWARE SERVICES. Software services represented 53% and 64% of the total
revenues for the 1996 and 1997 periods, respectively, and revenues increased
$1.2 million, or 87%, from $1.4 million in 1996 to $2.7 million in 1997. This
increase was primarily attributable to the increased licensing activity
described above, which resulted in increased revenues from customer
implementations and maintenance contracts. The greater increase in software
services revenues as compared to the increase in license revenues was
attributable to the disproportional timing of the recognition of the respective
revenues. During 1997, many of our sales of licenses had acceptance criteria and
accordingly, license revenues were deferred into 1998. Software service revenues
were recognized ratably over the implementation as such services were performed.
40
<PAGE> 42
Cost of Revenues
COST OF REVENUES. Cost of revenues consists primarily of personnel costs
associated with providing implementations, support under maintenance contracts
and training through our professional service group. Cost of licenses was
insignificant for 1996 and 1997. Cost of revenues as a percentage of revenues
was 37% and 32% for the 1996 and 1997 periods, respectively, and increased $0.3
million, or 33%, from $1.0 million in 1996 to $1.3 million in 1997. This
increase was primarily attributable to the increase in the number of
implementation, training and technical support personnel to support the growth
of the implementations and the installed customer base.
Operating Expenses
RESEARCH AND DEVELOPMENT. Research and development expenses as a
percentage of revenues were 23% and 29% for the 1996 and 1997 periods,
respectively, and increased $0.6 million, or 95%, from $0.6 million in 1996 to
$1.2 million in 1997. This increase was primarily due to an increased hiring of
personnel and to other expenses associated with the development of new products
and enhancements of existing products.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses as a percentage of revenues were 36% and 39% for the 1996 and 1997
periods, respectively, and increased $0.6 million, or 65%, from $1.0 million in
1996 to $1.6 million in 1997. This increase was primarily due to increased
staffing required to support our expanded operations in the United States and
abroad.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables represent certain unaudited consolidated statement of
operations information for each quarter in the eleven quarters ended September
30, 1999, as well as such information expressed as a percentage of total
revenues for the periods indicated. The information for the six quarters ended
September 30, 1999 was derived from unaudited financial statements and has been
prepared on the same basis as our audited consolidated financial statements and,
in the opinion of management, includes all adjustments, which consist of normal
recurring adjustments, that we consider necessary for the fair presentation of
such information when read in conjunction with our audited consolidated
financial statements and notes thereto, appearing elsewhere in this prospectus.
The information for the five quarters ended March 31, 1998 was derived from the
unaudited financial statements of Zai*Net, our predecessor company, and has been
prepared on the same basis as the audited financial statements of Zai*Net and,
in the opinion of management, includes all adjustments, which consist of normal
recurring adjustments, that we consider necessary for the fair presentation of
such information when read in conjunction with the audited financial statements
of Zai*Net and notes thereto, appearing elsewhere in this prospectus. Due to the
acquisitions completed during 1998 and the significant changes in our
operations, the comparison of fluctuations for these time periods would not
provide a meaningful understanding of our on-going operations. We believe
quarter-to-quarter comparisons of financial results should not be relied upon as
an indication of future performance, and operating results may fluctuate from
quarter to quarter
41
<PAGE> 43
in the future. See "Risk Factors" and the financial statements contained
elsewhere in this prospectus. We expect our results of operations will fluctuate
and the price of our common stock could fall if quarterly results are lower than
the expectation of securities analysts.
From the date of our formation as a limited liability company through
September 30, 1999, we were not subject to federal and state income taxes,
except for certain New York income taxes on limited liability companies. The
amounts in the line item of the statement of operations and other data table
below titled "Pro forma net income (loss)" reflect the additional tax provision
that we would have recorded had we been a C corporation for the periods
presented.
<TABLE>
<CAPTION>
ZAI*NET
(PREDECESSOR)
----------------------------------------------------------------
QUARTER ENDED
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses................... $293,263 $249,489 $ 401,481 $ 577,214 $1,100,344
Software services.......... 674,583 614,484 649,120 729,620 819,386
-------- -------- ---------- ---------- ----------
Total revenues........... 967,846 863,973 1,050,601 1,306,834 1,919,730
-------- -------- ---------- ---------- ----------
Gross profit................. 639,428 550,376 716,280 951,688 1,419,274
Operating expenses........... 556,593 593,425 672,340 1,039,650 1,223,799
-------- -------- ---------- ---------- ----------
Operating income (loss)...... 82,835 (43,049) 43,940 (87,962) 195,475
Other income (expense), net.. 1,200 9,295 (4,441) 11,537 10,966
Provision for income taxes... -- -- -- -- (90,948)
-------- -------- ---------- ---------- ----------
Net income (loss)............ $ 84,035 $(33,754) $ 39,499 $ (76,425) $ 115,493
======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ZAI*NET
(PREDECESSOR)
---------------------------------------------------------------
QUARTER ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses..................... 30% 29% 38% 44% 57%
Software services............ 70 71 62 56 43
--- --- --- --- ---
Total revenues............. 100 100 100 100 100
--- --- --- --- ---
Gross profit................... 66 64 68 73 74
Operating expenses............. 57 69 64 80 64
--- --- --- --- ---
Operating income (loss)........ 9 (5) 4 (7) 10
Other income (expense), net.... -- 1 -- 1 1
Provision for income taxes..... -- -- -- -- (5)
--- --- --- --- ---
Net income (loss).............. 9% (4)% 4% (6)% 6%
=== === === === ===
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
CAMINUS
--------------------------------------------------------------------------------------
QUARTER ENDED
--------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1999 1999 1999
----------- ------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Licenses............... $ 916,015 $ 1,009,842 $ 1,713,286 $ 1,776,579 $ 2,518,746 $ 3,793,296
Software services...... 676,000 1,205,417 1,209,341 1,949,373 2,057,217 1,672,923
Strategic consulting... 855,768 864,782 1,175,552 1,509,504 1,430,558 1,817,363
----------- ----------- ----------- ----------- ----------- -----------
Total revenues....... 2,447,783 3,080,041 4,098,179 5,235,456 6,006,521 7,283,582
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............. 1,369,971 1,485,264 2,085,750 3,654,117 4,052,222 4,966,777
Operating expenses....... 4,760,914 2,584,088 7,729,349 4,810,067 5,369,897 8,274,752
----------- ----------- ----------- ----------- ----------- -----------
Operating loss........... (3,390,943) (1,098,824) (5,643,599) (1,155,950) (1,317,675) (3,307,975)
Other income (expense),
net.................... 25,438 31,097 40,374 3,247 (54,949) (75,154)
Provision (benefit) for
income taxes........... 44,511 12,778 (21,554) 73,245 66,323 194,726
Minority interest........ (98,917) (91,002) (109,077) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss................. $(3,508,933) $(1,171,507) $(5,690,748) $(1,225,948) $(1,438,947) $(3,577,855)
=========== =========== =========== =========== =========== ===========
Pro forma net loss....... $(3,405,511) $(1,139,160) $(5,614,558) $(1,442,079) $(1,470,668) $(3,468,018)
=========== =========== =========== =========== =========== ===========
Basic and diluted net
loss per common
share.................. $(0.50) $(0.16) $(0.75) $(0.15) $(0.18) $(0.43)
Pro forma basic and
diluted net loss per
common share........... $(0.48) $(0.16) $(0.74) $(0.18) $(0.18) $(0.42)
Weighted average
shares -- basic and
diluted................ 7,074,526 7,309,717 7,604,362 7,966,928 7,993,157 8,296,539
</TABLE>
<TABLE>
<CAPTION>
CAMINUS
-------------------------------------------------------------------------------
QUARTER ENDED
-------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1999 1999 1999
-------- ------------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Licenses............... 37% 33% 42% 34% 42% 52%
Software services...... 28 39 29 37 34 23
Strategic consulting... 35 28 29 29 24 25
---- --- ---- --- --- ---
Total revenues....... 100 100 100 100 100 100
---- --- ---- --- --- ---
Gross profit............. 56 48 51 70 67 68
Operating expenses....... 194 84 189 92 89 114
---- --- ---- --- --- ---
Operating income
(loss)................. (138) (36) (138) (22) (22) (45)
Other income (expense),
net.................... 1 1 1 -- (1) (1)
Provision (benefit) for
income taxes........... 2 -- (1) 1 1 3
Minority interest........ (4) (3) (3) -- -- --
---- --- ---- --- --- ---
Net loss................. (143)% (38)% (139)% (23)% (24)% (49)%
==== === ==== === === ===
Pro forma net loss....... (139)% (37)% (137)% (28)% (24)% (48)%
==== === ==== === === ===
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of September 30, 1999 were approximately $0.8
million, a decrease of approximately $2.0 million from December 31, 1998. Our
cash flow used in operating activities is primarily affected by, but not limited
to, cash received from customers, cash paid to compensate employees, cash paid
for professional fees, cash paid for the leasing of real estate and equipment
and cash
43
<PAGE> 45
paid to third party software licensors. We prepare our cash flow statement using
the indirect method which reconciles net income to cash used in operating
activities. Therefore, the following discussion explains the significant items
which impact the reconciliation of net income to cash flow from operating
activities. The explanations should be read in conjunction with our consolidated
statements of cash flow appearing elsewhere in this prospectus. Net cash used in
operating activities for the nine months ended September 30, 1999 was
approximately $0.9 million. Net cash used in operating activities primarily
resulted from our net loss of $6.2 million, which was offset by depreciation and
amortization and acquired in-process research and development write-offs, a $2.2
million increase in accounts receivable and a $1.1 million decrease in accounts
payable, partially offset by increases of $3.0 million in accrued liabilities
and $2.1 million in deferred revenues. The increase in accounts receivable and
accrued liabilities was primarily attributable to the growth of our business.
The increase in accrued liabilities was primarily related to professional fees
associated with an acquisition that we ultimately decided not to pursue and
certain costs of this offering. The decrease in accounts payable was primarily
due to the payment of professional fees and recruiting costs associated with the
1998 acquisitions and the recruitment of additional personnel, respectively.
Deferred revenues decreased approximately $2.1 million during the nine months
ended September 30, 1999 primarily due to a decrease in deferred license
revenues, partially offset by an increase in deferred maintenance revenues.
Deferred license revenues decreased primarily due to completion of our
obligations under certain license agreements and the acceptance of the software
by the customers. Accordingly, certain license revenues, which were deferred at
December 31, 1998, were recognized during the nine months ended September 30,
1999. During 1999, we modified our standard license agreement by removing all
acceptance criteria. As a result, our current license agreements generally allow
for the recognition of revenues upon the execution and delivery of the software
to the customer. Deferred maintenance revenues increased primarily due to a
change in billing practice, where most customers are now invoiced on an annual
or quarterly basis instead of a monthly basis.
Our cash flow used in investing activities is primarily affected by, but
not limited to, net cash paid to acquire businesses and cash paid for capital
expenditures. The discussions appearing below should be read in conjunction with
our consolidated statements of cash flow appearing elsewhere in this prospectus.
Net cash used in investing activities during the nine months ended September 30,
1999 was approximately $10.7 million and resulted primarily from the purchase of
DC Systems for $9.9 million, net of cash acquired, and $0.8 million in capital
expenditures for computer and communications equipment, purchased software,
office equipment, furniture, fixtures and leasehold improvements.
Our cash flow provided by financing activities is primarily affected by,
but not limited to, net cash received from investors, net cash received under
borrowings form a credit facility, cash paid to affiliates and stockholders
under contractual obligations, and cash distributions paid to stockholders. The
discussions appearing below should be read in conjunction with our consolidated
statements of cash flow appearing elsewhere in this prospectus. Net cash
provided by financing activities during the nine months ended September 30, 1999
was approximately $9.7 million. During the nine months ended September 30, 1999,
financing activities provided cash of approximately $12.3 from the sale of
equity,
44
<PAGE> 46
$2.0 million from borrowings under a credit agreement entered into in June with
Fleet Bank and approximately $1.8 million in subscriptions received. These funds
were used for the payment of the purchase price for DC Systems, an earnout to
the former owners of Zai*Net of $2.2 million, to repurchase an equity interest
in us held by SS&C Technologies, Inc. for $0.3 million and to pay the $1.7
million due under the distributor agreement with SS&C and $0.3 million
distribution to members for taxes.
On June 23, 1999, we entered into a credit agreement with Fleet Bank which
provides for total borrowings of up to $5.0 million under two facilities, a
revolving loan and a working capital loan. The revolving loan expires on May 31,
2001 and provides for borrowings of up to $2.5 million. The working capital loan
expires on May 31, 2000, which may be extended to May 31, 2001, and provides for
borrowings that are limited to 85% of eligible accounts receivable, less $0.5
million, which in the aggregate can not exceed $2.5 million. The loans under
this agreement bear interest either at the bank's reference rate, which is
generally equivalent to the published prime rate, or LIBOR plus an applicable
margin between 2.5% and 3.0%. The credit agreement requires maintenance of
customary financial ratios. We intend to use approximately $2,000,000 of the net
proceeds of this offering to repay the outstanding balance under the loans.
After repaying the outstanding balance, we intend to terminate our existing
credit agreement.
We have funded our operations and acquisitions primarily from the proceeds
of equity sales and borrowings under our credit facility. We expect that our
working capital needs will continue to grow as we execute our growth strategy.
We believe, in the absence of this offering, that our ability to borrow under
our credit facility, the receipt of subscriptions receivable from certain of our
original limited liability company investors and cash to be generated from
operations would be sufficient to meet our expenditure requirements for at least
the next twelve months. Additionally, we intend to obtain additional equity
financing from an initial public offering of common stock during 1999.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products
electronically store dates using only the last two digits of the calendar year.
As a result, these systems may not be able to distinguish whether "00" means
1900 or 2000, which may cause system failures or erroneous results. This problem
is generally referred to as the "Year 2000 issue."
STATE OF READINESS. We have identified the information technology, or IT,
and non-IT systems, software and products that could be affected by Year 2000
issues, and have completed our assessment of the potential overall impact of the
impending century change on our business.
Based on our current assessment, we believe current and prior versions of
our software products are Year 2000 compliant. By Year 2000 compliant, we mean
that the use or occurrence of dates on or after January 1, 2000 will not
materially affect the performance of our software products or the ability of our
products to correctly create, store, process and output data involving dates,
provided that all other products, such as hardware and software used with our
products, are also Year 2000 compliant. However, our products are generally
integrated into, and
45
<PAGE> 47
process data extracted from, other enterprise systems involving sophisticated
hardware and complex software products that we cannot adequately evaluate for
Year 2000 compliance.
We have completed a Year 2000 assessment of our internal management
information systems and other computer systems. As part of this effort, we have
communicated with the vendors that supply us with our software and information
systems and with our significant suppliers to determine whether their products
and organizations are Year 2000 compliant. We received a written response from a
small percentage of the external vendors, and the significant suppliers that we
contacted indicated that their systems are Year 2000 compliant. Those who have
not responded have statements on their web sites indicating that their systems
are Year 2000 compliant.
The results of these readiness assessment initiatives indicate that
substantially all of our internal information technology systems and other
internal operating systems are currently Year 2000 compliant.
COSTS. To date, costs directly associated with our Year 2000 compliance
efforts have not been material. In addition, we have incurred immaterial
expenses associated with our salaried employees who have devoted some of their
time to our Year 2000 assessment and compliance efforts. We do not expect the
total cost of Year 2000 problems to be material to our business. However, during
the months prior to the century change, we will continue to evaluate new
versions of our software products, new software and information systems provided
to us by third parties and any new infrastructure systems that we acquire to
determine whether they are Year 2000 compliant. Despite our current assessment,
we may not identify and correct all significant Year 2000 problems on a timely
basis. Year 2000 compliance efforts may involve significant time and expense and
uncured problems could seriously harm our business.
RISKS. We are not currently aware of any Year 2000 compliance problems
relating to our products that would seriously harm our business. We may discover
Year 2000 compliance problems in our products that will require substantial
revision and could subject us to liability claims. Our products operate in
complex network environments and directly or indirectly interact with a number
of other hardware and software systems that we cannot adequately evaluate for
Year 2000 compliance. In addition, technology developed by others and
incorporated into our products could have Year 2000 problems. We may face claims
based on Year 2000 problems in the products of other companies, or issues
arising from the integration of multiple products within an overall system even
if our products are otherwise Year 2000 compliant. Our failure to fix or replace
our internally developed proprietary software or third-party software, hardware
or services on a timely basis could result in lost revenues, increased operating
costs, the loss of customers and other business interruptions, any of which
could seriously harm our business. Moreover, our failure to adequately address
Year 2000 compliance issues in our internally developed proprietary software
could result in claims of mismanagement, misrepresentation or breach of contract
and related litigation, which could be costly and time-consuming to defend.
CONTINGENCY PLAN. As discussed above, we have conducted a Year 2000
assessment and have not found it necessary to implement any contingency plans.
46
<PAGE> 48
Contingency plans will be implemented if it appears that we or any of our
vendors will not be Year 2000 compliant and such noncompliance is expected to
have a material adverse impact on our operations. The cost of developing and
implementing such plans may itself be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Our exposure to market risk for changes in interest rates relates primarily
to our long-term debt obligations. We primarily use proceeds from these debt
obligations to support general corporate requirements, including capital
expenditures and working capital needs. We have interest rate exposure on
borrowings under our revolving line of credit which bear interest at variable
rates based on LIBOR or the prime interest rate.
We have no derivative financial instruments in our cash and cash
equivalents. We invest our cash and cash equivalents in investment-grade, highly
liquid investments, consisting of money market instruments and bank certificates
of deposit. We anticipate investing our net proceeds from this offering in
similar investment-grade and highly liquid investments pending their use as
described in this prospectus.
For the nine months ended September 30, 1999, approximately 38% of our
revenues and 29% of our expenses was denominated in British pounds.
Historically, the effect of fluctuations in currency exchange rates has not had
a material impact on our operations. As we expand our operations outside the
United States, our exposure to fluctuations in currency exchange rates could
increase.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective for the Company beginning in 2001.
FAS 133 establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. Because we do not currently hold any derivative
financial instruments and do not engage in hedging activities, we expect the
adoption of FAS 133 will not have a material impact on our consolidated
financial condition, results of operations or cash flows.
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BUSINESS
OVERVIEW
We are a leading provider of software solutions and strategic consulting
services to participants in energy markets throughout North America and Europe,
including utilities, electrical power generating companies, energy marketers
electric power pools, gas producers, processors and pipelines. We offer a suite
of software solutions and associated services to enable energy market
participants to manage complex risk scenarios and effectively trade and manage
energy transactions, addressing multiple types of risk and energy commodities,
such as electric power, natural gas, crude oil and coal, across varied
geographies. In addition, our strategic consulting practice, which is one of the
leading consulting organizations in the European energy industry, provides
energy market participants with strategic advice regarding where to compete and
how to compete. Our team of subject matter experts provides strategic advice on
long-term energy investment decisions, including decisions relating to the
appropriate use of energy assets and the most effective operating strategies in
deregulating energy markets. We currently have approximately 100 energy
enterprise customers of our software solutions and strategic consulting
services. Many of our customers are leaders in the energy industry, including
American Electric Power, Consolidated Edison, Conoco, PG&E Energy Trading,
Preussen Elektra and TXU Electric and Gas. For a discussion of our two business
segments, software solutions and strategic consulting, as well as geographic
information about us, please see the Caminus Corporation financial statements.
INDUSTRY BACKGROUND
The energy industry, which includes the electric power, natural gas and
energy trading markets, is currently one of the five largest vertical markets in
the United States, with 1998 revenues of approximately $300 billion. We believe
the global energy market, excluding the United States, is approximately twice as
large as the U.S. market. Energy market participants have historically been
single, highly integrated organizations undertaking all activities of the energy
value chain, from exploration and generation to distribution and end-user
support. In order to introduce and stimulate competition in the energy industry,
governments in the United States, the United Kingdom and continental Europe have
dramatically reduced or eliminated their regulation of natural gas and electric
power markets.
In the United States, the deregulation of the natural gas industry began in
the early 1990s, while electric power deregulation began in the mid 1990s.
Deregulation is currently underway in more than half of the states, being
undertaken on a statewide basis in some jurisdictions and on a
provider-by-provider basis in others. The pace of this deregulation, both
nationally and on a statewide basis, is accelerating. Deregulation in the United
Kingdom and the Nordic region of Europe began in the late 1980s and early 1990s.
As a result of this deregulation:
- Vertically integrated suppliers are breaking up, energy trading is
becoming more complex and opportunities are being created for new market
entrants;
- Trading volumes are growing rapidly, and price volatility and risk
exposure are increasing significantly;
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- Energy market participants must find information technology solutions and
services that enable them to compete effectively in deregulating energy
markets; and
- Few solutions exist that are specifically targeted to address the buying,
selling and trading of energy in deregulating environments.
Vertically integrated suppliers are breaking up, energy trading is becoming more
complex and opportunities are being created for new market entrants
Traditional, vertically integrated utilities are breaking up on their own
initiative in order to remain competitive and in response to deregulation. This
is creating substantial opportunities for new entrants in the changing energy
marketplace. Vertically integrated monopoly control of wholesale and retail
energy transactions has weakened, creating the necessity for traditional
utilities and new entrants to buy, sell and hedge energy in a rapidly
deregulating wholesale market. For example, in some regions, electric power is
being sold by generators into electric power pools and then purchased from the
pool by electric power marketers and end users. In other cases, competing
suppliers are negotiating contracts directly with end users. Often the market is
a hybrid of these approaches. Today, energy purchase and sale agreements contain
different durations, terms, delivery points and volumes. In addition, the
definition of the product increasingly varies from contract to contract in terms
of power quality, reliability and other measurable attributes.
These factors have increased the range and number of participants in the
electric power, natural gas and energy trading markets. They include the
following:
<TABLE>
<CAPTION>
MARKET PARTICIPANTS
- ------ ------------
<S> <C>
ELECTRIC POWER Power generating companies
Independent power producers
Independent system operators
Power pools
Transmission companies
Distributors
Marketers
Retailers
End users
NATURAL GAS Producers
Gatherers
Processors
Storage operators
Pipelines
Local distribution companies
Marketers
Retailers
End users
ENERGY TRADING Commodity exchanges
Over-the-counter traders
Brokers
Financial institutions
</TABLE>
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Trading volumes are growing rapidly, and price volatility and risk exposure are
increasing significantly
The increase in the number of market participants has in turn greatly
increased the number and complexity of energy transactions that must be managed
and associated trading risks that must be controlled. According to Enron Corp.,
the world's largest electric power trader, global wholesale electric power
trading volume increased tenfold from 1996 to 1998. In 1998, over 70% of
wholesale electric power trading was among energy marketers who neither produce,
transport nor consume electric power. This growth in market participants has
resulted in increased trading velocity, which is the number of times power is
traded before it is ultimately consumed.
The nature of energy commodities also adds to the complexity of the market.
For example, electric power has distinctive attributes that create more price
volatility than other commodities. Electric power, which is worth different
amounts in different locations, cannot be stored in significant quantities or
transported long distances at economic costs, and costs of generation and
transmission vary significantly. Demand and price in turn can vary dramatically,
with variations dependent upon time of day, day of the week and weather
conditions. All of these factors contribute to substantial price volatility and
thus growing risk exposure.
For example, during the summer of 1998, the electricity market in the
midwestern U.S. witnessed significant increases in wholesale spot market prices.
On June 25 and 26, 1998, prices for electric energy rose from $25 per megawatt
hour to as much as $2,600 per megawatt hour, with at least one hourly price
reaching $7,500 per megawatt hour. One month later, more abnormally large price
increases occurred. Several factors occurred simultaneously to cause these price
"spikes." Above average temperatures increased demand to near record levels, and
generating capacity could not keep pace. Transmission constraints also reduced
the ability of utilities to transport electric power. In addition, the overall
lack of accurate information and market experience among various market
participants contributed to the surge in prices, and several parties defaulted
on large electric power sales contracts, thereby forcing their customers to buy
electric power on short notice at substantial prices. In addition, during the
summer of 1999 there were similar spikes in spot market prices. These incidents
are indicative of the significant price volatility of electric power.
Energy market participants must find information technology solutions and
services that enable them to compete effectively in deregulating energy markets
Deregulation of the energy industry is forcing market participants to:
- better understand their current roles in the energy value chain;
- assess their long-term energy strategies, including where to compete and
how to compete; and
- invest in the right information technology solutions to analyze,
implement and support their energy strategies.
To compete in this rapidly changing market, energy market participants need
advice on how to make the transition from participating in a non-competitive,
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regulated market to a highly complex, competitive market. For example, they need
to understand their role in interacting with multiple and diverse market
participants, trading multiple energy commodities and competing in several
markets.
The deregulating energy environment has created an immediate and growing
need for the same operational, trading and risk management infrastructure that
has supported other long-standing markets but, until recently, has been handled
in a rudimentary way in the energy sector. A study conducted by ABB Energy
Information Systems estimates that global energy information technology spending
will grow from $14 billion in 1999 to $24 billion in 2005. To successfully
compete in an environment of greater competition and price volatility, and
significant risk exposure, energy market participants require systems that
provide:
- transaction confirmation;
- portfolio management;
- risk management;
- trading system controls;
- demand, supply and price forecasting;
- decision support; and
- transaction management tools.
Few solutions exist that are specifically targeted to address the buying,
selling and trading of energy in deregulating environments
In response to deregulation in the natural gas industry in the U.S.,
software systems have been developed to manage the physical flow and trading of
natural gas. However, many of these systems are not capable of supporting the
requirements of energy participants in today's deregulating energy markets
because they do not adequately support electric power trading or multiple types
of risk and cannot be integrated with other segments of the energy value chain.
A number of existing solutions, including most internal solutions, are point
solutions that are designed to address costs in the energy market but cannot
conduct trades, manage risks or record and analyze the numerous market-based
variables affecting multiple energy assets across different geographies. These
point solutions, which may consist of little more than off-the-shelf software
applications, first-generation portfolio management tools and spreadsheets, are
often not integrated with the operational and analytical functions of the
enterprise and may be unable to interface with other participants in the energy
industry, such as the emerging energy power pools.
In addition, energy participants have been analyzing energy assets with
traditional analytical models from the financial services industry, such as the
industry-standard Black-Scholes option pricing model, which may be appropriate
for financial instruments but does not account for all the variables relevant to
energy trading, such as volume risk. We believe that over the next several years
energy market participants will require new energy trading systems in order to
effectively compete in the continually changing energy marketplace.
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CAMINUS SOLUTION
We are a leading provider of software solutions and strategic consulting
services to participants in energy markets throughout North America and Europe.
We provide participants in the energy industry with sophisticated software
solutions to manage complex risk scenarios and effectively trade and manage
energy transactions. We also provide our customers with strategic advice
regarding where to compete, both by geographic region and position within the
energy value chain, and how to compete.
We provide energy market participants with sophisticated software systems
to compete in deregulated markets. Our Zai*Net suite of software features:
- AN INTEGRATED, MULTI-FUNCTIONAL SOLUTION TO TRADE AND MANAGE ENERGY
TRANSACTIONS THROUGHOUT THE ENERGY VALUE CHAIN. Our Zai*Net suite of
software products provides decision support for trading, corporate-wide
risk and credit management and complete tracking and invoicing of energy
as it flows through the energy value chain. We offer a solution with
modules ranging from sophisticated analytical tools for understanding and
measuring the unique opportunities and risks in the energy industry to
tools designed to electronically confirm energy flows with gas pipelines,
electric power pools and independent system operators.
- THE ABILITY TO SUPPORT MULTIPLE COMMODITIES AND TYPES OF RISKS ACROSS
VARIED GEOGRAPHIES. Our Zai*Net suite of integrated software products
supports multiple traded energy commodities, including electric power and
natural gas via various energy trading instruments. Our software includes
not only U.S. and European gas and electric power functionality, but also
specific geographic business capabilities, including functions tailored
for the North Sea and Asian crude oil markets.
We also have one of the leading strategic consulting practices in the
European energy industry. Based in Cambridge, England, our team of subject
matter experts provides strategic advice on long-term energy investment
decisions, including decisions relating to the appropriate use of energy assets
and the most effective operating strategies in deregulating energy markets. Our
26 strategic consultants are among Europe's most respected energy experts and,
through their extensive consulting work with regulators, understand what
deregulated market participants require to be effective competitors.
Our customers seek solutions that enable them to compete globally in
rapidly changing energy markets. We believe that our strong presence in the
United States and Europe gives us a significant advantage over our competitors
and positions us for strong penetration of these and other markets. We have
three offices in the United States and two in the United Kingdom. Our 100
customers represent some of the world's largest energy enterprises. We are the
leading consultants on energy policy to regulators in the United Kingdom, one of
Europe's most deregulated energy markets.
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STRATEGY
Our objective is to become the leading provider of software solutions and
strategic consulting services to participants in energy markets throughout the
world. Key elements of our strategy include:
Extending our product leadership
We offer a sophisticated suite of software solutions for the energy
industry and plan to continue to introduce new products that bring added value
to energy market participants. We intend to expand our product offerings by
taking advantage of the flexible structure of our existing software solutions,
which allows us to integrate new product offerings easily. Leveraging the
significant subject matter expertise of our strategic consultants, we continue
to develop software solutions responsive to the evolving needs of our current
and potential customers. For example, during 2000 we plan to introduce our
Zai*Net Weather Delta product, which we believe will significantly improve the
ability of our customers to manage weather risk. We are also continuing to
systematically configure our products to be Web-enabled. We have also
established Web-based hosting of some of our applications to make our products
available cost-effectively to smaller market participants, and improve the
effectiveness of larger enterprises. We plan to invest heavily in the growth of
our global development capability and hire additional product development
personnel in both the United States and Europe.
Maintaining and expanding our strategic consulting leadership
Our experience and in-depth understanding of competitive energy markets has
enabled our team of strategic consultants to be at the forefront of changes in
the U.K. and continental European energy sectors. This leadership provides us
with a special understanding of the needs of our energy clients. We intend to
build on this leadership position by expanding our strategic consulting services
in deregulating energy markets, including Germany, Spain and Italy. During 1998,
we increased our number of consultants in Europe from 23 to 28 in anticipation
of expanding our consulting services and we are planning a significant increase
in personnel in 2000. We also plan to begin building strategic consulting
operations in the United States in 2000.
Continuing to build a global distribution channel
The selling and marketing of sophisticated software solutions to address
the needs of global energy markets requires a highly trained sales channel with
comprehensive subject matter expertise. We have hired a significant number of
experts who can bring added value to the sales and marketing process. We plan to
double the size of our sales channel by the end of 2000 and to expand its scope
beyond the larger energy enterprises to target mid and small market
participants. We also intend to actively pursue opportunities to sell our
software solutions to our installed base of strategic consulting customers as
well as provide strategic consulting services to our software customers.
Expanding global presence
We currently have three offices in the United States and two in the United
Kingdom. As of September 30, 1999, we had 104 employees in the United States and
70 employees in Europe. We believe that our strong international presence
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provides us with a competitive advantage in providing solutions to energy market
participants that are seeking to compete globally in rapidly changing energy
markets. We intend to continue to expand in the foreseeable future to pursue
market opportunities in other markets experiencing energy deregulation,
particularly markets in Europe.
Developing strategic alliances to address the evolving needs of energy market
participants
We are seeking to form relationships with leading providers of products and
services that complement our software solutions. In July 1999, we formed a
strategic alliance with ABB Energy Information Systems, a unit of the ABB Group,
which is one of the world's largest vendors serving the energy industry.
Together with ABB Energy Information Systems, we are developing a comprehensive
end-to-end software solution designed to enable vertically integrated energy
suppliers to manage transactions and risks along the entire energy value chain,
from generation and wholesale acquisition of energy through retail sales. We
believe our combined solution will be one of the first end-to-end solutions in
the energy industry and will strengthen our leadership position in the industry.
We have also entered into strategic marketing arrangements with other companies,
including Siemens, Financial Engineering Associates, PH Energy Analysis and SS&C
Technologies, Inc. We plan to develop additional strategic relationships that
will assist our sales and marketing efforts in new geographic markets.
Continuing to grow through acquisitions
We have achieved a leadership position through acquisitions that have
helped us implement our business strategy. We were formed as a limited liability
company in April 1998 for the purpose of acquiring Zai*Net Software, L.P. and
Caminus Limited. In November 1998, we acquired Positron Energy Consulting. We
have successfully integrated the operations of these companies. In July 1999, we
acquired DC Systems, Inc., a software and services company specializing in
physical gas systems. We plan to pursue acquisitions that continue to add to our
subject matter expertise, bring us new products and services and help us
aggressively grow our market share throughout the world. We currently have no
commitments or agreements with respect to any acquisition. We intend to analyze
potential acquisitions and pursue those opportunities that complement or
supplement our business strategy.
PRODUCTS AND SERVICES
Software Products
Our suite of software products is one of the most comprehensive in the
energy industry. Branded under the "Zai*Net" name, our product suite provides an
integrated energy trading, risk management, scheduling and analytics system to
support multiple functional areas of the energy enterprise. It also allows
energy professionals to model physical assets so they can be effectively
employed in conjunction with a firm's trading and marketing operations.
The Zai*Net product suite offers a software solution covering a range of
functions, including trading, transaction management, risk management, analytics
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and physical scheduling across front, middle and back office operations. Full
integration among the Zai*Net product suite enables energy market participants
to trade, process transactions and manage risk from the wholesale acquisition of
energy through its sale and scheduling. Key benefits of our product suite
include the ability to:
- Manage risk among multiple energy commodities on an enterprise-wide
basis;
- Provide and track operational results from a trader level to a business
unit or enterprise level;
- Maintain trading data in a centralized database with a single,
consolidated, auditable solution;
- Integrate energy trading, risk/control, credit, back office,
treasury/finance and management reporting on a single system;
- Analyze the financial risk and potential impact of long-term energy
investment decisions; and
- Simulate the behavior of deregulating energy markets to forecast future
market prices.
Our software solutions consist of the following three tightly integrated
product groups:
- Zai*Net Manager, our core product, supports energy trading operations and
records and manages transactions and risks of energy commodities;
- Zai*Net Risk Analytics provides advanced risk assessment and management
tools for competitive energy markets; and
- Zai*Net Physicals manages physical energy scheduling operations and
invoicing.
We also offer a fourth product group, Zai*Net Models, to analyze
competitive electric power and natural gas markets, and value energy assets.
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[ZAINET PRODUCT SUITE FLOWCHART]
The omitted graphic is a visual model of our Zai*Net product suite. There
are two boxes. The upper box contains the Zai*Net Models product group:
PowerMarkets, PowerOptions, GasOptions, and ProjectFinance. Below that, there is
a bullet-point list of their functions: long term energy investment analysis,
asset valuation and option valuation.
Below the Zai*Net Models box lies a second, larger box, containing three
smaller boxes within, each representing one of three tightly integrated product
groups. The first box is labeled "Zai*Net Risk Analytics." Inside the box is a
description of its purpose, Corporate Risk Management and a bullet-point list of
its functions: basis exposure, profit & loss attribution, Monte Carlo
Value-at-Risk and potential credit exposure.
The second box is labeled "Zai*Net Manager." Inside the box is a
description of its purpose, Trading, Transaction & Risk Management and a
three-column list of its functions. The first column, "Front Office", lists
trade capture, position/ portfolio management, and pricing & profit & loss. The
second column, "Middle Office", lists Value-at-Risk, credit exposure, portfolio
stress analysis, and audit trail. The third column, "Back Office" lists
reporting confirmations and invoicing.
The third box is labeled "ZaiNet Physicals". This box is divided-side into
three software subgroups. The first subgroup is titled Power*Master. Its listed
functions are: hourly power schedules, curtailments & actualization, pathing
information, and tagging. The second software subgroup is titled Gas*Master and
lists as its functions: gas schedules, pipeline rate schedules, interconnect
movements, and storage. The third software subgroup is Plant*Master, which lists
its functions as: gas plants and processing management.
Zai*Net Manager Product Group
The Zai*Net Manager software is designed to increase the efficiency of a
customer's daily trading operations by recording and managing transactions and
associated risks of energy related commodities. It is used by energy traders and
marketers, risk managers, credit officers and others involved in trading energy
commodities and managing energy risk exposure. The Zai*Net Manager software
serves as the core system and integrates front, middle and back office trading
functionality for multiple traded energy commodities, including:
- electric power
- natural gas
- crude oil
- refined products
- natural gas liquids
- coal
- emission allowances
- weather derivatives
- foreign exchange transactions
The software also provides pricing and back office support for all traded
instruments, including multiple types of physicals, swaps, over-the-counter
options, listed options and futures.
The Zai*Net Manager software's real-time risk management capability
provides aggregated portfolio numbers that instantaneously reflect position and
price changes. The software is designed to handle enterprise-wide, high-level
risk
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management and is also capable of detailed energy commodity position tracking,
analysis and accounting for diverse local trading requirements.
The Value-at-Risk, or VaR, functionality computes corporate-wide VaR, a
widely accepted method for evaluating and measuring market risk, by a number of
categories. The VaR software analyzes information about the risk, or likely gain
or loss, in a given portfolio. The software also provides credit risk analysis
on a real-time basis to minimize current exposure. Portfolio stress analysis
enables risk managers to monitor the impact of price and volatility movements,
and the passage of time on a specified portfolio's position and profit and loss.
Full system audit capability tracks "who did what when" in the system, and "as
of" reporting -- the ability to recreate a previous day's profit and loss
position -- is integrated throughout the system.
Zai*Net Risk Analytics Product Group
Zai*Net Risk Analytics software provides an advanced set of risk assessment
and management tools designed specifically for competitive energy markets. It is
used by energy traders and marketers, risk managers, credit officers and others
involved in managing energy risk exposure. The software utilizes sophisticated
modeling, analysis and simulation methods to help understand business risks.
Zai*Net Risk Analytics software complements and is integrated with Zai*Net
Manager and Zai*Net Physicals software to facilitate the accurate valuation and
management of energy portfolios.
The Zai*Net Risk Analytics software allows users to track portfolio
performance versus projected risks so they can better understand the behavior of
the portfolio under a range of possible price movements, enabling them to more
effectively manage trading and risk.
Zai*Net Risk Analytics software provides capabilities that allow energy
market participants to carefully monitor their risk profiles and credit
positions to manage, analyze and isolate specific risks. It includes the
following modules:
- BASIS BREAKDOWN REPORTING breaks down the risk factors of a single
transaction or group of transactions according to varying price
movements, which are commonly referred to as fixed, basis and index
prices. This enables more detailed analysis of each element of portfolio
risk.
- PROFIT & LOSS (P&L) ATTRIBUTION REPORTING analyzes profit and loss
changes over specified time periods, and attributes such changes to (1)
variations in a commodity's price and volatility, (2) the passage of time
in the specified period and (3) new, changed or voided transactions
during the period.
- MONTE CARLO VALUE-AT-RISK (VaR) ANALYSIS uses the industry-standard Monte
Carlo VaR methodology optimized specifically for energy portfolios. This
analysis runs a portfolio through thousands of simulated market price and
volatility movements and reports a distribution for VaR, which is the
likely gain or loss.
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- POTENTIAL CREDIT EXPOSURE ANALYSIS provides close monitoring of credit
risk by capturing volatility in credit exposure calculation to help
contain potential losses.
Zai*Net Physicals Product Group
The Zai*Net Physicals software allows electric power and natural gas
traders and schedulers as well as management and back office staff to manage
physical energy scheduling operations and invoicing. The Zai*Net Physicals group
consists of three major products: Gas*Master, Power*Master and Plant*Master
software.
-GAS*MASTER software supports all aspects of physical natural gas
transportation, including scheduling, pipeline nominations and wellhead -- or
production-level -- accounting. Gas*Master software includes the following
modules:
-- GAS SCHEDULING assists users in planning and scheduling natural gas
transportation by pipelines, in and out of storage facilities, and to
and from gas pipeline interconnect and storage points.
-- GAS NOMINATIONS manages natural gas scheduling information and formats
the information to the specific requirements of various gas pipeline
systems, enabling bids and confirmations of complex physical gas
transactions. A Web-based electronic data interface, or EDI, allows
automatic transfer of all information exchange with the pipelines,
without requiring user intervention or data re-entry.
-- WELLHEAD ACCOUNTING enables companies with interest at the wellhead
level -- or production site -- to manage the division of interest and
royalty payments.
-POWER*MASTER allows users to schedule electric power across the various
transmission systems and electric power markets worldwide. It includes the
following modules:
-- LONG-TERM POWER SCHEDULING tracks power curtailments, actual electric
power flow and physical and financial transmission line losses by
transaction. The user-friendly interface matches energy transactions
(buys with sells), tracks the "paths" that the energy has flowed
through on the power grid and creates daily and monthly schedules of
planned power flows down to a minute level.
-- REAL-TIME POWER SCHEDULING captures and schedules purchases and sales
of power and transmission capacity, which is the flow of power between
points on the electrical grid networks, on a convenient, single-entry
screen. We designed this module in conjunction with traders and
schedulers to support hourly and real-time trading in the deregulating
power markets.
-PLANT*MASTER enables natural gas processing plant operators to track the
physical flows of gas through the facility and to manage title and allocation
throughout the process.
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Zai*Net Models Product Group
Zai*Net Models provide support for long-term energy decisions with a
comprehensive suite of software solutions to analyze competitive electric power
and natural gas markets. Using sophisticated techniques, the models allow
accurate appraisals, capturing the embedded risk prevalent in many energy
assets. These models also perform sensitivity analysis, which involves valuation
testing against varying assumptions relating to fuel costs, price volatility,
operating costs and characteristics, and discount rates. The models use advanced
methods for valuing physical options -- options that reflect the risks of the
physical energy market -- and can be used for mark-to-market valuation and risk
reporting. The Zai*Net Models include:
- POWERMARKETS is a model that simulates the dynamics of competitive
electricity markets, including forward prices, operating performance of
generators and trading flows between markets and regions.
- POWEROPTIONS is a set of models that uses sophisticated analyses to value
energy assets.
- GASOPTIONS is a set of models that uses sophisticated analyses to value
storage assets and complex purchase and sale transactions.
- PROJECTFINANCE is a financial model that values new and existing assets
using a number of analytical techniques.
Product Pricing
We license our software for a one-time license fee, which typically
consists of a base fee plus charges for optional modules and system users. The
one-time license fee for base packages can range from $200,000 to $400,000 for a
system with basic functionality and a small number of users. Adding additional
functionality through optional modules, which are priced from $20,000 to over
$100,000, and additional users can increase system license fees to a range of
$500,000 to over $1 million. Customers also typically enter into an annual
maintenance agreement providing them with regular software upgrades and help
desk support. Customers pay an annual maintenance fee that is typically equal to
20% of the customer's license fee. A majority of our customers start with a
software solution providing basic functionality to a limited number of users and
add functionality and users as they expand their operations.
Software Services
We offer a broad range of professional services to assist our customers in
implementing our software products to meet their business needs. Our philosophy
is to focus on the needs of each specific customer and to tailor our services
accordingly. We provide the following services, primarily on a time and
materials basis:
- IMPLEMENTATION CONSULTING SERVICES to assist customers with the initial
installation of the software or newly licensed modules, conversion of the
customer's historical data, setting the operational parameters of the
system and ongoing training and support.
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- APPLICATION CONSULTING SERVICES to help our customers gain the maximum
benefit from our systems and implement best practices in their trading
and risk management operations.
- POST-IMPLEMENTATION CUSTOMER SUPPORT to answer customer questions and
resolve problems through remote diagnosis and telephone hotline support.
These services and the professionals that deliver them contribute to a
strong relationship with our customers, enabling us to assess the future
requirements of our customers and sell them additional products and services. As
of September 30, 1999, our software consulting staff consisted of 41 employees
located in the U.S. and Europe.
STRATEGIC CONSULTING SERVICES
Based in Cambridge, England, our 26 strategic consultants provide European
governments with strategic advice on the deregulation and restructuring of the
energy industry and assist energy companies with global operations in choosing
and implementing strategies to remain competitive in deregulating energy
markets. Our reputation in strategic consulting is based on our experience and
in-depth understanding of competitive energy markets. We have significant
expertise in economics, regulation and strategy, and have been at the forefront
of changes in the United Kingdom energy sector, which has one of the most
deregulated natural gas and electric power markets in the world. Our knowledge
and information base covers the entire energy value chain from fuel production
through generation, transmission, distribution and trading, and we have a
detailed understanding of competitive wholesale trading arrangements in
international gas and electricity markets.
Our strategic consulting expertise, which is billed primarily on a time and
materials basis, is diverse and includes specialization in the following areas:
ACQUISITIONS. New entrants and existing players in deregulating markets
may choose to strengthen their market position through acquisitions of assets or
businesses. We have significant experience in the economic evaluation of new and
existing energy projects and have provided advice on more than 20 power projects
in the U.K., as well as a number of projects in Europe.
QUANTITATIVE ANALYSIS. We are experts in analyzing complex issues in
competitive energy markets. Our quantitative approach encompasses, among other
things, the effect of changing market structures on the key price drivers. Our
strategic consulting group first developed our suite of analytical models of the
England and Wales energy power pool in the late 1980s to assist our clients in
their negotiations with the U.K. government over the structure of the energy
power pool. Since then, we have refined these models into our comprehensive
suite of analytical Zai*Net Models that support strategic energy decisions.
RISK MANAGEMENT. Throughout Europe, competition is forcing natural gas and
electric utilities to re-evaluate their strategies for managing the risks in
their businesses. We offer a complete range of risk management consultancy
services, independently or in conjunction with our Zai*Net software suite. We
have developed electricity trading and risk management training courses for a
number of U.K., continental European and North American power companies. We have
also
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run several successful electricity trading and risk management workshops at
major European power conferences.
POLICY FORMULATION. Over the years, we have worked very closely with
British gas and electricity regulators to help design and establish the world's
first fully competitive gas and electricity markets. We are currently lead
economic advisors to the U.K. gas and electricity regulatory body, OFGEM, on the
Reform of Electricity Trading Arrangements. We have also developed a leading
advisory position on the transition to competition in other European energy
markets.
SALES AND MARKETING
We sell our products and services through a direct sales channel. We
believe the product and market expertise necessary to sell our highly
sophisticated products cannot be delegated successfully to third parties, and we
seek to hire subject matter experts who can bring added value to the sales
process. We do believe, however, that third parties can provide us with valuable
assistance in our marketing efforts, especially in new geographic regions.
Direct Sales Model
As of September 30, 1999, our direct sales force consisted of 21 employees
selling from our U.S. and European offices. We have a single sales organization
in each region that is responsible for selling our entire suite of products and
services in that region. Each of the U.S. and European sales organizations is
led by a highly experienced vice president with a strong background in building
and leading large enterprise sales teams.
We use a team sales approach in which professional account representatives
work with pre-sales product and service experts. The account representative
generates and qualifies leads, manages the sales process and is responsible for
closing the sale. Most new customer sales cycles typically range from six to
nine months from lead generation to contract execution. Territories are assigned
to account representatives on a geographic and named-account basis. Pre-sales
consultants support the sales process by assessing the prospect's business needs
and creating and delivering technical sales information and demonstrations.
Subject matter experts from strategic consulting and product development
supplement the sales team as the sales situation dictates. In addition, our
strategic and software consultants work closely with the sales team to identify
additional sales opportunities with existing customers. We have closely
coordinated team selling between the U.S. and European channels on global
enterprise opportunities.
Marketing Communications
To support our growing direct sales channel, we have devoted significant
resources to building strong marketing support. Our main marketing objectives
are to generate sales leads and increase the market's awareness and accurate
perception of us and our products and services. These efforts are focused on
industry advertising, public relations, trade shows, direct mailings, the
Internet and platform participation in major industry seminars. As of September
30, 1999, we had four marketing personnel.
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STRATEGIC RELATIONSHIPS
We continue to develop relationships, most of which are informal, with
third parties that can assist us in generating sales leads and provide us with
cooperative marketing support. We formed the most significant of our formal
marketing relationships in July 1999 with ABB Energy Information Systems, a unit
of ABB Group. ABB Group is one of the world's largest vendors serving the energy
industry. Together with ABB Energy Information Systems, we are developing a
comprehensive end-to-end solution to provide vertically integrated energy
suppliers with the ability to manage risk along the entire energy value chain,
from wholesale acquisition of energy through retail sales. We also have joint
marketing arrangements with Siemens, Financial Engineering Associates, PH Energy
Analysis, Unified Information and SS&C Technologies.
RESEARCH AND DEVELOPMENT
A strong development capability is essential to delivering responsive
products to an emerging market, continually improving the quality and
functionality of our current products and enhancing our core technology. As of
September 30, 1999, we had 41 employees in our research and development area. We
spent approximately $0.6 million, $1.2 million, $1.2 million and $2.7 million on
research and development during the years ended December 31, 1996 and 1997, the
period from inception (April 29, 1998) through December 31, 1998 and the nine
months ended September 30, 1999, respectively.
We believe the best way to maximize our development capability is to have
small, entrepreneurial development teams, each of which is focused on a specific
product group. Our teams operate under a structure that provides an "umbrella"
of common strategy, plans, technology, standards, methodologies, processes and
culture. Our product teams consist of product mangers, programmers and
documentation and quality assurance specialists, and overall development
management consists of the leaders of each development team, led by the chief
technology officer. The leaders ensure that the teams operate under the common
umbrella and that they work closely with product marketing in a process designed
to ensure that we develop products that the market requires. The team leaders
manage the integration between products and coordinate overall product suite
quality assurance.
We are developing a variety of new products and product enhancements. One
product that we are developing is our Zai*Net Weather Delta product, which we
are designing to provide tools for energy risk professionals to integrate
weather data, one of the key factors in energy demand, into energy load
forecasts. We are designing Zai*Net Weather Delta to analyze the relationships
among load, price and weather. We are also designing the software to deliver
comprehensive reports showing financial volume-at-risk with the traditional
rigor of utility load forecasting. The product is in the design phase, and we
currently plan to release Zai*Net Weather Delta during 2000.
TECHNOLOGY
Written primarily in C/C++ with standard graphical user interfaces, the
Zai*Net software suite has an open, three-tier client/server architecture and
runs
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on Unix and NT servers with Windows95 and WindowsNT clients on Oracle, Microsoft
or Sybase database platforms. We typically store business logic in objects that
reside on the client or server side of the application. Objects are usually
coded in C++ using object-oriented programming techniques for improved
scalability.
The ability to integrate easily with other systems is a key competitive
advantage. To facilitate integration with a variety of architectures, the
Zai*Net suite of solutions provides standard interfaces to accept trades and
prices from other systems and sources. The suite processes trades and prices
into standard formats, easily processed by the risk system. It performs this
activity in random access memory-based server objects keeping slow disk access
to a minimum. The integrated result is an object-oriented, high-performance
system that will run on a variety of servers and databases.
CUSTOMERS
Our customers include a wide range of entities in the energy market,
including utilities, natural gas and electric power marketers, energy retailers,
natural gas and oil producers, local distribution companies, pipelines,
independent power producers, financial institutions and regulatory agencies. We
currently have approximately 100 energy enterprise customers located primarily
in the U.S., Canada, the U.K., Germany, Austria, Belgium, the Netherlands, Spain
and Venezuela. Our customers include:
UTILITIES
American Electric Power
Austin Energy (City of Austin, TX)
Bayernwerk
BC Hydro/Powerex
Consolidated Edison
Electrabel
GPU Energy
Ontario Power Generation
Pennsylvania Power & Light
Preussen Elektra
Public Service Electric & Gas
TXU Electric and Gas
SEP
NATURAL GAS AND ELECTRIC POWER MARKETERS
Bord Gais
Eastern Electricity plc
Merchant Energy Group of the Americas
PG&E Energy Trading
Valero Refining and Marketing
AES Electric Limited
ENERGY RETAILERS
DukeSolutions
NewEnergy
FINANCIAL INSTITUTIONS
Credit Suisse First Boston
GE Capital
REGULATORY AGENCIES
OFGEM
GAS AND OIL PRODUCERS
Amerada Hess
Anadarko Petroleum
Conoco
Ocean Energy/Seagull Energy
Petroleos de Venezuela S.A.
Phillips Petroleum Company
Ultramar Diamond Shamrock
Unocal Corporation
LOCAL DISTRIBUTION COMPANIES
Southwestern Energy
TXU Lone Star Gas
PIPELINES
Coastal Gas Services
Colorado Interstate Gas
Transok, Inc.
INDEPENDENT POWER PRODUCERS
AES Electric
TRANSMISSION COMPANIES
TenneT
National Grid Company plc
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COMPETITION
We compete in a market that is new, rapidly evolving and very competitive.
We expect competition to persist and intensify. We currently face competition
from a number of sources.
The companies that compete against us in the provision of software
solutions to the energy industry include:
- a number of smaller companies that offer point solutions exclusively to
the energy market but do not provide the full range of products and
services required by market participants and do not have a significant
international presence;
- a small number of companies that provide a wide range of products and
services exclusively to the energy market but currently do not have a
strong international presence;
- internal development departments of a number of energy participants
developing systems for internal use or for sale to other market
participants; and
- large multi-product/market software companies or financial institutions
that offer or, in the future, may offer financial risk management and
other software addressing the energy market.
We believe that the principal competitive factors with respect to our
software solutions include:
- knowledge of market needs, product performance, scope, functionality,
ease of use and scalability;
- the existence of an international presence;
- the ability to integrate external data sources;
- product and company reputation;
- the existence of a referencable customer base;
- customer service and support; and
- price.
The principal competitors for our strategic consulting services are
customers who have internal expertise as well as large international consulting
and strategy firms. We believe that the principal competitive factors with
respect to our strategic consulting services include:
- subject matter expertise;
- responsiveness to customer needs;
- reputation;
- comprehensive delivery methodologies; and
- price.
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We believe that we have a leadership position in the energy marketplace
because of our international presence, our subject matter expertise and our
ability to provide both software solutions and strategic consulting services to
our customers. See "Risk Factors -- The market for products and services in the
energy industry is competitive, and we expect competition to intensify in the
future; we may not be able to compete successfully" for a description of risks
relating to our competition.
INTELLECTUAL PROPERTY
We rely on a combination of copyright, trademark and trade secret laws,
nondisclosure agreements and other contractual provisions to establish, maintain
and protect our proprietary rights. We have copyright and trade secret rights
for our products, consisting mainly of source code and product documentation. We
attempt to protect our trade secrets and other proprietary information through
agreements with suppliers, non-disclosure agreements with employees and
consultants and other security measures.
We rely on outside licensors for technology that is incorporated into and
is sometimes necessary for the operation of our products. However, we believe we
can obtain replacements from other vendors and we are in the process of
developing replacement products ourselves. For example, the core technology we
acquired from Positron has allowed us to develop similar technology into an
analytical tool that prices options that we license for resale.
EMPLOYEES
As of September 30, 1999, we had 174 full-time employees, consisting of 67
employees in consulting and services, 41 employees in research and development,
32 employees in finance and administration, 25 employees in sales and marketing
and nine employees in customer support. Of such employees, 104 were located in
the United States and 70 were employed in Europe. None of these employees is
covered by any collective bargaining agreements, and to date, we have not
experienced a work stoppage. We believe our relationship with our employees is
good.
PROPERTIES
Our principal administrative, sales, marketing, services and research and
development facility occupies approximately 17,000 square feet of office space
in New York, New York. The leases expire in September 2004. In addition, we
lease sales, services and research and development offices in the following
cities;
<TABLE>
<CAPTION>
CITY SQUARE FOOTAGE
- ---- --------------
<S> <C>
Dallas, Texas.................................. 5,300
Houston, Texas................................. 4,800
London, England................................ 3,600
Cambridge, England............................. 6,000
</TABLE>
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Other than our Cambridge office, which is the headquarters of our strategic
consulting business, each of our offices houses personnel for both our software
and strategic consulting business segments. We believe that our facilities are
adequate for our current needs and that suitable additional or substitute space
will be available as needed to accommodate expansion of our operations.
LEGAL PROCEEDINGS
From time to time we may be subject to legal proceedings and claims in the
ordinary course of our business. We are not aware of any legal proceedings or
claims that are believed will have, individually or in the aggregate, a material
adverse effect on our business, financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Our executive officers, key employees and directors, and their respective
ages and positions as of September 30, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
David M. Stoner...................... 58 President, Chief Executive Officer and
Director
Nigel L. Evans....................... 45 Senior Vice President, Director of European
Operations and Director
Brian J. Scanlan..................... 37 Senior Vice President, Chief Technology
Officer and Director
Mark A. Herman....................... 39 Vice President, Chief Financial Officer,
Secretary and Treasurer
Michael B. Morrison.................. 42 Managing Director of Strategic Consulting
Simon Young.......................... 34 Vice President
Lawrence D. Gilson................... 50 Chairman of the Board of Directors
Christopher S. Brothers*............. 33 Director
Anthony H. Bloom*.................... 60 Director
Richard K. Landers*.................. 51 Director
</TABLE>
- -------------------------
* Member of audit and compensation committees.
DAVID M. STONER has served as our President and Chief Executive Officer and
as a director since October 1998. From April 1997 to October 1998, Mr. Stoner
served as President and Chief Operating Officer at SS&C Technologies, Inc., a
provider of asset management software to the financial services industry. From
August 1995 to February 1997, Mr. Stoner was President and Chief Operating
Officer of The Dodge Group, Inc., a software company providing PC-based general
ledger systems. From December 1987 to August 1995, Mr. Stoner served as
Executive Vice President, Worldwide Operations at Marcam Corporation, an
international provider of enterprise applications and services.
NIGEL L. EVANS has served as our Senior Vice President and Director of
European Operations and as a director since May 1998. From 1985 to May 1998, Dr.
Evans served as Chairman and Chief Executive Officer of Caminus Limited,
formerly known as Caminus Energy Limited.
BRIAN J. SCANLAN has served as our Senior Vice President and Chief
Technology Officer since January 1999 and as a director since May 1998. From May
1998 to December 1998, Mr. Scanlan served as President of Zai*Net Software, L.P.
and from 1987 to May 1998 served as President of Zai*Net Software, Inc. See
"Certain Transactions."
MARK A. HERMAN has served as our Chief Financial Officer since February
1999. Mr. Herman worked at GT Interactive Software Corp., a publicly held
software company, as Corporate Controller from November 1994 to March 1996
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and as Vice President and Corporate Controller from March 1996 to February 1999.
Prior to 1994, Mr. Herman held various management positions at companies such as
Grand Union, Deloitte & Touche LLP and PricewaterhouseCoopers LLP.
MICHAEL B. MORRISON has served as our Managing Director of Strategic
Consulting since May 1998 and has worked at Caminus Limited since 1988. Mr.
Morrison has prime responsibility for managing the growth of our strategic
consulting business as it continues to expand throughout Europe. Prior to
joining Caminus, Mr. Morrison served in strategic planning and research
positions at Shell International, the World Bank and Carnegie-Mellon University.
SIMON YOUNG has served as Vice President in our development area since May
1998. From 1988 to May 1998, Mr. Young served as Executive Vice President of
Zai*Net Software, Inc., where he designed and developed high performance online
transaction processing systems for the energy and foreign exchange markets.
LAWRENCE D. GILSON has served as chairman of our board of directors since
May 1998. Mr. Gilson is President of GFI and a founder of each GFI entity
beginning in 1995. He previously founded and was President of Venture
Associates, a leading energy industry consulting firm from 1985 to 1995. When he
and his partners sold Venture Associates to Arthur Andersen & Co. in a two-stage
transaction in 1990 and 1992, Mr. Gilson also became Worldwide Head of Arthur
Andersen's Utility Consulting Practice. Prior to founding Venture Associates,
Mr. Gilson served as Vice President for Corporate Development and Government
Affairs of Amtrak from 1979 to 1983. He is the board chair of Power Measurement
Ltd. and Statordyne LLC and a member of the board of Trace Holdings, LLC.
CHRISTOPHER S. BROTHERS has served as a director since May 1998. Mr.
Brothers is a Senior Vice President of Oaktree Capital Management, LLC. Prior to
joining Oaktree in 1996, Mr. Brothers worked at the New York headquarters of
Salomon Brothers Inc., where he served as a Vice President in the Mergers and
Acquisitions group. Prior to 1992, Mr. Brothers was a Manager in the Valuation
Services group of PricewaterhouseCoopers LLP. Mr. Brothers serves on the boards
of directors of Cherokee International LLC, National Mobile Television, Inc.,
Power Measurement, Ltd. and Trace Holdings, LLC.
ANTHONY H. BLOOM has served as a director since May 1998. Mr. Bloom is an
international investor now based in London. Prior to his relocation to London in
July 1988, he lived in South Africa where he was the Chairman and Chief
Executive of The Premier Group, a multi-billion dollar conglomerate involved in
agribusiness, retail and consumer products, and a member of the boards of
directors of Barclays Bank, Liberty Life Assurance and South African Breweries.
Since moving to the United Kingdom, he has been a member of the board of
directors of RIT Capital Partners plc, the publicly traded, London-based
investment company chaired by Lord Rothschild. He is also currently Deputy
Chairman of Sketchley plc and is Chairman of Cine-UK Ltd.
RICHARD K. LANDERS has served as a director since May 1998. Mr. Landers is
a principal of GFI and a founder of each GFI entity beginning in 1995. From 1986
to 1995, he was a partner of Venture Associates and of Arthur Andersen & Co.
following that firm's acquisition of Venture Associates. From 1979 to 1986, Mr.
Landers held senior planning and strategy positions in Los Angeles and
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Washington, D.C. with Southern California Gas Company and its holding company,
Pacific Enterprises. Before joining Southern California Gas, Mr. Landers served
as a foreign service officer in the U.S. State Department with special
responsibilities for international energy matters.
EXECUTIVE OFFICERS
Each executive officer serves at the discretion of our board of directors
and holds office until his successor is elected and qualified or until his
earlier resignation or removal. There are no family relationships among any of
our directors or executive officers, except that Messrs. Gilson and Stoner are
brothers-in-law.
ELECTION OF DIRECTORS
Our board of directors is divided into three classes, with the members of
each class serving for a staggered three-year term. Our board currently consists
of two Class I directors (Anthony H. Bloom and Richard K. Landers), three Class
II directors (Nigel L. Evans, Lawrence D. Gilson and Brian J. Scanlan) and two
Class III directors (Christopher S. Brothers and David M. Stoner). At each
annual meeting of stockholders, 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 Class I directors expire upon the election and
qualification of successor directors at the annual meeting of stockholders to be
held in 2000. The terms of the Class II directors expire upon the election and
qualification of successor directors at the annual meeting of stockholders to be
held in 2001. The terms of the Class III directors expire upon the election and
qualification of successor directors at the annual meeting of stockholders to be
held in 2002.
BOARD COMMITTEES
Our board of directors has an audit committee and a compensation committee.
The audit committee reviews the results and scope of the audit and other
services provided by our independent public accountant. The compensation
committee establishes the compensation policies applicable to our executive
officers and administers and grants stock options pursuant to our stock plans.
The current members of the audit and compensation committees are Messrs. Bloom,
Brothers and Landers.
DIRECTOR COMPENSATION
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors and any meetings of its committees.
Each non-employee director is paid $1,500 for attendance at each meeting of the
board of directors or for each telephonic meeting of the board in which he
participates. Each non-employee director is further entitled to $1,500 for each
meeting of a committee of the board attended by the director which is held on a
day other than the day of, or the day before or after, the date of any meeting
of the full board of directors. Other directors are not entitled to compensation
in their capacities as directors. We may, in our discretion, grant stock options
and other
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equity awards to our non-employee directors from time to time under our stock
plans.
As of the date of this prospectus, each of our non-employee directors will
receive an option under our 1999 stock incentive plan to purchase 7,143 shares
of common stock at the initial public offering price. Each option cumulatively
vests as to 25% of the underlying shares on the first anniversary of the date of
grant and monthly thereafter for an additional three years. See "-- Benefit
Plans -- 1999 Stock Incentive Plan" for a description of our 1999 stock
incentive plan.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 to our:
- president and chief executive officer; and
- our two other executive officers at year-end.
We refer to all of these officers collectively as our Named Executive Officers.
The total compensation paid or accrued below includes compensation paid or
accrued by Caminus LLC, as well as Zai*Net and Caminus Limited. In accordance
with the rules of the Securities and Exchange Commission, the compensation set
forth in the table below does not include medical, group life or other benefits
which are available to all of our salaried employees, and perquisites and other
benefits, securities or property which do not exceed the lesser of $50,000 or
10% of the person's salary and bonus shown in the table. In the table below,
columns required by the regulations of the Securities and Exchange Commission
have been omitted where no information was required to be disclosed under those
columns. During the year ended December 31, 1998, we did not grant any options
as compensation to any of our Named Executive Officers, and none of our Named
Executive Officers exercised any options during 1998 or held any options
received as compensation at the end of the year. The compensation listed below
in the "All Other Compensation" column represents Caminus Limited's contribution
to Dr. Evans' personal pension plan. Dr. Evans' compensation in U.S. dollars is
based on an exchange ratio of $1.65 per (pound sterling)1 as of December 31,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
David M. Stoner.......................... $ 42,242 $ -- $ --
President and Chief Executive Officer
Nigel L. Evans........................... 307,450 124,278 21,522
Senior Vice President and Director of
European Operations
Brian J. Scanlan......................... 150,000 46,042 --
Senior Vice President and Chief
Technology Officer
</TABLE>
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BENEFIT PLANS
1998 STOCK INCENTIVE PLAN. Our 1998 stock incentive plan was adopted by
our former management committee and approved by our former members in February
1999. The 1998 plan authorizes the issuance of up to 947,886 shares of our
common stock. As of September 30, 1999, options to purchase an aggregate of
926,258 shares of our common stock at a weighted average exercise price of $4.48
per share were outstanding under the 1998 plan. Upon the closing of this
offering, no additional grants of stock options or other awards will be made
under the 1998 plan.
1999 STOCK INCENTIVE PLAN. Our 1999 stock incentive plan was adopted by
our board of directors and approved by our stockholders in September 1999. The
1999 plan is intended to replace our 1998 plan. Up to 502,312 shares of our
common stock (subject to adjustment in the event of stock splits and other
similar events) may be issued pursuant to awards granted under the 1999 plan.
The 1999 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, nonstatutory stock
options, restricted stock awards and other stock-based awards.
Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the 1999 plan. Under
present law, however, incentive stock options may only be granted to employees.
No participant may receive any award for more than 450,000 shares in any
calendar year. As of the date of this prospectus, options to purchase an
aggregate of 28,572 shares of our common stock at an exercise price per share
equal to the initial public offering price will be outstanding under the 1999
plan.
Optionees receive the right to purchase a specified number of shares of our
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. We may grant
options at an exercise price less than, equal to or greater than the fair market
value of our common stock on the date of grant. Under present law, incentive
stock options and options intended to qualify as performance-based compensation
under Section 162(m) of the Internal Revenue Code may not be granted at an
exercise price less than the fair market value of the common stock on the date
of grant or less than 110% of the fair market value in the case of incentive
stock options granted to optionees holding more than 10% of our voting power.
The 1999 plan permits our board of directors to determine how optionees may pay
the exercise price of their options, including by cash, check or in connection
with a "cashless exercise" through a broker, by surrender to us of shares of
common stock, by delivery to us of a promissory note, or by any combination of
the permitted forms of payment.
As of September 30, 1999, approximately 178 persons would have been
eligible to receive awards under the 1999 plan, including our four executive
officers and our four non-employee directors. The granting of awards under the
1999 plan is discretionary.
Our board of directors administers the 1999 plan. Our board of directors
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the plan and to interpret its provisions.
It may delegate
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authority under the 1999 plan to one or more committees of the board of
directors and, subject to certain limitations, to one or more of our executive
officers. Subject to any applicable limitations contained in the 1999 plan, our
board of directors or a committee of the board of directors or executive officer
to whom our board of directors delegates authority, as the case may be, selects
the recipients of awards and determines:
- the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
- the exercise price of options;
- the duration of options; and
- the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.
In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to provide for outstanding options or other
stock-based awards to be assumed or substituted for by the acquiror. If the
acquiror refuses to assume or substitute for outstanding options, they will
accelerate, becoming fully exercisable and free of restrictions, prior to
consummation of the acquisition event. In addition, following an acquisition
event, under some circumstances, an assumed or substituted award will accelerate
if the employment of its holder with the acquiror is terminated within one year
of the acquisition event.
No award may be granted under the 1999 plan after September 2009, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. Our board of directors may at any time amend, suspend or terminate the
1999 plan, except that no award granted after an amendment of the 1999 plan and
designated as subject to Section 162(m) of the Internal Revenue Code by our
board of directors shall become exercisable, realizable or vested, to the extent
the amendment was required to grant such award, unless and until such amendment
is approved by our stockholders.
1999 EMPLOYEE STOCK PURCHASE PLAN. Our 1999 employee stock purchase plan
was adopted by our board of directors and approved by our stockholders in
September 1999. The purchase plan authorizes the issuance of up to a total of
95,238 shares of our common stock to participating employees.
The following employees, including our directors who are employees and
employees of any participating subsidiaries, are eligible to participate in the
purchase plan:
- Employees who are customarily employed for more than 20 hours per week
and for more than five months per year; and
- Employees employed for at least three months prior to enrolling in the
purchase plan.
Employees who would immediately after the grant own 5% or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate.
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On the first day of a designated payroll deduction period, or "offering
period," we will grant to each eligible employee who has elected to participate
in the purchase plan an option to purchase shares of our common stock as
follows: the employee may authorize between 1% to 10% of his or her base pay to
be deducted by us from his or her base pay during the offering period. On the
last day of the offering period, the employee is deemed to have exercised the
option, at the option exercise price, to the extent of accumulated payroll
deductions. Under the terms of the purchase plan, the option price is an amount
equal to 85% of the per share closing price of our common stock on either the
first day or the last day of the offering period, whichever is lower. In no
event may an employee purchase under the purchase plan in any year a number of
shares which exceeds the number of shares determined by dividing $25,000 by the
average market price of a share of common stock on the commencement date of the
offering period. Our board of directors will choose the timing and length of
each offering periods.
An employee who is not a participant on the last day of the offering period
is not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the purchase plan
terminate upon voluntary withdrawal from the purchase plan at any time, or when
the employee ceases employment for any reason.
401(k) PLAN. We have adopted an employee savings and retirement plan
qualified under Section 401 of the Internal Revenue Code and covering all of our
employees. Pursuant to the 401(k) plan, employees may elect to reduce their
current compensation by up to the statutorily prescribed annual limit and have
the amount of such reduction contributed to the 401(k) plan. We may make
matching or additional contributions to the 401(k) plan in amounts to be
determined annually by our board of directors.
EMPLOYMENT AGREEMENTS
On October 21, 1998, we entered into an employment agreement with David M.
Stoner. Under the terms of his agreement, Mr. Stoner's employment as president
and chief executive officer will continue until October 21, 2001, unless sooner
terminated. Mr. Stoner receives a base salary of $250,000 per year and is
eligible to receive a bonus for service during 1999 of up to $125,000. Mr.
Stoner's eligibility for bonuses for years after 1999 will be determined by our
board of directors.
In connection with Mr. Stoner's employment agreement, we have provided Mr.
Stoner with two loans. The first loan is for $100,000 at an annual interest rate
of 9% and is evidenced by a one-year demand recourse promissory note, dated
October 30, 1998. The second loan is for $1,000,000 at an annual interest rate
of 9% and is evidenced by a ten-year secured recourse promissory note dated
October 21, 1998. The second loan is secured by Mr. Stoner's equity, profits and
ownership of us pursuant to a pledge and security agreement. The purpose of the
second loan was to provide Mr. Stoner with the entire purchase price for
3,364,396 shares of Series A membership interest in Caminus LLC, which will
convert into 320,418 shares of common stock prior to this offering.
Upon the closing of this offering, Mr. Stoner will receive a bonus payment
equal to (1) the then outstanding principal balance of the second loan, which
was
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approximately $1,083,500 as of September 30, 1999, and (2) an award of 160,209
shares of common stock.
If we terminate Mr. Stoner's employment with cause or if Mr. Stoner resigns
for no good reason, he will receive all accrued compensation and vested
benefits, excluding any bonus amounts. If we terminate his employment without
cause or if Mr. Stoner resigns for good reason, Mr. Stoner will receive all
unpaid accrued compensation, vested benefits -- including any unpaid minimum
bonus with respect to the first twelve months of his employment -- and a
severance benefit equal to his base salary until the earlier of October 21, 2001
or twelve months following the date of termination. Upon Mr. Stoner's
termination, we have the right to purchase all Caminus securities then owned by
Mr. Stoner. In most cases, the purchase price paid by us will be the fair market
value of the securities on the date of termination.
Mr. Stoner's agreement contains a confidentiality provision and further
provides that Mr. Stoner may not work for, or hold 5% or more of the outstanding
capital stock of a publicly traded corporation, which is a competing business
anywhere in the world for one year after the conclusion of his employment. A
competing business is one that develops and markets (1) software or consulting
advisory services used to analyze or influence client and industry decisions
regarding energy pricing, investments, regulatory policy and financial and
strategic planning for clients in the natural gas, crude oil, refined products,
electric power and utility industries and (2) software or related products or
services which otherwise facilitate transactions or other participation in
competitive energy markets.
On May 12, 1998, Caminus Energy Limited, our wholly owned subsidiary,
entered into a service agreement with Dr. Nigel L. Evans. Under the terms of his
agreement, Dr. Evans' employment as chief executive officer of Caminus Limited
will continue until May 5, 2001, renewing annually for successive one-year terms
unless sooner terminated. Dr. Evans receives a base salary of L200,000 ($329,218
as of September 30, 1999) per year, subject to annual review and increases, and
is eligible to receive an annual performance bonus, targeted at L100,000
($164,609 as of September 30, 1999). Dr. Evans is also eligible to participate
in Caminus Limited's profit sharing plan for key employees. If we terminate Dr.
Evans' employment without cause or Dr. Evans terminates his employment due to a
constructive dismissal, he will receive his current salary, bonus and other
benefits for twelve months from the date of termination. If Dr. Evans resigns,
he will receive all salary, bonus and other benefits that have accrued as of the
date of termination.
Dr. Evans' agreement contains a confidentiality provision and further
provides that he may not directly or indirectly act as an employee or
consultant, or hold more than a 5% investment in any class of securities quoted
on a stock exchange, in a competing business for one year after the date of
termination. A competing business has the same meaning in Dr. Evans' agreement
as in Mr. Stoner's agreement, as described above. On May 12, 1998, Dr. Evans
also entered into a covenant not to compete with Caminus Energy Limited, which
extends his obligations not to compete for two years after termination in
certain circumstances.
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On May 12, 1998, Zai*Net Software, L.P., which was our majority-owned
subsidiary at the time, entered into an employment agreement with Brian J.
Scanlan, which was amended November 8, 1999. In March 1999, we assumed the
employment agreement when Zai*Net Software, L.P. was merged into us. Under the
terms of his agreement, Mr. Scanlan's employment as Senior Vice President, Chief
Technology Officer will continue until May 12, 2001, unless sooner terminated.
Mr. Scanlan currently receives a base salary of $175,000 per year, subject to
annual review and increases, and is eligible to participate in our annual profit
sharing plan for key employees. If we terminate Mr. Scanlan's employment with
cause or if he resigns for no good reason, Mr. Scanlan will receive all accrued
compensation and vested benefits as of the termination date. If we terminate Mr.
Scanlan's employment without cause or if he resigns for good reason, Mr. Scanlan
will receive all accrued compensation and vested benefits as of the termination
date and a severance benefit of his base salary for the remainder of the term of
his agreement.
Mr. Scanlan is also a party to a covenant not to compete, dated May 12,
1998, which contains a confidentiality provision and further provides that he
may not perform services, or hold 5% or more of the outstanding capital stock of
a publicly traded corporation, in a competing business other than on behalf of
us or our affiliates anywhere in the world for the greater of (1) three and
one-half years from the date of the agreement or (2) two years after the date of
termination. A competing business includes developing, licensing, installing and
maintaining commodities trading and risk management software and providing
consulting and support services related to such software activities to the
foreign exchange, natural gas, crude oil, refined products and electric power
industries and software or related products or services which otherwise
facilitate transactions or other participation in competitive energy markets.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer has served as a director or member of the compensation
committee or other committee serving an equivalent function of any other entity
whose executive officers served as a director or member of the compensation
committee of our board of directors. During 1998, our board of directors,
including our chief executive officer, determined the compensation of our
executive officers.
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CERTAIN TRANSACTIONS
ZAI*NET SOFTWARE, L.P.
On May 12, 1998, we entered into a purchase agreement with Zai*Net
Software, Inc., Zai*Net Software, L.P. and Brian Scanlan, our Chief Technology
Officer and a director. At the time of the transaction, Mr. Scanlan was
unaffiliated with us. Pursuant to the agreement, we purchased a 1% general
partnership interest and a 70% limited partnership interest in Zai*Net Software,
L.P. from Mr. Scanlan and Zai*Net Software, Inc., respectively. We paid
$7,740,000 to Zai*Net Software, Inc., an entity wholly owned by Mr. Scanlan, for
such interests. Lawrence D. Gilson, Richard K. Landers and Christopher S.
Brothers, three of our original management committee members and affiliates of
either GFI or Oaktree Capital Management, were primarily responsible for
negotiating the terms of the purchase agreement on our behalf, and Mr. Scanlan
was primarily responsible for negotiating on behalf of Zai*Net Software, L.P. In
determining the purchase price for our interest in Zai*Net Software, L.P., we
examined the financial results and market values of comparable publicly traded
software companies. We also considered the expected synergies from the
acquisition of Zai*Net Software, L.P. and Caminus Limited, including geographic
reach, product development expertise, the ability to cross-sell software and
services, improved administration and recruiting and increased market
differentiation. On May 12, 1998, Mr. Scanlan entered into a three-year
employment agreement with Zai*Net Software L.P. For details in connection with
Mr. Scanlan's employment agreement, see "Management -- Employment Agreements."
As part of a closing adjustment in connection with our purchase of the
membership interest in Zai*Net Software, L.P., we loaned Zai*Net Software, L.P.
$400,000 to be paid to Zai*Net Software, Inc. as a cash distribution. Zai*Net
Software, L.P. issued us a one-year note payable for the principal amount plus
8% interest, due May 12, 1999. Zai*Net Software, Inc. used the proceeds for
working capital purposes. Zak Associates, Inc., an entity controlled by Mr.
Scanlan, repaid approximately $121,000 of the $400,000 on behalf of Zai*Net
Software, L.P. pursuant to the conversion agreement dated December 31, 1998 and
the balance of the note from Zai*Net Software, L.P. to us was cancelled.
In connection with our acquisition of partnership interests in Zai*Net
Software, L.P., we and certain of our original limited liability company
investors paid an additional $2,187,500 to Zak Associates, Inc., the successor
to Zai*Net Software, Inc., in June 1999 and will pay an additional $2,187,500 to
Zak Associates, Inc. on April 15, 2000. These investors include GFI, OCM Caminus
Investment, Inc. and RIT Capital Partners plc, which entities are each principal
stockholders of us.
Subsequent to the closing of the Zai*Net acquisition, Zai*Net Software,
Inc. transferred and assigned its remaining 29% partnership interest in Zai*Net
Software, L.P. to Rooney Software, L.L.C. On December 31, 1998, Rooney entered
into a conversion agreement with us, Zak Associates, Inc., Zai*Net Software,
L.P. and Brian Scanlan whereby the remaining 29% partnership interest in Zai*Net
Software, L.P. was converted into 21,579,728 shares of Series A membership
interest of Caminus LLC, which will convert into 2,055,210 shares of our common
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stock prior to this offering. Upon the closing of the December 1998 transaction,
we owned 100% of the membership interest in Zai*Net Software, L.P., thereby
creating a wholly owned subsidiary. In March 1999, Zai*Net Software, L.P. was
merged with and into us.
CAMINUS LIMITED
On May 12, 1998, we entered into a stock purchase agreement with Caminus
Energy Limited, an English corporation currently known as Caminus Limited, and
its two stockholders, Dr. Nigel L. Evans and Dr. Michael B. Morrison. Dr. Evans
is our Director of European Operations and a director and Dr. Morrison is a
principal stockholder of us. At the time of the acquisition, Drs. Evans and
Morrison were unaffiliated with us. Pursuant to the agreement, we paid
$3,022,924 cash for all of the issued and outstanding shares, an aggregate of
950 ordinary shares, of Caminus Limited held by Drs. Evans and Morrison. Drs.
Evans and Morrison also received 6,055,912 and 4,037,275 shares of Series A
membership interest in us, respectively, which will convert into 576,753 and
384,502 shares of our common stock, respectively, prior to this offering. As
additional consideration, Drs. Evans and Morrison received an option to purchase
3,030,000 and 2,020,000 shares of Series B membership interest in us,
respectively, at an exercise price per share of $.30 per share ($3.12 per share
of common stock on an as-converted basis) which will convert into options to
purchase 288,571 and 192,381 shares of our common stock, respectively, prior to
this offering. Messrs. Evans and Morrison plan to exercise their options on a
cashless basis immediately prior to the closing of this offering for a net total
of 224,743 and 149,829 shares of our common stock, respectively. The options
will vest in full upon the closing of this offering. Messrs. Gilson, Landers and
Brothers were primarily responsible for negotiating the terms of the stock
purchase agreement on our behalf, and Drs. Evans and Morrison were primarily
responsible for negotiating on behalf of Caminus Limited. In determining the
purchase price for Caminus Limited, we examined the financial results and market
values of comparable publicly traded companies and considered the expected
synergies from the acquisition of Caminus Limited and Zai*Net Software, L.P., as
described above. On May 12, 1998, each of Drs. Evans and Morrison also entered
into a three-year employment agreement with Caminus Limited. For details in
connection with Dr. Evans' employment agreement, see "Management -- Employment
Agreements."
On May 12, 1998, Caminus Limited, our wholly owned subsidiary, entered into
a service agreement with Dr. Michael B. Morrison. Under the terms of his
agreement, Dr. Morrison's employment as managing director of Caminus Limited
will continue until May 5, 2001, renewing annually for successive one-year terms
unless sooner terminated. Dr. Morrison receives a base salary of (pound
sterling)167,000 ($274,897 as of September 30, 1999) per year, subject to annual
review and increases, and is eligible to receive an annual performance bonus,
targeted at (pound sterling)83,000 ($136,626 as of September 30, 1999). Dr.
Morrison is also eligible to participate in our profit sharing plan for key
employees. If we terminate Dr. Morrison's employment without cause, he will
receive his current salary, bonus and other benefits for twelve months from the
date of termination. If Dr. Morrison resigns, he will receive all salary, bonus
and other benefits that have accrued as of the date of termination.
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<PAGE> 79
Dr. Morrison's agreement contains a confidentiality provision and further
provides that he may not directly or indirectly act as an employee or
consultant, or hold more than a 5% investment in any class of securities quoted
on a stock exchange, in a competing business for one year after the date of
termination. A competing business has the same meaning in Dr. Morrison's
agreement as in Mr. Stoner's agreement, as described above. On May 12, 1998, Dr.
Morrison also entered into a covenant not to compete with Caminus Limited, which
extends his obligations not to compete for two years after termination in
certain circumstances.
GFI
In April 1998, GFI purchased 1,682,198 shares of Series A membership
interest at a purchase price of $0.297 per share. These shares will convert into
an aggregate of 160,209 shares of our common stock prior to this offering.
Two members of our board of directors, Lawrence D. Gilson and Richard K.
Landers, are GFI principals. As part of our ongoing relationship with GFI, we
entered into an arrangement pursuant to our operating agreement whereby GFI
provides substantial ongoing strategic advice, as well as financial, tax and
general administrative services for us and, in return, we pay GFI an annual fee,
payable in monthly installments. During the period from our inception (April 29,
1998) through December 31, 1998 and the nine months ended September 30, 1999,
such fees were $160,000 and $293,310, respectively. We and GFI have agreed to
terminate GFI's advisory arrangement effective as of December 31, 1999. As
consideration for GFI's agreement to terminate the formal advisory arrangement,
we have agreed to pay GFI a $1,300,000 fee from the net proceeds of the initial
public offering.
Additionally, as consideration for its investment in us, we granted an
option to GFI to acquire a 10% membership interest in us. This percentage
interest is protected from any dilution which would result from the issuance of
additional membership interests in us; however, the anti-dilution provision does
not extend to common stock to be issued upon the conversion of the membership
interest. The exercise price of the option is the sum of $1,837,500 less 10% of
any distributions of cash or property from us to our membership interest
holders, plus 10% of any additional cash or property paid to us from our
membership interest holders. GFI will exercise its option immediately prior to
this offering on a cashless basis for a net total of 9,779,825 shares of our
Series C membership interest (which will convert into 931,411 shares of our
common stock).
SS&C TECHNOLOGIES, INC.
Prior to assuming his position as our president and chief executive officer
in October 1998, David M. Stoner was president and chief operating officer and a
director of SS&C Technologies, Inc., a founding investor in Caminus LLC. On May
12, 1998, SS&C invested $5,500,000 in us and received 18,504,176 shares of our
Series A membership interest and an option to purchase 8,410,000 shares of our
Series B membership interest. We also entered into two distributor agreements
with SS&C -- one in which we appointed SS&C as a non-exclusive distributor and
marketer of certain of our products, and another in which SS&C appointed us as
the exclusive distributor and marketer of certain of its products. The first
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agreement provided that the option to purchase membership interests would vest
incrementally according to the sales of our products by SS&C. Such agreement was
effectively terminated when we purchased the option from SS&C, as described in
the immediately following paragraph. The second agreement was terminated and
replaced with a new distributor agreement on December 31, 1998. The new
distribution agreement, as amended, provides that we must purchase licenses to
distribute SS&C products on a quarterly basis through the fourth quarter of the
year 2000, for a total aggregate license distribution fee of not less than
$2,750,000. We have not licensed SS&C products nor do we currently intend to
license any SS&C products. If, however, we determine in the future to license
SS&C products, fees collected by us would be applied as an offset against the
aggregate license distribution fees we owe SS&C.
On December 31, 1998, we repurchased all of SS&C's shares of Series A
membership interest and its option to purchase shares of Series B membership
interest for a total consideration of $2,250,000. At this time we granted SS&C a
new option to purchase 3,636,309 shares of Series B membership interest, which
became fully vested and exercisable on the same day for an aggregate exercise
price of $2,250,000. On March 29, 1999, we entered into an agreement with SS&C
to reduce the size of its option to purchase shares of Series B membership
interest to 2,909,047 and the exercise price was proportionately reduced to
$1,800,000. In consideration for this reduction we will pay SS&C $250,000 on
December 31, 1999. The option to purchase 2,909,047 shares of Series B
membership interest at an exercise price of $0.62 per share will be exercised in
connection with this offering for 277,052 shares of our common stock ($6.50 per
share of common stock on an as-converted basis).
OCM CAMINUS INVESTMENT, INC.
OCM Caminus Investment, Inc. is a founding investor in Caminus LLC and a
principal stockholder. In March 1999, we borrowed $1,250,000 from OCM Principal
Opportunities Fund, L.P., an affiliate of OCM Caminus Investment, Inc. On March
31, 1999 we issued a promissory note in the principal amount of such loan to OCM
Principal Opportunities Fund at an annual interest rate of 10%. The promissory
note required us to pay a 1% origination fee upon funding of the loan. We paid
the loan in full on its due date of June 30, 1999.
FLEET BANK PLEDGE AGREEMENTS
On June 23, 1999, we entered into a credit agreement with Fleet Bank, which
provides for revolving loans and working capital loans in an aggregate principal
amount of up to $5,000,000. Pursuant to the agreement, Fleet Bank maintains a
first and prior security interest in and lien on at least 75% of our capital
stock. To meet this demand, three of our stockholders pledged their capital
stock as collateral for the loan in pledge agreements with Fleet Bank, dated
June 23, 1999:
- Brian J. Scanlan granted a security interest to the bank with respect to
12,555,478 shares of Series A membership interest, which will convert
into 1,195,759 shares of our common stock prior to this offering.
- GFI granted a security interest to the bank with respect to 1,682,198
shares of Series A membership interest, which will convert into 160,209
shares of
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our common stock prior to this offering, and 11,392,731 shares of Series
C membership interest which were subject to the exercise of an option at
the time, which will convert into 1,085,021 shares of our common stock.
GFI will exercise this option prior to this offering.
- OCM Caminus Investment, Inc., a principal stockholder of our company,
granted a security interest to the bank with respect to 37,176,571 shares
of Series A membership interest, which will convert into 3,540,622 shares
of our common stock prior to this offering.
As of September 30, 1999, there was $2,000,000 outstanding under our credit
agreement with Fleet Bank. We intend to use a portion of the proceeds from this
offering to repay all amounts outstanding under the credit agreement and to
terminate the credit agreement upon the closing of this offering.
EMPLOYMENT ARRANGEMENTS
On May 12, 1998, Zai*Net Software, L.P., which was our majority owned
subsidiary at the time, entered into an employment agreement with Simon Young,
who owns more than 5% of our outstanding stock. The agreement was later amended
on November 8, 1999. Under the terms of his agreement, Mr. Young's employment as
Vice President will continue until May 12, 2001, unless sooner terminated. Mr.
Young currently receives a base salary of $153,500 per year, subject to annual
review and increases. If we terminate Mr. Young's employment with cause or if he
resigns for no good reason, Mr. Young will receive all accrued compensation and
vested benefits as of the termination date. If we terminate Mr. Young's
employment without cause or if he resigns for good reason, Mr. Young will
receive all accrued compensation and vested benefits as of the termination date
and a severance benefit of his base salary for the remainder to the term of his
agreement.
Mr. Young is also a party to a covenant not to compete, dated May 12, 1998,
which contains a confidentiality provision and further provides that he may not
perform services, or hold 5% or more of the outstanding capital stock of a
publicly traded corporation, in a competing business, other than on behalf of us
or our affiliates, anywhere in the world for the greater of (1) three and
one-half years from the date of the agreement or (2) two years after the date of
termination of his employment. A competing business includes a business which
develops, licenses, installs and maintains commodities trading and risk
management software and provides consulting and support services related to such
software activities to the foreign exchange, natural gas, crude oil, refined
products and electric power industries.
On May 12, 1998, Caminus Energy Limited, our wholly owned subsidiary,
entered into a service agreement with Dr. Michael Morrison, which was amended on
November 8, 1999. Under the terms of his agreement, Dr. Morrison's employment as
Managing Director of Caminus Limited will continue until May 5, 2001, renewing
annually for successive one-year terms unless sooner terminated. From May 12,
1998 through the fiscal period ending December 31, 1999, Dr. Morrison will have
received a base salary of L167,000 ($274,897 as of September 30, 1999) per year,
subject to annual review and increases, and will have been eligible to receive
an annual performance bonus, targeted at L83,000 ($136,625 as
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of September 30, 1999). Commencing January 1, 2000, Dr. Morrison's base salary
will be L150,000 per year and Dr. Morrison will no longer be eligible to receive
an annual bonus. Ten days after the closing of this offering, Dr. Morrison will
receive a one-time bonus of L115,077. Dr. Morrison is also eligible to
participate in Caminus Limited's profit sharing plan for key employees. If we
terminate Dr. Morrison's employment without cause or Dr. Morrison terminates his
employment due to a constructive dismissal, he will receive his current salary,
bonus and other benefits for twelve months from the date of termination. If Dr.
Morrison resigns, he will receive all salary, bonus and other benefits that have
accrued as of the date of termination.
Dr. Morrison's agreement contains a confidentiality provision and further
provides that he may not directly or indirectly act as an employee or
consultant, or hold more than a 5% investment in any class of securities quoted
on a stock exchange, in a competing business for one year after the date of
termination. A competing business includes a business which develops and markets
consulting advisory services and supports models used to analyze or influence
client and industry decisions regarding energy pricing, investments, regulatory
policy and provides financial and strategic planning for clients in the natural
gas, crude oil, refined products, electric power and utility industries. On May
12, 1998 Dr. Morrison also entered into a covenant not to compete with Caminus
Energy Limited, which extends his obligations not to compete for two years after
termination in certain circumstances.
For a description of certain employment and other arrangements between our
Named Executive Officers and us, see "Management -- Employment Agreements."
RIGHTS OFFERING
In July 1999, we conducted a rights offering whereby existing holders of
shares of our Series A membership interest were given the opportunity to
purchase additional Series A shares on a pro rata basis of the total $12 million
offering. We used the proceeds from the rights offering to purchase DC Systems,
pay the related transaction fees and for working capital. In connection with the
rights offering, the following directors, executive officers and 5% stockholders
purchased the stated number of shares of Series A membership interest:
- David Stoner purchased 254,618 shares, which will convert into 24,249
shares of our common stock prior to this offering;
- Nigel Evans purchased 212,182 shares, which will convert into 20,208
shares of our common stock prior to this offering;
- Brian Scanlan purchased 212,182 shares, which will convert into 20,208
shares of our common stock prior to this offering;
- OCM Caminus Investment, Inc. purchased 4,493,143 shares, which will
convert into 427,918 shares of our common stock prior to this offering;
- RIT Capital Partners plc purchased 3,394,909 shares, which will convert
into 323,324 shares of our common stock prior to this offering; and
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- Michael Morrison purchased 127,309 shares, which will convert into 12,125
shares of our common stock prior to this offering.
CONFLICT-OF-INTEREST POLICY
We have adopted a policy providing that all material transactions between
us and our officers, directors and other affiliates must be:
- Approved by a majority of the members of our board of directors and by a
majority of the disinterested members of our board of directors; and
- On terms no less favorable to us than could be obtained from unaffiliated
third parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 30, 1999, and as adjusted to
reflect the sale of the shares of common stock in this offering, by:
- each person or entity we know to own beneficially more than 5% of our
common stock;
- each of our directors;
- each of the Named Executive Officers;
- all directors and executive officers as a group; and
- each of the other selling stockholders.
Except as indicated below, none of these persons or entities has a
relationship with us or, to our knowledge, any of the underwriters or their
respective affiliates. Unless otherwise indicated, each person or entity named
in the table has sole voting power and investment power, or shares such power
with his or her spouse, with respect to all shares of capital stock listed as
owned by such person or entity.
As of September 30, 1999, there were 11,038,819 shares of common stock
outstanding. The number of shares beneficially owned by each stockholder is
determined under rules promulgated by the Securities and Exchange Commission and
assumes the underwriters do not exercise their over-allotment option. The
information is not necessarily indicative of beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes any shares as to which
the stockholder has sole or shared voting power or investment power and any
shares as to which the stockholder has the right to acquire beneficial ownership
within 60 days after September 30, 1999 through the exercise of any stock
option, warrant or other right. The inclusion in the following table of those
shares, however, does not constitute an admission that the named stockholder is
a direct or indirect beneficial owner of those shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING NUMBER OF THE OFFERING
--------------------- SHARES ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ ----------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
OCM Caminus Investment,
Inc.(1).................... 4,384,242 39.7% 431,830 3,952,412 27.1%
333 South Grand Avenue
28th Floor
Los Angeles, CA 90071
GFI Two LLC(2)............... 487,967 4.4 48,796 439,171 3.0
11611 San Vicente Blvd.
Suite 710
Los Angeles, CA 90049
Brian J. Scanlan(3).......... 1,222,470 11.1 0 1,222,470 8.4
747 Third Avenue
New York, NY 10017
Nigel L. Evans............... 821,704 7.4 89,897 731,807 5.0
Caminus Energy Limited
Caminus House, Castle Park
Cambridge CB3 0RA
United Kingdom
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING NUMBER OF THE OFFERING
--------------------- SHARES ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ ----------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
RIT Capital Partners
plc(4)....................... 1,139,848 10.3% 113,985 1,025,863 7.0%
Spencer House
27 St. James's Place
London SWIA 1NR
United Kingdom
Simon Young(5)............... 647,257 5.9 0 647,257 4.4
Caminus LLC
3 America Square
London EC3N 2LR
United Kingdom
Michael B. Morrison.......... 546,456 5.0 59,932 486,524 3.3
Caminus Energy Limited
Caminus House, Castle Park
Cambridge CB3 0RA
United Kingdom
OTHER DIRECTORS AND EXECUTIVE
OFFICERS
David M. Stoner.............. 504,877 4.6 0 504,877 3.4
Lawrence D. Gilson(2)........ 487,967 4.4 48,796 439,171 3.0
Christopher S. Brothers(1)... 4,384,242 39.7 431,830 3,952,412 27.1
Anthony H. Bloom(4).......... 1,139,848 10.3 113,985 1,025,863 7.0
Richard K. Landers(2)........ 487,967 4.4 48,796 439,171 3.0
All executive officers and
directors as a group (8
persons)(6)................ 8,561,108 77.5 684,508 7,876,600 53.9
OTHER SELLING STOCKHOLDER
Durham Cam, Inc.............. 283,566 2.6 28,357 255,209 1.7
</TABLE>
- -------------------------
* Less than 1%
(1) Christopher S. Brothers is a Senior Vice President of Oaktree Capital
Management, LLC, a registered investment adviser under the Investment
Advisers Act of 1940. Oaktree Capital Management, LLC is the general partner
of OCM Principal Opportunities Fund, L.P., which is the sole shareholder of
OCM Caminus Investment, Inc., and may be deemed to beneficially own these
shares. Mr. Brothers and Oaktree Capital Management, LLC disclaim beneficial
ownership of such shares, except to the extent of his and its direct
pecuniary interest therein.
(2) Lawrence D. Gilson is President of GFI Two LLC and Richard K. Landers is a
principal of GFI Two LLC. Therefore, Messrs. Gilson and Landers may be
deemed to beneficially own these shares. Each of Messrs. Gilson and Landers
disclaims beneficial ownership of such shares, except to the extent of his
direct pecuniary interest therein.
(3) Includes 6,504 shares subject to outstanding stock options held by Mr.
Scanlan's wife which are exercisable within the 60-day period following
September 30, 1999. Mr. Scanlan shares voting and dispositive power for his
shares of common stock with his wife.
(4) Anthony H. Bloom is a director of RIT Capital Partners plc and may be deemed
to beneficially own these shares. Mr. Bloom disclaims beneficial
84
<PAGE> 86
ownership of such shares, except to the extent of his direct pecuniary
interest therein.
(5) Includes 39,621 shares owned by Mr. Young's wife and 9,757 shares subject to
outstanding stock options held by Mr. Young's wife which are exercisable
within the 60-day period following September 30, 1999.
(6) Includes 6,504 shares of common stock subject to an outstanding option as
described in footnote 3.
In the event that the underwriters' over-allotment option is exercised in
full, the beneficial ownership of certain stockholders will change as follows:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NUMBER OF OWNED AFTER
SHARES OFFERED THE OFFERING
IN THE -------------------
OVER-ALLOTMENT NUMBER PERCENT
-------------- -------- -------
<S> <C> <C> <C>
OCM Caminus Investment.......................... 6,594 3,945,818 26.1%
Simon Young..................................... 59,788 587,469 3.9
David M. Stoner................................. 50,488 454,389 3.0
Serena Hesmondalgh(1)........................... 9,163 82,472 *
Richard Couron(2)............................... 13,883 124,944 *
</TABLE>
- ---------------
* Less than 1%
(1) Prior to this offering, Serena Hesmondalgh, an employee of ours, owned
91,635 shares of our common stock.
(2) Prior to this offering, Richard Couron, our Senior Vice President of Fuels,
owned 138,827 shares of our common stock.
85
<PAGE> 87
DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of
50,000,000 shares of common stock, $0.01 par value per share. Immediately prior
to the issuance of 3,572,203 shares of common stock upon the closing of this
offering, we will have outstanding:
- 11,038,819 shares of common stock held by 37 stockholders of record; and
- options to purchase an aggregate of 954,830 shares of common stock with a
weighted average exercise price of $4.76.
For additional information relating to our common stock, certificate of
incorporation and by-laws, please see our certificate of incorporation and
by-laws included as exhibits to the registration statement of which this
prospectus is a part. See "Where You Can Find More Information."
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our board of directors. Upon
our liquidation, dissolution or winding up, the holders of common stock are
entitled to receive proportionately our net assets available after the payment
of all debts and other liabilities. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued
and paid for, fully paid and nonassessable.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within the prior three years did own, 15% or more of the
corporation's voting stock.
Our certificate of incorporation divides our board of directors into three
classes with staggered three-year terms. In addition, with a staggered board,
directors may be removed only for cause by the affirmative vote of the holders
of a majority of our shares of capital stock entitled to vote. Under our
certificate of incorporation, any vacancy on our board of directors, including a
vacancy resulting from an enlargement of our board of directors, may only be
filled by vote of a majority of our directors then in office. The classification
of our board of directors and the limitations on the removal of directors and
filling of vacancies could make it more difficult for a third party to acquire,
or discourage a third party from acquiring, control of us. See "Management."
86
<PAGE> 88
Our certificate of incorporation also provides that any action required or
permitted to be taken by our stockholders at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought before such
meeting and may not be taken by written action in lieu of a meeting. Our
certificate of incorporation further provides that special meetings of the
stockholders may only be called by our chairman of the board, president or board
of directors. Under our by-laws, in order for any matter to be considered
"properly brought" before a meeting, a stockholder must comply with advance
notice requirements. These provisions could have the effect of delaying until
the next stockholders' meeting stockholder actions which are favored by the
holders of a majority of our outstanding voting securities. These provisions may
also discourage a third party from making a tender offer for our common stock,
because even if it acquired a majority of our outstanding voting securities, the
third party would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders' meeting,
and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our certificate of incorporation and by-laws
require the affirmative vote of the holders of at least 75% of the shares of our
capital stock issued and outstanding and entitled to vote to amend or repeal any
of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions that involve intentional misconduct or a knowing violation of law.
Further, our certificate of incorporation contains provisions to indemnify our
directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. We believe that these provisions will assist us in
attracting and retaining qualified individuals to serve as directors.
REGISTRATION RIGHTS
After this offering, the holders of approximately 10,266,022 shares of
common stock and rights to acquire common stock will be entitled to rights with
respect to the registration of those shares under the Securities Act. Under
terms of our original limited liability company operating agreement, if we
propose to register any of our securities under the Securities Act, those
holders are entitled to notice of and to include shares of common stock in the
registration. The managing underwriter of any underwritten public offering
would, however, have the right, for marketing reasons, to cut-back the number of
shares that the stockholders could include in such registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
87
<PAGE> 89
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our securities.
After we complete this offering, based upon the number of shares outstanding at
September 30, 1999, there will be 14,611,022 shares of our common stock
outstanding, assuming no exercise of outstanding options to purchase common
stock. Of these outstanding shares, the 4,345,000 shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act of 1933, except that any shares purchased by our "affiliates," as
that term is defined in Rule 144 under the Securities Act, may generally only be
sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 10,266,022 shares of common stock outstanding after this
offering are deemed "restricted securities" under Rule 144. Of these securities:
- 27,356 shares may be sold 90 days after the effective date of this
offering; and
- 8,513,530 additional shares may be sold upon expiration of the 180-day
lock-up agreements described below.
Our officers, directors and stockholders holding an aggregate of 10,165,541
shares of common stock have signed lock-up agreements in favor of the
underwriters. As a result, these individuals are generally not permitted to
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of common stock, for a period of 180 days after the date
of this prospectus, without the prior written consent of Deutsche Bank
Securities Inc. Deutsche Bank Securities Inc. currently has no plans to release
any portion of the securities subject to lock-up agreements, but may do so
without notice. When determining whether or not to release shares from the
lock-up agreements, Deutsche Bank Securities Inc. will consider, among other
factors, the number of shares proposed to be sold, the stockholder's reasons for
requesting the release and market conditions at the time.
In general, under Rule 144 a stockholder, including one of our affiliates,
who has beneficially owned his or her restricted securities for at least one
year is entitled to sell, within any three-month period commencing 90 days after
the date of this prospectus, a number of shares that does not exceed the greater
of 1% of the then outstanding shares of our common stock (approximately 146,110
shares immediately after this offering) or the average weekly trading volume in
our common stock during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144, provided certain requirements
concerning availability of public information, manner of sale and notice of sale
are satisfied. In addition, a stockholder that is not one of our affiliates at
any time during the three months preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years is entitled to sell the
shares immediately under Rule 144(k) without compliance with the above described
requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of our common
stock acquired pursuant to the exercise of certain options granted under our
stock plans) are also restricted securities and, beginning 90 days after the
date of this
88
<PAGE> 90
prospectus, may be sold by stockholders other than our affiliates subject only
to the manner of sale provisions of Rule 144 and by affiliates under Rule 144
without compliance with its one-year holding period requirement.
STOCK OPTIONS
We intend to file registration statements on Form S-8 under the Securities
Act to register an aggregate of 1,523,808 shares of common stock issuable under
the 1998 plan, the 1999 plan and the purchase plan. Shares issued upon the
exercise of stock options after the effective date of the Form S-8 registration
statements will be eligible for resale in the public market without restriction,
subject to Rule 144 limitations applicable to affiliates and the lock-up
agreements noted above, if applicable.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for our common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares for sale will have on
the market price of our common stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of our common stock in the public market
could adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
89
<PAGE> 91
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Bear, Stearns & Co. Inc. and CIBC World Markets Corp., have severally
agreed to purchase from us and the selling stockholders the following respective
numbers of shares of common stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Deutsche Bank Securities Inc............................
Bear, Stearns & Co. Inc.................................
CIBC World Markets Corp.................................
----------
Total.............................................. 4,345,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to specified conditions and that the underwriters will
purchase all of the shares of common stock offered in this offering, other than
those covered by the over-allotment option described below, if any of the shares
are purchased.
We have been advised by the underwriters' representatives that the
underwriters propose to offer the shares of common stock to the public at the
initial public offering price set forth on the cover page of this prospectus and
to dealers at that price less a concession not in excess of $ per share. The
underwriters may allow, and the dealers may reallow, a concession not in excess
of $ per share to other dealers. After the initial public offering, the
underwriters' representatives may change this offering price and other selling
terms. The expenses of this offering, all of which are payable by us, are
estimated to be $1.0 million. The following table sets forth the discounts and
commissions to be allowed to the underwriters:
<TABLE>
<CAPTION>
PAID BY US
------------------------------------------
NO OPTION EXERCISE FULL OPTION EXERCISE
------------------ --------------------
<S> <C> <C>
Per share................................. $ $
Total..................................... $ $
</TABLE>
<TABLE>
<CAPTION>
PAID BY SELLING STOCKHOLDERS
------------------------------------------
NO OPTION EXERCISE FULL OPTION EXERCISE
------------------ --------------------
<S> <C> <C>
Per share................................. $ $
Total..................................... $ $
</TABLE>
We and the selling stockholders have granted to the underwriters an option,
exercisable not later than 30 days after the date of this prospectus, to
purchase up to 651,750 additional shares of common stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus. If the underwriters exercise the option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage of the option shares that the number of shares of common stock to be
purchased by it in the above table bears to 4,345,000, and we and the selling
stockholders will be obligated to sell these shares to the underwriters. The
underwriters may exercise the option only to cover over-allotments made in
connection with the sale of the common stock offered in this offering. If
purchased, the underwriters will offer the
90
<PAGE> 92
additional shares on the same terms as those on which the 4,345,000 shares are
being offered.
At our request, the underwriters have reserved up to 178,700 shares of
common stock for sale, at the initial public offering price, to employees and
friends of ours through a directed share program. The number of shares of common
stock available for sale to the general public in the public offering will be
reduced to the extent that employees and friends purchase the reserved shares.
The underwriting agreement contains covenants of indemnity among the
underwriters, the selling stockholders and us against certain liabilities,
including certain liabilities under the Securities Act of 1933. Alternatively,
the underwriting agreement also provides that we or the selling stockholders
contribute to payments the underwriters may be required to make in respect of
such liabilities.
We have agreed, subject to certain exceptions, without the prior written
consent of Deutsche Bank Securities Inc. for a period of 180 days after the date
of this prospectus, not to directly or indirectly:
- offer, sell short or otherwise dispose of any shares of our common stock
or other securities convertible into or exchangeable or exercisable for
shares of our common stock or derivatives of our common stock or
- enter into any agreement that transfers to another, in whole or in part,
any of the economic consequences of the ownership of the common stock.
Our officers, directors and principal stockholders, who hold or will hold
in the aggregate 10,165,541 shares of our common stock have agreed, subject to
certain exceptions, without the prior written consent of Deutsche Bank
Securities Inc. for a period of 180 days after the date of this prospectus, not
to directly or indirectly:
- offer, sell, pledge, contract to sell, including any short sale, grant
any option to purchase or otherwise dispose of any shares of our common
stock or other securities convertible into or exchangeable or exercisable
for shares of our common stock, other than shares of common stock being
sold in this offering or
- enter into any agreement or transaction that transfers to another, in
whole or in part, any of the economic consequences of the ownership of
the common stock, other than shares of common stock being sold in this
offering.
If any of our officers, directors or principal stockholders request that
Deutsche Bank Securities Inc. consent to a transfer within 180 days after the
date of this prospectus, then Deutsche Bank Securities Inc. may consider the
following factors in determining whether to consent to the proposed transfer:
- the number of shares proposed to be sold;
- the reason for the sale;
- the proximity in time to this offering; and
- the trading volume of our stock at the time of the requested transfer.
91
<PAGE> 93
The decision to consent to a proposed transfer during the 180 days following the
date of this prospectus is within the sole discretion of Deutsche Bank
Securities Inc.
The underwriters' representatives have advised us and the selling
stockholders that the underwriters do not intend to confirm sales to any account
over which they exercise discretionary authority.
In order to facilitate this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
our common stock. These transactions may be effected on the Nasdaq Stock
Market's National Market or otherwise and, if commenced, may be discontinued at
any time. Specifically, the underwriters may over-allot shares of our common
stock in connection with this offering, thereby creating a short position in the
underwriters' syndicate account. A short position results when an underwriter
sells more shares of common stock than the underwriter is committed to purchase.
Additionally, to cover over-allotments or to stabilize the market price of our
common stock, the underwriters may bid for, and purchase, shares of our common
stock in the open market. Any of these activities may maintain the market price
of our common stock at a level above that which might otherwise prevail in the
open market. The underwriters are not required to engage in these activities,
and, if commenced, the activities may be discontinued at any time. The
underwriters' representatives, on behalf of the underwriters, also may reclaim
selling concessions allowed to an underwriter or dealer, if the syndicate
repurchases shares distributed by that underwriter or dealer.
The underwriters and their respective affiliates may be lenders to, engage
in transactions with, and perform services for us in the ordinary course of
business.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiations among us, representatives of the selling
stockholders and the underwriters' representatives. Among the factors to be
considered in the negotiations will be prevailing market conditions, our results
of operations in recent periods, the market capitalizations and stages of
development of other companies that we and the underwriters' representatives
believe to be comparable to us, estimates of our business potential, the present
stage of our development and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts, and for the
underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts.
EXPERTS
The audited financial statements included in this prospectus have been
audited by various independent accountants. The companies and periods covered by
these audits are indicated in the individual accountants' reports. Such
financial
92
<PAGE> 94
statements have been so included in reliance on the reports of the various
independent accountants given on the authority of such firms as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the stock being offered by this prospectus. This
prospectus does not include all of the information contained in the registration
statement. You should refer to the registration statement and its exhibits for
additional information. Whenever we make reference in this prospectus to any of
our contracts, agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other document. When
we complete this offering, we will also be required to file annual, quarterly
and special reports, proxy statements and other information with the SEC.
You can read our SEC filings, including the registration statement, over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's following locations:
- Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549;
- New York Regional Office, Seven World Trade Center, Suite 1300, New York,
New York 10048; and
- Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511.
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities.
93
<PAGE> 95
CAMINUS CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
CAMINUS CORPORATION AND SUBSIDIARIES
Report of Independent Accountants....................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 (unaudited)......................... F-3
Consolidated Statements of Operations for the Period
From Inception (April 29, 1998) Through December 31,
1998, the period from inception through September 30,
1998 (unaudited) and for the Nine Months Ended
September 30, 1999 (unaudited)......................... F-4
Consolidated Statements of Changes in Stockholders'
Equity for the Period From Inception (April 29, 1998)
Through December 31, 1998 and for the Nine Months Ended
September 30, 1999 (unaudited)......................... F-5
Consolidated Statements of Cash Flows for the Period
From Inception (April 29, 1998) Through December 31,
1998, the period from inception through September 30,
1998 (unaudited) and for the Nine Months Ended
September 30, 1999 (unaudited)......................... F-6
Notes to Consolidated Financial Statements.............. F-7
Schedule II -- Valuation and Qualifying Accounts........ F-30
ZAI*NET SOFTWARE, INC. (Predecessor)
Report of Independent Accountants....................... F-31
Balance Sheets as of December 31, 1996, December 31,
1997 and April 30, 1998................................ F-32
Statements of Operations and Retained Earnings for the
Years Ended December 31, 1996 and 1997 and for the Four
Months Ended April 30, 1998............................ F-33
Statements of Cash Flows for the Years Ended December
31, 1996 and 1997 and for the Four Months Ended April
30, 1998............................................... F-34
Notes to the Financial Statements....................... F-35
Supplementary Financial Statement Schedules have been
omitted because the information required to be set
forth therein is either not applicable or is shown in
the financial statements or notes thereto.
CAMINUS LIMITED (formerly Caminus Energy Limited)
Report of Independent Auditors.......................... F-41
Profit and Loss Accounts for the Years Ended April 30,
1997 and 1998.......................................... F-42
Balance Sheets as at April 30, 1997 and 1998............ F-43
Cash Flow Statements for the Years Ended April 30, 1997
and 1998............................................... F-44
Notes to the Financial Statements....................... F-45
DC SYSTEMS, INC. AND SUBSIDIARY
Report of Independent Accountants....................... F-52
Consolidated Balance Sheets as of December 31, 1997,
December 31, 1998 and June 30, 1999 (unaudited)........ F-53
Consolidated Statements of Operations for the Years
Ended December 31, 1997 and 1998 and for the Six Months
Ended June 30, 1998 and 1999 (unaudited)............... F-54
Consolidated Statements of Changes in Shareholder's
Deficit for the Years Ended December 31, 1997 and 1998
and for the Six Months Ended June 30, 1999
(unaudited)............................................ F-55
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997 and 1998 and for the Six Months
Ended June 30, 1998 and 1999 (unaudited)............... F-56
Notes to Consolidated Financial Statements.............. F-57
PRO FORMA STATEMENTS OF OPERATIONS (unaudited)
Summary of Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the Year Ended December 31,
1998 and the Nine Months September 30, 1999............ F-
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1998........ F-67
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Nine Months Ended September 30,
1999................................................... F-68
Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Operations............................... F-69
</TABLE>
F-1
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Caminus Corporation
The recapitalization described in Note 1 to the financial statements has
not been consummated at December 14, 1999. When it has been consummated, we will
be in a position to furnish the following report:
In our opinion, the consolidated financial statements listed in the
accompanying index on page F-1 present fairly, in all material respects, the
financial position of Caminus Corporation and its subsidiaries (the "Company")
at December 31, 1998, and the results of their operations and their cash flows
for the period from inception (April 29, 1998) through December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
May 28, 1999, except
as to the fourth and fifth
paragraphs of Note 1 which
are as of November 12, 1999
F-2
<PAGE> 97
CAMINUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 2,770,538 $ 801,351
Accounts receivable, net......................... 3,244,018 5,630,856
Deferred taxes................................... -- 427,752
Prepaid expenses and other current assets........ 306,774 1,270,713
----------- -----------
Total current assets.......................... 6,321,330 8,130,672
Fixed assets, net.................................. 780,076 1,379,873
Developed technology, net.......................... 2,307,361 3,380,497
Other intangibles, net............................. 1,789,859 4,280,104
Goodwill, net...................................... 19,863,548 23,679,123
Other assets....................................... 6,828 18,362
----------- -----------
Total assets.................................. $31,069,002 $40,868,631
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 1,615,547 $ 596,802
Accrued liabilities.............................. 1,029,139 4,489,058
Borrowings under credit facility................. -- 1,000,000
Taxes payable.................................... -- 149,148
Payable to related parties....................... 6,187,500 3,971,500
Deferred revenue................................. 2,139,534 2,611,850
----------- -----------
Total current liabilities..................... 10,971,720 12,818,358
Borrowings under credit facility................... -- 1,000,000
Payable to related parties......................... 2,937,500 --
----------- -----------
Total liabilities............................. 13,909,220 13,818,358
Commitments and contingencies...................... -- --
Stockholders' equity: (Note 1)
Common stock, $0.01 par, 50,000,000 shares
authorized, 9,729,229 shares issued and 7,966,928
shares outstanding at December 31, 1998;
11,000,389 shares and 9,238,088 shares
outstanding at September 30, 1999 (unaudited).... 97,292 110,004
Additional paid-in capital......................... 37,070,721 51,655,763
Treasury stock, 1,762,301 shares in treasury at
December 31, 1998 and September 30, 1999
(unaudited), at cost............................. (4,911,205) (4,911,205)
Subscriptions receivable........................... (4,739,493) (2,907,065)
Unearned compensation.............................. -- (287,086)
Accumulated deficit................................ (10,371,188) (16,613,938)
Cumulative translation adjustment.................. 13,655 3,800
----------- -----------
Total stockholders' equity.................... 17,159,782 27,050,273
----------- -----------
Total liabilities and stockholders' equity.... $31,069,002 $40,868,631
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 98
CAMINUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION PERIOD FROM INCEPTION
(APRIL 29, 1998) THROUGH (APRIL 29, 1998) THROUGH NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------------------ ------------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Licenses......................... $ 3,639,143 $ 1,925,858 $ 8,088,621
Software services................ 3,090,758 1,881,417 5,679,513
Strategic consulting............. 2,896,102 1,720,550 4,757,425
------------ ----------- -----------
Total revenues................. 9,626,003 5,527,825 18,525,559
------------ ----------- -----------
Cost of revenues:
Cost of licenses................. 194,968 87,639 682,872
Cost of software services........ 2,278,433 1,221,809 3,244,616
Cost of strategic consulting..... 2,211,617 1,363,142 1,924,955
------------ ----------- -----------
Total cost of revenues......... 4,685,018 2,672,590 5,852,443
------------ ----------- -----------
Gross profit................. 4,940,985 2,855,235 12,673,116
------------ ----------- -----------
Operating expenses:
Sales and marketing.............. 470,549 262,815 2,523,012
Research and development......... 1,153,470 638,399 2,679,726
General and administrative....... 3,130,567 1,676,077 6,177,228
Acquired in-process research and
development.................... 4,822,000 3,053,000 1,000,000
Amortization of intangible
assets......................... 5,497,765 1,714,711 6,074,750
------------ ----------- -----------
Total operating expenses....... 15,074,351 7,345,003 18,454,716
------------ ----------- -----------
Loss from operations............... (10,133,366) (4,489,768) (5,781,600)
Other income and (expense):
Interest income.................... 96,909 56,535 46,434
Interest expense................. -- -- (165,006)
Other expense, net............... -- -- (8,284)
------------ ----------- -----------
Total other income (expense)... 96,909 56,535 (126,856)
------------ ----------- -----------
Loss before provision for income
taxes............................ (10,036,457) (4,433,232) (5,908,456)
Provision for income taxes......... 35,735 57,288 334,294
------------ ----------- -----------
Net loss before minority
interest......................... (10,072,192) (4,490,520) (6,242,750)
Minority interest.................. (298,996) (189,920) --
Net loss........................... $(10,371,188) $(4,680,440) $(6,242,750)
============ =========== ===========
Basic and diluted net loss per
share............................ $ (1.41) $ (0.65) $ (0.76)
============ =========== ===========
Weighted average shares used in
computing net loss per share..... 7,360,634 7,215,030 8,264,075
Pro forma (unaudited):
Loss before provision for income
taxes.......................... $(10,036,457) $(4,433,232) $(5,908,456)
Pro forma income tax provision
(benefit)...................... (176,224) 446,290 472,309
Minority interest................ (298,996) (189,920) --
------------ ----------- -----------
Pro forma net loss............... $(10,159,229) $(5,069,442) $(6,380,765)
============ =========== ===========
Pro forma basic and diluted net
loss per share................. $ (1.38) $ (0.70) $ (0.77)
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 99
CAMINUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN TREASURY SUBSCRIPTIONS UNEARNED
SHARES STOCK CAPITAL STOCK RECEIVABLE COMPENSATION
---------- -------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 29, 1998
(inception)......................... $ -- $ -- $ -- $ -- $ --
Issuance of shares................... 6,712,764 67,128 20,122,002
Issuance of shares in connection with
the acquisition of Caminus Energy
Limited............................. 961,255 9,612 2,990,388
Issuance of shares in connection with
the acquisition of Zai*Net Software
L.P................................. 2,055,210 20,552 10,318,798
Stock subscriptions receivable....... (4,739,493)
Issuance of stock options in
connection with acquisitions........ 3,144,995
Purchase of treasury stock at cost... (1,762,301) 494,538 (4,911,205)
Net loss.............................
Translation adjustment...............
---------- -------- ----------- ----------- ----------- ---------
Balance at December 31, 1998......... 7,966,928 97,292 37,070,721 (4,911,205) (4,739,493) --
---------- -------- ----------- ----------- ----------- ---------
Comprehensive loss for the period
from inception through December 31,
1998................................
Receipt of membership subscription
receivable (unaudited).............. 1,832,428
Issuance of additional shares
(unaudited)......................... 1,028,667 10,287 12,328,651
Issuance of shares in connection with
the acquisition of DC Systems
(unaudited)......................... 242,493 2,425 2,997,575
Reacquisition of stock option
(unaudited)......................... (250,000)
Distribution to stockholders
(unaudited)......................... (890,000)
Issuance of stock options below fair
market value (unaudited)............ 398,816 (398,816)
Amortization of unearned compensation
(unaudited)......................... 111,730
Net loss (unaudited).................
Translation adjustment (unaudited)...
---------- -------- ----------- ----------- ----------- ---------
Balance at September 30, 1999
(unaudited)......................... 9,238,088 $110,004 $51,655,763 $(4,911,205) $(2,907,065) $(287,086)
========== ======== =========== =========== =========== =========
Comprehensive loss for the nine
months ended September 30, 1999
(unaudited).........................
<CAPTION>
CUMULATIVE TOTAL CUMULATIVE
ACCUMULATED TRANSLATION STOCKHOLDERS' COMPREHENSIVE COMPREHENSIVE
DEFICIT ADJUSTMENT EQUITY LOSS LOSS
------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at April 29, 1998
(inception)......................... $ -- $ -- $ --
Issuance of shares................... 20,189,130
Issuance of shares in connection with
the acquisition of Caminus Energy
Limited............................. 3,000,000
Issuance of shares in connection with
the acquisition of Zai*Net Software
L.P................................. 10,339,350
Stock subscriptions receivable....... (4,739,493)
Issuance of stock options in
connection with acquisitions........ 3,144,995
Purchase of treasury stock at cost... (4,416,667)
Net loss............................. (10,371,188) (10,371,188) $(10,371,188)
Translation adjustment............... 13,655 13,655 13,655
------------ ------- ------------ ------------
Balance at December 31, 1998......... (10,371,188) 13,655 17,159,782 $(10,357,533)
------------ ------- ------------ ============
(10,357,533)
------------
Comprehensive loss for the period
from inception through December 31,
1998................................
Receipt of membership subscription
receivable (unaudited).............. 1,832,428
Issuance of additional shares
(unaudited)......................... 12,338,938
Issuance of shares in connection with
the acquisition of DC Systems
(unaudited)......................... 3,000,000
Reacquisition of stock option
(unaudited)......................... (250,000)
Distribution to stockholders
(unaudited)......................... (890,000)
Issuance of stock options below fair
market value (unaudited)............ --
Amortization of unearned compensation
(unaudited)......................... 111,730
Net loss (unaudited)................. (6,242,750) -- (6,242,750) (6,242,750)
Translation adjustment (unaudited)... (9,855) (9,855) (9,855)
------------ ------- ------------ ------------
Balance at September 30, 1999
(unaudited)......................... $(16,613,938) $ 3,800 $ 27,050,273 $(16,610,138)
============ ======= ============ ============
Comprehensive loss for the nine
months ended September 30, 1999
(unaudited)......................... $ (6,252,605)
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 100
CAMINUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(APRIL 29, 1998) (APRIL 29, 1998) NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
----------------- ------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(10,371,188) $ (4,680,440) $ (6,242,750)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 5,666,521 1,819,118 6,399,617
Acquired in-process research and
development................................ 4,822,000 3,053,000 1,000,000
Deferred taxes............................... -- -- (3,808)
Non-cash compensation expense................ -- -- 111,730
Minority interest............................ 298,996 189,920 --
Changes in operating assets and liabilities:
Accounts receivable.......................... (849,920) (15,680) (2,201,199)
Prepaid expenses and other current assets.... (97,456) (265,066) 153,925
Accounts payable............................. 183,433 (957,492) (1,121,093)
Accrued liabilities.......................... 635,030 297,615 2,958,789
Taxes payable................................ -- -- 148,139
Deferred revenue............................. 704,450 1,008,908 (2,092,335)
Other........................................ (40,190) 6,498 (43,528)
------------ ------------ ------------
Net cash provided by (used in) operating
activities..................................... 951,676 456,381 (932,513)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of fixed assets...................... (500,597) (271,690) (799,862)
Acquisition of Caminus Energy Limited, net of
cash acquired................................ (2,502,567) (2,502,567) --
Acquisition of Zai*Net Software L.P., net of
cash acquired................................ (7,242,258) (7,242,258) --
Acquisition of Positron........................ (151,667) -- --
Acquisition of DC Systems, Inc., net of cash
acquired..................................... -- -- (9,919,192)
Other acquisition costs........................ (495,817) (247,909) --
------------ ------------ ------------
Net cash used in investing activities............ (10,892,906) (10,264,424) (10,719,054)
------------ ------------ ------------
Cash flows from financing activities:
Payments of obligation to affiliate............ (250,000) -- (4,000,000)
Payments of obligation to stockholders......... -- -- (2,187,500)
Proceeds from borrowings under credit
facility..................................... -- -- 2,000,000
Payments of distribution to stockholders....... -- -- (290,000)
Cash received for subscription receivable...... -- -- 1,832,428
Issuance of common stock....................... 12,949,637 12,874,999 12,338,938
------------ ------------ ------------
Net cash provided by financing activities........ 12,699,637 12,874,999 9,693,866
------------ ------------ ------------
Effect of exchange rates on cash flows........... 12,131 (80,982) (11,486)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... 2,770,538 2,985,974 (1,969,187)
Cash and cash equivalents, beginning of period... -- -- 2,770,538
------------ ------------ ------------
Cash and cash equivalents, end of period......... $ 2,770,538 2,985,974 $ 801,351
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 101
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
FORMATION OF THE BUSINESS
Caminus Corporation (formerly Caminus LLC) ("Caminus" or the "Company") is
a Delaware corporation which was originally organized as a limited liability
company on April 29, 1998 ("Inception") by an investor group. Caminus was formed
for the purpose of acquiring equity interests in and managing the business
affairs of Caminus Energy Limited ("CEL") and Zai*Net Software, L.P. ("Zai*Net"
or "ZNLP"), and to provide industry expertise and risk management software
products in the evolving competitive gas and energy markets worldwide.
In conjunction with the formation of the Company and as consideration for
the identification of the acquired entities, an option, with an anti-dilution
provision, to acquire a 10% interest in the Company was granted to a member of
the investor group. This option has been valued at $1.6 million using the
Black-Scholes option pricing model and has been accounted for as part of the
purchase price of ZNLP and CEL. Any additional grants made under the
anti-dilution provision are required to be made at the current market price. The
option expires ten years from the date of the formation of the Company. In
connection with the initial public offering ("IPO") this option will be
exercised.
On May 12, 1998, Caminus acquired a 71% ownership interest in ZNLP and a
100% ownership interest in CEL; on December 31, 1998, Caminus acquired the
remaining 29% ownership interest in ZNLP. The value assigned to these shares was
consistent with the value per share established immediately prior to these
acquisitions based on cash capital contributions from founders upon formation of
the Company. (For more complete disclosure, see Note 3 -- Acquisitions).
PLANNED RECAPITALIZATION
In September 1999, the Board of Directors of Caminus authorized the filing
of a registration statement with the Securities and Exchange Commission that
would permit the Company to sell shares of the Company's common stock in
connection with the proposed IPO. These financial statements reflect the
recapitalization of Caminus LLC as a corporation immediately prior to the IPO,
and the conversion of each membership interest in the limited liability company
into .095238 of one share of common stock of the corporation. This transaction
affects the legal form only of the entities under common control, and the
proportionate ownership interests of the members pre- and post-merger are
preserved.
In connection with the planned IPO of the Company, Caminus Corporation will
no longer be treated as a limited liability company for tax purposes.
Accordingly, the consolidated statements of operations include net income for
all periods assuming the Company was taxable as a C Corporation and earnings
based on net income divided by the weighted average number of shares
outstanding.
F-7
<PAGE> 102
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Caminus Corporation and its subsidiaries. All intercompany transactions and
balances have been eliminated.
REVENUE RECOGNITION
The Company generates revenue from several sources, including the licensing
of its software products, performing services related to the implementation,
training and support of these products, and through providing strategic
consulting services to clients in the areas where the Company has subject matter
expertise. The Company follows the provisions of Statements of Position ("SOP")
97-2 "Software Revenue Recognition", SOP 98-4 "Deferral of the Effective Date of
Certain Provisions of SOP 97-2, and SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions".
License revenue is recognized upon the execution of a license agreement,
when the licensed product has been delivered, fees are fixed and determinable,
collectibility is probable and when all other significant obligations have been
fulfilled. For license agreements in which customer acceptance is a condition to
earning the license fees, revenue is not recognized until acceptance occurs. For
arrangements containing multiple elements, such as software license fees,
consulting services and maintenance, and where vendor-specific objective
evidence ("VSOE") of fair value exists for all undelivered elements, the Company
accounts for the delivered elements in accordance with the "residual method"
prescribed by SOP 98-9. The adoption of SOP 98-9 did not have a material impact
on the consolidated financial position, results of operations or cash flows of
the Company. For arrangements containing multiple elements where VSOE does not
exist, all revenue is deferred until all elements of the arrangement have been
delivered.
The Company also provides software to customers under long-term development
arrangements that can require significant modification to adapt the software to
the unique specifications of the customer. If the service elements are
considered essential to the functionality of the software products, both the
software product revenue and service revenue are recognized using the completed
contract method as prescribed in accordance with the provisions of SOP 81-1,
"Accounting for Performance of Construction Type and Certain Production Type
Contracts." Accordingly, license and software enhancement revenue is recognized
under the completed contract method when all development, testing and
installation is completed and the purchaser formally accepts the software. Costs
associated with these contracts are deferred until contract completion. Deferred
costs are classified in "Prepaid expenses and other current assets" on the
consolidated balance sheet. Costs of software enhancements include the direct
labor component of programmer and consultant cost to perform the software
enhancement or service as
F-8
<PAGE> 103
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
well as the prorated share of technical support and overhead costs associated
with the enhancement and services. Anticipated losses, if any, on uncompleted
contracts are recognized in the period in which such losses are determined.
Software Services revenue includes consulting fees for installation, data
conversion, training and product support services related to the use of the
Company's licensed products. Customers often enter into arrangements for these
services concurrent with execution of license agreements. The services do not
require significant modification of the licensed products, are not essential to
their functionality and are available from other vendors. Payment obligations
with respect to the licensed products are not dependent upon the performance of
these services. Accordingly, the Company recognizes revenues for these services
as they are performed. Maintenance and support revenues associated with new
product licenses and renewals, where VSOE of fair value exists, are deferred and
recognized ratably over the contract period. Contracts provide for an initial
maintenance period, which is annual, and a renewal period after expiration of
the initial maintenance period. Customers are permitted, but not required, to
renew their maintenance with us after expiration of the initial annual period.
The renewal rate for maintenance services is based on the initial license fee
and is used to establish VSOE for maintenance revenues.
Strategic consulting revenue is recognized as such services are performed.
FOREIGN CURRENCY TRANSLATION
The Company's foreign subsidiaries maintain their accounting records in the
local currency, which is their functional currency. The assets and liabilities
are translated into U.S. dollars based on exchange rates at the end of the
respective reporting periods and the effect of the foreign currency translation
is reflected as a component of members' equity. Income and expense items are
translated at an average exchange rate during the period. Transaction gains and
losses are included in the determination of the results from operations.
SOFTWARE DEVELOPMENT COSTS
Capitalization of software development costs begins upon establishment of
technological feasibility of the product. After technological feasibility is
established, material software development costs are capitalized. The
capitalized cost is then amortized on a straight-line basis over the estimated
product life, or on the ratio of current revenues to total projected product
revenues, whichever is greater. To date, the period between achieving
technological feasibility, which the Company has defined as establishment of a
working model which typically occurs when beta testing commences, and the
general release of such software has been short, and software development costs
qualifying for capitalization have been insignificant. Accordingly, the Company
has not capitalized any software development costs to date.
F-9
<PAGE> 104
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments with
original maturities of three months or less.
ACCOUNTS RECEIVABLE
The Company periodically reviews accounts receivable for collectibility and
provides for an allowance for doubtful accounts to the extent that amounts are
not expected to be collected. The allowance for doubtful accounts was
approximately $229,000 and $304,000 at December 31, 1998 and September 30, 1999
(unaudited), respectively.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is calculated using the
straight-line method over the estimated useful life of the related asset, which
generally ranges from three to seven years. Leasehold improvements are amortized
using the straight-line method over the lesser of the remaining lease term or
the estimated useful lives of the related assets.
GOODWILL, DEVELOPED TECHNOLOGY AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets are amortized on a straight-line basis
over the estimated future periods to be benefited ranging from three to five
years. Developed technology is amortized on a straight-line basis over the
estimated product life, generally three years, or on the ratio of current
revenues to total projected product revenues, whichever is greater.
Goodwill and other intangible assets are reviewed for impairment quarterly
or whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of the assets to future
undiscounted cash flows of the businesses acquired. If the assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets. To
date, no impairment has occurred. This analysis is performed according to the
asset groupings established at the time of the acquisition and at the enterprise
level.
INCOME TAXES
The Company is currently taxed as a partnership for federal and state tax
purposes. There are no entity level income taxes imposed by jurisdictions in
which the Company conducts its business and, therefore, these financial
statements do not reflect any federal or state income tax expense. The profit or
loss is deemed passed through to the stockholders and they are obligated to
report such profit or loss on their own tax returns in the relevant
jurisdictions. Prior to the IPO the
F-10
<PAGE> 105
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company will convert to a C corporation and will be subject to federal and state
income taxes.
The Company has a wholly owned subsidiary located in the United Kingdom. As
such, the entity is liable for taxes to the Inland Revenue. For U.S. purposes,
an election was made to include the foreign income and expenses in the U.S. tax
returns. As a result of this election, the Company will be liable for U.K.
taxes. Foreign tax credits are passed through to the stockholders.
New York City, one of the local jurisdictions in which the Company conducts
its business, imposes an Unincorporated Business Tax at a rate of 4%, on
unincorporated entities, such as the Company. This tax is reduced to the extent
any stockholder is itself subject to New York City income tax. In addition, this
tax is imposed only on the portion of taxable income allocable to New York City
as per certain allocation factors (i.e., receipts, payroll and property).
The tax expense recorded in these financial statements reflects foreign
taxes and the New York City Unincorporated Business Tax on the Company's
allocable portion of the taxable income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
borrowings under a credit facility. The current carrying amount of these
instruments approximates fair market value due to the relatively short period of
time to maturity for these instruments.
EARNINGS PER SHARE
The Company computes net income (loss) per share in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" ("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB
98"). Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss
per share is computed by dividing net loss for the period by the weighted
average number of shares outstanding for the period. The calculation of diluted
net loss per share excludes options to purchase shares as the effect would be
antidilutive.
At December 31, 1998, outstanding options to purchase 604,891 shares, with
exercise prices ranging from $2.31 to $4.62 as well as contingently issuable
options to purchase 1,935,483 shares, with exercise prices ranging from $1.89 to
$6.51 were excluded from the calculation of diluted loss per membership interest
as the effect would have been anti-dilutive.
F-11
<PAGE> 106
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company follows SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"). As permitted by this statement, the Company
continues to apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB 25") to account for its stock-based employee
compensation arrangements.
USE OF ESTIMATES
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
which is effective for the Company beginning in 2001. SFAS 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. Because the Company does not currently hold any derivative financial
instruments and does not engage in hedging activities, the adoption of SFAS 133
is not expected to have a material impact on the consolidated financial
position, results of operations or cash flows of the Company.
INTERIM INFORMATION (UNAUDITED)
The accompanying unaudited consolidated financial statements as of and for
the period from Inception (April 29, 1998) through September 30, 1998 and for
the nine months ended September 30, 1999 have been prepared by the Company
pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in
the opinion of the Company, include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of results of
operations, financial position and cash flows. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules. The Company believes that the disclosures made are
adequate to keep the information presented from being misleading. The results of
operations and cash flows for the nine months ended September 30, 1999, are not
necessarily indicative of the results to be expected for the full year.
F-12
<PAGE> 107
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS
ZAI*NET SOFTWARE, L.P.
On May 12, 1998, the Company acquired a 71% ownership interest in ZNLP for
$7,740,000 in cash. ZNLP licenses, customizes and services Zai*Net, an
integrated real-time front, middle, and back office software trading system for
foreign exchange, commodities, energy, options and other financial products. The
terms of the purchase agreement required the payment of additional consideration
totaling $4,375,000 to the former shareholder of ZNLP if revenues from ZNLP
products were in excess of certain thresholds as defined in the purchase
agreement. Payment of this additional consideration was guaranteed in connection
with the acquisition of the remaining 29% interest in ZNLP by the Company in
December 1998. The acquisition of the 71% ownership interest was accounted for
using the purchase method of accounting, and accordingly, the results of ZNLP's
operations are included in the Company's consolidated financial statements from
the date of acquisition.
On December 31, 1998, the Company acquired the remaining 29% interest in
ZNLP in exchange for a 21% equity interest in the Company. The acquisition of
the minority interest was accounted for using the purchase method of accounting.
Also as of December 31, 1998, Zai*Net had 4,988,209 options outstanding with an
average strike price of $2.31. These options were valued at their market value
and recorded as additional consideration for the acquisition of ZNLP. In March
1999, in connection with this transaction, ZNLP was merged into the Company. In
addition, the Company agreed that the amounts included as earnout payments in
the original acquisition agreement will be due and payable in various
installments through April 15, 2000.
A summary of the total purchase price for the acquisition of ZNLP is as
follows:
<TABLE>
<S> <C>
Cash..................................................... $ 7,740,000
Issuance of notes payable................................ 4,375,000
Issuance of equity....................................... 10,339,350
Issuance of options (see Note 1)......................... 1,173,071
Issuance of options to ZNLP employees.................... 1,496,463
Other direct acquisition costs........................... 602,969
-----------
$25,726,853
===========
</TABLE>
F-13
<PAGE> 108
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the allocation of the total purchase price is as follows:
<TABLE>
<S> <C>
Tangible net assets acquired............................. $ 899,191
Acquired in-process research and development............. 4,822,000
Developed technology..................................... 2,596,000
Other identifiable intangible assets..................... 2,023,000
Goodwill................................................. 15,386,662
-----------
$25,726,853
===========
</TABLE>
The fair value assigned to intangible assets acquired was based on an
appraisal of the purchased in-process technology, developed technology, and
other intangible assets. Of the acquired intangible assets, $4,822,000
represents management's estimate of acquired in-process research and development
(IPR&D) that had not yet reached technological feasibility and had no
alternative future use. Accordingly, this amount was immediately expensed in the
consolidated statement of operations upon acquisition. The value assigned to
IPR&D was determined by identifying research projects in areas for which
technological feasibility had not been established. The value was determined by
estimating the costs to develop the IPR&D into commercially viable products,
estimating the resulting net cash flows from such projects, and discounting the
net cash flows back to their present value.
In estimating the net discounted cash flows from such projects, no material
changes from historical pricing, margins and expense levels are anticipated. The
most significant and uncertain assumptions included completion of the products
in process on schedule, expectations about revenue growth and eventual
replacement of these products with new products over a three to four year
period. No residual cash flows of the Company were assumed to relate to IPR&D.
The discount rate of 25-35% included a factor that takes into account the
uncertainty surrounding the successful development of the IPR&D. Additionally,
consideration was given to the stage of completion of each research and
development project at the date of acquisition.
The acquired IPR&D includes the power trading and scheduling, gas trading
and scheduling and the foreign exchange products. The Company estimated that
these products were approximately 87.5%, 75% and 90% complete at the date of
acquisition based on costs incurred through the date of acquisition as compared
to total estimated expenditures over the product's development cycle. The
Company expects to have these products available for general release during 1999
with estimated future development costs totaling approximately $435,000 at the
time of acquisition. The Company has released certain of these products. The
Company intends to offer other products to its customers under general release
once completed.
The nature of the efforts required to develop and integrate the acquired
IPR&D into a commercially viable product, feature or functionality within the
Company's suite of existing products related to the completion of all planning,
design and testing activities that are necessary to establish that the product
can be
F-14
<PAGE> 109
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
produced to meet design and performance requirements. The Company currently
expects that the product utilizing the acquired IPR&D will be successful, but
there can be no assurance that commercial viability of any of these products
will be achieved. Further, future developments in the software industry, changes
in the technology, changes in other products and offerings or other developments
may cause the Company to alter, or abandon, its product plans.
Developed technology represents the fair value of applications and
technologies existing at the date of acquisition. Other intangible assets
represent the fair value of other acquired intangible assets including primarily
customer lists and work force in place. Goodwill represents the excess of the
purchase price over the fair value of identifiable tangible and intangible
assets acquired.
CAMINUS ENERGY LIMITED
On May 12, 1998, the Company acquired CEL, a consulting and professional
services organization, which provides services and research to companies in the
energy market sector, for $3,022,924 in cash, plus an equity interest of 10.1%
of the Company valued at $3.0 million. The acquisition was accounted for using
the purchase method of accounting, and accordingly, the results of CEL's
operations are included in the Company's consolidated financial statements from
the date of acquisition.
A summary of the purchase price for the acquisition is as follows:
<TABLE>
<S> <C>
Issuance of equity........................................ $3,000,000
Cash...................................................... 3,022,924
Issuance of options (see Note 1).......................... 475,461
Other direct acquisition costs............................ 100,000
----------
$6,598,385
==========
</TABLE>
A summary of the allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Tangible net assets acquired.............................. $ 380,515
Goodwill.................................................. 6,217,870
----------
$6,598,385
==========
</TABLE>
Goodwill represents the excess of the purchase price over the fair value of
identifiable tangible and intangible assets acquired.
Pursuant to the Agreement, the Company also granted options to purchase
480,952 shares to two officers of CEL (288,571 and 192,381 shares, respectively)
for $3.12 per share (total proceeds to Caminus of approximately $1.5 million).
These options are exercisable only in the event of a sale or public offering,
compliance with a service agreement and achievement of certain internal rates of
return. The number of shares that ultimately vest and become exercisable is
F-15
<PAGE> 110
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contingent upon all of these conditions. No amounts were recorded for these
options, as the conditions under which they would vest were not met as of
September 30, 1999. However, upon consummation of an IPO, the Company expects to
record a compensation related charge for the exercise of these options of
approximately $6.4 million, based on the estimated mid-point of the IPO filing
range.
POSITRON ENERGY CONSULTING
On November 13, 1998, the Company acquired Positron Energy Consulting
("Positron"). The Company paid $151,667 in cash for certain assets and
liabilities of Positron. The acquisition was accounted for using the purchase
method of accounting and the excess of the purchase price over the net assets
acquired was recorded as goodwill. Also in connection with the acquisition,
restricted shares of common stock of the Company were granted to three
employees/principals of Positron. The restrictions lapse only upon the
resolution of contingencies identified in the purchase agreement.
In November 1999, the Company's managing committee determined that all of
the contingencies identified in the purchase agreement were satisfied.
Accordingly, the restrictions on the shares have been lifted and the three
employees/principals of Positron received 57,486 unrestricted shares. The
Company will record a compensation charge of approximately $0.8 million based on
the estimated mid-point of the IPO filing range.
DC SYSTEMS ("DCS") (UNAUDITED)
On July 31, 1999, Caminus acquired DCS, a provider of software solutions to
the gas industry. The Company paid $10,000,000 in cash, and issued 242,493
shares of Caminus valued at $3,000,000. In connection with this transaction,
Caminus incurred approximately $500,000 of other direct acquisition costs. A
summary of the allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Tangible net assets acquired......................... $ (953,706)
Acquired in-process research and development......... 1,000,000
Developed technology................................. 1,800,000
Other intangible assets.............................. 3,030,000
Goodwill............................................. 8,623,706
-----------
$13,500,000
===========
</TABLE>
The fair value assigned to intangible assets acquired was based on an
appraisal of the purchased in-process technology, developed technology, and
other intangible assets. Of the acquired intangible assets, $1,000,000
represents management's estimate of acquired in-process research and development
(IPR&D) that had not yet reached technological feasibility and had no
alternative future use. Accordingly, this amount was immediately expensed in the
consolidated statement of operations upon acquisition. The value assigned to
IPR&D, was determined by
F-16
<PAGE> 111
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
identifying research projects in areas for which technological feasibility had
not been established. The value was determined by estimating the costs to
develop the IPR&D into commercially viable products, estimating the resulting
net cash flows from such projects, and discounting the net cash flows back to
their present value.
In estimating the net discounted cash flows from such projects, no material
changes from historical pricing, margins and expense levels are anticipated. The
most significant and uncertain assumptions included completion of the products
in process on schedule, expectations about revenue growth and eventual
replacement of these products with new products over a three to four year
period. No residual cash flows of the Company were assumed to relate to IPR&D.
The discount rate of 25% included a factor that takes into account the
uncertainty surrounding the successful development of the IPR&D. Additionally,
consideration was given to the stage of completion of each research and
development project at the date of acquisition.
The acquired IPR&D includes the Plant*Master and other products. The
Company estimated that these products were approximately 50% complete at the
date of acquisition based on costs incurred through the date of acquisition as
compared to total estimated expenditures over the product's development cycle.
The Company expects to have these products available for release during 1999 and
early 2000 with estimated future development costs totaling approximately
$600,000 at the time of acquisition. The Company intends to offer other products
to its customers under general release once completed.
The nature of the efforts required to develop and integrate the acquired
IPR&D into a commercially viable product, feature or functionality within the
Company's suite of existing products related to the completion of all planning,
design and testing activities that are necessary to establish that the product
can be produced to meet design and performance requirements. The Company
currently expects that the product utilizing the acquired IPR&D will be
successful, but there can be no assurance that commercial viability of any of
these products will be achieved. Further, future developments in the software
industry, changes in the technology, changes in other products and offerings or
other developments may cause the Company to alter, or abandon, its product
plans.
Developed technology represents the fair value of applications and
technologies existing at the date of acquisition. Other intangible assets
represent the fair value of other acquired intangible assets including primarily
customer lists and work force in place. Goodwill represents the excess of the
purchase price over the fair value of identifiable tangible and intangible
assets acquired.
In July 1999, DC Systems declared a dividend to the existing shareholders
to cover the estimated tax liability associated with the sale of DC Systems to
the Company. This dividend amounted to $184,000 and is included in payable to
related parties on the consolidated balance sheet.
The above acquisitions were accounted for using the purchase method. Had
the acquisitions of ZNLP, CEL, Positron and DC Systems occurred on January 1,
F-17
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CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 the unaudited pro forma revenue, net loss and related basic and diluted
loss per share for the year ended December 31, 1998 and the nine months ended
September 30, 1999 would have been: $14.8 million and $18.9 million; $18.1
million and $13.3 million, and $2.39 and $1.62, respectively. These results
which are based on various assumptions, are not necessarily indicative of what
would have occurred had the acquisitions been consummated on January 1, 1998.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Computer hardware, software and office
equipment............................ $699,574 $1,416,066
Furniture, fixtures and leasehold
improvements........................... 240,678 440,574
Automobiles............................ 8,580 14,185
-------- ----------
948,832 1,870,825
Less -- Accumulated depreciation and
amortization......................... (168,756) (490,952)
-------- ----------
$780,076 $1,379,873
======== ==========
</TABLE>
Depreciation expense for the period from Inception through December 31,
1998 and for the nine months ended September 30, 1999 (unaudited) amounted to
$168,756 and $324,867, respectively.
5. INTANGIBLE ASSETS
The intangible assets arising from the acquisition transactions discussed
in Note 3 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Developed technology................... $ 2,607,457 $ 4,407,457
Goodwill............................... 21,737,898 30,361,604
Other intangible assets................ 2,029,845 5,059,845
----------- -----------
26,375,200 39,828,906
Less -- Accumulated amortization....... (2,414,432) (8,489,182)
----------- -----------
$23,960,768 $31,339,724
=========== ===========
</TABLE>
Amortization expense for developed technology, goodwill and other
intangible assets for the period from Inception through December 31, 1998 and
for the nine
F-18
<PAGE> 113
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
months ended September 30, 1999 (unaudited) were $300,096, $1,874,350 and
$239,986, respectively; and $726,864, $4,808,131 and $539,755, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Accrued bonuses and commissions............................. $ 515,722
Accrued professional fees................................... 227,778
Accrued management fees..................................... 100,000
Other accrued expenses...................................... 185,639
----------
Total accrued liabilities.............................. $1,029,139
==========
</TABLE>
7. DEFERRED REVENUE
Deferred revenue consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Deferred license revenue.................................... $2,139,534
Deferred maintenance revenue................................ --
----------
$2,139,534
==========
</TABLE>
Deferred revenue consists of cash received from customers or amounts billed
in advance of revenue recognition. During 1999, the Company changed its
maintenance billing practices for most customers from a monthly billing cycle to
a quarterly or annual billing cycle, depending upon the customer, thereby giving
rise to deferred maintenance revenue at September 30, 1999.
8. CREDIT FACILITY
On June 23, 1999, the Company entered into a credit agreement with Fleet
Bank ("the Bank"), pursuant to which the Company may borrow up to $5.0 million
under a revolving loan and a working capital loan.
The revolving loan provides the Company with borrowing capacity of up to
$2.5 million. Quarterly payments under the terms of the loan must equal or
exceed $250,000 beginning December 31, 1999. The borrowing base under the
working capital loan is equal to 85% of eligible receivables, less $500,000, and
in the aggregate, can not exceed $2.5 million. The loan expires on May 31, 2000
and may be extended for an additional year.
Credit facilities under the agreement bear interest at either the Bank's
reference rate, generally equivalent to prime rate, or LIBOR plus an applicable
F-19
<PAGE> 114
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
margin (may vary between 2.5% and 3% depending on certain ratios of the Company
as defined in the agreement). The applicable borrowing rate at September 30,
1999 was 8 1/4%. (unaudited)
Borrowing under the loans on September 30, 1999 amounted to $2.0 million
all under the revolving loan. (unaudited)
Under the terms of the credit agreement, the Company is required to
maintain certain financial ratios. The loans are secured by substantially all
assets of the Company. In addition, the Bank has a pledge from certain
affiliates of approximately 75% of the common stock outstanding. The Bank has
first security in and a lien on these shares of common stock.
Pursuant to the agreement, the Company is required to repay the facilities
in full upon the event of a public offering.
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
Current tax provision
Foreign taxes............................................... $ --
State and City............................................ 35,735
-------
Total current tax provision....................... 35,735
Deferred tax provision
Foreign................................................... --
State and City............................................ --
-------
Total deferred tax provision...................... --
-------
Provision for income taxes.................................. $35,735
=======
</TABLE>
F-20
<PAGE> 115
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax rate differs from the statutory U.S. Federal
income tax rate for the following reasons:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
Statutory U.S. federal income tax........................... $ --
Local income taxes, net of federal income tax benefit....... 35,735
Foreign income taxes........................................ --
Taxes receivable............................................ --
--------
Provision for income taxes, at effective rate............... $ 35,735
========
</TABLE>
10. 401(k) SAVINGS PLAN
ZNLP had previously maintained a 401(k) Savings Plan (the "Plan").
Effective with the acquisition of ZNLP by Caminus, the ZNLP plan was extended to
all eligible domestic employees of Caminus. Employees are eligible to
participate in the Plan upon completion of six months of service with the
Company. Eligible employees may contribute up to 15% of their annual
compensation to the Plan on a pre-tax basis. Participant contributions to the
Plan are immediately vested. In addition, under the terms of the Plan, the
Company, at its discretion, may match all or a portion of a participant's
contribution to the Plan up to 10% of the participant's compensation. This
matching percentage is determined by the Company prior to the start of each Plan
year. The Company matching contribution is made at calendar year end.
Participants become vested in Company matching contributions to the Plan at the
rate of 20% per year of service with the Company. For 1998, the Company elected
to match 100% of participant contributions up to a maximum of $1,000 per
participant. The 401(k) expense for the period from Inception through December
31, 1998 totaled $30,445.
11. STOCK OPTION PLAN
In May 1998, ZNLP established its stock option plan (the "ZNLP Plan"). Upon
closing of the purchase of the remaining 29% of ZNLP by the Company on December
31, 1998, Caminus canceled the options outstanding under the ZNLP Plan and
issued to the employees options to purchase shares of Caminus common stock.
Costs associated with this transaction were accounted for as part of the ZNLP
acquisition purchase price. In February 1999, the Management Committee approved
the adoption of the ZNLP Plan for all eligible Caminus employees (the "Plan").
The Plan provides for the issuance of stock options to key employees and
consultants of the Company. Under the terms of the Plan, options are granted to
purchase common stock in the Company at a price not less than 100% of the fair
market value on the date of the grant. The options generally vest over a period
of
F-21
<PAGE> 116
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
four years and are exercisable for a period of ten years from the date of the
grant. Upon adoption of the Plan, the Company reserved interests equivalent to
9.0% of total outstanding shares of common stock for the exercise of vested
options.
The following table summarizes the Company's option plan activity:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
THROUGH DECEMBER 31, 1998
---------------------------
WEIGHTED AVERAGE
EXERCISE PRICE
OPTIONS PER SHARE
------- ----------------
<S> <C> <C>
Outstanding at beginning of period................ --
Granted........................................... 604,891 $2.74
Exercised......................................... --
Canceled.......................................... --
-------
Outstanding at end of year........................ 604,891 $2.74
=======
Options exercisable at period end................. --
=======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------
NUMBER
OUTSTANDING WEIGHTED AVERAGE WEIGHTED
RANGE OF AT DECEMBER 31, REMAINING AVERAGE EXERCISE
EXERCISE PRICES 1998 CONTRACTUAL LIFE PRICE
- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C>
$2.31 397,637 9.3 years $2.31
$3.05-$4.62 207,254 9.5 years 3.57
--------
604,891 2.74
========
</TABLE>
At December 31, 1998, options to purchase approximately 270,550 shares were
available for grant.
The Company applies APB 25 and related interpretations in accounting for
its Plan and other stock-based compensation issued to employees. During the
period from Inception through December 31, 1998 the Company did not recognize
compensation expense related to option grants. No options have been granted to
consultants.
Had compensation cost for the Company's option plan been determined based
upon the fair value at the grant date for awards under the plan consistent with
the methodology prescribed under SFAS 123, the Company's net loss would have
been increased by approximately $67,000 in the period from Inception through
December 31, 1998. The fair values of options granted to employees during the
F-22
<PAGE> 117
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period from Inception through December 31, 1998 has been determined on the date
of the respective grant using the Black-Scholes option pricing model
incorporating the following weighted average assumptions: (1) risk-free interest
rate of 5.50%; (2) dividend yield of 0.00%; (3) expected life of five years; and
(4) volatility of 40%.
The pro forma effects above may not be representative of the effects on
future years because of the prospective application required by SFAS 123 and the
fact that options vest over several years and new grants generally are made each
year.
12. COMMITMENTS AND CONTINGENCIES
The Company leases office space in New York City, London and Houston under
long-term leases.
Future minimum annual lease commitments are as follows:
<TABLE>
<S> <C>
1999...................................................... $ 679,972
2000...................................................... 746,222
2001...................................................... 728,223
2002...................................................... 583,597
2003...................................................... 271,900
Thereafter................................................ 1,098,900
----------
$4,108,814
==========
</TABLE>
Rent expense for the period from Inception through December 31, 1998 was
$320,800.
In July 1999, the Company entered into an addendum to one of the existing
lease agreements for additional office space. Additional minimum lease payments
under this lease addendum are as follows:
<TABLE>
<S> <C>
July 1, 1999 through December 31, 1999.................... $ 19,016
2000...................................................... 76,062
2001...................................................... 76,062
2002...................................................... 76,062
2003...................................................... 409,066
Thereafter................................................ 431,676
----------
$1,087,944
==========
</TABLE>
From time to time, in the ordinary course of business, the Company is
subject to legal proceedings. While it is not possible to determine the ultimate
outcome of such matters, it is management's opinion that the resolution of any
pending issues
F-23
<PAGE> 118
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
will not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
13. RELATED PARTY TRANSACTIONS
SS&C
In May 1998 SS&C Technologies ("SS&C") purchased 1,762,301 shares of common
stock for $3.0 million of cash and the contribution of an exclusive distribution
agreement for 39 months to sell certain products developed by SS&C having an
initial value of $2.5 million. In addition, SS&C was granted a warrant to
purchase an additional 800,952 shares of common stock with an exercise price of
$0.11 per share. The original distribution agreement was capitalized as an asset
and would have been amortized to income on a straight line basis over its life.
Under the terms of the original distribution agreement, the warrant would vest
and become exercisable at the earlier of 39 months from the grant or the sale or
public offering of the Company. The number of shares exercisable was dependent
on the revenue levels derived from the sales of SS&C products by the Company. No
value was assigned to this warrant due to the great uncertainty as to the amount
of revenue, if any, that would be derived under the original distribution
agreement. The Company initially expected that the Caminus and SS&C products
would complement each other. However, Caminus later determined that it would not
invest its resources to sell this product.
On December 31, 1998 the Company repurchased all of the common stock and
the warrant to acquire common stock held by SS&C for total consideration of
approximately $4.9 million. The consideration of $4.9 million, which was charged
to treasury stock, consisted of cash of approximately $2.3 million, the net
value of the cancelled distribution agreement of approximately $2.2 million and
the issuance of an option to acquire 277,052 shares of common stock of the
Company for $1.8 million (the "SS&C Option"), which has been valued at
approximately $0.5 million using the Black-Scholes option pricing model. The
SS&C Option was fully vested as of December 31, 1998 and expires on December 31,
2003. As of December 31, 1998, the Company recorded a note payable for the cash
portion of the repurchase of equity.
Simultaneously with the repurchase of the SS&C shares of common stock, the
Company entered into a distribution agreement with SS&C (the "Distribution
Agreement"). This agreement gives the Company the exclusive right to sell the
same SS&C software products as the original distribution agreement into the
energy market. Total guaranteed minimum payments under the terms of the
Distribution Agreement, as amended, were $2,750,000 of which $2,000,000 had been
paid through September 30, 1999.
As of December 31, 1998, the Company had not sold any of the SS&C products
acquired under the Distribution Agreement. Further, the Company does not have an
active plan to sell the software, which was acquired pursuant to the terms of
the distribution agreement. Because the Company has not resold any SS&C
software, nor does it have a formal plan in place to resell this software, the
total guaranteed
F-24
<PAGE> 119
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
minimum payments to SS&C as stipulated in the Distribution Agreement have been
recorded as a charge in the statement of operations. The amount of $2,750,000
has been included in "Amortization of intangible assets" in the consolidated
statement of operations for the period from Inception through December 31, 1998.
OTHER TRANSACTIONS
On October 21, 1998, in connection with his employment with the Company,
the Chief Executive Officer ("CEO") was loaned $1,000,000 by the Company in
order to acquire shares of common stock. The loan bears interest at a rate of
9%, and all accrued and unpaid interest is payable upon maturity (October 2008).
The loan is secured by the shares of common stock. In addition, on October 21,
1998, the Company loaned the CEO $100,000. The loan bears interest at a rate of
9%; all accrued and unpaid interest is payable upon maturity. The $100,000 loan
was repaid, including interest, in November 1999.
Additionally, in connection with the CEO's employment agreement, if certain
performance criteria and other conditions are met, the CEO would receive a bonus
based on forgiveness of the entire outstanding amount of the $1.0 million loan
plus accrued interest as well as additional shares of common stock. Such amounts
would be expected to be earned upon an IPO and would result in a compensation
related charge when earned of approximately $3.2 million based on the estimated
mid-point of the IPO filing range. (unaudited)
During 1999, Caminus made a distribution of $290,000 and recorded an
obligation to distribute $600,000 to its shareholders, for the estimated tax
associated with the former LLC's taxable income.
In connection with the acquisition of the 29% minority interest in ZNLP,
the earnout payments to the shareholder of ZNLP were guaranteed. The remaining
amounts owed are recorded as "payable to related parties" in the consolidated
balance sheet.
On September 1, 1998, in connection with his employment with the Company,
an employee was loaned $74,638 by the Company to acquire a portion of his shares
of common stock. The loan bears interest at a rate of 9%, and all accrued and
unpaid interest is payable upon maturity (September 2008). The loan is secured
by the membership interests. (unaudited)
Upon an IPO, the Company would be required to pay two officers of the
Company (the former shareholders of CEL) a special bonus of $476,000.
(unaudited)
As outlined in the former LLC Agreement, the Company is required to pay to
GFI Energy Ventures ("GFI"), a shareholder of the Company, an annual management
fee as consideration for financial, tax and general and administrative services.
This fee is calculated as 1% of the shareholders aggregate adjusted capital
contribution. Total management fees incurred for the period from Inception
through December 31, 1998 and for the nine months ended September 30, 1999 were
approximately $160,000 and $293,310, respectively. In November 1999, the
F-25
<PAGE> 120
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company agreed to terminate its advisory arrangement with GFI effective as of
December 31, 1999. As consideration, the Company will pay GFI $1,300,000 from
the net proceeds of the initial public offering. (unaudited)
14. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
The Company controls this risk through credit approvals, customer limits and
monitoring procedures. Additionally, the Company can limit the amount of support
provided to its customers in the event of non-payment. During the period from
Inception through December 31, 1998, there were no customers who represented
more than 10% of consolidated revenues. At December 31, 1998, there were no
customers who represented more than 10% of the Company's accounts receivable.
15. SEGMENT REPORTING
The Company has two reportable segments: software and strategic consulting.
Software comprises the licensing of the Company's software products and the
related implementation and maintenance services. Strategic consulting provides
energy market participants with professional advice regarding where and how to
compete in their respective markets. In evaluating financial performance,
management uses earnings before interest and other income, income taxes,
depreciation and amortization, the write-off of acquired IPR&D, terminated
acquisition costs, and non-cash compensation expense ("Adjusted EBITDA") as the
measure of a segment's profit or loss. Terminated acquisition costs represent
costs associated with a potential acquisition that management ultimately decided
not to pursue.
The accounting policies of the reportable segments are the same as those
described in Note 2. There are no inter-segment revenues or expenses between the
two reportable segments.
Geographic information for the Company, for the period from Inception
through December 31, 1998 is summarized in the table below. The Company's
international revenues were derived primarily from the United Kingdom and the
Company's international long-lived assets at December 31, 1998 resided primarily
in the United Kingdom.
F-26
<PAGE> 121
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table illustrates the financial results of the two reportable
segments:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION NINE MONTHS ENDED
THROUGH DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------------- -------------------------
STRATEGIC STRATEGIC
SOFTWARE CONSULTING SOFTWARE CONSULTING
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Results:
Revenues:
Licenses............ $ 3,639,143 $ -- $ 8,088,621 $ --
Software services... 3,090,758 -- 5,679,513 --
Strategic
consulting........ -- 2,896,102 -- 4,757,425
----------- ----------- ----------- -----------
Total revenues.... $ 6,729,901 $ 2,896,102 $13,768,134 $ 4,757,425
=========== =========== =========== ===========
Adjusted EBITDA........ $ 364,859 $ (9,704) $ 786,407 $ 1,293,340
Terminated acquisition
costs.................. -- -- (350,000) --
Non-cash compensation
expense............. -- -- (111,730) --
Acquired IPR&D......... (4,822,000) -- (1,000,000) --
----------- ----------- ----------- -----------
(4,457,141) (9,704) (675,323) 1,293,340
Depreciation and
amortization........ (4,247,077) (1,419,444) (4,779,500) (1,620,117)
----------- ----------- ----------- -----------
Operating loss......... (8,704,218) (1,429,148) (5,454,823) (326,777)
=========== =========== =========== ===========
Other Data:
Capital expenditures... $ 379,677 $ 120,920 $ 594,129 $ 205,733
=========== =========== =========== ===========
AS OF AS OF
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------------- -------------------------
Total assets........... $24,477,822 $ 6,591,180 $34,222,919 $ 6,645,712
=========== =========== =========== ===========
</TABLE>
The Company maintains a corporate division solely for administrative
purposes. This division does not generate revenues, and corporate expenses,
which are not significant, are primarily contained in the software segment.
Additionally, items recorded in the consolidated financial statements for
purchase accounting, such as goodwill, intangible assets and related
amortization, have been pushed down to the respective segments for segment
reporting purposes.
F-27
<PAGE> 122
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
Revenues:
United States............................................... $ 5,743,168
International (principally the United Kingdom)............ $ 3,882,835
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
-----------------
<S> <C>
Long-lived assets:
United States............................................... $19,681,870
International (principally the United Kingdom)............ $ 5,065,802
</TABLE>
16. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrual of SS&C option buyback....... $ -- $ -- $ 250,000
Issuance of equity in connection with
the acquisition of DC Systems........ -- 3,000,000
Notes payable issued in connection
with the acquisition of Zai*Net
Software, L.P...................... 4,375,000 4,375,000 --
Issuance of equity in connection with
the acquisition of Caminus Energy
Limited............................ 3,000,000 3,000,000 --
Issuance of equity for the
contributed distribution
agreement.......................... 2,500,000 2,500,000 --
Issuance of equity in connection with
the acquisition of Zai*Net
Software, L.P. minority interest... 10,339,350 -- --
</TABLE>
F-28
<PAGE> 123
CAMINUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Purchase of treasury stock by issuing
a note payable ($2,250,000),
cancellation of the original
distribution agreement ($2,166,667)
and grant of an option to acquire
common stock of the Company
($494,538)........................... 4,911,205 4,911,205 --
Notes receivable for sale of stock... 1,000,000 -- --
</TABLE>
F-29
<PAGE> 124
CAMINUS LLC
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts:
<TABLE>
<S> <C>
Balance, April 29, 1998..................................... $228,644
Provision................................................... --
Recoveries................................................ --
Charge-offs............................................... --
--------
Balance, December 31, 1998.................................. 228,644
Provision................................................. 75,000
Recoveries................................................ --
Charge-offs............................................... --
--------
Balance, September 30, 1999................................. $303,644
========
</TABLE>
F-30
<PAGE> 125
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of ZAI*NET Software, Inc.
In our opinion, the financial statements listed in the accompanying index
on page F-1 present fairly, in all material respects, the financial position of
ZAI*NET Software, Inc. at December 31, 1996 and 1997 and April 30, 1998, and the
results of its operations and its cash flows for the years ended December 31,
1996 and 1997, and the four months ended April 30, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 12, as of December 31, 1998, ZAI*NET Software, Inc.
sold 100% of its assets to GFI Caminus LLC.
PRICEWATERHOUSECOOPERS LLP
New York, New York
August 28, 1998
F-31
<PAGE> 126
ZAI*NET SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- APRIL 30,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 242,208 $ 146,961 $1,097,742
Certificate of deposit........................... 51,664 54,355 54,355
Accounts receivable.............................. 788,107 1,704,551 1,678,491
Prepaid expenses and other current assets........ 20,440 28,934 125,487
---------- ---------- ----------
Total current assets.......................... 1,102,419 1,934,801 2,956,075
---------- ---------- ----------
Fixed assets, net.................................. 165,183 248,338 302,078
Other assets....................................... 7,190 10,240 11,950
---------- ---------- ----------
Total assets.................................. $1,274,792 $2,193,379 $3,270,103
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................. $ 184,210 $ 185,275 $ 188,407
Accrued expenses................................. 189,942 431,441 991,875
Deferred revenue................................. 386,716 1,339,434 1,435,084
Loan payable to stockholder...................... 154,500 -- --
Loan payable to employee......................... 6,550 -- --
Loan payable to related party.................... 100,000 -- --
Current portion of note payable for repurchase of
options....................................... 29,000 3,000 --
---------- ---------- ----------
Total current liabilities..................... 1,050,918 1,959,150 2,615,366
---------- ---------- ----------
Note payable for repurchase of options............. 3,000 -- --
---------- ---------- ----------
Total liabilities............................. 1,053,918 1,959,150 2,615,366
---------- ---------- ----------
Stockholder's equity:
Common stock, without par value; 2,000 shares
authorized; 480 shares issued and
outstanding................................... 1 1 1
Retained earnings................................ 220,873 234,228 654,736
---------- ---------- ----------
Total stockholder's equity.................... 220,874 234,229 654,737
---------- ---------- ----------
Total liabilities and stockholder's equity.... $1,274,792 $2,193,379 $3,270,103
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 127
ZAI*NET SOFTWARE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED FOUR MONTHS
DECEMBER 31, ENDED
------------------------ APRIL 30,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Licenses............................. $1,291,427 $1,521,447 $1,495,221
Software services.................. 1,429,860 2,667,807 1,334,473
---------- ---------- ----------
Total revenues.................. 2,721,287 4,189,254 2,829,694
---------- ---------- ----------
Cost of revenues..................... 999,142 1,331,482 734,242
---------- ---------- ----------
Gross profit.................... 1,722,145 2,857,772 2,095,452
---------- ---------- ----------
Operating expenses:
Research and development........... 628,317 1,223,715 580,031
Selling, general and
administrative.................. 990,767 1,638,293 1,079,391
---------- ---------- ----------
Total operating expenses........ 1,619,084 2,862,008 1,659,422
---------- ---------- ----------
Income (loss) from operations........ 103,061 (4,236) 436,030
---------- ---------- ----------
Interest income (expense), net....... (2,197) 17,591 8,294
---------- ---------- ----------
Income before provision for income
taxes.............................. 100,864 13,355 444,324
---------- ---------- ----------
Provision for income taxes........... -- -- 23,816
---------- ---------- ----------
Net income...................... 100,864 13,355 420,508
---------- ---------- ----------
Retained earnings, beginning of
year............................... 120,009 220,873 234,228
---------- ---------- ----------
Retained earnings, end of year....... $ 220,873 $ 234,228 $ 654,736
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 128
ZAI*NET SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED FOUR MONTHS
DECEMBER 31, ENDED
---------------------- APRIL 30,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 100,864 $ 13,355 $ 420,508
--------- --------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 101,118 123,090 46,141
Stock option repurchases............................ 20,000 -- --
Changes in operating assets and liabilities:
Accounts receivable................................. (338,449) (916,444) 26,060
Prepaid expenses and other current assets........... (18,725) (8,494) (96,553)
Other assets........................................ 1,081 (5,741) (1,710)
Accounts payable.................................... -- 1,065 3,132
Accrued expenses.................................... 121,005 241,499 560,434
Deferred revenue.................................... 144,216 952,718 95,650
--------- --------- ----------
Net cash provided by operating activities................ 131,110 401,048 1,053,662
--------- --------- ----------
Cash flows from investing activities:
Purchase of certificate of deposit..................... (20,000) -- --
Purchases of fixed assets.............................. (80,112) (206,245) (99,881)
--------- --------- ----------
Net cash used in investing activities.................... (100,112) (206,245) (99,881)
--------- --------- ----------
Cash flows from financing activities:
(Repayment of) proceeds from loan payable to a related
party............................................... 100,000 (100,000) --
Repayment of loans payable to stockholder.............. (2,000) (154,500) --
Repayment of loans payable to employee................. (4,550) (6,550) --
Repayment of notes payable for repurchase of options... (39,000) (29,000) (3,000)
--------- --------- ----------
Net cash (used in) provided by financing activities...... 54,450 (290,050) (3,000)
--------- --------- ----------
Net (decrease) increase in cash and cash equivalents..... 85,448 (95,247) 950,781
Cash and cash equivalents, beginning of year............. 156,760 242,208 146,961
--------- --------- ----------
Cash and cash equivalents, end of year................... $ 242,208 $ 146,961 $1,097,742
========= ========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................ $ 7,934 $ 6,015 $ --
Issuance of note payable for stock option
repurchase........................................ $ 20,000 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 129
ZAI*NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
ZAI*NET Software, Inc. (the "Company") is a Delaware corporation
headquartered in New York, which licenses, customizes and services ZAI*NET, an
integrated real-time front, middle, and back office software trading system for
foreign exchange, commodities, energy, options and other financial products.
REVENUE RECOGNITION
The Company generates revenue from the licensing of its software products
and performing services related to the implementation, training and support of
these products. The Company has adopted the provisions of Statements of Position
(SOP) 97-2 "Software Revenue Recognition". Adoption of this accounting
pronouncement did not materially affect the Company's financial statements.
License revenue is recognized upon the execution of a license agreement,
when the licensed product has been delivered, fees are fixed and determinable,
collectibility is probable, and when all other significant obligations have been
fulfilled. For license agreements in which customer acceptance is a condition to
earning the license fees, revenue is not recognized until acceptance occurs. For
arrangements containing multiple elements, such as software license fees,
consulting services and maintenance, and where vendor-specific objective
evidence of fair value exists for all undelivered elements, the Company accounts
for the delivered elements in accordance with the SOP 97-2.
Software Services revenue includes consulting services for installation,
data conversion and training related to the use of the Company's licensed
products. Customers often enter into arrangements for these services concurrent
with execution of license agreements. The services do not require significant
modification of the licensed products, are not essential to their functionality,
are available from other vendors and payment obligations with respect to the
licensed products are not dependent upon the performance of these services.
Accordingly, the Company recognizes revenues for these services as they are
performed. Maintenance and support revenues associated with new product licenses
and renewals where vendor-specific objective evidence exists, are deferred and
recognized ratably over the contract period. Contracts provide for an initial
maintenance period, which is annual, and a renewal period after expiration of
the initial maintenance period. Customers are permitted, but not required, to
renew their maintenance with us after expiration of the initial annual period.
The renewal rate for maintenance services is based on the initial license fee
and is used to establish the VSOE for maintenance revenues.
SOFTWARE DEVELOPMENT COSTS
All costs incurred in developing software products are expensed as research
and development expenses in the period incurred. Software development costs
incurred subsequent to the establishment of technological feasibility are not
material.
F-35
<PAGE> 130
ZAI*NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents are defined as highly liquid investments with an initial
maturity of three months or less.
FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful life of the related asset. Estimated useful lives generally range from
three to five years.
INCOME TAXES
The Company has elected to be treated as a Subchapter S Corporation for
federal and state income tax purposes. Accordingly, the sole stockholder of the
Company is responsible for federal and state income taxes resulting from the
Company's earnings. The Company is subject to certain other state and city
taxes, which are charged to operations as incurred.
The Company accounts for income taxes under the requirements of SFAS 109,
"Accounting for Income Taxes," which uses an asset and liability approach to
measure income tax expense. The asset and liability approach requires the
recognition of deferred tax assets and liabilities for the expected future
consequences of temporary differences between the financial statement amounts
and the tax basis of certain assets and liabilities.
For the four-month period ended April 30, 1998, $77,486 was recorded for
state and local income taxes payable by the Company. Subsequent to April 30,
1998, the tax status of the Company changed. Refer to Note 12, subsequent
events, for further details.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." As permitted by
this Statement, the Company continues to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for
its stock-based employee compensation arrangements. No compensation expense has
been recognized for the Company's stock-based compensation plans as the exercise
price of the stock options is not less than the fair value of the underlying
common stock on the date of grant.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable and loans payable. The current carrying amount of
these instruments approximates fair market value.
F-36
<PAGE> 131
ZAI*NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The financial statements were prepared in conformity with generally
accepted accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Computer and office equipment ............. $383,169 $565,973 $658,591
Furniture and fixtures..................... 42,826 66,267 73,530
Automobile................................. 21,403 21,403 21,403
-------- -------- --------
447,398 653,643 753,524
Less -- Accumulated depreciation and
amortization............................. 282,215 405,305 451,446
-------- -------- --------
$165,183 $248,338 $302,078
======== ======== ========
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Payroll and benefits....................... $189,942 $149,592 $397,382
Legal and professional fees................ -- -- 363,073
Litigation settlement...................... -- 175,000 175,000
Other Expenses............................. -- 106,849 56,420
-------- -------- --------
$189,942 $431,441 $991,875
======== ======== ========
</TABLE>
4. EMPLOYEE STOCK OPTIONS
In August 1996, the Company repurchased, from a former employee, options to
purchase 5 shares of the Company's common stock in exchange for a $20,000
non-interest bearing note. Payments of this note are in monthly installments of
$1,000 commencing August 1, 1996. The note was repaid in full in March 1998.
In May 1995, the Company repurchased, from a former employee, options to
purchase 17 shares of the Company's common stock in exchange for an $87,000
noninterest-bearing note, of which $36,000, $34,000, and $17,000 were paid in
1995, 1996, and 1997, respectively.
F-37
<PAGE> 132
ZAI*NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarizes the Company's stock option activity for the
years ended December 31, 1996 and 1997 and the four months ended April 30, 1998:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED FOUR MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 APRIL 29, 1998
------------------------- ------------------------- -------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year............... 58 $1,431 300 $3,799 300 $3,799
Granted.............. 247 $4,400 -- -- -- --
Exercised............ -- -- -- -- -- --
Canceled............. -- -- -- -- -- --
Repurchased.......... 5 6,000 -- --
Outstanding at end of
year............... 300 $3,799 300 $3,799 300 $3,799
Options exercisable
at year end........ 300 $3,799 300 $3,799 300 $3,799
</TABLE>
The range of exercise prices for options outstanding at December 31, 1996
and 1997 and April 30, 1998 was $1,000 - $4,400.
The weighted average remaining contractional life for options with a
weighted average exercise price of $3,799 is 7.8 years.
The Company continues to apply APB 25, "Accounting for Stock Issued to
Employees," in accounting for stock options issued to employees. Accordingly, no
compensation expense has been recognized for its stock based compensation plans.
Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant date, consistent with the methodology prescribed
under Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," the impact on net income would not have been material
for any period.
5. 401(K) SAVINGS PLAN
The Company maintains a 401(k) Savings Plan (the "Plan"). Employees are
eligible to participate in the Plan upon completion of six months of service
with the Company. Eligible employees may contribute up to 15% of their annual
compensation to the Plan on a pre-tax basis. Participant contributions to the
Plan are immediately vested. In addition, under the terms of the Plan, the
Company, at its discretion, may match all or a portion of a participant's
contribution to the Plan up to 10% of the participant's compensation. This
matching percentage is determined by the Company prior to the start of each Plan
year. The Company matching contribution is made at calendar year end and
participants become vested in Company matching contributions to the plan at the
rate of 20% per year of service. The Company elected to match 100% of
participant contributions up to a maximum of $1,000 per participant for 1996,
1997 and 1998. Compensation
F-38
<PAGE> 133
ZAI*NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expense for the plan was approximately $12,000, $16,000 and $7,500 for 1996,
1997 and for the four months ended April 30, 1998, respectively.
6. TRANSACTIONS WITH RELATED PARTIES
LOAN PAYABLE TO RELATED PARTY
In September 1996, the Company borrowed $100,000 from the family of a
shareholder of the Company. The loan bore interest at the rate of 8% and $2,000
and $6,000 of interest expense was paid in 1996 and 1997, respectively. This
loan was repaid in full in 1997.
7. LINE OF CREDIT
The Company maintained a $150,000 demand line of credit with a bank.
Interest on outstanding borrowings under the line of credit was based on the
prime lending rate plus two percent.
The line of credit required the Company to maintain a $50,000 interest
bearing certificate of deposit with the bank. There were no amounts outstanding
under the line of credit for any period.
8. INCOME TAXES
The provision (benefit) for income taxes for the four-month period ended
April 30, 1998 consists of the following:
<TABLE>
<S> <C>
Current provision........................................... $ 77,486
Deferred benefit............................................ (53,670)
--------
Total provision............................................. $ 23,816
========
</TABLE>
Since the Company's basis of accounting for tax purposes is the cash
receipts and disbursements method, the most significant components of the
deferred tax asset are accrued items of income and expense not recognized for
tax purposes until received or paid.
9. COMMITMENTS
The Company leases office space in New York City, London, Houston and
Singapore under long-term leases. Future minimum annual lease commitments are as
follows:
<TABLE>
<S> <C>
May 1, 1998 Through December 31, 1998....................... $ 238,933
1999........................................................ 384,842
2000........................................................ 354,202
2001........................................................ 354,177
Thereafter.................................................. 430,039
----------
$1,762,193
==========
</TABLE>
Rent expense in 1996, 1997 and for the four months ended April 30, 1998
totaled $207,297, $239,303 and $116,712, respectively.
F-39
<PAGE> 134
ZAI*NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company's customer base consists primarily of companies in the
financial services and energy industry groups. Although the Company is directly
affected by the well being of these industries, management does not believe
significant credit risks exists as of April 30, 1998.
Three customers accounted for 46%, 18% and 9% of total accounts receivable
at December 31, 1996 and 22% of revenues in 1996. Two customers accounted for
13% and 10% of total accounts receivable at December 31, 1997 and 29% of
revenues for 1997. Two customers accounted for 17% and 10% of accounts
receivable at April 30, 1998 and one customer accounted for 18% of revenues for
the four months ended April 30, 1998.
11. LITIGATION
An action was commenced in 1989 against the Company in which a former
employee (the "plaintiff") alleged four causes of action and sought monetary
damages of $2,000,000. The plaintiff also alleged two additional causes of
action against the current stockholder and a former stockholder and sought
aggregate damages of $5,000,000. These actions relate to the plaintiff's claim
that the Company promised the plaintiff an ownership interest in the Company and
a share of the Company's profits derived from software the plaintiff allegedly
developed in exchange for the plaintiff's promise to work for the Company. The
case was settled for $175,000 on May 11, 1998 and all required liabilities were
accrued at December 31, 1997 and April 30, 1998.
12. SUBSEQUENT EVENTS
On May 12, 1998, the Company transferred substantially all of its assets
and liabilities to ZAI*NET SOFTWARE, L.P. (the "Partnership"), a Partnership 99%
owned by the Company and 1% owned by the sole stockholder of the Company.
Immediately following this transfer the Partnership agreed to sell 70% of its
ownership interest and the stockholder agreed to sell his 1% ownership interest
to GFI Caminus LLC ("GFI"). The Company retained the remaining 29% ownership
interest in the newly formed Partnership. The remaining ownership interest was
sold to GFI on December 31, 1998. (Unaudited)
F-40
<PAGE> 135
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CAMINUS LIMITED
- --------------------------------------------------------------------------------
We have audited the accompanying balance sheets of Caminus Limited at 30
April 1997 and 30 April 1998 and related profit and loss account and statement
of cash flows for each of the years ended 30 April 1997 and 30 April 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 in the United Kingdom, which are substantially the same as those
followed in the United States. These 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 opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Caminus Limited at 30 April
1997 and 30 April 1998 and the results of its operations and cash flows for each
of the years ended 30 April 1997 and 30 April 1998 in conformity with accounting
principles generally accepted in the United Kingdom.
The financial statements were prepared in accordance with accounting
principles generally accepted in the United Kingdom, the application of which by
Caminus Limited does not differ materially from accounting principles generally
accepted in the United States, except in respect of the presentation of cash
flow information, as detailed in note 14(a) to the financial statements.
The United States Dollar equivalent data presented in these financial
statements is included for information only. It does not, and is not meant to,
reflect the financial statements had they been translated in accordance with
United States Generally Accepted Accounting Principles, as explained in note
14(b) to the financial statements.
PETERS ELWORTHY & MOORE
Chartered Accountants and
Registered Auditors
CAMBRIDGE, ENGLAND
30 September 1998
F-41
<PAGE> 136
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
PROFIT AND LOSS ACCOUNTS
FOR THE YEARS ENDED 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
In this prospectus, certain UK Sterling amounts have been translated into
United States dollars at the rate of (pound sterling)1 to US $1.67. Such
translations should not be construed as representations that the UK Sterling
amounts represent, or have been or could be converted into, United States
Dollars at that or any other rate.
<TABLE>
<CAPTION>
NOTES 1997 1998 1998
----- --------- --------- ---------
L L US $
<S> <C> <C> <C> <C>
TURNOVER 2 2,059,887 2,516,579 4,202,687
Cost of sales 978,614 1,147,253 1,915,913
--------- --------- ---------
Gross profit 1,081,273 1,369,326 2,286,774
Administrative expenses 638,982 742,646 1,240,219
--------- --------- ---------
OPERATING PROFIT 3 442,291 626,680 1,046,555
Interest receivable 12,411 17,446 29,135
--------- --------- ---------
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION 454,702 644,126 1,075,690
Tax on profit on ordinary activities 5 126,427 172,285 287,716
--------- --------- ---------
PROFIT ON ORDINARY ACTIVITIES AFTER
TAXATION 328,275 471,841 787,974
Dividend 404,991 480,118 801,797
--------- --------- ---------
RETAINED (LOSS) FOR YEAR (76,716) (8,277) (13,823)
Retained profit brought forward 311,901 235,185 392,759
--------- --------- ---------
RETAINED PROFIT CARRIED FORWARD 235,185 226,908 378,936
========= ========= =========
</TABLE>
There are no recognised gains and losses in the year other than the retained
loss for the year.
All items dealt with in arriving at turnover and operating profit for each year
relate to continuing activities.
The attached notes form part of these financial statements.
F-42
<PAGE> 137
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
BALANCE SHEETS
AS AT 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
In this prospectus, certain UK Sterling amounts have been translated into
United States dollars at the rate of (pound sterling)1 to US $1.67. Such
translations should not be construed as representations that the UK Sterling
amounts represent, or have been or could be converted into, United States
Dollars at that or any other rate.
<TABLE>
<CAPTION>
NOTES 1997 1998 1998
----- --------- --------- ---------
L L US $
<S> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 6 47,038 87,065 145,399
Investments 7 200 200 334
--------- --------- ---------
47,238 87,265 145,733
CURRENT ASSETS
Work in Progress -- 9,483 15,837
Debtors 8 535,691 564,441 942,616
Cash at bank and in hand 531,223 311,871 520,825
--------- --------- ---------
1,066,914 885,795 1,479,278
CREDITORS:
Amounts falling due within one year 9 877,817 744,185 1,242,790
--------- --------- ---------
NET CURRENT ASSETS 189,097 141,610 236,488
--------- --------- ---------
TOTAL ASSETS LESS CURRENT
LIABILITIES 236,335 228,875 382,221
PROVISION FOR LIABILITIES AND
CHARGES 10 -- 817 1,364
--------- --------- ---------
NET ASSETS 236,335 228,058 380,857
========= ========= =========
CAPITAL AND RESERVES
Called up share capital 11 950 950 1,587
Other reserves 12 200 200 334
Profit and loss account 235,185 226,908 378,936
--------- --------- ---------
EQUITY SHAREHOLDERS' FUNDS 236,335 228,058 380,857
========= ========= =========
</TABLE>
ON BEHALF OF THE BOARD
DR N L EVANS
DIRECTOR
APPROVED BY THE BOARD ON 10 SEPTEMBER 1998
The attached notes form part of these financial statements.
F-43
<PAGE> 138
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
CASH FLOW STATEMENTS
FOR THE YEARS ENDED 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
In this prospectus, certain UK Sterling amounts have been translated into
United States dollars at the rate of (pound sterling)1 to US $1.67. Such
translations should not be construed as representations that the UK Sterling
amounts represent, or have been or could be converted into, United States
Dollars at that or any other rate.
<TABLE>
<CAPTION>
1997 1998 1998
-------- -------- ---------
L L US $
<S> <C> <C> <C>
NET CASH INFLOW FROM CONTINUING OPERATING
ACTIVITIES 636,678 533,146 890,354
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received 12,411 17,446 29,135
Taxation (146,836) (128,496) (214,588)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENTS
Purchase of tangible fixed assets (20,904) (68,536) (114,455)
Equity dividends paid to shareholders (97,733) (572,912) (956,763)
-------- -------- ---------
Net (decrease)/increase in cash 383,616 (219,352) (366,317)
======== ======== =========
RECONCILIATION OF OPERATING PROFIT TO NET
CASH INFLOW FROM OPERATING ACTIVITIES:
Operating profit 442,291 626,680 1,046,555
Depreciation 19,874 28,509 47,610
(Increase) in work in progress -- (9,483) (15,837)
(Increase) in trade debtors (98,858) (9,456) (15,792)
(Increase) in other debtors (5,653) (19,294) (32,221)
Increase in trade creditors 12,287 49,378 82,461
(Decrease)/increase in other creditors 266,737 (133,188) (222,422)
-------- -------- ---------
Net cash inflow from operating activities 636,678 533,146 890,354
======== ======== =========
RECONCILIATION TO NET FUNDS
(Decrease)/increase in net cash 383,616 (219,352) (366,317)
Net funds at beginning of year 147,607 531,223 887,142
-------- -------- ---------
Net funds at end of year 531,223 311,871 520,825
======== ======== =========
</TABLE>
F-44
<PAGE> 139
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
1. PRINCIPAL ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The financial statements have been prepared under the historical cost
convention.
The financial statements were prepared in accordance with accounting principles
generally accepted in the United Kingdom, the application of which by Caminus
Limited does not differ materially from accounting principles generally accepted
in the United States, except in respect of the presentation of cash flow
information, as detailed in note 14 to the financial statements.
TURNOVER
Turnover represents amounts received, excluding Value Added Tax, for services
supplied during the year. Turnover is recognized as services are rendered.
DEPRECIATION
Depreciation is calculated to write off tangible fixed assets over their
estimated useful lives by equal annual installments at the following rates:
Computers -- 33% of cost per annum
Equipment, furniture and fittings -- 20% of cost per annum
DEFERRED TAXATION
Deferred taxation is provided in respect of all material timing differences.
PENSION COSTS
The Company's pension obligations are covered by contributions to personal
pension plans for individual employees. Contributions are written off to the
profit and loss account in the year in which they are paid.
F-45
<PAGE> 140
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
2. TURNOVER
The turnover is all attributable to the company's principal activity.
<TABLE>
<CAPTION>
1997 1998
--------- ---------
L L
<S> <C> <C>
Analysis of turnover by geographical area:
United Kingdom 1,626,384 1,945,317
Rest of Europe, USA and Japan 433,503 571,262
--------- ---------
2,059,887 2,516,579
========= =========
</TABLE>
3. OPERATING PROFIT
<TABLE>
<CAPTION>
1997 1998
--------- ---------
L L
<S> <C> <C>
Operating profit is stated after charging:
Staff costs (note 4) 1,347,017 1,468,565
Depreciation 19,874 28,509
Auditors' renumeration 1,200 1,200
</TABLE>
4. STAFF COSTS
<TABLE>
<CAPTION>
1997 1998
--------- ---------
L L
<S> <C> <C>
Staff costs comprise the following:
Wages and salaries 576,517 870,057
Bonuses 587,552 355,376
Social security costs 117,785 122,437
Other pension costs 65,163 75,695
Compensation for loss of office -- 45,000
--------- ---------
1,347,017 1,468,565
========= =========
</TABLE>
F-46
<PAGE> 141
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
The average number of persons, including directors, employed during the year
was:
<TABLE>
<CAPTION>
1997 1998
------ ------
NUMBER NUMBER
<S> <C> <C>
Consulting 16 17
Office and management 4 5
-- --
20 22
== ==
</TABLE>
Staff costs include the following directors' emoluments:
<TABLE>
<CAPTION>
1997 1998
------- -------
L L
<S> <C> <C>
Management remuneration 718,068 615,504
Contributions to money purchase pension schemes, in
respect of three directors 33,676 32,461
Compensation for loss of office -- 45,000
------- -------
751,744 692,965
======= =======
</TABLE>
The remuneration of the highest paid director was as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
L L
<S> <C> <C>
Management remuneration 263,951 215,970
Contributions to money purchase pension scheme 10,595 7,644
------- -------
274,546 223,614
======= =======
</TABLE>
5. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997 1998
------- -------
L L
<S> <C> <C>
Corporation Tax on the taxable profit at the rate of
27.49% (1997: 27.65%) 126,427 171,468
Deferred taxation -- 817
------- -------
126,427 172,285
======= =======
</TABLE>
F-47
<PAGE> 142
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
6. TANGIBLE FIXED ASSETS -- YEAR ENDED 30 APRIL 1997
<TABLE>
<CAPTION>
EQUIPMENT
FURNITURE
COMPUTERS & FITTINGS TOTAL
--------- ---------- -------
L L L
<S> <C> <C> <C>
Cost at beginning of year 90,258 109,875 200,133
Additions 15,739 5,165 20,904
------- ------- -------
Cost at end of year 105,997 115,040 221,037
------- ------- -------
Accumulated depreciation at beginning of
year 61,594 92,531 154,125
Charge for year 14,077 5,797 19,874
------- ------- -------
Accumulated depreciation at end of year 75,671 98,328 173,999
------- ------- -------
Net book value at end of year 30,326 16,712 47,038
======= ======= =======
Net book value at beginning of year 28,664 17,344 46,008
======= ======= =======
</TABLE>
6. TANGIBLE FIXED ASSETS -- YEAR ENDED 30 APRIL 1998
<TABLE>
<CAPTION>
EQUIPMENT
FURNITURE
COMPUTERS & FITTINGS TOTAL
--------- ---------- -------
L L L
<S> <C> <C> <C>
Cost at beginning of year 105,997 115,040 221,037
Additions 26,357 42,179 68,536
Disposals (5,206) -- (5,206)
------- ------- -------
Cost at end of year 127,148 157,219 284,367
------- ------- -------
Accumulated depreciation at beginning of
year 75,671 98,328 173,999
Charge for year 18,952 9,557 28,509
Disposals (5,206) -- (5,206)
------- ------- -------
Accumulated depreciation at end of year 89,417 107,885 197,302
------- ------- -------
Net book value at end of year 37,731 49,334 87,065
======= ======= =======
Net book value at beginning of year 30,326 16,712 47,038
======= ======= =======
</TABLE>
F-48
<PAGE> 143
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
7. INVESTMENTS IN SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
1997 1998
---- ----
L L
<S> <C> <C>
Wholly owned:
Caminus Consultants Limited:
100 ordinary shares of (pound sterling)1 each at cost 100 100
Caminus Limited:
100 ordinary shares of (pound sterling)1 each at cost 100 100
--- ---
200 200
=== ===
</TABLE>
The above Companies, registered in England, have not traded since their
incorporation and have not therefore been consolidated as the amount involved is
not material.
8. DEBTORS
<TABLE>
<CAPTION>
1997 1998
------- -------
L L
<S> <C> <C>
Due within one year:
Trade debtors 500,877 510,333
Prepayments and accrued income 34,814 54,108
------- -------
535,691 564,441
======= =======
</TABLE>
9. CREDITORS
<TABLE>
<CAPTION>
1997 1998
------- -------
L L
<S> <C> <C>
Amounts falling due within one year:
Trade creditors 18,976 68,354
Corporation Tax 25,179 51,437
Advance Corporation Tax payable 76,815 93,529
Other taxes and social security costs 256,861 229,984
Other creditors 206 200
Accruals and deferred income 7,522 47,150
Amounts owed to directors 492,258 253,531
------- -------
877,817 744,185
======= =======
</TABLE>
F-49
<PAGE> 144
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
10. PROVISION FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1997 1998
---- ----
L L
<S> <C> <C>
Provision for deferred taxation at beginning of year -- --
Charge for the year -- 817
--- ---
Provision at end of year -- 817
=== ===
The provision for deferred taxation is made up as follows:
On accelerated capital allowances -- 817
=== ===
-- 817
=== ===
</TABLE>
11. SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1998
----- -----
L L
<S> <C> <C>
Authorised:
5,000 ordinary shares of (pound sterling)1 each 5,000 5,000
===== =====
Allotted, issued and fully paid:
950 ordinary shares of (pound sterling)1 each 950 950
===== =====
</TABLE>
12. OTHER RESERVES
<TABLE>
<CAPTION>
1997 1998
---- ----
L L
<S> <C> <C>
Capital redemption reserve, representing a transfer from
distributable reserves in respect of the Company's purchase
of its own shares 200 200
=== ===
</TABLE>
13. FINANCIAL COMMITMENTS
Commitments for rentals payable under operating leases in the year to 30 April
1999 are as follows:
<TABLE>
<CAPTION>
LAND AND
BUILDINGS
---------
L
<S> <C> <C>
Leases expiring after more than five years 70,000
=========
</TABLE>
F-50
<PAGE> 145
CAMINUS LIMITED
(FORMERLY CAMINUS ENERGY LIMITED)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED 30 APRIL 1997 AND 30 APRIL 1998
- --------------------------------------------------------------------------------
14. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United Kingdom ("UK GAAP"). Such
principles, as applied by Caminus Limited, do not differ materially from
accounting principles generally accepted in the United States ("US GAAP").
(a) Cash flow statement
The cash flow statement has been prepared under UK GAAP in accordance with FRS 1
revised and presents substantially the same information as required under SFAS
95. There are certain differences between FRS 1 revised and SFAS 95 with regard
to the classification of items within the cash flow statement.
In accordance with FRS 1 revised, cash flows are presented separately for
operating activities, returns on investments and servicing of finance, taxation,
capital expenditure and financial investment, acquisitions and disposals, equity
dividends paid, management of liquid resources and financing. Under SFAS 95 cash
flows are classified under operating activities, investing activities and
financing activities.
A summary of the company's cash flows from operating, investing and financing
activities, classified in accordance with SFAS 95 is presented below.
<TABLE>
<CAPTION>
1997 1998 1998
-------- -------- --------
L L US $
<S> <C> <C> <C>
Net cash provided by operating activities 502,253 422,096 704,901
Net cash used in investing activities (20,904) (68,536) (114,455)
Net cash used in financing activities (97,733) (572,912) (956,763)
-------- -------- --------
Net (decrease)/increase in cash at bank and 383,616 (219,352) (366,317)
in hand
Cash at bank and in hand at beginning of 147,607 531,223 887,142
year
-------- -------- --------
Cash at bank and in hand at end of year 531,223 311,871 520,825
======== ======== ========
</TABLE>
(b) United States Dollar Equivalent Data
The United States Dollar equivalent data presented in these financial statements
is included for information only. It does not, and is not meant to, reflect the
financial statements had they been translated in accordance with United States
Generally Accepted Accounting Principles. The exchange rate used for this
presentation was L1 sterling to US $1.67. This rate was arrived at by using the
closing inter-bank rate on 30 April 1998.
15. ULTIMATE PARENT COMPANY
On 12 May 1998 the Company was acquired by, and became a wholly owned subsidiary
of, GFI Caminus LLC, trading as Caminus Energy Ventures, registered in Delaware,
USA.
F-51
<PAGE> 146
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of DC Systems, Inc:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, shareholder's deficit and cash flows
present fairly in all material respects, the financial position of DC Systems,
Inc. and its subsidiary at December 31, 1997 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
October 5, 1999
F-52
<PAGE> 147
DC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ -- $ 24,907 $ 304,131
Accounts receivable.................................. 198,881 227,948 25,930
Deferred contract development cost................... 14,734 483,908 814,649
Prepaid expenses and other current assets............ 26,911 30,134 31,345
--------- ----------- -----------
Total current assets.............................. 240,526 766,897 1,176,055
Fixed assets, net...................................... 84,463 122,459 124,313
Deferred contract development cost..................... 190,086 78,216 --
Software development costs, net........................ 23,970 12,464 6,711
Deposits and other assets.............................. 10,603 10,603 12,800
--------- ----------- -----------
Total assets................................. $ 549,648 $ 990,639 $ 1,319,879
========= =========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Book overdraft....................................... $ 35,856 $ -- $ --
Accounts payable and accrued liabilities............. 159,741 217,533 167,500
Deferred contract development revenue................ 173,834 1,435,282 2,363,964
Capitalized lease obligation, current................ 7,758 13,288 13,968
Related party notes payable, current................. 69,280 28,171 29,609
--------- ----------- -----------
Total current liabilities......................... 446,469 1,694,274 2,575,041
Deferred contract development revenue.................. 433,317 99,186 --
Capitalized lease obligation........................... 17,211 14,458 7,299
Related party notes payable............................ -- 33,858 18,684
--------- ----------- -----------
Total liabilities................................. 896,997 1,841,776 2,601,024
Commitments and contingencies
Shareholder's deficit:
Common stock, $1 par value, 100,000 shares
authorized, 1,000 shares issued and outstanding... 1,000 1,000 1,000
Additional paid in capital........................... 543,000 1,074,064 6,096,843
Accumulated deficit.................................. (856,259) (1,876,397) (7,378,988)
--------- ----------- -----------
(312,259) (801,333) (1,281,145)
Less -- related party advances....................... (35,090) (49,804) --
Total shareholders deficit........................ (347,349) (851,137) (1,281,145)
--------- ----------- -----------
Total liabilities and shareholder's deficit....... $ 549,648 $ 990,639 $ 1,319,879
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 148
DC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------- -------------------------
1997 1998 1998 1999
---------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License and software
enhancements............... $ 603,166 $ 320,650 $ 30,000 $ 41,000
Software services............ 640,654 521,968 205,837 253,943
---------- ---------- --------- -----------
Total revenues............ 1,243,820 842,618 235,837 294,943
Costs of revenues:
Costs of software
enhancements.............. 115,837 42,328 5,753 5,753
Costs of software services... 358,505 505,080 264,990 228,491
---------- ---------- --------- -----------
Total costs of revenues... 474,342 547,408 270,743 234,244
---------- ---------- --------- -----------
Gross profit (loss)............ 769,478 295,210 (34,906) 60,699
---------- ---------- --------- -----------
Operating expenses:
Research and development..... 70,922 64,048 46,067 15,731
Selling and marketing........ 228,557 224,821 125,643 104,741
General and administrative... 373,333 354,370 185,463 225,890
Equity participation
compensation.............. 139,505 531,064 270,639 5,022,779
---------- ---------- --------- -----------
Total operating
expenses................ 812,317 1,174,303 627,812 5,369,141
---------- ---------- --------- -----------
Operating loss................. (42,839) (879,093) (662,718) (5,308,442)
Interest expense............... 3,358 22,967 17,850 4,072
---------- ---------- --------- -----------
Net loss....................... $ (46,197) $ (902,060) $(680,568) $(5,312,514)
========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 149
DC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL REPURCHASED TOTAL
--------------- PAID-IN (ACCUMULATED RELATED PARTY EQUITY SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT) ADVANCE INTEREST DEFICIT
------ ------ ---------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996..................... 1,000 $1,000 $ 253,495 $ (644,562) $(33,515) $ -- $ (423,582)
Net loss................... -- -- -- (46,197) -- -- (46,197)
Capital contribution....... -- -- 150,000 -- -- -- 150,000
Related party advances..... -- -- -- -- (1,575) -- (1,575)
Equity participation
compensation............. -- -- 139,505 -- -- -- 139,505
Distributions.............. -- -- -- (165,500) -- -- (165,500)
----- ------ ---------- ----------- -------- -------- -----------
Balance, December 31,
1997..................... 1,000 1,000 543,000 (856,259) (35,090) -- (347,349)
Net loss................... -- -- -- (902,060) -- -- (902,060)
Repurchased equity
interest................. (60) -- -- -- -- (90,000) (90,000)
Reissued equity interest... 60 -- -- (90,000) -- 90,000 --
Related party advances..... -- -- -- -- (14,714) -- (14,714)
Equity participation
compensation............. -- -- 531,064 -- -- -- 531,064
Distributions.............. -- -- -- (28,078) -- -- (28,078)
----- ------ ---------- ----------- -------- -------- -----------
Balance, December 31,
1998..................... 1,000 1,000 1,074,064 (1,876,397) (49,804) -- (851,137)
Net loss (unaudited)....... -- -- -- (5,312,514) -- -- (5,312,514)
Related party repayments
(unaudited).............. -- -- -- -- 49,804 -- 49,804
Equity participation
compensation
(unaudited).............. -- -- 5,022,779 -- -- -- 5,022,779
Distributions
(unaudited).............. -- -- -- (190,077) -- -- (190,077)
----- ------ ---------- ----------- -------- -------- -----------
Balance, June 30, 1999
(unaudited).............. 1,000 $1,000 $6,096,843 $(7,378,988) $ -- $ -- $(1,281,145)
----- ------ ---------- ----------- -------- -------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 150
DC SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------- --------------------------
1997 1998 1998 1999
--------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(46,197) $(902,060) $(680,568) $(5,312,514)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization..................... 34,562 69,320 32,780 36,925
Equity participation compensation................. 139,505 531,064 270,639 5,022,779
Changes in operating assets and liabilities:
Accounts receivable............................ (172,645) (29,067) 198,881 202,018
Prepaid expenses and other current assets...... (6,853) (3,223) 9,015 (1,211)
Accounts payable and accrued liabilities....... 52,042 57,792 9,373 (50,033)
Deferred contract development cost............. (175,133) (357,304) (160,304) (252,525)
Deferred contract development revenues......... 115,068 927,317 592,014 829,496
Deposits and other assets...................... (7,197) -- -- (2,197)
-------- --------- --------- -----------
Net cash provided by (used in) operating
activities..................................... (66,848) 293,839 271,830 472,738
Cash flows from investing activities:
Purchases of fixed assets........................... (43,231) (81,330) (51,969) (33,026)
Additions to software development costs............. (11,152) -- -- --
-------- --------- --------- -----------
Net cash used in investing activities............. (54,383) (81,330) (51,969) (33,026)
Cash flows from financing activities:
Related party advances (repayments), net............ (1,575) (14,714) (13,534) --
Payments on related party notes payable............. (43,220) (92,751) (37,458) (13,736)
Payments on capital lease obligation................ (1,788) (11,703) (5,538) (6,479)
Capital contribution................................ 150,000 -- -- --
Distributions....................................... (53,000) (28,078) (28,078) (140,273)
Book overdrafts..................................... 35,856 (35,856) (35,856) --
Repurchased equity interest......................... -- (4,500) (4,500) --
-------- --------- --------- -----------
Net cash provided by (used in) financing
activities..................................... 86,273 (187,602) (124,964) (160,488)
Net increase (decrease) in cash and cash
equivalents......................................... (34,958) 24,907 94,897 279,224
Cash and cash equivalents at beginning of period...... 34,958 -- -- 24,907
-------- --------- --------- -----------
Cash and cash equivalents at end of period............ $ -- $ 24,907 $ 94,897 $ 304,131
======== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 151
DC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
DC Systems, Inc. ("DCS" or the "Company"), was incorporated in Texas on May
8, 1989 and initially provided software design consulting services for oil and
gas transmission companies. During the period 1993 through 1996, the Company
developed Gas*Master, a natural gas information system. DCS commenced marketing
the software in 1996 throughout North America to natural gas suppliers,
marketers and consumer utilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated unaudited financial statements at June 30, 1999 and for
the six-month period then ended include the accounts of DCS and its wholly-owned
subsidiary, DCS Gas*Net Corporation, which was incorporated on January 7, 1999.
All intercompany transactions and balances have been eliminated upon
consolidation.
CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments with
original maturities of three months or less.
ACCOUNTS RECEIVABLE
The Company periodically reviews accounts receivable for collectibility and
provides for an allowance for doubtful accounts to the extent that amounts are
not expected to be collected. There was no allowance for doubtful accounts at
December 31, 1997, 1998 or June 30, 1999.
SOFTWARE DEVELOPMENT COSTS
The Company has capitalized software development costs in compliance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Research
and development costs incurred prior to the establishment of the technological
feasibility of a software product are expensed as incurred. Capitalization of
software development costs begins upon establishment of technological
feasibility of the product. After technological feasibility is established,
material software development costs, which include salaries and related payroll
costs incurred in the development activities, are capitalized.
Except for initial enhancements to make the software more marketable to a
broader base of customers in 1996 and early 1997, the Company has made all
significant changes and improvements to the software under customer contracts.
F-57
<PAGE> 152
DC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
To date, the period between achieving technological feasibility, which the
Company has defined as establishment of a working model which typically occurs
when beta testing commences, and the general release of such software has been
relatively short, and software development costs qualifying for capitalization
have been insignificant. The capitalized costs are amortized on a straight-line
basis over the estimated product life, or on the ratio of current revenues to
total projected product revenues, whichever is greater. Generally, such deferred
costs are amortized over three years. Amortization expense, which is included in
costs of software services, was $10,547, $11,506 and $5,753 for years ended
December 31, 1997 and 1998 and the six-month period ended June 30, 1999,
respectively.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation and amortization are
calculated using the straight-line method over the estimated useful life of the
related asset which generally ranges from three to five years. Amortization of
assets recorded under capital leases is included in depreciation expense.
INCOME TAXES
The Company has elected to be taxed as an S corporation as allowed by the
Internal Revenue Code. Pursuant to this election, income of the Company is
included in the taxable income of the individual shareholders. It is
management's intention to pay distributions to shareholders as necessary to
satisfy any tax liability generated by the Company's earnings.
USE OF ESTIMATES
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CREDIT RISK
The Company typically contracts to receive license and software
modification, enhancement and annual maintenance fees in advance or as the work
is performed. In addition, most of the Company's customers are large natural gas
transmission or utility companies located throughout North America. Accordingly,
the Company does not require collateral and credit losses have been and are
anticipated to continue to be nominal.
F-58
<PAGE> 153
DC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
notes payable. The current carrying amount of these instruments approximates
fair market value due to the relatively short period of time to maturity for
these instruments.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company uses the intrinsic value-based method of accounting for all of
its employee stock-based compensation plans. Equity participation compensation
expense associated with stock-based compensation is recognized over the vesting
period of the individual award consistent with the method described in Financial
Accounting Standards Board (FASB) Interpretation No. 28.
REVENUE RECOGNITION
The Company generates revenue from several sources, including licensing of
its software products, performing services related to the implementation,
training and support of these products. The Company has adopted the provisions
of Statements of Position (SOP) 97-2, "Software Revenue Recognition", SOP 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2", and SOP
98-9, "Modifications of SOP 97-2, Software Revenue Recognition".
SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair value of the elements. License and software enhancements revenue
allocated to software products is recognized upon the execution of a license
agreement, when the licensed product has been delivered, fees are fixed and
determinable, collectibility is probable, and when all other significant
obligations have been fulfilled. For license agreements in which customer
acceptance is a condition to earning the license and enhancement fees, revenue
is not recognized until acceptance occurs. Revenue allocated to maintenance is
recognized ratably over the maintenance term and revenue allocated to training
and other service elements is recognized as the services are performed. This
treatment results in deferred revenues and associated costs at each balance
sheet date.
The Company provides its software to customers under long-term development
arrangements as typical customer applications can require significant
modification to adapt the software to the unique specifications of the customer.
If the service elements are considered essential to the functionality of the
software products, both the software product revenue and service revenue are
recognized using the completed contract method as prescribed in accordance with
the provisions of SOP 81-1, "Accounting for Performance of Construction Type and
Certain Production Type Contracts." Accordingly, license and software
enhancement revenue is recognized under the completed contract method when all
development, testing and installation is completed and the purchaser formally
F-59
<PAGE> 154
DC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accepts the software. Costs associated with these contracts are deferred until
contract completion. These license and software enhancement revenues and costs
represent the majority of the deferred balances at each period end. Costs of
software enhancements include the direct labor component of programmer and
consultant cost to perform the software enhancement or service as well as the
prorated share of technical support and overhead costs associated with the
enhancement and services. Anticipated losses, if any, on uncompleted contracts
are recognized in the period in which such losses are determined. Selling,
general and administrative costs are charged to expense as incurred.
Software services revenues include consulting services for installation,
data conversion, training and product support services related to the use of the
Company's licensed products. Customers often enter into arrangements for these
services concurrent with the execution of license agreements. The services do
not require significant modification of the licensed products, are not essential
to their functionality and are available from other vendors. Payment obligations
with respect to the licensed products are not dependent upon the performance of
these services. Accordingly, the Company recognizes revenues for these services
as they are performed. Maintenance and support revenues associated with new
product licenses and renewals, where vendor-specific objective evidence of fair
value exists, deferred and recognized ratably over the contract period.
UNAUDITED INTERIM FINANCIAL DATA
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, the accompanying unaudited
financial statements have been prepared on the same basis as the audited
financial statements, and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the Company's
financial position as of June 30, 1999 and the results of its operations and its
cash flows for the six months ended June 30, 1998 and 1999.
F-60
<PAGE> 155
DC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. FIXED ASSETS
Furniture, fixtures and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, JUNE 30,
USEFUL LIFE -------------------- -----------
IN YEARS 1997 1998 1999
----------- -------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and
software............... 3-4 $ 81,151 $ 159,762 $ 198,420
Office furniture and
fixtures............... 5 13,642 30,841 26,209
Automobiles.............. 3 33,541 33,541 33,541
-------- --------- ---------
128,334 224,144 258,170
Less: accumulated
depreciation........... (43,871) (101,685) (133,857)
-------- --------- ---------
$ 84,463 $ 122,459 $ 124,313
======== ========= =========
</TABLE>
Depreciation expense amounted to $24,015, $57,814, $27,027 and $31,172 for
1997 and 1998 and for the six months ended June 30, 1998 and 1999, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- -----------
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued retirement plan
contributions.................. $ 44,914 $ 26,184 $ 6,953
Payroll taxes payable............ 32,044 61,878 --
Sales taxes payable.............. 71,930 112,750 157,719
Other accounts payable and
accrued liabilities............ 10,853 16,721 2,828
-------- -------- --------
$159,741 $217,533 $167,500
======== ======== ========
</TABLE>
5. RELATED PARTY ADVANCES RECEIVABLE AND NOTES PAYABLE
During 1997, 1998 and the six months ended June 30, 1999, the Company made
advances to and collected receivables from its shareholder for various purposes.
Balances from these transactions are reflected in shareholder's deficit
accompanying balance sheets.
F-61
<PAGE> 156
DC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1997, the Company executed a $112,500 note payable to its principal
shareholder for distributions. The note bears interest at 6% annually, with
weekly installments of $1,500 until the full amount including interest is paid
in full. This loan was repaid in 1998.
On June 30, 1998, the Company repurchased 6% beneficial ownership interest
from an existing beneficial owner for $90,000. This transfer was made effective
January 1, 1998. The purchase price comprised $4,500 payable in cash plus the
Company's note payable in the amount of $85,500. The note bears interest at 10%
annually, payable in installments of $2,759 over 36 months.
Related party notes payable comprised the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------ -----------
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to shareholder........ $69,280 $ -- $ --
Note payable to beneficial owner... -- 62,029 48,293
Less -- current portion............ 69,280 28,171 29,609
------- ------- -------
Long-term portion.................. $ -- $33,858 $18,684
======= ======= =======
</TABLE>
Maturities of related party notes payable are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ --------
<S> <C> <C>
1999.......................................... $28,171 $14,435
2000.......................................... 31,122 31,122
2001.......................................... 2,736 2,736
------- -------
$62,029 $48,293
======= =======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases computer equipment, and such leases are classified as
capital leases and included in fixed assets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------ -----------
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment................. $26,757 $41,237 $41,237
Less accumulated amortization...... (743) (13,962) (20,835)
------- ------- -------
$26,014 $27,275 $20,402
======= ======= =======
</TABLE>
F-62
<PAGE> 157
DC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain other leases and the Company's obligation under its lease for
office space are treated as operating leases and the rentals are expensed as
incurred. Rent expense on these operating leases for the years ended December
31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 totaled
$124,400, $142,580, $72,207 and $83,329, respectively. Generally, the Company's
leases provide for renewals for various periods at stipulated rates.
Future minimum lease obligations in effect at December 31, 1998 and June
30, 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
-------------------- --------------------
CAPITAL OPERATING CAPITAL OPERATING
LEASES LEASES LEASES LEASES
-------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
1999....................... $ 15,466 $138,172 $ 15,466 $138,172
2000....................... 14,641 136,115 7,515 138,431
2001....................... 607 139,203 -- 139,203
2002....................... -- 92,802 -- 23,200
Thereafter................. -- -- -- --
-------- -------- -------- --------
Minimum lease payments..... 30,714 $506,292 22,981 $439,006
======== ========
Less amount representing
interest................. (2,968) (1,714)
Less current portion....... (13,288) (13,968)
-------- --------
Obligations under capital
leases................... $ 14,458 $ 7,299
======== ========
</TABLE>
From time to time, in the ordinary course of business, the Company is
subject to legal proceedings. While it is not possible to determine the ultimate
outcome of such matters, it is management's opinion that the resolution of any
pending issues will not have a materially adverse effect on the financial
position, results of operations and cash flows of the Company.
7. RETIREMENT PLAN
The Company has a 408(k) plan, as defined by the United States Internal
Revenue Code, which allows participants to contribute a percentage of their
compensation to the retirement plan on a pretax basis. The plan also allows for
discretionary employer contributions. Accrued employer contributions to the plan
amounted to $18,779, $28,956 and $11,063 for 1997, 1998 and the six months ended
June 30, 1999, respectively, and are reflected in general and administrative
expense.
F-63
<PAGE> 158
DC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. MAJOR CUSTOMERS
Because of the Company's size and the long-term nature of its software
licensing and development service contracts with its customers, a few customers
can comprise a significant percentage of its revenues. In 1997, the Company
earned revenue from approximately 14 customers, with one customer accounting for
45% of the Company's revenue and three other customers accounting for 9% each.
In 1998, the Company earned revenue from approximately 16 customers, with one
customer accounting for 34% of the Company's revenue and two other customers
accounting for 22% each. For the six months ended June 30, 1999, the Company
earned revenue from approximately 14 customers, with one customer accounting for
47%, one customer accounting for 19% and one customer accounting for 15% of the
Company's revenue.
9. COMMON STOCK AND BENEFICIAL OWNERSHIP INTERESTS
DCS was formed in 1989 by the Company's present Chairman and Chief
Executive Officer ("Chairman") who at the time of formation owned 100% of the
issued and outstanding common stock of the Company. The Company's Chairman
granted beneficial ownership interests totaling 28.8% in the Company through
employment and other agreements to three key officers in 1994 and 1995 that
vested in August 1996 (18.8%), March 1997 (5%) and June 1997 (5%). In addition,
the Company's Chairman granted additional beneficial ownership interests that
are forfeitable upon the employee's separation of employment with the Company to
three additional employees in 1997 totaling 6% and to five additional employees
on January 1, 1999 totaling 5%. These beneficial ownership interests have been
treated as full ownership interests as if the Company had issued additional
common stock representing their percentage interest for both book and tax
purposes.
For financial reporting purposes, the Company has recognized equity
participation compensation expense for the beneficial ownership interests earned
by employees of $139,505, $531,064 and $5,022,779 for 1997, 1998 and the six
months ended June 30, 1999, respectively, reflecting the fair market value of
the beneficial ownership interests conveyed.
As described in Note 5, one beneficial owner sold a portion of his interest
(6%) back to the Company effective January 1, 1998 for $90,000. Concurrently,
this ownership interest was redistributed to the other beneficial owners of the
Company.
In March 1996, the Company issued a warrant to a related company to
purchase a 5% interest in the outstanding shares of the Company. This warrant
remained outstanding at December 31, 1997, 1998 and June 30, 1999. On June 9,
1997, the Chairman and the DCS beneficial owners sold its interest in a related
company warrant for $150,000 and contributed the proceeds to DCS.
The Company has historically followed the policy of distributing all of its
taxable income to its beneficial owners in the year following the year of
taxable
F-64
<PAGE> 159
DC SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income. Distributions amounted to $165,500 in 1997, $28,078 in 1998 and $190,077
during the six months ended June 30, 1999. The 1997 distribution includes a
$112,500 note payable to the Company's Chairman. The distribution for the six
months ended June 30, 1999 includes forgiveness of $49,804 of advances
receivable from the Company's Chairman. An additional distribution was made in
August 1999 as a final adjustment to the distribution of 1998 taxable earnings.
This distribution totaled $27,398 and is not reflected in the accompanying
financial statements.
10. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information including interest paid
and noncash activities are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------ -----------------
1997 1998 1998 1999
-------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest paid................ $ 3,358 $22,967 $14,460 $ 4,072
Noncash investing activities:
Capital lease obligation... $ 26,757 $14,480 $14,480 $ --
Noncash financing activities:
Capital lease obligation... $ 26,757 $14,480 $14,480 $ --
Equity interest repurchased
with note payable....... $ -- $85,500 $85,500 $ --
Reissued equity interest... $ -- $90,000 $90,000 $ --
Related party advances
receivable from prior
period repaid through
distributions........... $ -- $ -- $ -- $49,804
Distribution financed with
note payable............ $112,500 $ -- $ -- $ --
</TABLE>
11. SALE OF EQUITY INTEREST
Effective July 31, 1999, the Company's shareholder and all beneficial
equity interest owners and the warrant holder sold all their equity interests in
the Company to Caminus LLC for $13 million and an obligation to pay the
shareholder and each beneficial equity interest owner of DCS 40% of the dividend
distribution each beneficial equity owner would have otherwise received had a
distribution of DCS' taxable income for the seven months ended July 31, 1999
occurred. Concurrently, the Company's S corporation status was terminated.
F-65
<PAGE> 160
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The following unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999 give effect to acquisitions by Caminus of Zai*Net Software,
L.P. ("Zai*Net") and Caminus Energy Limited ("CEL") on May 12, 1998, Positron
Energy Consulting ("Positron") on November 13, 1998 and DC Systems, Inc. ("DCS")
on July 31, 1999. The unaudited pro forma condensed consolidated statements of
operations assume the acquisitions had occurred on January 1, 1998, except for
Positron which is included in the pro forma results of operations from November
13, 1998. The unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1998 is based on the historical audited
consolidated statement of operations of Caminus for the period from Inception
(April 29, 1998) through December 31, 1998, which includes the results of
Zai*Net and CEL from May 12, 1998 and Positron from November 13, 1998 as well as
the historical audited statement of operations of Zai*Net for the period from
January 1, 1998 through April 30, 1998 and the unaudited statements of
operations of CEL for the period from January 1, 1998 through April 30, 1998.
The unaudited pro forma statement of operations for the year ended December 31,
1998 does not include the historical unaudited results of Positron from January
1, 1998 through November 12, 1998 as the amounts were not considered significant
in relation to the unaudited combined pro forma results of operations taken as a
whole. The unaudited pro forma statement of operations for the nine months ended
September 30, 1999 is based on the historical unaudited statement of operations
of Caminus as well as the statement of operations of DCS for the period from
January 1, 1999 through July 31, 1999. The unaudited pro forma condensed
consolidated financial statements reflect the purchase method of accounting and
the adjustments and assumptions described in the accompanying notes. There is no
requirement for any unaudited pro forma balance sheet since all the acquisitions
are reflected in the historical unaudited consolidated balance sheet of Caminus
at September 30, 1999.
The pro forma adjustments are based upon fair values of the acquired
companies at the time of their acquisition, as used in Caminus' purchase
accounting for these acquisitions. The unaudited pro forma condensed
consolidated statements of operations should be read in conjunction with the
respective audited and unaudited financial statements of the respective
companies appearing elsewhere in this Prospectus. The pro forma results are not
necessarily indicative of future results or the results that actually would have
occurred if the acquisitions had taken place on January 1, 1998.
F-66
<PAGE> 161
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ZAI*NET(b) CAMINUS DC PRO FORMA PRO FORMA
CAMINUS(a) (PREDECESSOR) ENERGY LTD(b) SYSTEMS, INC.(c) ADJUSTMENTS CAMINUS
------------ ------------- -------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Licenses...................... $ 3,639,143 $1,495,221 $ -- $ 320,650 $ -- $ 5,455,014
Software services............. 3,090,758 1,334,473 -- 521,968 -- 4,947,199
Strategic consulting.......... 2,896,102 -- 1,457,994 -- 4,354,096
------------ ---------- ---------- ---------- ----------- ------------
Total revenue............... 9,626,003 2,829,694 1,457,994 842,618 -- 14,756,309
------------ ---------- ---------- ---------- ----------- ------------
Gross profit.................... 4,940,985 2,095,452 795,336 295,210 -- 8,126,983
Operating expenses:
Research and development...... 1,153,470 580,031 -- 64,048 -- 1,797,549
Selling, general and
administrative.............. 3,601,116 1,079,391 431,429 579,191 -- 5,691,127
DCS equity participation
compensation................ -- -- -- 531,064 -- 531,064
Acquired in-process research
and development............. 4,822,000 -- -- -- (4,822,000) --
Amortization of intangibles... 5,497,765 -- -- -- 7,882,256 13,380,021
------------ ---------- ---------- ---------- ----------- ------------
Total operating expenses.... 15,074,351 1,659,422 431,429 1,174,303 (3,060,256) 21,399,761
------------ ---------- ---------- ---------- ----------- ------------
Operating income (loss)......... (10,133,366) 436,030 363,907 (879,093) (3,060,256) (13,272,778)
------------ ---------- ---------- ---------- ----------- ------------
Other income (expense), net..... 96,909 8,294 37,873 (22,967) -- 120,109
Provision for income taxes...... 35,735 23,816 107,464 -- -- 167,015
------------ ---------- ---------- ---------- ----------- ------------
Income (loss) before minority
interest...................... (10,072,192) 420,508 294,316 (902,060) (3,060,256) (13,319,684)
Minority interest............... (298,996) -- -- -- 298,996 --
Net income (loss)............... $(10,371,188) $ 420,508 $ 294,316 $ (902,060) $(2,761,260) $(13,319,684)
============ ========== ========== ========== =========== ============
Basic and diluted net loss per
share......................... $(1.41) -- -- -- -- $(1.76)
Weighted average common
shares -- basic and diluted... 7,360,634 -- -- -- -- 7,578,987
</TABLE>
- -------------------------
Periods included:
(a) Inception (April 29, 1998) through December 31, 1998
(b) Four months ended April 30, 1998
(c) Year ended December 31, 1998
See accompanying notes to the unaudited pro forma financial statements
F-67
<PAGE> 162
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
DC PRO FORMA PRO FORMA
CAMINUS(a) SYSTEMS, INC.(b) ADJUSTMENTS CAMINUS
----------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Licenses...................... $ 8,088,621 $ 41,000 $ -- $ 8,129,621
Software services............. 5,679,513 301,621 -- 5,981,134
Strategic consulting.......... 4,757,425 -- 4,757,425
----------- ----------- ----------- ------------
Total revenue.............. 18,525,559 342,621 -- 18,868,180
----------- ----------- ----------- ------------
Gross profit.................... 12,673,116 60,699 -- 12,733,815
Operating expenses:
Research and development...... 2,679,726 24,352 -- 2,704,078
Selling, general and
administrative............. 8,700,240 428,167 -- 9,128,407
DCS equity participation
compensation............... -- 5,022,779 -- 5,022,779
Acquired in-process research
and development............ 1,000,000 (1,000,000) --
Amortization of intangibles... 6,074,750 -- 1,647,765 7,722,515
----------- ----------- ----------- ------------
Total operating expenses... 18,454,716 5,475,298 647,765 24,577,779
Operating loss.................. (5,781,600) (5,414,599) (647,765) (11,843,964)
Other expense, net.............. (126,856) (3,477) -- (130,333)
Provision for income taxes...... 334,294 -- -- 334,294
----------- ----------- ----------- ------------
Net loss........................ $(6,242,750) $(5,418,076) $ (647,765) $(12,308,591)
=========== =========== =========== ============
Basic and diluted net loss per
share......................... $(0.76) -- -- $(1.46)
======== ========
Weighted average common
shares -- basic and diluted... 8,264,075 -- -- 8,405,529
</TABLE>
- -------------------------
Periods included:
(a) Nine months ended September 30, 1999
(b) Seven months ended July 31, 1999
See accompanying notes to the unaudited pro forma financial statements
F-68
<PAGE> 163
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
The following facts and assumptions in notes (a) through (d) were used in
determining the pro forma effect of the various acquisitions by Caminus.
a) On May 12, 1998, Caminus acquired a 71% ownership interest in Zai*Net
for $7,740,000 in cash. The terms of the purchase agreement required the payment
of additional consideration totaling $4,375,000 to the former shareholder of
Zai*Net if revenues from certain Zai*Net products were in excess of certain
thresholds defined in the purchase agreement. Payment of this additional
consideration was guaranteed in connection with the acquisition of the remaining
29% interest in Zai*Net by Caminus in December 1998 and was accordingly recorded
as additional purchase price.
On December 31, 1998, Caminus acquired the remaining 29% of Zai*Net for a
21% membership interest in Caminus valued at $10,339,350. Caminus converted all
the outstanding options of Zai*Net into options to acquire shares in Caminus.
The fair value of the converted options and the options granted to GFI in
connection with the formation of the Company and the identification of the
acquired entities was $2,669,534 and was recorded as additional purchase price.
Additionally, the Company incurred $602,969 in combined other direct acquisition
costs.
The acquisition of the 71% and 29% ownership interests in Zai*Net have been
accounted for as a purchase. A summary of the allocation of the combined
purchase price appears below:
<TABLE>
<S> <C>
Tangible net assets acquired..................... $ 899,191
Acquired in-process research and development..... 4,822,000
Developed technology............................. 2,596,000
Other intangible assets.......................... 2,023,000
Goodwill......................................... 15,386,662
-----------
$25,726,853
===========
</TABLE>
The useful lives for the acquired intangible assets range from three to
five years.
The pro forma adjustments for the year ended December 31, 1998 assume an
additional four and twelve months of amortization of intangible assets for the
May 12, 1998 and the December 31, 1998 acquisitions, respectively. This resulted
in additional amortization of $514,703 and $3,815,904 for the May 12, 1998 and
December 31, 1998 acquisitions, respectively. Additionally, the pro forma
adjustment column includes the elimination of the 29% minority interest of
Zai*Net in order to reflect the results of operations as if Caminus had
purchased 100% of Zainet on January 1, 1998. Also, the acquired in-process
research and development charges of $4,822,000 were eliminated via a pro forma
adjustment since this expense is one-time in nature and therefore is not
indicative of the future performance of Caminus.
F-69
<PAGE> 164
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
b) On May 12, 1998, Caminus acquired CEL for $3,022,924 in cash, plus a
membership interest in Caminus valued at $3,000,000. The acquisition of CEL has
been accounted for as a purchase. The excess of purchase price over the tangible
net assets acquired was $6,217,870. The excess purchase price has been recorded
as goodwill and is being amortized over three years.
The pro forma adjustments for the year ended December 31, 1998 assume an
additional four months of goodwill amortization. This resulted in an additional
amortization of $690,874.
c) On November 13, 1998, Caminus acquired Positron for $151,667 in cash.
The acquisition of Positron has been accounted for as a purchase with the excess
of purchase price over tangible net assets acquired being recorded as goodwill.
This resulted in goodwill and other intangible assets of $151,667 with a
four-year useful life.
The pro forma adjustments for the year ended December 31, 1998 assume
additional amortization of $36,032.
d) On July 31, 1999, Caminus acquired DC Systems, Inc for $10,000,000 in
cash, plus membership interests in Caminus valued at $3,000,000. There were
$500,000 of other direct acquisition costs. A summary of the allocation of the
purchase price appears below:
<TABLE>
<S> <C>
Tangible net assets acquired..................... $(1,570,706)
Acquired in-process research and development..... 1,000,000
Deferred tax assets.............................. 617,000
Developed technology............................. 1,800,000
Assembled work force............................. 330,000
Customer List.................................... 2,700,000
Goodwill......................................... 8,623,706
-----------
$13,500,000
===========
</TABLE>
The useful lives for the acquired intangible costs range from three to five
years.
The pro forma adjustments for the year ended December 31, 1998 and the nine
months ended September 30, 1999 assume an additional and twelve and seven months
of amortization of intangible assets, respectively. This resulted in additional
amortization of $2,824,741 and $1,647,765 for the year ended December 31, 1998
and the nine months ended September 30, 1999, respectively. Also, the acquired
in-process research and development charges of $1,000,000 were eliminated via a
pro forma adjustment since this expense is one-time in nature and therefore is
not indicative of the future performance of Caminus.
F-70
<PAGE> 165
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF THE SHARES
OF COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY THESE SHARES IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Special Note Regarding Forward-
Looking Statements................. 20
Caminus Corporation.................. 21
Use of Proceeds...................... 22
Dividend Policy...................... 23
Capitalization....................... 24
Dilution............................. 26
Selected Consolidated Financial
Data............................... 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 31
Business............................. 48
Management........................... 67
Certain Transactions................. 76
Principal and Selling Stockholders... 83
Description of Capital Stock......... 86
Shares Eligible for Future Sale...... 88
Underwriting......................... 90
Legal Matters........................ 92
Experts.............................. 92
Where You Can Find More
Information........................ 93
Index to Financial Statements........ F-1
</TABLE>
DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1999 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE IN THESE SHARES OF
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. DEALERS ARE ALSO OBLIGATED TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[CAMINUS LOGO]
4,345,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
BEAR, STEARNS & CO. INC.
CIBC WORLD MARKETS
PROSPECTUS
, 1999
<PAGE> 166
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 20,837
NASD filing fee............................................. 7,996
Nasdaq National Market listing fee.......................... 88,500
Blue Sky fees and expenses.................................. 10,000
Transfer Agent and Registrar fees........................... 10,000
Accounting fees and expenses................................ 275,000
Legal fees and expenses..................................... 350,000
Director and Officer Liability Insurance.................... 75,000
Printing and mailing expenses............................... 125,000
Miscellaneous............................................... 37,667
----------
Total.................................................. $1,000,000
==========
</TABLE>
- ---------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article SEVENTH of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be personally liable for any monetary
damages for any breach of fiduciary duty as a director, except to the extent
that the Delaware General Corporation Law prohibits the elimination or
limitation of liability of directors for breach of fiduciary duty.
Article EIGHTH of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant:
(a) shall be indemnified by the Registrant against all expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal
proceeding (other than an action by or in the right of the Registrant)
brought against him by virtue of his position as a director or officer of
the Registrant if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Registrant,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful and
(b) shall be indemnified by the Registrant against all expenses
(including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of the Registrant brought
against him by virtue of his position as a director or officer of the
Registrant if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best
II-1
<PAGE> 167
interests of the Registrant, except that no indemnification shall be made
with respect to any matter as to which such person shall have been adjudged
to be liable to the Registrant, unless a court determines that, despite
such adjudication but in view of all of the circumstances, he is entitled
to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
the Registrant against all expenses (including attorneys' fees) incurred in
connection therewith. Expenses shall be advanced to a director or officer at his
request, provided that he undertakes to repay the amount advanced if it is
ultimately determined that he is not entitled to indemnification for such
expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article EIGHTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
II-2
<PAGE> 168
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
CERTAIN SALES OF SECURITIES. Since the formation of its predecessor as a
limited liability company on April 29, 1998, the Registrant or its predecessor
has issued the following securities that were not registered under the
Securities Act, as summarized below.
(a) Issuances of membership interests/capital stock.
1. In May 1998, Caminus LLC issued an aggregate of 76,540,000 shares
of Series A membership interest to certain investors at an aggregate
purchase price of $22,750,000 ($3.12 per share of common stock on an
as-converted basis). 10,766,066 of such shares were issued in connection
with the Registrant's acquisition of Caminus Limited. In December 1998,
Caminus LLC repurchased 18,504,176 shares from SS&C Technologies. The
remaining 58,035,824 shares will convert into an aggregate of 5,527,216
shares of common stock of the Registrant prior to this offering. All of the
investors were accredited investors.
2. In July 1998, Caminus LLC issued an aggregate of 672,879 shares of
Series A membership interest (which will convert into 64,084 shares of
common stock of the Registrant prior to this offering) to an individual at
an aggregate purchase price of $200,000 ($3.12 per share of common stock on
an as-converted basis). Caminus LLC also issued the individual an option to
purchase 1,363,156 shares of Series B membership interest. The individual
investor was an accredited investor.
3. In October 1998, Caminus LLC issued an aggregate of 3,364,396
shares of Series A membership interest (which will convert into an
aggregate of 320,418 shares of common stock of the Registrant prior to this
offering) to an individual at an aggregate purchase price of $1,000,000
($3.12 per share of common stock on an as-converted basis). The individual
investor was an accredited investor.
4. In November 1998, Caminus LLC issued an aggregate of 603,607 shares
of Series A membership interest (which will convert into an aggregate of
57,486 shares of common stock of the Registrant prior to this offering) to
three individuals at an aggregate purchase price of $348,333 in connection
with its acquisition of Positron Energy Consulting. Such number of shares
of membership interest is subject to reduction on the first and second
anniversaries of the purchase of Positron by the Registrant, depending upon
performance criteria, including the successful integration of Positron's
software into the Registrant's operations. One of the individuals was an
accredited investor. The three individuals were responsible for the
operations of Positron and were each involved in the negotiation of the
acquisition and the due diligence review of the Company in connection with
the acquisition. Each person had sufficient access to information about the
Company necessary to make an informed investment decision.
5. In December 1998, Caminus LLC issued an aggregate of 21,579,728
shares of Series A membership interest (which will convert into an
aggregate of 2,055,210 shares of common stock of the Registrant prior to
this offering) at an aggregate purchase price of $10,339,350 to twelve
investors in connection
II-3
<PAGE> 169
with its acquisition of Zai*Net Software, L.P. Nine of these investors were
not accredited investors. In connection with this transaction, each of
these persons had sufficient access to information about the Company
necessary to make an informed decision.
6. In May 1999, Caminus LLC issued an aggregate of 616,287 shares of
Series A membership interest (which will convert into an aggregate of
58,694 shares of common stock of the Registrant prior to this offering) to
five individuals at an aggregate purchase price of $338,958 ($5.78 per
share of common stock on an as-converted basis). None of these investors
was an accredited investor. However, each of these persons was actively
involved in the operations of the Company and had a significant amount of
information regarding the Company, its business and its management. Each
person had access to management of the Company and was afforded sufficient
access to information about the Company necessary to make an informed
investment decision.
7. In July 1999, Caminus LLC issued an aggregate of 10,184,727 shares
of Series A membership interest (which will convert into an aggregate of
969,973 shares of common stock of the Registrant prior to this offering) to
fourteen individuals in connection with a rights offering at an aggregate
purchase price of $12,000,000 ($12.37 per share of common stock on an
as-converted basis). All but five of these investors were accredited. The
five non-accredited investors were all employees of the Company. Each of
these persons was actively involved in the operations of the Company and
had a significant amount of information regarding the Company, its business
and its management. Each person had access to management of the Company and
was afforded sufficient access to information about the Company necessary
to make an informed investment decision.
8. In August 1999, Caminus LLC issued an aggregate of 2,546,181 shares
of Series A membership interest (which will convert into an aggregate of
242,493 shares of common stock of the Registrant prior to this offering) at
an aggregate purchase price of $3,000,000 to twelve recipients in
connection with its acquisition of DC Systems, Inc. Ten of these persons
were not accredited investors. Each of these individuals was an employee of
DC Systems and was provided information about the Company, its business and
its management. Each person had sufficient access to information about the
Company necessary to make an informed investment decision.
(b) Stock option grants to employees.
1. From February 1999 through September 30, 1999, Caminus LLC issued
options under its 1998 Stock Option Plan to purchase an aggregate of
3,374,350 shares of Series B membership interest (which will convert into
options to purchase an aggregate of 321,366 shares of common stock of the
Registrant prior to this offering) at a weighted average exercise price of
$0.75 per share ($7.88 per share of common stock on an as-converted basis).
None of these options has been exercised. These option grants were made
under the Company's 1998 Stock Incentive Plan (the "Plan"). The Plan is a
written compensatory benefit plan and all optionees are officers or
employees who were employed by the Company at the time of the grant.
Additionally, the
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<PAGE> 170
aggregate number of options granted in any consecutive 12-month period did
not exceed 15% of the outstanding amount of the class of securities being
issued. Presently, the Company has issued a total of 9,725,715 options for
series A membership interests and the outstanding number of series A
membership interests is 97,603,629.
2. As of the closing of this offering, the Registrant will grant
options to purchase an aggregate of 28,572 shares of common stock, each at
an exercise price equal to the initial public offering price. None of these
options has been exercised.
(c) Issuances and grants of other securities.
1. In May 1998, Caminus LLC granted an option to an investor to
purchase that number of shares of Series C membership interest which equals
a 10% membership interest in the Registrant. On the grant date, such option
provided for the purchase of 10,000,000 shares of Series C membership
interest. Presently, the option provides for the purchase of 12,966,732
shares of Series C membership interest (which will convert into an option
to purchase 1,234,926 shares of common stock of the Registrant prior to
this offering) at an aggregate exercise price of $4,447,664. Such option
will be exercised on a cashless basis for a net total of 920,093 shares of
the Registrant's common stock. The investor is an accredited investor.
2. In May 1998, Caminus LLC granted options to purchase an aggregate
of 5,050,000 shares of Series B membership interest (which will convert
into options to purchase an aggregate of 480,952 shares of common stock of
the Registrant prior to this offering) at an aggregate exercise price of
$1,500,000 ($3.12 per share of common stock on an as-converted basis) to
certain individuals in connection with its acquisition of Caminus Limited.
Such options will be exercised on a cashless basis for a net total of
360,917 shares of the Registrant's common stock. These individuals are each
an accredited investor.
3. In December 1998, Caminus LLC granted an option to an investor to
purchase 2,909,047 shares of Series B membership interest (which will
convert into an option to purchase 277,052 shares of common stock of the
Registrant prior to this offering) at an aggregate exercise price of
$1,800,000 ($6.50 per share of common stock on an as-converted basis). The
investor is an accredited investor.
No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of the options to purchase common stock
described in paragraph (b) above, Rule 701 of the Securities Act. All of the
foregoing securities are deemed restricted securities for the purposes of the
Securities Act.
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<PAGE> 171
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1** Form of Underwriting Agreement.
2.1**+ Form of Merger Agreement among the Registrant, Caminus LLC
and Caminus Merger LLC to be filed and become effective
prior to the effective date of this offering.
2.2*+ Purchase Agreement by and among Zai*Net Software, Inc.,
Zai*Net Software, L.P., GFI Caminus LLC and Brian J.
Scanlan, dated May 12, 1998.
2.3*+ Stock Purchase Agreement by and among GFI Caminus LLC,
Caminus Energy Limited, Dr. Nigel L. Evans, Ph.D. and Dr.
Michael B. Morrison, Ph. D., dated May 12, 1998.
2.4*+ Purchase Agreement by and between Zai*Net Software, L.P. and
Corwin Joy, an individual, doing business as Positron Energy
Consulting, dated November 13, 1998.
2.5*+ Agreement of Merger by and between Caminus LLC and Zai*Net
Software, L.P., dated February 26, 1999.
2.6*+ Purchase Agreement by and among DC Systems, Inc., Caminus
LLC, Caminus/DC Acquisition Corp., and the Shareholders (as
defined in the agreement) dated July 31, 1999.
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
4* Specimen certificate for shares of Common Stock, $0.01 par
value per share, of the Registrant.
5** Opinion of Hale and Dorr LLP.
10.1* 1998 Stock Incentive Plan.
10.2* 1999 Stock Incentive Plan, including forms of stock option
agreement for incentive and nonstatutory stock options.
10.3* 1999 Employee Stock Purchase Plan.
10.4* Limited Liability Company Agreement of GFI Caminus LLC,
dated May 12, 1998.
10.5* Assignment and Assumption Agreement by and among Zai*Net
Software, Inc., Zai*Net Software, L.P. and Brian J. Scanlan,
dated May 12, 1998.
10.6* Second Assignment and Assumption Agreement by and between
Zai*Net Software, Inc. and Rooney Software, L.L.C.
10.7* Conversion Agreement and Amendment of Purchase Agreement by
and among Caminus Energy Ventures LLC, Zak Associates, Inc.,
Zai*Net Software, L.P., Brian Scanlan and Rooney Software,
L.L.C., dated December 31, 1998.
10.8* Cooperation Agreement by and between ABB Energy Information
Systems and Caminus LLC, dated July 13, 1999.
10.9* Credit Agreement by and between Caminus LLC and Fleet Bank,
N.A., dated June 23, 1999.
10.10* Security Agreement by and between Caminus LLC and Fleet
Bank, N.A., dated June 23, 1999.
10.11* Debenture issued by Caminus Energy Limited to Fleet Bank,
N.A., dated June 23, 1999.
</TABLE>
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<PAGE> 172
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.12* Debenture issued by Caminus Limited to Fleet Bank, N.A.,
dated June 23, 1999.
10.13* Debenture issued by Zai*Net Software Limited to Fleet Bank,
N.A., dated June 23, 1999.
10.14* Guarantee by Caminus Energy Limited in favor of Fleet Bank,
N.A., dated June 23, 1999.
10.15* Guarantee by Caminus Limited in favor of Fleet Bank, N.A.,
dated June 23, 1999.
10.16* Guarantee by Zai*Net Software Limited in favor of Fleet
Bank, N.A., dated June 23, 1999.
10.17* Mortgage of Stock and Shares by Caminus Limited in favor of
Fleet Bank, N.A., dated June 23, 1999.
10.18* Mortgage of Stock and Shares by Caminus LLC in favor of
Fleet Bank, N.A., dated June 23, 1999.
10.19* Employment Agreement by and between David M. Stoner and
Caminus Energy Ventures LLC, dated May 12, 1998.
10.20* Pledge and Security Agreement by and between David M. Stoner
and Caminus Energy Ventures LLC, dated October 21, 1998.
10.21* Service Agreement by and between Dr. Nigel L. Evans and
Caminus Energy Limited, dated May 12, 1998.
10.22* Covenant Not to Compete by and among Dr. Nigel L. Evans, Dr.
Michael B. Morrison and Caminus Energy Limited, dated May
12, 1998.
10.23* Employment Agreement by and between Brian J. Scanlan and
Zai*Net Software, L.P., dated May 12, 1998.
10.24* Covenant Not to Compete by and between Brian J. Scanlan and
Zai*Net Software, L.P., dated May 12, 1998.
10.25* Employment Agreement by and between Simon Young and Zai*Net
Software, L.P., dated May 12, 1998.
10.26* Covenant Not to Compete by and between Simon Young and
Zai*Net Software, L.P., dated May 12, 1998.
10.27* Distributor Agreement by and between SS&C Technologies, Inc.
and GFI Caminus LLC, dated May 12, 1998.
10.28** Agreement by and between Caminus LLC and GFI Energy
Ventures.
10.29* Lease Agreement by and between Sage Realty Corporation and
Zai*Tech Software, Inc., as amended, dated February 15, 1991
(including Amendment Nos. 1, 2 and 3, reflecting the name
changes to Zai*Net Software, Inc. Zai*Net Software, L.P. and
Caminus LLC, respectively).
10.30* Service Agreement by and between Dr. Michael B. Morrison and
Caminus Energy Limited, dated May 12, 1998.
10.31*** Purchase and Option Agreement, as amended, by and between
Caminus Energy Ventures LLC and SS&C Technologies, Inc.,
dated December 31, 1998.
10.32* Revolving Promissory Note issued by Caminus LLC to Fleet
Bank, N.A., dated June 23, 1999.
10.33* Working Capital Promissory Note issued by Caminus LLC to
Fleet Bank, N.A., dated June 23, 1999.
</TABLE>
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<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.34* Mortgage of Stocks and Shares, by Caminus Limited in favor
of Fleet Bank, N.A., dated June 23, 1999.
10.35* Mortgage of Stocks and Shares, by Caminus LLC in favor of
Fleet Bank, N.A., dated June 23, 1999.
10.36** Amendment to Limited Liability Company Agreement.
10.37* Form of Escrow Agreement by and among Caminus Corporation,
Caminus/DC Acquisition Corp., Escrow Agent and Buyer
Parties, as defined in the agreement, to be filed prior to
the effective date of this offering.
10.38 Amendment No. 1 to Employment Agreement between Brian
Scanlan and Caminus LLC, dated November 8, 1999.
10.39** Amendment No. 1 to Employment Agreement between Dr. Nigel
Evans and Caminus LLC.
10.40 Amendment No. 1 to Employment Agreement between Simon Young
and Caminus LLC, dated November 8, 1999.
10.41 Amendment No. 1 to Employment Agreement between Dr. Michael
Morrison and Caminus LLC, dated November 8, 1999.
10.42 Pledge Agreement between Caminus LLC and Fleet Bank, N.A.,
dated September 1, 1999.
10.43 Pledge Agreement between DC Systems, Inc. and Fleet Bank,
N.A., dated August 30, 1999.
10.44 Pledge Agreement between Caminus/DC Acquisition Corp. and
Fleet Bank, N.A., dated August 30, 1999.
10.45 Security Agreement between DC Systems, Inc. and Fleet Bank,
N.A., dated September 1, 1999.
10.46 Security Agreement between Caminus/DC Acquisition Corp. and
Fleet Bank, N.A., dated September 1, 1999.
10.47 Security Agreement between DCS*Gasnet Corporation and Fleet
Bank, N.A., dated September 1, 1999.
10.48 Guarantee made by DC Systems, Inc. in favor of Fleet Bank,
N.A., dated September 1, 1999.
10.49 Guarantee made by Caminus/DC Acquisition Corp. in favor of
Fleet Bank, N.A., dated September 1, 1999.
10.50 Guarantee made by DCS*Gasnet Corp. in favor of Fleet Bank,
N.A., dated September 1, 1999.
21.1* Subsidiaries of the Registrant.
23.1** Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Peters, Elworthy & Moore.
23.4 Consent of PricewaterhouseCoopers LLP.
24* Power of Attorney.
27*** Financial Data Schedule.
</TABLE>
- -------------------------
* Previously filed.
** To be filed by amendment.
*** Superseding filing.
II-8
<PAGE> 174
+ The Registrant hereby agrees to furnish supplementally a copy of any omitted
schedules to this agreement to the Securities and Exchange Commission upon
its request.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's consolidated
financial statements or notes to those statements.
ITEM 17. UNDERTAKINGS
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 provisions contained in the Certificate of
Incorporation of the Registrant and the laws of the State of Delaware, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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 this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-9
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in New
York, New York, on this 15th day of December, 1999.
CAMINUS CORPORATION
By: /s/ DAVID M. STONER
------------------------------------
David M. Stoner
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, 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 M. STONER President and Chief December 15, 1999
- --------------------------------------------------- Executive Officer
David M. Stoner (Principal Executive
Officer) and Director
* Vice President, Chief December 15, 1999
- --------------------------------------------------- Financial Officer and
Mark A. Herman Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
* Chairman of the Board of December 15, 1999
- --------------------------------------------------- Directors
Lawrence D. Gilson
* Director December 15, 1999
- ---------------------------------------------------
Nigel L. Evans
* Director December 15, 1999
- ---------------------------------------------------
Brian J. Scanlan
* Director December 15, 1999
- ---------------------------------------------------
Christopher S. Brothers
* Director December 15, 1999
- ---------------------------------------------------
Anthony H. Bloom
* Director December 15, 1999
- ---------------------------------------------------
Richard K. Landers
</TABLE>
*By: /s/ DAVID M. STONER
------------------------------
David M. Stoner
Attorney-in-Fact
II-10
<PAGE> 176
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1** Form of Underwriting Agreement.
2.1**+ Form of Merger Agreement among the Registrant, Caminus LLC
and Caminus Merger LLC to be filed and become effective
prior to the effective date of this offering.
2.2*+ Purchase Agreement by and among Zai*Net Software, Inc.,
Zai*Net Software, L.P., GFI Caminus LLC and Brian J.
Scanlan, dated May 12, 1998.
2.3*+ Stock Purchase Agreement by and among GFI Caminus LLC,
Caminus Energy Limited, Dr. Nigel L. Evans, Ph.D. and Dr.
Michael B. Morrison, Ph. D., dated May 12, 1998.
2.4*+ Purchase Agreement by and between Zai*Net Software, L.P. and
Corwin Joy, an individual, doing business as Positron Energy
Consulting, dated November 13, 1998.
2.5*+ Agreement of Merger by and between Caminus LLC and Zai*Net
Software, L.P., dated February 26, 1999.
2.6*+ Purchase Agreement by and among DC Systems, Inc., Caminus
LLC, Caminus/DC Acquisition Corp., and the Shareholders (as
defined in the agreement) dated July 31, 1999.
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
4* Specimen certificate for shares of Common Stock, $0.01 par
value per share, of the Registrant.
5** Opinion of Hale and Dorr LLP.
10.1* 1998 Stock Incentive Plan.
10.2* 1999 Stock Incentive Plan, including forms of stock option
agreement for incentive and nonstatutory stock options.
10.3* 1999 Employee Stock Purchase Plan.
10.4* Limited Liability Company Agreement of GFI Caminus LLC,
dated May 12, 1998.
10.5* Assignment and Assumption Agreement by and among Zai*Net
Software, Inc., Zai*Net Software, L.P. and Brian J. Scanlan,
dated May 12, 1998.
10.6* Second Assignment and Assumption Agreement by and between
Zai*Net Software, Inc. and Rooney Software, L.L.C.
10.7* Conversion Agreement and Amendment of Purchase Agreement by
and among Caminus Energy Ventures LLC, Zak Associates, Inc.,
Zai*Net Software, L.P., Brian Scanlan and Rooney Software,
L.L.C., dated December 31, 1998.
10.8* Cooperation Agreement by and between ABB Energy Information
Systems and Caminus LLC, dated July 13, 1999.
10.9* Credit Agreement by and between Caminus LLC and Fleet Bank,
N.A., dated June 23, 1999.
10.10* Security Agreement by and between Caminus LLC and Fleet
Bank, N.A., dated June 23, 1999.
10.11* Debenture issued by Caminus Energy Limited to Fleet Bank,
N.A., dated June 23, 1999.
10.12* Debenture issued by Caminus Limited to Fleet Bank, N.A.,
dated June 23, 1999.
10.13* Debenture issued by Zai*Net Software Limited to Fleet Bank,
N.A., dated June 23, 1999.
10.14* Guarantee by Caminus Energy Limited in favor of Fleet Bank,
N.A., dated June 23, 1999.
10.15* Guarantee by Caminus Limited in favor of Fleet Bank, N.A.,
dated June 23, 1999.
</TABLE>
II-11
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.16* Guarantee by Zai*Net Software Limited in favor of Fleet
Bank, N.A., dated June 23, 1999.
10.17* Mortgage of Stock and Shares by Caminus Limited in favor of
Fleet Bank, N.A., dated June 23, 1999.
10.18* Mortgage of Stock and Shares by Caminus LLC in favor of
Fleet Bank, N.A., dated June 23, 1999.
10.19* Employment Agreement by and between David M. Stoner and
Caminus Energy Ventures LLC, dated May 12, 1998.
10.20* Pledge and Security Agreement by and between David M. Stoner
and Caminus Energy Ventures LLC, dated October 21, 1998.
10.21* Service Agreement by and between Dr. Nigel L. Evans and
Caminus Energy Limited, dated May 12, 1998.
10.22* Covenant Not to Compete by and among Dr. Nigel L. Evans, Dr.
Michael B. Morrison and Caminus Energy Limited, dated May
12, 1998.
10.23* Employment Agreement by and between Brian J. Scanlan and
Zai*Net Software, L.P., dated May 12, 1998.
10.24* Covenant Not to Compete by and between Brian J. Scanlan and
Zai*Net Software, L.P., dated May 12, 1998.
10.25* Employment Agreement by and between Simon Young and Zai*Net
Software, L.P., dated May 12, 1998.
10.26* Covenant Not to Compete by and between Simon Young and
Zai*Net Software, L.P., dated May 12, 1998.
10.27* Distributor Agreement by and between SS&C Technologies, Inc.
and GFI Caminus LLC, dated May 12, 1998.
10.28** Agreement by and between Caminus LLC and GFI Energy
Ventures.
10.29* Lease Agreement by and between Sage Realty Corporation and
Zai*Tech Software, Inc., as amended, dated February 15, 1991
(including Amendment Nos. 1, 2 and 3, reflecting the name
changes to Zai*Net Software, Inc. Zai*Net Software, L.P. and
Caminus LLC, respectively).
10.30* Service Agreement by and between Dr. Michael B. Morrison and
Caminus Energy Limited, dated May 12, 1998.
10.31*** Purchase and Option Agreement, as amended, by and between
Caminus Energy Ventures LLC and SS&C Technologies, Inc.,
dated December 31, 1998.
10.32* Revolving Promissory Note issued by Caminus LLC to Fleet
Bank, N.A., dated June 23, 1999.
10.33* Working Capital Promissory Note issued by Caminus LLC to
Fleet Bank, N.A., dated June 23, 1999.
10.34* Mortgage of Stocks and Shares, by Caminus Limited in favor
of Fleet Bank, N.A., dated June 23, 1999.
10.35* Mortgage of Stocks and Shares, by Caminus LLC in favor of
Fleet Bank, N.A., dated June 23, 1999.
10.36** Amendment to Limited Liability Company Agreement.
10.37* Form of Escrow Agreement by and among Caminus Corporation,
Caminus/DC Acquisition Corp., Escrow Agent and Buyer
Parties, as defined in the agreement, to be filed prior to
the effective date of this offering.
10.38 Amendment No. 1 to Employment Agreement between Brian
Scanlan and Caminus LLC, dated November 8, 1999.
10.39** Amendment No. 1 to Employment Agreement between Dr. Nigel
Evans and Caminus LLC.
</TABLE>
II-12
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.40 Amendment No. 1 to Employment Agreement between Simon Young
and Caminus LLC, dated November 8, 1999.
10.41 Amendment No. 1 to Employment Agreement between Dr. Michael
Morrison and Caminus LLC, dated November 8, 1999.
10.42 Pledge Agreement between Caminus LLC and Fleet Bank, N.A.,
dated September 1, 1999.
10.43 Pledge Agreement between DC Systems, Inc. and Fleet Bank,
N.A., dated August 30, 1999.
10.44 Pledge Agreement between Caminus/DC Acquisition Corp. and
Fleet Bank, N.A., dated August 30, 1999.
10.45 Security Agreement between DC Systems, Inc. and Fleet Bank,
N.A., dated September 1, 1999.
10.46 Security Agreement between Caminus/DC Acquisition Corp. and
Fleet Bank, N.A., dated September 1, 1999.
10.47 Security Agreement between DCS*Gasnet Corporation and Fleet
Bank, N.A., dated September 1, 1999.
10.48 Guarantee made by DC Systems, Inc. in favor of Fleet Bank,
N.A., dated September 1, 1999.
10.49 Guarantee made by Caminus/DC Acquisition Corp. in favor of
Fleet Bank, N.A., dated September 1, 1999.
10.50 Guarantee made by DCS*Gasnet Corp. in favor of Fleet Bank,
N.A., dated September 1, 1999.
21.1* Subsidiaries of the Registrant.
23.1** Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Peters, Elworthy & Moore.
23.4 Consent of PricewaterhouseCoopers LLP.
24* Power of Attorney.
27*** Financial Data Schedule.
</TABLE>
- -------------------------
* Previously filed.
** To be filed by amendment.
*** Superseding filing.
+ The Registrant hereby agrees to furnish supplementally a copy of any omitted
schedules to this agreement to the Securities and Exchange Commission upon
its request.
II-13
<PAGE> 1
Exhibit 10.31
PURCHASE AND OPTION AGREEMENT
PURCHASE AND OPTION AGREEMENT (the "Agreement"), dated as of December
31, 1998 by and between Caminus Energy Ventures LLC, a Delaware limited
liability company (the "Company"), and SS&C Technologies, Inc., a Delaware
corporation ("SS&C"). Capitalized terms used herein and not otherwise defined
shall have their respective meanings given in the LLC Agreement (as defined
below).
R E C I T A L S
WHEREAS, SS&C is a Series A Capital Member of the Company and holds the
SS&C Warrant to purchase a Series B Membership Interest in the Company
(collectively, such interest of SS&C in the Company are referred to as the "SS&C
Interests") pursuant to a Subscription Agreement with the Company dated as of
May 12, 1998 (the "Subscription Agreement") and the Limited Liability Company
Agreement of the Company dated as of May 12, 1998 (including the appendices
thereto, and as amended and supplemented to the date hereof, the "LLC
Agreement");
WHEREAS, pursuant to the LLC Agreement, the Company and SS&C are parties
to the License Agreement;
WHEREAS, the parties desire to have the Company repurchase the SS&C
Interests from SS&C;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Repurchase of SS&C Interests. SS&C hereby sells to the Company, and
the Company hereby purchases from SS&C, all of the SS&C Interests, free and
clear of any and all liens, claims and encumbrances whatsoever created by or
through SS&C, in consideration of the payment of TWO MILLION TWO HUNDRED FIFTY
THOUSAND DOLLARS ($2,250,000.00), which amount shall be paid by the Company in
cash by wire transfer to an account identified by SS&C for this purpose not
later than January 31, 1999. Payment of the debt created by this Agreement shall
be made not later than that date, and to the extent such amount is not paid on
or before that date, the unpaid balance shall accrue interest until paid at the
rate of ten percent (10%) per annum. As a result of such purchase, SS&C hereby
ceases to have any interest in the capital, profits or losses of or in the
Company (including, without limitation, pursuant to the SS&C Warrant), and the
SS&C Interest are hereby extinguished without any further obligation or
liability of the parties to one another, effective as of December 31, 1998.
Without limiting the generality of the foregoing, SS&C hereby ceases to have any
liability or obligation for the additional cash call referred to in Section
4.1.2 of the LLC Agreement and hereby ceases to have the right to designate a
member of the Management Committee of the Company pursuant to Section 6.2.1 of
the LLC Agreement.
<PAGE> 2
2. New License Agreement. The parties acknowledge that the existing
Distributor Agreement dated as of May 12, 1998 relating to the license to the
Company of certain products of SS&C is being terminated pursuant to the terms of
a new, separate Distributor Agreement dated as of even date herewith providing
for the license of certain products of SS&C to the Company.
3. Grant of Option.
(a) Subject to the terms of this Section 3, the Company hereby
grants to SS&C the right and option (the "Option") to purchase the number of
notional shares of the Series B Membership Interest in the Company reflected
opposite its name under the column "Series B Shares" on Exhibit "A" attached
hereto; immediately after giving effect to the repurchase of the SS&C Interests
and the grant of the Option, the ownership of the Company, expressed on a
notional share basis, shall be as set forth on Exhibit "A" hereto. The interest
represented by the Option shall be subject to dilution as a result of the
issuance of additional Membership Interests in the Company after the date hereof
(including, without limitation, pursuant to the exercise of options and other
rights hereafter granted pursuant to any Option Plan). Further, but without
limiting the generality of the foregoing, such interest shall be subject to
dilution as a result of the issuance of a Membership Interest in connection with
the purchase by the Company of the minority interest in the Company's ZAI*NET
Software, L.P. subsidiary.
(b) The Option is fully vested and fully exercisable as of the
date hereof (provided, that at the time of any proposed exercise, SS&C shall be
in full compliance with the New License Agreement). To exercise the Option
(which may be exercised only in full, and not in part), SS&C shall give written
notice ("Exercise Notice") to the Company to that effect not later than December
31, 2003 ("Expiration Date"); if the Option is not properly exercised on or
before the Expiration Date, it shall be null and void and of no further value.
The Exercise Notice shall be accompanied by the cash payment of the exercise
price of the Option, which is TWO MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
($2,250,000.00). In connection with exercise, the Company shall be entitled to
require that SS&C pay the amount of withholding and other taxes, if any,
required by law to be paid or withheld by the Company in connection therewith.
Further, it shall be a condition to the exercise of the Option that SS&C execute
a counterpart to the LLC Agreement (as it may have been amended or supplemented
through the date of exercise) and agree to be bound by all of the provisions
thereof. No interest in the Option may be transferred or assigned in any form of
transaction without the prior written consent of the Company; provided, that the
Company's consent shall not be required for a transfer in connection with the
sale of all or substantially all of the assets or business of SS&C as an
entirety (whether by merger, stock sale, sale of assets or otherwise), provided
further that the buyer in such transaction is not in any material respect a
competitor of the Company and such buyer expressly agrees in writing to be bound
by all of the restrictive provisions of this Agreement and the LLC Agreement
with respect to the Option and the Membership Interest issuable upon exercise
thereof. In connection with any Sale or Qualified Public Offering, the Company
may require SS&C, by written notice to such effect give at least ten (10) days
prior to the anticipated closing of such transaction, to either exercise or
forfeit the Option, simultaneously with and contingent upon such closing.
2
<PAGE> 3
4. Representations and Warrants of SS&C. SS&C hereby represents and
warrants to the Company as follows:
(a) SS&C is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, having full power and
authority to own its properties and to carry on its business as conducted.
(b) SS&C has the requisite corporate power and authority to
deliver this Agreement and the new License Agreement, and perform its
obligations herein and therein, and consummate the transactions contemplated
hereby and thereby. SS&C has duly executed and delivered this Agreement and the
New License Agreement and has obtained the necessary authorization to execute
and deliver this Agreement and the New License Agreement and to perform its
obligations herein and therein and consummate the transactions contemplated
hereby and thereby. Each of this Agreement and the New License Agreement is
valid, legal and binding obligation of SS&C enforceable against SS&C in
accordance with their respective terms, except to the extent that enforceability
may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally and subject to general principles
of equity (regard less of whether such enforcement is considered in a proceeding
at law or in equity).
(c) SS&C understand that the Option and the notional shares of
the Series B Membership Interest issuable upon exercise thereof have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance on an exemption therefrom for transactions not involving any public
offering, that such securities have not been approved or disapproved by the
Securities and Exchange Commission or by any other federal or state agency, and
that no such agency has passed on the accuracy or adequacy of disclosures made
to SS&C by the Company. SS&C has had an opportunity to ask questions of and
receive answers from the Company, or a person or persons acting on its behalf,
concerning the terms and condition pertaining to the Option, which questions
have been answered to the full satisfaction of SS&C, and has also had an
opportunity to obtain any additional information that the Company possesses or
can reasonably acquire without undue expense that is necessary to verify the
accuracy of the information furnished to SS&C. SS&C further understands that
neither the Option nor the notional shares of the Series B Membership Interest,
nor any interest therein, may be sold or transferred except pursuant to a
registration or an available exemption from registration under the Securities
Act. Finally, SS&C acknowledges that the purchase price for the SS&C Interest
specified in this Agreement is the result of arms' length negotiations involving
a number of factors, including the termination of the existing License Agreement
and the execution of the New License Agreement, and that such purchase price may
not alone reflect a valuation of the Company that is consistent with other
transactions occurring at the same or approximately the same time as the
transactions contemplated by this Agreement. In particular, but without limiting
the generality of the foregoing, SS&C acknowledges that it has been fully
apprised of the Company's discussions with the holder of the minority interest
in the Company's ZAI*NET Software, L.P. subsidiary for the possible exchange of
notional shares of the Series A Membership Interest in the Company for such
minority interest.
3
<PAGE> 4
(d) The SS&C Interests are (immediately prior to giving effect
to the repurchase thereof contemplated by this Agreement) owned, beneficially
and of record, solely and wholly by SS&C, and it has not granted any interest
therein to any other person or entity, and such SS&C Interests are held by SS&C
free and clear of any and all liens, claims and encumbrances whatsoever (other
than any such claims arising under the LLC Agreement); and the sale of the SS&C
Interests by SS&C to the Company contemplated hereby will convey to the Company
all right, title and interest therein.
5. Representations and Warrants of the Company. The Company hereby
represents and warrants to SS&C as follows:
(a) The Company is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware,
having full power and authority to own its properties and to carry on its
business as conducted.
(b) The Company has the requisite power and authority to deliver
this Agreement and the New License Agreement, and perform its obligations herein
and therein; and consummate the transactions contemplated hereby and thereby.
The Company has duly executed and delivered this Agreement and the New License
Agreement and has obtained the necessary authorization to execute and deliver
this Agreement and the New License Agreement and to perform its obligations
herein and therein and consummate the transactions contemplated hereby and
thereby. Each of this Agreement and the New License Agreement is a valid, legal
and binding obligation of the Company enforceable against the Company in
accordance with their respective terms, except to the extent that enforceability
may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally and subject to general principles
of equity (regardless of whether such enforcement is considered in a proceeding
at law or in equity).
(c) The notional shares of Series A Membership Interest issuable
upon exercise of the Option, when issued and delivered in accordance with the
terms of this Agreement, will be duly authorized, validly issued, fully paid and
non-assessable.
6. General.
(a) In the event of any litigation or other legal proceeding
involving the interpretation of this Agreement or enforcement of the rights or
obligations of the parties hereto, the prevailing party shall be entitled to
recover reasonable attorney's fees and costs as determined by the court or other
adjudicator.
(b) Each party agrees to execute and deliver any and all further
documents and writings, and to perform such other actions, as may be or become
reasonably necessary or expedient to effect and carry out the terms of this
Agreement.
(c) This Agreement is governed by and shall be construed in
accordance with the laws of the laws of the State of New York, excluding any
conflict-of-laws rule or principle that might refer the governance or
construction of the Agreement to the law of another
4
<PAGE> 5
jurisdiction. If any provision of this Agreement or the application thereof to
any person or circumstance is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of that provision to other
persons or circumstances is not affected thereby, and that provision shall be
enforced to the greatest extent permitted by law.
(d) Except as otherwise expressly provided herein, this
Agreement shall be binding upon and shall inure to the benefit of the parties'
respective successors and assigns.
(e) This Agreement may be executed in counterparts, each of
which shall be deemed an original and both of which shall constitute one and the
same document.
(f) All notices and other communications provided for or
permitted to be given under this Agreement shall be in writing and shall be
given by depositing the notice in the United States mail, addressed to the
person to be notified, postage prepaid, and registered or certified with return
receipt requested, or by such notice being delivered in person or by facsimile
communication to such party. Notices given or served pursuant hereto shall be
effective upon receipt by the person so notified. All notices shall be sent to
or made at, and all payments hereunder shall be made at, the address or number
given below for the parties (or such other address or number as that person may
specify by notice to the other party in the manner specified in this paragraph):
If to the Company:
c/o GFI Energy Ventures LLC
12121 Wilshire Boulevard, Suite 1375
Los Angeles, California 90025
Attention: President
Fax: (310) 442-0540
If to SS&C:
80 Lamberton Road
Windsor, Connecticut 06095
Attention: President
Fax: (860) 298-4969
(g) This Agreement (together with the other agreements and
instruments referred herein) constitutes the entire agreement of the parties
with respect to the subject matter hereof, and supersedes all prior or
contemporaneous oral and written communications with respect thereto. Any
modification to this Agreement must be in writing, and no modification or waiver
shall be inferred in the absence of a written instrument signed by the party to
be charged.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first set forth above.
CAMINUS ENERGY VENTURES LLC
By: /s/ Ian Schapiro
-----------------------
Name: I. Schapiro
Its: Treasurer
SS&C TECHNOLOGIES, INC.
By: /s/ William C. Stone
-----------------------
Name: William C. Stone
Its: CEO
6
<PAGE> 7
Exhibit "A"
<TABLE>
<CAPTION>
Notional Ownership
Post-SS&C Transaction
Series A Series A Series B Series B Series C Series C Total Total
"Shares" Percentage "Shares" Percentage "Shares" Percentage Shares Percentage
-------- ---------- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GFI Energy Ventures 1,682,198 2.08% 8,080,686 10.00% 9,762,884 12.08%
OCM Caminus Investment 37,176,571 46.01% 37,176,571 46.01%
RIT Capital Partners PLC 6,728,791 8.33% 6,728,791 8.33%
Durham Cam Inc. 1,682,198 2.08% 1,682,198 2.08%
Nigel Evans 6,055,912 7.49% 3,030,000 3.75% 9,085,912 11.24%
Michael Morrison 4,037,275 5.00% 2,020,000 2.50% 6,057,275 7.50%
SS&C Technologies, Inc. 3,636,309 4.50% 3,636,309 4.50%
Serena Hesmondhalgh 672,879 0.83% 672,879 0.83%
Nick Perry 672,879 0.83% 1,363,156 1.69% 2,036,035 2.52%
Dave Stoner 3,364,396 4.16% 3,364,396 4.16%
Corwin Joy 525,629 0.65% 525,629 0.65%
Paul LaMar 60,650 0.07% 60,650 0.07%
Arthur Langham 17,328 0.02% 17,328 0.02%
---------- ----- ---------- ----- --------- ----- ---------- ------
Total 62,676,706 77.55% 10,049,465 12.44% 8,080,686 10.00% 80,806,857 100.00%
</TABLE>
<PAGE> 8
CAMINUS LLC
747 Third Avenue
New York, NY 10017
Ph: 212 888 3600
Fax: 212 888 0691
www.caminus.com
March 30, 1999
SS&C Technologies, Incorporated
80 Lamberton Road
Windsor, Connecticut 06095
Re: Purchase and Option Agreement
Gentlemen:
This letter amends the Purchase and Option Agreement between us dated as
of December 31, 1998 (the "OPTION AGREEMENT"). Specifically, this confirms that
we have agreed to the following matters relating to the terms of the Option (as
defined in the Option Agreement) specified in Section 3 of the Option Agreement:
1. The number of notional shares of Series B Membership Interest in
the Company subject to the Option is hereby reduced from
3,636,309 to 2,909,047, or a reduction of 20% from the original
position.
2. The cash payment required to exercise the Option is hereby
reduced (proportionately with the reduction in the notional
shares subject to the Option) from $2,250,000 to $1,800,000.
3. In consideration of your agreement to reduce the size of the
Option position, Caminus LLC agrees to make a cash payment to
you of $250,000, which shall be due and payable on December 31,
1999.
Except as expressly set forth in this letter agreement, the terms and
conditions of the Option and the balance of the Option Agreement shall remain in
full force and effect.
<PAGE> 9
If this letter correctly sets forth our agreement on these matters,
please so indicate by executing a copy of this letter in the space provided
below and return that copy to Caminus LLC. Thank you.
CAMINUS LLC
By: /s/ David M. Stoner
------------------------
Its: CEO
AGREED:
SS&C TECHNOLOGIES, INCORPORATED
By: /s/ William C. Stone
--------------------------
Its: CEO
<PAGE> 1
Exhibit 10.38
-------------
CAMINUS LLC
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement is made as of November 8,
1999, by and between Brian Scanlan (the "Employee") and Caminus LLC, a Delaware
limited liability company and successor in interest to ZAI*NET Software, L.P.
(the "Company"), and amends the Employment Agreement by and between the Employee
and ZAI*NET Software, L.P., dated as of May 12, 1998 (the "Agreement").
1. The first sentence of Section 1.1 of the Agreement is hereby
amended by deleting "President" and substituting "Senior Vice
President, Chief Technology Officer" therefor.
2. The Employee's Base Salary (as defined in the Agreement) shall
be $175,000 per annum, payable in accordance with the terms of
the Agreement.
3. Except as set forth above, the Agreement shall remain in full
force and effect.
EXECUTED as of the date set forth above.
CAMINUS LLC
/s/ Mark A Herman
--------------------------------
By: Mark A. Herman
Its: CFO
EMPLOYEE
/s/ Brian Scanlan
--------------------------------
Brian Scanlan
<PAGE> 1
Exhibit 10.40
-------------
CAMINUS LLC
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement is made as of November 8,
1999, by and between Simon Young (the "Employee") and Caminus LLC, a Delaware
limited liability company and successor in interest to ZAI*NET Software, L.P.
(the "Company"), and amends the Employment Agreement by and between the Employee
and ZAI*NET Software, L.P., dated as of May 12, 1998 (the "Agreement").
1. The first sentence of Section 1.1 of the Agreement is hereby
amended by deleting "Executive Vice President" and
substituting "Vice President" therefor.
2. Section 1.2 of the Agreement is hereby amended by deleting
"President" and substituting "Senior Vice President, Director
of European Operations" therefor.
3. Except as set forth above, the Agreement shall remain in full
force and effect.
EXECUTED as of the date set forth above.
CAMINUS LLC
/s/ Mark A. Herman
--------------------------------
By: Mark A. Herman
Its: CFO
EMPLOYEE
/s/ Simon Young
--------------------------------
Simon Young
<PAGE> 1
Exhibit 10.41
-------------
CAMINUS LLC
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement is made as of November 8,
1999, by and between Dr. Michael Morrison (the "Employee") and Caminus Energy
Limited, a company incorporated in the United Kingdom whose registered office is
Caminus House, Castle Park, Cambridge CB3 ORA, United Kingdom (the "Company"),
and amends the Service Agreement by and between the Employee and the Company,
dated as of May 12, 1998 (the "Agreement").
In conjunction with an Initial Public Offering ("IPO") of Caminus Corporation
("Caminus") the following are agreed to:
1. Commencing January 1, 2000 the Employee's Base Salary (as
defined in the Agreement) shall be pound sterling 150,000 per
annum, payable in accordance with the terms of the Agreement.
2. Through the fiscal period ending December 31, 1999 the
Employee will be entitled to an annual bonus as set forth in
Section 3.1 of the Agreement.
3. Commencing January 1, 2000 the second sentence in Section 3.1
of the Agreement which reads "The Employee shall be entitled
to an annual bonus payment (which is targeted at pound
sterling 83,000) in addition to his salary and other benefits,
with the actual bonus amount to be based upon a review of
performance by the Board following the conclusion of each
year" will hereby be deleted.
4. The Employee ten days after the IPO will receive a one-time
bonus of pound sterling 115,077.
5. Except as set forth above, the Agreement shall remain in full
force and effect.
EXECUTED as of the date set forth above.
CAMINUS LLC
/s/ Mark A. Herman
--------------------------------
By: Mark A. Herman
Its: CFO
EMPLOYEE
/s/ Michael B. Morrison
--------------------------------
Dr. Michael Morrison
<PAGE> 1
Exhibit 10.42
PLEDGE AGREEMENT
CAMINUS LLC
THIS PLEDGE AGREEMENT, dated as of September 1, 1999, is made by
Caminus LLC, a Delaware limited liability company (the "Pledgor"), to Fleet
Bank, N.A., a national banking association organized under the laws of the
United States, as lender (hereinafter, in such capacity, together with its
successors in such capacity, the "Lender") under the Credit Agreement referred
to below.
The Pledgor and the Lender are parties to a Credit Agreement dated
as of June 23, 1999 (such Credit Agreement, as the same may be amended or
supplemented from time to time is referred to herein as the "Credit Agreement")
providing, subject to the terms and conditions thereof, for extensions of credit
to be made by the Lenders to the Pledgor in an aggregate principal amount not
exceeding $5,000,000 (the "Loans"). The Loans made or to be made by the Lender
to the Pledgor shall be evidenced by certain promissory notes (as exchanged,
replaced, amended, supplemented or modified from to time, the "Notes") in
substantially the form of Exhibits A-1 and A-2 attached to the Credit Agreement.
The Pledgor is the legal and beneficial owner of all of the shares
of Capital Stock of Caminus/DC Acquisition Corp., a Delaware corporation (the
"Company") (such shares of Capital Stock and such additional shares of Capital
Stock of the Company and any property at any time and from time to time
receivable by the Lender hereunder or otherwise distributed in respect of or in
exchange for any such shares, including any stock options or rights received as
provided in Section 3 of this Agreement, are hereinafter referred to as the
"Pledged Stock").
For other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor has agreed to execute
and deliver this Agreement.
1. Defined Terms. Unless otherwise defined herein, terms defined in
the Credit Agreement shall have such defined meanings when used herein.
2. Pledge. The Pledgor hereby pledges, assigns, hypothecates,
transfers, and delivers to the Lender, all the Pledged Stock and hereby grants
to the Lender, a first lien on, and security interest in, the Pledged Stock and,
except as hereinafter provided, in all increases and profits therefrom and all
proceeds thereof, together with appropriate undated stock and/or transfer powers
with respect thereto duly executed in blank, as security for the payment,
performance and observance of all indebtedness, obligations, liabilities and
agreements of the Pledgor to the Lender of whatever nature, pursuant to, under
or arising out of, the Credit Agreement, the Notes, the other Loan Documents and
any amendments, extensions, renewals, refundings or modifications thereto or of
any part thereof, whether now existing or hereafter incurred, matured or
unmatured, direct or contingent, together with interest and costs of enforcement
and collection thereof and of this Agreement, including all reasonable actual
attorneys' fees and disbursements incurred by the Lender (collectively, the
"Liabilities").
<PAGE> 2
-2-
3. Collateral. All property at any time pledged with the Lender
hereunder (whether described herein or not) and all increases, profits and
income therefrom and proceeds thereof, are herein collectively sometimes called
the "Collateral".
4. Stock Dividends, Distributions, etc. If, while this Agreement is
in effect, the Pledgor shall become entitled to receive or shall receive any
stock certificate (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital, or issued in connection with any
reorganization, merger or consolidation, or resulting from a split-up, revision
or other like change of the Pledged Stock or otherwise received in exchange
therefor), option or rights, whether by purchase or other acquisition or as an
addition to, in substitution of, or in exchange for any shares of any Pledged
Stock, the Pledgor agrees to accept the same as agent of the Lender and to hold
the same in trust on behalf of and for the benefit of the Lender, and to deliver
the same forthwith to the Lender in the exact form received, with the
endorsement of the Pledgor when necessary and/or appropriate undated stock
and/or transfer powers duly executed in blank, to be held by the Lender, subject
to the terms hereof, as additional collateral security for the Liabilities. Any
sums paid upon or in respect of the Pledged Stock upon the liquidation or
dissolution of the issuer thereof shall be paid over to the Lender to be held by
it in trust as additional collateral security for the Liabilities; and in case
any distributions of capital shall be made on or in respect of the Pledged Stock
or any property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of the
issuer thereof or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Lender to be held by it as additional
collateral security for the Liabilities (except as otherwise provided in Section
5 hereof). All sums of money and property so paid or distributed in respect of
the Pledged Stock which are received by the Pledgor shall, until paid or
delivered to the Lender, be held by the Pledgor in trust as additional
collateral security for the Liabilities.
5. Cash Dividends; Voting Rights. Subject to any restrictions in the
Credit Agreement, the Pledgor shall be entitled to receive all cash dividends
paid in respect of the Pledged Stock. So long as no Event of Default has
occurred and is continuing under the Credit Agreement, the Pledgor shall be
entitled (as permitted by the Company's Articles of Incorporation) to vote the
Pledged Stock and to give consents, waivers and ratifications in respect of the
Pledged Stock (as the case may be), provided, however, that no vote shall be
cast or consent, waiver or ratification given or action taken which would impair
the Collateral or be inconsistent with or violate any provision of this
Agreement, the Credit Agreement, the Notes or the other Loan Documents.
6. Amendments, Modifications and Waivers with Respect to
Liabilities. The Pledgor hereby consents that, without the necessity of any
reservation of rights against the Pledgor (but subject to the provisions of the
Credit Agreement), and without notice to or further assent by the Pledgor, any
demand for payment of any of the Liabilities made by the Lender may be rescinded
by the Lender and any of the Liabilities continued, and the Liabilities, or the
liability of the Pledgor or any other party upon or for any part thereof, or any
collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered, or released by
the Lender, and the Credit Agreement, the Notes, any collateral
<PAGE> 3
-3-
security documents (including, without limitation, the other Collateral
Documents) or guarantees or documents in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Lender may
deem advisable from time to time (subject to the consent of the Lender under the
Credit Agreement), and any collateral security (including, without limitation,
the Collateral Documents) at any time held by the Lender for the payment of the
Liabilities may be sold, exchanged, waived, surrendered or released (in
accordance with the terms thereof), all without the necessity of any reservation
of rights against the Pledgor and without notice to or further assent by the
Pledgor, which will remain bound hereunder, notwithstanding any such renewal,
extension, modification, acceleration, compromise, amendment, supplement,
termination, sale, exchange, waiver, surrender or release. The Lender shall have
no obligation to protect, secure, perfect or insure any other collateral
security document (including, without limitation, the other Collateral
Documents) or property subject thereto at any time held as security for the
Liabilities. The Pledgor waives any and all notice of the creation, renewal,
extension or accrual of any of the Liabilities and notice of or proof of
reliance by the Lender upon this Agreement, and the Liabilities shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Agreement, and all dealings between the Lender and the Pledgor shall
likewise be conclusively presumed to have been made or consummated in reliance
upon this Agreement. The Pledgor waives diligence, presentment, protest, demand
for payment and notice of default or nonpayment to or upon the Pledgor or any
other person with respect to the Liabilities.
7. Rights of the Lender. The Lender shall not be liable for failure
to collect or realize upon the Liabilities or any collateral security or
guarantee therefor, or any part thereof, or for any delay in so doing nor shall
it be under any obligation to take any action whatsoever with regard thereto.
Any or all shares of the Pledged Stock held by the Lender hereunder may, if an
Event of Default shall have occurred and be continuing under the Credit
Agreement, without notice, be registered in the name of the Lender or its
nominee, and the Lender or its nominee may thereafter without notice, exercise
all voting and corporate rights at any meeting of any corporation issuing any of
the shares included in the Pledged Stock and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any shares of the Pledged Stock as if it were the absolute owner
thereof, including without limitation, the right to exchange, at its discretion,
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any corporation issuing any of such
shares or upon the exercise by any such issuer or the Lender of any right,
privilege or option pertaining to any shares of the Pledged Stock, and in
connection therewith, to deposit and deliver any and all of the Pledged Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as it may determine, all without liability
except to account for property actually received by it, but the Lender shall
have no duty to exercise any of the aforesaid rights, privileges or options and
shall not be responsible for any failure to do so or delay in so doing.
8. Remedies. Upon the occurrence of an Event of Default under the
Credit Agreement or in the event that any portion of the Liabilities has been
declared due and payable, the Lender, in addition to any rights of the Lender
hereunder, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon the Pledgor or any other Person (all and each
of which demands, advertisements and/or notices are hereby expressly waived),
may forthwith collect,
<PAGE> 4
-4-
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase, contract
to sell or otherwise dispose of and deliver said Collateral, or any part
thereof, in one or more parcels at public or private sale or sales, at any
exchange, brokers' board or at any of the Lender's offices or elsewhere upon
such terms and conditions as it may deem advisable and such public sale or
sales, (or, to the extent permitted by law, such private sale) to purchase the
whole or any part of said Collateral so sold, shall be free of any right or
equity of redemption of the Pledgor, which right or equity is hereby expressly
waived and released. The Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale (after
deduction of all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any and all of the
Collateral or in any way relating to the rights of the Lender hereunder,
including attorneys' fees and legal expenses) against payment in whole or in
part, of the Liabilities in such order as the Lender may elect (subject to
statutory requirements), and only after so applying such net proceeds and after
the payment by the Lender of any other amount required by any provision of law,
need the Lender account for the surplus, if any, to the Pledgor. The Pledgor
agrees that the Lender need not give more than ten days' notice of the time and
place of any public sale or of the time after which a private sale or other
intended disposition is to take place and that such notice is reasonable
notification of such matters. In addition to the rights and remedies granted to
it in this Agreement and in any other instrument or agreement securing,
evidencing or relating to any of the Liabilities, the Lender shall have all the
rights and remedies of a secured party under the Uniform Commercial Code of the
State of New York.
9. Representations, Warranties and Covenants of the Pledgor. The
Pledgor represents and warrants that (a) the Pledgor is a limited liability
company duly organized, validly existing, and in good standing under the laws of
the State of Delaware; (b) the Pledgor is the legal record and beneficial owner
of, and has good title to, the Pledged Stock, subject to no pledge, lien,
mortgage, hypothecation, security interest, charge, option or other encumbrance
whatsoever, except the lien and security interest created by this Agreement; (c)
all the shares of the Pledged Stock have been duly and validly issued, are fully
paid and non-assessable; (d) the pledge, assignment and delivery of such Pledged
Stock pursuant to this Agreement creates a valid first lien on and a first
perfected security interest in such shares of the Pledged Stock, and the
proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation,
security interest, charge, option or encumbrance or to any agreement purporting
to grant to any third party a security interest in the property or assets of the
Pledgor which would include the Pledged Stock; (e) the Pledged Stock
constitutes, in the aggregate, 100% of the issued and outstanding shares of
capital stock of the Company as of the date of this Agreement; (f) the Pledgor
has the power, right and authority to execute and deliver this Agreement; (g)
the execution, delivery and performance by the Pledgor of this Agreement do not
and will not (1) require any consent or approval of any Person that has not been
obtained, (2) contravene its Articles of Organization or Operating Agreement,
(3) violate any provisions of any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect applicable to the
Pledgor, (4) result in a breach of, constitute a default under or otherwise
contravene any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Pledgor is a party or by which the Pledgor or
the Pledgor's properties may be bound or affected, (5) result in, or require,
the creation or imposition of any Lien (other than a Lien in favor of the
Lender) upon or with respect to any of the Pledgor's properties now owned or
hereafter acquired, or (6) cause the Pledgor to be in default under any such
law, rule, regulation, order, writ,
<PAGE> 5
-5-
judgment, injunction, decree, determination or award or any such indenture,
agreement, lease or instrument; (h) this Agreement has been duly authorized,
executed and delivered by the Pledgor and constitutes a legal, valid and binding
obligation of the Pledgor, enforceable against the Pledgor in accordance with
its terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally; and (i) there is no action, suit or proceeding pending or
threatened against or otherwise affecting the Pledgor before any Governmental
Authority or any arbitrator which may adversely affect the ability of the
Pledgor to perform its obligations under this Agreement. The Pledgor covenants
and agrees that the Pledgor will defend the Lender's right, title and security
interest in and to the Pledged Stock and the proceeds thereof against the claims
and demands of all persons whomsoever; and covenants and agrees that the Pledgor
will have like title to and right to pledge any other property at any time
hereafter pledged to the Lender, as Collateral hereunder and will likewise
defend the Lender's right thereto and security interest therein.
10. No Disposition, etc. Without the prior written consent of the
Lender, the Pledgor agrees that the Pledgor will not sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Pledged Stock or any of the other Collateral, nor will the Pledgor create,
incur, or permit to exist any pledge, lien, mortgage, hypothecation, security
interest, charge, option or any other encumbrance with respect to the Pledged
Stock or any of the other Collateral, or any interest therein, or any proceeds
thereof, except for the lien and security interest provided for by this
Agreement. Without the prior written consent of the Lender, the Pledgor agrees
that the Pledgor will not vote to enable the Company to, and will not otherwise
permit the Company to, issue any stock or other securities of any nature in
addition to or in exchange or substitution for the Pledged Stock.
11. Disposition of Pledged Stock. (a) If the Lender shall determine
to exercise its rights to sell any or all of the Pledged Stock pursuant hereto,
and if in the opinion of counsel for the Lender it is necessary to have the
Pledged Stock, or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Pledgor will cause each issuer of shares included in the Pledged Stock
contemplated to be sold, to use its reasonable best efforts to execute and
deliver, and will use its reasonable best efforts to cause the directors and
officers of each thereof to execute and deliver, all such instruments and
documents, and to do or cause to be done all such other acts and things as may
be necessary or, in the opinion of the Lender, advisable to register the Pledged
Stock, or that portion thereof to be sold, under the provisions of the
Securities Act and to cause the registration statement relating thereto to
become effective and to remain effective for a period of one year from the date
of the first public offering of the Pledged Stock, or that portion thereof to be
sold, and to make all amendments thereof and/or to the related prospectus which,
in the opinion of the Lender, are necessary, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to
cause each such issuer to comply with the provisions of the securities or "Blue
Sky" laws of any jurisdiction which the Lender shall designate and to cause each
such issuer to make available to its security holders, as soon as practicable,
an earnings statement (which need not be audited) which will satisfy the
provisions of Section 11(a) of the Securities Act.
(b) The Pledgor recognizes that the Lender may be unable to effect a
public sale of any or all of the Pledged Stock by reason of certain prohibitions
contained in the Securities
<PAGE> 6
-6-
Act and applicable state securities laws, but may be compelled to resort to one
or more private sales thereof to a restricted group or purchasers who will be
obliged to agree, among other things, to acquire such securities for their own
account for investment and not with a view to the distribution or resale
thereof. The Pledgor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable to the seller than if such sale
were a public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Lender shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act,
or under the applicable state securities laws, even if the issuer would agree to
do so.
(c) The Pledgor further agrees to use such reasonable efforts to do
or cause to be done all such other acts and things as may be reasonably
requested by the Lender which are within its power and necessary to make such
resale or sales of any portion or all of the Pledged Stock valid and binding and
in compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Pledgor's expense. The Pledgor further agrees
that a breach of any of the covenants contained in this paragraph 11 will cause
irreparable injury to the Lender, that the Lender has no adequate remedy at law
in respect of such breach and, as a consequence, agrees that each and every
covenant contained in this paragraph shall be specifically enforceable against
the Pledgor and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants. The Pledgor
further acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by the Lender by reason of a breach of any of such
covenants and, consequently, agrees that, if the Lender shall sue for damages
for breach, the Pledgor shall pay, as liquidated damages and not as a penalty,
an amount equal to the value of the Pledged Stock on the date the Lender demands
compliance with this paragraph.
12. [Intentionally Omitted].
13. Further Assurances. The Pledgor agrees that, at any time and
from time to time upon the written request of the Lender, the Pledgor will
execute and deliver such further documents and do such further acts and things
as the Lender may reasonably request in order to effect the purposes of this
Agreement.
14. Severability. If any provision hereof shall be held to be
invalid, illegal or unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall remain in full
force and effect in such jurisdiction, and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
15. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, and no course of dealing with respect to,
any right, power, or remedy under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder and
under any of the other Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The remedies
provided
<PAGE> 7
-7-
herein and in the other Loan Documents are cumulative and not exclusive of any
remedies provided by law.
16. Successors and Assigns. The covenants, representations,
warranties and agreements herein set forth shall be binding upon the Pledgor,
the Pledgor's legal representatives, successors and assigns, and shall inure to
the benefit of the Lender and successors and assigns. The successor of the
Lender hereunder shall forthwith become vested with and shall be entitled to
exercise all the powers and rights given by this Agreement to the Lender, as if
said successor were originally named as party herein.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ANY CHOICE OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR THE ENFORCEMENT OF ANY REMEDIES HEREUNDER, WITH RESPECT
TO THE COLLATERAL SHALL BE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
18. Amendments. None of the terms or provisions of this Agreement
may be waived, altered, modified, or amended except by an agreement in writing
signed by the Lender and the Pledgor.
19. Notices. All notices and demands to or upon the respective
parties hereto to be effective shall be in writing and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when
delivered by hand, or five (5) days after deposited in the mail, air postage
prepaid, or in the case of notice by telecopier (fax), when sent (subject to
confirmation of receipt), or in the case of overnight courier service and
accepted for next day delivery service, one Business Day after delivery to a
nationally recognized overnight courier service, addressed as follows or to such
other address as may be hereafter notified by the respective parties to this
Agreement:
If to the Pledgor:
Caminus LLC
747 Third Avenue
New York, NY 10017
Fax No.: (212) 888-0691
Tel. No.: (212) 888-3600
Attention: Mr. Mark Herman
Chief Financial Officer
<PAGE> 8
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If to the Lender:
Fleet Bank, N.A.
185 Avenue of the Americas
New York, New York 10036
Fax No. : (212) 819-4114
Tel. No.: (212) 819-5767
Attention: Ms. Susan Failla
20. Termination. When all Liabilities shall have been paid in full
and the Commitments under the Credit Agreement have expired or been terminated,
this Agreement shall terminate, and the Lender shall cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect thereof, to or for the order of the Pledgor. The Lender shall also
execute and deliver to the Pledgor upon such termination such documentation as
shall be reasonably requested as necessary by the Pledgor to effect the
termination and release of the Liens on the Collateral, all at the expense of
the Pledgor.
21. Counterparts. This Agreement may be executed in any number of
counterparts, all of which, when taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective duly authorized officers as of the
day and year first above written.
CAMINUS LLC
By:/s/ Mark A. Herman
______________________________
Name: Mark Herman
Title: VP, CFO
Accepted as of this ____
day of September, 1999
Fleet Bank, N.A.,
as Lender
By: /s/ Susan Failla
______________________________
Name: Susan Failla
Its: Vice President
<PAGE> 1
Exhibit 10.43
PLEDGE AGREEMENT
DC SYSTEMS, INC.
THIS PLEDGE AGREEMENT, dated as of August 30, 1999, is made by DC
Systems, Inc., a Texas corporation (the "Pledgor"), to Fleet Bank, N.A., a
national banking association organized under the laws of the United States, as
lender (hereinafter, in such capacity, together with its successors in such
capacity, the "Lender") under the Credit Agreement referred to below.
Caminus LLC, a Delaware limited liability company (the "Company"),
and the Lender are parties to a Credit Agreement dated as of June 23, 1999 (such
Credit Agreement, as the same may be amended or supplemented from time to time
is referred to herein as the "Credit Agreement") providing, subject to the terms
and conditions thereof, for extensions of credit to be made by the Lenders to
the Company in an aggregate principal amount not exceeding $5,000,000 (the
"Loans"). The Loans made or to be made by the Lender to the Company shall be
evidenced by certain promissory notes (as exchanged, replaced, amended,
supplemented or modified from to time, the "Notes") in substantially the form of
Exhibits A-1 and A-2 attached to the Credit Agreement.
The Pledgor is the legal and beneficial owner of all of the shares
of Capital Stock of DCS*Gasnet Corporation, a Texas corporation ("DCS* Gasnet")
(such shares of Capital Stock and such additional shares of Capital Stock of
DCS* Gasnet and any property at any time and from time to time receivable by the
Lender hereunder or otherwise distributed in respect of or in exchange for any
such shares, including any stock options or rights received as provided in
Section 3 of this Agreement, are hereinafter referred to as the "Pledged
Stock").
For other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor has agreed to execute
and deliver this Agreement.
1. Defined Terms. Unless otherwise defined herein, terms defined in
the Credit Agreement shall have such defined meanings when used herein.
2. Pledge. The Pledgor hereby pledges, assigns, hypothecates,
transfers, and delivers to the Lender, all the Pledged Stock and hereby grants
to the Lender, a first lien on, and security interest in, the Pledged Stock and,
except as hereinafter provided, in all increases and profits therefrom and all
proceeds thereof, together with appropriate undated stock and/or transfer powers
with respect thereto duly executed in blank, as security for the payment,
performance and observance of all indebtedness, obligations, liabilities and
agreements of the Company to the Lender of whatever nature, pursuant to, under
or arising out of, the Credit Agreement, the Notes, the other Loan Documents and
any amendments, extensions, renewals, refundings or modifications thereto or of
any part thereof, whether now existing or hereafter incurred, matured or
unmatured, direct or contingent, together with interest and costs of
<PAGE> 2
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enforcement and collection thereof and of this Agreement, including all
reasonable actual attorneys' fees and disbursements incurred by the Lender
(collectively, the "Liabilities").
3. Collateral. All property at any time pledged with the Lender
hereunder (whether described herein or not) and all increases, profits and
income therefrom and proceeds thereof, are herein collectively sometimes called
the "Collateral".
4. Stock Dividends, Distributions, etc. If, while this Agreement is
in effect, the Pledgor shall become entitled to receive or shall receive any
stock certificate (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital, or issued in connection with any
reorganization, merger or consolidation, or resulting from a split-up, revision
or other like change of the Pledged Stock or otherwise received in exchange
therefor), option or rights, whether by purchase or other acquisition or as an
addition to, in substitution of, or in exchange for any shares of any Pledged
Stock, the Pledgor agrees to accept the same as agent of the Lender and to hold
the same in trust on behalf of and for the benefit of the Lender, and to deliver
the same forthwith to the Lender in the exact form received, with the
endorsement of the Pledgor when necessary and/or appropriate undated stock
and/or transfer powers duly executed in blank, to be held by the Lender, subject
to the terms hereof, as additional collateral security for the Liabilities. Any
sums paid upon or in respect of the Pledged Stock upon the liquidation or
dissolution of the issuer thereof shall be paid over to the Lender to be held by
it in trust as additional collateral security for the Liabilities; and in case
any distributions of capital shall be made on or in respect of the Pledged Stock
or any property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of the
issuer thereof or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Lender to be held by it as additional
collateral security for the Liabilities (except as otherwise provided in Section
5 hereof). All sums of money and property so paid or distributed in respect of
the Pledged Stock which are received by the Pledgor shall, until paid or
delivered to the Lender, be held by the Pledgor in trust as additional
collateral security for the Liabilities.
5. Cash Dividends; Voting Rights. Subject to any restrictions in the
Credit Agreement, the Pledgor shall be entitled to receive all cash dividends
paid in respect of the Pledged Stock. So long as no Event of Default has
occurred and is continuing under the Credit Agreement, the Pledgor shall be
entitled (as permitted by DCS* Gasnet's Articles of Incorporation) to vote the
Pledged Stock and to give consents, waivers and ratifications in respect of the
Pledged Stock (as the case may be), provided, however, that no vote shall be
cast or consent, waiver or ratification given or action taken which would impair
the Collateral or be inconsistent with or violate any provision of this
Agreement, the Credit Agreement, the Notes or the other Loan Documents.
6. Amendments, Modifications and Waivers with Respect to
Liabilities. The Pledgor hereby consents that, without the necessity of any
reservation of rights against the Pledgor (but subject to the provisions of the
Credit Agreement), and without notice to or further assent by the Pledgor, any
demand for payment of any of the Liabilities made by the Lender may be rescinded
by the Lender and any of the Liabilities continued, and the Liabilities, or the
liability of the Pledgor or any other party upon or for any part thereof, or any
collateral security
<PAGE> 3
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or guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered, or released by the Lender, and the Credit
Agreement, the Notes, any collateral security documents (including, without
limitation, the other Collateral Documents) or guarantees or documents in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as the Lender may deem advisable from time to time (subject to
the consent of the Lender under the Credit Agreement), and any collateral
security (including, without limitation, the Collateral Documents) at any time
held by the Lender for the payment of the Liabilities may be sold, exchanged,
waived, surrendered or released (in accordance with the terms thereof), all
without the necessity of any reservation of rights against the Pledgor and
without notice to or further assent by the Pledgor, which will remain bound
hereunder, notwithstanding any such renewal, extension, modification,
acceleration, compromise, amendment, supplement, termination, sale, exchange,
waiver, surrender or release. The Lender shall have no obligation to protect,
secure, perfect or insure any other collateral security document (including,
without limitation, the other Collateral Documents) or property subject thereto
at any time held as security for the Liabilities. The Pledgor waives any and all
notice of the creation, renewal, extension or accrual of any of the Liabilities
and notice of or proof of reliance by the Lender upon this Agreement, and the
Liabilities shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Agreement, and all dealings between the Lender
and the Pledgor shall likewise be conclusively presumed to have been made or
consummated in reliance upon this Agreement. The Pledgor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Pledgor or any other person with respect to the Liabilities.
7. Rights of the Lender. The Lender shall not be liable for failure
to collect or realize upon the Liabilities or any collateral security or
guarantee therefor, or any part thereof, or for any delay in so doing nor shall
it be under any obligation to take any action whatsoever with regard thereto.
Any or all shares of the Pledged Stock held by the Lender hereunder may, if an
Event of Default shall have occurred and be continuing under the Credit
Agreement, without notice, be registered in the name of the Lender or its
nominee, and the Lender or its nominee may thereafter without notice, exercise
all voting and corporate rights at any meeting of any corporation issuing any of
the shares included in the Pledged Stock and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any shares of the Pledged Stock as if it were the absolute owner
thereof, including without limitation, the right to exchange, at its discretion,
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any corporation issuing any of such
shares or upon the exercise by any such issuer or the Lender of any right,
privilege or option pertaining to any shares of the Pledged Stock, and in
connection therewith, to deposit and deliver any and all of the Pledged Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as it may determine, all without liability
except to account for property actually received by it, but the Lender shall
have no duty to exercise any of the aforesaid rights, privileges or options and
shall not be responsible for any failure to do so or delay in so doing.
8. Remedies. Upon the occurrence of an Event of Default under the
Credit Agreement or in the event that any portion of the Liabilities has been
declared due and payable, the Lender, in addition to any rights of the Lender
hereunder, without demand of performance or
<PAGE> 4
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other demand, advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or upon the Pledgor or any
other Person (all and each of which demands, advertisements and/or notices are
hereby expressly waived), may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase, contract to sell or otherwise
dispose of and deliver said Collateral, or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange, brokers' board or
at any of the Lender's offices or elsewhere upon such terms and conditions as it
may deem advisable and such public sale or sales, (or, to the extent permitted
by law, such private sale) to purchase the whole or any part of said Collateral
so sold, shall be free of any right or equity of redemption of the Pledgor,
which right or equity is hereby expressly waived and released. The Lender shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale (after deduction of all reasonable costs and expenses of
every kind incurred therein or incidental to the care, safekeeping or otherwise
of any and all of the Collateral or in any way relating to the rights of the
Lender hereunder, including attorneys' fees and legal expenses) against payment
in whole or in part, of the Liabilities in such order as the Lender may elect
(subject to statutory requirements), and only after so applying such net
proceeds and after the payment by the Lender of any other amount required by any
provision of law, need the Lender account for the surplus, if any, to the
Pledgor. The Pledgor agrees that the Lender need not give more than ten days'
notice of the time and place of any public sale or of the time after which a
private sale or other intended disposition is to take place and that such notice
is reasonable notification of such matters. In addition to the rights and
remedies granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to any of the Liabilities, the Lender
shall have all the rights and remedies of a secured party under the Uniform
Commercial Code of the State of New York.
9. Representations, Warranties and Covenants of the Pledgor. The
Pledgor represents and warrants that (a) the Pledgor is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas; (b) the Pledgor is the legal record and beneficial owner of, and has good
title to, the Pledged Stock, subject to no pledge, lien, mortgage,
hypothecation, security interest, charge, option or other encumbrance
whatsoever, except the lien and security interest created by this Agreement; (c)
all the shares of the Pledged Stock have been duly and validly issued, are fully
paid and non-assessable; (d) the pledge, assignment and delivery of such Pledged
Stock pursuant to this Agreement creates a valid first lien on and a first
perfected security interest in such shares of the Pledged Stock, and the
proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation,
security interest, charge, option or encumbrance or to any agreement purporting
to grant to any third party a security interest in the property or assets of the
Pledgor which would include the Pledged Stock; (e) the Pledged Stock
constitutes, in the aggregate, 100% of the issued and outstanding shares of
capital stock of DCS* Gasnet as of the date of this Agreement; (f) the Pledgor
has the power, right and authority to execute and deliver this Agreement; (g)
the execution, delivery and performance by the Pledgor of this Agreement do not
and will not (1) require any consent or approval of any Person that has not been
obtained, (2) contravene its Articles of Incorporation or By-laws, (3) violate
any provisions of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect applicable to the Pledgor,
(4) result in a breach of, constitute a default under or otherwise contravene
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Pledgor is a party or by which the Pledgor or the
Pledgor's properties may be bound or affected, (5) result in, or require, the
<PAGE> 5
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creation or imposition of any Lien (other than a Lien in favor of the Lender)
upon or with respect to any of the Pledgor's properties now owned or hereafter
acquired, or (6) cause the Pledgor to be in default under any such law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award or
any such indenture, agreement, lease or instrument; (h) this Agreement has been
duly authorized, executed and delivered by the Pledgor and constitutes a legal,
valid and binding obligation of the Pledgor, enforceable against the Pledgor in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally; and (i) there is no action, suit or proceeding
pending or threatened against or otherwise affecting the Pledgor before any
Governmental Authority or any arbitrator which may adversely affect the ability
of the Pledgor to perform its obligations under this Agreement. The Pledgor
covenants and agrees that the Pledgor will defend the Lender's right, title and
security interest in and to the Pledged Stock and the proceeds thereof against
the claims and demands of all persons whomsoever; and covenants and agrees that
the Pledgor will have like title to and right to pledge any other property at
any time hereafter pledged to the Lender, as Collateral hereunder and will
likewise defend the Lender's right thereto and security interest therein.
10. No Disposition, etc. Without the prior written consent of the
Lender, the Pledgor agrees that the Pledgor will not sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Pledged Stock or any of the other Collateral, nor will the Pledgor create,
incur, or permit to exist any pledge, lien, mortgage, hypothecation, security
interest, charge, option or any other encumbrance with respect to the Pledged
Stock or any of the other Collateral, or any interest therein, or any proceeds
thereof, except for the lien and security interest provided for by this
Agreement. Without the prior written consent of the Lender, the Pledgor agrees
that the Pledgor will not vote to enable DCS* Gasnet to, and will not otherwise
permit DCS* Gasnet to, issue any stock or other securities of any nature in
addition to or in exchange or substitution for the Pledged Stock.
11. Disposition of Pledged Stock. (a) If the Lender shall determine
to exercise its rights to sell any or all of the Pledged Stock pursuant hereto,
and if in the opinion of counsel for the Lender it is necessary to have the
Pledged Stock, or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Pledgor will cause each issuer of shares included in the Pledged Stock
contemplated to be sold, to use its reasonable best efforts to execute and
deliver, and will use its reasonable best efforts to cause the directors and
officers of each thereof to execute and deliver, all such instruments and
documents, and to do or cause to be done all such other acts and things as may
be necessary or, in the opinion of the Lender, advisable to register the Pledged
Stock, or that portion thereof to be sold, under the provisions of the
Securities Act and to cause the registration statement relating thereto to
become effective and to remain effective for a period of one year from the date
of the first public offering of the Pledged Stock, or that portion thereof to be
sold, and to make all amendments thereof and/or to the related prospectus which,
in the opinion of the Lender, are necessary, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to
cause each such issuer to comply with the provisions of the securities or "Blue
Sky" laws of any jurisdiction which the Lender shall designate and to cause each
such issuer to make available to its security holders, as soon as practicable,
an earnings statement (which need not be audited) which will satisfy the
provisions of Section 11(a) of the Securities Act.
<PAGE> 6
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(b) The Pledgor recognizes that the Lender may be unable to effect a
public sale of any or all of the Pledged Stock by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
or purchasers who will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Lender shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit the issuer of such securities to register such securities
for public sale under the Securities Act, or under the applicable state
securities laws, even if the issuer would agree to do so.
(c) The Pledgor further agrees to use such reasonable efforts to do
or cause to be done all such other acts and things as may be reasonably
requested by the Lender which are within its power and necessary to make such
resale or sales of any portion or all of the Pledged Stock valid and binding and
in compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Pledgor's expense. The Pledgor further agrees
that a breach of any of the covenants contained in this paragraph 11 will cause
irreparable injury to the Lender, that the Lender has no adequate remedy at law
in respect of such breach and, as a consequence, agrees that each and every
covenant contained in this paragraph shall be specifically enforceable against
the Pledgor and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants. The Pledgor
further acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by the Lender by reason of a breach of any of such
covenants and, consequently, agrees that, if the Lender shall sue for damages
for breach, the Pledgor shall pay, as liquidated damages and not as a penalty,
an amount equal to the value of the Pledged Stock on the date the Lender demands
compliance with this paragraph.
12. [Intentionally Omitted].
13. Further Assurances. The Pledgor agrees that, at any time and
from time to time upon the written request of the Lender, the Pledgor will
execute and deliver such further documents and do such further acts and things
as the Lender may reasonably request in order to effect the purposes of this
Agreement.
14. Severability. If any provision hereof shall be held to be
invalid, illegal or unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall remain in full
force and effect in such jurisdiction, and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
15. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, and no course of dealing with respect to,
any right, power, or remedy under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of
<PAGE> 7
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any right hereunder and under any of the other Loan Documents preclude any other
or further exercise thereof or the exercise of any other right, power, or
privilege. The remedies provided herein and in the other Loan Documents are
cumulative and not exclusive of any remedies provided by law.
16. Successors and Assigns. The covenants, representations,
warranties and agreements herein set forth shall be binding upon the Pledgor,
the Pledgor's legal representatives, successors and assigns, and shall inure to
the benefit of the Lender and successors and assigns. The successor of the
Lender hereunder shall forthwith become vested with and shall be entitled to
exercise all the powers and rights given by this Agreement to the Lender, as if
said successor were originally named as party herein.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ANY CHOICE OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR THE ENFORCEMENT OF ANY REMEDIES HEREUNDER, WITH RESPECT
TO THE COLLATERAL SHALL BE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
18. Amendments. None of the terms or provisions of this Agreement
may be waived, altered, modified, or amended except by an agreement in writing
signed by the Lender and the Pledgor.
19. Notices. All notices and demands to or upon the respective
parties hereto to be effective shall be in writing and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when
delivered by hand, or five (5) days after deposited in the mail, air postage
prepaid, or in the case of notice by telecopier (fax), when sent (subject to
confirmation of receipt), or in the case of overnight courier service and
accepted for next day delivery service, one Business Day after delivery to a
nationally recognized overnight courier service, addressed as follows or to such
other address as may be hereafter notified by the respective parties to this
Agreement:
If to the Pledgor:
DC Systems, Inc.
5001 Spring Valley Road
Suite 390-West
Dallas, TX 75244
Fax No.:
Tel. No.:
Attention:
<PAGE> 8
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If to the Lender:
Fleet Bank, N.A.
185 Avenue of the Americas
New York, New York 10036
Fax No. : (212) 819-4114
Tel. No.: (212) 819-5767
Attention: Ms. Susan Failla
20. Termination. When all Liabilities shall have been paid in full
and the Commitments under the Credit Agreement have expired or been terminated,
this Agreement shall terminate, and the Lender shall cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect thereof, to or for the order of the Pledgor. The Lender shall also
execute and deliver to the Pledgor upon such termination such documentation as
shall be reasonably requested as necessary by the Pledgor to effect the
termination and release of the Liens on the Collateral, all at the expense of
the Pledgor.
21. Counterparts. This Agreement may be executed in any number of
counterparts, all of which, when taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective duly authorized officers as of the
day and year first above written.
DC Systems, Inc.
By:/s/ Mark A. Herman
______________________________
Name: Mark Herman
Title: VP, CFO
Accepted as of this 30th
day of August, 1999
Fleet Bank, N.A.,
as Lender
By: /s/ Susan Failla
______________________________
Name: Susan Failla
Its: Vice President
<PAGE> 1
Exhibit 10.44
PLEDGE AGREEMENT
CAMINUS/DC ACQUISITION CORP.
THIS PLEDGE AGREEMENT, dated as of August 30, 1999, is made by
Caminus/DC Acquisition Corp., a Delaware corporation (the "Pledgor"), to Fleet
Bank, N.A., a national banking association organized under the laws of the
United States, as lender (hereinafter, in such capacity, together with its
successors in such capacity, the "Lender") under the Credit Agreement referred
to below.
Caminus LLC, a Delaware limited liability company (the "Company"),
and the Lender are parties to a Credit Agreement dated as of June 23, 1999 (such
Credit Agreement, as the same may be amended or supplemented from time to time
is referred to herein as the "Credit Agreement") providing, subject to the terms
and conditions thereof, for extensions of credit to be made by the Lenders to
the Company in an aggregate principal amount not exceeding $5,000,000 (the
"Loans"). The Loans made or to be made by the Lender to the Company shall be
evidenced by certain promissory notes (as exchanged, replaced, amended,
supplemented or modified from to time, the "Notes") in substantially the form of
Exhibits A-1 and A-2 attached to the Credit Agreement.
The Pledgor is the legal and beneficial owner of all of the shares
of Capital Stock of DC Systems, Inc., a Texas corporation ("DC Systems") (such
shares of Capital Stock and such additional shares of Capital Stock of DC
Systems and any property at any time and from time to time receivable by the
Lender hereunder or otherwise distributed in respect of or in exchange for any
such shares, including any stock options or rights received as provided in
Section 3 of this Agreement, are hereinafter referred to as the "Pledged
Stock").
For other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor has agreed to execute
and deliver this Agreement.
1. Defined Terms. Unless otherwise defined herein, terms defined in
the Credit Agreement shall have such defined meanings when used herein.
2. Pledge. The Pledgor hereby pledges, assigns, hypothecates,
transfers, and delivers to the Lender, all the Pledged Stock and hereby grants
to the Lender, a first lien on, and security interest in, the Pledged Stock and,
except as hereinafter provided, in all increases and profits therefrom and all
proceeds thereof, together with appropriate undated stock and/or transfer powers
with respect thereto duly executed in blank, as security for the payment,
performance and observance of all indebtedness, obligations, liabilities and
agreements of the Company to the Lender of whatever nature, pursuant to, under
or arising out of, the Credit Agreement, the Notes, the other Loan Documents and
any amendments, extensions, renewals, refundings or modifications thereto or of
any part thereof, whether now existing or hereafter incurred, matured or
unmatured, direct or contingent, together with interest and costs of
<PAGE> 2
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enforcement and collection thereof and of this Agreement, including all
reasonable actual attorneys' fees and disbursements incurred by the Lender
(collectively, the "Liabilities").
3. Collateral. All property at any time pledged with the Lender
hereunder (whether described herein or not) and all increases, profits and
income therefrom and proceeds thereof, are herein collectively sometimes called
the "Collateral".
4. Stock Dividends, Distributions, etc. If, while this Agreement is
in effect, the Pledgor shall become entitled to receive or shall receive any
stock certificate (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital, or issued in connection with any
reorganization, merger or consolidation, or resulting from a split-up, revision
or other like change of the Pledged Stock or otherwise received in exchange
therefor), option or rights, whether by purchase or other acquisition or as an
addition to, in substitution of, or in exchange for any shares of any Pledged
Stock, the Pledgor agrees to accept the same as agent of the Lender and to hold
the same in trust on behalf of and for the benefit of the Lender, and to deliver
the same forthwith to the Lender in the exact form received, with the
endorsement of the Pledgor when necessary and/or appropriate undated stock
and/or transfer powers duly executed in blank, to be held by the Lender, subject
to the terms hereof, as additional collateral security for the Liabilities. Any
sums paid upon or in respect of the Pledged Stock upon the liquidation or
dissolution of the issuer thereof shall be paid over to the Lender to be held by
it in trust as additional collateral security for the Liabilities; and in case
any distributions of capital shall be made on or in respect of the Pledged Stock
or any property shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of the
issuer thereof or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Lender to be held by it as additional
collateral security for the Liabilities (except as otherwise provided in Section
5 hereof). All sums of money and property so paid or distributed in respect of
the Pledged Stock which are received by the Pledgor shall, until paid or
delivered to the Lender, be held by the Pledgor in trust as additional
collateral security for the Liabilities.
5. Cash Dividends; Voting Rights. Subject to any restrictions in the
Credit Agreement, the Pledgor shall be entitled to receive all cash dividends
paid in respect of the Pledged Stock. So long as no Event of Default has
occurred and is continuing under the Credit Agreement, the Pledgor shall be
entitled (as permitted by DC System's Articles of Incorporation) to vote the
Pledged Stock and to give consents, waivers and ratifications in respect of the
Pledged Stock (as the case may be), provided, however, that no vote shall be
cast or consent, waiver or ratification given or action taken which would impair
the Collateral or be inconsistent with or violate any provision of this
Agreement, the Credit Agreement, the Notes or the other Loan Documents.
6. Amendments, Modifications and Waivers with Respect to
Liabilities. The Pledgor hereby consents that, without the necessity of any
reservation of rights against the Pledgor (but subject to the provisions of the
Credit Agreement), and without notice to or further assent by the Pledgor, any
demand for payment of any of the Liabilities made by the Lender may be rescinded
by the Lender and any of the Liabilities continued, and the Liabilities, or the
liability of the Pledgor or any other party upon or for any part thereof, or any
collateral security
<PAGE> 3
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or guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered, or released by the Lender, and the Credit
Agreement, the Notes, any collateral security documents (including, without
limitation, the other Collateral Documents) or guarantees or documents in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as the Lender may deem advisable from time to time (subject to
the consent of the Lender under the Credit Agreement), and any collateral
security (including, without limitation, the Collateral Documents) at any time
held by the Lender for the payment of the Liabilities may be sold, exchanged,
waived, surrendered or released (in accordance with the terms thereof), all
without the necessity of any reservation of rights against the Pledgor and
without notice to or further assent by the Pledgor, which will remain bound
hereunder, notwithstanding any such renewal, extension, modification,
acceleration, compromise, amendment, supplement, termination, sale, exchange,
waiver, surrender or release. The Lender shall have no obligation to protect,
secure, perfect or insure any other collateral security document (including,
without limitation, the other Collateral Documents) or property subject thereto
at any time held as security for the Liabilities. The Pledgor waives any and all
notice of the creation, renewal, extension or accrual of any of the Liabilities
and notice of or proof of reliance by the Lender upon this Agreement, and the
Liabilities shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this Agreement, and all dealings between the Lender
and the Pledgor shall likewise be conclusively presumed to have been made or
consummated in reliance upon this Agreement. The Pledgor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Pledgor or any other person with respect to the Liabilities.
7. Rights of the Lender. The Lender shall not be liable for failure
to collect or realize upon the Liabilities or any collateral security or
guarantee therefor, or any part thereof, or for any delay in so doing nor shall
it be under any obligation to take any action whatsoever with regard thereto.
Any or all shares of the Pledged Stock held by the Lender hereunder may, if an
Event of Default shall have occurred and be continuing under the Credit
Agreement, without notice, be registered in the name of the Lender or its
nominee, and the Lender or its nominee may thereafter without notice, exercise
all voting and corporate rights at any meeting of any corporation issuing any of
the shares included in the Pledged Stock and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any shares of the Pledged Stock as if it were the absolute owner
thereof, including without limitation, the right to exchange, at its discretion,
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any corporation issuing any of such
shares or upon the exercise by any such issuer or the Lender of any right,
privilege or option pertaining to any shares of the Pledged Stock, and in
connection therewith, to deposit and deliver any and all of the Pledged Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as it may determine, all without liability
except to account for property actually received by it, but the Lender shall
have no duty to exercise any of the aforesaid rights, privileges or options and
shall not be responsible for any failure to do so or delay in so doing.
8. Remedies. Upon the occurrence of an Event of Default under the
Credit Agreement or in the event that any portion of the Liabilities has been
declared due and payable, the Lender, in addition to any rights of the Lender
hereunder, without demand of performance or
<PAGE> 4
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other demand, advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or upon the Pledgor or any
other Person (all and each of which demands, advertisements and/or notices are
hereby expressly waived), may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase, contract to sell or otherwise
dispose of and deliver said Collateral, or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange, brokers' board or
at any of the Lender's offices or elsewhere upon such terms and conditions as it
may deem advisable and such public sale or sales, (or, to the extent permitted
by law, such private sale) to purchase the whole or any part of said Collateral
so sold, shall be free of any right or equity of redemption of the Pledgor,
which right or equity is hereby expressly waived and released. The Lender shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale (after deduction of all reasonable costs and expenses of
every kind incurred therein or incidental to the care, safekeeping or otherwise
of any and all of the Collateral or in any way relating to the rights of the
Lender hereunder, including attorneys' fees and legal expenses) against payment
in whole or in part, of the Liabilities in such order as the Lender may elect
(subject to statutory requirements), and only after so applying such net
proceeds and after the payment by the Lender of any other amount required by any
provision of law, need the Lender account for the surplus, if any, to the
Pledgor. The Pledgor agrees that the Lender need not give more than ten days'
notice of the time and place of any public sale or of the time after which a
private sale or other intended disposition is to take place and that such notice
is reasonable notification of such matters. In addition to the rights and
remedies granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to any of the Liabilities, the Lender
shall have all the rights and remedies of a secured party under the Uniform
Commercial Code of the State of New York.
9. Representations, Warranties and Covenants of the Pledgor. The
Pledgor represents and warrants that (a) the Pledgor is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware; (b) the Pledgor is the legal record and beneficial owner of, and has
good title to, the Pledged Stock, subject to no pledge, lien, mortgage,
hypothecation, security interest, charge, option or other encumbrance
whatsoever, except the lien and security interest created by this Agreement; (c)
all the shares of the Pledged Stock have been duly and validly issued, are fully
paid and non-assessable; (d) the pledge, assignment and delivery of such Pledged
Stock pursuant to this Agreement creates a valid first lien on and a first
perfected security interest in such shares of the Pledged Stock, and the
proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation,
security interest, charge, option or encumbrance or to any agreement purporting
to grant to any third party a security interest in the property or assets of the
Pledgor which would include the Pledged Stock; (e) the Pledged Stock
constitutes, in the aggregate, 100% of the issued and outstanding shares of
capital stock of DC Systems as of the date of this Agreement; (f) the Pledgor
has the power, right and authority to execute and deliver this Agreement; (g)
the execution, delivery and performance by the Pledgor of this Agreement do not
and will not (1) require any consent or approval of any Person that has not been
obtained, (2) contravene its Articles of Incorporation or By-laws, (3) violate
any provisions of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect applicable to the Pledgor,
(4) result in a breach of, constitute a default under or otherwise contravene
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Pledgor is a party or by which the Pledgor or the
Pledgor's properties may be bound or affected, (5) result in, or require, the
creation or
<PAGE> 5
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imposition of any Lien (other than a Lien in favor of the Lender) upon or with
respect to any of the Pledgor's properties now owned or hereafter acquired, or
(6) cause the Pledgor to be in default under any such law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument; (h) this Agreement has been duly
authorized, executed and delivered by the Pledgor and constitutes a legal, valid
and binding obligation of the Pledgor, enforceable against the Pledgor in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights generally; and (i) there is no action, suit or proceeding
pending or threatened against or otherwise affecting the Pledgor before any
Governmental Authority or any arbitrator which may adversely affect the ability
of the Pledgor to perform its obligations under this Agreement. The Pledgor
covenants and agrees that the Pledgor will defend the Lender's right, title and
security interest in and to the Pledged Stock and the proceeds thereof against
the claims and demands of all persons whomsoever; and covenants and agrees that
the Pledgor will have like title to and right to pledge any other property at
any time hereafter pledged to the Lender, as Collateral hereunder and will
likewise defend the Lender's right thereto and security interest therein.
10. No Disposition, etc. Without the prior written consent of the
Lender, the Pledgor agrees that the Pledgor will not sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Pledged Stock or any of the other Collateral, nor will the Pledgor create,
incur, or permit to exist any pledge, lien, mortgage, hypothecation, security
interest, charge, option or any other encumbrance with respect to the Pledged
Stock or any of the other Collateral, or any interest therein, or any proceeds
thereof, except for the lien and security interest provided for by this
Agreement. Without the prior written consent of the Lender, the Pledgor agrees
that the Pledgor will not vote to enable DC Systems to, and will not otherwise
permit DC Systems to, issue any stock or other securities of any nature in
addition to or in exchange or substitution for the Pledged Stock.
11. Disposition of Pledged Stock. (a) If the Lender shall determine
to exercise its rights to sell any or all of the Pledged Stock pursuant hereto,
and if in the opinion of counsel for the Lender it is necessary to have the
Pledged Stock, or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Pledgor will cause each issuer of shares included in the Pledged Stock
contemplated to be sold, to use its reasonable best efforts to execute and
deliver, and will use its reasonable best efforts to cause the directors and
officers of each thereof to execute and deliver, all such instruments and
documents, and to do or cause to be done all such other acts and things as may
be necessary or, in the opinion of the Lender, advisable to register the Pledged
Stock, or that portion thereof to be sold, under the provisions of the
Securities Act and to cause the registration statement relating thereto to
become effective and to remain effective for a period of one year from the date
of the first public offering of the Pledged Stock, or that portion thereof to be
sold, and to make all amendments thereof and/or to the related prospectus which,
in the opinion of the Lender, are necessary, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to
cause each such issuer to comply with the provisions of the securities or "Blue
Sky" laws of any jurisdiction which the Lender shall designate and to cause each
such issuer to make available to its security holders, as soon as practicable,
an earnings statement (which need not be audited) which will satisfy the
provisions of Section 11(a) of the Securities Act.
<PAGE> 6
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(b) The Pledgor recognizes that the Lender may be unable to effect a
public sale of any or all of the Pledged Stock by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
or purchasers who will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Lender shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit the issuer of such securities to register such securities
for public sale under the Securities Act, or under the applicable state
securities laws, even if the issuer would agree to do so.
(c) The Pledgor further agrees to use such reasonable efforts to do
or cause to be done all such other acts and things as may be reasonably
requested by the Lender which are within its power and necessary to make such
resale or sales of any portion or all of the Pledged Stock valid and binding and
in compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Pledgor's expense. The Pledgor further agrees
that a breach of any of the covenants contained in this paragraph 11 will cause
irreparable injury to the Lender, that the Lender has no adequate remedy at law
in respect of such breach and, as a consequence, agrees that each and every
covenant contained in this paragraph shall be specifically enforceable against
the Pledgor and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants. The Pledgor
further acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by the Lender by reason of a breach of any of such
covenants and, consequently, agrees that, if the Lender shall sue for damages
for breach, the Pledgor shall pay, as liquidated damages and not as a penalty,
an amount equal to the value of the Pledged Stock on the date the Lender demands
compliance with this paragraph.
12. [Intentionally Omitted].
13. Further Assurances. The Pledgor agrees that, at any time and
from time to time upon the written request of the Lender, the Pledgor will
execute and deliver such further documents and do such further acts and things
as the Lender may reasonably request in order to effect the purposes of this
Agreement.
14. Severability. If any provision hereof shall be held to be
invalid, illegal or unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall remain in full
force and effect in such jurisdiction, and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
15. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, and no course of dealing with respect to,
any right, power, or remedy under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of
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any right hereunder and under any of the other Loan Documents preclude any other
or further exercise thereof or the exercise of any other right, power, or
privilege. The remedies provided herein and in the other Loan Documents are
cumulative and not exclusive of any remedies provided by law.
16. Successors and Assigns. The covenants, representations,
warranties and agreements herein set forth shall be binding upon the Pledgor,
the Pledgor's legal representatives, successors and assigns, and shall inure to
the benefit of the Lender and successors and assigns. The successor of the
Lender hereunder shall forthwith become vested with and shall be entitled to
exercise all the powers and rights given by this Agreement to the Lender, as if
said successor were originally named as party herein.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ANY CHOICE OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR THE ENFORCEMENT OF ANY REMEDIES HEREUNDER, WITH RESPECT
TO THE COLLATERAL SHALL BE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
18. Amendments. None of the terms or provisions of this Agreement
may be waived, altered, modified, or amended except by an agreement in writing
signed by the Lender and the Pledgor.
19. Notices. All notices and demands to or upon the respective
parties hereto to be effective shall be in writing and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when
delivered by hand, or five (5) days after deposited in the mail, air postage
prepaid, or in the case of notice by telecopier (fax), when sent (subject to
confirmation of receipt), or in the case of overnight courier service and
accepted for next day delivery service, one Business Day after delivery to a
nationally recognized overnight courier service, addressed as follows or to such
other address as may be hereafter notified by the respective parties to this
Agreement:
If to the Pledgor:
Caminus/DC Acquisition Corp.
5001 Spring Valley Road
Suite 390-West
Dallas, TX 75244
Fax No.:
Tel. No.:
Attention:
<PAGE> 8
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If to the Lender:
Fleet Bank, N.A.
185 Avenue of the Americas
New York, New York 10036
Fax No. : (212) 819-4114
Tel. No.: (212) 819-5767
Attention: Ms. Susan Failla
20. Termination. When all Liabilities shall have been paid in full
and the Commitments under the Credit Agreement have expired or been terminated,
this Agreement shall terminate, and the Lender shall cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect thereof, to or for the order of the Pledgor. The Lender shall also
execute and deliver to the Pledgor upon such termination such documentation as
shall be reasonably requested as necessary by the Pledgor to effect the
termination and release of the Liens on the Collateral, all at the expense of
the Pledgor.
21. Counterparts. This Agreement may be executed in any number of
counterparts, all of which, when taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective duly authorized officers as of the
day and year first above written.
Caminus/DC Acquisition Corp.
By: /s/ Mark A. Herman
______________________________
Name: Mark Herman
Title: VP, CFO
Accepted as of this 30th
day of August, 1999
Fleet Bank, N.A.,
as Lender
By: /s/ Susan Failla
______________________________
Name: Susan Failla
Its: Vice President
<PAGE> 1
EXHIBIT 10.45
SECURITY AGREEMENT
DC SYSTEMS, INC.
THIS SECURITY AGREEMENT, dated as of September 1, 1999 (the
"Agreement" or the "Security Agreement"), is between DC Systems, Inc., a Texas
corporation, as debtor (the "Debtor"), and Fleet Bank, N.A., a national banking
association organized under the laws of the United States, as lender
(hereinafter, in such capacity, together with its successors in such capacity,
the "Lender") under the Credit Agreement referred to below.
Caminus LLC, a Delaware limited liability company (the "Company"),
and the Lender are parties to a Credit Agreement dated as of June 23, 1999 (such
Credit Agreement, as the same may be amended or supplemented from time to time
is referred to herein as the "Credit Agreement") providing, subject to the terms
and conditions thereof, for extensions of credit to be made by the Lenders to
the Company in an aggregate principal amount not exceeding $5,000,000.00 (the
"Loans"). The Loans made or to be made by the Lender to the Company shall be
evidenced by certain promissory notes (as exchanged, replaced, amended,
supplemented or modified from time to time, the "Notes") in substantially the
form of Exhibits A-1 and A-2 attached to the Credit Agreement, as guaranteed by
the Debtor pursuant to a certain Guarantee by the Debtor in favor of the Lender,
dated as of even date herewith (such Guarantee, as the same may be amended or
supplemented from time to time is referred to herein as the "Guarantee").
For other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Debtor has agreed to execute
and deliver this Agreement.
As used herein, "UCC" shall mean the Uniform Commercial Code of the
State of New York (except as otherwise defined in Section 7 hereof) as amended
and in effect as of the date hereof. All other capitalized terms, unless defined
herein or in the Schedules attached hereto and made a part hereof, shall have
the meanings set forth in the Credit Agreement.
SECTION 1. Security Interest.
1(a) As security for the prompt and complete payment, performance
and observance of all indebtedness, obligations, liabilities and agreements of
the Debtor to the Lender pursuant to, under or arising out of the Guarantee and
any amendments, extensions, renewals, increases, refundings or modifications
thereto or of any part thereof, whether now existing or hereafter incurred,
matured or unmatured, direct or contingent, together with interest and costs of
enforcement and collection thereof and of this Security Agreement, including all
reasonable actual attorneys' fees and disbursements incurred by the Lenders
(collectively, the "Liabilities"), the Debtor hereby grants to the Lender, a
continuing security interest of first priority in, and the Debtor hereby assigns
and pledges to the Lender, all of the Debtor's right, title and interest in the
property described on Schedule A-1 attached hereto, whether now owned by the
Debtor or hereafter coming into existence, and wherever located (all being
collectively referred to herein as the "Collateral").
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1(b) The Debtor irrevocably appoints the Lender as its lawful
attorney and agent to execute financing statements and amendments thereto (to
the extent permitted by applicable law), notices of any assignments of any of
the Collateral on the Debtor's behalf, and on its behalf to file financing
statements and amendments thereto in any appropriate public office.
1(c) This Security Agreement is in addition to and without
limitation of any right of the Lender and/or any of the other Lender under any
other security agreement, pledge or leasehold assignment, mortgage or guarantee
granted by the Debtor or any third party to the Lender.
1(d) Except as otherwise herein provided, this Security Agreement is
absolute and without any conditions. The Lender can enforce its rights in the
Collateral immediately upon an Event of Default without having first to attempt
any collection from the Debtor.
SECTION 2. Collection.
Upon the occurrence and continuation of an Event of Default pursuant
to Section 9(a) hereof, the Lender shall have the following rights and powers in
addition to those specified in Section 9(b) hereof:
2(a) The Lender shall have the right to notify the parties obligated
on any or all of the Debtor's Accounts, Contracts, Chattel Paper, Instruments,
Insurance, Documents or General Intangibles to make payment thereof directly to
the Lender, and the Lender may take control of all proceeds of any of the
Accounts, Contracts, Chattel Paper, Instruments, Insurance or General
Intangibles. The costs of collection and enforcement, including reasonable
attorney's fees and reasonable out-of-pocket expenses, shall be borne solely by
the Debtor, whether the same are incurred by the Lender or the Debtor. The
Debtor will not thereafter without the Lender's written consent make any
adjustment, extend or renew, compromise, compound or settle any of the Accounts,
Contracts, Chattel Paper, Instruments, Insurance or General Intangibles, or
release, wholly or partly, any person liable for payment thereof.
2(b) The Debtor hereby irrevocably appoints the Lender to be the
Debtor's true and lawful attorney, with full power of substitution, in the
Lender's name or the Debtor's name or otherwise for the Lender's sole use and
benefit, but at the Debtor's cost and expense, to exercise at any time all or
any of the following powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give
acquittance for any and all moneys due or to become due
upon or by virtue thereof;
(ii) to receive, take, sign, endorse, assign and deliver any
and all checks, notes, drafts, acceptances, invoices,
freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments,
verifications, notices and other negotiable and
non-negotiable instruments and
<PAGE> 3
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documents taken or received by the Lender in connection
therewith;
(iii) to receive, open and dispose of all mail addressed to
the Debtor and to notify the post office authorities to
change the address for delivery of mail addressed to the
Debtor to such address as the Lender may designate;
(iv) to sign the name of the Debtor on any Document, on
invoices relating to any Account or Contract, drafts
against and notices to account debtors or obligors of
the Debtor, on financing statements and other public
records and on notices to customers;
(v) to execute endorsements, assignments or other
instruments of conveyance or transfer and proofs of
claim and loss and to adjust and compromise any claims
under insurance policies or otherwise;
(vi) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto;
(vii) to sell, transfer, assign or otherwise deal in or with
the same or the proceeds thereof and to apply for and
obtain any required consents of governmental authority
for any sale or other disposition of the Collateral, as
full and effectually as if the Lender were the absolute
owner thereof; and
(viii) to apply any or all amounts then in, or thereafter
deposited in, the Company Account in the manner provided
in Section 9(b)(iii) hereof; and
(ix) to make any allowances and other adjustments with
reference thereto and to take all other actions
necessary or advisable in the sole discretion of the
Lender to carry out and enforce this Security Agreement
or the Liabilities.
All acts done under the foregoing authorization are hereby ratified
and approved by the Debtor and neither the Lender nor any designee or agent of
the Lender shall be liable for any acts of commission or omission (other than
acts committed or omitted through gross negligence or willful misconduct), for
any error of judgment or for any mistake of fact or law. The foregoing power of
attorney being coupled with an interest is irrevocable while any Liabilities
shall remain unpaid. The foregoing authorization shall not be construed in
limitation of any other similar authorization to the Lender under the Guarantee
or otherwise.
2(c) The Debtor will immediately deliver to the Lender all proceeds
of the Collateral and all original evidence of Accounts, Contracts, Chattel
Paper, Instruments,
<PAGE> 4
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Insurance, Documents, Patents, Trademarks, Records or General Intangibles,
including without limitation all notes or other instruments or contracts for the
payment of money, appropriately endorsed to the Lender's order and, regardless
of the form of such endorsement, the Debtor hereby waives presentment, demand,
notice of dishonor, protest and notice of protest and all other notices with
respect thereto; and the Debtor hereby appoints the Lender as the Debtor's agent
and attorney-in-fact to make such endorsement on behalf of and in the name of
the Debtor.
2(d) The exercise by the Lender of or failure to so exercise any
authority granted hereinabove shall in no manner affect the Debtor's liability
to the Lender, and provided, further, that the Lender shall be under no
obligation or duty to exercise any of the powers hereby conferred upon it and it
shall be without liability for any act or failure to act in connection with the
collection of, or the preservation of any rights under any of, the Collateral.
SECTION 3. General Representations and Warranties.
In addition to the Debtor's representations made in the other Loan
Documents, the Debtor represents and warrants to the Lender, which
representations and warranties shall survive execution and delivery of this
Agreement, as follows:
3(a) All filings, registrations and recordings necessary or
appropriate to create, preserve, protect and perfect the security interest
granted by the Debtor to the Lender hereby in respect to the Collateral have
been accomplished and the security interest granted to the Lender pursuant to
this Agreement in and to the Collateral constitutes a perfected security
interest therein superior and prior to the rights of all other Persons therein
(except for Liens permitted under the Credit Agreement) and subject to no other
Liens (except for Liens permitted under the Credit Agreement), and is entitled
to all the rights, priorities and benefits afforded by the UCC or other relevant
laws as enacted in any relevant jurisdiction to perfected security interests.
3(b) The Debtor is, and as to Collateral acquired by it from time to
time after the date hereof the Debtor will be, the owner of all Collateral free
from any Lien, security interest, encumbrance or other right, title or interest
of any Person (other than Liens permitted under the Credit Agreement), and the
Debtor shall defend its Collateral against all claims and demands of all Persons
at any time claiming the same or any interest therein adverse to the Lender.
3(c) There is no financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) covering or
purporting to cover any interest of any kind in the Collateral except for
filings and recordings permitted under the Credit Agreement and filings and
recordings in favor of the Lender created or provided for herein, and so long as
any of the Liabilities remain unpaid the Debtor will not execute or authorize to
be filed in any public office any financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) or statements
relating to the Collateral, except (i) financing statements filed or to be filed
in respect of and covering the security interests granted hereby by the Debtor,
and (ii) financing statements to be filed in connection with the creation of
Liens permitted under the Credit Agreement.
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3(d) The office location(s) of the Debtor set forth on Schedule B
attached hereto as the Debtor's principal place of business and chief executive
office and all other places of business are true and correct.
3(e) Schedule B attached hereto contains a true and complete listing
of all of the locations of all the Collateral. In the case of Inventory,
Schedule B also sets forth each Warehouseman (as defined in the Uniform
Commercial Code as in effect in the state in which the warehouse owned or
operated by such Person is located) that from time to time holds Inventory of
the Debtor and the Permitted Inventory Location (as defined herein) at which
such Inventory is so held. In the case of such Inventory, the Debtor further
represents and warrants that none of the Inventory is subject to a negotiable
warehouse receipt (as defined in the Uniform Commercial Code as in effect in the
state in which such Inventory is located).
3(f) The Debtor further represents and warrants, as to any
Inventory, that all such Inventory, other than Inventory in transit in the
normal course of business, is held at a Permitted Inventory Location (as defined
herein). "Permitted Inventory Location" is defined herein to mean (i) a
warehouse or other storage facility owned or leased by the Debtor, or (ii) a
warehouse or other storage facility owned, leased or operated by a Warehouseman
from whom the Lender has received a warehouse bailment agreement in form and
substance satisfactory to the Lender with respect to Inventory there held, and,
in either case, in jurisdictions where appropriate UCC financing statements
shall have liens filed against the Debtor for the benefit of the Lender and the
other Lender.
SECTION 4. Special Provisions Concerning Accounts.
4(a) As of the time when each of its Accounts arises, the Debtor
shall be deemed to have represented and warranted that such Accounts and all
records, papers and documents relating thereto (if any) are genuine and in all
respects what they purport to be, and that all papers and documents (if any)
relating thereto (i) will represent the genuine, legal, valid and binding
obligation of the account debtor evidencing indebtedness unpaid and owed by such
account debtor arising out of the performance of labor or services or the sale
or lease and delivery of the merchandise listed therein, or both, (ii) will be
the only original writings evidencing and embodying such obligation of the
account debtor named therein (other than copies created for purposes other than
general accounting purposes), (iii) will evidence true and valid obligations,
enforceable in accordance with their respective terms, not subject to the
fulfillment of any contract or condition whatsoever or to any defenses, set offs
or counterclaims (except with respect to refunds, returns and allowances in the
ordinary course of business), or stamp or other taxes, and (iv) will be in
compliance and will conform with all applicable federal, state and local laws
and applicable laws of any relevant foreign jurisdiction.
4(b) The Debtor will keep and maintain at its own cost and expense
satisfactory and complete records of its Accounts, including, but not limited
to, records of all payments received, credits granted thereon, all merchandise
returned and all other dealings therewith, and the Debtor will make the same
available to the Lender for inspection, at the Debtor's own cost and expense, at
any and all reasonable times upon demand.
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4(c) The Debtor shall endeavor to cause to be collected from the
account debtor named in each of its Accounts, as and when due (including,
without limitation, Accounts which are delinquent, such Accounts to be collected
in accordance with generally accepted lawful collection procedures), any and all
amounts owing under or on account of such Accounts, and apply forthwith upon
receipt thereof all such amounts as are so collected to the outstanding balance
of such Accounts, except that, so long as no Event of Default exists and is
continuing, the Debtor may allow in the ordinary course of business as
adjustments to amounts owing under its Accounts an extension or renewal of the
time or times of payment, or settlement for less than the total unpaid balance,
which the Debtor finds appropriate in accordance with sound business judgment.
The costs and expenses (including, without limitation, attorneys' fees and
expenses) of collection, whether incurred by the Debtor or the Lender, shall be
borne by the Debtor.
4(d) If any of the Accounts becomes evidenced by an Instrument, the
Debtor will within ten (10) days notify the Lender thereof, and upon request by
the Lender promptly deliver such Instrument to the Lender appropriately endorsed
to the order of the Lender as further security hereunder.
4(e) The Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Lender from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to its
Accounts and other property or rights covered by the security interest hereby
granted, as the Lender may reasonably require which are consistent with the
terms hereunder.
SECTION 5. Special Provisions Concerning Contracts.
5(a) The Debtor represents and warrants that no consent of any party
(other than the Debtor) to any Contract is required, or purports to be required,
in connection with the execution, delivery and performance of this Security
Agreement. Each Contract is in full force and effect and is enforceable in
accordance with its respective terms and there is no default under any of the
terms thereof. The Debtor does hereby further represent and warrant that it has
not assigned or pledged, and hereby covenants that it will not assign or pledge,
except as permitted under the Credit Agreement, the whole or any part of the
rights hereby assigned to anyone other than the Lender, its successors or
assigns so long as this Security Agreement shall remain in effect. The Debtor
also covenants and agrees that it will not take any action or fail to take any
action or institute any proceedings the taking or omission of which might result
in the material alteration or impairment of this Security Agreement or any of
the material rights created by any of the Contracts or this Security Agreement.
Except as specified by a detailed notation corresponding to the applicable
Contract on Schedule A-2, the Debtor hereby further represents and warrants that
no consent or authorization of, filing with or other act by or in respect of any
Governmental Authority is required in connection with the execution, delivery,
performance, validity or enforceability of any of the Contracts by any party
thereto other than those which have been duly obtained, made or performed, are
in full force and effect and do not subject the scope of any such Contract to
any material adverse limitations, either specific or general in nature. The
right, title and interest of the Debtor in, to and under each Contract are not
subject to any defense, offset, counterclaim or claim which could reasonably be
expected to have a Material Adverse Effect, nor, as of the date of this Security
Agreement and to the best of the
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Debtor's knowledge, have any of the foregoing been asserted or alleged against
the Debtor as to any Contract. The Debtor has delivered to the Lender a complete
and correct copy of each Contract, including all amendments, supplements and
other modifications thereto. No amount payable to the Debtor under or in
connection with any Contract is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Lender.
The Debtor agrees that, so long as this Security Agreement is in
effect, it will not, without the prior written consent of the Lender, amend,
modify or permit to be amended or modified any of the Contracts or waive or
permit to be waived any material provisions of any of the Contracts, or exercise
any right to terminate or cancel any of the Contracts or consent or agree to, or
suffer or permit, the termination thereof whether or not on account of any
default therein specified if any such amendment, modification or waiver,
termination or cancellation could have a Material Adverse Effect.
SECTION 6. Rights and Obligations Concerning Accounts and Contracts.
6(a) Anything herein to the contrary notwithstanding, the Debtor
shall remain liable under each of the Accounts and Contracts to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise to
each such Account and in accordance with and pursuant to the terms and
provisions of each such Contract. The Lender shall have no obligation or
liability under any Account (or any agreement giving rise thereto) or under any
Contract by reason of or arising out of this Security Agreement or the receipt
by the Lender of any payment relating to such Account or Contract pursuant
hereto, nor shall the Lender be obligated in any manner to perform any of the
obligations of the Debtor under or pursuant to any Account (or any agreement
giving rise thereto) or under or pursuant to any Contract, to make any payment,
to make any inquiry as to the nature or the sufficiency of any payment received
by it or as to the sufficiency of any performance by any party under any Account
(or any agreement giving rise thereto) or under any Contract, to present or file
any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
6(b) The Debtor hereby agrees that no liability shall be asserted or
enforced against the Lender in the exercise of the rights and powers granted to
the Lender hereunder, all such liability being hereby expressly waived and
released by the Debtor. Without limiting the application of Section 11(a)
hereof, the Debtor hereby agrees to indemnify and hold the Lender harmless for
and against any and all liability, expense, cost, loss or damage which the
Lender may incur by reason of any act or omission of the Debtor under any of the
Contracts ("Losses"), except to such extent such Losses arise by reason of the
gross negligence or willful misconduct of the Lender. Should the Lender incur
any liability, expense, cost, loss, or damage, (i) under the Contracts for which
it is to be indemnified by the Debtor as aforesaid, or (ii) by reason of the
exercise of the Lender's rights hereunder, the amount thereof, including costs,
expenses and reasonable actual attorney's fees and expenses, shall be secured
hereby and shall be immediately due and payable by the Debtor to the Lender.
6(c) The Lender has the right to make test verifications of the
Accounts in any manner and through any medium that it reasonably considers
advisable, and the Debtor shall
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furnish all such assistance and information as the Lender may require in
connection therewith. At any time and from time to time, upon the Lender's
request and at the expense of the Debtor, the Debtor shall cause independent
public accountants or others satisfactory to the Lender to furnish to the Lender
reports showing reconciliations, aging and test verifications of, and trial
balances, for, the Accounts. The Lender may in its own name or in the name of
others communicate with account debtors on the Accounts and parties to the
Contracts to verify with them to its satisfaction the existence, amount and
terms of any Accounts or Contracts, provided that, so long as no Event of
Default has occurred and is continuing, the Lender agrees to provide the Debtor
notice prior to initiating such verification.
6(d) The Debtor shall promptly notify the Lender of, and provide to
the Lender copies of, any default notices under any of the Contracts.
SECTION 7. Special Provisions Concerning Patents and Trademarks.
7(a) The Debtor represents and warrants that it is the true and
lawful exclusive owner of the entire and unencumbered right, title and interest
in and to each of the Trademarks listed on Schedule A-3 and the Patents listed
on Schedule A-4 attached hereto, free and clear of all liens and encumbrances
(including, without limitation, any covenant not to sue a third party); that the
Trademarks and Patents are subsisting, valid, enforceable, and have not been
adjudged invalid or unenforceable, in whole or in part; and that the Trademarks
and the Patents constitute all the registered trademarks and patents,
respectively, in the United States Patent and Trademark Office and
non-registered trademarks that the Debtor now owns or uses in connection with
its business.
7(b) The Debtor represents and warrants that it has made all
necessary filings and recordations to protect its interest in the Trademarks,
Patents, and its other intellectual property; that it has and will continue to
pay all required taxes, fees, and costs to maintain all of its rights in the
Trademarks, Patents, and its other intellectual property; and that it has
received no notice or claim that its use of any of the Trademarks, Patents, or
other intellectual property infringes the rights of any third party.
7(c) Prior to licensing or assigning any of the Trademarks, Patents,
or its other intellectual property, the Debtor will give the Lender written
notice of any such license or assignment plus a copy of the draft license
agreement or assignment, and, upon execution, a copy of any final agreement or
assignment.
7(d) The Debtor shall, promptly upon learning thereof, notify the
Lender in writing of the name and address of, and furnish such pertinent
information that may be available with respect to, any party who may be
infringing or otherwise violating any of the Debtor's rights in and to any
Trademarks, Patents, or other intellectual property or of any party who makes a
claim that the use of any of the Trademarks, Patents, or other intellectual
property otherwise violates any property of any nature of that party or any
third party. Unless the Debtor shall reasonably determine that such Trademark,
Patents, or other intellectual property is not of material economic value to the
Debtor, the Debtor further shall diligently prosecute any and all persons who
infringe any of its Trademarks, Patents, or other intellectual property to
recover any and all damages and take such other actions as the Debtor shall deem
appropriate under the
<PAGE> 9
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circumstances to protect such Trademarks, Patents, or other intellectual
property. The Lender shall have the option, but not the obligation, to
participate in any such action at Debtor's expense and to maintain suits against
parties for infringement or misappropriation if Lender believes the Debtor is
not diligently and vigorously proceeding in such action(s).
7(e) If any trademark or service mark registration or patent
registration is issued hereafter to the Debtor as a result of any application or
registration now or hereafter pending before the United States Patent and
Trademark Office or foreign equivalent thereof, the Debtor shall forthwith
execute and deliver a copy of the certificate of registration within thirty (30)
days of receipt of such certificate and a grant of security in such trademark,
service mark or patent to the Lender confirming the grant thereof hereunder, the
form of such confirmatory grant to be substantially the same as the form hereof.
7(f) The Debtor will perform all acts and execute all documents
including, without limitation, documents in form suitable for filing with the
United States Patent and Trademark Office, other governmental office, and any
foreign equivalent thereof, as reasonably requested by the Lender at any time to
evidence, perfect, maintain, record and enforce the Lender's interest in the
Trademarks, Patents, and the Debtor's other intellectual property or otherwise
in furtherance of the provisions of this Agreement. In the event of foreclosure
hereunder upon all or any part of the Collateral, the Debtor shall, and hereby
does, constitute the Lender as the Debtor's attorney-in-fact to transfer, in the
Debtor's name, the Trademarks (including all goodwill associated with the
Trademarks), the Patents, and the Debtor's other intellectual property to a
third party capable, in the Lender's judgment, of using and maintaining the
nature and quality of the Trademarks, the Patents, and the Debtor's other
intellectual property. Such power-of-attorney shall include, without limitation,
the right to execute all documents and to do all acts as the Lender considers
necessary to effect any of the foregoing, and all acts of such attorney are
hereby ratified and confirmed; such power being coupled with an interest which
is irrevocable until the Liabilities are paid in full.
7(g) Except to the extent that the Lender shall consent in writing,
the Debtor will, unless the Debtor shall reasonably determine that a Trademark
is not of material economic value to the Debtor, (i) continue to use each
Trademark in order to maintain each Trademark in full force free from any claim
of abandonment for non-use, (ii) employ each Trademark with the appropriate
notice of application or registration, (iii) not adopt or use any mark which is
confusingly similar or a colorable imitation of any Trademark, (iv) not use any
Trademark except for the uses for which registration or application for
registration of such Trademark has been made, (v) not (and not permit any
licensee or sublicensee thereof, if any, to) do any act or knowingly omit to do
any act whereby any Trademark may be subject to dilution, misappropriation, or
invalidation, and (vi) ensure and warrant that the quality of the goods and
services bearing each applicable Trademark will be maintained at not less than
the quality level thereof as exists as of the date of this Agreement, and in
that regard, during normal business hours the Lender and its representatives may
inspect the Debtor's books, records, and facilities which manufacture, inspect,
or store products to ensure that quality of the applicable goods and services
are being maintained.
7(h) The Debtor shall notify the Lender immediately if it knows, or
has reason to know, of any reason that any application or registration relating
to any Trademark, Patent, or
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other intellectual property of the Debtor may become abandoned or of any adverse
determination or development (including, without limitation, the institution of,
or any such determination or development in, any proceeding in the United States
Patent and Trademark Office or any court) regarding the Debtor's ownership of
any Trademark, Patent, other intellectual property, its right to register or use
the same, or to keep and maintain the same.
7(i) In no event shall the Debtor, either itself or through any
agent, employee, licensee or designee, file an application for the registration
of any Trademark, Patent, or other intellectual property with the United States
Patent and Trademark Office, other governmental office, or any similar office or
agency in any other country or any political subdivision thereof, unless it
promptly informs the Lender, and, upon request of the Lender, executes and
delivers any and all agreements, instruments, documents and papers as the Lender
may request to evidence the Lender's security interest in such Trademark,
Patent, or other intellectual property and the goodwill and general intangibles
of the Debtor relating thereto or represented thereby, and the Debtor hereby
constitutes the Lender its attorney-in-fact to execute and file all such
writings for the foregoing purposes, including without limitation to modify this
Agreement by amending Schedule A-3 and/or Schedule A-4 (as the case may be) to
include any future Trademarks, Patents, and other intellectual property, all
acts of such attorney being hereby ratified and confirmed; such power being
coupled with an interest which is irrevocable until the Liabilities are paid in
full.
7(j) The Debtor will take all commercially reasonable steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, any other governmental office, or any other office or
agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the Trademarks and Patents, except to the extent
permitted under Section 7(g), including but not limited to the appropriate and
timely payment of any required fees and the appropriate and timely filing of any
documents or declarations necessary to maintain and renew such Trademarks and
Patents which may be necessary or appropriate under applicable federal, state,
and foreign law.
7(k) Upon the occurrence and during the existence of an Event of
Default, the Lender may, by written notice to the Debtor, take any or all of the
following actions: (i) declare the entire right, title and interest of the
Debtor in and to each of the Trademarks, Patents, and other intellectual
property, together with all related rights and rights of protection to the same,
vested, in which event such rights, title and interest shall immediately vest,
in the Lender, in which case the Debtor agrees to execute assignments in form
and substance satisfactory to the Lender, of all its rights, title and interest
in and to the Trademarks, Patents, and other intellectual property to the
Lender; (ii) take and use or sell the Trademarks, Patents, and other
intellectual property and the goodwill of the Debtor's business symbolized by
the Trademarks and the right to carry on the business of such Debtor in
connection with which the Trademarks have been used; and (iii) direct the Debtor
to refrain, in which event the Debtor shall refrain, from using the Trademarks,
Patents, and its other intellectual property in any manner whatsoever, directly
or indirectly, and, if requested by the Lender, change the Debtor's corporate
name to eliminate therefrom any use of any Trademarks and execute such other and
further documents that the Lender may request to further confirm this and to
transfer ownership of the Trademarks, Patents, and other intellectual property,
and any pending trademark and patent application(s) for
<PAGE> 11
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trademarks, patents, and other intellectual property in the United States Patent
and Trademark Office, any other governmental office, and in any similar foreign
office to the Lender. After any Event of Default, the Debtor shall cooperate and
use its best efforts to obtain any consents, waivers, or agreements necessary to
enable the Lender to exercise its rights and remedies with respect to any
Trademark, Patent, and other intellectual property of the Debtor.
SECTION 8. Covenants of Debtor.
In addition to the Debtor's covenants contained in the Credit
Agreement and the Guarantee, the Debtor covenants that:
8(a) Subject to Section 3(e) and Section 3(f) hereof, the Collateral
is and will be located at the Debtor's chief executive office and such other
places of business and Permitted Inventory Locations as indicated on Schedule B
attached hereto. The Debtor's records of the Collateral will be located at the
Debtor's chief executive office. The chief executive office of the Debtor is
located at the address shown on Schedule B attached hereto. The Debtor will not
move its chief executive office, the location of the Collateral or any Records
Office (as defined below) except to such new location as the Debtor may
establish in accordance with the last sentence of this Section 8(a) and with
respect to Inventory, to Permitted Inventory Locations. The originals of all
documents and all electronically stored data and information evidencing all
Accounts and Contracts of the Debtor and the only original books of account and
records of the Debtor relating thereto are, and will continue to be, kept at its
chief executive office shown on Schedule B attached hereto (each, a "Records
Office"), or at such new Records Office as the Debtor may establish in
accordance with the last sentence of this Section 8(a). All Accounts, Contracts
and records of the Debtor are, and will continue to be, maintained at, and
controlled and directed (including, without limitation, for general accounting
purposes) from, such Records Office location shown above, or such new location
as the Debtor may establish in accordance with the last sentence of this Section
8(a). The Debtor shall not establish a new location for its chief executive
office, the location of the Collateral or any Records Office until (i) it shall
have given to the Lender not less than 45 days' prior written notice of its
intention so to do, clearly describing such new location and providing such
other information in connection therewith as the Lender may reasonably request,
and (ii) with respect to such new location, it shall have taken all action,
satisfactory to the Lender, to maintain the security interest of the Lender in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
8(b) The Collateral used or useful in its business, in whomever's
possession they may be, shall be kept in good repair, working order and
condition, and that from time to time there will be made to such Collateral all
needful and proper repairs, renewals, replacements, extensions, additions,
betterments and improvements thereto, to the extent and in the manner customary
for companies in similar lines of business under similar circumstances. The
Debtor will not encumber, sell, erase, transfer, assign, abandon or otherwise
dispose of the Collateral except for: (i) collection, discharge, discount,
compromise or expiration of the Accounts, Chattel Paper, Instruments or General
Intangibles in the ordinary course of the Debtor's business, (ii) sale or
transfer of Inventory in the ordinary course of business, (iii) dispositions of
items of Equipment no longer needed by the Debtor in the ordinary course of
business, (iv) Liens as permitted under the Credit Agreement and (v) trade-ins,
replacements or exchanges of items of Equipment for other items of Equipment to
the extent the same shall promptly be replaced by
<PAGE> 12
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Equipment having an equal or greater value (in excess of purchase money liens on
such items) and useful in the Debtor's business. The inclusion of "products" and
"proceeds" of the Collateral under the security interest granted herein shall
not be deemed a consent by the Lender to any sale or other disposition of the
Collateral except as expressly permitted herein or in the Credit Agreement.
8(c) The Debtor will have and maintain insurance at its expense as
required of the Company pursuant to Section 6.04 of the Credit Agreement. The
Lender is authorized by the Debtor to act as its attorney in collecting,
adjusting, settling or canceling such insurance and endorsing any drafts drawn
by insurers. The Lender may apply any insurance proceeds received by it to the
Liabilities, whether due or not; provided, however, that the Lender will hold
such proceeds as a special deposit for use by the Debtor in replacing any
damaged Equipment which gave rise to such proceeds, so long as the Debtor is
taking steps to replace such Equipment with due diligence and in good faith and
so long as no Event of Default has occurred and is continuing hereunder. The
Debtor will immediately notify the Lender of any damage to or loss of the
Collateral in excess of $50,000. Not later than the expiration date of each
insurance policy then in effect, the Debtor shall deliver to the Lender a
certificate of insurance certifying as to (i) the extension of such policy or
the issuance of a renewal policy therefor, describing the same in reasonable
detail satisfactory to the Lender and (ii) the payment in full of the portion of
the premium therefor then due and payable (or accompanied by other proof of such
payment satisfactory to the Lender). The Debtor shall be required forthwith to
notify the Lender if the Debtor shall determine at any time not to, or at any
time be unable to, extend or renew any such insurance policy then in effect.
8(d) The Debtor will use the Collateral for business purposes and
not for personal, family, household or farming purposes and not in violation of
any statute or ordinance.
8(e) The Debtor will pay promptly when due all taxes, contributions,
charges or levies and assessments upon the Collateral owned by the Debtor or
upon its use or sale (other than those the amount or validity of which is
currently being contested in good faith by appropriate proceeding and with
respect to which appropriate reserves are maintained on the books of the Debtor
in accordance with GAAP). At its option the Lender may discharge taxes, liens or
other encumbrances at any time levied against or placed on the Collateral which
have not been stayed as to execution and contested with due diligence in
appropriate legal proceedings, and the Lender may pay for insurance on the
Collateral and maintenance and preservation of the Collateral if the Debtor
fails to do so. The Debtor shall reimburse the Lender on demand for any such
expense incurred by the Lender pursuant to the foregoing authorization, together
with interest thereon, from the date paid by the Lender until payment in full by
the Debtor, at the per annum rate of the Base Rate plus four percent (4%).
8(f) The Debtor will at all times and in all material respects keep
accurate and complete records of the Collateral. Subject to such notice required
pursuant to the Credit Agreement (if any), the Lender, or any of its agents,
shall have the right (in addition to the rights granted to the Lender pursuant
to Section 6(c) hereof) to call at the Debtor's place or places of business
during normal business hours, at intervals to be determined by the Lender, to
examine and inspect the Collateral and to inspect, audit, make test
verifications and otherwise check and
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make extracts from the books, records, journals, orders, receipts,
correspondence and other data relating to the Collateral or to any other
transactions between the parties hereto.
8(g) The Debtor agrees to stamp its books and records pertaining to
Accounts, Contracts, Chattel Paper, Instruments, Documents, Trademarks and
General Intangibles to evidence the Lender's security interest therein in form
satisfactory to the Lender immediately upon the Lender's written demand.
8(h) The Debtor will obtain the consent of any Governmental
Authority or other Person to the assignment hereunder of any of the Collateral
if such consent may be required by the terms of any contract or statute.
8(i) If any action or proceeding shall be commenced, other than any
action to collect the Liabilities, to which action or proceeding the Lender or
any Lender is made a party and in which it becomes necessary to defend or uphold
the Lender's security interest hereunder, all costs incurred by the Lender for
the expenses of such litigation (including reasonable actual attorney fees and
expenses) shall be deemed part of the Liabilities secured hereby, which the
Debtor agrees to pay or cause to be paid.
8(j) The Debtor agrees that if any warehouse receipt or receipt in
the nature of a warehouse receipt is issued with respect to any of its
Inventory, such warehouse receipt or receipt in the nature thereof shall not be
"negotiable" (as such term is used in Section 7-104 of the UCC).
8(k) The Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Lender from time to time such lists,
descriptions and designations of its Collateral, warehouse receipts, receipts in
the nature of warehouse receipts, bills of lading, documents of title, vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to the
Collateral and other property or rights covered by the security interest hereby
granted, which the Lender deems appropriate or advisable to perfect, preserve or
protect its security interest in the Collateral consistent with the terms
hereunder, and the Debtor hereby authorizes the Lender to execute and file at
any time and from time to time one or more financing statements or copies
thereof or of this Security Agreement with respect to the Collateral signed only
by the Lender.
8(l) If the Debtor is not the owner of any premises where any
Equipment is located, the Debtor will use its reasonable best efforts to furnish
such consents and waivers executed by the owners of such premises as the Lender
shall request.
SECTION 9. Events of Default.
9(a) An Event of Default ("Event of Default") shall have occurred
under this Agreement upon (i) the failure by the Debtor to pay when due any
Liabilities, whether by acceleration or otherwise, (ii) the occurrence of any
event, condition or act which is defined or described as an Event of Default in
any Loan Document, or (iii) the occurrence of any event, condition or act which
pursuant to the terms of any Loan Document gives the Lender, for the
<PAGE> 14
-14-
benefit of the Lender, the right to accelerate the payment of any
Liabilities, regardless of whether the Lender exercises such right.
9(b) Upon the occurrence and during the existence of an Event of
Default, the Lender shall have all of the rights, powers and remedies set forth
in the Credit Agreement, the Notes, this Agreement, the other Loan Documents and
any other instrument or other evidence of any of the Liabilities secured hereby,
together with the rights and remedies of a secured party under the Uniform
Commercial Code of the jurisdictions where the Collateral is located, and,
without limiting the foregoing, the Lender may:
(i) personally, or by agents or attorneys, immediately
retake possession of the Collateral or any part thereof,
from the Debtor or any other Person who then has
possession of any part thereof with or without notice or
process of law, and for that purpose may enter upon the
Debtor's premises where any of the Collateral is located
and remove the same and use in connection with such
removal any and all services, supplies, aids and other
facilities of the Debtor; and
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without
limitation, the Accounts and the Contracts) constituting
the Collateral to make any payment required by the terms
of such instrument or agreement directly to the Lender;
and
(iii) withdraw all monies, securities and instruments in the
Company Account or any other account for application to
the Liabilities; and
(iv) sell or otherwise liquidate, or direct the Debtor to
sell or otherwise liquidate, any or all investments made
in whole or in part with the Collateral or any part
thereof, and take possession of the proceeds of any such
sale or liquidation; and
(v) take possession of the Collateral or any part thereof,
by directing the Debtor in writing to deliver the same
to the Lender at any place or places designated by the
Lender, in which event the Debtor shall at its own
expense
(A) forthwith cause the same to be moved to
the place or places so designated by the Lender and
there delivered to the Lender,
(B) store and keep any Collateral so
delivered to the Lender at such place or places pending
further action by the Lender as provided in Section 9(c)
hereof, and
<PAGE> 15
-15-
(C) while the Collateral shall be so stored
and kept, provide such guards and maintenance services
as shall be necessary to protect the same and to
preserve and maintain them in good condition;
it being understood that the Debtor's obligation so to deliver the
Collateral is of the essence of this Agreement and that,
accordingly, upon application to a court of equity having
jurisdiction, the Lender shall be entitled to a decree requiring
specific performance by the Debtor of said obligation.
9(c) Any Collateral repossessed by the Lender under or pursuant to
Section 7(k) or 9(b) and any other Collateral whether or not so repossessed by
the Lender, may be sold, leased or otherwise disposed of under one or more
contracts or as an entirety, and without the necessity of gathering at the place
of sale the property to be sold, and in general in such manner, at such time or
times, at such place or places and on such terms as the Lender may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the Lender
or after any overhaul or repair which the Lender shall determine to be
commercially reasonable at a public or private sale or proceeding, or otherwise,
by one or more contracts, in one or more parcels, at the same or different
times, for cash and/or credit and upon any terms, at such places and times and
to such persons as the Lender deems best, and for that purpose the Lender may
enter peaceably any premises on which the Collateral or any part thereof may be
situated and remove the same therefrom and the Debtor will not resist or
interfere with such action. If an Event of Default shall have occurred and be
continuing, the Lender may require the Debtor to assemble and/or remove the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties. The Debtor hereby
agrees that its address and the place or places of location of the Collateral
are places reasonably convenient to it to assemble the Collateral. Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, if an applicable statute requires
reasonable notice of sale or other disposition, the Lender will send to the
Debtor reasonable notice of the time and place of any public sale or reasonable
notice of the time after which any private sale or any other disposition thereof
is to be made. The Debtor agrees that requirement of sending reasonable notice
shall be met if such notice is mailed, postage prepaid, to the Debtor at least
ten (10) days before the time of the sale or disposition. If an Event of Default
shall have occurred and be continuing, the Lender may at any time in its
discretion transfer any property constituting Collateral into its own name or
that of its nominee and receive the income thereon and hold the same as security
for the Liabilities. To the extent permitted by any law, the Lender may itself
bid for and purchase the Collateral or any item thereof offered for sale in
accordance with this Section without accountability to the Company (except to
the extent of surplus money received as provided in Section 9(f)).
9(d) The Debtor recognizes that the Collateral may not be readily
marketable and may not be marketable at all if an Event of Default has occurred.
Therefore, in order to enable the Lender to use such means as it may determine
necessary or advisable to realize upon the Collateral from time to time, the
Debtor consents that the Lender may use whatever means it
<PAGE> 16
-16-
may reasonably consider necessary or advisable to sell any or all of the
Collateral at any time or times after default thereunder, including but not
restricted to the giving of an option to purchase any or all of the Collateral
to any party and the extending of credit to any purchaser of such Collateral.
The Lender may sell any or all of the Collateral or commit itself to sale
without limiting the amount sold to the amount of indebtedness secured thereby,
plus costs and expenses of collection.
9(e) The Lender may appropriate, set off and apply to the payment of
the Liabilities, any Collateral in or coming into the possession of the Lender
or its agents, without notice to the Debtor and in such manner as the Lender may
in its discretion determine.
9(f) The proceeds of any Collateral obtained pursuant to Section
2(a), 7(k) or 9(b) or disposed of pursuant to Section 9(c) shall be applied as
follows:
(i) to the payment of any and all expenses and fees
(including reasonable actual attorneys' fees and
expenses) incurred by the Lender in obtaining, taking
possession of, removing, insuring, repairing, storing
and disposing of Collateral and any and all amounts
incurred by the Lender in connection therewith;
(ii) next, any surplus then remaining to the payment of the
Liabilities in such order as the Lender may determine
(subject to any statutory requirements), and the Debtor
shall remain liable for, and shall pay on demand, any
deficiency; and
(iii) after payment in full of all amounts due under
subparagraphs 9(f)(i) and 9(f)(ii) above, any surplus
then remaining shall be paid to the Debtor, subject,
however, to the rights of the holder of any then
existing Lien of which the Lender has actual notice
(without investigation).
9(g) Each and every right, power and remedy hereby specifically
given to the Lender shall be in addition to every other right, power and remedy
specifically given under this Agreement or under the other Security Documents or
now or hereafter existing at law or in equity, or by statute and each and every
right, power and remedy whether specifically herein given or otherwise existing
may be exercised from time to time or simultaneously and as often and in such
order as may be deemed expedient by the Lender. All such rights, powers and
remedies shall be cumulative and the exercise or the beginning of exercise of
one shall not be deemed a waiver of the right to exercise of any other or
others. The Lender may exercise its rights with respect to Collateral without
resorting to or regard to other Collateral or sources of reimbursement for any
of the Liabilities. No delay or omission of the Lender in the exercise of any
such right, power or remedy and no renewal or extension of any of the
Liabilities shall impair any such right, power or remedy or shall be construed
to be a waiver of any Default or Event of Default or an acquiescence therein. In
the event that the Lender shall bring any suit to enforce any of its rights
hereunder and shall be entitled to judgment, then in such suit the Lender
<PAGE> 17
-17-
may recover reasonable expenses, including attorneys' fees, and the amounts
thereof shall be included in such judgment.
9(h) In case the Lender shall have instituted any proceeding to
enforce any right, power or remedy under this Agreement by foreclosure, sale,
entry or otherwise, and such proceeding shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Lender,
then and in every such case the Debtor, the Lender and each holder of any of the
obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interest created under
this Agreement, and all rights, remedies and powers of the Lender shall continue
as if no such proceeding had been instituted.
SECTION 10. Waivers.
10(a) Except as otherwise provided in this Agreement, THE DEBTOR
HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL
HEARING IN CONNECTION WITH THE LENDER'S TAKING POSSESSION OR THE LENDER'S
DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL
PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH
RIGHT WHICH THE DEBTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY
STATUTE OF THE UNITED STATES OR OF ANY STATE, and the Debtor hereby further
waives:
(i) all damages occasioned by such taking of possession
except any damages which are the direct result of the
Lender's gross negligence or willful misconduct;
(ii) all other requirements as to the time, place and terms
of sale or other requirements with respect to the
enforcement of the Lender's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under
any applicable law in order to prevent or delay the
enforcement of this Agreement or the absolute sale of
the Collateral or any portion thereof, and the Debtor,
for itself and all who may claim under insofar as it or
they, now or hereafter, lawfully may, hereby waives the
benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Debtor therein and thereto, and shall
be a perpetual bar both at law and in equity against the Debtor and against any
and all Persons claiming or attempting to claim the Collateral so sold, optioned
or realized upon, or any part thereof, from, through and under the Debtor.
<PAGE> 18
-18-
10(b) The Debtor waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended, Collateral
received or delivered or other action taken in reliance hereon and all other
demands and notices of any description except as hereinbefore provided. With
respect to Liabilities and Collateral, the Debtor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of Collateral, to the addition or release of
any party or person primarily or secondarily liable, to the acceptance of
partial payments thereon and the settlement, compromising or adjusting of any
thereof, all in such time or times as the Lender may deem advisable. The Debtor
waives all rules of suretyship law and any other law whatsoever which is legally
permitted to be waived and which would, if not waived, impair the Lender's
enforcement of its security interests hereunder. By way of example, but not in
limitation of the Lender's rights under this Security Agreement, subject to the
terms and conditions of this Security Agreement and the Credit Agreement, the
Lender may do any of the following without notice to the Debtor (unless such
notice or other action is otherwise required pursuant to any of the Loan
Documents to which the Debtor is a party):
(i) change, renew or extend the time for payment of all or
any part of the Liabilities;
(ii) change any provision with respect to all or any part of
the Liabilities;
(iii) release, surrender, sell or otherwise dispose of any
money or property which is in the Lender's possession as
collateral security for the Liabilities;
(iv) fail to perfect a security interest in any property
which is pledged or mortgaged as security for payment of
the Liabilities;
(v) release or discharge any party liable to the Lender in
whole or in part for the Liabilities, or accept any
additional parties or guarantors;
(vi) delay or refrain from exercising any of the Lender's
rights;
(vii) settle or compromise any and all claims pertaining to
the Liabilities and the Collateral; and
(viii) apply any money or property of the Debtor or that of any
other party liable to the Lender for any part of the
Liabilities in any order the Debtor chooses.
10(c) The Lender shall have no duty as to the collection or
protection of Collateral not in the Lender's possession, and the Lender's duty
with reference to Collateral in its possession shall be to use reasonable care
in the custody and preservation of such Collateral, but such duty shall not
require the Lender to do any of the following (although the Lender is authorized
to reasonably undertake any such action if the Lender deems such action
appropriate):
<PAGE> 19
-19-
(i) exercise any rights under the Collateral or act upon any
request made by the Debtor;
(ii) collect any sums due on the Collateral;
(iii) notify the Debtor of any maturities or other similar
matters concerning the Collateral; or
(iv) preserve or protect the Debtor's rights in the
Collateral or take any action to protect any of the
Collateral against claims of others or to preserve
rights against prior parties.
SECTION 11. Indemnity and Costs and Expenses.
11(a) The Debtor agrees to pay, or reimburse the Lender for any and
all fees, costs and expenses of whatever kind or nature incurred in connection
with (i) the enforcement or attempted enforcement of the Lender's rights under
this Security Agreement, and (ii) the creation, preservation or protection of
the Lender's Liens on, and security interest in, the Collateral, including,
without limitation, all fees and taxes in connection with the recording or
filing of instruments and documents in public offices, payment or discharge of
any taxes or Liens upon or in respect of the Collateral, premiums for insurance
with respect to the Collateral and all other fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and the
Lender's interest therein, whether through judicial proceedings or otherwise, or
in defending or prosecuting any actions, suits or proceedings arising out of or
relating to the Collateral.
11(b) Without limiting the application of Section 11(a) hereof, the
Debtor agrees to pay, indemnify and hold the Lender (herein, the "Indemnitee")
harmless from and against any loss, costs, damages and expenses which any such
Indemnitee may suffer, expend or incur in consequence of or growing out of any
misrepresentation by the Debtor in this Agreement or any of the other Loan
Documents or in any statement or writing contemplated by or made or delivered
pursuant to or in connection with this Agreement or any of the other Security
Documents or any breach by the Debtor of this Agreement or any of the other Loan
Documents.
11(c) If and to the extent that the obligations of the Debtor under
this Section 11 are unenforceable for any reason, the Debtor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
11(d) Any amounts paid by any Indemnitee as to which such Indemnitee
has the right to reimbursement shall constitute Liabilities secured by the
Collateral. The indemnity obligations of the Debtor contained in this Section 11
shall continue in full force and effect notwithstanding the full payment of all
Liabilities and notwithstanding the discharge thereof.
SECTION 12. The Lender. Without limiting any provision hereof, the
Lender shall be entitled to the rights, powers, immunities, exculpations and
privileges set forth in Article IX of the Credit Agreement as if the same were
set forth in full in this Agreement. The Lender shall have no rights hereunder
to realize upon the Collateral or otherwise enforce the provisions
<PAGE> 20
-20-
of this Agreement, it being understood that such rights and remedies may be
exercised only by the Lender.
SECTION 13. Successors and Assigns. The covenants, representations,
warranties and agreements herein set forth shall be binding upon the Debtor, its
legal representatives, successors and assigns, and shall inure to the benefit of
the Lender and its successors and assigns. The successor of the Lender hereunder
shall forthwith become vested with and shall be entitled to exercise all the
powers and rights given by this Agreement to the Lender, as if said successor
were originally named as secured party herein.
SECTION 14. Lender May Perform. If Debtor fails to perform any
agreement contained herein, the Lender may itself perform, or cause performance
of, such agreement, and the expenses of the Lender incurred in connection
therewith shall be payable by Debtor on demand.
SECTION 15. No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, and no course of dealing with
respect to, any right, power, or remedy under this Agreement shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
and under any of the other Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The remedies
provided herein and in the other Loan Documents are cumulative and not exclusive
of any remedies provided by law.
SECTION 16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO ANY CHOICE OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF
ANY OTHER JURISDICTION EXCEPT TO THE EXTENT THAT THE LAWS OF THE JURISDICTIONS
WHERE THE COLLATERAL IS LOCATED APPLY TO THE CREATION, ATTACHMENT, PERFECTION,
PRIORITY AND ENFORCEMENT OF LIENS ON AND SECURITY INTERESTS IN THE COLLATERAL.
<PAGE> 21
-21-
SECTION 17. Severability. If any provision hereof shall be held to
be invalid, illegal or unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall remain in full
force and effect in such jurisdiction, and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 18. Amendments. None of the terms or provisions of this
Security Agreement may be waived, altered, modified, or amended except by an
agreement in writing signed by the Lender and the Debtor.
SECTION 19. Notices. All notices, statements, requests and demands
herein provided for shall be in writing and shall be deemed to have been given
or made when delivered to the respective addresses and in the manner specified
in Section 9.01 of the Credit Agreement, provided that all notices to the Debtor
shall be addressed and delivered to the address set forth below its signature.
SECTION 20. Counterparts. This Agreement may be executed in any
number of counterparts, all of which, when taken together shall constitute one
and the same instrument, and any party hereto may execute this Agreement by
signing any such counterpart.
SECTION 21. Termination. When all Liabilities shall have been paid
in full and the Guarantee has expired or been terminated, this Agreement shall
terminate, and the Lender shall cause to be assigned, transferred and delivered,
against receipt but without any recourse, warranty or representation whatsoever,
any remaining Collateral and money received in respect thereof, to or for the
account of the Debtor. The Lender shall also execute and deliver to the Debtor
upon such termination such UCC termination statements and such other
documentation as shall be reasonably requested as necessary by the Debtor to
effect the termination and release of the Liens on the Collateral, all at the
expense of the Debtor.
<PAGE> 22
-22-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date and year
first above written.
DC SYSTEMS, INC.
By: /s/ Mark A. Herman
________________________________
Name: Mark Herman
Title: VP, CFO
Address for Notices:
5001 Spring Valley Road
Suite 390-West
Dallas, TX 75244
FLEET BANK, N.A.,
as Lender
By: /s/ Susan Failla
_________________________________
Name: Susan Failla
Title: Vice President
<PAGE> 23
SCHEDULE A-1
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DC Systems, Inc.
as Debtor
(i) All equipment (as defined in the UCC) in all of its forms, wherever located,
now existing or hereafter acquired, including, without limitation, all machinery
and other goods, furniture, furnishings, trade fixtures, office supplies, motor
vehicles, tools, computers (including hardware and software), other office
equipment, all equipment and other goods and property more particularly
described in capital leases and any subleases or assignments thereof, and all
other tangible personal property used in connection with or related to the
operation of the Debtor's business, together with all parts, fittings, special
tools, alterations, attachments, additions, accessories, improvements,
substitutions, replacements and accessions thereto, and all proceeds and
products arising therefrom (the "Equipment");
(ii) All inventory (as defined in the UCC) and merchandise in all of its forms,
wherever located, now existing or hereafter acquired including, but not limited
to, (i) all raw materials and work in process therefor, finished goods thereof,
and materials used or consumed in the manufacture or production thereof, (ii)
goods in which the Debtor has an interest in mass or a joint or other interest
or right of any kind (including, without limitation, goods in which the Debtor
has an interest or right as consignee), and (iii) goods which are returned to or
repossessed by the Debtor, and all accessions thereto and products and proceeds
thereof and general intangibles arising therefrom (the "Inventory");
(iii) All of the Debtor's accounts (as defined in the UCC), whether now existing
or hereafter acquired, including without limitation any and all rights evidenced
by an account, note, contract, security agreement, chattel paper, or other
evidence of indebtedness or security, together with (a) all security pledged,
assigned, hypothecated or granted to or held by the Debtor to secure the
foregoing, (b) all of the Debtor's right, title and interest in and to any
goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (d) all powers of attorney for
the execution of any evidence of indebtedness or security or other writing in
connection therewith, (e) all books, records, ledger cards, and invoices
relating thereto, (f) all evidences of the filing of financing statements and
other statements and the registration of other instruments in connection
therewith and amendments thereto, notices to other creditors or secured parties,
and certificates from filing or other registration officers, (g) all credit
information, reports and memoranda relating thereto, and (h) all other writings
related in any way to the foregoing, and all proceeds and general intangibles
arising therefrom (the "Accounts");
(iv) All of the contracts and agreements of the Debtor listed on Schedule A-2
attached hereto, together with all schedules, exhibits, documents and
certificates referred to therein, as amended, supplemented or otherwise modified
from time to time, including without limitation, all rights of
<PAGE> 24
the Debtor to (a) receive moneys due and to become due to it thereunder or in
connection therewith, (b) damages arising out of, or for, breach or default in
respect thereof, (c) compel performance of the terms thereof, (d) benefits and
claims under all warranty and indemnity provisions contained therein, (e) all
insurance payments provided therein and (f) any other moneys due and to become
due to the Debtor thereunder or in connection therewith (the "Contracts");
(v) All chattel paper (as defined in the UCC), now owned or hereafter acquired,
and all proceeds and general intangibles arising therefrom (the "Chattel
Paper");
(vi) All instruments (as defined in the UCC) of the Debtor, now owned or
hereafter acquired, and all proceeds and general intangibles arising therefrom
(the "Instruments");
(vii) All of the Debtor's now existing and hereafter acquired general
intangibles (as defined in the UCC), including without limitation all of the
Debtor's rights and interest in any contracts, franchises, licenses, leases,
easements, customer lists, methods of doing business, copyrights, the
Trademarks, the Patents, non-compete agreements, distribution agreements, and
all other general intangibles, and intellectual, proprietary and intangible
property and the proceeds of any of the foregoing (the "General Intangibles");
(viii) All of the Debtor's right, title and interest in, to and under any now
existing or hereafter created or acquired United States (or individual State
thereof) and foreign servicemarks and trademarks (including without limitation
the trademarks listed on Schedule A-3 attached hereto), trade names, trade
styles, logos and/or designs, and trade dress, including, without limitation,
the goodwill of the business to which each of the foregoing relates, all
registrations, recordings, and applications with respect to the foregoing, all
affidavits of use and incontestability, all renewals thereof, all licenses,
royalties, income, claims, damages, payments, and proceeds of suit now or
hereafter payable or due for past or future infringements of any of the
foregoing; the right (but not the obligation) to sue for past, present, and
future infringements of any of the foregoing; all rights corresponding to the
foregoing throughout the world; and all proceeds and general intangibles arising
therefrom (the "Trademarks");
(ix) All of the Debtor's right, title and interest in, to and under any now
existing or hereafter created or acquired United States and foreign patents,
patent applications, and patentable inventions, including, but not limited to,
each patent and patent application referred to in Schedule A-4 attached hereto;
all reissues, divisions, continuations, continuations-in-part, extensions,
renewals and reexaminations of any of the foregoing; all licenses, royalties,
income, claims, damages, payments, and proceeds of suit now or hereafter payable
or due for past or future infringements of any of the foregoing; the right (but
not the obligation) to sue for past, present, and future infringements of any of
the foregoing; all rights corresponding to the foregoing throughout the world;
and all proceeds and general intangibles arising therefrom (the "Patents");
(x) All of the Debtor's books, records and other property relating to or
referring to any of the foregoing, including without limitation, all books,
records, ledger cards and other property and general intangibles at any time
evidencing or relating to the Accounts, Inventory, Instruments,
<PAGE> 25
Chattel Paper, Documents, Trademarks, Patents and General Intangibles, and the
proceeds thereof (the "Records");
(xi) All insurance policies held by the Debtor or naming the Debtor as loss
payee (including, without limitation, casualty insurance, key-man life
insurance, property insurance and business interruption insurance), and all such
insurance policies entered into after the date hereof, and all proceeds and
general intangibles arising therefrom (the "Insurance");
(xii) All documents of title (as defined in the UCC) or other receipts of the
Debtor covering, evidencing or representing any Inventory or Equipment wherever
located, now owned or hereafter acquired, and all proceeds and general
intangibles arising therefrom (the "Documents");
(xiii) All of the Debtor's rights as a seller of goods under Article 2 of the
UCC or otherwise with respect to Inventory, and all goods represented by or
securing any of the Accounts, all of the Debtor's rights therein, including,
without limitation, rights as an unpaid vendor or lienor and including rights of
stoppage in transit, replevin and reclamation ("Other Rights");
(xiv) All guarantees, mortgages or security interests on real or personal
property, leases or other agreements or property now or hereafter securing or
relating to any of the items referred to above in favor of the Debtor, or now or
hereafter acquired for the purpose of securing and enforcing any of such items
in favor of the Debtor, and the proceeds thereof (the "Debtor's Security"); and
(xv) All sums at any time standing to Debtor's credit on the books of Lenders
and all moneys, securities, and other property of the Debtor at any time in the
Lender's possession, including, without limitation, all monies, securities and
instruments deposited or required to be deposited in the Company Account and any
other account, whether now existing or hereafter from time to time acquired, and
all proceeds and general intangibles arising therefrom ("Other Property").
<PAGE> 26
SCHEDULE A-2
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DC Systems, Inc.
as Debtor
List of Contracts
-----------------
Active Software License, Development, Maintenance and/or Rental Agreements
- --------------------------------------------------------------------------
January 28, 1999 Software Rental Agreement with ABQ ENERGY GROUP, LTD.
(Note: rental payments have not commenced under this agreement)
December 20, 1996 Agreement, as amended, with the City of AUSTIN
ELECTRIC UTILITY DEPARTMENT (now AUSTIN ENERGY)
June 29, 1997 Software License Agreement, as amended, with CROSSTEX
ENERGY SERVICES, LTD.
January 25, 1999 Software Rental Agreement, as amended, with KIMBALL
ENERGY CORPORATION
December 30, 1996 Gas*Master Software License Agreement, as amended,
with MUSTANG FUEL CORPORATION (now EAGLE GAS MARKETING COMPANY)
October 22, 1993 Software License Agreement, as amended, and May 1,
1997 Software Maintenance Agreement, as amended, with NATURAL GAS TRANSMISSION
SERVICES, INC.
October 28, 1996 Software License Agreement, as amended, with SEAGULL
ENERGY CORPORATION (now OCEAN ENERGY)
June 11, 1993 Software Development and License Agreement, as amended,
with TRANSOK, INC. (now A SUBSIDIARY OF ENOGEX)
January 18, 1999 Amendment to June 11, 1993 Transok Agreement, as
amended, with TEJAS ENERGY, LLC AND CORAL ENERGY, L.P.
February 22, 1996 Software License, Development, Installation and
Maintenance Agreement, as amended, with TEXAS UTILITIES ELECTRIC COMPANY AND
LONE STAR GAS COMPANY
June 1, 1997 Marketing Agreement with Avatar Systems, Ltd.
January 28, 1999 Agreement with ABQ Energy Group, Ltd.
<PAGE> 27
SCHEDULE A-3
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DC Systems, Inc.
as Debtor
Description of Trademarks
-------------------------
REG. NO. DESCRIPTION TITLE HOLDER ISSUED
-------- ----------- ------------ ------
<PAGE> 28
SCHEDULE A-4
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DC Systems, Inc.
as Debtor
Description of Patents
----------------------
PATENT NO. DESCRIPTION TITLE HOLDER EXPIRATION
- ---------- ----------- ------------ ----------
<PAGE> 29
Schedule B
to
Security Agreement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DC Systems, Inc.
as Debtor
Principal Place of Business of Debtor:
- --------------------------------------
5001 Spring Valley Road
Suite 390-West
Dallas, Texas 75244
Chief Executive Office of Debtor (if different
from the Principal Place of Business):
- --------------------------------------
All Other Places of Business of Debtor:
- ---------------------------------------
All Locations of Collateral (including Permitted Inventory Locations):
- ----------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.46
SECURITY AGREEMENT
------------------
CAMINUS/DC ACQUISITION CORP.
THIS SECURITY AGREEMENT, dated as of September 1, 1999 (the "Agreement"
or the "Security Agreement"), is between Caminus/DC Acquisition Corp., a
Delaware corporation, as debtor (the "Debtor"), and Fleet Bank, N.A., a national
banking association organized under the laws of the United States, as lender
(hereinafter, in such capacity, together with its successors in such capacity,
the "Lender") under the Credit Agreement referred to below.
Caminus LLC, a Delaware limited liability company (the "Company"), and
the Lender are parties to a Credit Agreement dated as of June 23, 1999 (such
Credit Agreement, as the same may be amended or supplemented from time to time
is referred to herein as the "Credit Agreement") providing, subject to the terms
and conditions thereof, for extensions of credit to be made by the Lenders to
the Company in an aggregate principal amount not exceeding $5,000,000.00 (the
"Loans"). The Loans made or to be made by the Lender to the Company shall be
evidenced by certain promissory notes (as exchanged, replaced, amended,
supplemented or modified from time to time, the "Notes") in substantially the
form of Exhibits A-1 and A-2 attached to the Credit Agreement, as guaranteed by
the Debtor pursuant to a certain Guarantee by the Debtor in favor of the Lender,
dated as of even date herewith (such Guarantee, as the same may be amended or
supplemented from time to time is referred to herein as the "Guarantee").
For other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Debtor has agreed to execute and deliver
this Agreement.
As used herein, "UCC" shall mean the Uniform Commercial Code of the
State of New York (except as otherwise defined in Section 7 hereof) as amended
and in effect as of the date hereof. All other capitalized terms, unless defined
herein or in the Schedules attached hereto and made a part hereof, shall have
the meanings set forth in the Credit Agreement.
SECTION 1. Security Interest.
1(a) As security for the prompt and complete payment, performance and
observance of all indebtedness, obligations, liabilities and agreements of the
Debtor to the Lender pursuant to, under or arising out of the Guarantee and any
amendments, extensions, renewals, increases, refundings or modifications thereto
or of any part thereof, whether now existing or hereafter incurred, matured or
unmatured, direct or contingent, together with interest and costs of enforcement
and collection thereof and of this Security Agreement, including all reasonable
actual attorneys' fees and disbursements incurred by the Lenders (collectively,
the "Liabilities"), the Debtor hereby grants to the Lender, a continuing
security interest of first priority in, and the Debtor hereby assigns and
pledges to the Lender, all of the Debtor's right, title and interest in the
property described on Schedule A-1 attached hereto, whether now owned by the
Debtor or hereafter coming into existence, and wherever located (all being
collectively referred to herein as the "Collateral").
<PAGE> 2
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1(b) The Debtor irrevocably appoints the Lender as its lawful attorney
and agent to execute financing statements and amendments thereto (to the extent
permitted by applicable law), notices of any assignments of any of the
Collateral on the Debtor's behalf, and on its behalf to file financing
statements and amendments thereto in any appropriate public office.
1(c) This Security Agreement is in addition to and without limitation
of any right of the Lender and/or any of the other Lender under any other
security agreement, pledge or leasehold assignment, mortgage or guarantee
granted by the Debtor or any third party to the Lender.
1(d) Except as otherwise herein provided, this Security Agreement is
absolute and without any conditions. The Lender can enforce its rights in the
Collateral immediately upon an Event of Default without having first to attempt
any collection from the Debtor.
SECTION 2. Collection.
Upon the occurrence and continuation of an Event of Default pursuant to
Section 9(a) hereof, the Lender shall have the following rights and powers in
addition to those specified in Section 9(b) hereof:
2(a) The Lender shall have the right to notify the parties obligated on
any or all of the Debtor's Accounts, Contracts, Chattel Paper, Instruments,
Insurance, Documents or General Intangibles to make payment thereof directly to
the Lender, and the Lender may take control of all proceeds of any of the
Accounts, Contracts, Chattel Paper, Instruments, Insurance or General
Intangibles. The costs of collection and enforcement, including reasonable
attorney's fees and reasonable out-of-pocket expenses, shall be borne solely by
the Debtor, whether the same are incurred by the Lender or the Debtor. The
Debtor will not thereafter without the Lender's written consent make any
adjustment, extend or renew, compromise, compound or settle any of the Accounts,
Contracts, Chattel Paper, Instruments, Insurance or General Intangibles, or
release, wholly or partly, any person liable for payment thereof.
2(b) The Debtor hereby irrevocably appoints the Lender to be the
Debtor's true and lawful attorney, with full power of substitution, in the
Lender's name or the Debtor's name or otherwise for the Lender's sole use and
benefit, but at the Debtor's cost and expense, to exercise at any time all or
any of the following powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give acquittance for any
and all moneys due or to become due upon or by virtue thereof;
(ii) to receive, take, sign, endorse, assign and deliver any and all
checks, notes, drafts, acceptances, invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications, notices and other
negotiable and non-negotiable instruments and
<PAGE> 3
-3-
documents taken or received by the Lender in connection
therewith;
(iii) to receive, open and dispose of all mail addressed to the Debtor
and to notify the post office authorities to change the address
for delivery of mail addressed to the Debtor to such address as
the Lender may designate;
(iv) to sign the name of the Debtor on any Document, on invoices
relating to any Account or Contract, drafts against and notices
to account debtors or obligors of the Debtor, on financing
statements and other public records and on notices to customers;
(v) to execute endorsements, assignments or other instruments of
conveyance or transfer and proofs of claim and loss and to adjust
and compromise any claims under insurance policies or otherwise;
(vi) to settle, compromise, compound, prosecute or defend any action
or proceeding with respect thereto;
(vii) to sell, transfer, assign or otherwise deal in or with the same
or the proceeds thereof and to apply for and obtain any required
consents of governmental authority for any sale or other
disposition of the Collateral, as full and effectually as if the
Lender were the absolute owner thereof; and
(viii) to apply any or all amounts then in, or thereafter deposited
in, the Company Account in the manner provided in Section
9(b)(iii) hereof; and
(ix) to make any allowances and other adjustments with reference
thereto and to take all other actions necessary or advisable in
the sole discretion of the Lender to carry out and enforce this
Security Agreement or the Liabilities.
All acts done under the foregoing authorization are hereby ratified and
approved by the Debtor and neither the Lender nor any designee or agent of the
Lender shall be liable for any acts of commission or omission (other than acts
committed or omitted through gross negligence or willful misconduct), for any
error of judgment or for any mistake of fact or law. The foregoing power of
attorney being coupled with an interest is irrevocable while any Liabilities
shall remain unpaid. The foregoing authorization shall not be construed in
limitation of any other similar authorization to the Lender under the Guarantee
or otherwise.
2(c) The Debtor will immediately deliver to the Lender all proceeds of
the Collateral and all original evidence of Accounts, Contracts, Chattel Paper,
Instruments,
<PAGE> 4
-4-
Insurance, Documents, Patents, Trademarks, Records or General Intangibles,
including without limitation all notes or other instruments or contracts for the
payment of money, appropriately endorsed to the Lender's order and, regardless
of the form of such endorsement, the Debtor hereby waives presentment, demand,
notice of dishonor, protest and notice of protest and all other notices with
respect thereto; and the Debtor hereby appoints the Lender as the Debtor's agent
and attorney-in-fact to make such endorsement on behalf of and in the name of
the Debtor.
2(d) The exercise by the Lender of or failure to so exercise any
authority granted hereinabove shall in no manner affect the Debtor's liability
to the Lender, and provided, further, that the Lender shall be under no
obligation or duty to exercise any of the powers hereby conferred upon it and it
shall be without liability for any act or failure to act in connection with the
collection of, or the preservation of any rights under any of, the Collateral.
SECTION 3. General Representations and Warranties.
In addition to the Debtor's representations made in the other Loan
Documents, the Debtor represents and warrants to the Lender, which
representations and warranties shall survive execution and delivery of this
Agreement, as follows:
3(a) All filings, registrations and recordings necessary or appropriate
to create, preserve, protect and perfect the security interest granted by the
Debtor to the Lender hereby in respect to the Collateral have been accomplished
and the security interest granted to the Lender pursuant to this Agreement in
and to the Collateral constitutes a perfected security interest therein superior
and prior to the rights of all other Persons therein (except for Liens permitted
under the Credit Agreement) and subject to no other Liens (except for Liens
permitted under the Credit Agreement), and is entitled to all the rights,
priorities and benefits afforded by the UCC or other relevant laws as enacted in
any relevant jurisdiction to perfected security interests.
3(b) The Debtor is, and as to Collateral acquired by it from time to
time after the date hereof the Debtor will be, the owner of all Collateral free
from any Lien, security interest, encumbrance or other right, title or interest
of any Person (other than Liens permitted under the Credit Agreement), and the
Debtor shall defend its Collateral against all claims and demands of all Persons
at any time claiming the same or any interest therein adverse to the Lender.
3(c) There is no financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) covering or
purporting to cover any interest of any kind in the Collateral except for
filings and recordings permitted under the Credit Agreement and filings and
recordings in favor of the Lender created or provided for herein, and so long as
any of the Liabilities remain unpaid the Debtor will not execute or authorize to
be filed in any public office any financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) or statements
relating to the Collateral, except (i) financing statements filed or to be filed
in respect of and covering the security interests granted hereby by the Debtor,
and (ii) financing statements to be filed in connection with the creation of
Liens permitted under the Credit Agreement.
<PAGE> 5
-5-
3(d) The office location(s) of the Debtor set forth on Schedule B
attached hereto as the Debtor's principal place of business and chief executive
office and all other places of business are true and correct.
3(e) Schedule B attached hereto contains a true and complete listing of
all of the locations of all the Collateral. In the case of Inventory, Schedule B
also sets forth each Warehouseman (as defined in the Uniform Commercial Code as
in effect in the state in which the warehouse owned or operated by such Person
is located) that from time to time holds Inventory of the Debtor and the
Permitted Inventory Location (as defined herein) at which such Inventory is so
held. In the case of such Inventory, the Debtor further represents and warrants
that none of the Inventory is subject to a negotiable warehouse receipt (as
defined in the Uniform Commercial Code as in effect in the state in which such
Inventory is located).
3(f) The Debtor further represents and warrants, as to any Inventory,
that all such Inventory, other than Inventory in transit in the normal course of
business, is held at a Permitted Inventory Location (as defined herein).
"Permitted Inventory Location" is defined herein to mean (i) a warehouse or
other storage facility owned or leased by the Debtor, or (ii) a warehouse or
other storage facility owned, leased or operated by a Warehouseman from whom the
Lender has received a warehouse bailment agreement in form and substance
satisfactory to the Lender with respect to Inventory there held, and, in either
case, in jurisdictions where appropriate UCC financing statements shall have
liens filed against the Debtor for the benefit of the Lender and the other
Lender.
SECTION 4. Special Provisions Concerning Accounts.
4(a) As of the time when each of its Accounts arises, the Debtor shall
be deemed to have represented and warranted that such Accounts and all records,
papers and documents relating thereto (if any) are genuine and in all respects
what they purport to be, and that all papers and documents (if any) relating
thereto (i) will represent the genuine, legal, valid and binding obligation of
the account debtor evidencing indebtedness unpaid and owed by such account
debtor arising out of the performance of labor or services or the sale or lease
and delivery of the merchandise listed therein, or both, (ii) will be the only
original writings evidencing and embodying such obligation of the account debtor
named therein (other than copies created for purposes other than general
accounting purposes), (iii) will evidence true and valid obligations,
enforceable in accordance with their respective terms, not subject to the
fulfillment of any contract or condition whatsoever or to any defenses, set offs
or counterclaims (except with respect to refunds, returns and allowances in the
ordinary course of business), or stamp or other taxes, and (iv) will be in
compliance and will conform with all applicable federal, state and local laws
and applicable laws of any relevant foreign jurisdiction.
4(b) The Debtor will keep and maintain at its own cost and expense
satisfactory and complete records of its Accounts, including, but not limited
to, records of all payments received, credits granted thereon, all merchandise
returned and all other dealings therewith, and the Debtor will make the same
available to the Lender for inspection, at the Debtor's own cost and expense, at
any and all reasonable times upon demand.
<PAGE> 6
-6-
4(c) The Debtor shall endeavor to cause to be collected from the
account debtor named in each of its Accounts, as and when due (including,
without limitation, Accounts which are delinquent, such Accounts to be collected
in accordance with generally accepted lawful collection procedures), any and all
amounts owing under or on account of such Accounts, and apply forthwith upon
receipt thereof all such amounts as are so collected to the outstanding balance
of such Accounts, except that, so long as no Event of Default exists and is
continuing, the Debtor may allow in the ordinary course of business as
adjustments to amounts owing under its Accounts an extension or renewal of the
time or times of payment, or settlement for less than the total unpaid balance,
which the Debtor finds appropriate in accordance with sound business judgment.
The costs and expenses (including, without limitation, attorneys' fees and
expenses) of collection, whether incurred by the Debtor or the Lender, shall be
borne by the Debtor.
4(d) If any of the Accounts becomes evidenced by an Instrument, the
Debtor will within ten (10) days notify the Lender thereof, and upon request by
the Lender promptly deliver such Instrument to the Lender appropriately endorsed
to the order of the Lender as further security hereunder.
4(e) The Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Lender from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to its
Accounts and other property or rights covered by the security interest hereby
granted, as the Lender may reasonably require which are consistent with the
terms hereunder.
SECTION 5. Special Provisions Concerning Contracts.
5(a) The Debtor represents and warrants that no consent of any party
(other than the Debtor) to any Contract is required, or purports to be required,
in connection with the execution, delivery and performance of this Security
Agreement. Each Contract is in full force and effect and is enforceable in
accordance with its respective terms and there is no default under any of the
terms thereof. The Debtor does hereby further represent and warrant that it has
not assigned or pledged, and hereby covenants that it will not assign or pledge,
except as permitted under the Credit Agreement, the whole or any part of the
rights hereby assigned to anyone other than the Lender, its successors or
assigns so long as this Security Agreement shall remain in effect. The Debtor
also covenants and agrees that it will not take any action or fail to take any
action or institute any proceedings the taking or omission of which might result
in the material alteration or impairment of this Security Agreement or any of
the material rights created by any of the Contracts or this Security Agreement.
Except as specified by a detailed notation corresponding to the applicable
Contract on Schedule A-2, the Debtor hereby further represents and warrants that
no consent or authorization of, filing with or other act by or in respect of any
Governmental Authority is required in connection with the execution, delivery,
performance, validity or enforceability of any of the Contracts by any party
thereto other than those which have been duly obtained, made or performed, are
in full force and effect and do not subject the scope of any such Contract to
any material adverse limitations, either specific or general in nature. The
right, title and interest of the Debtor in, to and under each Contract are not
subject to any defense, offset, counterclaim or claim which could reasonably be
expected to have a Material Adverse Effect, nor, as of the date of this Security
Agreement and to the best of the
<PAGE> 7
-7-
Debtor's knowledge, have any of the foregoing been asserted or alleged against
the Debtor as to any Contract. The Debtor has delivered to the Lender a complete
and correct copy of each Contract, including all amendments, supplements and
other modifications thereto. No amount payable to the Debtor under or in
connection with any Contract is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Lender.
The Debtor agrees that, so long as this Security Agreement is in
effect, it will not, without the prior written consent of the Lender, amend,
modify or permit to be amended or modified any of the Contracts or waive or
permit to be waived any material provisions of any of the Contracts, or exercise
any right to terminate or cancel any of the Contracts or consent or agree to, or
suffer or permit, the termination thereof whether or not on account of any
default therein specified if any such amendment, modification or waiver,
termination or cancellation could have a Material Adverse Effect.
SECTION 6. Rights and Obligations Concerning Accounts and Contracts.
6(a) Anything herein to the contrary notwithstanding, the Debtor shall
remain liable under each of the Accounts and Contracts to observe and perform
all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise to
each such Account and in accordance with and pursuant to the terms and
provisions of each such Contract. The Lender shall have no obligation or
liability under any Account (or any agreement giving rise thereto) or under any
Contract by reason of or arising out of this Security Agreement or the receipt
by the Lender of any payment relating to such Account or Contract pursuant
hereto, nor shall the Lender be obligated in any manner to perform any of the
obligations of the Debtor under or pursuant to any Account (or any agreement
giving rise thereto) or under or pursuant to any Contract, to make any payment,
to make any inquiry as to the nature or the sufficiency of any payment received
by it or as to the sufficiency of any performance by any party under any Account
(or any agreement giving rise thereto) or under any Contract, to present or file
any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
6(b) The Debtor hereby agrees that no liability shall be asserted or
enforced against the Lender in the exercise of the rights and powers granted to
the Lender hereunder, all such liability being hereby expressly waived and
released by the Debtor. Without limiting the application of Section 11(a)
hereof, the Debtor hereby agrees to indemnify and hold the Lender harmless for
and against any and all liability, expense, cost, loss or damage which the
Lender may incur by reason of any act or omission of the Debtor under any of the
Contracts ("Losses"), except to such extent such Losses arise by reason of the
gross negligence or willful misconduct of the Lender. Should the Lender incur
any liability, expense, cost, loss, or damage, (i) under the Contracts for which
it is to be indemnified by the Debtor as aforesaid, or (ii) by reason of the
exercise of the Lender's rights hereunder, the amount thereof, including costs,
expenses and reasonable actual attorney's fees and expenses, shall be secured
hereby and shall be immediately due and payable by the Debtor to the Lender.
6(c) The Lender has the right to make test verifications of the
Accounts in any manner and through any medium that it reasonably considers
advisable, and the Debtor shall
<PAGE> 8
-8-
furnish all such assistance and information as the Lender may require in
connection therewith. At any time and from time to time, upon the Lender's
request and at the expense of the Debtor, the Debtor shall cause independent
public accountants or others satisfactory to the Lender to furnish to the Lender
reports showing reconciliations, aging and test verifications of, and trial
balances, for, the Accounts. The Lender may in its own name or in the name of
others communicate with account debtors on the Accounts and parties to the
Contracts to verify with them to its satisfaction the existence, amount and
terms of any Accounts or Contracts, provided that, so long as no Event of
Default has occurred and is continuing, the Lender agrees to provide the Debtor
notice prior to initiating such verification.
6(d) The Debtor shall promptly notify the Lender of, and provide to the
Lender copies of, any default notices under any of the Contracts.
SECTION 7. Special Provisions Concerning Patents and Trademarks.
7(a) The Debtor represents and warrants that it is the true and lawful
exclusive owner of the entire and unencumbered right, title and interest in and
to each of the Trademarks listed on Schedule A-3 and the Patents listed on
Schedule A-4 attached hereto, free and clear of all liens and encumbrances
(including, without limitation, any covenant not to sue a third party); that the
Trademarks and Patents are subsisting, valid, enforceable, and have not been
adjudged invalid or unenforceable, in whole or in part; and that the Trademarks
and the Patents constitute all the registered trademarks and patents,
respectively, in the United States Patent and Trademark Office and
non-registered trademarks that the Debtor now owns or uses in connection with
its business.
7(b) The Debtor represents and warrants that it has made all necessary
filings and recordations to protect its interest in the Trademarks, Patents, and
its other intellectual property; that it has and will continue to pay all
required taxes, fees, and costs to maintain all of its rights in the Trademarks,
Patents, and its other intellectual property; and that it has received no notice
or claim that its use of any of the Trademarks, Patents, or other intellectual
property infringes the rights of any third party.
7(c) Prior to licensing or assigning any of the Trademarks, Patents, or
its other intellectual property, the Debtor will give the Lender written notice
of any such license or assignment plus a copy of the draft license agreement or
assignment, and, upon execution, a copy of any final agreement or assignment.
7(d) The Debtor shall, promptly upon learning thereof, notify the
Lender in writing of the name and address of, and furnish such pertinent
information that may be available with respect to, any party who may be
infringing or otherwise violating any of the Debtor's rights in and to any
Trademarks, Patents, or other intellectual property or of any party who makes a
claim that the use of any of the Trademarks, Patents, or other intellectual
property otherwise violates any property of any nature of that party or any
third party. Unless the Debtor shall reasonably determine that such Trademark,
Patents, or other intellectual property is not of material economic value to the
Debtor, the Debtor further shall diligently prosecute any and all persons who
infringe any of its Trademarks, Patents, or other intellectual property to
recover any and all damages and take such other actions as the Debtor shall deem
appropriate under the
<PAGE> 9
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circumstances to protect such Trademarks, Patents, or other intellectual
property. The Lender shall have the option, but not the obligation, to
participate in any such action at Debtor's expense and to maintain suits against
parties for infringement or misappropriation if Lender believes the Debtor is
not diligently and vigorously proceeding in such action(s).
7(e) If any trademark or service mark registration or patent
registration is issued hereafter to the Debtor as a result of any application or
registration now or hereafter pending before the United States Patent and
Trademark Office or foreign equivalent thereof, the Debtor shall forthwith
execute and deliver a copy of the certificate of registration within thirty (30)
days of receipt of such certificate and a grant of security in such trademark,
service mark or patent to the Lender confirming the grant thereof hereunder, the
form of such confirmatory grant to be substantially the same as the form hereof.
7(f) The Debtor will perform all acts and execute all documents
including, without limitation, documents in form suitable for filing with the
United States Patent and Trademark Office, other governmental office, and any
foreign equivalent thereof, as reasonably requested by the Lender at any time to
evidence, perfect, maintain, record and enforce the Lender's interest in the
Trademarks, Patents, and the Debtor's other intellectual property or otherwise
in furtherance of the provisions of this Agreement. In the event of foreclosure
hereunder upon all or any part of the Collateral, the Debtor shall, and hereby
does, constitute the Lender as the Debtor's attorney-in-fact to transfer, in the
Debtor's name, the Trademarks (including all goodwill associated with the
Trademarks), the Patents, and the Debtor's other intellectual property to a
third party capable, in the Lender's judgment, of using and maintaining the
nature and quality of the Trademarks, the Patents, and the Debtor's other
intellectual property. Such power-of-attorney shall include, without limitation,
the right to execute all documents and to do all acts as the Lender considers
necessary to effect any of the foregoing, and all acts of such attorney are
hereby ratified and confirmed; such power being coupled with an interest which
is irrevocable until the Liabilities are paid in full.
7(g) Except to the extent that the Lender shall consent in writing, the
Debtor will, unless the Debtor shall reasonably determine that a Trademark is
not of material economic value to the Debtor, (i) continue to use each Trademark
in order to maintain each Trademark in full force free from any claim of
abandonment for non-use, (ii) employ each Trademark with the appropriate notice
of application or registration, (iii) not adopt or use any mark which is
confusingly similar or a colorable imitation of any Trademark, (iv) not use any
Trademark except for the uses for which registration or application for
registration of such Trademark has been made, (v) not (and not permit any
licensee or sublicensee thereof, if any, to) do any act or knowingly omit to do
any act whereby any Trademark may be subject to dilution, misappropriation, or
invalidation, and (vi) ensure and warrant that the quality of the goods and
services bearing each applicable Trademark will be maintained at not less than
the quality level thereof as exists as of the date of this Agreement, and in
that regard, during normal business hours the Lender and its representatives may
inspect the Debtor's books, records, and facilities which manufacture, inspect,
or store products to ensure that quality of the applicable goods and services
are being maintained.
7(h) The Debtor shall notify the Lender immediately if it knows, or has
reason to know, of any reason that any application or registration relating to
any Trademark,
<PAGE> 10
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Patent, or other intellectual property of the Debtor may become abandoned or of
any adverse determination or development (including, without limitation, the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office or any court) regarding the
Debtor's ownership of any Trademark, Patent, other intellectual property, its
right to register or use the same, or to keep and maintain the same.
7(i) In no event shall the Debtor, either itself or through any agent,
employee, licensee or designee, file an application for the registration of any
Trademark, Patent, or other intellectual property with the United States Patent
and Trademark Office, other governmental office, or any similar office or agency
in any other country or any political subdivision thereof, unless it promptly
informs the Lender, and, upon request of the Lender, executes and delivers any
and all agreements, instruments, documents and papers as the Lender may request
to evidence the Lender's security interest in such Trademark, Patent, or other
intellectual property and the goodwill and general intangibles of the Debtor
relating thereto or represented thereby, and the Debtor hereby constitutes the
Lender its attorney-in-fact to execute and file all such writings for the
foregoing purposes, including without limitation to modify this Agreement by
amending Schedule A-3 and/or Schedule A-4 (as the case may be) to include any
future Trademarks, Patents, and other intellectual property, all acts of such
attorney being hereby ratified and confirmed; such power being coupled with an
interest which is irrevocable until the Liabilities are paid in full.
7(j) The Debtor will take all commercially reasonable steps, including,
without limitation, in any proceeding before the United States Patent and
Trademark Office, any other governmental office, or any other office or agency
in any other country or any political subdivision thereof, to maintain and
pursue each application (and to obtain the relevant registration) and to
maintain each registration of the Trademarks and Patents, except to the extent
permitted under Section 7(g), including but not limited to the appropriate and
timely payment of any required fees and the appropriate and timely filing of any
documents or declarations necessary to maintain and renew such Trademarks and
Patents which may be necessary or appropriate under applicable federal, state,
and foreign law.
7(k) Upon the occurrence and during the existence of an Event of
Default, the Lender may, by written notice to the Debtor, take any or all of the
following actions: (i) declare the entire right, title and interest of the
Debtor in and to each of the Trademarks, Patents, and other intellectual
property, together with all related rights and rights of protection to the same,
vested, in which event such rights, title and interest shall immediately vest,
in the Lender, in which case the Debtor agrees to execute assignments in form
and substance satisfactory to the Lender, of all its rights, title and interest
in and to the Trademarks, Patents, and other intellectual property to the
Lender; (ii) take and use or sell the Trademarks, Patents, and other
intellectual property and the goodwill of the Debtor's business symbolized by
the Trademarks and the right to carry on the business of such Debtor in
connection with which the Trademarks have been used; and (iii) direct the Debtor
to refrain, in which event the Debtor shall refrain, from using the Trademarks,
Patents, and its other intellectual property in any manner whatsoever, directly
or indirectly, and, if requested by the Lender, change the Debtor's corporate
name to eliminate therefrom any use of any Trademarks and execute such other and
further documents that the Lender may request to further confirm this and to
transfer ownership of the Trademarks, Patents, and other intellectual property,
and any pending trademark and patent application(s) for
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trademarks, patents, and other intellectual property in the United States Patent
and Trademark Office, any other governmental office, and in any similar foreign
office to the Lender. After any Event of Default, the Debtor shall cooperate and
use its best efforts to obtain any consents, waivers, or agreements necessary to
enable the Lender to exercise its rights and remedies with respect to any
Trademark, Patent, and other intellectual property of the Debtor.
SECTION 8. Covenants of Debtor.
In addition to the Debtor's covenants contained in the Credit Agreement
and the Guarantee, the Debtor covenants that:
8(a) Subject to Section 3(e) and Section 3(f) hereof, the Collateral is
and will be located at the Debtor's chief executive office and such other places
of business and Permitted Inventory Locations as indicated on Schedule B
attached hereto. The Debtor's records of the Collateral will be located at the
Debtor's chief executive office. The chief executive office of the Debtor is
located at the address shown on Schedule B attached hereto. The Debtor will not
move its chief executive office, the location of the Collateral or any Records
Office (as defined below) except to such new location as the Debtor may
establish in accordance with the last sentence of this Section 8(a) and with
respect to Inventory, to Permitted Inventory Locations. The originals of all
documents and all electronically stored data and information evidencing all
Accounts and Contracts of the Debtor and the only original books of account and
records of the Debtor relating thereto are, and will continue to be, kept at its
chief executive office shown on Schedule B attached hereto (each, a "Records
Office"), or at such new Records Office as the Debtor may establish in
accordance with the last sentence of this Section 8(a). All Accounts, Contracts
and records of the Debtor are, and will continue to be, maintained at, and
controlled and directed (including, without limitation, for general accounting
purposes) from, such Records Office location shown above, or such new location
as the Debtor may establish in accordance with the last sentence of this Section
8(a). The Debtor shall not establish a new location for its chief executive
office, the location of the Collateral or any Records Office until (i) it shall
have given to the Lender not less than 45 days' prior written notice of its
intention so to do, clearly describing such new location and providing such
other information in connection therewith as the Lender may reasonably request,
and (ii) with respect to such new location, it shall have taken all action,
satisfactory to the Lender, to maintain the security interest of the Lender in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
8(b) The Collateral used or useful in its business, in whomever's
possession they may be, shall be kept in good repair, working order and
condition, and that from time to time there will be made to such Collateral all
needful and proper repairs, renewals, replacements, extensions, additions,
betterments and improvements thereto, to the extent and in the manner customary
for companies in similar lines of business under similar circumstances. The
Debtor will not encumber, sell, erase, transfer, assign, abandon or otherwise
dispose of the Collateral except for: (i) collection, discharge, discount,
compromise or expiration of the Accounts, Chattel Paper, Instruments or General
Intangibles in the ordinary course of the Debtor's business, (ii) sale or
transfer of Inventory in the ordinary course of business, (iii) dispositions of
items of Equipment no longer needed by the Debtor in the ordinary course of
business, (iv) Liens as permitted under the Credit Agreement and (v) trade-ins,
replacements or exchanges of items of Equipment for other items of Equipment to
the extent the same shall promptly be replaced by
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Equipment having an equal or greater value (in excess of purchase money liens on
such items) and useful in the Debtor's business. The inclusion of "products" and
"proceeds" of the Collateral under the security interest granted herein shall
not be deemed a consent by the Lender to any sale or other disposition of the
Collateral except as expressly permitted herein or in the Credit Agreement.
8(c) The Debtor will have and maintain insurance at its expense as
required of the Company pursuant to Section 6.04 of the Credit Agreement. The
Lender is authorized by the Debtor to act as its attorney in collecting,
adjusting, settling or canceling such insurance and endorsing any drafts drawn
by insurers. The Lender may apply any insurance proceeds received by it to the
Liabilities, whether due or not; provided, however, that the Lender will hold
such proceeds as a special deposit for use by the Debtor in replacing any
damaged Equipment which gave rise to such proceeds, so long as the Debtor is
taking steps to replace such Equipment with due diligence and in good faith and
so long as no Event of Default has occurred and is continuing hereunder. The
Debtor will immediately notify the Lender of any damage to or loss of the
Collateral in excess of $50,000. Not later than the expiration date of each
insurance policy then in effect, the Debtor shall deliver to the Lender a
certificate of insurance certifying as to (i) the extension of such policy or
the issuance of a renewal policy therefor, describing the same in reasonable
detail satisfactory to the Lender and (ii) the payment in full of the portion of
the premium therefor then due and payable (or accompanied by other proof of such
payment satisfactory to the Lender). The Debtor shall be required forthwith to
notify the Lender if the Debtor shall determine at any time not to, or at any
time be unable to, extend or renew any such insurance policy then in effect.
8(d) The Debtor will use the Collateral for business purposes and not
for personal, family, household or farming purposes and not in violation of any
statute or ordinance.
8(e) The Debtor will pay promptly when due all taxes, contributions,
charges or levies and assessments upon the Collateral owned by the Debtor or
upon its use or sale (other than those the amount or validity of which is
currently being contested in good faith by appropriate proceeding and with
respect to which appropriate reserves are maintained on the books of the Debtor
in accordance with GAAP). At its option the Lender may discharge taxes, liens or
other encumbrances at any time levied against or placed on the Collateral which
have not been stayed as to execution and contested with due diligence in
appropriate legal proceedings, and the Lender may pay for insurance on the
Collateral and maintenance and preservation of the Collateral if the Debtor
fails to do so. The Debtor shall reimburse the Lender on demand for any such
expense incurred by the Lender pursuant to the foregoing authorization, together
with interest thereon, from the date paid by the Lender until payment in full by
the Debtor, at the per annum rate of the Base Rate plus four percent (4%).
8(f) The Debtor will at all times and in all material respects keep
accurate and complete records of the Collateral. Subject to such notice required
pursuant to the Credit Agreement (if any), the Lender, or any of its agents,
shall have the right (in addition to the rights granted to the Lender pursuant
to Section 6(c) hereof) to call at the Debtor's place or places of business
during normal business hours, at intervals to be determined by the Lender, to
examine and inspect the Collateral and to inspect, audit, make test
verifications and otherwise check and
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make extracts from the books, records, journals, orders, receipts,
correspondence and other data relating to the Collateral or to any other
transactions between the parties hereto.
8(g) The Debtor agrees to stamp its books and records pertaining to
Accounts, Contracts, Chattel Paper, Instruments, Documents, Trademarks and
General Intangibles to evidence the Lender's security interest therein in form
satisfactory to the Lender immediately upon the Lender's written demand.
8(h) The Debtor will obtain the consent of any Governmental Authority
or other Person to the assignment hereunder of any of the Collateral if such
consent may be required by the terms of any contract or statute.
8(i) If any action or proceeding shall be commenced, other than any
action to collect the Liabilities, to which action or proceeding the Lender or
any Lender is made a party and in which it becomes necessary to defend or uphold
the Lender's security interest hereunder, all costs incurred by the Lender for
the expenses of such litigation (including reasonable actual attorney fees and
expenses) shall be deemed part of the Liabilities secured hereby, which the
Debtor agrees to pay or cause to be paid.
8(j) The Debtor agrees that if any warehouse receipt or receipt in the
nature of a warehouse receipt is issued with respect to any of its Inventory,
such warehouse receipt or receipt in the nature thereof shall not be
"negotiable" (as such term is used in Section 7-104 of the UCC).
8(k) The Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Lender from time to time such lists,
descriptions and designations of its Collateral, warehouse receipts, receipts in
the nature of warehouse receipts, bills of lading, documents of title, vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to the
Collateral and other property or rights covered by the security interest hereby
granted, which the Lender deems appropriate or advisable to perfect, preserve or
protect its security interest in the Collateral consistent with the terms
hereunder, and the Debtor hereby authorizes the Lender to execute and file at
any time and from time to time one or more financing statements or copies
thereof or of this Security Agreement with respect to the Collateral signed only
by the Lender.
8(l) If the Debtor is not the owner of any premises where any Equipment
is located, the Debtor will use its reasonable best efforts to furnish such
consents and waivers executed by the owners of such premises as the Lender shall
request.
SECTION 9. Events of Default.
9(a) An Event of Default ("Event of Default") shall have occurred under
this Agreement upon (i) the failure by the Debtor to pay when due any
Liabilities, whether by acceleration or otherwise, (ii) the occurrence of any
event, condition or act which is defined or described as an Event of Default in
any Loan Document, or (iii) the occurrence of any event, condition or act which
pursuant to the terms of any Loan Document gives the Lender, for the
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benefit of the Lender, the right to accelerate the payment of any Liabilities,
regardless of whether the Lender exercises such right.
9(b) Upon the occurrence and during the existence of an Event of
Default, the Lender shall have all of the rights, powers and remedies set forth
in the Credit Agreement, the Notes, this Agreement, the other Loan Documents and
any other instrument or other evidence of any of the Liabilities secured hereby,
together with the rights and remedies of a secured party under the Uniform
Commercial Code of the jurisdictions where the Collateral is located, and,
without limiting the foregoing, the Lender may:
(i) personally, or by agents or attorneys, immediately retake
possession of the Collateral or any part thereof, from the Debtor
or any other Person who then has possession of any part thereof
with or without notice or process of law, and for that purpose
may enter upon the Debtor's premises where any of the Collateral
is located and remove the same and use in connection with such
removal any and all services, supplies, aids and other facilities
of the Debtor; and
(ii) instruct the obligor or obligors on any agreement, instrument or
other obligation (including, without limitation, the Accounts and
the Contracts) constituting the Collateral to make any payment
required by the terms of such instrument or agreement directly to
the Lender; and
(iii) withdraw all monies, securities and instruments in the Company
Account or any other account for application to the Liabilities;
and
(iv) sell or otherwise liquidate, or direct the Debtor to sell or
otherwise liquidate, any or all investments made in whole or in
part with the Collateral or any part thereof, and take possession
of the proceeds of any such sale or liquidation; and
(v) take possession of the Collateral or any part thereof, by
directing the Debtor in writing to deliver the same to the Lender
at any place or places designated by the Lender, in which event
the Debtor shall at its own expense
(A) forthwith cause the same to be moved to the place or
places so designated by the Lender and there delivered to the
Lender,
(B) store and keep any Collateral so delivered to the Lender
at such place or places pending further action by the Lender as
provided in Section 9(c) hereof, and
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(C) while the Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain them
in good condition;
it being understood that the Debtor's obligation so to deliver the
Collateral is of the essence of this Agreement and that, accordingly,
upon application to a court of equity having jurisdiction, the Lender
shall be entitled to a decree requiring specific performance by the
Debtor of said obligation.
9(c) Any Collateral repossessed by the Lender under or pursuant to
Section 7(k) or 9(b) and any other Collateral whether or not so repossessed by
the Lender, may be sold, leased or otherwise disposed of under one or more
contracts or as an entirety, and without the necessity of gathering at the place
of sale the property to be sold, and in general in such manner, at such time or
times, at such place or places and on such terms as the Lender may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the Lender
or after any overhaul or repair which the Lender shall determine to be
commercially reasonable at a public or private sale or proceeding, or otherwise,
by one or more contracts, in one or more parcels, at the same or different
times, for cash and/or credit and upon any terms, at such places and times and
to such persons as the Lender deems best, and for that purpose the Lender may
enter peaceably any premises on which the Collateral or any part thereof may be
situated and remove the same therefrom and the Debtor will not resist or
interfere with such action. If an Event of Default shall have occurred and be
continuing, the Lender may require the Debtor to assemble and/or remove the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties. The Debtor hereby
agrees that its address and the place or places of location of the Collateral
are places reasonably convenient to it to assemble the Collateral. Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, if an applicable statute requires
reasonable notice of sale or other disposition, the Lender will send to the
Debtor reasonable notice of the time and place of any public sale or reasonable
notice of the time after which any private sale or any other disposition thereof
is to be made. The Debtor agrees that requirement of sending reasonable notice
shall be met if such notice is mailed, postage prepaid, to the Debtor at least
ten (10) days before the time of the sale or disposition. If an Event of Default
shall have occurred and be continuing, the Lender may at any time in its
discretion transfer any property constituting Collateral into its own name or
that of its nominee and receive the income thereon and hold the same as security
for the Liabilities. To the extent permitted by any law, the Lender may itself
bid for and purchase the Collateral or any item thereof offered for sale in
accordance with this Section without accountability to the Company (except to
the extent of surplus money received as provided in Section 9(f)).
9(d) The Debtor recognizes that the Collateral may not be readily
marketable and may not be marketable at all if an Event of Default has occurred.
Therefore, in order to enable the Lender to use such means as it may determine
necessary or advisable to realize upon the Collateral from time to time, the
Debtor consents that the Lender may use whatever means it
<PAGE> 16
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may reasonably consider necessary or advisable to sell any or all of the
Collateral at any time or times after default thereunder, including but not
restricted to the giving of an option to purchase any or all of the Collateral
to any party and the extending of credit to any purchaser of such Collateral.
The Lender may sell any or all of the Collateral or commit itself to sale
without limiting the amount sold to the amount of indebtedness secured thereby,
plus costs and expenses of collection.
9(e) The Lender may appropriate, set off and apply to the payment of
the Liabilities, any Collateral in or coming into the possession of the Lender
or its agents, without notice to the Debtor and in such manner as the Lender may
in its discretion determine.
9(f) The proceeds of any Collateral obtained pursuant to Section 2(a),
7(k) or 9(b) or disposed of pursuant to Section 9(c) shall be applied as
follows:
(i) to the payment of any and all expenses and fees (including
reasonable actual attorneys' fees and expenses) incurred by the
Lender in obtaining, taking possession of, removing, insuring,
repairing, storing and disposing of Collateral and any and all
amounts incurred by the Lender in connection therewith;
(ii) next, any surplus then remaining to the payment of the
Liabilities in such order as the Lender may determine (subject to
any statutory requirements), and the Debtor shall remain liable
for, and shall pay on demand, any deficiency; and
(iii) after payment in full of all amounts due under subparagraphs
9(f)(i) and 9(f)(ii) above, any surplus then remaining shall be
paid to the Debtor, subject, however, to the rights of the holder
of any then existing Lien of which the Lender has actual notice
(without investigation).
9(g) Each and every right, power and remedy hereby specifically given
to the Lender shall be in addition to every other right, power and remedy
specifically given under this Agreement or under the other Security Documents or
now or hereafter existing at law or in equity, or by statute and each and every
right, power and remedy whether specifically herein given or otherwise existing
may be exercised from time to time or simultaneously and as often and in such
order as may be deemed expedient by the Lender. All such rights, powers and
remedies shall be cumulative and the exercise or the beginning of exercise of
one shall not be deemed a waiver of the right to exercise of any other or
others. The Lender may exercise its rights with respect to Collateral without
resorting to or regard to other Collateral or sources of reimbursement for any
of the Liabilities. No delay or omission of the Lender in the exercise of any
such right, power or remedy and no renewal or extension of any of the
Liabilities shall impair any such right, power or remedy or shall be construed
to be a waiver of any Default or Event of Default or an acquiescence therein. In
the event that the Lender shall bring any suit to enforce any of its rights
hereunder and shall be entitled to judgment, then in such suit the Lender
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may recover reasonable expenses, including attorneys' fees, and the amounts
thereof shall be included in such judgment.
9(h) In case the Lender shall have instituted any proceeding to enforce
any right, power or remedy under this Agreement by foreclosure, sale, entry or
otherwise, and such proceeding shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Lender, then and in every
such case the Debtor, the Lender and each holder of any of the obligations shall
be restored to their former positions and rights hereunder with respect to the
Collateral subject to the security interest created under this Agreement, and
all rights, remedies and powers of the Lender shall continue as if no such
proceeding had been instituted.
SECTION 10. Waivers.
10(a) Except as otherwise provided in this Agreement, THE DEBTOR HEREBY
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL HEARING IN
CONNECTION WITH THE LENDER'S TAKING POSSESSION OR THE LENDER'S DISPOSITION OF
ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE
AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH THE
DEBTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED
STATES OR OF ANY STATE, and the Debtor hereby further waives:
(i) all damages occasioned by such taking of possession except any
damages which are the direct result of the Lender's gross
negligence or willful misconduct;
(ii) all other requirements as to the time, place and terms of sale or
other requirements with respect to the enforcement of the
Lender's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any
applicable law in order to prevent or delay the enforcement of
this Agreement or the absolute sale of the Collateral or any
portion thereof, and the Debtor, for itself and all who may claim
under insofar as it or they, now or hereafter, lawfully may,
hereby waives the benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Debtor therein and thereto, and shall
be a perpetual bar both at law and in equity against the Debtor and against any
and all Persons claiming or attempting to claim the Collateral so sold, optioned
or realized upon, or any part thereof, from, through and under the Debtor.
<PAGE> 18
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10(b) The Debtor waives demand, notice, protest, notice of acceptance
of this Agreement, notice of loans made, credit extended, Collateral received or
delivered or other action taken in reliance hereon and all other demands and
notices of any description except as hereinbefore provided. With respect to
Liabilities and Collateral, the Debtor assents to any extension or postponement
of the time of payment or any other indulgence, to any substitution, exchange or
release of Collateral, to the addition or release of any party or person
primarily or secondarily liable, to the acceptance of partial payments thereon
and the settlement, compromising or adjusting of any thereof, all in such time
or times as the Lender may deem advisable. The Debtor waives all rules of
suretyship law and any other law whatsoever which is legally permitted to be
waived and which would, if not waived, impair the Lender's enforcement of its
security interests hereunder. By way of example, but not in limitation of the
Lender's rights under this Security Agreement, subject to the terms and
conditions of this Security Agreement and the Credit Agreement, the Lender may
do any of the following without notice to the Debtor (unless such notice or
other action is otherwise required pursuant to any of the Loan Documents to
which the Debtor is a party):
(i) change, renew or extend the time for payment of all or any part
of the Liabilities;
(ii) change any provision with respect to all or any part of the
Liabilities;
(iii) release, surrender, sell or otherwise dispose of any money or
property which is in the Lender's possession as collateral
security for the Liabilities;
(iv) fail to perfect a security interest in any property which is
pledged or mortgaged as security for payment of the Liabilities;
(v) release or discharge any party liable to the Lender in whole or
in part for the Liabilities, or accept any additional parties or
guarantors;
(vi) delay or refrain from exercising any of the Lender's rights;
(vii) settle or compromise any and all claims pertaining to the
Liabilities and the Collateral; and
(viii) apply any money or property of the Debtor or that of any other
party liable to the Lender for any part of the Liabilities in any
order the Debtor chooses.
10(c) The Lender shall have no duty as to the collection or protection
of Collateral not in the Lender's possession, and the Lender's duty with
reference to Collateral in its possession shall be to use reasonable care in the
custody and preservation of such Collateral, but such duty shall not require the
Lender to do any of the following (although the Lender is authorized to
reasonably undertake any such action if the Lender deems such action
appropriate):
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(i) exercise any rights under the Collateral or act upon any request
made by the Debtor;
(ii) collect any sums due on the Collateral;
(iii) notify the Debtor of any maturities or other similar matters
concerning the Collateral; or
(iv) preserve or protect the Debtor's rights in the Collateral or take
any action to protect any of the Collateral against claims of
others or to preserve rights against prior parties.
SECTION 11. Indemnity and Costs and Expenses.
11(a) The Debtor agrees to pay, or reimburse the Lender for any and all
fees, costs and expenses of whatever kind or nature incurred in connection with
(i) the enforcement or attempted enforcement of the Lender's rights under this
Security Agreement, and (ii) the creation, preservation or protection of the
Lender's Liens on, and security interest in, the Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment or discharge of any taxes
or Liens upon or in respect of the Collateral, premiums for insurance with
respect to the Collateral and all other fees, costs and expenses in connection
with protecting, maintaining or preserving the Collateral and the Lender's
interest therein, whether through judicial proceedings or otherwise, or in
defending or prosecuting any actions, suits or proceedings arising out of or
relating to the Collateral.
11(b) Without limiting the application of Section 11(a) hereof, the
Debtor agrees to pay, indemnify and hold the Lender (herein, the "Indemnitee")
harmless from and against any loss, costs, damages and expenses which any such
Indemnitee may suffer, expend or incur in consequence of or growing out of any
misrepresentation by the Debtor in this Agreement or any of the other Loan
Documents or in any statement or writing contemplated by or made or delivered
pursuant to or in connection with this Agreement or any of the other Security
Documents or any breach by the Debtor of this Agreement or any of the other Loan
Documents.
11(c) If and to the extent that the obligations of the Debtor under
this Section 11 are unenforceable for any reason, the Debtor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
11(d) Any amounts paid by any Indemnitee as to which such Indemnitee
has the right to reimbursement shall constitute Liabilities secured by the
Collateral. The indemnity obligations of the Debtor contained in this Section 11
shall continue in full force and effect notwithstanding the full payment of all
Liabilities and notwithstanding the discharge thereof.
SECTION 12. The Lender. Without limiting any provision hereof, the
Lender shall be entitled to the rights, powers, immunities, exculpations and
privileges set forth in Article IX of the Credit Agreement as if the same were
set forth in full in this Agreement. The Lender
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shall have no rights hereunder to realize upon the Collateral or otherwise
enforce the provisions of this Agreement, it being understood that such rights
and remedies may be exercised only by the Lender.
SECTION 13. Successors and Assigns. The covenants, representations,
warranties and agreements herein set forth shall be binding upon the Debtor, its
legal representatives, successors and assigns, and shall inure to the benefit of
the Lender and its successors and assigns. The successor of the Lender hereunder
shall forthwith become vested with and shall be entitled to exercise all the
powers and rights given by this Agreement to the Lender, as if said successor
were originally named as secured party herein.
SECTION 14. Lender May Perform. If Debtor fails to perform any
agreement contained herein, the Lender may itself perform, or cause performance
of, such agreement, and the expenses of the Lender incurred in connection
therewith shall be payable by Debtor on demand.
SECTION 15. No Waiver; Remedies. No failure on the part of the Lender
to exercise, and no delay in exercising, and no course of dealing with respect
to, any right, power, or remedy under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder and
under any of the other Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The remedies
provided herein and in the other Loan Documents are cumulative and not exclusive
of any remedies provided by law.
SECTION 16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO ANY CHOICE OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF
ANY OTHER JURISDICTION EXCEPT TO THE EXTENT THAT THE LAWS OF THE JURISDICTIONS
WHERE THE COLLATERAL IS LOCATED APPLY TO THE CREATION, ATTACHMENT, PERFECTION,
PRIORITY AND ENFORCEMENT OF LIENS ON AND SECURITY INTERESTS IN THE COLLATERAL.
SECTION 17. Severability. If any provision hereof shall be held to be
invalid, illegal or unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall remain in full
force and effect in such jurisdiction, and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 18. Amendments. None of the terms or provisions of this
Security Agreement may be waived, altered, modified, or amended except by an
agreement in writing signed by the Lender and the Debtor.
SECTION 18. Notices. All notices, statements, requests and demands
herein provided for shall be in writing and shall be deemed to have been given
or made when delivered to the respective addresses and in the manner specified
in Section 9.01 of the Credit Agreement,
<PAGE> 21
-21-
provided that all notices to the Debtor shall be addressed and delivered to the
address set forth below its signature.
SECTION 19. Counterparts. This Agreement may be executed in any number
of counterparts, all of which, when taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.
SECTION 20. Termination. When all Liabilities shall have been paid in
full and the Guarantee has expired or been terminated, this Agreement shall
terminate, and the Lender shall cause to be assigned, transferred and delivered,
against receipt but without any recourse, warranty or representation whatsoever,
any remaining Collateral and money received in respect thereof, to or for the
account of the Debtor. The Lender shall also execute and deliver to the Debtor
upon such termination such UCC termination statements and such other
documentation as shall be reasonably requested as necessary by the Debtor to
effect the termination and release of the Liens on the Collateral, all at the
expense of the Debtor.
<PAGE> 22
-22-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date and year first above written.
CAMINUS/DC ACQUISITION CORP.
By: /s/ Mark A. Herman
----------------------------
Name:
Title:
Address for Notices:
5001 Spring Valley Road
Suite 390-West
Dallas, TX 75244
FLEET BANK, N.A.,
as Lender
By: /s/ Susan Failla
----------------------------
Name: Susan Failla
Title: Vice President
<PAGE> 23
SCHEDULE A-1
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by Caminus/DC Acquisition Corp.
as Debtor
(i) All equipment (as defined in the UCC) in all of its forms, wherever located,
now existing or hereafter acquired, including, without limitation, all machinery
and other goods, furniture, furnishings, trade fixtures, office supplies, motor
vehicles, tools, computers (including hardware and software), other office
equipment, all equipment and other goods and property more particularly
described in capital leases and any subleases or assignments thereof, and all
other tangible personal property used in connection with or related to the
operation of the Debtor's business, together with all parts, fittings, special
tools, alterations, attachments, additions, accessories, improvements,
substitutions, replacements and accessions thereto, and all proceeds and
products arising therefrom (the "Equipment");
(ii) All inventory (as defined in the UCC) and merchandise in all of its forms,
wherever located, now existing or hereafter acquired including, but not limited
to, (i) all raw materials and work in process therefor, finished goods thereof,
and materials used or consumed in the manufacture or production thereof, (ii)
goods in which the Debtor has an interest in mass or a joint or other interest
or right of any kind (including, without limitation, goods in which the Debtor
has an interest or right as consignee), and (iii) goods which are returned to or
repossessed by the Debtor, and all accessions thereto and products and proceeds
thereof and general intangibles arising therefrom (the "Inventory");
(iii) All of the Debtor's accounts (as defined in the UCC), whether now existing
or hereafter acquired, including without limitation any and all rights evidenced
by an account, note, contract, security agreement, chattel paper, or other
evidence of indebtedness or security, together with (a) all security pledged,
assigned, hypothecated or granted to or held by the Debtor to secure the
foregoing, (b) all of the Debtor's right, title and interest in and to any
goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (d) all powers of attorney for
the execution of any evidence of indebtedness or security or other writing in
connection therewith, (e) all books, records, ledger cards, and invoices
relating thereto, (f) all evidences of the filing of financing statements and
other statements and the registration of other instruments in connection
therewith and amendments thereto, notices to other creditors or secured parties,
and certificates from filing or other registration officers, (g) all credit
information, reports and memoranda relating thereto, and (h) all other writings
related in any way to the foregoing, and all proceeds and general intangibles
arising therefrom (the "Accounts");
(iv) All of the contracts and agreements of the Debtor listed on Schedule A-2
attached hereto, together with all schedules, exhibits, documents and
certificates referred to therein, as amended, supplemented or otherwise modified
from time to time, including without limitation, all rights of
<PAGE> 24
the Debtor to (a) receive moneys due and to become due to it thereunder or in
connection therewith, (b) damages arising out of, or for, breach or default in
respect thereof, (c) compel performance of the terms thereof, (d) benefits and
claims under all warranty and indemnity provisions contained therein, (e) all
insurance payments provided therein and (f) any other moneys due and to become
due to the Debtor thereunder or in connection therewith (the "Contracts");
(v) All chattel paper (as defined in the UCC), now owned or hereafter acquired,
and all proceeds and general intangibles arising therefrom (the "Chattel
Paper");
(vi) All instruments (as defined in the UCC) of the Debtor, now owned or
hereafter acquired, and all proceeds and general intangibles arising therefrom
(the "Instruments");
(vii) All of the Debtor's now existing and hereafter acquired general
intangibles (as defined in the UCC), including without limitation all of the
Debtor's rights and interest in any contracts, franchises, licenses, leases,
easements, customer lists, methods of doing business, copyrights, the
Trademarks, the Patents, non-compete agreements, distribution agreements, and
all other general intangibles, and intellectual, proprietary and intangible
property and the proceeds of any of the foregoing (the "General Intangibles");
(viii) All of the Debtor's right, title and interest in, to and under any now
existing or hereafter created or acquired United States (or individual State
thereof) and foreign servicemarks and trademarks (including without limitation
the trademarks listed on Schedule A-3 attached hereto), trade names, trade
styles, logos and/or designs, and trade dress, including, without limitation,
the goodwill of the business to which each of the foregoing relates, all
registrations, recordings, and applications with respect to the foregoing, all
affidavits of use and incontestability, all renewals thereof, all licenses,
royalties, income, claims, damages, payments, and proceeds of suit now or
hereafter payable or due for past or future infringements of any of the
foregoing; the right (but not the obligation) to sue for past, present, and
future infringements of any of the foregoing; all rights corresponding to the
foregoing throughout the world; and all proceeds and general intangibles arising
therefrom (the "Trademarks");
(ix) All of the Debtor's right, title and interest in, to and under any now
existing or hereafter created or acquired United States and foreign patents,
patent applications, and patentable inventions, including, but not limited to,
each patent and patent application referred to in Schedule A-4 attached hereto;
all reissues, divisions, continuations, continuations-in-part, extensions,
renewals and reexaminations of any of the foregoing; all licenses, royalties,
income, claims, damages, payments, and proceeds of suit now or hereafter payable
or due for past or future infringements of any of the foregoing; the right (but
not the obligation) to sue for past, present, and future infringements of any of
the foregoing; all rights corresponding to the foregoing throughout the world;
and all proceeds and general intangibles arising therefrom (the "Patents");
(x) All of the Debtor's books, records and other property relating to or
referring to any of the foregoing, including without limitation, all books,
records, ledger cards and other property and general intangibles at any time
evidencing or relating to the Accounts, Inventory, Instruments,
<PAGE> 25
Chattel Paper, Documents, Trademarks, Patents and General Intangibles, and the
proceeds thereof (the "Records");
(xi) All insurance policies held by the Debtor or naming the Debtor as loss
payee (including, without limitation, casualty insurance, key-man life
insurance, property insurance and business interruption insurance), and all such
insurance policies entered into after the date hereof, and all proceeds and
general intangibles arising therefrom (the "Insurance");
(xii) All documents of title (as defined in the UCC) or other receipts of the
Debtor covering, evidencing or representing any Inventory or Equipment wherever
located, now owned or hereafter acquired, and all proceeds and general
intangibles arising therefrom (the "Documents");
(xiii) All of the Debtor's rights as a seller of goods under Article 2 of the
UCC or otherwise with respect to Inventory, and all goods represented by or
securing any of the Accounts, all of the Debtor's rights therein, including,
without limitation, rights as an unpaid vendor or lienor and including rights of
stoppage in transit, replevin and reclamation ("Other Rights");
(xiv) All guarantees, mortgages or security interests on real or personal
property, leases or other agreements or property now or hereafter securing or
relating to any of the items referred to above in favor of the Debtor, or now or
hereafter acquired for the purpose of securing and enforcing any of such items
in favor of the Debtor, and the proceeds thereof (the "Debtor's Security"); and
(xv) All sums at any time standing to Debtor's credit on the books of Lenders
and all moneys, securities, and other property of the Debtor at any time in the
Lender's possession, including, without limitation, all monies, securities and
instruments deposited or required to be deposited in the Company Account and any
other account, whether now existing or hereafter from time to time acquired, and
all proceeds and general intangibles arising therefrom ("Other Property").
<PAGE> 26
SCHEDULE A-2
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by Caminus/DC Acquisition Corp.
as Debtor
List of Contracts
-----------------
<PAGE> 27
SCHEDULE A-3
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by Caminus/DC Acquisition Corp.
as Debtor
Description of Trademarks
-------------------------
REG. NO. DESCRIPTION TITLE HOLDER ISSUED
- -------- ----------- ------------ ------
<PAGE> 28
SCHEDULE A-4
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by Caminus/DC Acquisition Corp.
as Debtor
Description of Patents
----------------------
PATENT NO. DESCRIPTION TITLE HOLDER EXPIRATION
- ---------- ----------- ------------ ----------
<PAGE> 29
Schedule B
to
Security Agreement
in favor of
Fleet Bank, N.A.
as the Lender
granted by Caminus/DC Acquisition Corp.
as Debtor
Principal Place of Business of Debtor:
- --------------------------------------
5001 Spring Valley Road
Suite 390-West
Dallas, Texas 75244
Chief Executive Office of Debtor (if different
from the Principal Place of Business):
- --------------------------------------
All Other Places of Business of Debtor:
- ---------------------------------------
All Locations of Collateral (including Permitted Inventory Locations):
- ----------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.47
SECURITY AGREEMENT
DCS*GASNET CORPORATION
THIS SECURITY AGREEMENT, dated as of September 1, 1999 (the
"Agreement" or the "Security Agreement"), is between DCS*Gasnet Corp., a Texas
corporation, as debtor (the "Debtor"), and Fleet Bank, N.A., a national banking
association organized under the laws of the United States, as lender
(hereinafter, in such capacity, together with its successors in such capacity,
the "Lender") under the Credit Agreement referred to below.
Caminus LLC, a Delaware limited liability company (the
"Company"), and the Lender are parties to a Credit Agreement dated as of June
23, 1999 (such Credit Agreement, as the same may be amended or supplemented from
time to time is referred to herein as the "Credit Agreement") providing, subject
to the terms and conditions thereof, for extensions of credit to be made by the
Lenders to the Company in an aggregate principal amount not exceeding
$5,000,000.00 (the "Loans"). The Loans made or to be made by the Lender to the
Company shall be evidenced by certain promissory notes (as exchanged, replaced,
amended, supplemented or modified from time to time, the "Notes") in
substantially the form of Exhibits A-1 and A-2 attached to the Credit Agreement,
as guaranteed by the Debtor pursuant to a certain Guarantee by the Debtor in
favor of the Lender, dated as of even date herewith (such Guarantee, as the same
may be amended or supplemented from time to time is referred to herein as the
"Guarantee").
For other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Debtor has agreed to execute
and deliver this Agreement.
As used herein, "UCC" shall mean the Uniform Commercial Code
of the State of New York (except as otherwise defined in Section 7 hereof) as
amended and in effect as of the date hereof. All other capitalized terms, unless
defined herein or in the Schedules attached hereto and made a part hereof, shall
have the meanings set forth in the Credit Agreement.
SECTION 1. Security Interest.
1(a) As security for the prompt and complete payment,
performance and observance of all indebtedness, obligations, liabilities and
agreements of the Debtor to the Lender pursuant to, under or arising out of the
Guarantee and any amendments, extensions, renewals, increases, refundings or
modifications thereto or of any part thereof, whether now existing or hereafter
incurred, matured or unmatured, direct or contingent, together with interest and
costs of enforcement and collection thereof and of this Security Agreement,
including all reasonable actual attorneys' fees and disbursements incurred by
the Lenders (collectively, the "Liabilities"), the Debtor hereby grants to the
Lender, a continuing security interest of first priority in, and the Debtor
hereby assigns and pledges to the Lender, all of the Debtor's right, title and
interest in the property described on Schedule A-1 attached hereto, whether now
owned by the Debtor or hereafter coming into existence, and wherever located
(all being collectively referred to herein as the "Collateral").
<PAGE> 2
-2-
1(b) The Debtor irrevocably appoints the Lender as its lawful
attorney and agent to execute financing statements and amendments thereto (to
the extent permitted by applicable law), notices of any assignments of any of
the Collateral on the Debtor's behalf, and on its behalf to file financing
statements and amendments thereto in any appropriate public office.
1(c) This Security Agreement is in addition to and without
limitation of any right of the Lender and/or any of the other Lender under any
other security agreement, pledge or leasehold assignment, mortgage or guarantee
granted by the Debtor or any third party to the Lender.
1(d) Except as otherwise herein provided, this Security
Agreement is absolute and without any conditions. The Lender can enforce its
rights in the Collateral immediately upon an Event of Default without having
first to attempt any collection from the Debtor.
SECTION 2. Collection.
Upon the occurrence and continuation of an Event of Default
pursuant to Section 9(a) hereof, the Lender shall have the following rights and
powers in addition to those specified in Section 9(b) hereof:
2(a) The Lender shall have the right to notify the parties
obligated on any or all of the Debtor's Accounts, Contracts, Chattel Paper,
Instruments, Insurance, Documents or General Intangibles to make payment thereof
directly to the Lender, and the Lender may take control of all proceeds of any
of the Accounts, Contracts, Chattel Paper, Instruments, Insurance or General
Intangibles. The costs of collection and enforcement, including reasonable
attorney's fees and reasonable out-of-pocket expenses, shall be borne solely by
the Debtor, whether the same are incurred by the Lender or the Debtor. The
Debtor will not thereafter without the Lender's written consent make any
adjustment, extend or renew, compromise, compound or settle any of the Accounts,
Contracts, Chattel Paper, Instruments, Insurance or General Intangibles, or
release, wholly or partly, any person liable for payment thereof.
2(b) The Debtor hereby irrevocably appoints the Lender to be
the Debtor's true and lawful attorney, with full power of substitution, in the
Lender's name or the Debtor's name or otherwise for the Lender's sole use and
benefit, but at the Debtor's cost and expense, to exercise at any time all or
any of the following powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give
acquittance for any and all moneys due or to become
due upon or by virtue thereof;
(ii) to receive, take, sign, endorse, assign and deliver
any and all checks, notes, drafts, acceptances,
invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and
other negotiable and non-negotiable instruments and
<PAGE> 3
-3-
documents taken or received by the Lender in
connection therewith;
(iii) to receive, open and dispose of all mail addressed to
the Debtor and to notify the post office authorities
to change the address for delivery of mail addressed
to the Debtor to such address as the Lender may
designate;
(iv) to sign the name of the Debtor on any Document, on
invoices relating to any Account or Contract, drafts
against and notices to account debtors or obligors of
the Debtor, on financing statements and other public
records and on notices to customers;
(v) to execute endorsements, assignments or other
instruments of conveyance or transfer and proofs of
claim and loss and to adjust and compromise any
claims under insurance policies or otherwise;
(vi) to settle, compromise, compound, prosecute or defend
any action or proceeding with respect thereto;
(vii) to sell, transfer, assign or otherwise deal in or
with the same or the proceeds thereof and to apply
for and obtain any required consents of governmental
authority for any sale or other disposition of the
Collateral, as full and effectually as if the Lender
were the absolute owner thereof; and
(viii) to apply any or all amounts then in, or thereafter
deposited in, the Company Account in the manner
provided in Section 9(b)(iii) hereof; and
(ix) to make any allowances and other adjustments with
reference thereto and to take all other actions
necessary or advisable in the sole discretion of the
Lender to carry out and enforce this Security
Agreement or the Liabilities.
All acts done under the foregoing authorization are hereby
ratified and approved by the Debtor and neither the Lender nor any designee or
agent of the Lender shall be liable for any acts of commission or omission
(other than acts committed or omitted through gross negligence or willful
misconduct), for any error of judgment or for any mistake of fact or law. The
foregoing power of attorney being coupled with an interest is irrevocable while
any Liabilities shall remain unpaid. The foregoing authorization shall not be
construed in limitation of any other similar authorization to the Lender under
the Guarantee or otherwise.
2(c) The Debtor will immediately deliver to the Lender all
proceeds of the Collateral and all original evidence of Accounts, Contracts,
Chattel Paper, Instruments,
<PAGE> 4
-4-
Insurance, Documents, Patents, Trademarks, Records or General Intangibles,
including without limitation all notes or other instruments or contracts for the
payment of money, appropriately endorsed to the Lender's order and, regardless
of the form of such endorsement, the Debtor hereby waives presentment, demand,
notice of dishonor, protest and notice of protest and all other notices with
respect thereto; and the Debtor hereby appoints the Lender as the Debtor's agent
and attorney-in-fact to make such endorsement on behalf of and in the name of
the Debtor.
2(d) The exercise by the Lender of or failure to so exercise
any authority granted hereinabove shall in no manner affect the Debtor's
liability to the Lender, and provided, further, that the Lender shall be under
no obligation or duty to exercise any of the powers hereby conferred upon it and
it shall be without liability for any act or failure to act in connection with
the collection of, or the preservation of any rights under any of, the
Collateral.
SECTION 3. General Representations and Warranties.
In addition to the Debtor's representations made in the other
Loan Documents, the Debtor represents and warrants to the Lender, which
representations and warranties shall survive execution and delivery of this
Agreement, as follows:
3(a) All filings, registrations and recordings necessary or
appropriate to create, preserve, protect and perfect the security interest
granted by the Debtor to the Lender hereby in respect to the Collateral have
been accomplished and the security interest granted to the Lender pursuant to
this Agreement in and to the Collateral constitutes a perfected security
interest therein superior and prior to the rights of all other Persons therein
(except for Liens permitted under the Credit Agreement) and subject to no other
Liens (except for Liens permitted under the Credit Agreement), and is entitled
to all the rights, priorities and benefits afforded by the UCC or other relevant
laws as enacted in any relevant jurisdiction to perfected security interests.
3(b) The Debtor is, and as to Collateral acquired by it from
time to time after the date hereof the Debtor will be, the owner of all
Collateral free from any Lien, security interest, encumbrance or other right,
title or interest of any Person (other than Liens permitted under the Credit
Agreement), and the Debtor shall defend its Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein
adverse to the Lender.
3(c) There is no financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) covering or
purporting to cover any interest of any kind in the Collateral except for
filings and recordings permitted under the Credit Agreement and filings and
recordings in favor of the Lender created or provided for herein, and so long as
any of the Liabilities remain unpaid the Debtor will not execute or authorize to
be filed in any public office any financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) or statements
relating to the Collateral, except (i) financing statements filed or to be filed
in respect of and covering the security interests granted hereby by the Debtor,
and (ii) financing statements to be filed in connection with the creation of
Liens permitted under the Credit Agreement.
<PAGE> 5
-5-
3(d) The office location(s) of the Debtor set forth on
Schedule B attached hereto as the Debtor's principal place of business and chief
executive office and all other places of business are true and correct.
3(e) Schedule B attached hereto contains a true and complete
listing of all of the locations of all the Collateral. In the case of Inventory,
Schedule B also sets forth each Warehouseman (as defined in the Uniform
Commercial Code as in effect in the state in which the warehouse owned or
operated by such Person is located) that from time to time holds Inventory of
the Debtor and the Permitted Inventory Location (as defined herein) at which
such Inventory is so held. In the case of such Inventory, the Debtor further
represents and warrants that none of the Inventory is subject to a negotiable
warehouse receipt (as defined in the Uniform Commercial Code as in effect in the
state in which such Inventory is located).
3(f) The Debtor further represents and warrants, as to any
Inventory, that all such Inventory, other than Inventory in transit in the
normal course of business, is held at a Permitted Inventory Location (as defined
herein). "Permitted Inventory Location" is defined herein to mean (i) a
warehouse or other storage facility owned or leased by the Debtor, or (ii) a
warehouse or other storage facility owned, leased or operated by a Warehouseman
from whom the Lender has received a warehouse bailment agreement in form and
substance satisfactory to the Lender with respect to Inventory there held, and,
in either case, in jurisdictions where appropriate UCC financing statements
shall have liens filed against the Debtor for the benefit of the Lender and the
other Lender.
SECTION 4. Special Provisions Concerning Accounts.
4(a) As of the time when each of its Accounts arises, the
Debtor shall be deemed to have represented and warranted that such Accounts and
all records, papers and documents relating thereto (if any) are genuine and in
all respects what they purport to be, and that all papers and documents (if any)
relating thereto (i) will represent the genuine, legal, valid and binding
obligation of the account debtor evidencing indebtedness unpaid and owed by such
account debtor arising out of the performance of labor or services or the sale
or lease and delivery of the merchandise listed therein, or both, (ii) will be
the only original writings evidencing and embodying such obligation of the
account debtor named therein (other than copies created for purposes other than
general accounting purposes), (iii) will evidence true and valid obligations,
enforceable in accordance with their respective terms, not subject to the
fulfillment of any contract or condition whatsoever or to any defenses, set offs
or counterclaims (except with respect to refunds, returns and allowances in the
ordinary course of business), or stamp or other taxes, and (iv) will be in
compliance and will conform with all applicable federal, state and local laws
and applicable laws of any relevant foreign jurisdiction.
4(b) The Debtor will keep and maintain at its own cost and
expense satisfactory and complete records of its Accounts, including, but not
limited to, records of all payments received, credits granted thereon, all
merchandise returned and all other dealings therewith, and the Debtor will make
the same available to the Lender for inspection, at the Debtor's own cost and
expense, at any and all reasonable times upon demand.
<PAGE> 6
-6-
4(c) The Debtor shall endeavor to cause to be collected from
the account debtor named in each of its Accounts, as and when due (including,
without limitation, Accounts which are delinquent, such Accounts to be collected
in accordance with generally accepted lawful collection procedures), any and all
amounts owing under or on account of such Accounts, and apply forthwith upon
receipt thereof all such amounts as are so collected to the outstanding balance
of such Accounts, except that, so long as no Event of Default exists and is
continuing, the Debtor may allow in the ordinary course of business as
adjustments to amounts owing under its Accounts an extension or renewal of the
time or times of payment, or settlement for less than the total unpaid balance,
which the Debtor finds appropriate in accordance with sound business judgment.
The costs and expenses (including, without limitation, attorneys' fees and
expenses) of collection, whether incurred by the Debtor or the Lender, shall be
borne by the Debtor.
4(d) If any of the Accounts becomes evidenced by an
Instrument, the Debtor will within ten (10) days notify the Lender thereof, and
upon request by the Lender promptly deliver such Instrument to the Lender
appropriately endorsed to the order of the Lender as further security hereunder.
4(e) The Debtor will, at its own expense, make, execute,
endorse, acknowledge, file and/or deliver to the Lender from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to its
Accounts and other property or rights covered by the security interest hereby
granted, as the Lender may reasonably require which are consistent with the
terms hereunder.
SECTION 5. Special Provisions Concerning Contracts.
5(a) The Debtor represents and warrants that no consent of any
party (other than the Debtor) to any Contract is required, or purports to be
required, in connection with the execution, delivery and performance of this
Security Agreement. Each Contract is in full force and effect and is enforceable
in accordance with its respective terms and there is no default under any of the
terms thereof. The Debtor does hereby further represent and warrant that it has
not assigned or pledged, and hereby covenants that it will not assign or pledge,
except as permitted under the Credit Agreement, the whole or any part of the
rights hereby assigned to anyone other than the Lender, its successors or
assigns so long as this Security Agreement shall remain in effect. The Debtor
also covenants and agrees that it will not take any action or fail to take any
action or institute any proceedings the taking or omission of which might result
in the material alteration or impairment of this Security Agreement or any of
the material rights created by any of the Contracts or this Security Agreement.
Except as specified by a detailed notation corresponding to the applicable
Contract on Schedule A-2, the Debtor hereby further represents and warrants that
no consent or authorization of, filing with or other act by or in respect of any
Governmental Authority is required in connection with the execution, delivery,
performance, validity or enforceability of any of the Contracts by any party
thereto other than those which have been duly obtained, made or performed, are
in full force and effect and do not subject the scope of any such Contract to
any material adverse limitations, either specific or general in nature. The
right, title and interest of the Debtor in, to and under each Contract are not
subject to any defense, offset, counterclaim or claim which could reasonably be
expected to have a Material Adverse Effect, nor, as of the date of this Security
Agreement and to the best of the
<PAGE> 7
-7-
Debtor's knowledge, have any of the foregoing been asserted or alleged against
the Debtor as to any Contract. The Debtor has delivered to the Lender a complete
and correct copy of each Contract, including all amendments, supplements and
other modifications thereto. No amount payable to the Debtor under or in
connection with any Contract is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Lender.
The Debtor agrees that, so long as this Security Agreement is
in effect, it will not, without the prior written consent of the Lender, amend,
modify or permit to be amended or modified any of the Contracts or waive or
permit to be waived any material provisions of any of the Contracts, or exercise
any right to terminate or cancel any of the Contracts or consent or agree to, or
suffer or permit, the termination thereof whether or not on account of any
default therein specified if any such amendment, modification or waiver,
termination or cancellation could have a Material Adverse Effect.
SECTION 6. Rights and Obligations Concerning Accounts and
Contracts.
6(a) Anything herein to the contrary notwithstanding, the
Debtor shall remain liable under each of the Accounts and Contracts to observe
and perform all the conditions and obligations to be observed and performed by
it thereunder, all in accordance with the terms of any agreement giving rise to
each such Account and in accordance with and pursuant to the terms and
provisions of each such Contract. The Lender shall have no obligation or
liability under any Account (or any agreement giving rise thereto) or under any
Contract by reason of or arising out of this Security Agreement or the receipt
by the Lender of any payment relating to such Account or Contract pursuant
hereto, nor shall the Lender be obligated in any manner to perform any of the
obligations of the Debtor under or pursuant to any Account (or any agreement
giving rise thereto) or under or pursuant to any Contract, to make any payment,
to make any inquiry as to the nature or the sufficiency of any payment received
by it or as to the sufficiency of any performance by any party under any Account
(or any agreement giving rise thereto) or under any Contract, to present or file
any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
6(b) The Debtor hereby agrees that no liability shall be
asserted or enforced against the Lender in the exercise of the rights and powers
granted to the Lender hereunder, all such liability being hereby expressly
waived and released by the Debtor. Without limiting the application of Section
11(a) hereof, the Debtor hereby agrees to indemnify and hold the Lender harmless
for and against any and all liability, expense, cost, loss or damage which the
Lender may incur by reason of any act or omission of the Debtor under any of the
Contracts ("Losses"), except to such extent such Losses arise by reason of the
gross negligence or willful misconduct of the Lender. Should the Lender incur
any liability, expense, cost, loss, or damage, (i) under the Contracts for which
it is to be indemnified by the Debtor as aforesaid, or (ii) by reason of the
exercise of the Lender's rights hereunder, the amount thereof, including costs,
expenses and reasonable actual attorney's fees and expenses, shall be secured
hereby and shall be immediately due and payable by the Debtor to the Lender.
6(c) The Lender has the right to make test verifications of
the Accounts in any manner and through any medium that it reasonably considers
advisable, and the Debtor shall
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furnish all such assistance and information as the Lender may require in
connection therewith. At any time and from time to time, upon the Lender's
request and at the expense of the Debtor, the Debtor shall cause independent
public accountants or others satisfactory to the Lender to furnish to the Lender
reports showing reconciliations, aging and test verifications of, and trial
balances, for, the Accounts. The Lender may in its own name or in the name of
others communicate with account debtors on the Accounts and parties to the
Contracts to verify with them to its satisfaction the existence, amount and
terms of any Accounts or Contracts, provided that, so long as no Event of
Default has occurred and is continuing, the Lender agrees to provide the Debtor
notice prior to initiating such verification.
6(d) The Debtor shall promptly notify the Lender of, and
provide to the Lender copies of, any default notices under any of the Contracts.
SECTION 7. Special Provisions Concerning Patents and
Trademarks.
7(a) The Debtor represents and warrants that it is the true
and lawful exclusive owner of the entire and unencumbered right, title and
interest in and to each of the Trademarks listed on Schedule A-3 and the Patents
listed on Schedule A-4 attached hereto, free and clear of all liens and
encumbrances (including, without limitation, any covenant not to sue a third
party); that the Trademarks and Patents are subsisting, valid, enforceable, and
have not been adjudged invalid or unenforceable, in whole or in part; and that
the Trademarks and the Patents constitute all the registered trademarks and
patents, respectively, in the United States Patent and Trademark Office and
non-registered trademarks that the Debtor now owns or uses in connection with
its business.
7(b) The Debtor represents and warrants that it has made all
necessary filings and recordations to protect its interest in the Trademarks,
Patents, and its other intellectual property; that it has and will continue to
pay all required taxes, fees, and costs to maintain all of its rights in the
Trademarks, Patents, and its other intellectual property; and that it has
received no notice or claim that its use of any of the Trademarks, Patents, or
other intellectual property infringes the rights of any third party.
7(c) Prior to licensing or assigning any of the Trademarks,
Patents, or its other intellectual property, the Debtor will give the Lender
written notice of any such license or assignment plus a copy of the draft
license agreement or assignment, and, upon execution, a copy of any final
agreement or assignment.
7(d) The Debtor shall, promptly upon learning thereof, notify
the Lender in writing of the name and address of, and furnish such pertinent
information that may be available with respect to, any party who may be
infringing or otherwise violating any of the Debtor's rights in and to any
Trademarks, Patents, or other intellectual property or of any party who makes a
claim that the use of any of the Trademarks, Patents, or other intellectual
property otherwise violates any property of any nature of that party or any
third party. Unless the Debtor shall reasonably determine that such Trademark,
Patents, or other intellectual property is not of material economic value to the
Debtor, the Debtor further shall diligently prosecute any and all persons who
infringe any of its Trademarks, Patents, or other intellectual property to
recover any and all damages and take such other actions as the Debtor shall deem
appropriate under the
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circumstances to protect such Trademarks, Patents, or other intellectual
property. The Lender shall have the option, but not the obligation, to
participate in any such action at Debtor's expense and to maintain suits against
parties for infringement or misappropriation if Lender believes the Debtor is
not diligently and vigorously proceeding in such action(s).
7(e) If any trademark or service mark registration or patent
registration is issued hereafter to the Debtor as a result of any application or
registration now or hereafter pending before the United States Patent and
Trademark Office or foreign equivalent thereof, the Debtor shall forthwith
execute and deliver a copy of the certificate of registration within thirty (30)
days of receipt of such certificate and a grant of security in such trademark,
service mark or patent to the Lender confirming the grant thereof hereunder, the
form of such confirmatory grant to be substantially the same as the form hereof.
7(f) The Debtor will perform all acts and execute all
documents including, without limitation, documents in form suitable for filing
with the United States Patent and Trademark Office, other governmental office,
and any foreign equivalent thereof, as reasonably requested by the Lender at any
time to evidence, perfect, maintain, record and enforce the Lender's interest in
the Trademarks, Patents, and the Debtor's other intellectual property or
otherwise in furtherance of the provisions of this Agreement. In the event of
foreclosure hereunder upon all or any part of the Collateral, the Debtor shall,
and hereby does, constitute the Lender as the Debtor's attorney-in-fact to
transfer, in the Debtor's name, the Trademarks (including all goodwill
associated with the Trademarks), the Patents, and the Debtor's other
intellectual property to a third party capable, in the Lender's judgment, of
using and maintaining the nature and quality of the Trademarks, the Patents, and
the Debtor's other intellectual property. Such power-of-attorney shall include,
without limitation, the right to execute all documents and to do all acts as the
Lender considers necessary to effect any of the foregoing, and all acts of such
attorney are hereby ratified and confirmed; such power being coupled with an
interest which is irrevocable until the Liabilities are paid in full.
7(g) Except to the extent that the Lender shall consent in
writing, the Debtor will, unless the Debtor shall reasonably determine that a
Trademark is not of material economic value to the Debtor, (i) continue to use
each Trademark in order to maintain each Trademark in full force free from any
claim of abandonment for non-use, (ii) employ each Trademark with the
appropriate notice of application or registration, (iii) not adopt or use any
mark which is confusingly similar or a colorable imitation of any Trademark,
(iv) not use any Trademark except for the uses for which registration or
application for registration of such Trademark has been made, (v) not (and not
permit any licensee or sublicensee thereof, if any, to) do any act or knowingly
omit to do any act whereby any Trademark may be subject to dilution,
misappropriation, or invalidation, and (vi) ensure and warrant that the quality
of the goods and services bearing each applicable Trademark will be maintained
at not less than the quality level thereof as exists as of the date of this
Agreement, and in that regard, during normal business hours the Lender and its
representatives may inspect the Debtor's books, records, and facilities which
manufacture, inspect, or store products to ensure that quality of the applicable
goods and services are being maintained.
7(h) The Debtor shall notify the Lender immediately if it
knows, or has reason to know, of any reason that any application or registration
relating to any Trademark, Patent, or
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other intellectual property of the Debtor may become abandoned or of any adverse
determination or development (including, without limitation, the institution of,
or any such determination or development in, any proceeding in the United States
Patent and Trademark Office or any court) regarding the Debtor's ownership of
any Trademark, Patent, other intellectual property, its right to register or use
the same, or to keep and maintain the same.
7(i) In no event shall the Debtor, either itself or through
any agent, employee, licensee or designee, file an application for the
registration of any Trademark, Patent, or other intellectual property with the
United States Patent and Trademark Office, other governmental office, or any
similar office or agency in any other country or any political subdivision
thereof, unless it promptly informs the Lender, and, upon request of the Lender,
executes and delivers any and all agreements, instruments, documents and papers
as the Lender may request to evidence the Lender's security interest in such
Trademark, Patent, or other intellectual property and the goodwill and general
intangibles of the Debtor relating thereto or represented thereby, and the
Debtor hereby constitutes the Lender its attorney-in-fact to execute and file
all such writings for the foregoing purposes, including without limitation to
modify this Agreement by amending Schedule A-3 and/or Schedule A-4 (as the case
may be) to include any future Trademarks, Patents, and other intellectual
property, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest which is irrevocable until the Liabilities
are paid in full.
7(j) The Debtor will take all commercially reasonable steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, any other governmental office, or any other office or
agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the Trademarks and Patents, except to the extent
permitted under Section 7(g), including but not limited to the appropriate and
timely payment of any required fees and the appropriate and timely filing of any
documents or declarations necessary to maintain and renew such Trademarks and
Patents which may be necessary or appropriate under applicable federal, state,
and foreign law.
7(k) Upon the occurrence and during the existence of an Event
of Default, the Lender may, by written notice to the Debtor, take any or all of
the following actions: (i) declare the entire right, title and interest of the
Debtor in and to each of the Trademarks, Patents, and other intellectual
property, together with all related rights and rights of protection to the same,
vested, in which event such rights, title and interest shall immediately vest,
in the Lender, in which case the Debtor agrees to execute assignments in form
and substance satisfactory to the Lender, of all its rights, title and interest
in and to the Trademarks, Patents, and other intellectual property to the
Lender; (ii) take and use or sell the Trademarks, Patents, and other
intellectual property and the goodwill of the Debtor's business symbolized by
the Trademarks and the right to carry on the business of such Debtor in
connection with which the Trademarks have been used; and (iii) direct the Debtor
to refrain, in which event the Debtor shall refrain, from using the Trademarks,
Patents, and its other intellectual property in any manner whatsoever, directly
or indirectly, and, if requested by the Lender, change the Debtor's corporate
name to eliminate therefrom any use of any Trademarks and execute such other and
further documents that the Lender may request to further confirm this and to
transfer ownership of the Trademarks, Patents, and other intellectual property,
and any pending trademark and patent application(s) for
<PAGE> 11
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trademarks, patents, and other intellectual property in the United States Patent
and Trademark Office, any other governmental office, and in any similar foreign
office to the Lender. After any Event of Default, the Debtor shall cooperate and
use its best efforts to obtain any consents, waivers, or agreements necessary to
enable the Lender to exercise its rights and remedies with respect to any
Trademark, Patent, and other intellectual property of the Debtor.
SECTION 8. Covenants of Debtor.
In addition to the Debtor's covenants contained in the Credit
Agreement and the Guarantee, the Debtor covenants that:
8(a) Subject to Section 3(e) and Section 3(f) hereof, the
Collateral is and will be located at the Debtor's chief executive office and
such other places of business and Permitted Inventory Locations as indicated on
Schedule B attached hereto. The Debtor's records of the Collateral will be
located at the Debtor's chief executive office. The chief executive office of
the Debtor is located at the address shown on Schedule B attached hereto. The
Debtor will not move its chief executive office, the location of the Collateral
or any Records Office (as defined below) except to such new location as the
Debtor may establish in accordance with the last sentence of this Section 8(a)
and with respect to Inventory, to Permitted Inventory Locations. The originals
of all documents and all electronically stored data and information evidencing
all Accounts and Contracts of the Debtor and the only original books of account
and records of the Debtor relating thereto are, and will continue to be, kept at
its chief executive office shown on Schedule B attached hereto (each, a "Records
Office"), or at such new Records Office as the Debtor may establish in
accordance with the last sentence of this Section 8(a). All Accounts, Contracts
and records of the Debtor are, and will continue to be, maintained at, and
controlled and directed (including, without limitation, for general accounting
purposes) from, such Records Office location shown above, or such new location
as the Debtor may establish in accordance with the last sentence of this Section
8(a). The Debtor shall not establish a new location for its chief executive
office, the location of the Collateral or any Records Office until (i) it shall
have given to the Lender not less than 45 days' prior written notice of its
intention so to do, clearly describing such new location and providing such
other information in connection therewith as the Lender may reasonably request,
and (ii) with respect to such new location, it shall have taken all action,
satisfactory to the Lender, to maintain the security interest of the Lender in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
8(b) The Collateral used or useful in its business, in
whomever's possession they may be, shall be kept in good repair, working order
and condition, and that from time to time there will be made to such Collateral
all needful and proper repairs, renewals, replacements, extensions, additions,
betterments and improvements thereto, to the extent and in the manner customary
for companies in similar lines of business under similar circumstances. The
Debtor will not encumber, sell, erase, transfer, assign, abandon or otherwise
dispose of the Collateral except for: (i) collection, discharge, discount,
compromise or expiration of the Accounts, Chattel Paper, Instruments or General
Intangibles in the ordinary course of the Debtor's business, (ii) sale or
transfer of Inventory in the ordinary course of business, (iii) dispositions of
items of Equipment no longer needed by the Debtor in the ordinary course of
business, (iv) Liens as permitted under the Credit Agreement and (v) trade-ins,
replacements or exchanges of items of Equipment for other items of Equipment to
the extent the same shall promptly be replaced by
<PAGE> 12
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Equipment having an equal or greater value (in excess of purchase money liens on
such items) and useful in the Debtor's business. The inclusion of "products" and
"proceeds" of the Collateral under the security interest granted herein shall
not be deemed a consent by the Lender to any sale or other disposition of the
Collateral except as expressly permitted herein or in the Credit Agreement.
8(c) The Debtor will have and maintain insurance at its
expense as required of the Company pursuant to Section 6.04 of the Credit
Agreement. The Lender is authorized by the Debtor to act as its attorney in
collecting, adjusting, settling or canceling such insurance and endorsing any
drafts drawn by insurers. The Lender may apply any insurance proceeds received
by it to the Liabilities, whether due or not; provided, however, that the Lender
will hold such proceeds as a special deposit for use by the Debtor in replacing
any damaged Equipment which gave rise to such proceeds, so long as the Debtor is
taking steps to replace such Equipment with due diligence and in good faith and
so long as no Event of Default has occurred and is continuing hereunder. The
Debtor will immediately notify the Lender of any damage to or loss of the
Collateral in excess of $50,000. Not later than the expiration date of each
insurance policy then in effect, the Debtor shall deliver to the Lender a
certificate of insurance certifying as to (i) the extension of such policy or
the issuance of a renewal policy therefor, describing the same in reasonable
detail satisfactory to the Lender and (ii) the payment in full of the portion of
the premium therefor then due and payable (or accompanied by other proof of such
payment satisfactory to the Lender). The Debtor shall be required forthwith to
notify the Lender if the Debtor shall determine at any time not to, or at any
time be unable to, extend or renew any such insurance policy then in effect.
8(d) The Debtor will use the Collateral for business purposes
and not for personal, family, household or farming purposes and not in violation
of any statute or ordinance.
8(e) The Debtor will pay promptly when due all taxes,
contributions, charges or levies and assessments upon the Collateral owned by
the Debtor or upon its use or sale (other than those the amount or validity of
which is currently being contested in good faith by appropriate proceeding and
with respect to which appropriate reserves are maintained on the books of the
Debtor in accordance with GAAP). At its option the Lender may discharge taxes,
liens or other encumbrances at any time levied against or placed on the
Collateral which have not been stayed as to execution and contested with due
diligence in appropriate legal proceedings, and the Lender may pay for insurance
on the Collateral and maintenance and preservation of the Collateral if the
Debtor fails to do so. The Debtor shall reimburse the Lender on demand for any
such expense incurred by the Lender pursuant to the foregoing authorization,
together with interest thereon, from the date paid by the Lender until payment
in full by the Debtor, at the per annum rate of the Base Rate plus four percent
(4%).
8(f) The Debtor will at all times and in all material respects
keep accurate and complete records of the Collateral. Subject to such notice
required pursuant to the Credit Agreement (if any), the Lender, or any of its
agents, shall have the right (in addition to the rights granted to the Lender
pursuant to Section 6(c) hereof) to call at the Debtor's place or places of
business during normal business hours, at intervals to be determined by the
Lender, to examine and inspect the Collateral and to inspect, audit, make test
verifications and otherwise check and
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make extracts from the books, records, journals, orders, receipts,
correspondence and other data relating to the Collateral or to any other
transactions between the parties hereto.
8(g) The Debtor agrees to stamp its books and records
pertaining to Accounts, Contracts, Chattel Paper, Instruments, Documents,
Trademarks and General Intangibles to evidence the Lender's security interest
therein in form satisfactory to the Lender immediately upon the Lender's written
demand.
8(h) The Debtor will obtain the consent of any Governmental
Authority or other Person to the assignment hereunder of any of the Collateral
if such consent may be required by the terms of any contract or statute.
8(i) If any action or proceeding shall be commenced, other
than any action to collect the Liabilities, to which action or proceeding the
Lender or any Lender is made a party and in which it becomes necessary to defend
or uphold the Lender's security interest hereunder, all costs incurred by the
Lender for the expenses of such litigation (including reasonable actual attorney
fees and expenses) shall be deemed part of the Liabilities secured hereby, which
the Debtor agrees to pay or cause to be paid.
8(j) The Debtor agrees that if any warehouse receipt or
receipt in the nature of a warehouse receipt is issued with respect to any of
its Inventory, such warehouse receipt or receipt in the nature thereof shall not
be "negotiable" (as such term is used in Section 7-104 of the UCC).
8(k) The Debtor will, at its own expense, make, execute,
endorse, acknowledge, file and/or deliver to the Lender from time to time such
lists, descriptions and designations of its Collateral, warehouse receipts,
receipts in the nature of warehouse receipts, bills of lading, documents of
title, vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney, certificates,
reports and other assurances or instruments and take such further steps relating
to the Collateral and other property or rights covered by the security interest
hereby granted, which the Lender deems appropriate or advisable to perfect,
preserve or protect its security interest in the Collateral consistent with the
terms hereunder, and the Debtor hereby authorizes the Lender to execute and file
at any time and from time to time one or more financing statements or copies
thereof or of this Security Agreement with respect to the Collateral signed only
by the Lender.
8(l) If the Debtor is not the owner of any premises where any
Equipment is located, the Debtor will use its reasonable best efforts to furnish
such consents and waivers executed by the owners of such premises as the Lender
shall request.
SECTION 9. Events of Default.
9(a) An Event of Default ("Event of Default") shall have
occurred under this Agreement upon (i) the failure by the Debtor to pay when due
any Liabilities, whether by acceleration or otherwise, (ii) the occurrence of
any event, condition or act which is defined or described as an Event of Default
in any Loan Document, or (iii) the occurrence of any event, condition or act
which pursuant to the terms of any Loan Document gives the Lender, for the
<PAGE> 14
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benefit of the Lender, the right to accelerate the payment of any Liabilities,
regardless of whether the Lender exercises such right.
9(b) Upon the occurrence and during the existence of an Event
of Default, the Lender shall have all of the rights, powers and remedies set
forth in the Credit Agreement, the Notes, this Agreement, the other Loan
Documents and any other instrument or other evidence of any of the Liabilities
secured hereby, together with the rights and remedies of a secured party under
the Uniform Commercial Code of the jurisdictions where the Collateral is
located, and, without limiting the foregoing, the Lender may:
(i) personally, or by agents or attorneys, immediately
retake possession of the Collateral or any part
thereof, from the Debtor or any other Person who then
has possession of any part thereof with or without
notice or process of law, and for that purpose may
enter upon the Debtor's premises where any of the
Collateral is located and remove the same and use in
connection with such removal any and all services,
supplies, aids and other facilities of the Debtor;
and
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without
limitation, the Accounts and the Contracts)
constituting the Collateral to make any payment
required by the terms of such instrument or agreement
directly to the Lender; and
(iii) withdraw all monies, securities and instruments in
the Company Account or any other account for
application to the Liabilities; and
(iv) sell or otherwise liquidate, or direct the Debtor to
sell or otherwise liquidate, any or all investments
made in whole or in part with the Collateral or any
part thereof, and take possession of the proceeds of
any such sale or liquidation; and
(v) take possession of the Collateral or any part
thereof, by directing the Debtor in writing to
deliver the same to the Lender at any place or places
designated by the Lender, in which event the Debtor
shall at its own expense
(A) forthwith cause the same to be
moved to the place or places so designated by the
Lender and there delivered to the Lender,
(B) store and keep any Collateral so
delivered to the Lender at such place or places
pending further action by the Lender as provided in
Section 9(c) hereof, and
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(C) while the Collateral shall be so
stored and kept, provide such guards and maintenance
services as shall be necessary to protect the same
and to preserve and maintain them in good condition;
it being understood that the Debtor's obligation so to deliver
the Collateral is of the essence of this Agreement and that,
accordingly, upon application to a court of equity having
jurisdiction, the Lender shall be entitled to a decree
requiring specific performance by the Debtor of said
obligation.
9(c) Any Collateral repossessed by the Lender under or
pursuant to Section 7(k) or 9(b) and any other Collateral whether or not so
repossessed by the Lender, may be sold, leased or otherwise disposed of under
one or more contracts or as an entirety, and without the necessity of gathering
at the place of sale the property to be sold, and in general in such manner, at
such time or times, at such place or places and on such terms as the Lender may,
in compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the Lender
or after any overhaul or repair which the Lender shall determine to be
commercially reasonable at a public or private sale or proceeding, or otherwise,
by one or more contracts, in one or more parcels, at the same or different
times, for cash and/or credit and upon any terms, at such places and times and
to such persons as the Lender deems best, and for that purpose the Lender may
enter peaceably any premises on which the Collateral or any part thereof may be
situated and remove the same therefrom and the Debtor will not resist or
interfere with such action. If an Event of Default shall have occurred and be
continuing, the Lender may require the Debtor to assemble and/or remove the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties. The Debtor hereby
agrees that its address and the place or places of location of the Collateral
are places reasonably convenient to it to assemble the Collateral. Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, if an applicable statute requires
reasonable notice of sale or other disposition, the Lender will send to the
Debtor reasonable notice of the time and place of any public sale or reasonable
notice of the time after which any private sale or any other disposition thereof
is to be made. The Debtor agrees that requirement of sending reasonable notice
shall be met if such notice is mailed, postage prepaid, to the Debtor at least
ten (10) days before the time of the sale or disposition. If an Event of Default
shall have occurred and be continuing, the Lender may at any time in its
discretion transfer any property constituting Collateral into its own name or
that of its nominee and receive the income thereon and hold the same as security
for the Liabilities. To the extent permitted by any law, the Lender may itself
bid for and purchase the Collateral or any item thereof offered for sale in
accordance with this Section without accountability to the Company (except to
the extent of surplus money received as provided in Section 9(f)).
9(d) The Debtor recognizes that the Collateral may not be
readily marketable and may not be marketable at all if an Event of Default has
occurred. Therefore, in order to enable the Lender to use such means as it may
determine necessary or advisable to realize upon the Collateral from time to
time, the Debtor consents that the Lender may use whatever means it
<PAGE> 16
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may reasonably consider necessary or advisable to sell any or all of the
Collateral at any time or times after default thereunder, including but not
restricted to the giving of an option to purchase any or all of the Collateral
to any party and the extending of credit to any purchaser of such Collateral.
The Lender may sell any or all of the Collateral or commit itself to sale
without limiting the amount sold to the amount of indebtedness secured thereby,
plus costs and expenses of collection.
9(e) The Lender may appropriate, set off and apply to the
payment of the Liabilities, any Collateral in or coming into the possession of
the Lender or its agents, without notice to the Debtor and in such manner as the
Lender may in its discretion determine.
9(f) The proceeds of any Collateral obtained pursuant to
Section 2(a), 7(k) or 9(b) or disposed of pursuant to Section 9(c) shall be
applied as follows:
(i) to the payment of any and all expenses and fees
(including reasonable actual attorneys' fees and
expenses) incurred by the Lender in obtaining, taking
possession of, removing, insuring, repairing, storing
and disposing of Collateral and any and all amounts
incurred by the Lender in connection therewith;
(ii) next, any surplus then remaining to the payment of
the Liabilities in such order as the Lender may
determine (subject to any statutory requirements),
and the Debtor shall remain liable for, and shall pay
on demand, any deficiency; and
(iii) after payment in full of all amounts due under
subparagraphs 9(f)(i) and 9(f)(ii) above, any surplus
then remaining shall be paid to the Debtor, subject,
however, to the rights of the holder of any then
existing Lien of which the Lender has actual notice
(without investigation).
9(g) Each and every right, power and remedy hereby
specifically given to the Lender shall be in addition to every other right,
power and remedy specifically given under this Agreement or under the other
Security Documents or now or hereafter existing at law or in equity, or by
statute and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time or simultaneously
and as often and in such order as may be deemed expedient by the Lender. All
such rights, powers and remedies shall be cumulative and the exercise or the
beginning of exercise of one shall not be deemed a waiver of the right to
exercise of any other or others. The Lender may exercise its rights with respect
to Collateral without resorting to or regard to other Collateral or sources of
reimbursement for any of the Liabilities. No delay or omission of the Lender in
the exercise of any such right, power or remedy and no renewal or extension of
any of the Liabilities shall impair any such right, power or remedy or shall be
construed to be a waiver of any Default or Event of Default or an acquiescence
therein. In the event that the Lender shall bring any suit to enforce any of its
rights hereunder and shall be entitled to judgment, then in such suit the Lender
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may recover reasonable expenses, including attorneys' fees, and the amounts
thereof shall be included in such judgment.
9(h) In case the Lender shall have instituted any proceeding
to enforce any right, power or remedy under this Agreement by foreclosure, sale,
entry or otherwise, and such proceeding shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Lender,
then and in every such case the Debtor, the Lender and each holder of any of the
obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interest created under
this Agreement, and all rights, remedies and powers of the Lender shall continue
as if no such proceeding had been instituted.
SECTION 10. Waivers.
10(a) Except as otherwise provided in this Agreement, THE
DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR
JUDICIAL HEARING IN CONNECTION WITH THE LENDER'S TAKING POSSESSION OR THE
LENDER'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION,
ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND
ANY SUCH RIGHT WHICH THE DEBTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR
ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and the Debtor hereby further
waives:
(i) all damages occasioned by such taking of possession
except any damages which are the direct result of the
Lender's gross negligence or willful misconduct;
(ii) all other requirements as to the time, place and
terms of sale or other requirements with respect to
the enforcement of the Lender's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation,
stay, extension or moratorium now or hereafter in
force under any applicable law in order to prevent or
delay the enforcement of this Agreement or the
absolute sale of the Collateral or any portion
thereof, and the Debtor, for itself and all who may
claim under insofar as it or they, now or hereafter,
lawfully may, hereby waives the benefit of all such
laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Debtor therein and thereto, and shall
be a perpetual bar both at law and in equity against the Debtor and against any
and all Persons claiming or attempting to claim the Collateral so sold, optioned
or realized upon, or any part thereof, from, through and under the Debtor.
<PAGE> 18
-18-
10(b) The Debtor waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended, Collateral
received or delivered or other action taken in reliance hereon and all other
demands and notices of any description except as hereinbefore provided. With
respect to Liabilities and Collateral, the Debtor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of Collateral, to the addition or release of
any party or person primarily or secondarily liable, to the acceptance of
partial payments thereon and the settlement, compromising or adjusting of any
thereof, all in such time or times as the Lender may deem advisable. The Debtor
waives all rules of suretyship law and any other law whatsoever which is legally
permitted to be waived and which would, if not waived, impair the Lender's
enforcement of its security interests hereunder. By way of example, but not in
limitation of the Lender's rights under this Security Agreement, subject to the
terms and conditions of this Security Agreement and the Credit Agreement, the
Lender may do any of the following without notice to the Debtor (unless such
notice or other action is otherwise required pursuant to any of the Loan
Documents to which the Debtor is a party):
(i) change, renew or extend the time for payment of all
or any part of the Liabilities;
(ii) change any provision with respect to all or any part
of the Liabilities;
(iii) release, surrender, sell or otherwise dispose of any
money or property which is in the Lender's possession
as collateral security for the Liabilities;
(iv) fail to perfect a security interest in any property
which is pledged or mortgaged as security for payment
of the Liabilities;
(v) release or discharge any party liable to the Lender
in whole or in part for the Liabilities, or accept
any additional parties or guarantors;
(vi) delay or refrain from exercising any of the Lender's
rights;
(vii) settle or compromise any and all claims pertaining to
the Liabilities and the Collateral; and
(viii) apply any money or property of the Debtor or that of
any other party liable to the Lender for any part of
the Liabilities in any order the Debtor chooses.
10(c) The Lender shall have no duty as to the collection or
protection of Collateral not in the Lender's possession, and the Lender's duty
with reference to Collateral in its possession shall be to use reasonable care
in the custody and preservation of such Collateral, but such duty shall not
require the Lender to do any of the following (although the Lender is authorized
to reasonably undertake any such action if the Lender deems such action
appropriate):
<PAGE> 19
-19-
(i) exercise any rights under the Collateral or act upon
any request made by the Debtor;
(ii) collect any sums due on the Collateral;
(iii) notify the Debtor of any maturities or other similar
matters concerning the Collateral; or
(iv) preserve or protect the Debtor's rights in the
Collateral or take any action to protect any of the
Collateral against claims of others or to preserve
rights against prior parties.
SECTION 11. Indemnity and Costs and Expenses.
11(a) The Debtor agrees to pay, or reimburse the Lender for
any and all fees, costs and expenses of whatever kind or nature incurred in
connection with (i) the enforcement or attempted enforcement of the Lender's
rights under this Security Agreement, and (ii) the creation, preservation or
protection of the Lender's Liens on, and security interest in, the Collateral,
including, without limitation, all fees and taxes in connection with the
recording or filing of instruments and documents in public offices, payment or
discharge of any taxes or Liens upon or in respect of the Collateral, premiums
for insurance with respect to the Collateral and all other fees, costs and
expenses in connection with protecting, maintaining or preserving the Collateral
and the Lender's interest therein, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral.
11(b) Without limiting the application of Section 11(a)
hereof, the Debtor agrees to pay, indemnify and hold the Lender (herein, the
"Indemnitee") harmless from and against any loss, costs, damages and expenses
which any such Indemnitee may suffer, expend or incur in consequence of or
growing out of any misrepresentation by the Debtor in this Agreement or any of
the other Loan Documents or in any statement or writing contemplated by or made
or delivered pursuant to or in connection with this Agreement or any of the
other Security Documents or any breach by the Debtor of this Agreement or any of
the other Loan Documents.
11(c) If and to the extent that the obligations of the Debtor
under this Section 11 are unenforceable for any reason, the Debtor hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
11(d) Any amounts paid by any Indemnitee as to which such
Indemnitee has the right to reimbursement shall constitute Liabilities secured
by the Collateral. The indemnity obligations of the Debtor contained in this
Section 11 shall continue in full force and effect notwithstanding the full
payment of all Liabilities and notwithstanding the discharge thereof.
SECTION 12. The Lender. Without limiting any provision hereof,
the Lender shall be entitled to the rights, powers, immunities, exculpations and
privileges set forth in Article IX of the Credit Agreement as if the same were
set forth in full in this Agreement. The Lender shall have no rights hereunder
to realize upon the Collateral or otherwise enforce the provisions
<PAGE> 20
-20-
of this Agreement, it being understood that such rights and remedies may be
exercised only by the Lender.
SECTION 13. Successors and Assigns. The covenants,
representations, warranties and agreements herein set forth shall be binding
upon the Debtor, its legal representatives, successors and assigns, and shall
inure to the benefit of the Lender and its successors and assigns. The successor
of the Lender hereunder shall forthwith become vested with and shall be entitled
to exercise all the powers and rights given by this Agreement to the Lender, as
if said successor were originally named as secured party herein.
SECTION 14. Lender May Perform. If Debtor fails to perform any
agreement contained herein, the Lender may itself perform, or cause performance
of, such agreement, and the expenses of the Lender incurred in connection
therewith shall be payable by Debtor on demand.
SECTION 15. No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, and no course of dealing with
respect to, any right, power, or remedy under this Agreement shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
and under any of the other Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The remedies
provided herein and in the other Loan Documents are cumulative and not exclusive
of any remedies provided by law.
SECTION 16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO ANY CHOICE OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE
LAWS OF ANY OTHER JURISDICTION EXCEPT TO THE EXTENT THAT THE LAWS OF THE
JURISDICTIONS WHERE THE COLLATERAL IS LOCATED APPLY TO THE CREATION, ATTACHMENT,
PERFECTION, PRIORITY AND ENFORCEMENT OF LIENS ON AND SECURITY INTERESTS IN THE
COLLATERAL.
SECTION 17. Severability. If any provision hereof shall be
held to be invalid, illegal or unenforceable in any jurisdiction, then, to the
fullest extent permitted by law, (i) the other provisions hereof shall remain in
full force and effect in such jurisdiction, and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 18. Amendments. None of the terms or provisions of
this Security Agreement may be waived, altered, modified, or amended except by
an agreement in writing signed by the Lender and the Debtor.
SECTION 19. Notices. All notices, statements, requests and
demands herein provided for shall be in writing and shall be deemed to have been
given or made when delivered to the respective addresses and in the manner
specified in Section 9.01 of the Credit Agreement, provided that all notices to
the Debtor shall be addressed and delivered to the address set forth below its
signature.
<PAGE> 21
-21-
SECTION 20. Counterparts. This Agreement may be executed in
any number of counterparts, all of which, when taken together shall constitute
one and the same instrument, and any party hereto may execute this Agreement by
signing any such counterpart.
SECTION 21. Termination. When all Liabilities shall have been
paid in full and the Guarantee has expired or been terminated, this Agreement
shall terminate, and the Lender shall cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect thereof, to
or for the account of the Debtor. The Lender shall also execute and deliver to
the Debtor upon such termination such UCC termination statements and such other
documentation as shall be reasonably requested as necessary by the Debtor to
effect the termination and release of the Liens on the Collateral, all at the
expense of the Debtor.
<PAGE> 22
-22-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date and year first above written.
DCS*GASNET CORP.
By: /s/ Mark A. Herman
----------------------------
Name: Mark Herman
Title: VP, CFO
Address for Notices:
5001 Spring Valley Road
Suite 390-West
Dallas, TX 75244
FLEET BANK, N.A.,
as Lender
By: /s/ Susan Failla
----------------------------
Name: Susan Failla
Title: Vice President
<PAGE> 23
SCHEDULE A-1
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DCS*Gasnet Corp.
as Debtor
(i) All equipment (as defined in the UCC) in all of its forms, wherever located,
now existing or hereafter acquired, including, without limitation, all machinery
and other goods, furniture, furnishings, trade fixtures, office supplies, motor
vehicles, tools, computers (including hardware and software), other office
equipment, all equipment and other goods and property more particularly
described in capital leases and any subleases or assignments thereof, and all
other tangible personal property used in connection with or related to the
operation of the Debtor's business, together with all parts, fittings, special
tools, alterations, attachments, additions, accessories, improvements,
substitutions, replacements and accessions thereto, and all proceeds and
products arising therefrom (the "Equipment");
(ii) All inventory (as defined in the UCC) and merchandise in all of its forms,
wherever located, now existing or hereafter acquired including, but not limited
to, (i) all raw materials and work in process therefor, finished goods thereof,
and materials used or consumed in the manufacture or production thereof, (ii)
goods in which the Debtor has an interest in mass or a joint or other interest
or right of any kind (including, without limitation, goods in which the Debtor
has an interest or right as consignee), and (iii) goods which are returned to or
repossessed by the Debtor, and all accessions thereto and products and proceeds
thereof and general intangibles arising therefrom (the "Inventory");
(iii) All of the Debtor's accounts (as defined in the UCC), whether now existing
or hereafter acquired, including without limitation any and all rights evidenced
by an account, note, contract, security agreement, chattel paper, or other
evidence of indebtedness or security, together with (a) all security pledged,
assigned, hypothecated or granted to or held by the Debtor to secure the
foregoing, (b) all of the Debtor's right, title and interest in and to any
goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (d) all powers of attorney for
the execution of any evidence of indebtedness or security or other writing in
connection therewith, (e) all books, records, ledger cards, and invoices
relating thereto, (f) all evidences of the filing of financing statements and
other statements and the registration of other instruments in connection
therewith and amendments thereto, notices to other creditors or secured parties,
and certificates from filing or other registration officers, (g) all credit
information, reports and memoranda relating thereto, and (h) all other writings
related in any way to the foregoing, and all proceeds and general intangibles
arising therefrom (the "Accounts");
(iv) All of the contracts and agreements of the Debtor listed on Schedule A-2
attached hereto, together with all schedules, exhibits, documents and
certificates referred to therein, as amended, supplemented or otherwise modified
from time to time, including without limitation, all rights of
<PAGE> 24
the Debtor to (a) receive moneys due and to become due to it thereunder or in
connection therewith, (b) damages arising out of, or for, breach or default in
respect thereof, (c) compel performance of the terms thereof, (d) benefits and
claims under all warranty and indemnity provisions contained therein, (e) all
insurance payments provided therein and (f) any other moneys due and to become
due to the Debtor thereunder or in connection therewith (the "Contracts");
(v) All chattel paper (as defined in the UCC), now owned or hereafter acquired,
and all proceeds and general intangibles arising therefrom (the "Chattel
Paper");
(vi) All instruments (as defined in the UCC) of the Debtor, now owned or
hereafter acquired, and all proceeds and general intangibles arising therefrom
(the "Instruments");
(vii) All of the Debtor's now existing and hereafter acquired general
intangibles (as defined in the UCC), including without limitation all of the
Debtor's rights and interest in any contracts, franchises, licenses, leases,
easements, customer lists, methods of doing business, copyrights, the
Trademarks, the Patents, non-compete agreements, distribution agreements, and
all other general intangibles, and intellectual, proprietary and intangible
property and the proceeds of any of the foregoing (the "General Intangibles");
(viii) All of the Debtor's right, title and interest in, to and under any now
existing or hereafter created or acquired United States (or individual State
thereof) and foreign servicemarks and trademarks (including without limitation
the trademarks listed on Schedule A-3 attached hereto), trade names, trade
styles, logos and/or designs, and trade dress, including, without limitation,
the goodwill of the business to which each of the foregoing relates, all
registrations, recordings, and applications with respect to the foregoing, all
affidavits of use and incontestability, all renewals thereof, all licenses,
royalties, income, claims, damages, payments, and proceeds of suit now or
hereafter payable or due for past or future infringements of any of the
foregoing; the right (but not the obligation) to sue for past, present, and
future infringements of any of the foregoing; all rights corresponding to the
foregoing throughout the world; and all proceeds and general intangibles arising
therefrom (the "Trademarks");
(ix) All of the Debtor's right, title and interest in, to and under any now
existing or hereafter created or acquired United States and foreign patents,
patent applications, and patentable inventions, including, but not limited to,
each patent and patent application referred to in Schedule A-4 attached hereto;
all reissues, divisions, continuations, continuations-in-part, extensions,
renewals and reexaminations of any of the foregoing; all licenses, royalties,
income, claims, damages, payments, and proceeds of suit now or hereafter payable
or due for past or future infringements of any of the foregoing; the right (but
not the obligation) to sue for past, present, and future infringements of any of
the foregoing; all rights corresponding to the foregoing throughout the world;
and all proceeds and general intangibles arising therefrom (the "Patents");
(x) All of the Debtor's books, records and other property relating to or
referring to any of the foregoing, including without limitation, all books,
records, ledger cards and other property and general intangibles at any time
evidencing or relating to the Accounts, Inventory, Instruments,
<PAGE> 25
Chattel Paper, Documents, Trademarks, Patents and General Intangibles, and the
proceeds thereof (the "Records");
(xi) All insurance policies held by the Debtor or naming the Debtor as loss
payee (including, without limitation, casualty insurance, key-man life
insurance, property insurance and business interruption insurance), and all such
insurance policies entered into after the date hereof, and all proceeds and
general intangibles arising therefrom (the "Insurance");
(xii) All documents of title (as defined in the UCC) or other receipts of the
Debtor covering, evidencing or representing any Inventory or Equipment wherever
located, now owned or hereafter acquired, and all proceeds and general
intangibles arising therefrom (the "Documents");
(xiii) All of the Debtor's rights as a seller of goods under Article 2 of the
UCC or otherwise with respect to Inventory, and all goods represented by or
securing any of the Accounts, all of the Debtor's rights therein, including,
without limitation, rights as an unpaid vendor or lienor and including rights of
stoppage in transit, replevin and reclamation ("Other Rights");
(xiv) All guarantees, mortgages or security interests on real or personal
property, leases or other agreements or property now or hereafter securing or
relating to any of the items referred to above in favor of the Debtor, or now or
hereafter acquired for the purpose of securing and enforcing any of such items
in favor of the Debtor, and the proceeds thereof (the "Debtor's Security"); and
(xv) All sums at any time standing to Debtor's credit on the books of Lenders
and all moneys, securities, and other property of the Debtor at any time in the
Lender's possession, including, without limitation, all monies, securities and
instruments deposited or required to be deposited in the Company Account and any
other account, whether now existing or hereafter from time to time acquired, and
all proceeds and general intangibles arising therefrom ("Other Property").
<PAGE> 26
SCHEDULE A-2
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DCS*Gasnet Corp.
as Debtor
List of Contracts
<PAGE> 27
SCHEDULE A-3
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DCS*Gasnet Corp.
as Debtor
Description of Trademarks
<TABLE>
<CAPTION>
REG. NO. DESCRIPTION TITLE HOLDER ISSUED
- -------- ----------- ------------ ------
<S> <C> <C> <C>
</TABLE>
<PAGE> 28
SCHEDULE A-4
to
Security Agreement and UCC-1 Financing Statement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DCS*Gasnet Corp.
as Debtor
Description of Patents
<TABLE>
<CAPTION>
PATENT NO. DESCRIPTION TITLE HOLDER EXPIRATION
- ---------- ----------- ------------ ----------
<S> <C> <C> <C>
</TABLE>
<PAGE> 29
Schedule B
to
Security Agreement
in favor of
Fleet Bank, N.A.
as the Lender
granted by DCS*Gasnet Corp.
as Debtor
Principal Place of Business of Debtor:
5001 Spring Valley Road
Suite 390-West
Dallas, Texas 75244
Chief Executive Office of Debtor (if different
from the Principal Place of Business):
All Other Places of Business of Debtor:
All Locations of Collateral (including Permitted Inventory Locations)
<PAGE> 1
Exhibit 10.48
GUARANTEE
DC SYSTEMS, INC.
THIS GUARANTEE, dated as of September 1, 1999, made by DC Systems
Inc., a Texas corporation (the "Guarantor"), in favor of Fleet Bank, N.A., a
national banking association organized under the laws of the United States,
having its principal office at 1185 Avenue of the Americas, New York, New York
10036, as Lender (the "Lender"), party to the Credit Agreement referred to
below.
Caminus LLC, a Delaware limited liability company (the "Company") and
the Lender are parties to a Credit Agreement dated as of June 23, 1999 (such
Credit Agreement, as the same may be amended or supplemented from time to time
is referred to herein as the "Credit Agreement") providing, subject to the terms
and conditions thereof, for extensions of credit to be made by the Lender to the
Company in an aggregate principal amount not exceeding $5,000,000 (the "Loans").
The Loans made or to be made by the Lender to the Company shall be evidenced by
certain promissory notes (as exchanged, replaced, amended, supplemented or
modified from time to time, the "Notes") in substantially the form of Exhibits
A-1 and A-2 attached to the Credit Agreement.
To induce the Lender to enter into the Credit Agreement and to extend
credit thereunder, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company agreed to cause
its existing and future subsidiaries to execute and deliver this Guarantee. The
Guarantor became a subsidiary of the Company as a result of the consummation of
the transactions contemplated by the Purchase Agreement, dated July 31, 1999,
among the Guarantor, the Company, Caminus/DC Acquisition Corp., a Delaware
corporation, and the Shareholders party thereto.
SECTION 1. Definitions. Reference is hereby made to the Credit
Agreement for a statement of the terms thereof. All terms used in this Guarantee
which are defined in the Credit Agreement and not otherwise defined in this
Guarantee shall have the same meaning in this Guarantee as set forth in the
Credit Agreement.
SECTION 2. Guarantee. The Guarantor hereby irrevocably, absolutely and
unconditionally, guarantees to the Lender and its successors and assigns the
prompt and complete payment by the Company, as and when due and payable (whether
at stated maturity or by required prepayment, acceleration, demand or
otherwise), of all indebtedness, obligations and liabilities of the Company to
the Lender now existing or hereafter incurred, whether or not under or arising
out of or in connection with the Notes, the Credit Agreement, the other Loan
Documents, whether for principal, interest, fees, expenses or otherwise (all
such indebtedness, obligations and liabilities being herein called the
"Obligations"); and agrees to pay any and all expenses (including reasonable
actual attorneys' fees and expenses) which may be paid or incurred by the Lender
in collecting any or all of the Obligations and/or enforcing any rights under
this Guarantee.
<PAGE> 2
-2-
SECTION 3. Guarantor's Obligations Unconditional.
(a) The Guarantor hereby guarantees that the Obligations will be paid
strictly in accordance with the terms of the Loan Documents to which the Company
is a party and any other agreements and instruments relating to the Obligations,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Lender with
respect thereto. The obligations and liabilities of the Guarantor under this
Guarantee shall be absolute and unconditional irrespective of (x) any lack of
value, validity, genuineness, regularity or enforceability of any of the
Obligations, any of the Loan Documents, or any agreement or instrument relating
thereto, (y) any substitution, exchange, release, amendment, or waiver of or
consent to any departure from the terms, of any of the Obligations, Loan
Documents or any guarantee of or security for all or any of the Obligations, and
(z) to the fullest extent permitted by applicable law, irrespective of any other
circumstance which might otherwise constitute a legal or equitable defense
available to, or a discharge of, the Guarantor in respect of the Obligations or
the Guarantor in respect of this Guarantee. Without limiting the generality of
the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter, impair or release the liability of the Guarantor
hereunder which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the Guarantor,
the time for any performance of or compliance with any of the
Obligations shall be extended, or such performance or compliance shall
be waived;
(ii) any of the acts mentioned in any of the provisions of the Credit
Agreement or the Notes or any other Loan Document shall be done,
omitted or waived;
(iii) the maturity of any of the Obligations shall be accelerated;
(iv) any of the Obligations shall be modified, supplemented or amended
in any respect, or any right or obligation under the Credit Agreement,
the Notes, any other Loan Document, any guarantee of any of the
Obligations or any security therefor shall be waived, released or
exchanged in whole or in part or otherwise dealt with; or
(v) any lien or security interest granted to, or in favor of, the
Lender as security for any of the Obligations shall be amended or
waived or shall fail to be perfected.
(b) This Guarantee is a continuing guarantee and shall remain in full
force and effect until (i) the payment in full of the Obligations, (ii) the
Lender shall have no commitment to make any Loan to the Company under the Credit
Agreement, and (iii) the payment of all expenses to be paid by the Guarantor
pursuant hereto.
(c) The obligations and liabilities of the Guarantor under this
Guarantee are not conditioned or contingent upon the enforcement by the Lender
or any other Person at any time (i) of any right or remedy against the Company,
any other party to any Loan Documents, other agreements or instruments or any
person or entity which may be liable for payment of all or any part of the
Obligations; or (ii) against any collateral security for or guarantee of payment
of the obligations or right of set-off with respect thereto.
<PAGE> 3
-3-
(d) The Guarantor hereby consents that, without the necessity of any
reservation of rights against the Guarantor and without notice to or further
assent by the Guarantor, any demand for payment of the Obligations made by the
Lender may be rescinded by the Lender and any of the Obligations may be
continued after such rescission.
(e) If claim is ever made upon the Lender for repayment or recovery of
any amount or amounts received by the Lender in payment or on account of any of
the Obligations, and the Lender repays all or part of said amount by reason of
(i) any judgment, decree or order of any Governmental Authority having
jurisdiction over the Company or the Guarantor or any of their respective
properties, including without limitation any such judgment, decree or order
pursuant to the Federal Bankruptcy Code or similar insolvency laws, or (ii) any
settlement or compromise of any such claim, then and in such event the Guarantor
agrees that any such judgment, decree, order, settlement or compromise shall be
binding upon the Guarantor and, notwithstanding any termination hereof or the
cancellation of any Obligations, this Guarantee shall be reinstated and the
Guarantor shall be and remain liable to the Lender hereunder for the amounts so
repaid or recovered to the same extent as if such amount had never originally
been received by the Lender. The Guarantor agrees that it will indemnify the
Lender on demand for all costs and expenses (including reasonable actual
attorneys fees and expenses) incurred by the Lender in connection with such
claim, including any such costs and expenses incurred in defending against any
claim alleging that payments in account of the Obligations constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law affecting creditor's rights generally.
(f) This Guarantee shall be enforceable as to all of the Obligations
and expenses of collection thereof and hereof, despite the Company's discharge
in bankruptcy or adjustment of debts, liabilities and obligations in insolvency
proceedings or pursuant to any other compromise with creditors. If an event
permitting the acceleration of the maturity of the principal amount of the
Obligations shall at any time have occurred and be continuing, and if such
acceleration (or any consequences thereof) provided for in the Loan Documents
shall at such time be prevented by reason of the pendency against the Company of
a case or proceeding under the Federal Bankruptcy Code or other insolvency law,
the Guarantor agrees that, for purposes of this Guarantee and the Guarantor's
obligations hereunder, the maturity of such principal amount shall be deemed to
have been accelerated, with all attendant consequences as provided in the Loan
Documents, as if such acceleration and consequences had been accomplished in
accordance with the terms of the Loan Documents, and Guarantor shall forthwith
pay any amounts guaranteed hereunder upon such acceleration, without further
notice or demand.
SECTION 4. Waivers. The Guarantor hereby waives: (i) presentment,
notice of dishonor and demand for payment of any promissory note (ii) promptness
and diligence by the Lender or any other person or entity in the enforcement of
rights under the Credit Agreement, the other Loan Documents or the Obligations;
(iii) notice of or proof of reliance by the Lender upon this Guarantee or
acceptance of this Guarantee; (iv) notice of the renewal of any Obligations by
the Company or the renewal, extension or accrual of the Obligations; (v) except
as required thereunder, notice of the actions taken by the Lender or the Company
or any other party under any Loan Document, or any other agreement or instrument
relating thereto; (vi) all other rules of suretyship law, notices, presentment
of any instrument, demands and protests, and all other formalities of every kind
in connection with the enforcement of the Obligations or of the
<PAGE> 4
-4-
obligations of the Guarantor hereunder, which, but for the provisions of this
Section 4, might constitute grounds for relieving the Guarantor of its
obligations hereunder; and (vii) any requirement that the Lender protect,
secure, perfect or insure any Lien or any property subject thereto or exhaust
any right or take any action against the Guarantor, any other person or entity
or any collateral.
SECTION 5. Subrogation. The Guarantor does hereby irrevocably waive any
and all rights which it may acquire against the Company by way of subrogation,
indemnity, reimbursement, right of contribution or otherwise in connection with
this Guarantee, whether acquired by any payment made hereunder, by any set-off
or application of funds of the Guarantor or the Lender, by operation of law
(including, without limitation, any such right arising under any bankruptcy or
insolvency statutes), in equity or otherwise, until (i) the payment in full of
the Obligations and the termination of all commitments of the Lender to make
Loans to the Company under the Credit Agreement, and (ii) the payment of all
expenses to be paid by the Guarantor pursuant hereto. If any amount shall be
paid to the Guarantor on account of such subrogation or other rights at any time
when all of the Obligations and all such other expenses shall not have been paid
in full and such commitments shall not have been terminated, such amount shall
be held in trust for the benefit of the Lender shall be segregated from the
other funds of the Guarantor and shall forthwith be paid over to the Lender to
be credited and applied in whole or in part against the Obligations, whether
matured or unmatured, and against all such other expenses.
SECTION 6. Representations and Warranties. The Guarantor hereby
represents and warrants to the Lender as follows:
(a) The Guarantor is a corporation duly organized, validly
existing, and in good standing under the laws of Texas; has the power and
authority to own its assets and to transact the business in which it is now, or
in which it proposes to be, engaged; and is duly qualified to do business and is
in good standing in each jurisdiction in which such qualification is required.
(b) The execution, delivery and performance by the Guarantor
of this Guarantee has been duly authorized by all necessary actions on the part
of the members of the Guarantor and does not and will not (i) require any
consent or approval of any other Person that has not been obtained; (ii)
contravene the Guarantor's organizational documents; (iii) violate any
provisions of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect applicable to the Guarantor;
(iv) result in a breach of, constitute a default under or otherwise contravene
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Guarantor is a party or by which the Guarantor or its
properties may be bound or affected; (v) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the Guarantor's properties
now owned or hereafter acquired; or (vi) cause the Guarantor to be in default
under any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.
<PAGE> 5
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(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body is
required for the due execution, delivery and performance by the Guarantor of
this Guarantee.
(d) This Guarantee is a legal, valid and binding obligation of
the Guarantor, enforceable against such Guarantor in accordance with its terms
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance and other similar laws affecting
creditors' rights generally and the application of general principles of equity.
(e) There is no action, suit or proceeding pending or, to the
knowledge of the Guarantor, threatened against or otherwise affecting the
Guarantor before any court or other Governmental Authority or any arbitrator
which may, in any one case or in the aggregate, adversely affect the ability of
the Guarantor to perform its obligations under this Guarantee.
SECTION 7. Full Recourse. The obligations of the Guarantor set forth
herein constitute the full recourse obligations of the Guarantor enforceable
against the Guarantor to the full extent of all the assets and properties of the
Guarantor, notwithstanding any provision in any other agreement limiting the
liability of the Guarantor or any other person, or any agreement by any holder
of any of the Obligations to look for payment with respect thereto solely to
certain property securing such Obligations.
SECTION 8. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Lender may, and is hereby authorized
to, at any time and from time to time, without notice to the Guarantor (any such
notice being expressly waived by the Guarantor), set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by the Lender to or for the credit
or the account of the Guarantor against any and all obligations of the Guarantor
now or hereafter existing under this Guarantee, irrespective of whether or not
the Lender shall have made any demand under this Guarantee and although such
obligations may be contingent or unmatured. The Lender agrees promptly to notify
the Guarantor after any such set-off and application, provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section 8 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Lender may have.
SECTION 9. Limitation on Guarantee Obligations. In any action or
proceeding involving any corporate law, or any bankruptcy, insolvency,
reorganization or other similar laws affecting the rights of creditors
generally, if the obligations of the Guarantor under Section 2 hereof would
otherwise be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors on account of the amount of
its liability under said Section 2, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by the Guarantor, the Lender or any other Person, be automatically
limited and reduced to the highest amount which is valid and enforceable, and
not subordinated to the claims of other creditors, as determined in such action
or proceeding.
SECTION 10. Notices. All notices and demands to or upon the respective
parties hereto to be effective shall be in writing and, unless otherwise
expressly provided herein, shall be
<PAGE> 6
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deemed to have been duly given or made when delivered by hand, or five (5) days
after deposited in the mail, air postage prepaid, or in the case of notice by
telecopier (fax), when sent, or in the case of overnight courier service, one
Business Day after delivery to a nationally recognized overnight courier
service, addressed as follows or to such other address as may be hereafter
notified by the respective parties to this Guarantee:
If to the Guarantor:
DC Systems, Inc.
5001 Spring Valley Road
Suite 390-West
Dallas, Texas 75244
Tel. No.: (212) 888-3600
Fax No.: (212) 888-0691
Attention: Mark Herman
If to the Lender:
Fleet Bank, N.A.
1185 Avenue of the Americas
New York, New York 10036
Tel. No.: (212) 819-5767
Fax No.: (212) 819-4114
Attention: Ms. Susan Failla
SECTION 11. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THE
GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION AND VENUE
OF ANY STATE OR FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTEE, AND THE GUARANTOR
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR FEDERAL COURT. THE
GUARANTOR WAIVES ANY OBJECTION TO ANY ACTION OR PROCEEDING IN ANY STATE OR
FEDERAL COURT SITTING IN NEW YORK COUNTY ON THE BASIS OF FORUM NON CONVENIENS.
THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY PROCESS IN CONNECTION WITH
ANY SUCH ACTION OR PROCEEDING AND AGREES THAT THE SERVICE THEREOF MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL DIRECTED TO THE GUARANTOR AT THE ADDRESS SET FORTH
IN SECTION 10 HEREOF. THE GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THE GUARANTOR FURTHER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE
LENDER SHALL BE BROUGHT ONLY IN ANY STATE OR FEDERAL COURT SITTING IN NEW YORK
COUNTY. THE GUARANTOR FURTHER AGREES THAT, AT THE DISCRETION
<PAGE> 7
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OF THE LENDER, THE LENDER MAY SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST THE GUARANTOR OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. EACH OF THE GUARANTOR AND THE
LENDER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER ARISING IN
CONTRACT, TORT OR OTHERWISE.
SECTION 12. Successors and Assigns. The covenants, representations,
warranties and agreements herein set forth shall be binding upon the Guarantor,
its legal representatives, successors and assigns, and shall inure to the
benefit of the Lender and its successors and assigns. The successor of the
Lender hereunder shall forthwith become vested with and shall forthwith become
vested with and shall be entitled to exercise all the powers and rights given by
this Guarantee to the Lender, as if said successor were originally named as
party herein.
SECTION 13. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO ANY CHOICE OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF
ANY OTHER JURISDICTION.
SECTION 14. Amendments. None of the terms or provisions of this
Guarantee may be waived, altered, modified, or amended except by an agreement in
writing signed by the Lender and the Guarantor.
SECTION 15. No Waiver; Remedies. No failure on the part of the Lender
to exercise, and no delay in exercising, and no course of dealing with respect
to, any right, power, or remedy under this Guarantee shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder and
under any of the other Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The remedies
provided herein and in the other Loan Documents are cumulative and not exclusive
of any remedies provided by law.
SECTION 16. Severability. If any provision hereof shall be held to be
invalid, illegal or unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall remain in full
force and effect in such jurisdiction, and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 17. Miscellaneous.
(a) The Guarantor will make each payment hereunder in lawful
money of the United States of America and in immediately available funds to the
Lender at its address specified in Section 10 of this Guarantee.
(b) This Guarantee is one of the Subsidiary Guarantees as
defined and referred to in the Credit Agreement.
<PAGE> 8
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(c) This Guarantee may be executed in any number of
counterparts, all of which, when taken together shall constitute one and the
same instrument, and any party hereto may execute this Guarantee by signing any
such counterpart.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to
be executed by its duly authorized officer, as of the day and year first above
written.
DC Systems Inc.
By:/s/ Mark A. Herman
____________________________________
Name: Mark A. Herman
Its:
Accepted as of this ____
day of September, 1999:
FLEET BANK, N.A.
By: /s/ Susan Failla
________________________________
Name: Susan Failla
Its: Vice President
<PAGE> 1
Exhibit 10.49
GUARANTEE
CAMINUS/DC ACQUISITION CORP.
THIS GUARANTEE, dated as of September 1, 1999, made by
Caminus/DC Acquisition Corp., a Delaware corporation (the "Guarantor"), in favor
of Fleet Bank, N.A., a national banking association organized under the laws of
the United States, having its principal office at 1185 Avenue of the Americas,
New York, New York 10036, as Lender (the "Lender"), party to the Credit
Agreement referred to below.
Caminus LLC, a Delaware limited liability company (the
"Company") and the Lender are parties to a Credit Agreement dated as of June 23,
1999 (such Credit Agreement, as the same may be amended or supplemented from
time to time is referred to herein as the "Credit Agreement") providing, subject
to the terms and conditions thereof, for extensions of credit to be made by the
Lender to the Company in an aggregate principal amount not exceeding $5,000,000
(the "Loans"). The Loans made or to be made by the Lender to the Company shall
be evidenced by certain promissory notes (as exchanged, replaced, amended,
supplemented or modified from time to time, the "Notes") in substantially the
form of Exhibits A-1 and A-2 attached to the Credit Agreement.
To induce the Lender to enter into the Credit Agreement and to
extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company agreed to
cause its existing and future subsidiaries to execute and deliver this
Guarantee. The Guarantor is a wholly-owned subsidiary of the Company, created
for purposes of consummating the acquisition of DC Systems, Inc., a Texas
Corporation ("DC Systems"), pursuant to the Purchase Agreement, dated July 31,
1999, among DC Systems, the Company, the Guarantor and the Shareholders party
thereto.
SECTION 1. Definitions. Reference is hereby made to the Credit
Agreement for a statement of the terms thereof. All terms used in this Guarantee
which are defined in the Credit Agreement and not otherwise defined in this
Guarantee shall have the same meaning in this Guarantee as set forth in the
Credit Agreement.
SECTION 2. Guarantee. The Guarantor hereby irrevocably, absolutely and
unconditionally, guarantees to the Lender and its successors and assigns the
prompt and complete payment by the Company, as and when due and payable (whether
at stated maturity or by required prepayment, acceleration, demand or
otherwise), of all indebtedness, obligations and liabilities of the Company to
the Lender now existing or hereafter incurred, whether or not under or arising
out of or in connection with the Notes, the Credit Agreement, the other Loan
Documents, whether for principal, interest, fees, expenses or otherwise (all
such indebtedness, obligations and liabilities being herein called the
"Obligations"); and agrees to pay any and all expenses (including reasonable
actual attorneys' fees and expenses) which may be paid or incurred by the Lender
in collecting any or all of the Obligations and/or enforcing any rights under
this Guarantee.
<PAGE> 2
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SECTION 3. Guarantor's Obligations Unconditional.
(a) The Guarantor hereby guarantees that the Obligations will be paid
strictly in accordance with the terms of the Loan Documents to which the Company
is a party and any other agreements and instruments relating to the Obligations,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Lender with
respect thereto. The obligations and liabilities of the Guarantor under this
Guarantee shall be absolute and unconditional irrespective of (x) any lack of
value, validity, genuineness, regularity or enforceability of any of the
Obligations, any of the Loan Documents, or any agreement or instrument relating
thereto, (y) any substitution, exchange, release, amendment, or waiver of or
consent to any departure from the terms, of any of the Obligations, Loan
Documents or any guarantee of or security for all or any of the Obligations, and
(z) to the fullest extent permitted by applicable law, irrespective of any other
circumstance which might otherwise constitute a legal or equitable defense
available to, or a discharge of, the Guarantor in respect of the Obligations or
the Guarantor in respect of this Guarantee. Without limiting the generality of
the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter, impair or release the liability of the Guarantor
hereunder which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the Guarantor,
the time for any performance of or compliance with any of the
Obligations shall be extended, or such performance or compliance shall
be waived;
(ii) any of the acts mentioned in any of the provisions of the Credit
Agreement or the Notes or any other Loan Document shall be done,
omitted or waived;
(iii) the maturity of any of the Obligations shall be accelerated;
(iv) any of the Obligations shall be modified, supplemented or amended
in any respect, or any right or obligation under the Credit Agreement,
the Notes, any other Loan Document, any guarantee of any of the
Obligations or any security therefor shall be waived, released or
exchanged in whole or in part or otherwise dealt with; or
(v) any lien or security interest granted to, or in favor of, the
Lender as security for any of the Obligations shall be amended or
waived or shall fail to be perfected.
(b) This Guarantee is a continuing guarantee and shall remain in full
force and effect until (i) the payment in full of the Obligations, (ii) the
Lender shall have no commitment to make any Loan to the Company under the Credit
Agreement, and (iii) the payment of all expenses to be paid by the Guarantor
pursuant hereto.
(c) The obligations and liabilities of the Guarantor under this
Guarantee are not conditioned or contingent upon the enforcement by the Lender
or any other Person at any time (i) of any right or remedy against the Company,
any other party to any Loan Documents, other agreements or instruments or any
person or entity which may be liable for payment of all or any part of the
Obligations; or (ii) against any collateral security for or guarantee of payment
of the obligations or right of set-off with respect thereto.
<PAGE> 3
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(d) The Guarantor hereby consents that, without the necessity of any
reservation of rights against the Guarantor and without notice to or further
assent by the Guarantor, any demand for payment of the Obligations made by the
Lender may be rescinded by the Lender and any of the Obligations may be
continued after such rescission.
(e) If claim is ever made upon the Lender for repayment or recovery of
any amount or amounts received by the Lender in payment or on account of any of
the Obligations, and the Lender repays all or part of said amount by reason of
(i) any judgment, decree or order of any Governmental Authority having
jurisdiction over the Company or the Guarantor or any of their respective
properties, including without limitation any such judgment, decree or order
pursuant to the Federal Bankruptcy Code or similar insolvency laws, or (ii) any
settlement or compromise of any such claim, then and in such event the Guarantor
agrees that any such judgment, decree, order, settlement or compromise shall be
binding upon the Guarantor and, notwithstanding any termination hereof or the
cancellation of any Obligations, this Guarantee shall be reinstated and the
Guarantor shall be and remain liable to the Lender hereunder for the amounts so
repaid or recovered to the same extent as if such amount had never originally
been received by the Lender. The Guarantor agrees that it will indemnify the
Lender on demand for all costs and expenses (including reasonable actual
attorneys fees and expenses) incurred by the Lender in connection with such
claim, including any such costs and expenses incurred in defending against any
claim alleging that payments in account of the Obligations constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law affecting creditor's rights generally.
(f) This Guarantee shall be enforceable as to all of the Obligations
and expenses of collection thereof and hereof, despite the Company's discharge
in bankruptcy or adjustment of debts, liabilities and obligations in insolvency
proceedings or pursuant to any other compromise with creditors. If an event
permitting the acceleration of the maturity of the principal amount of the
Obligations shall at any time have occurred and be continuing, and if such
acceleration (or any consequences thereof) provided for in the Loan Documents
shall at such time be prevented by reason of the pendency against the Company of
a case or proceeding under the Federal Bankruptcy Code or other insolvency law,
the Guarantor agrees that, for purposes of this Guarantee and the Guarantor's
obligations hereunder, the maturity of such principal amount shall be deemed to
have been accelerated, with all attendant consequences as provided in the Loan
Documents, as if such acceleration and consequences had been accomplished in
accordance with the terms of the Loan Documents, and Guarantor shall forthwith
pay any amounts guaranteed hereunder upon such acceleration, without further
notice or demand.
SECTION 4. Waivers. The Guarantor hereby waives: (i) presentment,
notice of dishonor and demand for payment of any promissory note (ii) promptness
and diligence by the Lender or any other person or entity in the enforcement of
rights under the Credit Agreement, the other Loan Documents or the Obligations;
(iii) notice of or proof of reliance by the Lender upon this Guarantee or
acceptance of this Guarantee; (iv) notice of the renewal of any Obligations by
the Company or the renewal, extension or accrual of the Obligations; (v) except
as required thereunder, notice of the actions taken by the Lender or the Company
or any other party under any Loan Document, or any other agreement or instrument
relating thereto; (vi) all other rules of suretyship law, notices, presentment
of any instrument, demands and protests, and all other formalities of every kind
in connection with the enforcement of the Obligations or of the
<PAGE> 4
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obligations of the Guarantor hereunder, which, but for the provisions of this
Section 4, might constitute grounds for relieving the Guarantor of its
obligations hereunder; and (vii) any requirement that the Lender protect,
secure, perfect or insure any Lien or any property subject thereto or exhaust
any right or take any action against the Guarantor, any other person or entity
or any collateral.
SECTION 5. Subrogation. The Guarantor does hereby irrevocably waive any
and all rights which it may acquire against the Company by way of subrogation,
indemnity, reimbursement, right of contribution or otherwise in connection with
this Guarantee, whether acquired by any payment made hereunder, by any set-off
or application of funds of the Guarantor or the Lender, by operation of law
(including, without limitation, any such right arising under any bankruptcy or
insolvency statutes), in equity or otherwise, until (i) the payment in full of
the Obligations and the termination of all commitments of the Lender to make
Loans to the Company under the Credit Agreement, and (ii) the payment of all
expenses to be paid by the Guarantor pursuant hereto. If any amount shall be
paid to the Guarantor on account of such subrogation or other rights at any time
when all of the Obligations and all such other expenses shall not have been paid
in full and such commitments shall not have been terminated, such amount shall
be held in trust for the benefit of the Lender shall be segregated from the
other funds of the Guarantor and shall forthwith be paid over to the Lender to
be credited and applied in whole or in part against the Obligations, whether
matured or unmatured, and against all such other expenses.
SECTION 6. Representations and Warranties. The Guarantor hereby
represents and warrants to the Lender as follows:
(a) The Guarantor is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware; has the power and
authority to own its assets and to transact the business in which it is now, or
in which it proposes to be, engaged; and is duly qualified to do business and is
in good standing in each jurisdiction in which such qualification is required.
(b) The execution, delivery and performance by the Guarantor
of this Guarantee has been duly authorized by all necessary actions on the part
of the members of the Guarantor and does not and will not (i) require any
consent or approval of any other Person that has not been obtained; (ii)
contravene the Guarantor's organizational documents; (iii) violate any
provisions of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect applicable to the Guarantor;
(iv) result in a breach of, constitute a default under or otherwise contravene
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Guarantor is a party or by which the Guarantor or its
properties may be bound or affected; (v) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the Guarantor's properties
now owned or hereafter acquired; or (vi) cause the Guarantor to be in default
under any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.
<PAGE> 5
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(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body is
required for the due execution, delivery and performance by the Guarantor of
this Guarantee.
(d) This Guarantee is a legal, valid and binding obligation of
the Guarantor, enforceable against such Guarantor in accordance with its terms
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance and other similar laws affecting
creditors' rights generally and the application of general principles of equity.
(e) There is no action, suit or proceeding pending or, to the
knowledge of the Guarantor, threatened against or otherwise affecting the
Guarantor before any court or other Governmental Authority or any arbitrator
which may, in any one case or in the aggregate, adversely affect the ability of
the Guarantor to perform its obligations under this Guarantee.
SECTION 7. Full Recourse. The obligations of the Guarantor set forth
herein constitute the full recourse obligations of the Guarantor enforceable
against the Guarantor to the full extent of all the assets and properties of the
Guarantor, notwithstanding any provision in any other agreement limiting the
liability of the Guarantor or any other person, or any agreement by any holder
of any of the Obligations to look for payment with respect thereto solely to
certain property securing such Obligations.
SECTION 8. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Lender may, and is hereby authorized
to, at any time and from time to time, without notice to the Guarantor (any such
notice being expressly waived by the Guarantor), set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by the Lender to or for the credit
or the account of the Guarantor against any and all obligations of the Guarantor
now or hereafter existing under this Guarantee, irrespective of whether or not
the Lender shall have made any demand under this Guarantee and although such
obligations may be contingent or unmatured. The Lender agrees promptly to notify
the Guarantor after any such set-off and application, provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section 8 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Lender may have.
SECTION 9. Limitation on Guarantee Obligations. In any action or
proceeding involving any corporate law, or any bankruptcy, insolvency,
reorganization or other similar laws affecting the rights of creditors
generally, if the obligations of the Guarantor under Section 2 hereof would
otherwise be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors on account of the amount of
its liability under said Section 2, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by the Guarantor, the Lender or any other Person, be automatically
limited and reduced to the highest amount which is valid and enforceable, and
not subordinated to the claims of other creditors, as determined in such action
or proceeding.
SECTION 10. Notices. All notices and demands to or upon the respective
parties hereto to be effective shall be in writing and, unless otherwise
expressly provided herein, shall be
<PAGE> 6
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deemed to have been duly given or made when delivered by hand, or five (5) days
after deposited in the mail, air postage prepaid, or in the case of notice by
telecopier (fax), when sent, or in the case of overnight courier service, one
Business Day after delivery to a nationally recognized overnight courier
service, addressed as follows or to such other address as may be hereafter
notified by the respective parties to this Guarantee:
If to the Guarantor:
Caminus/DC Acquisition Corp.
5001 Spring Valley Road
Suite 390-West
Dallas, Texas 75244
Tel. No.: (212) 888-3600
Fax No.: (212) 888-0691
Attention:
If to the Lender:
Fleet Bank, N.A.
1185 Avenue of the Americas
New York, New York 10036
Tel. No.: (212) 819-5767
Fax No.: (212) 819-4114
Attention: Ms. Susan Failla
SECTION 11. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THE
GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION AND VENUE
OF ANY STATE OR FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTEE, AND THE GUARANTOR
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR FEDERAL COURT. THE
GUARANTOR WAIVES ANY OBJECTION TO ANY ACTION OR PROCEEDING IN ANY STATE OR
FEDERAL COURT SITTING IN NEW YORK COUNTY ON THE BASIS OF FORUM NON CONVENIENS.
THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY PROCESS IN CONNECTION WITH
ANY SUCH ACTION OR PROCEEDING AND AGREES THAT THE SERVICE THEREOF MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL DIRECTED TO THE GUARANTOR AT THE ADDRESS SET FORTH
IN SECTION 10 HEREOF. THE GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THE GUARANTOR FURTHER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE
LENDER SHALL BE BROUGHT ONLY IN ANY STATE OR FEDERAL COURT SITTING IN NEW YORK
COUNTY. THE GUARANTOR FURTHER AGREES THAT, AT THE DISCRETION
<PAGE> 7
-7-
OF THE LENDER, THE LENDER MAY SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST THE GUARANTOR OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. EACH OF THE GUARANTOR AND THE
LENDER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER ARISING IN
CONTRACT, TORT OR OTHERWISE.
SECTION 12. Successors and Assigns. The covenants, representations,
warranties and agreements herein set forth shall be binding upon the Guarantor,
its legal representatives, successors and assigns, and shall inure to the
benefit of the Lender and its successors and assigns. The successor of the
Lender hereunder shall forthwith become vested with and shall forthwith become
vested with and shall be entitled to exercise all the powers and rights given by
this Guarantee to the Lender, as if said successor were originally named as
party herein.
SECTION 13. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO ANY CHOICE OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF
ANY OTHER JURISDICTION.
SECTION 14. Amendments. None of the terms or provisions of this
Guarantee may be waived, altered, modified, or amended except by an agreement in
writing signed by the Lender and the Guarantor.
SECTION 15. No Waiver; Remedies. No failure on the part of the Lender
to exercise, and no delay in exercising, and no course of dealing with respect
to, any right, power, or remedy under this Guarantee shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder and
under any of the other Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The remedies
provided herein and in the other Loan Documents are cumulative and not exclusive
of any remedies provided by law.
SECTION 16. Severability. If any provision hereof shall be held to be
invalid, illegal or unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall remain in full
force and effect in such jurisdiction, and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 17. Miscellaneous.
(a) The Guarantor will make each payment hereunder in lawful
money of the United States of America and in immediately available funds to the
Lender at its address specified in Section 10 of this Guarantee.
(b) This Guarantee is one of the Subsidiary Guarantees as
defined and referred to in the Credit Agreement.
<PAGE> 8
-8-
(c) This Guarantee may be executed in any number of
counterparts, all of which, when taken together shall constitute one and the
same instrument, and any party hereto may execute this Guarantee by signing any
such counterpart.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to
be executed by its duly authorized officer, as of the day and year first above
written.
CAMINUS/DC ACQUISITION CORP.
By: /s/ Mark A. Herman
---------------------------------------
Name: Mark Herman
Its:
Accepted as of this ____
day of September, 1999:
FLEET BANK, N.A.
By: /s/ Susan Failla
-------------------------------
Name: Susan Failla
Its: Vice President
<PAGE> 1
Exhibit 10.50
GUARANTEE
DCS*GASNET CORP.
THIS GUARANTEE, dated as of September 1, 1999, made by
DCS*Gasnet Corp., a Texas corporation (the "Guarantor"), in favor of Fleet Bank,
N.A., a national banking association organized under the laws of the United
States, having its principal office at 1185 Avenue of the Americas, New York,
New York 10036, as Lender (the "Lender"), party to the Credit Agreement referred
to below.
Caminus LLC, a Delaware limited liability company (the
"Company") and the Lender are parties to a Credit Agreement dated as of June 23,
1999 (such Credit Agreement, as the same may be amended or supplemented from
time to time is referred to herein as the "Credit Agreement") providing, subject
to the terms and conditions thereof, for extensions of credit to be made by the
Lender to the Company in an aggregate principal amount not exceeding $5,000,000
(the "Loans"). The Loans made or to be made by the Lender to the Company shall
be evidenced by certain promissory notes (as exchanged, replaced, amended,
supplemented or modified from time to time, the "Notes") in substantially the
form of Exhibits A-1 and A-2 attached to the Credit Agreement.
To induce the Lender to enter into the Credit Agreement and to
extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company agreed to
cause its existing and future subsidiaries to execute and deliver this
Guarantee. The Guarantor is a wholly-owned subsidiary of DC Systems, Inc., a
Texas Corporation ("DC Systems"), that was acquired by the Company pursuant to
the Purchase Agreement, dated July 31, 1999, among DC Systems, the Company and
Caminus/DC Acquisition Corp., a Delaware Corporation, and the shareholders party
thereto. As a result, the Guarantor is an indirect subsidiary of the Company.
SECTION 1. Definitions. Reference is hereby made to the Credit
Agreement for a statement of the terms thereof. All terms used in this Guarantee
which are defined in the Credit Agreement and not otherwise defined in this
Guarantee shall have the same meaning in this Guarantee as set forth in the
Credit Agreement.
SECTION 2. Guarantee. The Guarantor hereby irrevocably, absolutely and
unconditionally, guarantees to the Lender and its successors and assigns the
prompt and complete payment by the Company, as and when due and payable (whether
at stated maturity or by required prepayment, acceleration, demand or
otherwise), of all indebtedness, obligations and liabilities of the Company to
the Lender now existing or hereafter incurred, whether or not under or arising
out of or in connection with the Notes, the Credit Agreement, the other Loan
Documents, whether for principal, interest, fees, expenses or otherwise (all
such indebtedness, obligations and liabilities being herein called the
"Obligations"); and agrees to pay any and all expenses (including reasonable
actual attorneys' fees and expenses) which may be paid or
<PAGE> 2
-2-
incurred by the Lender in collecting any or all of the Obligations and/or
enforcing any rights under this Guarantee.
SECTION 3. Guarantor's Obligations Unconditional.
(a) The Guarantor hereby guarantees that the Obligations will be paid
strictly in accordance with the terms of the Loan Documents to which the Company
is a party and any other agreements and instruments relating to the Obligations,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Lender with
respect thereto. The obligations and liabilities of the Guarantor under this
Guarantee shall be absolute and unconditional irrespective of (x) any lack of
value, validity, genuineness, regularity or enforceability of any of the
Obligations, any of the Loan Documents, or any agreement or instrument relating
thereto, (y) any substitution, exchange, release, amendment, or waiver of or
consent to any departure from the terms, of any of the Obligations, Loan
Documents or any guarantee of or security for all or any of the Obligations, and
(z) to the fullest extent permitted by applicable law, irrespective of any other
circumstance which might otherwise constitute a legal or equitable defense
available to, or a discharge of, the Guarantor in respect of the Obligations or
the Guarantor in respect of this Guarantee. Without limiting the generality of
the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter, impair or release the liability of the Guarantor
hereunder which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the Guarantor,
the time for any performance of or compliance with any of the
Obligations shall be extended, or such performance or compliance shall
be waived;
(ii) any of the acts mentioned in any of the provisions of the Credit
Agreement or the Notes or any other Loan Document shall be done,
omitted or waived;
(iii) the maturity of any of the Obligations shall be accelerated;
(iv) any of the Obligations shall be modified, supplemented or amended
in any respect, or any right or obligation under the Credit Agreement,
the Notes, any other Loan Document, any guarantee of any of the
Obligations or any security therefor shall be waived, released or
exchanged in whole or in part or otherwise dealt with; or
(v) any lien or security interest granted to, or in favor of, the
Lender as security for any of the Obligations shall be amended or
waived or shall fail to be perfected.
(b) This Guarantee is a continuing guarantee and shall remain in full
force and effect until (i) the payment in full of the Obligations, (ii) the
Lender shall have no commitment to make any Loan to the Company under the Credit
Agreement, and (iii) the payment of all expenses to be paid by the Guarantor
pursuant hereto.
(c) The obligations and liabilities of the Guarantor under this
Guarantee are not conditioned or contingent upon the enforcement by the Lender
or any other Person at any time (i) of any right or remedy against the Company,
any other party to any Loan Documents, other agreements or instruments or any
person or entity which may be liable for payment of all or any
<PAGE> 3
-3-
part of the Obligations; or (ii) against any collateral security for or
guarantee of payment of the obligations or right of set-off with respect
thereto.
(d) The Guarantor hereby consents that, without the necessity of any
reservation of rights against the Guarantor and without notice to or further
assent by the Guarantor, any demand for payment of the Obligations made by the
Lender may be rescinded by the Lender and any of the Obligations may be
continued after such rescission.
(e) If claim is ever made upon the Lender for repayment or recovery of
any amount or amounts received by the Lender in payment or on account of any of
the Obligations, and the Lender repays all or part of said amount by reason of
(i) any judgment, decree or order of any Governmental Authority having
jurisdiction over the Company or the Guarantor or any of their respective
properties, including without limitation any such judgment, decree or order
pursuant to the Federal Bankruptcy Code or similar insolvency laws, or (ii) any
settlement or compromise of any such claim, then and in such event the Guarantor
agrees that any such judgment, decree, order, settlement or compromise shall be
binding upon the Guarantor and, notwithstanding any termination hereof or the
cancellation of any Obligations, this Guarantee shall be reinstated and the
Guarantor shall be and remain liable to the Lender hereunder for the amounts so
repaid or recovered to the same extent as if such amount had never originally
been received by the Lender. The Guarantor agrees that it will indemnify the
Lender on demand for all costs and expenses (including reasonable actual
attorneys fees and expenses) incurred by the Lender in connection with such
claim, including any such costs and expenses incurred in defending against any
claim alleging that payments in account of the Obligations constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law affecting creditor's rights generally.
(f) This Guarantee shall be enforceable as to all of the Obligations
and expenses of collection thereof and hereof, despite the Company's discharge
in bankruptcy or adjustment of debts, liabilities and obligations in insolvency
proceedings or pursuant to any other compromise with creditors. If an event
permitting the acceleration of the maturity of the principal amount of the
Obligations shall at any time have occurred and be continuing, and if such
acceleration (or any consequences thereof) provided for in the Loan Documents
shall at such time be prevented by reason of the pendency against the Company of
a case or proceeding under the Federal Bankruptcy Code or other insolvency law,
the Guarantor agrees that, for purposes of this Guarantee and the Guarantor's
obligations hereunder, the maturity of such principal amount shall be deemed to
have been accelerated, with all attendant consequences as provided in the Loan
Documents, as if such acceleration and consequences had been accomplished in
accordance with the terms of the Loan Documents, and Guarantor shall forthwith
pay any amounts guaranteed hereunder upon such acceleration, without further
notice or demand.
SECTION 4. Waivers. The Guarantor hereby waives: (i) presentment,
notice of dishonor and demand for payment of any promissory note (ii) promptness
and diligence by the Lender or any other person or entity in the enforcement of
rights under the Credit Agreement, the other Loan Documents or the Obligations;
(iii) notice of or proof of reliance by the Lender upon this Guarantee or
acceptance of this Guarantee; (iv) notice of the renewal of any Obligations by
the Company or the renewal, extension or accrual of the Obligations; (v) except
as required thereunder, notice of the actions taken by the Lender or the Company
or any other party under
<PAGE> 4
-4-
any Loan Document, or any other agreement or instrument relating thereto; (vi)
all other rules of suretyship law, notices, presentment of any instrument,
demands and protests, and all other formalities of every kind in connection with
the enforcement of the Obligations or of the obligations of the Guarantor
hereunder, which, but for the provisions of this Section 4, might constitute
grounds for relieving the Guarantor of its obligations hereunder; and (vii) any
requirement that the Lender protect, secure, perfect or insure any Lien or any
property subject thereto or exhaust any right or take any action against the
Guarantor, any other person or entity or any collateral.
SECTION 5. Subrogation. The Guarantor does hereby irrevocably waive any
and all rights which it may acquire against the Company by way of subrogation,
indemnity, reimbursement, right of contribution or otherwise in connection with
this Guarantee, whether acquired by any payment made hereunder, by any set-off
or application of funds of the Guarantor or the Lender, by operation of law
(including, without limitation, any such right arising under any bankruptcy or
insolvency statutes), in equity or otherwise, until (i) the payment in full of
the Obligations and the termination of all commitments of the Lender to make
Loans to the Company under the Credit Agreement, and (ii) the payment of all
expenses to be paid by the Guarantor pursuant hereto. If any amount shall be
paid to the Guarantor on account of such subrogation or other rights at any time
when all of the Obligations and all such other expenses shall not have been paid
in full and such commitments shall not have been terminated, such amount shall
be held in trust for the benefit of the Lender shall be segregated from the
other funds of the Guarantor and shall forthwith be paid over to the Lender to
be credited and applied in whole or in part against the Obligations, whether
matured or unmatured, and against all such other expenses.
SECTION 6. Representations and Warranties. The Guarantor hereby
represents and warrants to the Lender as follows:
(a) The Guarantor is a corporation duly organized, validly
existing, and in good standing under the laws of Texas; has the power and
authority to own its assets and to transact the business in which it is now, or
in which it proposes to be, engaged; and is duly qualified to do business and is
in good standing in each jurisdiction in which such qualification is required.
(b) The execution, delivery and performance by the Guarantor
of this Guarantee has been duly authorized by all necessary actions on the part
of the members of the Guarantor and does not and will not (i) require any
consent or approval of any other Person that has not been obtained; (ii)
contravene the Guarantor's organizational documents; (iii) violate any
provisions of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect applicable to the Guarantor;
(iv) result in a breach of, constitute a default under or otherwise contravene
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Guarantor is a party or by which the Guarantor or its
properties may be bound or affected; (v) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the Guarantor's properties
now owned or hereafter acquired; or (vi) cause the Guarantor to be in default
under any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.
<PAGE> 5
-5-
(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body is
required for the due execution, delivery and performance by the Guarantor of
this Guarantee.
(d) This Guarantee is a legal, valid and binding obligation of
the Guarantor, enforceable against such Guarantor in accordance with its terms
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance and other similar laws affecting
creditors' rights generally and the application of general principles of equity.
(e) There is no action, suit or proceeding pending or, to the
knowledge of the Guarantor, threatened against or otherwise affecting the
Guarantor before any court or other Governmental Authority or any arbitrator
which may, in any one case or in the aggregate, adversely affect the ability of
the Guarantor to perform its obligations under this Guarantee.
SECTION 7. Full Recourse. The obligations of the Guarantor set forth
herein constitute the full recourse obligations of the Guarantor enforceable
against the Guarantor to the full extent of all the assets and properties of the
Guarantor, notwithstanding any provision in any other agreement limiting the
liability of the Guarantor or any other person, or any agreement by any holder
of any of the Obligations to look for payment with respect thereto solely to
certain property securing such Obligations.
SECTION 8. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Lender may, and is hereby authorized
to, at any time and from time to time, without notice to the Guarantor (any such
notice being expressly waived by the Guarantor), set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by the Lender to or for the credit
or the account of the Guarantor against any and all obligations of the Guarantor
now or hereafter existing under this Guarantee, irrespective of whether or not
the Lender shall have made any demand under this Guarantee and although such
obligations may be contingent or unmatured. The Lender agrees promptly to notify
the Guarantor after any such set-off and application, provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section 8 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Lender may have.
SECTION 9. Limitation on Guarantee Obligations. In any action or
proceeding involving any corporate law, or any bankruptcy, insolvency,
reorganization or other similar laws affecting the rights of creditors
generally, if the obligations of the Guarantor under Section 2 hereof would
otherwise be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors on account of the amount of
its liability under said Section 2, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by the Guarantor, the Lender or any other Person, be automatically
limited and reduced to the highest amount which is valid and enforceable, and
not subordinated to the claims of other creditors, as determined in such action
or proceeding.
SECTION 10. Notices. All notices and demands to or upon the respective
parties hereto to be effective shall be in writing and, unless otherwise
expressly provided herein, shall be
<PAGE> 6
-6-
deemed to have been duly given or made when delivered by hand, or five (5) days
after deposited in the mail, air postage prepaid, or in the case of notice by
telecopier (fax), when sent, or in the case of overnight courier service, one
Business Day after delivery to a nationally recognized overnight courier
service, addressed as follows or to such other address as may be hereafter
notified by the respective parties to this Guarantee:
If to the Guarantor:
DCS*Gasnet Corp.
5001 Spring Valley Road
Suite 390-West
Dallas, Texas 75244
Tel. No.: (212) 888-3600
Fax No.: (212) 888-0691
Attention:
If to the Lender:
Fleet Bank, N.A.
1185 Avenue of the Americas
New York, New York 10036
Tel. No.: (212) 819-5767
Fax No.: (212) 819-4114
Attention: Ms. Susan Failla
SECTION 11. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THE
GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION AND VENUE
OF ANY STATE OR FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTEE, AND THE GUARANTOR
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR FEDERAL COURT. THE
GUARANTOR WAIVES ANY OBJECTION TO ANY ACTION OR PROCEEDING IN ANY STATE OR
FEDERAL COURT SITTING IN NEW YORK COUNTY ON THE BASIS OF FORUM NON CONVENIENS.
THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY PROCESS IN CONNECTION WITH
ANY SUCH ACTION OR PROCEEDING AND AGREES THAT THE SERVICE THEREOF MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL DIRECTED TO THE GUARANTOR AT THE ADDRESS SET FORTH
IN SECTION 10 HEREOF. THE GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THE GUARANTOR FURTHER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE
LENDER SHALL BE BROUGHT ONLY IN ANY STATE OR FEDERAL COURT SITTING IN NEW YORK
COUNTY. THE GUARANTOR FURTHER AGREES THAT, AT THE DISCRETION
<PAGE> 7
-7-
OF THE LENDER, THE LENDER MAY SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST THE GUARANTOR OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. EACH OF THE GUARANTOR AND THE
LENDER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER ARISING IN
CONTRACT, TORT OR OTHERWISE.
SECTION 12. Successors and Assigns. The covenants, representations,
warranties and agreements herein set forth shall be binding upon the Guarantor,
its legal representatives, successors and assigns, and shall inure to the
benefit of the Lender and its successors and assigns. The successor of the
Lender hereunder shall forthwith become vested with and shall forthwith become
vested with and shall be entitled to exercise all the powers and rights given by
this Guarantee to the Lender, as if said successor were originally named as
party herein.
SECTION 13. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO ANY CHOICE OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF
ANY OTHER JURISDICTION.
SECTION 14. Amendments. None of the terms or provisions of this
Guarantee may be waived, altered, modified, or amended except by an agreement in
writing signed by the Lender and the Guarantor.
SECTION 15. No Waiver; Remedies. No failure on the part of the Lender
to exercise, and no delay in exercising, and no course of dealing with respect
to, any right, power, or remedy under this Guarantee shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder and
under any of the other Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The remedies
provided herein and in the other Loan Documents are cumulative and not exclusive
of any remedies provided by law.
SECTION 16. Severability. If any provision hereof shall be held to be
invalid, illegal or unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof shall remain in full
force and effect in such jurisdiction, and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 17. Miscellaneous.
(a) The Guarantor will make each payment hereunder in lawful
money of the United States of America and in immediately available funds to the
Lender at its address specified in Section 10 of this Guarantee.
(b) This Guarantee is one of the Subsidiary Guarantees as
defined and referred to in the Credit Agreement.
<PAGE> 8
-8-
(c) This Guarantee may be executed in any number of
counterparts, all of which, when taken together shall constitute one and the
same instrument, and any party hereto may execute this Guarantee by signing any
such counterpart.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to
be executed by its duly authorized officer, as of the day and year first above
written.
DCS*GASNET CORP.
By: /s/ Mark A. Herman
--------------------------------------
Name: Mark Herman
Its:
Accepted as of this ____
day of September, 1999:
FLEET BANK, N.A.
By: /s/ Susan Failla
---------------------------------
Name: Susan Failla
Its: Vice President
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 28, 1999, relating to
the financial statements of Caminus LLC, and of our report dated August 28,
1998, relating to the financial statements of ZAI*NET SOFTWARE, Inc., which
appear in such Prospectus. We also consent to the references to use under the
headings "Experts" and "Selected Consolidated Financial Data" in such
Registration Statement. However, it should be noted that PricewaterhouseCoopers
LLP has not prepared or certified such "Selected Consolidated Financial Data."
PRICEWATERHOUSECOOPERS LLP
New York, New York
December 14, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated 30 September 1998, relating to the financial statements of Caminus
Limited (formerly Caminus Energy Limited), which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
PETERS, ELWORTHY & MOORE
Cambridge, United Kingdom
14 December 1999
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated October 5, 1999, relating to the consolidated financial statements
of DC Systems, Inc. and Subsidiary, which appear in such Registration
Statement. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Dallas, Texas
December 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 8-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> APR-29-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 2,770,538 801,351
<SECURITIES> 0 0
<RECEIVABLES> 3,472,662 5,705,856
<ALLOWANCES> 228,644 303,644
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,321,330 8,130,672
<PP&E> 948,832 1,870,825
<DEPRECIATION> 168,756 490,952
<TOTAL-ASSETS> 31,069,002 40,868,631
<CURRENT-LIABILITIES> 10,971,720 12,818,358
<BONDS> 0 0
0 0
0 0
<COMMON> 97,292 110,004
<OTHER-SE> 17,062,490 26,440,269
<TOTAL-LIABILITY-AND-EQUITY> 31,069,002 400,868,631
<SALES> 0 0
<TOTAL-REVENUES> 9,626,003 18,525,559
<CGS> 0 0
<TOTAL-COSTS> 4,490,050 5,852,443
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 70,320 165,006
<INCOME-PRETAX> (10,036,457) (5,908,456)
<INCOME-TAX> 35,735 334,294
<INCOME-CONTINUING> (10,371,188) (6,242,750)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,371,188) (6,242,750)
<EPS-BASIC> (1.41) (0.76)
<EPS-DILUTED> (1.41) (0.76)
</TABLE>
