AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 29, 2000
REGISTRATION NO. 333-94873
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO. 1)
ULTICOM, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
NEW JERSEY 3661 22-2050748
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1020 BRIGGS ROAD
MT. LAUREL, NEW JERSEY 08054
(856) 787-2700
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
MR. SHAWN OSBORNE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ULTICOM, INC.
1020 BRIGGS ROAD
MT. LAUREL, NEW JERSEY 08054
(856) 787-2700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
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<S> <C> <C>
STEPHEN M. BESEN, ESQ. IRA ROSENBERG, ESQ. BARBARA L. BECKER, ESQ.
WEIL, GOTSHAL & MANGES LLP SILLS CUMMIS RADIN TISCHMAN EPSTEIN & GROSS, P.A. CHADBOURNE & PARKE LLP
767 FIFTH AVENUE 1 RIVERFRONT PLAZA 30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10153 NEWARK, NEW JERSEY 07102 NEW YORK, NEW YORK 10112
(212) 310-8000 (973) 643-7000 (212) 408-5100
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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==================================================== ================= ===================== ==================== ==================
Proposed maximum Proposed maximum
Amount to be offering price per aggregate Amount of
Title of each class of securities to be registered registered (1) Common Share (2) offering price (2) registration fee
- ---------------------------------------------------- ----------------- --------------------- -------------------- ------------------
Common stock, no par value....................... 4,887,500 $12.00 $58,650,000 $15,484
==================================================== ================= ===================== ==================== ==================
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(1) Includes 637,500 common shares subject to the underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
The registration fee was paid as follows: $13,200 on January 18, 2000
and the balance on February 29, 2000.
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 SECTION 8(A), MAY
DETERMINE.
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NY2:\408102\16\37994.0009
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The information contained 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 it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, dated February __, 2000
PROSPECTUS
4,250,000 SHARES
[LOGO]
ULTICOM, INC.
COMMON STOCK
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering 4,250,000 shares. No public market currently exists for our shares.
We have applied to have our common stock listed for quotation on the
Nasdaq National Market under the symbol "ULCM."
We estimate that the initial public offering price will be
between $10 and $12 per share.
INVESTING IN THE SHARES INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE __.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price....................................................................... $ $
Underwriting Discounts and Commissions...................................................... $ $
Proceeds to Ulticom......................................................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 637,500
additional shares to cover any over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers expects to deliver the shares on or about ___________, 2000.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
CHASE H&Q
U.S. BANCORP PIPER JAFFRAY
FIDELITY CAPITAL MARKETS
a division of National
Financial Services
Corporation
__________, 2000
<PAGE>
[Artwork to be provided]
<PAGE>
TABLE OF CONTENTS
Prospectus Summary...............................................3
The Offering.....................................................5
Risk Factors.....................................................7
Special Note Regarding Forward-Looking Statements...............17
Use Of Proceeds.................................................18
Dividend Policy.................................................18
Capitalization..................................................19
Dilution .......................................................20
Selected Financial Data.........................................21
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations...........................22
Business .......................................................27
Management .....................................................38
Related Party Transactions......................................47
Principal Shareholders..........................................50
Description Of Securities.......................................51
United States Federal Tax Considerations For
Non-United States Holders ....................................54
Shares Eligible For Future Sale.................................57
Underwriting....................................................59
Legal Matters...................................................62
Experts .....................................................62
Available Information...........................................62
Reports To Shareholders.........................................63
----------
You should only rely on the information contained in this prospectus.
We and the underwriters have not authorized anyone to provide you with any
different or additional information. This prospectus is not an offer to sell or
a solicitation of an offer to buy common stock in any jurisdiction where it is
unlawful. 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 of any sale of common stock.
Until __________, 2000, all dealers that buy, sell or trade our
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
i
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[This page is intentionally left blank.]
2
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PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
This summary highlights some information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the
section entitled "Risk Factors" and our financial statements and related notes,
before deciding to invest in our common stock.
ULTICOM
We are a leading provider of network signaling software for wireless,
wireline and Internet communication services. Our Signalware call control
products interconnect the complex switching, database and messaging systems and
manage the vital number, routing and billing information that form the backbone
of today's communication networks. These products incorporate signaling system
#7, a widely used set of signaling standards and protocols for communication
networks worldwide. Signalware enables communication service providers to offer
intelligent network services, such as voice-activated dialing, prepaid calling,
caller ID and text messaging. These products also enable voice and data networks
to interoperate, or converge, allowing service providers to offer such converged
network services as voice over the Internet and Internet call waiting. Our new
Nexworx product line is designed to move service control into the hands of
subscribers, so that businesses or consumers can access network resources to
create, manage and personalize their communication services.
Demand for enhanced voice and data communication services has grown
rapidly over recent years due to the emergence of the Internet, the growth in
wireless subscribers, and the proliferation of competitive service providers.
Network equipment manufacturers, application developers and service providers
increasingly require enabling products that allow the rapid development and
delivery of these enhanced services. Our products offer the following key
benefits:
Accelerated Time to Market. We believe our comprehensive solutions
allow customers to deploy services more rapidly than internally developed or
third party alternatives. In addition, our products allow our customers to
concentrate their efforts on application development, significantly reducing the
time it takes for them to bring communication services to market.
Network and Platform Interoperability. Our products are designed for
deployment on disparate network environments and multiple computer platforms.
Signaling networks around the world vary based on different country standards
and infrastructures. Our products overcome these differences and provide our
customers with the ability to create applications that are marketable around the
world. Our products also provide our customers with the flexibility to develop
applications on one computing platform and then migrate to another as market
demands or industry standards change.
High Performance and Reliability. Service providers consider it
critical that their networks provide high quality, uninterrupted service. As a
result, they will only purchase solutions that are stable, fast and scalable.
Our products meet the need to provide these mission-critical performance and
reliability requirements.
We have over 40 customers throughout North America, Europe and the
Pacific Rim and our products are deployed globally by major service providers in
more than 50 countries. Our products are used by equipment manufacturers,
application developers and service providers. Our customers include
communication industry leaders such as Ericsson, Comverse Network Systems,
Siemens, Lucent, and Logica, each of which accounted for at least 5% of our
revenues in fiscal 1999.
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<PAGE>
We are a subsidiary of Comverse Technology, Inc. Our company was
incorporated in New Jersey on December 18, 1974 as "Dale Gesek, McWilliams &
Sheridan, Inc.," and we were formerly known as "DGM&S Telecom, Inc." In May 1999
we changed our name to "Ulticom, Inc." Our principal executive offices are
located at 1020 Briggs Road, Mount Laurel, New Jersey 08054. Our telephone
number is (856) 787-2700.
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THE OFFERING
Common Stock offered by us............................. 4,250,000 shares
Common Stock to be outstanding after this
offering............................................. 36,977,000 shares
Over-allotment option ................................. 637,500 shares
Proposed Nasdaq National Market symbol................. "ULCM"
The Common Stock outstanding after this offering excludes:
o 3,272,700 shares of common stock issuable upon the exercise of stock
options outstanding as of January 31, 2000 under our stock incentive
compensation plan, with a weighted average exercise price of $2.57 per
share; and
o 523,724 shares of common stock issuable upon the exercise of stock
options granted under such plan upon completion of this offering at an
exercise price equal to the initial public offering price.
ABOUT THIS PROSPECTUS
Unless otherwise indicated, the information in this prospectus:
o reflects a 3.2727-for-1 stock split which will be effected prior to
this offering; and
o assumes no exercise of the underwriters' over-allotment option.
References in this prospectus to Comverse refer to our controlling
shareholder, Comverse Technology, Inc., and its subsidiaries excluding Ulticom.
References in this prospectus to Comverse Network Systems refer to our
affiliate, Comverse Network Systems, Inc. and its subsidiaries. Comverse Network
Systems is a wholly-owned subsidiary of Comverse.
In 1998, we changed our fiscal year from the calendar year to the
fiscal year ending January 31. References in this prospectus to fiscal 1997
refer to the year ended December 31, 1997. References in this prospectus to
fiscal 1998 refer to our fiscal year ended January 31, 1999. References in this
prospectus to fiscal 1999 refer to our fiscal year ended January 31, 2000.
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SUMMARY FINANCIAL DATA
The following table summarizes the financial data for our business.
You should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
ONE MONTH
ENDED
YEAR ENDED DECEMBER 31, JANUARY 31, YEAR ENDED JANUARY 31,
------------------------------- ----------- ----------------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................... $ 15,355 $ 6,450 $ 14,559 $ 212 $ 18,629 $ 25,831
Income (loss) from
operations...................... 553 (2,183) 3,775 (635) 2,844 2,809
Net income (loss)................... $ (213) $ (1,577) $ 2,055 $ (431) $ 1,567 $ 1,574
Earnings (loss) per share:
Basic........................... $ (0.01) $ (0.05) $ 0.06 $ (0.01) $ 0.05 $ 0.05
Diluted.......................... $ (0.01) $ (0.05) $ 0.06 $ (0.01) $ 0.05 $ 0.05
Shares used in computing
basic earnings per share........ 32,727 32,727 32,727 32,727 32,727 32,727
Shares used in computing
diluted earnings per share ...... 32,727 32,727 32,727 32,727 33,087 33,759
</TABLE>
The following table summarizes our balance sheet as of January 31, 2000:
o on an actual basis; and
o on an as adjusted basis to give effect to the sale of
4,250,000 shares in this offering, at an assumed offering
price of $11.00 per share, after deducting the underwriting
discounts and estimated offering expenses, and our anticipated
application of the net proceeds of the offering.
AS OF JANUARY 31, 2000
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 6,299 $ 44,977
Working capital.................... 742 39,420
Total assets.......................
Long-term debt(1)..................
Stockholders' equity...............
17,364 56,042
3,800 -
1,120 43,598
- ---------------
(1) The long-term debt reflects outstanding bank debt. We expect to repay
this bank debt in July 2000.
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RISK FACTORS
Investing in our common stock involves risk. You should carefully
consider the risks described below and other information in this prospectus
before deciding to invest in our common stock. Any of the following risks could
harm our business, financial condition and results of operations and could
result in a complete loss of your investment.
RISKS RELATED TO OUR BUSINESS
BECAUSE OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND MAY BE
BELOW THE EXPECTATIONS OF ANALYSTS AND INVESTORS, THE MARKET PRICE FOR OUR STOCK
MAY BE VOLATILE.
Our quarterly operating results are difficult to predict and may
fluctuate significantly in the future. As a result, our stock price may be
volatile. The following factors, many of which are outside our control, can
cause fluctuations in our operating results and volatility in our stock price:
o the size, timing, terms and conditions of orders and shipments
o customer order deferrals in anticipation of enhancements or
new products
o unanticipated delays or problems in releasing new products
o the timing and success of our customers' deployment of network
services and products
o the relative mix of products and services we sell through our
direct and indirect sales channels
o our timing of and investments in research and development
activities
Since our products have long sales cycles which typically range from
six to twelve months, our ability to forecast the timing and amount of specific
sales is limited. The deferral or loss of one or more significant sales could
materially adversely affect our operating results in any fiscal quarter,
especially if there are significant sales and marketing expenses associated with
the deferred or lost sales. We base our current and future expense levels on our
internal operating plans and sales forecasts, and our operating costs are to a
large extent fixed. As a result, we may not be able to sufficiently reduce our
costs in any quarter to compensate for an unexpected near-term shortfall in
revenues.
WE ARE DEPENDENT UPON SALES OF OUR SIGNALWARE PRODUCTS AND ANY REDUCTION IN
DEMAND FOR THESE PRODUCTS COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING
RESULTS.
Our Signalware products generated substantially all of our product
sales during the last two years. We expect sales of these products to continue
to account for a substantial amount of our revenues for the foreseeable future.
We may not be successful in marketing other products or taking any other steps
to reduce the risk associated with any slowdown in demand for our Signalware
products. As a result, any decline or slow down in sales of our Signalware
products could aversely effect our operating results.
WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS, AND THE LOSS OF ANY OF THESE
CUSTOMERS COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS.
Historically, a limited number of customers have accounted for a
significant percentage of our revenues in each fiscal quarter. Our five largest
customers, one of which is Comverse Network Systems, accounted for approximately
64% of our revenues for fiscal 1999. We anticipate that our operating results in
any given period will continue to depend to a significant extent upon revenues
from a small number of customers. The loss of any of these customers could have
a material adverse effect on our business. In order to increase our revenues, we
will need to attract additional significant customers on an ongoing basis.
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OUR SIGNIFICANT INTERNATIONAL SALES SUBJECT US TO CURRENCY EXCHANGE, LEGAL, TAX
AND OTHER RISKS INHERENT IN FOREIGN OPERATIONS.
Our international sales subject us to the following risks:
o unexpected changes in laws and administrative or regulatory
requirements relating to taxation, foreign exchange, tariffs
or other matters;
o difficulties in staffing and managing foreign operations and
distributors;
o longer payment cycles;
o greater difficulty in accounts receivable collection; and
o potentially adverse tax consequences.
These risks may make it more difficult for us to sell our products
internationally or reduce our profit from such sales.
Revenues from customers located outside the U.S. represented
approximately 50%, 51% and 63% of our revenues in fiscal 1997, fiscal 1998 and
fiscal 1999, respectively. To date, international sales have been denominated
solely in U.S. dollars, and these sales may be adversely affected by a
strengthening U.S. dollar. In future periods we expect a portion of
international sales may be denominated in currencies other than U.S. dollars,
which could expose us to gains and losses on non-U.S. currency transactions.
IF WE ARE NOT SUCCESSFUL IN IMPLEMENTING OUR STRATEGY TO FURTHER EXPAND INTO
INTERNATIONAL MARKETS, OUR BUSINESS AND OPERATING RESULTS COULD SUFFER.
Further expansion of our business into international markets may
require significant management attention and financial resources. Moreover, in
order to continue to expand internationally, we may be required to establish
relationships with additional marketing channels and third-party integrators. We
cannot assure you that we will effectively establish such relationships. In
addition, we may incur additional expenses in attempting to expand our
international operations.
IF WE ARE NOT ABLE TO MANAGE OUR EXPANSION EFFECTIVELY, OUR BUSINESS AND
OPERATING RESULTS COULD SUFFER.
We are experiencing rapid and significant growth that has placed, and
is expected to continue to place, a significant strain on our management,
information systems and operations. Our ability to effectively manage
significant additional growth will require us to improve our financial,
operational and management information and control systems and procedures and to
effectively expand, train, motivate and manage our employees. If we are not
successful in improving our information and control systems and procedures or
expanding our workforce, we may not be able to manage growth effectively.
WE MAY NOT BE ABLE TO HIRE AND RETAIN THE PERSONNEL WE NEED TO EXECUTE OUR
GROWTH PLANS.
We depend on the continued services of our executive officers and
other key personnel. In addition, we need to attract and retain a substantial
number of new employees, particularly sales and marketing personnel and
technical personnel, with signaling system #7 knowledge and experience.
Competition for such personnel is intense, and we have experienced difficulty in
recruiting qualified personnel due to the market demand for their services. We
historically have filled a portion of our new personnel needs with non-U.S.
citizens holding temporary work visas that allow such persons to work in the
U.S. for only a limited period of time. Accordingly, any change in U.S.
immigration policy limiting the issuance of temporary work visas could adversely
affect our ability to recruit new personnel. If we are unable to attract and
retain qualified employees, our ability to continue our growth could be
impaired.
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WE MAY DECIDE TO MAKE ACQUISITIONS OR INVESTMENTS IN THE FUTURE WHICH COULD TURN
OUT TO BE UNSUCCESSFUL.
Although we do not have any immediate plans to do so, we may in the
future pursue acquisitions of businesses, products and technologies, or the
establishment of joint venture arrangements, that could expand our business. The
negotiation of potential acquisitions or joint ventures as well as the
integration of an acquired or jointly developed business, technology or product
could cause diversion of management's time and resources. Our future
acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, amortization of
goodwill and other intangibles, research and development write-offs and other
acquisition-related expenses. We cannot assure you that any acquired business or
joint venture will be successfully integrated with our operations or that we
will successfully realize the intended benefits of the acquisition or joint
venture.
WE RELY ON A LIMITED NUMBER OF SUPPLIERS FOR OUR BOARD COMPONENTS AND WE MAY NOT
BE ABLE TO OBTAIN SUBSTITUTE SUPPLIERS ON TERMS THAT ARE AS FAVORABLE IF OUR
SUPPLIES ARE INTERRUPTED.
The components included in our printed circuit interface boards are
acquired from a limited number of suppliers. We do not have any long term supply
agreements with our suppliers. If these components become unavailable from a
current supplier, alternate sourcing would be required. This sourcing may not be
available on reasonable terms, if at all, and could delay or prevent customer
deliveries.
OUR RELIANCE ON A LIMITED NUMBER OF INDEPENDENT MANUFACTURERS TO MANUFACTURE
BOARDS FOR OUR PRODUCTS COULD LEAD TO A DISRUPTION IN SUPPLY OF THESE BOARDS.
We do not have any long term manufacturing agreements with any of our
manufacturers. If these manufacturers experience financial, operational,
manufacturing capacity or quality assurance difficulties, or if there is any
other disruption in our relationships, we will be required to seek alternate
manufacturers and our supply of boards may be disrupted. We cannot assure you
that alternate manufacturers that meet our requirements could be found or that
existing or alternative sources for boards will continue to be available at
favorable prices. Our inability to develop alternative sources if and as
required in the future could result in delays or reductions in product shipments
or increases in product costs. In addition, we have reduced control over product
quality and delivery schedules because we rely these independent manufacturers.
OUR PRODUCTS MAY BECOME INOPERABLE IF WE CANNOT ADAPT THEM TO CONFORM WITH NEW
COMPUTER HARDWARE AND/OR NEW VERSIONS OF, AND OTHER CHANGES IN, OPERATING
SYSTEMS.
We have no control over the producers of computer hardware or
operating systems on which our products operate, or the timing or nature of
changes that such producers may make to such hardware or operating systems. For
example, in response to the release of a new version of an operating system, we
may need to make changes to our products or substantially modify our product
design. Any such change or modification may be costly, may take a significant
amount of time and may not prove successful. Any delay in integrating our
products with new hardware or new releases of operating systems could delay or
prevent product shipments.
OUR PRODUCTS MAY CONTAIN UNDETECTED DEFECTS, WHICH COULD IMPAIR MARKET
ACCEPTANCE OF THESE PRODUCTS.
Software products as complex as those we offer may contain undetected
defects or errors, particularly when first introduced or as new versions are
released. Despite our testing we may not discover such defects or errors until
after our product has been released and used by the customer. These defects or
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<PAGE>
errors could result in delayed acceptance of our product or in lost sales.
Although to date we have not been materially adversely affected by products
containing defects or errors, we cannot assure you that in the future we will be
able to detect all defects or errors in our products prior to their release.
Such undetected defects or errors in future releases of our products would force
us to prepare corrective releases. In addition, defects or errors in our
products may result in product liability claims brought against us, which could
cause adverse publicity and impair market acceptance of our products.
OUR PRODUCTS MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
COULD LEAD TO COSTLY DISPUTES OR DISRUPTIONS.
The communications industry is characterized by the existence of a
large number of patents and frequent allegations of patent infringement. We may
receive in the future notices from holders of patents that raise issues as to
possible infringement by our products. As the number of communications network
products increases and the functionality of these products further overlaps, we
believe that we may become increasingly subject to allegations of infringement.
There can be no assurance that any such patent holders or others will not in the
future initiate legal proceedings against us or that, if any such proceedings
were initiated, we would be successful in defending against such proceedings.
Any such proceeding could be time consuming and expensive to defend or resolve,
result in substantial diversion of management resources, cause product shipment
delays, or force us to enter into royalty or license agreements rather than
dispute the merits of any such proceeding initiated against us. We may not be
able to procure such royalty or license agreements on terms acceptable to us, if
at all.
IF OUR PRODUCTS INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WE MAY
BE REQUIRED TO INDEMNIFY OUR CUSTOMERS FOR ANY DAMAGES THEY SUFFER.
We have agreed to indemnify some of our customers with respect to
infringement by our products of the proprietary rights of third parties. Third
parties may assert infringement claims against our customers. These claims may
require us to incur protracted and costly litigation on behalf of our customers,
regardless of the merits of these claims. If any of these claims succeed, we may
be forced to pay damages on behalf of our customers or may be required to obtain
licenses for the products they sell. If we cannot obtain all necessary licenses
on commercially reasonable terms, our customers may be forced to stop selling
and/or using our products.
THIRD PARTIES MIGHT INFRINGE UPON OUR PROPRIETARY TECHNOLOGY CAUSING A DIVERSION
OF OUR MANAGEMENT AND OTHER RESOURCES.
Our continued success depends in part upon our proprietary
technology. Our products are primarily licensed to customers based on object
code royalties. We do not generally make source code available to our customers.
Exceptions to this principle were made in the past in limited circumstances for
large customers where adequate controls were in place to protect our
intellectual property rights. However, we cannot assure you that our source code
has not in the past and will not in the future be copied or used
inappropriately.
Despite the measures taken by us, it may be possible for a third
party to copy or otherwise use our proprietary technology and information
without authorization. Policing unauthorized use of our products is difficult,
and litigation may be necessary in the future to enforce our intellectual
property rights. This litigation could be time consuming and expensive to
prosecute or resolve and result in substantial diversion of management
resources. In addition, the laws of some foreign countries do not protect our
proprietary rights in our products to the same extent as do the laws of the U.S.
There can be no assurance that we will be successful in protecting our
proprietary technology.
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OUR FAILURE OR THE FAILURE OF OUR KEY SUPPLIERS AND CUSTOMERS TO BE YEAR 2000
COMPLIANT MAY NEGATIVELY IMPACT OUR BUSINESS.
The year 2000 issue is the result of computer systems and programs
using two digits to identify a given year. The year 2000 issue creates
significant risks for us including:
o potential warranty or other claims arising from our products;
o non-compliance of the components manufactured by our
suppliers; and
o impairment of the systems used by our suppliers and customers.
We cannot assure you that our year 2000 compliance efforts have been
fully successful or that unanticipated costs and problems will not still arise.
We could receive warranty and other claims as a result of year 2000 issues
arising from undetected defects in our products or the non-compliance of
components or technologies we acquire from others.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND NEW JERSEY LAW MAY
MAKE IT MORE DIFFICULT FOR YOU TO GET A CHANGE IN CONTROL PREMIUM.
Our board's ability to designate and issue up to 10,000,000 shares of
undesignated stock and to change the designations, numbers, relative rights,
preferences and limitations of any authorized but unissued shares of preferred
stock could adversely effect the voting power of the holders of common stock,
and could have the effect of making it more difficult for a person to acquire,
or could discourage a person from seeking to acquire, control of our company. If
this occurred you could lose the opportunity to get a premium on the sale of
your shares in a change of control transaction.
In addition, the New Jersey Shareholders Protection Act contains
provisions that would have the effect of restricting, delaying and/or preventing
altogether certain business combinations with interested shareholders.
Interested shareholders include, among others, any person that after this
offering becomes a beneficial owner of 10% or more of our outstanding common
stock. Such provisions could also limit your ability to obtain a premium in a
change of control transaction.
BECAUSE A SIGNIFICANT PORTION OF OUR SALES ARE MADE TO CUSTOMERS IN ISRAEL,
POLITICAL, MILITARY AND ECONOMIC CONDITIONS IN THAT COUNTRY MAY ADVERSELY AFFECT
OUR BUSINESS AND OPERATING RESULTS.
Political, economic and military conditions in Israel may affect our sales.
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying in degree and intensity, has led to security and economic
problems for Israel. Our sales could be adversely affected by any major
hostilities involving Israel, the interruption or curtailment of trade between
Israel and its trading partners, a significant increase in inflation, or a
significant downturn in the economic or financial condition of Israel.
RISKS RELATED TO THE MARKET FOR OUR PRODUCTS
IF THE CONVERGENCE OF CIRCUIT AND PACKET NETWORKS DOES NOT OCCUR, OR TAKES
LONGER THAN ANTICIPATED, SALES OF OUR NETWORK SOFTWARE PRODUCTS, AND OUR
PROFITABILITY, WOULD BE ADVERSELY AFFECTED.
We expect a substantial portion of any increases in our future sales
of network software products may result from the interconnection, or
convergence, of circuit and packet networks. Factors which might prevent or slow
the convergence of circuit and packet networks could materially and adversely
affect the growth opportunities for our business. These factors include:
11
<PAGE>
o the failure to solve or difficulty in solving certain technical
obstacles to the transmission of voice conversations over a
packet network;
o delays in the formulation of standards for the transmission of
voice conversations over a packet network, which may cause
service providers to delay their purchasing plans; and
o the imposition on packet network operators of access fees, would
reduce the economic advantages of using packet networks.
IF SS7 DOES NOT PLAY AN INTEGRAL ROLE IN THE ARCHITECTURE FOR CONVERGED CIRCUIT
AND PACKET NETWORKS, OUR BUSINESS AND OPERATING RESULTS COULD SUFFER.
All of our products are designed to support signaling system #7 or
SS7. If future networks do not utilize SS7 and we are unable to adapt our
products to work with the appropriate converged network signaling protocols, our
products will become less competitive or obsolete. We cannot assure you that SS7
or our products will play a key role as network architecture designs for
converged circuit and packet networks evolve. In addition, SS7 may be modified
substantially for the architecture of converged networks. Any of these changes
or adaptations may be costly. Moreover, we may not be able to respond to this
modification in a timely manner, or at all.
IF WE ARE NOT SUCCESSFUL IN CONTINUING TO DEVELOP OUR NEXWORX PRODUCTS OR IF
THESE PRODUCTS ARE NOT ACCEPTED IN THE MARKET, OUR GROWTH OPPORTUNITIES COULD BE
LIMITED.
We are developing our Nexworx service control products. We have
recently introduced our first Nexworx product, from which we have derived
limited revenues. The success of this product line is dependent primarily upon
the development of a market for these types of products and customer acceptance
of our products. If a market for these or other new products does not develop or
development takes longer than anticipated, or if our Nexworx products are not
accepted by our customers, our continued growth could be adversely affected and
our investment in these products may be lost.
IF WE FAIL TO KEEP UP WITH THE RAPIDLY CHANGING TECHNOLOGY IN OUR MARKETS, WE
WILL LOSE BUSINESS AND MARKET SHARE.
The market for our products is characterized by rapidly changing
technology, frequent new product introductions and enhancements and evolving
industry standards. Our success depends upon our ability to accurately
anticipate the evolution of new products and technologies and enhance our
existing products accordingly or develop and introduce new products. If we fail
to keep up with or anticipate changes in our marketplace, we will lose customers
to our competitors and our growth opportunities may be limited. We cannot assure
you that we will be successful in selecting, developing, manufacturing and
marketing new products or enhancing our existing products on a timely or
cost-effective basis. In addition, products or technologies developed by others
may render our products noncompetitive or obsolete, thereby making it harder for
us to compete for new business.
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY AGAINST OUR COMPETITORS OR IF OUR
CUSTOMERS OPT TO DEVELOP INTERNAL SUBSTITUTES FOR OUR PRODUCTS, OUR BUSINESS AND
OPERATING RESULTS COULD SUFFER.
The market for communication network signaling software is intensely
competitive, both in the U.S. and internationally. Increased competition could
make it more difficult for us to sustain our growth or increase our
profitability. Our competitors may be able to develop more quickly or adapt
faster to new or emerging technologies and changes in customer requirements, or
devote greater resources to the development, promotion and sale of their
products. Some of our competitors have, in relation to us, longer operating
histories, larger customer bases, longer-standing relationships with customers,
greater name recognition and significantly greater financial, technical,
marketing, customer service, public relations, distribution and other resources.
New competitors or alliances among competitors could emerge and rapidly acquire
12
<PAGE>
significant market share. In addition, some of our customers may in the future
decide to develop internally their own signaling software platforms and other
software-based solutions instead of purchasing them from us. Increased
competition could force us to lower our prices or take other actions to
differentiate our products.
BECAUSE OUR SOFTWARE PRODUCTS ARE INTEGRATED INTO PRODUCTS OF EQUIPMENT
MANUFACTURERS AND APPLICATION DEVELOPERS, WE DEPEND ON OUR RELATIONSHIPS WITH
THESE CUSTOMERS AND WE ARE POTENTIALLY VULNERABLE TO THE PERFORMANCE OF THEIR
PRODUCTS.
Our products are primarily sold to equipment manufacturers and
application developers, who integrate our products with their products and sell
them to service providers. Equipment manufacturers and application developers
who make their product design compatible with ours and choose to purchase our
products may not develop or deliver their products on a timely basis, or may not
develop products which perform as expected or are priced competitively. If they
are not successful in the development and deployment of their products, our
business and operating results may suffer. In addition, if we cannot
successfully establish channel and marketing relationships with leading
equipment manufacturers and application developers or maintain these
relationships on favorable terms, our business and operating results may suffer.
DEMAND FOR OUR PRODUCTS MIGHT DECREASE IF THE GROWTH OF THE COMMUNICATIONS
INDUSTRY SLOWS DOWN OR PROSPECTIVE CUSTOMERS CONSOLIDATE.
We sell our products to the communications industry. The
communications industry has undergone a period of rapid growth and consolidation
during the past few years. A significant slowdown in the growth of this industry
could materially adversely affect our business and operating results. Further,
consolidations of prospective customers may delay or cause cancellations of
significant sales of our products.
IF THE PACE OF PRIVATIZATION AND/OR DEREGULATION OF COMMUNICATIONS MARKETS
WORLDWIDE SLOWS, THE GROWTH IN OUR MARKET MAY BE LIMITED.
Any reversal or slowdown in the pace of this privatization and/or
deregulation could have a material adverse effect on the markets for our
products. Moreover, the consequences of privatization and/or deregulation are
subject to many uncertainties, including judicial and administrative proceedings
that affect the pace at which changes occur, and other regulatory, economic and
political factors. Furthermore, uncertainties associated with privatization
and/or deregulation have in the past and could in the future cause our customers
to delay their purchasing decisions.
RISKS RELATED TO OUR RELATIONSHIP WITH COMVERSE
COMVERSE WILL CONTROL OUR BUSINESS AND AFFAIRS AND ITS INTERESTS MAY NOT BE
ALIGNED WITH YOUR INTERESTS.
Upon completion of the offering, Comverse will beneficially own
approximately 82% of the outstanding shares of common stock. Consequently,
Comverse will effectively control the outcome of all matters submitted for
shareholder action, including the composition of our board of directors and the
approval of significant corporate transactions. Through its representation on
our board of directors, Comverse will have a controlling influence on our
management, direction and policies, including the ability to appoint and remove
our officers. As a result Comverse may cause us to take actions which may not be
aligned with your interests. For example, Comverse may prevent or delay any
transaction involving a change in control or in which shareholders might receive
a premium over the prevailing market price for their shares.
13
<PAGE>
WE MAY LOSE BUSINESS OPPORTUNITIES TO COMVERSE THAT MIGHT OTHERWISE BE AVAILABLE
TO US.
We have entered into an agreement with Comverse which addresses
potential conflicts of interest between Comverse and us. This agreement
allocates between Comverse and us opportunities to pursue transactions or
matters that, absent such allocation, could constitute corporate opportunities
of both companies. As a result, we may lose business opportunities that could be
valuable to us. In general, we are precluded from pursuing opportunities offered
to directors, officers or employees of Comverse who may also be our directors,
officers or employees, unless Comverse fails to pursue these opportunities. See
"Related Party Transactions - Conflicts of Interest."
COMVERSE MAY COMPETE WITH US AND COMPETES WITH SOME OF OUR CUSTOMERS.
Comverse may engage in any business that is similar to ours, do
business with a potential or actual customer of ours or employ, solicit or
engage any of our officers, directors or employees. If Comverse competes with us
or our customers, our business may suffer. For example, we may from time to time
lose a revenue-earning opportunity to supply a customer with our products if
that customer is not awarded a project that was awarded to Comverse Network
Systems. Although our products would likely be included in Comverse Network
Systems' products, because Comverse Network Systems has a non-exclusive
royalty-free license to use our products we would not earn any license revenues.
OUR DIRECTORS AND EMPLOYEES THAT ALSO HOLD POSITIONS WITH COMVERSE MAY HAVE
CONFLICTS OF INTEREST WITH RESPECT TO MATTERS INVOLVING BOTH COMPANIES.
Five of our nine directors are officers and/or directors of Comverse,
or otherwise affiliated with Comverse. These directors will have fiduciary
duties, including duties of loyalty, to both companies and may have conflicts of
interest on matters affecting both us and Comverse.
Our Chairman and director, Mr. Kobi Alexander, will continue to be
Chairman, President and Chief Executive Officer of Comverse following the
offering. In addition, our Chief Financial Officer and director, Mr. David
Kreinberg, will continue to be Vice President of Finance and Chief Financial
Officer of Comverse following the offering. These positions with Comverse will
continue to impose significant demands on their time and present potential
conflicts of interest following the offering. Messrs. Alexander and Kreinberg
will spend a substantial amount of their professional time and effort on behalf
of Comverse. In many instances, their efforts for Comverse will relate to
activities which are related, and in some circumstances may be adverse, to our
interests.
SO LONG AS WE ARE INCLUDED IN COMVERSE'S CONSOLIDATED GROUP FOR TAX PURPOSES, WE
ARE POTENTIALLY LIABLE FOR TAXES NOT OUR OWN.
After this offering is completed we will continue to be included in
the Comverse consolidated group for federal income tax purposes and we will not
file our own federal income tax returns. To the extent Comverse or other members
of the group fail to make any federal income tax payments required of them by
law in respect of years for which Comverse files consolidated federal income tax
returns which include us, we would be liable for the shortfall. Similar
principles apply for state income tax purposes in many states. In addition, by
virtue of its controlling ownership and our tax sharing agreement with Comverse,
Comverse effectively controls all our tax decisions. For so long as we are
included in the Comverse consolidated group for federal income tax purposes,
Comverse has sole authority to respond to and conduct all tax proceedings and
audits relating to us, to file all income tax returns on our behalf and to
determine the amount of our liability to, or entitlement to payment from,
Comverse under our tax sharing agreement. Despite this agreement, federal law
provides that each member of a consolidated group is liable for the group's
entire tax obligation and we could, under certain circumstances be liable for
taxes of other members of the Comverse consolidated group.
14
<PAGE>
For a discussion of our relationships with Comverse, see "Related
Party Transactions - Relationship with Comverse."
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK; OUR STOCK PRICE IS LIKELY
TO BE HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY.
The initial public offering price for our common stock may not be
representative of the price that will prevail in the open market. Accordingly,
the market price of our common stock may fluctuate significantly after this
offering is completed. In addition, the public markets have experienced
volatility that has particularly affected the market prices of securities of
many technology companies for reasons that have often been unrelated to
operating results. This volatility may adversely affect the market price of our
common stock and our visibility and credibility in the markets.
FUTURE SALES OF OUR COMMON STOCK MAY HURT OUR MARKET PRICE.
A substantial number of shares of our common stock will be available
for resale within a short period of time after the offering. If our shareholders
sell substantial amounts of our common stock in the public market following the
offering, the market price of our common stock could fall. These sales also
might make it more difficult for us to sell equity securities in the future at
times and prices that we deem appropriate.
We and all of our officers, directors and existing shareholders have
agreed not to offer, sell or otherwise dispose of any shares of capital stock or
any securities which may be converted into or exchanged for any shares of
capital stock for a period of 180 days from the date of this prospectus.
However, the underwriters may waive this restriction and allow us or them to
sell shares at any time. Shares of capital stock subject to these lock-up
agreements will become eligible for sale in the public market upon expiration of
these lock-up agreements, subject to limitations imposed by Rule 144 under the
Securities Act.
BECAUSE WE DO NOT HAVE SPECIFIC USES FOR A SIGNIFICANT PORTION OF THE PROCEEDS
OF THIS OFFERING, INVESTORS ARE RELYING ON MANAGEMENT'S JUDGMENT AS TO THE USE
OF THESE PROCEEDS.
Our management will have broad discretion over the allocation of a
significant portion of the net proceeds from the offering as well as over the
timing of their expenditure. As a result, investors will be relying upon
management's judgement with only limited information about its specific
intentions for the use of such proceeds.
YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION OF BOOK VALUE PER SHARE.
The initial public offering price of our common stock is
substantially higher than the net tangible book value per share of the
outstanding common stock immediately after this offering. If you purchase our
common stock in this offering, you will incur immediate dilution of
approximately $9.82 in the net tangible book value per share of common stock
from the price you pay for our common stock in this offering, assuming an
initial offering price of $11.00 per share. See "Dilution."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our
current expectations, assumptions, estimates and projections about us and our
industry. These statements may be found in the sections of this prospectus
entitled, "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
15
<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," and in this prospectus generally. These statements may be identified
by the use of words such as "expect," "estimate," "anticipate," "intend," "plan"
and "will" and similar expressions. These forward-looking statements involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors, as
more fully described in the "Risk Factors" section and elsewhere in this
prospectus.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of
the 4,250,000 shares in this offering, assuming a public offering price of
$11.00 per share, will be approximately $42.5 million, or approximately $49.0
million if the underwriters exercise their over-allotment option in full, in
each case after deducting the underwriting discounts and estimated expenses of
this offering.
We expect to use $3.8 million of the net proceeds of this offering to
repay outstanding bank debt which was incurred by us to repay indebtedness owed
to Comverse. This bank debt bears interest at a rate of LIBOR plus 0.35%,
matures in July 2001 and may be prepaid without penalty on each six-month
anniversary of the loan.
We expect to use the remaining net proceeds to finance the continued
growth of our business and for general corporate purposes. We may also use a
portion of the proceeds for acquisitions or other investments. However, we have
no present understanding or agreement relating to any specific acquisition or
investment.
We have not yet determined the amount of net proceeds to be used
specifically for each of the foregoing purposes, other than the repayment of the
bank debt described above. Accordingly, management will have significant
flexibility in applying the net proceeds of the offering remaining after
repayment of such debt. Pending their use as described above, we intend to
invest the net proceeds of this offering in interest-bearing instruments.
DIVIDEND POLICY
We do not expect to pay any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance
operations and the expansion of our business.
Any future determination to pay cash dividends will be at the
discretion of the board of directors and will depend upon our financial
condition, operating results, capital requirements and such other factors as the
board of directors deems relevant.
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of January 31, 2000, our
capitalization:
(1) on an actual basis, and
(2) on an as adjusted basis to give effect to the sale of the
4,250,000 shares offered by us in this offering, at an
assumed offering price of $11.00 per share, after deducting
the underwriting discounts and estimated offering expenses
payable by us, and the application of the net proceeds
therefrom.
The table excludes:
o 3,272,700 shares of common stock issuable upon the exercise of
stock options outstanding as of January 31, 2000 under our
stock incentive compensation plan, with a weighted average
exercise price of $2.57 per share; and
o 523,724 shares of common stock issuable upon the exercise of
stock options granted under such plan upon completion of this
offering at an exercise price equal to the initial public
offering price.
Please read this table together with the sections of this prospectus
entitled "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes included in this prospectus.
<TABLE>
<CAPTION>
AS OF JANUARY 31, 2000
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 6,299 $ 44,977
======== =========
Long-term debt(1)................................................................... $ 3,800 $ -
-------- ---------
Stockholders' equity:
Undesignated Stock, no par value, 10,000,000 shares authorized; no shares
issued and outstanding....................................................... - -
Common Stock, no par value, 200,000,000 shares authorized; 32,727,000 shares
issued and outstanding on an actual basis; and 36,977,000 shares issued and
outstanding on an as adjusted basis.......................................... - -
Additional paid-in capital.......................................................... 10 42,488
Retained Earnings................................................................... 1,110 1,110
-------- ---------
Total stockholders' equity..................................................... 1,120 43,598
-------- ---------
Total capitalization........................................................... $ 4,920 $ 43,598
======== =========
</TABLE>
- ---------------------------
(1) The long-term debt reflects outstanding bank debt. We expect to repay this
bank debt in July 2000.
18
<PAGE>
DILUTION
Our net tangible book value as of January 31, 2000 was $1,120,000, or
$0.03 per share. Net tangible book value per share represents the total amount
of our tangible assets reduced by the total amount of our liabilities and
divided by the number of shares of common stock outstanding as of January 31,
2000. After giving effect to our sale of the 4,250,000 shares in this offering
at an assumed initial public offering price of $11.00 per share and receipt of
the net proceeds from this offering, after deducting the underwriting discounts
and estimated offering expenses, and the application of the estimated net
proceeds therefrom, our net tangible book value as of January 31, 2000 would
have been approximately $43.6 million, or $1.18 per share. This represents an
immediate increase in pro forma net tangible book value of $1.15 per share to
existing shareholders and an immediate dilution in pro forma net tangible book
value of $9.82 per share to new investors.
Dilution per share represents the difference between the price per
share to be paid by new investors and the net tangible book value per share
immediately after this offering. The following table illustrates this per share
dilution:
<TABLE>
<CAPTION>
PER SHARE PER SHARE
--------- ---------
<S> <C> <C>
Assumed initial public offering price per share................................ $ 11.00
Net tangible book value per share before this offering......................... $ 0.03
--------
Increase per share attributable to new investors............................... 1.15
--------
Net tangible book value per share after this offering.......................... 1.18
--------
Dilution per share to new investors............................................ $ 9.82
========
</TABLE>
The following table sets forth, as of January 31, 2000, the
differences between the total consideration paid and the average price per share
paid by existing investors and by new investors purchasing shares in this
offering.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders................ 32,727,000 89% $ 20,365,068 30% $ 0.62
New investors........................ 4,250,000 11% 46,750,000 70% $11.00
------------- ----- -------------
Total............................ 36,977,000 100% $ 67,115,068 100%
============= ===== ============= ====
</TABLE>
The foregoing table does not reflect:
o 3,272,700 shares of common stock issuable upon exercise of
options outstanding as of January 31, 2000 under our stock
incentive compensation plan at a weighted average exercise
price of $2.57 per share; and
o 523,724 shares of common stock issuable upon the exercise of
stock options granted under such plan upon completion of this
offering at an exercise price equal to the initial offering
price.
19
<PAGE>
SELECTED FINANCIAL DATA
We derived the selected financial data presented below from our
financial statements and related notes included in this prospectus. You should
read the selected financial data together with our financial statements and
related notes and the section of this prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Statements of operations data for the year ended December 31, 1997,
the one month ended January 31, 1998 and the years ended January 31, 1999 and
2000, and the balance sheet data at January 31, 1999 and 2000 have been derived
from our financial statements which have been audited and reported on by
Deloitte & Touche LLP, independent auditors, and are included elsewhere in this
prospectus. Statements of operations data for the year ended December 31, 1996
and balance sheet at January 31, 1998 have been derived from audited financial
statements not included herein. Statements of operations data for the year ended
December 31, 1995 and the balance sheet data at December 31, 1995, 1996 and 1997
are derived from our unaudited financial statements not included herein.
<TABLE>
<CAPTION>
ONE MONTH ENDED
YEAR ENDED DECEMBER 31, JANUARY 31, YEAR ENDED JANUARY 31,
----------------------- ----------- ----------------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................ $ 15,355 $ 6,450 $ 14,559 $ 212 $ 18,629 $ 25,831
Cost of sales........................ 7,238 2,853 4,495 294 6,131 8,883
--------- --------- ---------- --------- --------- ----------
Gross profit......................... 8,117 3,597 10,064 (82) 12,498 16,948
Research and development ............ 2,644 1,905 2,398 205 4,706 6,015
Selling, general and administrative.. 4,920 3,875 3,891 348 4,948 8,124
Income (loss) from operations........ 553 (2,183) 3,775 (635) 2,844 2,809
Interest income (expense), net....... (328) (342) (507) (45) (350) (271)
---------- ---------- ---------- ---------- ---------- -----------
Income (loss) before income taxes.... 225 (2,525) 3,268 (680) 2,494 2,538
Income tax provision (benefit)....... 438 (948) 1,213 (249) 927 964
--------- ---------- ---------- ---------- --------- ----------
Net income (loss).................... $ (213) $ (1,577) $ 2,055 $ (431) $ 1,567 $ 1,574
========== ========== ========== ========== ========= ==========
Earnings (loss) per share -
Basic ............................ ($0.01) ($0.05) $0.06 ($0.01) $0.05 $0.05
Diluted........................... ($0.01) ($0.05) $0.06 ($0.01) $0.05 $0.05
Shares used in computing basic
earnings per share................ 32,727 32,727 32,727 32,727 32,727 32,727
Shares used in computing diluted
earnings per share................ 32,727 32,727 32,727 32,727 33,087 33,759
AS OF DECEMBER 31, AS OF JANUARY 31
------------------ ----------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 206 $ 315 $ 1,030 $ 584 $ 2,544 $ 6,299
Working capital (deficit)............ (3,080) (4,699) (2,999) (3,513) (2,236) 742
Total assets......................... 6,317 4,858 7,319 6,878 8,883 17,364
Long-term debt....................... - - - - - 3,800
Stockholders' equity (deficit)....... (858) (3,389) (1,333) (2,021) (454) 1,120
Dividend to parent................... - 953 - 256 - -
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results
should be read in conjunction with our financial statements and the related
notes thereto which appear elsewhere in this prospectus.
OVERVIEW
Substantially all of our product revenues have been generated by our
Signalware product line. Signalware product sales consist of software licenses,
printed circuit interface boards, training, and support revenues. In certain
limited circumstances, we sell Signalware development services typically under
fixed fee arrangements with our customers. New customers begin development of
applications and services by purchasing the appropriate Signalware development
kit, which includes a development site license, an interface board, and a
one-year maintenance plan. At deployment, the customer generally purchases one
or more deployment licenses, additional interface boards and a deployment
maintenance and support plan.
In accordance with Statement of Position 97-2, "Software Revenue
Recognition," product revenues are generally recognized in the period in which
the products are delivered and accepted by the customer, the fee is fixed and
determinable and collection is considered probable. When we have significant
obligations subsequent to shipment, revenues are not recognized until the
obligations are fulfilled. Revenues from arrangements that include significant
acceptance terms are not recognized until acceptance has occurred. Revenues from
product support services, including those included in initial licensing fees,
are recognized ratably over the contract period. Post-contract support services
included in the initial licensing fee are allocated from the total contract
amount based on the relative fair value determined using vendor-specific
objective evidence.
During the last three years, a growing proportion of our total
revenues were derived from customers located outside the U.S. To date
international sales have been denominated in U.S. dollars. Accordingly, we have
not been exposed to fluctuations in non-U.S. currency exchange rates. However,
we expect that in future periods, a portion of international sales may be
denominated in currencies other than U.S. dollars, which could expose us to
gains and losses on non-U.S. currency transactions. We may choose to limit our
exposure by utilizing hedging strategies. There can be no assurance that any
such hedging strategies that we undertake would be successful in avoiding
exchange rate losses.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data expressed as a percentage of sales:
<TABLE>
<CAPTION>
ONE MONTH
YEAR ENDED ENDED
DECEMBER 31, JANUARY 31, YEAR ENDED JANUARY 31,
------------ ----------- ----------------------
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales................................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 30.9% 138.7% 32.9% 34.4%
----- ------ ----- -----
Gross profit.......................................... 69.1% (38.7%) 67.1% 65.6%
Research and development.............................. 16.5% 96.7% 25.3% 23.3%
Selling, general and
administrative................................... 26.7% 164.2% 26.6% 31.5%
Interest income
(expense), net.................................... (3.5%) (21.2%) (1.9%) (1.0%)
------ ------- ------ ------
Income (loss) before taxes............................ 22.4% (320.8%) 13.3% 9.8%
Income tax provision
(benefit)......................................... 8.3% (117.5%) 4.9% 3.7%
---- -------- ---- ----
Net income (loss)..................................... 14.1% (203.3%) 8.4% 6.1%
===== ======== ==== ====
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
Sales. Sales for fiscal 1999 increased by approximately $7.2 million,
or 39%, compared to fiscal 1998. This increase is primarily attributable to
higher volume of sales of our Signalware products to international customers. We
believe that sales of our Signalware product to international customers will
continue to represent a significant portion of our future sales.
Cost of Sales. Cost of sales for fiscal 1999 increased by
approximately $2.8 million, or 45%, compared to fiscal 1998. This increase is
primarily attributable to the increase in sales. Gross margins decreased from
approximately 67% in the fiscal 1998 to approximately 66% in fiscal 1999. This
decrease was attributable primarily to increased sales of lower margin boards
which represented a larger percentage of our sales during fiscal 1999. We
believe that cost of sales in the next fiscal year should not vary significantly
as a percentage of sales from fiscal 1999.
Research and Development Expenses. Research and development expenses
for fiscal 1999 increased by approximately $1.3 million, or 28%, compared to
fiscal 1998 due to overall growth of research and development operations and the
initiation of significant new research and development projects. The increase
primarily resulted from an increase in personnel-related costs of approximately
$0.9 million, due to hiring of additional personnel and increased compensation
and benefits for existing personnel. We expect that research and development
expenses in future periods will increase further as these investments are
crucial for our ability to develop our technologies and expand our product
offerings to meet our customers' needs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1999 increased by approximately $3.2 million,
or 64%, compared to fiscal 1998, and as a percentage of sales increased from
approximately 27% for fiscal 1998 to approximately 31% for fiscal 1999. The
increase was primarily a result of an increase in personnel-related costs of
approximately $1.7 million, due to hiring of additional personnel and increased
compensation and benefits for existing personnel. In addition, expenses related
to marketing and promotional materials increased by approximately $200,000 and
rent expense increased by approximately $150,000. We anticipate that selling,
22
<PAGE>
general and administrative expenses will continue to increase in the future as
we accommodate our growth, add to our infrastructure, and incur expenses related
to being a public company.
Income Tax Provision. Provision for income taxes increased by
approximately $37,000, or 4%, due to increased pre-tax income. Our overall
effective tax rate increased from approximately 37% for fiscal 1998 to
approximately 38% for fiscal 1999.
Net Income. Net income increased by approximately $7,000 in fiscal
1999 compared to fiscal 1998, while net income as a percentage of sales
decreased from approximately 8% for fiscal 1998 to approximately 6% for fiscal
1999. The decreases resulted primarily from the factors described above.
FISCAL 1998 COMPARED TO FISCAL 1997
Sales. Sales increased in fiscal 1998 by approximately $4.1 million,
or 28%, compared to fiscal 1997, primarily resulting from an increase in the
number of customers deploying our Signalware products.
Cost of Sales. Cost of sales increased in fiscal 1998 by
approximately $1.6 million, or 36%, compared to fiscal 1997 primarily as a
result of the increase in sales. Gross margins decreased from approximately 69%
in fiscal 1997 to approximately 67% in fiscal 1998. This decrease was primarily
caused by the recording of an impairment loss of approximately $0.6 million to
reduce software development costs to their net realizable value.
Research and Development Expenses. Research and development expenses
increased in fiscal 1998 by approximately $2.3 million, or 96%, compared to
fiscal 1997 due to overall growth of research and development operations and the
initiation of significant new research and development projects. The increase
primarily resulted from an increase in personnel-related costs of approximately
$1.9 million due to hiring of additional personnel and increased compensation
and benefits for existing personnel and increases in other costs associated with
research and development operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased in fiscal 1998 by approximately $1.1 million,
or 27%, compared to fiscal 1997, and as a percentage of sales remained at
approximately 27% in both periods. The increase was primarily a result of an
increase in personnel-related costs of approximately $1.0 million, due to hiring
of additional personnel and increased compensation and benefits for existing
personnel.
Income Tax Provision. Provision for income taxes increased in fiscal
1998 by approximately $0.3 million, or 24%, compared to fiscal 1997 due to
increased pre-tax income. Our overall effective tax rate remained at
approximately 37% for both periods.
Net Income. Net income increased by approximately $0.5 million, or
24%, in fiscal 1998 compared to fiscal 1997. Net income as a percentage of sales
decreased from approximately 14% in fiscal 1997 to approximately 8% in fiscal
1998. The decreases resulted primarily from the factors described above.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables set forth statement of operations data for each
of the eight consecutive quarters ended January 31, 2000. This information has
been derived from our unaudited financial statements. The unaudited financial
statements have been prepared substantially on the same basis as the audited
financial statements appearing elsewhere in this prospectus and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of such information. You should read this
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<PAGE>
information in conjunction with our financial statements and the related notes
elsewhere in this prospectus. The operating results for any quarter are not
necessarily indicative of the operating results of any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1998 1998 1998 1999 1999 1999 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales..................... $4,261 $4,554 $4,721 $5,093 $5,363 $6,069 $6,792 $7,607
Cost of sales............. 1,527 1,517 1,460 1,627 1,888 2,076 2,347 2,572
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.............. 2,734 3,037 3,261 3,466 3,475 3,993 4,445 5,035
Research and
development............ 1,079 1,194 1,178 1,255 1,299 1,405 1,559 1,752
Selling, general and
administrative......... 998 1,168 1,336 1,446 1,703 1,959 2,159 2,303
Interest income
(expense), net......... (107) (83) (103) (57) (66) (43) (70) (92)
------- ------- ------- ------- ------- ------- ------- -------
Income before
income taxes........... 550 592 644 708 407 586 657 888
Income tax provision...... 204 219 243 261 156 225 247 336
--- --- --- --- --- --- --- ---
Net income................ $ 346 $ 373 $ 401 $ 447 $ 251 $ 361 $ 410 $ 552
====== ====== ====== ====== ====== ====== ====== ======
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1998 1998 1998 1999 1999 1999 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
AS A PERCENTAGE OF SALES:
Sales...................... 100.0 % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............. 35.8 33.3 31.0 31.9 35.2 34.2 34.6 33.8
Gross profit............... 64.2 66.7 69.0 68.1 64.8 65.8 65.4 66.2
Research and
development............. 25.3 26.2 25.0 24.6 24.2 23.2 23.0 23.0
Selling, general and
administrative.......... 23.4 25.7 28.3 28.4 31.8 32.3 31.8 30.3
Interest income
(expense), net.......... (2.6) (1.8) (2.2) (1.2) (1.2) (.7) (1.0) (1.2)
Income before income
taxes................... 12.9 13.0 13.5 13.9 7.6 9.6 9.6 11.7
Income tax provision....... 4.8 4.8 5.0 5.2 2.9 3.7 3.6 4.4
------- ------- ------- ------- ------- ------- ------- -----
Net income................. 8.1% 8.2% 8.5% 8.7% 4.7% 5.9% 6.0% 7.3%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Our quarterly sales increased throughout fiscal 1998 and fiscal 1999
primarily as a result of increased sales to international customers. Cost of
sales as a percentage of sales varied in each quarter depending on the mix of
sales between customers. Operating expenses increased in each quarter primarily
as a result of the increase in the number of employees in research and
development, sales and marketing, as well as finance and administrative
functions. The increased headcount resulted from our need to support our sales
growth. A large portion of our expenses, including rent and salaries, are set
based upon expected future sales. Accordingly, if sales are below expectations,
operating results may be adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations and met our capital expenditure
requirements primarily through cash flows from operations and borrowings from
Comverse. As of January 31, 2000, we had cash and cash equivalents of
approximately $6.3 million and working capital of approximately $0.7 million.
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<PAGE>
Cash provided by operating activities were approximately $3.7
million, $4.0 million and $7.2 million for fiscal 1997, fiscal 1998 and fiscal
1999, respectively. Operating cash flows in fiscal 1997 resulted primarily from
income from operations, increases in deferred revenues and accounts payable and
accrued expenses and a decrease in prepaid expenses and other current assets,
partially offset by increases in due from related parties and inventories.
Operating cash flows in fiscal 1998 resulted primarily from income from
operations, and an increase in accounts payable and accrued expenses. Operating
cash flow in fiscal 1999 resulted primarily from income from operations,
increases in deferred revenue and account payable and accrued expenses and a
decrease in due from related parties, partially offset by increases in accounts
receivable, inventories, prepaid expenses and other current assets, and other
assets.
Cash used in investing activities was primarily purchases of property
and equipment and investments in software development costs and were
approximately $0.9 million, $1.8 million, and $3.5 million for fiscal 1997,
fiscal 1998, and fiscal 1999, respectively.
Cash used in financing activities was primarily borrowings and
repayments of borrowings and was $2.1 million and $0.2 million in fiscal 1997
and fiscal 1998, respectively.
In January 2000, we borrowed $3.8 million under a term loan from a
bank. We used the loan proceeds to repay outstanding indebtedness owed to
Comverse. The term loan is due in July 2001, bears interest at a rate of LIBOR
plus 0.35% and may be prepaid without penalty on each six-month anniversary of
the loan. The term loan is secured by a deposit of Comverse at that bank. As of
January 31, 2000, the interest rate on the loan was 6.6%. We expect to use the
proceeds of this offering to prepay the loan in July 2000.
We may in the future pursue acquisitions of businesses, products or
technologies that could expand our business and the products we offer. Any
material acquisition could result in a decrease of the working capital depending
upon the amount, timing and nature of the consideration paid.
We believe that the net proceeds from this offering, together with
our current cash balances and potential cash flow from operations, will be
sufficient to meet the anticipated cash needs for working capital, capital
expenditures and other activities for at least the next 12 months. Thereafter,
if current sources are not sufficient to meet our needs, we may seek additional
debt or equity financing. In addition, although there are no present
understandings, commitments or agreements with respect to any acquisitions of
other businesses, products, or technologies, we may in the future consider such
transactions which may require additional debt or equity financing. There can be
no assurance that such additional financing would be available on acceptable
terms, if at all.
YEAR 2000 COMPLIANCE
Our Products. We have completed a comprehensive program designed to
address year 2000 readiness of our current products and have made enquiries
regarding the year 2000 compliance of components or technologies we acquire from
others and incorporate into our products. Although we believe that our current
products generally are year 2000 compliant, we cannot assure you that our year
2000 compliance efforts have been fully successful or that unanticipated costs
and problems will still not arise. In addition, we have determined that older
generations of a number of our products are not and cannot, without unreasonable
effort and expense, be made year 2000 compliant.
To date we have not experienced any material year 2000 compliance
problems with our products. Nevertheless, we could receive warranty and other
claims as a result of year 2000 issues arising from undetected defects in our
products or the non-compliance of components or technologies we acquire from
others. Our agreements with customers typically contain provisions designed to
limit generally our liability for customer claims. It is possible, however, that
these measures will not provide adequate protection from year 2000 liability
25
<PAGE>
claims, as a result of existing or future laws or unfavorable judicial
decisions. Any such claims could result in a material adverse affect on our
business, financial condition and results of operations, including increased
warranty costs, customer satisfaction issues and potential legal damages.
Our Internal Systems. We have completed a comprehensive program
designed to address year 2000 readiness of our most critical internal systems.
Based on this program and on our experience to date, we believe that our
critical internal systems are year 2000 compliant.
Significant Customers and Suppliers. We have communicated with our
significant customers and suppliers and financial institutions to determine the
extent to which we are vulnerable to the failure of their internal systems to be
year 2000 compliant. We have received assurances of year 2000 compliance from a
number of those contacted. Most of our customers and suppliers under existing
contracts were under no contractual obligation to provide us with such
information. Although to date we have not experienced any significant
operational problems with our significant customers and suppliers as a result of
the year 2000 issue, we cannot assure you that such problems will not arise in
the future.
Costs. The total cost of our year 2000 readiness programs for fiscal
1999 did not exceed $1.0 million. This does not include potential costs related
to any customer or other claims or the costs of internal software or hardware
replaced in the normal course of business.
26
<PAGE>
BUSINESS
OVERVIEW
We are a leading provider of network signaling software for wireless,
wireline and Internet communication services. Our Signalware call control
products interconnect the complex switching, database and messaging systems and
manage the vital number, routing and billing information that form the backbone
of today's communication networks. Signalware enables communication service
providers to offer intelligent network services, such as voice-activated
dialing, prepaid calling, caller ID and text messaging. These products also
enable voice and data networks to interoperate, or converge, allowing service
providers to offer such converged network services as voice over the Internet
and Internet call waiting. Our new Nexworx product line is designed to move
service control into the hands of subscribers, so that businesses or consumers
can access network resources to create, manage and personalize their
communication services.
Our products are used by equipment manufacturers, application
developers and service providers. In addition, as a founding member of The
Parlay Group and the JAIN initiative, two industry consortia, we are at the
forefront of defining industry standards that we believe are critical to foster
continued growth for us and our industry.
INDUSTRY BACKGROUND
Demand for enhanced voice and data communication services has grown
rapidly in recent years due to the following trends:
o the growth of the Internet as a global communications medium
enabling millions of people to share information and conduct
business electronically;
o the growth in wireless communications as cellular and other
wireless services have become more widely available and
affordable; and
o the introduction of new services by traditional service
providers and an increasing number of new competitive service
providers, including Internet and wireless service providers.
In response to these trends, service providers are building
increasingly complex communication networks. Traditionally, voice networks were
based on a technology called "circuit switching." While circuit switching has
offered reliable and high quality voice communications, an emerging technology
called "packet switching" is inherently more efficient and cost effective. The
cost and performance superiority of packet switching has led many traditional
and new service providers to build packet networks to handle data traffic. It
has also led service providers to explore the interoperability or convergence of
voice and data networks and the transmission of voice communications over packet
networks.
The circuit switched network provides its high voice quality and
reliability by separating the voice and signaling portions of a call. The
signaling infrastructure processes in real time the information needed to
set-up, connect, route, terminate and bill a call, and also provides a
foundation to develop and offer enhanced network services. The signaling portion
of a telephone network that controls each call is based on a complex set of
standards and protocols called signaling system #7 or SS7. SS7 has been
implemented by service providers worldwide, including traditional, emerging,
Internet and wireless service providers. SS7 provides the speed and reliability
required for processing increasingly complex call control information. Because
SS7 is the industry-wide standard signaling protocol, industry experts believe
that signaling for converged circuit and packet networks will be based upon SS7
as well.
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THE MARKET OPPORTUNITY
There is increasing demand for innovative enabling products that
allow the rapid creation and delivery of new services on intelligent and
converged networks. Some of the key challenges that service providers face
include:
o expanding and/or upgrading their network infrastructure to
support enhanced services;
o building and managing networks that can cost-effectively
support circuit and packet technologies; and
o enabling subscribers to access network resources to create,
manage and personalize their voice and data communication
services.
Service providers are seeking high performance network signaling
software products that can facilitate the convergence of circuit and packet
networks without compromising functionality, reliability and scalability. We
also believe that most equipment manufacturers and service providers would
prefer purchasing network signaling software products which they can easily
bundle and sell with their own products rather than develop these software
products internally.
We believe that an emerging opportunity exists to develop the next
generation of communication networks, which we believe will be accessible to
subscribers and provide programmability when subscribers need it. Our vision of
this programmable network is a network which places service control in the hands
of subscribers, enabling them to manage communication network resources from a
desktop or hand-held computer.
THE ULTICOM SOLUTION
Our products enable service providers to expand and/or upgrade their
networks to support new and enhanced services and facilitate the convergence of
circuit and packet networks. We are developing additional products to address
the need for an emerging programmable network. These products will help separate
communications services from the network infrastructure, allowing subscribers to
have more control over their voice and data communications.
Our products provide our customers with the following key benefits:
Accelerated Time to Market. We believe our comprehensive solutions
allow customers to deploy services more rapidly than internally developed or
third party alternatives. In addition, our products allow our customers to
concentrate their efforts on application development, significantly reducing the
time it takes for them to bring communications services to market.
Network and Platform Interoperability. Our products are designed for
deployment on disparate network environments and multiple computer platforms.
Signaling networks around the world vary based on different country standards
and infrastructures. Our products overcome these differences and provide our
customers with the ability to create applications that are marketable around the
world. Our products also provide our customers with the flexibility to develop
applications on one computing platform and then migrate to another as market
demands or industry standards change.
High Performance and Reliability. Service providers consider it
critical that their networks provide high quality, uninterrupted service. As a
result, they will only purchase solutions that are stable, fast and scalable.
Our products meet the need to provide these mission-critical performance and
reliability requirements.
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<PAGE>
OUR STRATEGY
Our objective is to be the leading provider of network signaling
software for wireless, wireline and Internet communication services. Key
elements of our strategy to achieve this objective include:
Enhance Technology Leadership. We believe that one of our core
competitive strengths is the breadth of our knowledge and expertise in
communication technologies, particularly in voice and data call control, such as
SS7 and other related signaling technologies. We intend to enhance our existing
products and to develop new products by continuing to make significant
investments in research and development.
Target High Growth Market Opportunities. We are leveraging our core
technologies and market leadership position to develop solutions targeted at
high growth opportunities in our market, including:
o products that enable the creation of new intelligent network
services on existing wireless and wireline networks;
o products that enable the convergence of circuit and packet
networks and the development of new services on these
converged networks; and
o products for the programmable network of the future that will
enable subscribers - business and consumer - to create, manage
and personalize their voice and data communication services.
Set Industry Standards. We believe that active participation in
setting industry standards is critical to maintain our position as a market
leader and foster continued growth. We are a founding member of two industry
consortia, the Parlay Group and the JAIN initiative, both of which are driving
standards to facilitate the rapid development and deployment of communication
services. We also play a leadership role in the Softswitch Consortium, an
industry organization created for global cooperation and coordination in the
development of open standards and interoperability for packet networks.
Develop Channel Relationships with Industry Leaders. Establishing
strong relationships with leading equipment manufacturers, application
developers, systems integrators and service providers is important to the
successful worldwide deployment of our solutions. We have developed and will
continue to develop these relationships to enhance the marketing and
distribution of our solutions.
Expand Our International Presence. Our customers are located
throughout the world and our products are deployed globally. We have a
development, support and sales office in France and we anticipate further
expansion in Europe to better serve our existing customers and develop new
customer relationships. We may also seek to expand into the Pacific Rim, either
through establishment of new sales offices, or through one or more channel
relationships.
PRODUCTS AND SERVICES
We currently offer two product lines, Signalware and Nexworx:
Signalware
Our Signalware call control products work within wireless, wireline
and Internet networks to interconnect and interoperate voice and data
communication systems and services. Signalware provides our customers with many
of the features that are crucial to the global connectivity of communication
networks, including:
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<PAGE>
o open standards - running applications on multiple software
platforms;
o fault resilience - building systems with no single point of
failure;
o high performance - processing transactions at very high rates;
o scalability - increasing computing capacity to run various
applications; and
o global operability - creating applications that could run on
various communications networks around the world.
Signalware plays a key role in the convergence of disparate networks
by providing a means to bridge circuit and packet technology. Signalware also
enables carriers to offer intelligent network services, which include services
other than the call or data transmission itself. Signalware is used to build a
wide range of intelligent network services and services for converged networks,
including:
- --------------------------------------------------------------------------------
SIGNALWARE
- --------------------------------------------------------------------------------
INTELLIGENT NETWORK SERVICES: CONVERGED NETWORK SERVICES:
- ----------------------------- ---------------------------
Satellite Services Wireless Internet Services
Prepaid Calling Service Voice over the Internet Services
Virtual Private Networks Internet Call Waiting
Wireless Authentication Internet Call Forwarding
Wireless Roaming Service Wireless Email Service
Caller ID Internet Fax Delivery
Number Portability Unified Messaging
Wireless 911 Service
Wireless Text Messaging
800 Number Service
Voice Messaging Service
Personal Number Service
411/Operator Assistance
Voice Activated Dialing
Taxi Dispatch Service
Enhanced 611 Service
Electronic Banking Service
Televoting
Airport Information Service
- --------------------------------------------------------------------------------
Signalware is sold in packages that offer specific features and
functionality. Signalware includes application programming interfaces which work
with multiple SS7 networks support a wide variety of SS7 protocol elements and
enable analog or digital wireless transmission. Signalware provides the
functionality needed for call set-up/call termination and call routing/call
billing. Signalware product packages run on a range of operating systems,
including Sun Solaris, Unixware, and Windows NT, and for a broad range of
hardware platforms. Signalware packages can be configured for use in single or
multiple computing configurations for fault resiliency and reliability. Our
signalware product also provides a means to separate the signaling function from
the application development environment which provides greater flexibility in
configuring services.
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Our Signalware product includes interface boards which are necessary
to provide the physical connection to the signaling network. Signalware boards
are configured to support a wide range of hardware platforms and network links.
The bundling of our interface boards with our Signalware software allows us to
control product performance, capacity and compliance with standards.
New customers begin development of applications and services by
purchasing the appropriate Signalware development kit, which includes a
development site license. Each kit includes software, an interface board, cables
and documentation, along with registration for two training classes. A
development maintenance plan for one year is also included with each development
kit. The maintenance plan provides access to customer support services,
including our help desk, along with service packs and scheduled release upgrades
of the software. After the initial year the maintenance plan must be renewed for
a fee in order to continue to receive support and upgrades.
When the application is ready for installation, the customer
purchases one or more deployment licenses per installation, in addition to
continuing the development site license and maintenance. In addition, in order
to deploy our systems, a customer generally must purchase one or more interface
boards and a deployment system maintenance and support plan.
Nexworx
In June 1999, we announced our Nexworx service control product line.
Currently, this product combines the key attributes of Signalware with an
object-oriented database and additional network management capabilities creating
a platform for new programmable network services. Our Nexworx product line is
designed to move service control into the hands of subscribers, so that
businesses and consumers can access network resources to create, manage and
personalize their communication services. Our first Nexworx product is a
software-based server that enables subscribers to maintain their telephone
number, regardless of location or service provider. The product is highly
scalable to give the service provider the capacity for growth as demand for this
and future Nexworx services increase. Other Nexworx products currently under
development may enable subscribers to create a virtual call center on a desktop
through a programming interface and schedule time-of-day routing through a
browser interface over the Internet.
Support Services
We believe that customer support, training and custom development
services are key to building and maintaining strong customer relationships. We
offer customer support to our customers as part of their maintenance agreements:
Customer Support. We provide comprehensive technical support to help
our customers develop and deploy new services. Our support organization provides
continuous support and interfaces with customers' technical staff through a
24-hour-a-day, 7-day-a-week help desk to answer questions, resolve problems and
provide assistance. Our support organization is managed through our corporate
headquarters in Mount Laurel, New Jersey with remote service locations in Texas
and France to provide extended geographic and same-time-zone coverage.
Training Services. We offer our customers a comprehensive training
program with courses in application development and operations and
troubleshooting. Courses are scheduled throughout the year. We also provide
customized and/or on-site training programs to meet the specific needs of our
customers for an additional fee.
Custom Development Services. We offer fee-based custom development
services to create customer-specific enhancements to our products. Such services
are provided by our experienced engineering staff. This service assists
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customers by accelerating their time-to-market, and also hastens the point in
the development cycle when we begin to receive recurring license deployment
royalties.
SALES AND MARKETING
Sales Operations
Our sales organization operates from the U.S. and Europe. Account
teams comprised of dedicated account managers and pre-sales engineers work
closely with our product management and development organizations to provide
customers a consultative sales approach. The consultative approach facilitates
the sale of development kits to enable our customers to immediately begin to
build prototypes of their products.
Marketing
We actively work to further enhance market awareness and acceptance
of our company and our products. To this end our efforts are focused on
identifying market opportunities in cooperation with our customers and
developing and enhancing our products to seize these opportunities in a timely
fashion. Based on market considerations, we may port our software products to
additional operating systems, develop new features and functionality and engage
in new strategic alliances and partnerships.
Our market strategy includes enhancing brand awareness for our
Signalware and Nexworx product lines with a web site, promotional literature,
direct marketing to current and prospective customers using an e-services
approach, advertising, continued participation in industry relevant trade shows
and conferences, and a public relations program that includes public
demonstrations of products and prototypes. Our representatives also are called
upon to address industry symposia and conferences, are frequently quoted in
industry publications and may from time to time author articles about
developments in communications technology.
Channel Relationships
Our products are sold primarily to equipment manufacturers and
application developers, who include our products within their products and sell
them as an integrated solution to service providers. Service providers will
install the solution in their communication networks and offer the service
enabled by such solution to their subscribers. Since we and our customers have a
mutual interest in developing solutions that are widely accepted by subscribers
and profitable to service providers, we work closely with our customers to
support their development efforts and produce solutions that are unique,
reliable, scalable and cost effective. For example, we engage in joint
promotion, sales efforts, training, testing, design, integration and
installation with Sun Microsystems and other computer integrators who use Sun
Microsystems' components.
CUSTOMERS
Our products are currently used by over 40 customers and are deployed
in more than 50 countries. We market our products and services through a direct
sales organization and through key relationships with our customers. Customers
that have accounted for at least five percent of our sales during fiscal 1997,
fiscal 1998 or fiscal 1999 are:
o equipment manufacturers: Alcatel, Ericsson, Lucent, Qualcomm,
Siemens and Sun Microsystems;
o application developers: Comverse Network Systems and Logica;
and
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o service providers: MCI Worldcom.
For fiscal 1997, Sun Microsystems, Qualcomm, Siemens and Comverse
Network Systems and its affiliates accounted for approximately 10%, 13%, 13% and
19% respectively, of our sales. For fiscal 1998, Siemens and Comverse Network
Systems and its affiliates accounted for approximately 13% and 20%,
respectively, of our sales. For fiscal 1999, Ericsson, Siemens and Comverse
Network Systems and its affiliates accounted for approximately 20%, 12% and 18%,
respectively, of our sales.
Sales to international customers accounted for 50% of our revenues in
fiscal 1997, 51% of our revenues in fiscal 1998 and 63% of our revenues for
fiscal 1999.
ALLIANCES AND CONSORTIA
The Parlay Group
We are leaders in defining the technology that facilitates the
convergence of telephone networks with the Internet. We introduced the concept
of the programmable network in a 1997 white paper. Following our white paper, we
were approached by British Telecom, Microsoft, Nortel and Siemens to further
explore this concept. These discussions resulted in the founding of the Parlay
Group in March 1998.
The Parlay Group, an industry consortium now with 11 members, seeks
to specify an application programming interface to enable secure, public access
to core capabilities of voice and data networks. The goal of The Parlay Group is
to open up communications capabilities in the same manner that the architecture
of the personal computer permitted software developers to be creative and to
innovate. The Parlay application programming interface enables service providers
and application developers to integrate communications capabilities into generic
information technology software. Implementation of this interface will allow
service providers to offer mass-customization of services that meet the specific
needs of their subscribers. Two specifications of this interface have been
published to date. The Parlay application programming interface is
platform-vendor-independent and technology-independent, allowing it to be
implemented on multiple operating systems, including Windows NT, JAVA and UNIX,
and work easily with other industry initiatives. Members of The Parlay Group as
of January 1, 2000 are set forth in the table below.
- --------------------------------------------------------------------------------
THE PARLAY GROUP
- --------------------------------------------------------------------------------
FOUNDING MEMBERS OTHER MEMBERS
- ---------------- -------------
Ulticom AT&T
British Telecom Cegetel
Microsoft Cisco
Nortel Ericsson
Siemens IBM
Lucent
- --------------------------------------------------------------------------------
JAIN Initiative
In June 1998, we became a founding member of the JAVA API Integrated
Networks or JAIN industry initiative. This industry initiative was established
to define common interfaces between intelligent network and SS7 environments so
that services and protocols can run anywhere in the network. This initiative,
lead by Sun Microsystems, will help service providers, most of whom have a
variety of hardware and software environments within their networks, by
33
<PAGE>
eliminating the need to program many different devices to provide one new
service. The objective of the JAIN initiative is to make intelligent network
application development, including computer telephony integration, faster,
simpler and less expensive through platform-independent JAVA technology. Members
of the JAIN industry initiative as of January 1, 2000 are set forth in the table
below.
- --------------------------------------------------------------------------------
JAIN (JAVA API INTEGRATED NETWORKS) INITIATIVE
- --------------------------------------------------------------------------------
FOUNDING MEMBERS
- ----------------
Sun Microsystems
Ulticom
ADC NewNet
Ericsson InfoTech
ApiON (now part of Phone.com)
- --------------------------------------------------------------------------------
OTHER MEMBERS
- -------------
Andersen Consulting Natural Microsystems
British Telecom Nokia
Broadsoft Nortel
CMG NTT
Datakinetics Object Wave Corporation
DynamicSoft Oracle
Eurescom (representing 26 European service Periphonics Corporation
providers) Solentro
France Telecom Symsoft
INP/MTL Telcordia
KPN Telesoft Design
Lucent Telesys Software
Mahindra Trillium
Motorola Westwave Communications
- --------------------------------------------------------------------------------
International Softswitch Consortium
In August 1999, we joined the International Softswitch Consortium, an
organization founded in May 1999 for international cooperation and coordination
of internetworking technologies in the field of Internet-based real-time
interactive communications and related applications. Many applications emulate
circuit switching software, hence the name softswitch. The Softswitch Consortium
is a non-profit corporation with open membership committed to advancing Internet
protocol distributed network architecture standards that enable and expedite
application development. More than 50 companies from around the world
participate as members of the organization.
Work of the Softswitch Consortium focuses on the compatibility and
interoperability of multimedia Internet protocol networks and their
interconnection to other networks such as the voice telephone networks. The
purpose of the Softswitch Consortium is to support advancement of application
development for evolving Internet protocol networks which support both voice and
multimedia communications. We participate in two Softswitch working groups:
o the architecture working group, which will create and document
the reference architecture for the softswitch; and
34
<PAGE>
o the applications working group, which will focus on a means to
build applications in the softswitch environment.
RESEARCH AND DEVELOPMENT
We continue to enhance the features and performance of our existing
products and introduce new products. We believe that our future success depends
on a number of factors, which include our ability to:
o identify and respond to emerging technological trends in our
target markets;
o develop and maintain competitive solutions that meet our
customers' changing needs; and
o enhance our existing products by adding features and
functionality that differentiate our products from those of
our competitors.
As a result, we have made and intend to continue to make significant
investments in research and development. We allocate our research and
development resources in response to market research and customer demands for
additional features and products. Our development strategy involves rolling out
initial releases of our products and adding features over time. We continuously
incorporate product feedback we receive from our customers into our product
development process. While we expect that new products will continue to be
developed internally, we may, based on timing and cost considerations, acquire
or license technologies, products or applications from third parties.
Our research and development expenses were approximately $2.4 million
for fiscal 1997, $4.7 million for fiscal 1998 and $6.0 million for fiscal 1999.
Our research and development activities are located in Mount Laurel, New Jersey,
Dallas, Texas and in France. As of January 31, 2000, we had 52 employees engaged
in our research and development activities. We believe that recruiting and
retaining highly skilled engineering personnel is essential to our success.
MANUFACTURING
Our Signalware products have two components: software and interface
boards. Our software is duplicated in house and provided to customers on several
media, primarily CD-ROM, and digital audio tape. Each software shipment is
configured to provide the specific operating system version and features
requested by the customer. Each order is tracked by purchase order number and
documented according to internal quality standards.
Assembly of our printed circuit interface boards is performed by
subcontractors who are ISO certified. Periodic audits are performed to ensure
adherence to quality standards. Subcontractors are responsible for purchasing,
inspecting, installing and assembling components of our interface boards.
Completed assemblies are burned-in, inspected, tested and packaged in our
facility according to ISO standards. All inspection, test, repair, revision and
shipping information is tracked by product type and serial number and maintained
in our tracking database.
We work closely with our interface board component suppliers to
monitor component changes and availability. However, we do not have any long
term supply agreements with these suppliers to ensure uninterrupted supply of
components. Under certain circumstances, we may place blanket orders to ensure
availability of discontinued components. In the event of a reduction or an
interruption in the supply of components, a significant amount of time could be
required to qualify alternate suppliers and receive an adequate supply of
replacement components.
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<PAGE>
We do not have any long term agreements with any of our
manufacturers, some of whom are small, privately held companies. In the event
that these manufacturers experience financial, operational or quality assurance
difficulties, our business could be adversely affected until an alternate
manufacturer could be found. There is no assurance that an alternate
manufacturer will be able to meet our requirements or that existing or alternate
sources for interface boards will continue to be available at favorable prices.
INTELLECTUAL PROPERTY RIGHTS
We have accumulated a significant amount of proprietary know-how and
expertise over the years in developing network signaling software and SS7
protocol technology for communication services. Our continued success is
dependent, in part, upon our ability to protect our proprietary rights to the
technologies used in our products. If we are not adequately protected, our
competitors could use the intellectual property that we have developed to
enhance their products and services, which could harm our business. To safeguard
our proprietary technology, we rely on a combination of technical innovation,
trade secret, copyright and trademark laws, restricted licensing arrangements
and non-disclosure agreements, each of which affords only limited protection,
and in the future we may rely on patents. As of January 31, 2000, we had no
registered patents and one patent application pending. We occasionally review
with our patent attorneys new areas of technology to determine whether they are
patentable. However, there can be no assurance that we will receive any patents.
The names Ulticom(TM), Signalware(R), Nexworx(TM), Ultimate Call
Control(TM), Programmable Network(TM) and Softservice(TM) and our logos are our
trademarks. Each trademark, trade name or service mark of any other company
appearing in this prospectus belongs to its holder.
We license software from third parties that is incorporated into some
versions of Signalware for the Windows NT operating system. Our Nexworx products
also include licensed software from third parties.
Signalware technology is primarily licensed to customers based on
object code license fees. Due to the value of our intellectual property rights,
we do not generally make source code available to customers. Exceptions to this
principle were made in the past, in limited circumstances, for large customers
where adequate control mechanisms were in place to protect our intellectual
property rights.
We have granted Comverse Network Systems, our affiliate, a perpetual,
royalty-free, non-exclusive license to use and operate software products for
incorporation into any of Comverse Network Systems' products. See "Related Party
Transactions- Computer Software License Agreement."
Our affiliate, Comverse Patent Holding Company, Inc., entered into an
agreement with Lucent Technologies GRL Corp. under which Comverse Patent Holding
granted Lucent GRL a non-exclusive license to those patents now owned by
Comverse Patent Holding or which Comverse Patent Holding has a right to license
and to those patents granted to Comverse Patent Holding or which Comverse Patent
Holding obtains the right to license during the term of the agreement. In
return, Comverse Patent Holding was granted a non-exclusive license to certain
patents now owned by Lucent GRL or which Lucent GRL has a right to license and
to those patents granted to Lucent GRL or which Lucent GRL obtains the right to
license during the term of the agreement. The agreement provides that Comverse
Patent Holding has the right to grant a sublicense to us. In connection with
that agreement, we entered into a patent license agreement with Comverse Patent
Holding under which we have granted a non-exclusive royalty-free license to
Comverse Patent Holding with the right to sublicense to Lucent GRL our patents
and those patents granted to us or which we obtain the right to license during
the term of the agreement. In return, Comverse Patent Holding granted to us a
36
<PAGE>
non-exclusive royalty-free sublicense to all patents that are licensed by Lucent
GRL to Comverse Patent Holding. See "Related Party Transactions - Patent License
Agreement."
COMPETITION
The market for network signaling software is intensely competitive,
both in the U.S. and internationally. We expect competition to persist,
intensify and increase in the future, especially with the anticipated
convergence of voice and data networks.
We compete with a number of U.S. and international suppliers that
vary in size and in the scope and breadth of the products and services offered.
Competitors for our present and planned future products include a number of
companies ranging from SS7 software solution providers, such as ADC NewNet and
Trillium Digital Systems, to vendors of communication and network infrastructure
equipment, such as Hewlett Packard and Compaq. We believe we compete principally
on the basis of:
o product performance and functionality;
o product quality and reliability;
o customer service and support; and
o price.
We believe our success will depend primarily on our ability to
provide technologically advanced and cost effective signaling solutions.
Additionally, we must provide our customers with prompt and responsive customer
support. However, we cannot assure you that the products and services we offer
will compete effectively with those of our competitors or that our customers
will not seek to develop their own substitutes for our products internally.
Furthermore, should competition intensify, we may have to reduce the prices of
our products.
EMPLOYEES
As of January 31, 2000, we had approximately 153 employees. We
consider our relationship with our employees to be good. Our employees are not
covered by any collective bargaining agreement.
FACILITIES
We have headquarters and development facilities in Mount Laurel, New
Jersey where we lease approximately 36,000 square feet of office space. This
lease expires in April 2006. We also lease approximately 9,000 square feet of
office space for a development, support and sales facility in Dallas, Texas.
This lease expires in August 2000. In addition, we lease approximately 2,800
square feet for a development, support and sales office in France. This lease
expires in January 2009. Due to our growth, we anticipate leasing new office
space in Dallas. We believe that the additional space will be available when it
is needed.
LEGAL PROCEEDINGS
We are subject to legal actions arising in the normal course of our
business. We do not believe that any pending legal action would, if adversely
determined, have a material adverse effect on our business or operating results.
37
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning our
directors, executive officers and key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Executive Officers and Directors:
Kobi Alexander (1)(3)............................ 47 Chairman of the Board of Directors
and Director
Shawn Osborne (1)................................ 39 President and Chief Executive Officer and Director
David Kreinberg (1).............................. 35 Chief Financial Officer and Director
William F. Sorin (1)(3)......................... 51 Secretary and Director
Paul D. Baker .................................. 41 Director
Yaacov Koren ................................... 46 Director
Zvi Bar-On (2)................................... 48 Nominee Director*
Ron Hiram (2)(3)................................. 47 Nominee Director*
Rex McWilliams (2).............................. 64 Nominee Director*
Key Employees:
Alan P. David ................................... 45 Vice President of Quality and Information
Steven C. Davis.................................. 50 Vice President of Research and Development
James H. Grim ................................... 38 Vice President of Engineering
James Johnston .................................. 43 Vice President of Operations
Lisa Roberts .................................... 34 Vice President of Finance
Kannan Sreedhar ................................. 41 Vice President of Sales and Marketing
</TABLE>
- -----------------------------
* This nominee shall become a director upon closing of this offering.
(1) Member of the executive committee.
(2) Member of the audit committee and the stock option committee.
(3) Member of the compensation committee.
Executive Officers and Directors
KOBI ALEXANDER has been a director since August, 1995. Mr. Alexander,
a founder of Comverse Technology, Inc., has served as Chairman of the Board of
Directors of Comverse since September 1986, as President and Chief Executive
Officer since April 1987 and as a director of Comverse since its formation in
October 1984. Mr. Alexander also served as Co-Managing Director of Comverse's
wholly-owned Israeli subsidiary, Comverse Network Systems Ltd. from its
formation in 1982 until October 1986. From October 1984 to September 1986, Mr.
Alexander served as Co-Chairman and Co-Chief Executive Officer of Comverse.
Prior to the formation of Comverse Network Systems, in 1980 and 1981, Mr.
Alexander served as an independent financial and business consultant to a number
of multinational corporations. Between 1978 and 1980, Mr. Alexander worked in
the Corporate Finance Department of Shearson Loeb Rhoades. Mr. Alexander
received a B.A., magna cum laude, in Economics from the Hebrew University of
Jerusalem in 1977, and an M.B.A. in finance from New York University in 1980. He
has served as the Chairman of the High-Tech Research and Development Section of
the Israeli Association of Industrialists.
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<PAGE>
SHAWN K. OSBORNE was named our President and Chief Executive Officer
in September 1997 and a director in January 2000. Mr. Osborne joined our company
in January 1997 as Vice President of Sales and Strategic Planning. Mr. Osborne
was President and Vice President of Sales and Marketing of CellTel Data, a
provider of wireless data systems and transaction services, from October 1994 to
January 1997. Prior to joining CellTel, Mr. Osborne held senior level management
positions with several high-technology communications companies, including Vice
President of Sales of EBS (now ADCNewNet), and Vice President of Sales and
Marketing of Cognitronics Corporation. Mr. Osborne received a B.S. in computer
science from the State University of New York. He currently serves on the Board
of Directors of the Telecommunications Industry Association.
DAVID KREINBERG was named Chief Financial Officer in December 1999
and a director in January 2000. He also serves as Vice President of Finance and
Chief Financial Officer of Comverse Technology, Inc., a position he has held
since May 1999. He previously had served Comverse as Vice President of Finance
and Treasurer from April 1996, and Vice President of Financial Planning from
April 1994. Mr. Kreinberg is a Certified Public Accountant, and prior to joining
Comverse he was a senior manager at Deloitte & Touche LLP. Mr. Kreinberg
received a B.S., summa cum laude, in accounting from Yeshiva University and an
M.B.A. in finance and international business from Columbia Business School in
1986 and 1990, respectively.
WILLIAM F. SORIN has served as a director since August 1995. He has
served as the Corporate Secretary and a director of Comverse Technology, Inc.
since its formation in October 1984. He is an attorney engaged in private
practice and is general counsel to Comverse. Mr. Sorin received a B.A. in
Economics from Trinity College in 1970 and a J.D., cum laude, from Harvard Law
School in 1973.
PAUL D. BAKER was named a director in January 2000. He also serves as
Vice President, Corporate and Marketing Communications of Comverse Technology,
Inc., a position he has held since joining Comverse in April 1991. Mr. Baker
held various positions in sales, marketing, and corporate communications with
Robotic Vision Systems, Inc. from 1984 to 1991. Mr. Baker received a B.S. in
Management from Babson College in 1980 and an M.B.A. in marketing management
from St. John's University in 1984.
YAACOV KOREN was named a director in January 2000. Mr. Koren is the
Managing Director of Comverse Investments Ltd., an investment division of
Comverse Technology, Inc., a position he has held since July 1994. Additionally,
Mr. Koren serves on the board of directors of several private companies,
primarily companies in which the Comverse group is invested. Mr. Koren has over
20 years of experience in the investment and financial industries. Prior to
joining Comverse, Mr. Koren was the Chief Executive Officer of Batucha
Securities and Investments Ltd., one of the largest Israeli brokerage and
portfolio management companies. Mr. Koren is also a director of Lanoptics Ltd.
Mr. Koren received his LL.B. from the Tel-Aviv University, Law School in 1982.
ZVI BAR-ON will become a director effective upon the completion of
this offering. Mr. Bar-On is the founder, President and Chief Executive Officer
of ComponentControl.Com, a business he founded in May 1998. In 1984 he also
founded and managed Aero Support USA Inc., which was merged during 1997 with
Kellstrom Industries. After the merger, Mr. Bar-On served as a consultant to
Kellstrom until September 1998. From 1981 to 1983, he was employed as a Sales
Manager and Marketing Director by Electro Methods Inc., becoming the company's
President in 1983. He received an M.B.A. from New York University in 1981 and a
B.S. in Mechanical Engineering from Brooklyn Polytechnic in 1976.
RON HIRAM will become a director effective upon the closing of this
offering. Mr. Hiram joined Soros Fund Management L.L.C. in February 1995 and
became a Managing Director in January 1997. He also serves as a member of boards
of directors of private companies in which Soros Fund Management has investments
and as a member of management committees of joint venture and investment
partners. Prior to joining Soros Fund Management, Mr. Hiram was at Lehman
39
<PAGE>
Brothers for 12 years, most recently serving as Managing Director. Mr. Hiram is
also a director of Outboard Marine Corporation. Mr. Hiram received an M.B.A.
from Columbia University in 1981.
REX A. MCWILLIAMS will become a director of our company effective
upon the closing of this offering. Mr. McWilliams is the Chairman of ODI
Diagnostics, a position he has held since April 1999. Mr. McWilliams, also
serves as the Chairman of Newvent Management, a position he has held since
January 1997. Between 1974 and September 1997, Mr. McWilliams served as our
Chairman and CEO. Previously, he was a partner in Technology Management Group.
He also was the Co-Founder of National Computer Analysts and served as its
President from 1965 through 1970. Between 1957 and 1962, he was involved with
computer development with RCA Computer Division. Mr. McWilliams has a B.S. in
Mathematics/Physics from Morningside College, which he earned in 1958.
Key Employees
ALAN P. DAVID was named our Vice President of Quality and Information
in October 1999. Prior to joining our company, from December 1995 to October
1999, Mr. David was Director of Operations at Computer Sciences Corporation.
From April 1990 to December 1995, he held senior level management positions at
Computer Sciences Corporation in the areas of enterprise systems, program
management, systems engineering, and software engineering. From January 1985 to
April 1990, Mr. David served as a program manager and systems engineer at Sperry
(now Unisys Corporation). From 1979 to 1985, Mr. David worked for the Department
of Defense in communications engineering and protocol design. Prior to 1979, Mr.
David served on active duty in the U.S. Air Force for four years as a systems
programmer/analyst.
STEVEN C. DAVIS was named our Vice President of Research and
Development in February 1999. Mr. Davis also serves on the board of The Parlay
Group. Mr. Davis joined our company in July 1997, but was previously associated
with our company for over 20 years in various contracting relationships
beginning in 1979. From February 1988 to July 1997, Mr. Davis served as
President and Chief Executive Officer of Finite State. Mr. Davis was a
shareholder and officer of Tenis Software, Inc. from 1982 to 1987, and was
employed with the Burroughs Corporation as manager for software engineering for
Great Valley Laboratories from 1974 to 1979. He has a B.S. in Mathematics from
the South Dakota School of Mines and Technology, which he earned in 1971.
JAMES H. GRIM was named our Vice President of Engineering in October
1999. He joined our Company in June 1998 as Vice President of Operations. From
February 1996 to June 1998, Mr. Grim served as Vice President of Programs and as
Vice President of Engineering and Engineering Program Manager for InterDigital
Communications Corporation. From April 1993 to February 1996, he held
engineering management positions at Lockheed Martin Corporation, Astro Space
Division. From 1985 to 1993, Mr. Grim held engineering, engineering management,
and program management positions with GE Aerospace. Mr. Grim received a B.S. in
electrical engineering from Capitol College in 1985 and an M.S. in engineering
from Pennsylvania State University in 1990.
JAMES JOHNSTON was named our Vice President of Operations in October
1999. From March 1999 to October 1999, Mr. Johnston served as our Vice President
of Quality and Information. Mr. Johnston joined our company in May 1998 as
Manager of Quality Assurance. From May 1997 to April 1998, Mr. Johnston provided
consulting services to the Vanguard Investment Group in the areas of operations
management, testing, and quality assurance. From January 1994 to April 1997, Mr.
Johnston was an operations manager at Computer Sciences Corporation. From 1984
to 1993, he held several positions at Pacer InfoTech, Inc., in program
management, operations, system testing, and quality assurance. Mr. Johnston also
served nine years in active duty in the U.S. Navy. He received a B.S. in
Business Administration from Rider University in 1989.
40
<PAGE>
LISA ROBERTS has been our Vice President of Finance since June 1998.
From January 1997 to June 1998, she served as our Director of Finance. Prior to
that, she served as our Controller since 1995. She is a Certified Public
Accountant, and prior to joining Ulticom she was a manager at Simonson, Lipshutz
& Fogel, PC, a public accounting firm, and an accountant at Tait, Weller &
Baker. Ms. Roberts received a B.S. in accounting with high honors from Drexel
University in 1988.
KANNAN SREEDHAR has been our Vice President of Sales and Marketing
since February 1999. From January 1994 to February 1999, he served as a Regional
Sales Manager at Bell Atlantic Data Solutions Group. From 1984 to December 1993,
Mr. Sreedhar spent ten years at Northern Telecom, where he participated in
software design and product development, and he advanced to managerial roles in
product management, strategic planning, new product introduction and account
management. From 1982 to 1984, he was employed at Ericsson Communications in the
Public Switching Division. He received an M.S. in computer science from the
University of Oklahoma in 1982 and an M.B.A. from Duke University in 1987.
BOARD COMPOSITION
Our by-laws currently authorize our board of directors to have not
less than three and not more than fifteen members. Our board of directors
currently has two members and upon completion of this offering will have nine
members. Members of the board of directors are elected each year at the annual
meeting of shareholders to serve until the following annual meeting of
shareholders or until their successors have been elected and qualified.
Directors may be removed by the affirmative vote of the holders of a majority of
the shares entitled to vote at an election of directors. There are no family
relationships among any of our directors and executive officers.
BOARD COMMITTEES
Prior to or upon completion of this offering, our board of directors
will create an executive committee, a compensation committee, an audit committee
and a stock option committee. Members will serve on these committee for one-year
terms.
We expect that our executive committee will consist of Messrs.
Alexander, Osborne, Kreinberg and Sorin. The executive committee will have all
the authority of the board, except with respect to items requiring shareholder
approval or submission and except as otherwise required by law.
We expect that our compensation committee will consist of Messrs.
Alexander, Sorin and Hiram. The compensation committee will make recommendations
to the board of directors regarding the various incentive compensation and
benefit plans and determines salaries for the executive officers and incentive
compensation for employees.
We expect that our audit committee will consist of Messrs. Bar-On,
Hiram and McWilliams. The audit committee will make recommendations to the board
of directors regarding the selection of independent public accountants, review
the results and scope of the audit and other services provided by our
independent public accountants and review and evaluate our control functions.
We expect that our stock option committee will consist of Messrs.
Bar-On, Hiram and McWilliams. The stock option committee will administer the
issuance of stock options under our stock incentive compensation plan.
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<PAGE>
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for
serving on the board of directors or any committee of the board. Our directors
are reimbursed for the expenses they incur in attending meetings of the board or
board committees. Each of Messrs. Bar-On, Hiram and McWilliams will receive
options to purchase 15,000 shares of common stock under our stock incentive
compensation plan upon completion of this offering, with an exercise price equal
to the initial public offering price. Each such director will also receive on an
annual basis options to purchase 5,000 shares of common stock under our stock
incentive compensation plan with an exercise price equal to the fair market
value on the date of grant. These options will vest based on the number of board
meetings attended over the year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation decisions in fiscal 1999 were made exclusively
by our Chairman, Kobi Alexander. No interlocking relationship exists between our
board of directors and the board of directors or compensation committee of any
other company, nor has any such interlocking relationship existed in the past.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal year ended
January 31, 2000 concerning the compensation we paid or accrued to our executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Shawn K. Osborne,
President and Chief Executive Officer.................... 1999 $200,000 $60,000 $13,988
</TABLE>
Mr. Kreinberg does not receive any compensation from us. Mr.
Kreinberg receives his compensation from Comverse. Mr. Kreinberg's services are
provided to us under our services agreement with Comverse. See "Related Party
Transactions - Services Agreement."
STOCK OPTION INFORMATION
No options were granted by Ulticom to our executive officers during
the fiscal year ended January 31, 2000.
42
<PAGE>
YEAR-END OPTION VALUES
No options granted by Ulticom were exercised by the executive
officers during the fiscal year ended January 31, 2000. The following table
provides certain information concerning options granted by Ulticom as of January
31, 2000, with respect to each of the executive officers. Upon the completion of
this offering, these options will vest in four equal annual increments
commencing one year after this offering is completed. The value of the
unexercised options set forth below has been calculated by subtracting the
exercise price from the assumed initial offering price of $11.00 per share and
multiplying that amount by the number of shares underlying the option.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS
UNDERLYING UNEXERCISED AT JANUARY 31, 2000
OPTIONS AT JANUARY 31, 2000
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shawn K. Osborne............. -- 490,905 -- $4,424,955
David Kreinberg(1)........... -- -- -- --
</TABLE>
- -------------------
(1) Mr. Kreinberg currently does not have any options granted by us. Comverse
has granted to Mr. Kreinberg options to purchase 98,181 shares from
Comverse. These options will vest in four equal annual increments
commencing one year after this offering is completed. The value of such
options as of January 31, 2000 was $884,991, based on an assumed initial
public offering price of $11.00 per share.
1998 STOCK INCENTIVE COMPENSATION PLAN
The purpose of this plan is to assist us, our subsidiaries and
affiliates in attracting and retaining valued employees by offering them a
greater stake in our success and a closer identity with us, and to encourage
these employees to own our stock.
General. The plan provides for the grant of deferred stock,
restricted stock, options and stock appreciation rights. We have reserved
6,500,000 shares of our common stock for issuance upon exercise of awards under
the plan.
Administration. The plan has been to date, and up to the closing of
this offering will be, administered by our board of directors. Following
completion of this offering, the plan will be administered by a stock option
committee consisting of Messrs. Bar-On, Hiram and McWilliams.
Eligibility and Extent of Participation. Any officer, director or
other key employee of our company, a subsidiary or an affiliate is eligible to
participate under the plan. The maximum number of shares of common stock that
may be awarded under the plan to any employee may not exceed 250,000 during any
calendar year. Transactions under the plan are intended to comply with all
applicable conditions of Rule 16b-3 under the Exchange Act for all employees
subject to Section 16 of that Act. Any provision of the plan or action by the
committee that fails to comply with Rule 16b-3 will be deemed null and void to
the extent permitted by law and deemed advisable by the committee.
Deferred Stock. An award of deferred stock is an agreement by Ulticom
to deliver to an employee, a specified number of shares of common stock at the
end of a specified deferral period or periods. Before the issuance and delivery
of the deferred stock, the awarded employee does not have any rights as a
stockholder with respect to any shares of deferred stock credited to his or her
account. Dividends declared during the deferral period on shares covered by a
deferred stock award will be paid to the awarded employee currently, or deferred
and deemed to be reinvested in additional deferred stock, or otherwise
reinstated on terms as the committee may determine at the time of the award. The
committee may condition the grant of the deferred stock award or the expiration
of the deferral period upon the employee's achievement of one or more
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<PAGE>
performance goals. Shares of deferred stock credited to the account of the
awarded employee are issued and delivered to the employee at the end of the
deferral period under the terms of the deferred stock agreement. The committee
may, in its sole discretion, accelerate the delivery of all or any part of a
deferred stock award or waive the deferral limitations for all or any part of
the deferred stock award.
Restricted Stock. An award of restricted stock to an employee is a
grant by the Company of a specified number of shares of common stock subject to
forfeiture upon the happening of specified events. The certificates representing
shares of restricted stock are legended as to sale, transfer, assignment, pledge
or other encumbrances during the restriction period and are deposited by the
employee, together with a stock power endorsed in blank, with Ulticom, to be
held in escrow during the restriction period. Unless the committee determines
otherwise, during the restriction period, the awarded employee has the right to
receive dividends from and to vote the shares of restricted stock. The committee
may condition the grant of an award of restricted stock or the expiration of the
restriction period upon the employee's achievement of one or more performance
goals. The committee may, in its sole discretion, modify or accelerate the
vesting and delivery of shares of restricted stock.
Options. Options give an employee the right to purchase a specified
number of shares of common stock, deferred stock or restricted stock from us for
a specified time period at a fixed price. Options granted to employees may be
either incentive stock options or options not intended to be incentive stock
options, called non-qualified options. The price per share at which common stock
may be purchased upon exercise of an option is determined by the committee;
however, in the case of grants of incentive stock options, the price per share
may not be less than the fair market value of a share of common stock on the
date of grant. In case of any incentive stock option granted to a person who
owns stock possessing more than 10% of the total combined voting power of all
classes of our capital stock, the option price per share will not be less than
110% of the fair market value of a share of common stock on the date of grant.
The option price per share for non-qualified options may be less than the fair
market value of a share of common stock on the date of grant.
Option terms may not be greater than 10 years, or five years in the
case of an incentive stock option granted to a holder of 10% or more of the
voting power of our capital stock. We may not grant incentive stock options to
employees of our affiliates. Except as provided in an option agreement, the
price upon exercise of an option will be paid in full at the time of the
exercise in cash, in shares of common stock at fair market value on the date of
exercise or a combination of cash and shares. The committee may permit other
methods of payment upon the exercise of options, including by delivery of a note
by the employee or by restricted stock. The committee or our board of directors
may in their discretion extend the period during which an option held by an
employee may be exercised to a period, not to exceed 3 years following the
termination of an employee's employment or service, as the committee or our
board of directors may determine to be appropriate in any particular instance.
Stock Appreciation Rights. Stock appreciation rights are rights to
receive payment in cash, common stock, restricted stock or deferred stock or any
combination of these equal to the increase in the fair market value of a
specified number of shares of common stock from the date of grant of the rights
to the date of exercise. Stock appreciation rights may be granted in tandem with
all or a portion of a related option under the plan, or may be granted
separately as a freestanding stock appreciation right. A tandem stock
appreciation right may be granted either at the time of the grant of the option
or at any time thereafter during the term of the option and may be exercisable
only to the extent that the related option is exercisable. No stock appreciation
right may be exercisable within the first six months of its grant. The base
price of a tandem stock appreciation right may only be the option price under
the related option. The base price of a freestanding stock appreciation right
may not be less than 100% of the fair market value of the common stock, as
determined by the committee, on the date of grant.
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Adjustments Upon a Change in Control. Except as otherwise provided by
applicable agreement, upon the occurrence of a change in control, excluding a
hostile change of control, the committee may elect to provide that all
outstanding options and stock appreciation rights will immediately vest and
become exercisable, each deferral period and restriction period will immediately
lapse, or all shares of deferred stock subject to outstanding awards will be
issued and delivered to the awarded employee. In the event of a hostile change
in control, each of the foregoing actions will occur automatically upon the
occurrence of the hostile change in control. At any time before a change in
control, the committee may, without the consent of any employee to whom an
option was granted:
o require the entity effecting the change in control or a parent
or subsidiary of the entity to assume each outstanding option
or substitute an equivalent option therefor, or
o terminate and cancel all outstanding options upon the change
in control and pay the employee to whom an option was granted
cash equal to the product of (x) the difference between the
fair market value of common stock on the date of the change in
control and the exercise price of the option and (y) the
number of shares of common stock subject to the option.
Effective Date, Termination and Amendment. The plan will remain
effective until the earlier of 10 years from the date of its adoption, or the
date it is terminated by our board of directors. Under the provisions of Section
12 of the plan, our board of directors has the power to amend, suspend or
terminate the plan at any time; however the board may not effect any of the
following amendments without stockholder approval:
o increasing the total number of shares available for issuance
under the plan;
o changing the class of individuals eligible to participate
under the plan;
o modifying the 250,000 share limit under awards during any
calendar year for any employee or the categories of
performance goals previously disclosed to shareholders;
o changing the provisions of Section 12 of the plan; or
o any other change for which stockholder approval is required
under Section 16(b) or any successor provision of the Exchange
Act.
2000 EMPLOYEE STOCK PURCHASE PLAN
We expect to adopt an employee stock purchase plan prior to the
completion of this offering. The purpose of this plan is to provide a method
whereby our employees and those of our eligible subsidiaries, if any, will have
an opportunity to acquire a proprietary interest in our company through the
purchase of shares of our common stock.
General. The plan is intended to comply with the provisions of
Section 423 of the Internal Revenue Code. The plan will allow eligible employees
who elect to participate in the plan to make purchases of our common stock
through payroll deductions at a price of 85% of the fair market value of our
common stock on the first day or last day of each offering period, whichever is
lower. Participants will be limited by the Code to a maximum of $25,000 deducted
from their compensation under the plan during any calendar year.
Administration. The plan will be administered by our compensation
committee, which will be authorized to decide questions of eligibility and to
make rules and regulations for the administration and interpretation of the
plan, subject to final authority of our board of directors. All determinations
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of the compensation committee with respect to the plan will be binding. The
expenses of administering the plan will be borne by us.
Shares Available Under the Plan. Under the Plan, we will issue an
aggregate of not more than 600,000 shares of our company's common stock. The
maximum number of shares issuable under the plan will be subject to adjustment
for any dividend, stock split or other relevant change in our capitalization.
Eligibility. With certain exceptions, all full-time employees who
have been employed by us or an eligible subsidiary, if any, for at least three
months, are eligible to participate in the plan. The purchase of shares under
the plan will be voluntary, and we cannot determine the number of shares to be
purchased under the plan.
Operation of the Stock Purchase Plan. Our common stock will be
purchased under the plan through semi-annual offering periods. The first
offering period is expected to begin on the first business day on which price
quotations for our common stock are available on the Nasdaq National Market.
Offering periods will begin on March 1 and September 1 of each year. However,
because the first day on which price quotations for our common stock will be
available on the Nasdaq National Market may not be March 1 or September 1, the
length of the first offering period may be more or less than six months.
During each offering period, the maximum number of shares which may
be purchased by a participant will be determined on the first day of the
offering period under a formula whereby 85% of the market value of a share of
our common stock on the first day of the offering period will be divided into an
amount equal to 6% of that participant's annualized base pay, as defined in the
plan. A participant may elect to have up to 10% of his or her base pay withheld
from his or her pay for this purpose. The price at which the participant may
purchase shares will be the lower of (i) 85% of the last sale price of our
common stock on the Nasdaq National Market on the first day of the offering
period or (ii) 85% of such price on the last day of the offering period.
Amendment. Our board of directors may at any time, and from time to
time, modify, terminate or amend the plan in any respect without obtaining
shareholder approval, except where the approval of our shareholders is required
under (i) Section 423 of the Code, (ii) Rule 16b-3 of the Exchange Act or any
successor provisions or (iii) under any applicable listing requirement of
Nasdaq.
The termination, modification or amendment of this plan shall not,
without the consent of a participant, affect his or her rights under a purchase
option previously selected by the participant. With the consent of the
participant affected, our board of directors may amend outstanding purchase
options in a manner not inconsistent with the terms of the plan. Our board of
directors shall also have the right to amend or modify the terms and provisions
of the plan and of any purchase options previously granted under the plan to the
extent necessary to ensure the continued qualification of the plan under Section
423 of the Code and Rule 16b-3. The plan also contains provisions relating to
the disposition of purchase options in the event of certain mergers or other
significant transactions in which we may be involved.
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RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH COMVERSE
We are a subsidiary of Comverse. Set forth below is a brief
description of the existing relationships and agreements between us and
Comverse.
Services Agreement
We have a services agreement with Comverse. Under this agreement,
Comverse provides us with the following services:
o consulting services with respect to financial planning and
reporting;
o routine legal services;
o administration of employee benefit plans;
o maintaining in effect a policy of directors' and officers'
liability insurance covering our directors and officers; and
o consulting services with respect to our public relations.
We pay Comverse a quarterly fee of $150,000 for the services provided
by Comverse during each fiscal quarter. In addition, we agreed to reimburse
Comverse for any out-of-pocket expenses incurred by Comverse in providing the
services. During fiscal 1999, no amounts were paid to Comverse for reimbursement
of out-of-pocket expenses. The term of this agreement extends to January 31,
2003 and is automatically extended for additional twelve-month periods unless
terminated by either Comverse or us. Since 1996, Comverse has been providing
these services to us for a quarterly fee of $150,000. This agreement currently
covers the services of Mr. Kreinberg who was paid aggregate salary and bonus of
$260,000 by Comverse in fiscal 1999.
Sales to Subsidiaries of Comverse
We sell products and services to other subsidiaries of Comverse in
the ordinary course of our business. Sales to these subsidiaries were
approximately $2.7 million, $3.8 million and $4.7 million for fiscal 1997,
fiscal 1998 and fiscal 1999, respectively.
Federal Income Tax Sharing Agreement
We have a tax sharing agreement with Comverse. Comverse is the parent
company of a group of companies which includes us and for which Comverse files
consolidated federal income tax returns. After this offering is completed we
will continue to be included in the Comverse consolidated group for federal
income tax purposes and we will not file our own federal income tax returns.
Under the terms of the tax sharing agreement, during years in which Comverse
files a consolidated federal income tax return which includes us, we pay
Comverse an amount equal to our separate tax liability computed by Comverse in
its reasonable discretion. Our separate tax liability will be that amount of
federal income tax that we would owe if we filed a tax return independent of the
Comverse group. If the calculation of our separate tax liability for any year
results in a net operating loss, we are not entitled to receive any payments
from Comverse with respect to such net operating loss in such year or as a
result of carrying such net operating loss back to any prior year or forward to
any future year. The tax sharing agreement continues in effect until sixty days
after the expiration of the applicable statute of limitations with respect to
the final year of the Comverse group which includes us.
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Patent License Agreement
Our affiliate, Comverse Patent Holding, granted Lucent GRL a
non-exclusive license to those patents now owned by Comverse Patent Holding or
which Comverse Patent Holding has a right to license and to those patents
granted to Comverse Patent Holding or which Comverse Patent Holding obtains the
right to license during the term of that arrangement. In return, Comverse Patent
Holding was granted a non-exclusive license to certain patents now owned by
Lucent GRL or which Lucent GRL has right to license and to those patents granted
to Lucent GRL or which Lucent GRL obtains the right to license during the term
of that arrangement. Under that arrangement, Comverse Patent Holding has the
right to grant a sublicense to us. In connection with that arrangement,
effective December 30, 1999, we entered into a patent license agreement with
Comverse Patent Holding under which we have granted a non-exclusive royalty-free
license to Comverse Patent Holding with the right to sublicense to Lucent GRL
our patents and those patents granted to us or which we obtain the right to
license during the term of the agreement. In return, Comverse Patent Holding
granted to us a non-exclusive royalty-free sublicense to all patents that are
licensed by Lucent GRL to Comverse Patent Holding.
License Agreement
We have a license agreement with Comverse Network Systems. Under this
agreement, we granted Comverse Network Systems an irrevocable, perpetual,
royalty-free, non-exclusive license to use certain elements of the Signalware
software for incorporation into Comverse Network Systems' products. The license
also covers all modifications and enhancements made by us to these software
products, including their source codes and object codes, documentation and all
intellectual property associated with those products. Specifically, the license
granted to Comverse Network Systems includes the following rights:
o the right to install and use our software products at any of
Comverse Network Systems' sites and locations;
o the right to install and use our software products on or in
connection with any Comverse Network Systems' product;
o the right to use and execute the software products on any
platform;
o the right to create, add to, enhance or modify our software
products; and
o the right to sublicense and/or otherwise provide our software
products to others provided that our products cannot be licensed
as an application programming interface.
Comverse Network Systems may not use or sublicense to others any of
our software products except on or as an element of a Comverse Network Systems
product. Any additions, enhancements or other modifications made by Comverse
Network Systems to our software products shall be the property of Comverse
Network Systems.
The term of this agreement is ten years, commencing on February 1,
1999. Thereafter, the agreement will automatically renew for one-year periods
unless terminated by either Comverse Network Systems or us. The license granted
by us under the agreement, and any sublicenses granted by Comverse Network
Systems, survive termination or expiration of the agreement. We did not receive
any consideration from Comverse Network Systems for entering into this
agreement.
Development and Production Agreement
We intend to enter into a development and production agreement with
Comverse Network Systems. The term of this agreement is expected to be three
years. Under this agreement, we will agree to design and develop for Comverse
Network Systems an SS7 signaling link module board.
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Comverse Network Systems will agree to purchase from us minimum quantities of
this and other types of boards at prices which we believe will be competitive
given the committed quantities. Comverse Network Systems may also purchase from
us additional boards over the minimum quantities at its sole discretion. If
requested by Comverse Network Systems, for an additional fee we will furnish
repair and/or replacement services to Comverse Network Systems for boards
purchased under this agreement.
Registration Rights Agreement
We have entered into a registration rights agreement with Comverse.
Under this agreement, Comverse may require us on one occasion to register our
common stock for sale on Form S-1 under the Securities Act if we are not
eligible to use Form S-3 under that Act. After we become eligible to use Form
S-3, Comverse may require us on unlimited occasions to register our common stock
for sale on this form. In addition, we are required to file a registration
statement on this form to register for sale shares of our common stock that are
or have been acquired by directors, officers and employees of Comverse upon the
exercise of options granted to them by Comverse. Comverse will also have an
unlimited number of piggyback registration rights. This means that any time we
register our common stock for sale, Comverse may require us to include shares of
our common stock held by it or its directors, officers and employees in that
offering and sale. Comverse will not be allowed to exercise any registration
rights during the 180-day lock-up period.
We have agreed to pay all expenses that result from registration of
our common stock under the registration rights agreement, other than
underwriting commissions for such shares and taxes. We have also agreed to
indemnify Comverse, its directors, officers and employees against liabilities
that may result from their sale of our common stock, including Securities Act
liabilities.
Business Opportunities Agreement
We have a business opportunities agreement with Comverse which
addresses potential conflicts of interest between Comverse and us. This
agreement allocates between Comverse and us opportunities to pursue transactions
or matters that, absent such allocation, could constitute corporate
opportunities of both companies. We are precluded from pursuing an opportunity
offered to any person who is a director of our company but not an officer or
employee of our company and who is also an officer or employee of Comverse,
unless Comverse fails to pursue such opportunity diligently. Comverse is
precluded from pursuing an opportunity offered to any person who is a director
of Comverse but not an officer or employee of Comverse and who is also an
officer or employee of our company, unless we fail to pursue such opportunity
diligently. We are also precluded from pursuing an opportunity offered to any
person who is an employee or officer of both companies or a director of both
companies, unless Comverse fails to pursue such opportunity diligently.
Accordingly, we may be precluded from pursuing transactions or opportunities
that we would otherwise be able to pursue if we were not affiliated with
Comverse. We have agreed to indemnify Comverse and its directors and officers
against any liabilities arising out of any claim that any provision of the
agreement or the failure to offer any business opportunity to us violates or
breaches any duty that may be owed to us by Comverse or any of its directors or
officers.
Intercompany Loan
In January 2000, we borrowed $3.8 million under a term loan from a
bank and we used the proceeds to pay our outstanding indebtedness owed to
Comverse. The bank loan is secured by a deposit of Comverse at the bank. During
fiscal 1997, fiscal 1998 and fiscal 1999, we were charged with interest on our
indebtedness to Comverse in an amount equal to approximately $532,000, $419,000
and $362,000, respectively. The interest rate on our indebtedness to Comverse
was the prime rate during fiscal 1997, fiscal 1998 and fiscal 1999.
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Guarantee of the Lease for Our Dallas Facility
Comverse has guaranteed the payment of rent and the performance of
all other obligations under the lease for our facility in Dallas, Texas. This
lease will expire in August 2000.
Charges to Affiliates of Comverse
During fiscal 1997, fiscal 1998 and fiscal 1999, affiliates of
Comverse paid us approximately $1.1 million, $0.6 million and $42,000,
respectively, for rent and other shared facility charges.
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PRINCIPAL SHAREHOLDERS
The following table contains information as of January 31, 2000 with
respect to the beneficial ownership of our common stock and the beneficial
ownership of Comverse common stock by:
o each person who we know beneficially owns more than 5% of our
common stock;
o each of our directors and each individual who serve as our named
executive officers individually; and
o all of our directors and executive officers as a group.
Unless otherwise indicated, to our knowledge, all persons listed
below have sole voting and investment power with respect to their shares of
common stock. Share ownership in each case includes shares issuable upon
exercise of outstanding options that are exercisable within 60 days. Each of our
directors and executive officers who is also a director or officer of Comverse
disclaims ownership of the shares of our common stock owned by Comverse.
<TABLE>
<CAPTION>
SHARES OF ULTICOM COMMON STOCK SHARES OF COMVERSE COMMON
BENEFICIALLY OWNED STOCK BENEFICIALLY OWNED
------------------------------ -------------------------
PERCENT
-------
BEFORE AFTER
NUMBER OFFERING OFFERING NUMBER PERCENT
------ -------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
PRINCIPAL SHAREHOLDERS:
Comverse Technology, Inc.(1) ....................... 31,499,738 96.25% 85.19% - -
DIRECTORS AND EXECUTIVE OFFICERS:
Kobi Alexander(2)................................... 1,227,263 3.75% 3.32% 1,534,659 2.0%
Shawn Osborne(2)(3)................................. - - - 5,625 *
David Kreinberg(2)(4)............................... 32,727 * * 20,452 *
William F. Sorin (2)(4)(5).......................... 32,727 * * 18,750 *
Paul D. Baker(2)(4)................................. - - - 1,008 *
Yaacov Koren(2)(4).................................. - - - - -
Zvi Bar-On.......................................... - - - 300 *
Ron Hiram........................................... - - - - -
Rex McWilliams...................................... - - - 49,400 *
All executive officers and directors as
a group (nine persons)(6) 1,292,717 3.95% 3.50% 1,630,194 2.1%
</TABLE>
- --------
(1)Includes 1,259,990 shares of our common stock owned by Messrs. Alexander and
Kreinberg which Comverse has the right to vote. Also includes 484,360 shares
of our common stock subject to options that were granted to certain directors
and employees of Comverse, including options for 65,454 shares which are
currently exercisable.
(2)Excludes 1,121,250, 5,625, 85,416, 94,689, 53,563 and 5,000 shares of
Comverse common stock subject to options granted to Messrs. Alexander,
Osborne, Kreinberg, Sorin, Baker and Koren, respectively. These excluded
options are not exercisable within 60 days.
(3)Excludes 490,905 shares of our common stock subject to options issued by us
and 50,000 shares of our common stock subject to options to be issued by us
upon completion of this offering. These excluded options are not exercisable
within 60 days.
(4)Excludes 98,181, 32,727, 32,727 and 16,364 shares of our common stock
subject to options granted by Comverse to Messrs. Kreinberg, Sorin, Baker and
Koren, respectively. These options are not exercisable within 60 days.
(5) Represents currently exercisable options to purchase from Comverse shares of
our common stock
(6) Includes currently exercisable options granted to Mr. Sorin to purchase from
Comverse 32,727 shares of our common stock.
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DESCRIPTION OF SECURITIES
Set forth below is a summary of the material provisions of our
capital stock. For a more detailed description, see our amended and restated
certificate of incorporation and by-laws, copies of which we have filed as
exhibits to the registration statement.
We are a New Jersey corporation, subject to the provisions of the New
Jersey Business Corporation Act. Our authorized capital stock consists of
210,000,000 shares, with no par value, divided into 200,000,000 shares of common
stock and 10,000,000 shares of undesignated stock. After giving effect to the
issuance of the 4,250,000 shares of common stock offered by this prospectus, we
will have 36,977,000 shares of common stock outstanding. Upon the closing of the
offering, we will not have designated any of the undesignated stock and none
will be outstanding.
COMMON STOCK
General. The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that our board of directors
may designate and issue in the future.
Voting Rights. Holders of common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of shareholders.
Holders of common stock do not have cumulative voting rights in the election of
directors. Accordingly, Comverse, our controlling shareholder, may elect all of
the directors standing for election.
Dividends. Holders of common stock are entitled to receive ratably
such dividends, if any, as the board of directors may declare on the common
stock out of funds legally available for that purpose.
Liquidation. Upon the liquidation, dissolution or winding up of
Ulticom, holders of common stock are entitled to share ratably in all assets
remaining after the payment of all debts and other liabilities, subject to the
prior rights of any outstanding shares of preferred stock that our board of
directors may choose to designate.
UNDESIGNATED STOCK
Our board of directors is expressly authorized in our certificate of
incorporation, without further shareholder approval, to amend our certificate of
incorporation to divide the 10,000,000 shares of undesignated stock into one or
more classes of common or preferred stock. The board can further divide any of
those or any hereafter created classes of undesignated stock designated as
preferred stock into series and to determine their designations, numbers,
relative, rights, preferences and limitations, including the dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of these series. The relative rights,
preferences and limitations of each class or series of common or preferred stock
may differ from those of any and all other classes or series of common or
preferred stock, as the case may be. Our board of directors is expressly
authorized in our certificate of incorporation, without further shareholder
approval, to amend our certificate of incorporation to change the designations,
numbers, relative rights, preferences and limitations of any authorized but
unissued shares of preferred stock.
Our ability to designate and issue additional shares of undesignated
stock in this manner, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could adversely effect the voting
power of the holders of common stock, and could have the effect of making it
more difficult for a person to acquire, or of discouraging a person from seeking
to acquire, control of our
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company. The potential for issuance of shares of undesignated stock may have an
adverse impact on the market price of the common stock outstanding after the
offering. We have no present plans to issue any shares of common or preferred
stock from the shares of undesignated stock.
OPTIONS
Options to purchase a total of 6,500,000 shares of common stock may
be granted under our stock incentive compensation plan. As of January 31, 2000,
there were outstanding options to purchase a total of 3,272,700 shares of common
stock at a weighted average exercise price of $2.57 per share. In addition, we
plan to issue options to purchase 523,724 shares of common stock under such plan
upon completion of this offering at an exercise price equal to the initial
public offering price.
CERTAIN PROVISIONS OF NEW JERSEY LAW
The New Jersey Business Corporation Act provides that in determining
whether a proposal or offer to acquire a corporation is in the best interest of
the corporation, the board of directors may, in addition to considering the
effects of any action on shareholders, consider any of the following: (a) the
effects of the proposed action on the corporation's employees, suppliers,
creditors and customers; (b) the effects on the community in which the
corporation operates; and (c) the long-term as well as short-term interests of
the corporation and its shareholders, including the possibility that these
interests may best be served by the continued independence of the corporation.
The statute further provides that if, based on these factors, the board of
directors determines that any such offer is not in the best interest of the
corporation, it may reject the offer. These provisions may make it more
difficult for a shareholder to challenge the board of directors' rejection of,
and may facilitate the rejection of, an offer to acquire Ulticom.
We are also subject to the New Jersey Shareholders Protection Act
which prohibits certain New Jersey corporations, such as our company, from
engaging in a business combination, including mergers, consolidations,
significant asset dispositions and certain stock issuances, with any interested
shareholder for five years after such person becomes an interested shareholder,
unless the business combination is approved by the board of directors prior to
the date the shareholder became an interested shareholder. Interested
shareholder is defined to include, among others, any person that becomes a
beneficial owner of 10% or more of the affected corporation's voting power. In
addition, the Protection Act prohibits any business combination at any time with
an interested shareholder other than a transaction that (i) is approved by the
board of directors prior to the date that such shareholder became an interested
shareholder, (ii) is approved by the affirmative vote of the holders of
two-thirds of the voting stock not beneficially owned by the interested
shareholder, or (iii) satisfies certain fair price and related criteria. The
Protection Act does not apply to certain business combinations, including those
with persons who acquired 10% or more of the voting power of the corporation
prior to the time the corporation was required to file periodic reports under
the Securities Exchange Act of 1934, as amended, or prior to the time the
corporation's securities began to trade on a national securities exchange.
Accordingly, the Protection Act does not apply to Comverse.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Our certificate of incorporation provides that our directors and
officers will not be personally liable to us or our shareholders for damages for
the breach of any duty owed to us or our shareholders except to the extent that
this exception is not permitted by the New Jersey Business Corporation Act.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Jersey Business Corporation Act provides for the power to
indemnify any directors, officers, employees and agents and to purchase and
maintain insurance with respect to liability arising out of their capacity or
status as directors, officers, employees and agents. The indemnification
provisions are not exclusive of any other rights to which directors and officers
may be entitled under a corporation's certificate of incorporation or bylaws,
any agreement, a vote of stockholders or otherwise.
Our certificate of incorporation provides that every person who:
o is or was our director, officer, employee or agent or of any
constituent corporation absorbed by us in a consolidation or
merger, or the legal representative of any such director,
officer, employee or agent, or
o is or was a director, officer, trustee, employee or agent of any
other enterprise, serving as such at our request, or of any such
constituent corporation, or the legal representative of any such
director, officer, trustee, employee or agent.
shall be indemnified to the fullest extent permitted by law for all expenses and
liabilities in connection with any proceeding involving such person in this
capacity. Our certificate also provides that, during the pendency of any such
proceeding, we will advance to the fullest extent permitted by law expenses
incurred from time to time by an indemnified person in connection with the
proceeding, subject to our receipt of an undertaking as required by law. We
intend to enter into an indemnity agreement with each of our directors and
officers under which we will agree to provide indemnification and expense
reimbursement as outlined above.
Our bylaws also permit us to secure insurance on behalf of any
officer, director, employee or agent for any liability asserted against or
incurred by these individuals in their capacity, or arising out of their status,
as our officer, director or employee, regardless of whether the New Jersey
Business Corporation Act would permit indemnification. Under our services
agreement, Comverse has obtained directors' and officers' liability insurance
which also provides coverage for our officers and directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be
American Stock Transfer and Trust Company. Its address is 40 Wall Street, New
York, New York 10005 and its telephone number at this location is (212)
936-5100.
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UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of some of the U.S. federal
income and estate tax consequences of the ownership and disposition of our
common stock applicable to non-U.S. holders.
A non-U.S. holder is generally an individual, corporation, estate or
trust other than:
o an individual who is a citizen or resident of the United States
for U.S. federal income tax purposes;
o a corporation created or organized in the United States or under
the laws of the United States or of any subdivision thereof;
o an estate whose income is includable in gross income for U.S.
federal income tax purposes regardless of source; and
o a trust subject to the primary supervision of a court within the
United States and the control of one or more U.S. persons.
The following discussion is based on provisions of the U.S. Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, and
administrative and judicial interpretations as of the date of this prospectus,
all of which are subject to change, possibly with retroactive effect. The
following summary is for general information and applies only to non-U.S.
holders that hold our common stock as a capital asset. In addition, this
discussion does not apply to persons holding our shares through a partnership or
other pass-through entity. If you are a non-U.S. holder, you should consult a
tax advisor on the U.S. federal tax consequences of holding and disposing of our
common stock with respect to your particular circumstances, for example, if you
are a former citizen or resident of the United States, as well as any tax
consequences under the laws of any U.S. state or local or non-U.S. taxing
jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of common stock generally will be
subject to withholding of U.S. federal income tax at a 30% rate or a lower rate
that an applicable income tax treaty may specify. Non-U.S. holders should
consult their tax advisors on their entitlement to benefits under a relevant
income tax treaty.
Dividends that are effectively connected with a non-U.S. holder's
conduct of a trade or business in the U.S. are generally subject to U.S. federal
income tax on a net income basis at regular graduated rates, but are not
generally subject to the 30% withholding tax if the non-U.S. holder files the
appropriate IRS form with the withholding agent. Any U.S. trade or business
income received by a non-U.S. holder that is a corporation may, under specific
circumstances, be subject to an additional branch profits tax at a 30% rate or a
lower rate that an applicable income tax treaty may specify.
Dividends paid prior to January 1, 2001 to an address in a foreign
country are presumed, absent actual knowledge to the contrary, to be paid to a
resident of that country for purposes of the withholding discussed above and for
purposes of determining the applicability of an income tax treaty rate. For
dividends paid after December 31, 2000 a non-U.S. holder of common stock that
claims the benefit of an income tax treaty rate generally will be required to
satisfy applicable certification and other requirements.
55
<PAGE>
A non-U.S. holder of common stock that is eligible for a reduced rate
of U.S. withholding tax under an income tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim for a refund with
the IRS.
DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal
income tax in respect of gain recognized on a disposition of common stock
unless:
o the gain is effectively connected with a U.S. trade or business,
in which case the branch profits tax may also apply to a
corporate non-U.S. holder;
o the non-U.S. holder is an individual who is present in the United
States for 183 or more days in the taxable year of the
disposition and meets other requirements;
o the non-U.S. holder is subject to U.S. tax under provisions
applicable to certain U.S. expatriates (including certain former
citizens or residents of the United States); or
o we are or have been a U.S. real property holding corporation for
U.S. federal income tax purposes at any time during the shorter
of the five-year period ending on the date of disposition and the
non-U.S. holder's holding period for the common stock.
The tax relating to stock in a U.S. real property holding corporation
does not apply to a non-U.S. holder whose holdings, actual and constructive, at
all times during the applicable period, amount to 5% or less of the common
stock, provided that the common stock is regularly traded on an established
securities market. Generally, a corporation is a U.S. real property holding
corporation if the fair market value of its U.S. real property interests equals
or exceeds 50% of the sum of the fair market value of its worldwide real
property interests and its other assets used or held for use in a trade or
business. We believe that we have not been, are not, and do not anticipate
becoming, a U.S. real property holding corporation for U.S. federal income tax
purposes.
FEDERAL ESTATE TAXES
Common stock owned or treated as owned by an individual who is a
non-U.S. holder at the time of death will be included in the individual's gross
estate for U.S. federal estate tax purposes and may be subject to U.S. federal
estate tax, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under specific circumstances, the IRS requires information reporting
and backup withholding at a rate of 31% on specific payments on common stock.
Under currently applicable law, non-U.S. holders of common stock generally will
be exempt from information reporting and backup withholding on dividends paid
prior to January 1, 2001 to an address outside the U.S. For dividends paid after
December 31, 2000, however, a non-U.S. holder of common stock that fails to
certify its non-U.S. holder status under applicable Treasury regulations may be
subject to information reporting and backup withholding at a rate of 31% on
payments of dividends.
With respect to the payment of proceeds upon the disposition of
common stock, under current law, non-U.S. holders are not subject to backup
withholding and will generally not be subject to information reporting but may
be required to comply with certification or identification requirements to prove
their exemption.
56
<PAGE>
Non-U.S. holders should consult their own tax advisors on the
application of information reporting and backup withholding to them in their
particular circumstances, including upon their disposition of common stock.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules from a payment to a non-U.S. holder will be
refunded or credited against the holder's U.S. federal income tax liability, if
any, if the holder provides the required information to the IRS.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices of our common stock.
Furthermore, since no shares will be available for sale shortly after this
offering because of contractual and legal restrictions on resale described
below, sales of substantial amounts of common stock in the public market after
these restrictions lapse could adversely affect the prevailing market price and
our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an
aggregate of 36,977,000 shares of common stock, assuming no exercise of the
underwriters' over-allotment option. Of these shares, (i) all of the shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless such shares are purchased by
affiliates as that term is defined in Rule 144 under the Securities Acts, and
(ii) all of the shares outstanding prior to this offering will be restricted
securities, as defined in Rule 144 under the Securities Act, which may only be
sold in the public market if registered under the Securities Act or in
accordance with an exemption from the registration requirements of the
Securities Act or an exemption from registration under Rule 144 under the
Securities Act, which rules are summarized below. The restricted securities will
be available for sale in the public market, subject to the volume limitations
and other conditions of Rule 144, immediately upon the expiration of the 180-day
lock-up period.
The following table indicates approximately when the 32,727,000
shares of common stock that are not being sold in this offering, but which will
be outstanding at the time this offering is complete, will be eligible for sale
into the public market.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
90 days after the date of this prospectus...... 1,227,263
180 days after the date of this prospectus..... 31,499,737
LOCK-UP AGREEMENTS
All of our officers and directors and Comverse have signed lock-up
agreements under which they agreed not to transfer, dispose of or hedge any
shares of common stock or any securities convertible into or exchangeable for
shares of common stock for a period of 180 days from the date of this
prospectus. Transfers or dispositions can be made sooner with the prior written
consent of Lehman Brothers Inc.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned shares of
common stock that are restricted securities for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
o 1% of the number of shares of common stock then outstanding,
which will equal approximately 369,770 shares immediately after
this offering; or
o the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us.
58
<PAGE>
RULE 701
In general, under Rule 701, any of our employees, directors,
officers, consultants or advisors who purchases shares of our common stock from
us in connection with a compensatory stock or option plan or other written
agreement before the effective date of this offering is entitled to resell these
shares 90 days after the effective date of this offering in reliance on Rule
144, without having to comply with certain restrictions, including the holding
period, contained in Rule 144.
The Securities and Exchange Commission has indicated that Rule 701
will apply to typical stock options granted by an issuer before it becomes
subject to the reporting requirements of the Securities Exchange Act of 1934,
along with the shares acquired upon exercise of these options (including
exercises after the date of this prospectus). Securities issued in reliance on
Rule 701 are restricted securities and, subject to the contractual restrictions
described above, beginning 90 days after the date of this prospectus, may be
sold by persons other than affiliates subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its one year minimum holding period requirement.
SHARE OPTIONS
We intend to file a registration statement on Form S-8 under the
Securities Act covering shares of our common stock reserved for issuance under
our stock incentive compensation plan. The registration statement on Form S-8
will become effective automatically upon filing. As of January 31, 2000 options
to purchase 3,272,700 shares of common stock were issued and outstanding, of
which options to purchase 818,175 shares will vest one year after this offering
is completed. In addition, we plan to issue options to purchase 523,724 shares
of common stock under such plan upon completion of this offering, of which
options to purchase 50,000 shares will vest six months after this offering is
completed and options to purchase 473,724 shares will vest one year after this
offering is completed.
REGISTRATION RIGHTS
We have entered into a registration rights agreement with Comverse.
See "Related Party Transactions - Relationship with Comverse - Registration
Rights Agreement." We do not have any other contractual obligations to register
our common stock.
59
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to the prospectus, each of the underwriters
named below, for whom Lehman Brothers Inc., Chase Securities Inc., U.S. Bancorp
Piper Jaffray Inc., and Fidelity Capital Markets, a division of National
Financial Services Corporation, are acting as representatives, has agreed to
purchase from us the respective number of shares of common stock shown opposite
its name below:
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
Lehman Brothers Inc........................................
Chase Securities Inc. .....................................
U.S. Bancorp Piper Jaffray Inc.............................
Fidelity Capital Markets,
a division of National Financial Services Corporation...
________...................................................
________...................................................
________...................................................
________...................................................
________...................................................
Total................................................... 4,250,000
=================
The underwriting agreement provides that the underwriters'
obligations to purchase shares of common stock depend on the satisfaction of the
conditions contained in the underwriting agreement, and that if any of the
shares of common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock which the underwriters have
agreed to purchase under the underwriting agreement must be purchased. The
conditions contained in the underwriting agreement include that:
o the representations and warranties made by us to the underwriters
are true;
o there is no material change in the financial markets; and
o we deliver customary closing documents to the underwriters.
The representatives had advised us that the underwriters propose to
offer the shares of common stock directly to the public at the public price set
forth on the cover page of this prospectus, and to selected dealers, who may
include the underwriters, at such public offering price less a selling
concession not in excess of $____ per share. The underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $____ per share to
brokers and dealers. After the offering, the underwriters may change the
offering price and other selling terms.
The following table summarizes the underwriting discounts and
commissions we will pay. The underwriting discounts and commissions are equal to
the public offer price per share less the amount paid to us per share. The
underwriting discounts and commissions are equal to ___% of the public offering
price.
60
<PAGE>
<TABLE>
<CAPTION>
TOTAL
--------------------------------------------
WITHOUT
------------------ WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------------- ------------------- --------------------
<S> <C> <C> <C>
Underwriting discounts and commissions to be paid by us.. $ $ $
</TABLE>
We estimate that the total expenses of the offering, including
registration, filing and listing fees, printing fees and legal and accounting
expenses but excluding underwriting discounts and commissions, will be
approximately $1.0 million.
We have granted to the underwriters an option to purchase up to an
aggregate of 637,500 additional shares of common stock, exercisable solely to
cover over-allotments, if any, at the public offering price less the
underwriting discounts and commissions shown on the cover page of this
prospectus. The underwriters may exercise this option at any time, and from time
to time, until 30 days after the date of the underwriting agreement. To the
extent the underwriters exercise this option, each underwriter will be
committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to that underwriter's initial commitment as indicated in the
preceding table, and we will be obligated, under the over-allotment option to
sell the shares of common stock to the underwriters.
We have agreed that, without the prior written consent of Lehman
Brothers, Inc., we will not offer, sell or otherwise dispose of any shares of
capital stock or any securities which may be converted into or exchanged for any
shares of capital stock for a period of 180 days from the date of this
prospectus. Comverse and all of our officers, directors and existing
shareholders have agreed under lock-up agreements that, without the prior
written consent of Lehman Brothers Inc., they will not offer, sell or otherwise
dispose of any shares of capital stock or any securities which may be converted
into or exchanged for any shares of capital stock for a period of 180 days from
the date of this prospectus, except that Comverse may sell shares of our capital
stock to a purchaser or purchasers of the shares who agree to be bound by the
same restrictions that bind Comverse. Without the prior written consent of
Lehman Brothers Inc., individuals participating in the directed share program
described below will be prohibited from disposing of shares of common stock for
a period of 90 days after the date of this prospectus.
Prior to the offering, there has been no public market for the shares
of common stock. The initial public offering price was negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives considered:
o prevailing market conditions;
o our historical performance;
o our capital structure;
o estimates of our business potential and earning prospects;
o an overall assessment of our management; and
o the consideration of the above factors in relation to market
valuation of companies in related businesses.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering, and will be
facilitating electronic distribution through the Internet/intranet and other
proprietary electronic technology.
61
<PAGE>
We have agreed to indemnify the underwriters against liabilities
relating to the offering, including liabilities under the Securities Act,
liabilities arising from breaches of the representations and warranties
contained in the underwriting agreement, and liabilities incurred in connection
with the directed share program referred to below, and to contribute to payments
that the underwriters may be required to make for these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares of
common stock than are set forth on the cover page of this prospectus. If the
underwriters create a short position, then the representatives may reduce that
short position by purchasing common stock in the open market. The
representatives also may elect to reduce any short position by exercising all or
part of the over-allotment option described in this prospectus.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of e
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchasers of a security for the purpose of stabilization
or to reduce a syndicate short position could cause the price of the security to
be higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid could have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters make any representation that the representatives
will engage in such transactions or that any such transaction, once commenced,
will not be discontinued without notice.
Purchasers of the shares of common stock offered in this prospectus
may be required to pay stamp taxes and other charges under the laws and
practices of the country of purchase, in addition to the offering price listed
on the cover of this prospectus.
At our request, Lehman Brothers Inc. has reserved up to __ shares of
the common stock, or ___% of the common stock offered by this prospectus, for
sale under a directed share program to officers, directors and employees and
their family members of Comverse and its affiliates, including Ulticom, and
friends of management of Comverse and us. All of the persons purchasing the
reserved shares must commit to purchase no later than the close of business on
the day following the date of this prospectus. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase the reserved shares.
The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.
62
<PAGE>
Lehman Brothers Inc. has served as underwriter and manager for five
security offerings for Comverse in the past and has received customary
compensation for these services.
LEGAL MATTERS
The validity of the shares of common stock being offered hereby and
certain other legal matters in connection with this offering with respect to New
Jersey law will be passed upon for Ulticom by Sills Cummis Radin Tischman
Epstein & Gross, P.A., Newark, New Jersey. Certain legal matters in connection
with this offering with respect to New York laws and the federal laws of the
United States will be passed upon for Ulticom by Weil, Gotshal & Manges LLP, New
York, New York. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Chadbourne & Parke LLP, New York, New York.
EXPERTS
The financial statements included in this prospectus and in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing in this prospectus, and have been
so included in reliance on the report of such firm given upon their authority as
experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act of 1933, as amended,
with respect to the shares of common stock to be sold in the offering. This
prospectus does not contain all the information set forth in the Registration
Statement. We refer you to the Registration Statement for further information
with respect to us and the shares of common stock to be sold in the offering.
With respect to any statement contained in this prospectus as to the contents of
any contract, agreement or other document referred to herein, we refer you to
the contract, agreement or other document filed as an exhibit to the
Registration Statement. Each such statement is qualified in all respects by
reference to the exhibit.
You may read and copy all or any portion of the Registration
Statement or any other information we file at the Securities and Exchange
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our Securities and Exchange
Commission filings, including the Registration Statement, are also available to
you on the Securities and Exchange Commission's Web site (http://www.sec.gov).
As a result of the offering, we will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and, in accordance the Exchange Act, we will file periodic reports,
proxy statements and other information with the Securities and Exchange
Commission. Upon approval of the common stock for the quotation on the Nasdaq
National Market, any of these reports, proxy and information statements and
other information may also be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, D.C. 20006.
REPORTS TO SHAREHOLDERS
We intend to furnish our shareholders annual reports containing
audited financial statements and will make available copies of quarterly reports
for the first three quarters of each year containing unaudited interim financial
information.
63
<PAGE>
ULTICOM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report ..................................................................... F-2
Balance Sheets as of January 31, 1999 and 2000 ................................................... F-3
Statements of Operations for the year ended December 31, 1997, the one month
ended January 31, 1998, the years ended January 31, 1999 and 2000................................. F-4
Statements of Stockholders' Equity (Deficit) for the year ended December 31, 1997, the one
month ended January 31, 1998, the years ended January 31, 1999 and 2000.......................... F-5
Statements of Cash Flows for the year ended December 31, 1997, the one month
ended January 31, 1998, the years
ended January 31, 1999 and 2000................................................................... F-6
Notes to the Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Ulticom, Inc.
Mt. Laurel, New Jersey
We have audited the accompanying balance sheets of Ulticom, Inc. (the "Company")
as of January 31, 1999 and 2000, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the year ended December 31,
1997, the one month ended January 31, 1998 and the years ended January 31, 1999
and 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of January 31, 1999 and 2000,
and the results of its operations and its cash flows for the year ended December
31, 1997, the one month ended January 31, 1998 and the years ended January 31,
1999 and 2000 in conformity with generally accepted accounting principles.
New York, New York
February 25, 2000 (March __, 2000 as to Note 1)
------------------------------
To the Stockholders of
Ulticom, Inc.
Mt. Laurel, New Jersey
The financial statements included herein reflect the approval by the Company's
Board of Directors of the 3.2727-for-one stock split of the Company's common
stock and the increase in authorized capital stock to 210,000,000 shares, of
which 200,000,000 shares will be designated as common stock and 10,000,000
shares will be authorized without designation as further described in Note 1 to
the financial statements. The above report is in the form that will be signed by
Deloitte & Touche LLP upon the effectiveness of such event assuming that from
February 25, 2000 to the date of such event, no other events shall have occurred
that would affect the accompanying financial statements or notes thereto.
/s/ Deloitte & Touche LLP
New York, New York
February 29, 2000
F-2
<PAGE>
ULTICOM, INC
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1999 2000
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................................................... $ 2,544 $ 6,299
Accounts receivable, net of allowance for doubtful accounts of $205 and $250 .................. 1,525 3,162
Due from related parties ...................................................................... 1,662 1,009
Inventories ................................................................................... 873 1,812
Prepaid expenses and other current assets ..................................................... 73 408
Deferred tax asset ............................................................................ 167 332
----------- -----------
Total current assets .......................................................................... 6,844 13,022
Property and equipment, net ................................................................... 1,739 3,190
Other assets .................................................................................. 300 1,152
----------- -----------
TOTAL ASSETS .................................................................................. $ 8,883 $17,364
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses ......................................................... $ 2,154 $ 4,225
Deferred revenue .............................................................................. 2,619 7,438
Due to related parties......................................................................... 4,307 617
----------- -----------
Total current liabilities ..................................................................... 9,080 12,280
----------- -----------
LONG-TERM LIABILITIES:
Note payable, bank ............................................................................ -- 3,800
Deferred tax liability ........................................................................ 257 164
----------- -----------
Total long-term liabilities ................................................................... 257 3,964
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Undesignated stock, no par value, 10,000,000 shares authorized, no shares issued and
outstanding ................................................................................... -- --
Common stock, no par value, 200,000,000 authorized,
32,727,000 issued and outstanding ............................................................. -- --
Additional paid-in capital .................................................................... 10 10
Retained earnings (deficit) ................................................................... (464) 1,110
----------- -----------
Total stockholders' equity (deficit) .......................................................... (454) 1,120
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) .......................................... $ 8,883 $17,364
=========== ===========
See notes to financial statements
</TABLE>
F-3
<PAGE>
ULTICOM, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED YEAR ENDED
DECEMBER 31, JANUARY 31, JANUARY 31,
1997 1998 1999 2000
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales...................................... $ 14,559 $ 212 $ 18,629 $ 25,831
Cost of sales.............................. 4,495 294 6,131 8,883
------------ ----------- ----------- -----------
Gross profit............................... 10,064 (82) 12,498 16,948
Operating expenses:
Research and development................... 2,398 205 4,706 6,015
Selling, general and administrative........ 3,891 348 4,948 8,124
------------ ----------- ----------- -----------
Income (loss) from operations.............. 3,775 (635) 2,844 2,809
Interest income (expense), net............. (507) (45) (350) (271)
------------ ----------- ----------- -----------
Income (loss) before income taxes.......... 3,268 (680) 2,494 2,538
Income tax provision (benefit)............. 1,213 (249) 927 964
------------ ----------- ----------- -----------
Net income (loss).......................... $ 2,055 $ (431) $ 1,567 $ 1,574
============ ============ ============ ============
Earnings (loss) per share:
Basic...................................... $ 0.06 $ (0.01) $ 0.05 $ 0.05
============ ============ ============ ============
Diluted.................................... $ 0.06 $ (0.01) $ 0.05 $ 0.05
============ ============ ============ ============
</TABLE>
See notes to financial statements
F-4
<PAGE>
ULTICOM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
EARNINGS
NUMBER OF SHARES PAR VALUE PAID-IN CAPITAL (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997............... 32,727 $ - $ 10 $ (3,399) $ (3,389)
Net income............................. 2,055 2,055
------ ------ ------ ------ ------
BALANCE, December 31, 1997............. 32,727 - 10 (1,344) (1,334)
Net loss............................... (431) (431)
Dividend to Parent..................... (256) (256)
------ ------ ------ ------ ------
BALANCE, January 31, 1998.............. 32,727 - 10 (2,031) (2,021)
Net income............................. 1,567 1,567
------ ------ ------ ------ ------
BALANCE, January 31, 1999.............. 32,727 - 10 (464) (454)
Net income............................. 1,574 1,574
------ ------ ------ ------ ------
BALANCE, January 31, 2000 ............. 32,727 $ - $ 10 $ 1,110 $ 1,120
</TABLE>
See notes to financial statements
F-5
<PAGE>
ULTICOM, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
ONE MONTH
YEAR ENDED ENDED
DECEMBER 31, JANUARY 31, YEAR ENDED JANUARY 31,
1997 1998 1999 2000
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) .................................... $ 2,055 $ (431) $ 1,567 $ 1,574
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 529 42 1,408 1,689
Deferred income taxes ............................. 136 8 276 (258)
Changes in assets and liabilities:
Accounts receivable ............................... (95) 319 (140) (1,637)
Due from related parties .......................... (1,025) (30) 118 653
Inventories ....................................... (873) (91) 91 (939)
Prepaid expenses and other current assets ......... 467 (30) 56 (335)
Other assets ...................................... (3) 29 (14) (507)
Accounts payable and accrued expenses ............. 680 (88) 335 2,071
Deferred revenue .................................. 1,785 119 263 4,819
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 3,656 (153) 3,960 7,130
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................ (883) (72) (1,254) (2,853)
Capitalization of software development costs ...... -- -- (508) (632)
--------- --------- --------- ---------
Net cash used in investing activities ............. (883) (72) (1,762) (3,485)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend to parent ................................ -- (256) -- --
Note payable, bank ................................ -- -- -- 3,800
Due to related parties ............................ (2,058) 35 (238) (3,690)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities (2,058) (221) (238) 110
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . 715 (446) 1,960 3,755
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....... 315 1,030 584 2,544
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............. $ 1,030 $ 584 $ 2,544 $ 6,299
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest: ........................... $ -- $ -- $ -- $ --
========= ========= ========= =========
Cash paid for taxes ............................... $ -- $ -- $ -- $ 48
========= ========= ========= =========
</TABLE>
See notes to financial statements
F-6
<PAGE>
ULTICOM, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997,
ONE MONTH ENDED JANUARY 31, 1998, AND
YEARS ENDED JANUARY 31, 1999 AND 2000
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY BUSINESS AND BACKGROUND - Ulticom, Inc., ("the Company"), formerly
DGM&S Telecom, Inc., a New Jersey corporation and subsidiary of Comverse
Technology, Inc. ("Comverse"), is engaged in the design, development,
manufacture, marketing and support of software and hardware for use in the
communications industry. In May 1999, the Company amended its certificate
of incorporation to change its name from DGM&S Telecom, Inc. to Ulticom,
Inc.
RECAPITALIZATION - In December 1998, the Company amended its certificate
of incorporation to increase its authorized capital stock to 110,000,000
shares without par, of which 100,000,000 shares were designated as common
stock and 10,000,000 shares were authorized without designation and
available for issuance with such designations and relative rights,
preferences and limitations as may be specified from time to time by the
Board of Directors. The Company expects to amend its certificate of
incorporation in connection with its initial public offering to increase
its authorized capital stock to 210,000,000 shares without par, of which
200,000,000 will be designated as common stock and 10,000,000 shares will
be authorized without designation and available for issuance with such
designations and relative rights, preferences and limitations as may be
specified from time to time by the Board of Directors.
Effective as of December 31, 1998, the Board of Directors declared a stock
dividend on its outstanding common stock at the rate of 100,000 new common
shares for each outstanding share. The Company expects to further revise
its capital structure in connection with its initial public offering to
effect a 3.2727-for-one stock split for each outstanding share of its
common stock. All references to per share amounts and the number of shares
in these financial statements have been adjusted to reflect the stock
dividend and the expected increase in authorized capital stock and the
expected stock split.
BASIS OF PRESENTATION - In January 1998, in connection with the merger of
Comverse with another company, the Company along with Comverse changed its
fiscal year from a calendar year to the year ending January 31. This
report presents the financial statements of the Company for the year ended
December 31, 1997, the one-month period ended January 31, 1998, and the
years ended January 31, 1999 and 2000.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair value amounts
have been determined by the Company, using available market information
and appropriate valuation methodologies. However, considerable judgement
is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Company could realize
in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimate
fair value amounts.
F-7
<PAGE>
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
expose the Company to a concentration of credit risk consist of cash and
cash equivalents and trade receivables. The Company places its cash
investments with high quality financial institutions. The Company sells
its products to customers who are dispersed across many geographic regions
and who are principally in the communications industry. The Company
believes no significant concentration of credit risk exists with respect
to these cash investments and accounts receivable. The carrying amount of
the financial instruments are reasonable estimates of their fair value.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
is determined by the first in, first out (FIFO) method.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost less
accumulated depreciation and amortization. The Company depreciates its
furniture and equipment using straight-line depreciation over periods
ranging from three to seven years. Leasehold improvements are amortized
over the lesser of the term of the respective lease or the estimated
useful lives of the improvements (7 years). The cost of maintenance and
repairs are charged to operations as incurred. Significant renewals and
betterments are capitalized.
INCOME TAXES - The Company accounts for income taxes under the asset and
liability method. Under this method, deferred tax assets and liabilities
are determined based on differences between the financial reporting and
the tax bases of assets and liabilities, and are measured using the
enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse. For federal income tax purposes, the
Company's results will be included in the Comverse consolidated tax return
as long as Comverse retains beneficial ownership of at least 80% of the
total voting power and value of the outstanding common stock of the
Company. Income taxes are determined as if the Company was a separate
taxpayer. Income tax currently payable has been charged to the due to
related parties account in the period that the liability arose. Under the
tax sharing agreement between the Company and Comverse, the Company does
not receive any benefit for losses that it incurs. Accordingly, for the
one month ended January 31, 1998 the benefit attributable to the loss
incurred by the Company has been reflected as a deemed dividend to
Comverse.
REVENUE AND EXPENSE RECOGNITION - Revenues from product sales are
generally recognized upon shipment. The Company provides its customers
with post-contract support services, which generally consist of bug-fixing
and telephone access to the Company's technical personnel, but may also
include the right to receive product updates, upgrades and enhancements.
Revenue from these services is recognized ratably over the contract
period. Post-contract support services included in the initial licensing
fee are allocated from the total contract amount based on the relative
fair value of vendor specific objective evidence ("VSOE"). For
multi-element arrangements, VSOE of fair value is determined based on the
price charged when the same element is sold separately or, for elements
not yet being sold separately, the price established by management having
the relevant authority. If VSOE of fair value does not exist for one or
more delivered elements of a multi-element arrangement and VSOE of fair
value exists for all undelivered elements, then revenue is recognized
using the "residual method."
Deferred revenue consist primarily of amounts billed to customers pursuant
to terms specified in contracts but for which revenue has not been
recognized.
Included in Sales are license revenues amounting to approximately
$6,651,000, $74,000, $7,946,000 and $5,270,000 for the year ended December
31, 1997, the one month ended January 31, 1998,
F-8
<PAGE>
and the years ended January 31, 1999 and 2000. The related costs of
revenues associated with these license revenues were not material in each
of the periods presented.
Expenses incurred in connection with research and development activities,
other than certain software development costs that are capitalized, and
selling, general and administrative expenses are charged to operations as
incurred.
SOFTWARE DEVELOPMENT COSTS - Software development costs are capitalized
upon the establishment of technological feasibility and are amortized over
the estimated useful life of the software, which has been four years or
less. Amortization begins in the period when the product is available for
general release to customers. Amortization expenses amounted to $211,000,
$18,000, $134,000, and $287,000 for the year ended December 31, 1997, the
one-month ended January 31, 1998 and the years ended January 31, 1999 and
2000, respectively. In the year ended January 31, 1999, the Company
recorded an impairment loss of $619,000 to reduce the carrying value of
the software development costs to their net realizable value.
COMPREHENSIVE INCOME - In 1997, the Financial Accounting Standards Board
("FASB") issued Statement No. 130, Reporting Comprehensive Income. The
statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The statement became effective for the Company
beginning January 1, 1998. For all periods presented, the Company had no
components of comprehensive income other than net income.
LONG LIVED ASSETS - The Company reviews for the impairment of long-lived
assets and certain identifiable intangibles whenever events change, or
changes in circumstance indicate that the carrying amount of an asset may
not be recoverable. An impairment loss would be recognized when estimated
future cash flows expected to result from the use of an asset and its
eventual disposition is less than its carrying amount. The Company has
identified no such impairment losses.
PERVASIVENESS OF ESTIMATES - The preparation of the financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures 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.
RECLASSIFICATIONS - Certain prior year balances have been reclassified to
conform with the current year classifications.
F-9
<PAGE>
2. INVENTORIES
Inventories consist of the following:
JANUARY 31,
1999 2000
---- ----
(IN THOUSANDS)
Work in process............................. $ 454 $ 709
Finished goods.............................. 419 1,103
------ ---------
$ 873 $ 1,812
======= =========
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JANUARY 31,
1999 2000
---- ----
(IN THOUSANDS)
Furniture and equipment............ $ 5,894 $ 4,407
Transportation equipment........... 66 -
Leasehold improvements............. 102 158
6,062 4,565
Less: accumulated depreciation.... (4,323) (1,375)
$ 1,739 $ 3,190
4. OTHER ASSETS
Other assets consist of the following:
JANUARY 31,
1999 2000
---- ----
(IN THOUSANDS)
Software development costs,
net of accumulated amortization of $2,327 and
$2,431.................................... $ 129 $ 658
Other assets................................. 171 494
$ 300 $ 1,152
F-10
<PAGE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
JANUARY 31,
1999 2000
---- ----
(IN THOUSANDS)
Accounts payable...................... $ 559 $ 716
Accrued salaries and benefits......... 959 2,039
Other................................. 636 1,470
--------- ---------
$ 2,154 $ 4,225
========= =========
6. RELATED PARTY TRANSACTIONS
The Company sells products and provides services to other subsidiaries of
Comverse. Sales to related parties were approximately $2,681,000, $42,000,
$3,789,000 and $4,679,000 for the year ended December 31, 1997, the one
month ended January 31, 1998, and the years ended January 31, 1999 and
2000, respectively. The amounts charged to related parties for
administrative services were approximately $1,106,000, $152,000, $644,000
and $42,000, for the year ended December 31, 1997, the one month ended
January 31, 1998, and the years ended January 31, 1999 and 2000,
respectively. These charges are included in their entirety in selling,
general and administrative expenses. The Company was charged interest on
balances owed to Comverse amounting to approximately $532,000, $48,000,
$419,000 and $362,000 for the year ended December 31, 1997, the one month
ended January 31, 1998, and the years ended January 31, 1999 and 2000,
respectively.
The Company has a services agreement with Comverse. Under this agreement,
Comverse provides the Company with various administrative and consulting
services. The Company has agreed to pay to Comverse a quarterly fee of
$150,000, payable in arrears at the end of each fiscal quarter, in
consideration for all services provided by Comverse during such fiscal
quarter. The Company was charged $600,000 in each of the years ended
December 31, 1997, January 31, 1999 and January 31, 2000, for consulting
and other corporate services provided by Comverse. In addition, the
Company has agreed to reimburse Comverse for any out-of-pocket expenses
incurred by Comverse in providing the services. The term of the agreement
extends to January 31, 2003 and is automatically extended for additional
twelve-month periods unless terminated by either party.
In January 2000, the Company secured a bank loan in the amount of $3.8
million. Such loan bears interest at LIBOR plus 0.35%, matures in July
2001 and may be prepaid without penalty at six month intervals. As of
January 31, 2000, the interest rate on the loan was 6.6%. The proceeds of
such loan were used to repay amounts owed to related parties. The loan is
secured by a deposit made by Comverse with the bank. The fair value of the
loan approximates market value due to the recent issuance of such debt.
F-11
<PAGE>
STOCK OPTIONS
EMPLOYEE STOCK OPTIONS - At January 31, 2000, 3,272,700 shares of common
stock were reserved for issuance upon exercise of options then outstanding
and 3,227,300 options were available for future grant under the Company's
stock option plan. Options under the plan may be granted to key employees,
directors, and other persons rendering services to the Company. Options
which are designated as "incentive stock options" under the option plans
may be granted with an exercise price not less than the fair market value
of the underlying shares at the date of grant and are subject to certain
quantity and other limitations specified in Section 422 of the Internal
Revenue Code. Options which are not intended to qualify as incentive stock
options may be granted at any price, but not less than the par value of
the underlying shares, and without restriction as to amount. The options
and the underlying shares are subject to adjustment in accordance with the
terms of the plans in the event of stock dividends, recapitalizations and
similar transactions.
The changes in the number of options were as follows:
<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED
DECEMBER 31, JANUARY 31, YEARS ENDED JANUARY 31,
------------ ----------- ----------- -----------
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Outstanding at beginning of period.............. - - - 2,899,612
Granted during the period....................... - - 3,655,606 877,084
Exercised during the period..................... - - - -
Canceled, terminated and expired................ - - (755,994) (503,996)
Outstanding at end of period.................... - - 2,899,612 3,272,700
</TABLE>
All of the options vest seven years from the date of grant. The options
contain acceleration provisions upon certain events (an "Acceleration
Event"), including a public offering of the Company's common stock
registered under the Securities Act of 1933. Upon the happening of an
Acceleration Event, the options vest in four equal annual increments from
the date of the Acceleration Event.
Weighted average option exercise price information were as follows:
<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED YEARS ENDED
DECEMBER 31, JANUARY 31, JANUARY 31,
------------ ----------- -----------
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Outstanding at beginning of period.................... $ - $ - $ - $ 2.21
Granted during the period............................. - - 2.17 3.71
Exercise during the period............................ - - - -
Canceled, terminated and expired...................... - - 1.99 2.51
Outstanding at end of period.......................... $ - $ - $ 2.21 $ 2.57
</TABLE>
F-12
<PAGE>
Significant option groups outstanding at January 31, 2000, and related
weighted average price and life information were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.99 1,777,076 8.01 $1.99 - $ -
$2.75 703,631 8.83 2.75 - -
$3.36 343,633 9.10 3.36 - -
$3.97 448,360 9.50 3.97 - -
---------- ---- ------ -------- --------
3,272,700 8.50 $2.57 - $ -
========= ==== ===== ======== ========
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its option plans. Accordingly, as all options have been
granted at exercise prices equal to fair market value on the date of
grant, no compensation expense has been recognized by the Company in
connection with its stock-based compensation plans. Had compensation cost
for the Company's stock plans been determined based upon the fair value at
the date of grant for awards under these plans consistent with the
methodology prescribed under Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation", the Company's
net income and earnings per share would be reduced by approximately
$196,763 and $297,447 or $0.01 and $0.01 per diluted share for the years
ended January 31, 1999 and 2000, respectively. The weighted average fair
value of the options granted during the years ended January 31, 1999 and
2000 is estimated at $0.66 and $1.21, respectively, on the date of grant
(using the Black-Scholes option pricing model) assuming an expected life
of seven years and assuming the following weighted average assumptions:
(i) volatility of 0% and risk free interest rate of 5.4% for the year
ended January 31, 1999, and (ii) volatility of 0% and risk free interest
rate of 5.8% for the year ended January 31, 2000.
8. EARNINGS PER SHARE ("EPS")
Basic earnings per share is determined by using the weighted average
number of shares of common stock outstanding during each period. Diluted
earnings per share further assumes the issuance of common shares for all
dilutive potential shares outstanding. The calculation for earnings per
share for the year ended December 31, 1997, the one-month period ended
January 31, 1998, and the years ended January 31, 1999 and 2000 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JANUARY 31, 1998
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income (Loss)................. $ 2,055 32,727 $ 0.06 $ (431) 32,727 $ (0.01)
Effect of Dilutive Securities-Options - - - - - -
Diluted EPS....................... $ 2,055 32,727 $ 0.06 $ (431) 32,727 $ (0.01)
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31, 1999 JANUARY 31, 2000
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income....................... $ 1,567 32,727 $ 0.05 $ 1,574 32,727 $ 0.05
Effect of dilutive securities-
options.......................... - 360 - - 1,032 -
Diluted EPS...................... $ 1,567 33,087 $ 0.05 $1,574 33,759 $ 0.05
</TABLE>
9. INTEREST INCOME (EXPENSE), NET
Interest income (expense), net consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED YEAR ENDED
DECEMBER 31, JANUARY 31, JANUARY 31,
1997 1998 1999 2000
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income......................... $ 25 $ 3 $ 69 $ 103
Interest expense........................ (532) (48) (419) (374)
Net..................................... $ (507) $ (45) $ (350) $ (271)
</TABLE>
F-14
<PAGE>
10. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, ONE MONTH ENDED JANUARY 31, YEAR ENDED JANUARY 31,
1997 1998 1999 2000
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal................... $ 958 $ (229) $ 578 $ 1,075
State..................... 119 (28) 73 147
----------- --------- ---------- ----------
Total current................ 1,077 (257) 651 1,222
----------- --------- ---------- ----------
Deferred (benefit):
Federal................... 122 7 249 (246)
State..................... 14 1 27 (12)
----------- --------- ---------- ----------
Total deferred............... 136 8 276 (258)
----------- --------- ---------- ----------
$ 1,213 $ (249) $ 927 $ 964
========== ========= ========= =========
</TABLE>
The reconciliation of the U.S. Federal statutory tax rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, ONE MONTH ENDED JANUARY 31, YEAR ENDED JANUARY 31,
1997 1998 1999 2000
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
U.S. Federal 34% (34%) 34% 34%
statutory rate:..............
State taxes, net............. 3 (3) 3 4
------- ------- --------- -------
Company's
effective tax rate........... 37% (37%) 37% 38%
======= ======= ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
significant items comprising the Company's deferred tax asset and liability at
January 31, 1999 and 2000 are as follows:
F-15
<PAGE>
JANUARY 31,
1999 2000
---- ----
(IN THOUSANDS)
Deferred tax asset:
Accrued liabilities and other........... $ 105 $ 239
Allowance for doubtful accounts......... 62 93
Total deferred tax asset................ 167 332
Deferred tax liability:
Depreciation............................ (257) (164)
Total deferred tax liability............ (257) (164)
Net deferred tax asset (liability)...... $ (90) $ 168
F-16
<PAGE>
11. BUSINESS SEGMENT INFORMATION
The Company is engaged in one business segment: the design, development,
manufacture, marketing and support of special software and hardware for
the communications industry.
Sales by country, as a percentage of total sales is as follows:
<TABLE>
<CAPTION>
YEAR ENDED ONE MONTH ENDED YEAR ENDED
DECEMBER 31, JANUARY 31, JANUARY 31,
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States........ 50% 78% 49% 37%
Germany.............. 13% - 13% 12%
Israel............... 19% 20% 20% 18%
England.............. 11% 1% 7% 5%
Sweden............... - - 3% 16%
Other................ 7% 1% 8% 12%
Total................ 100% 100% 100% 100%
</TABLE>
The Company has no significant long-lived assets deployed outside of the
United States. For the year ended December 31, 1997, subsidiaries of
Comverse, Qualcomm, Siemens and Sun Microsystems, accounted for
approximately 19%, 13%, 13% and 10%, respectively, of the Company's
sales. For the one month ended January 31, 1998, Amdahl, subsidiaries of
Comverse and Compaq accounted for approximately 50%, 20% and 14%,
respectively, of the Company's sales. For the year ended January 31,
1999, subsidiaries of Comverse and Siemens accounted for approximately
20% and 13%, respectively, of the Company's sales. For the year ended
January 31, 2000, Ericsson, subsidiaries of Comverse, and Siemens
accounted for approximately 20%, 18% and 12%, respectively, of the
Company's sales.
12. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases office space under non-cancelable operating
leases. Rent expense for all leased premises approximated $443,000,
$46,000, $541,000 and $593,000 and for the year ended December 31, 1997,
the one month ended January 31, 1998, and the years ended January 31, 1999
and 2000, respectively. For the year ended December 31, 1997, the one
month ended January 31, 1998 and the years ended January 31, 1999 and
2000, the Company received rental income from other subsidiaries of
Comverse of $213,000, $18,000, $138,000, and $0, respectively, for their
proportionate share of the leased space. At January 31, 2000, the Company
does not share office space with any subsidiaries of Comverse.
As of January 31, 2000, the minimum rent obligations of the Company were
approximately as follows:
F-17
<PAGE>
YEARS ENDING
JANUARY 31, AMOUNT
----------- ------
(IN THOUSANDS)
2001 $ 537
2002 464
2003 483
2004 503
2005 and thereafter 1,212
----------
$ 3,199
LITIGATION - The Company is subject to legal actions arising in the normal
course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that their final
resolution will not have a significant adverse effect on the Company's
business or its financial statements.
F-18
<PAGE>
[INSIDE BACK COVER]
<PAGE>
4,250,000 Shares
[LOGO]
Common Stock
PROSPECTUS
_____________, 2000
LEHMAN BROTHERS
CHASE H&Q
U.S. BANCORP PIPER JAFFRAY
FIDELITY CAPITAL MARKETS
a division of National Financing Services Corporation
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses, other than underwriting commissions, expected to be
incurred by the Company in connection with the issuance and distribution of the
securities being registered under this Registration Statement are estimated to
be as follows:
<TABLE>
<S> <C>
AMOUNT TO
BE PAID
-------
Securities and Exchange Commission Registration Fee.................. $15,584
National Association of Securities Dealers, Inc. Filing Fee.......... 6,365
Nasdaq National Market Filing Fee.................................... 95,000
Printing and Engraving............................................... 200,000
Legal Fees and Expenses.............................................. 400,000
Accounting Fees and Expenses......................................... 200,000
Miscellaneous........................................................ 83,051
------------
Total...................................................... $1,000,000
============
</TABLE>
- --------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The New Jersey Business Corporation Act provides for the power to
indemnify any directors, officers, employees and agents and to purchase and
maintain insurance with respect to liability arising out of their capacity or
status as directors, officers, employees and agents. The indemnification
provisions are not exclusive of any other rights to which directors and officers
may be entitled under a corporation's certificate of incorporation or bylaws,
any agreement, a vote of stockholders or otherwise.
Our certificate of incorporation provides that every person who:
o is or was a director, officer, employee or agent of ours or of
any constituent corporation absorbed by us in a consolidation or
merger, or the legal representative of any such director,
officer, employee or agent, or
o is or was a director, officer, trustee, employee or agent of any
other enterprise, serving as such at our request, or of any such
constituent corporation, or the legal representative of any such
director, officer, trustee, employee or agent.
shall be indemnified to the fullest extent permitted by law for all expenses and
liabilities in connection with any proceeding involving such person in this
capacity. Our certificate also provides that, during the pendency of any such
proceeding, we will advance to the fullest extent permitted by law expenses
incurred from time to time by an indemnified person in connection with the
proceeding, subject to our receipt of an undertaking as required by law. We
intend to enter into an indemnity agreement with each of our directors and
officers, pursuant to which we will agree to provide indemnification and expense
reimbursement as outlined above.
Our bylaws also permit us to secure insurance on behalf of any
officer, director, employee or agent for any liability asserted against or
incurred by these individuals in their capacity, or arising out of
1
<PAGE>
their status, as our officer, director or employee, regardless of whether the
New Jersey Business Corporation Act would permit indemnification. Pursuant to
our services agreement, Comverse has obtained directors' and officers' liability
insurance which also provides coverage for our officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Described below are unregistered securities sold by the Company
during the three years preceding the filing of this Registration Statement:
None
2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
INDEX TO EXHIBITS
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of
Ulticom, Inc.
3.2* Amended and Restated Bylaws of Ulticom, Inc.
4.1* Specimen Common Stock certificate.
4.2 See Exhibit 3.1 for provisions defining the rights of holders
of common stock of the Registrant.
5.1* Opinion of Sills, Cummis, Radin, Tischman, Epstein & Gross,
P.A.
10.1 Services Agreement, dated as of February 1, 1998, between
Comverse Technology, Inc. and Ulticom, Inc.
10.2 Federal Income Tax Sharing Agreement, dated as of December
21, 1999, between Comverse Technology, Inc. and Ulticom, Inc.
10.3 Patent License Agreement, dated January 12, 2000 between
Comverse Patent Holding Company, Inc. and Ulticom, Inc.
10.4* License Agreement, dated _______, between Comverse Network
Systems, Inc. and Ulticom, Inc.
10.5 Registration Rights Agreement, dated as of January 1, 2000,
between Comverse Technology Inc. and Ulticom, Inc.
10.6 Business Opportunities Agreement, dated as of January 1,
1999, between Comverse Technology Inc. and Ulticom, Inc.
10.7 Form of Director Indemnification Agreement
10.8 1998 Stock Incentive Compensation Plan
11.1 Statement re: Computation of Basic and Diluted Earnings
(Loss) Per Share.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Sills Cummis Radin Tischman Epstein & Gross, P.A.
(included in Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page).
27.1 Financial Data Schedule.
- -------------
* To be supplied by amendment.
(b) Financial Statement Schedules.
None
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under Item 14 above, 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
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<PAGE>
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule
430A and contained in 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.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 29th day of February, 2000.
ULTICOM, INC.
By: /s/ Shawn K. Osborne
---------------------------------------------
Name: Shawn K. Osborne
Title: President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Ulticom, Inc. (the
"Company") and each of us, do hereby constitute and appoint Shawn Osborne and
David Kreinberg, or either of them, our true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, to do any and
all acts and things in our names and on our behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated above, which said attorneys or agents, or
either of them, may deem necessary or advisable to enable the Company to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, and any and all
amendments (including post-effective amendments) to this Registration Statement,
in connection with the public offering of the common stock of the Company,
including specifically but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) to such Registration Statement;
and we do hereby ratify and confirm all that the said attorneys and agents, or
their substitute or substitutes, or either of them, shall do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Kobi Alexander Chairman of the Board and Director February 29, 2000
- --------------------------------------------
Kobi Alexander
/s/ Shawn K. Osborne President and Chief Executive Officer and Director February 29, 2000
- --------------------------------------------
Shawn K. Osborne
/s/ David Kreinberg Chief Financial Officer and Director February 29, 2000
- --------------------------------------------
David Kreinberg (Principal Financial and Accounting Officer)
/s/ William F. Sorin Director February 29, 2000
- --------------------------------------------
William F. Sorin
5
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Paul D. Baker Director February 29, 2000
- --------------------------------------------
Paul D. Baker
Director February __, 2000
- --------------------------------------------
Yaacov Koren
</TABLE>
6
<PAGE>
INDEX TO EXHIBITS
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of
Ulticom, Inc.
3.2* Amended and Restated Bylaws of Ulticom, Inc.
4.1* Specimen Common Stock certificate.
4.2 See Exhibit 3.1 for provisions defining the rights of holders
of common stock of the Registrant.
5.1* Opinion of Sills, Cummis, Radin, Tischman, Epstein & Gross,
P.A.
10.1 Services Agreement, dated as of February 1, 1998, between
Comverse Technology, Inc. and Ulticom, Inc.
10.2 Federal Income Tax Sharing Agreement, dated as of December
21, 1999, between Comverse Technology, Inc. and Ulticom, Inc.
10.3 Patent License Agreement, dated January 12, 2000, between
Comverse Patent Holding Company, Inc. and Ulticom, Inc.
10.4* License Agreement, dated _______, between Comverse Network
Systems, Inc. and Ulticom, Inc.
10.5 Registration Rights Agreement, dated as of January 1, 2000,
between Comverse Technology Inc. and Ulticom, Inc.
10.6 Business Opportunities Agreement, dated as of January 1,
1999, between Comverse Technology Inc. and Ulticom, Inc.
10.7 Form of Director Indemnification Agreement.
10.8 1998 Stock Incentive Compensation Plan
11.1 Statement re: Computation of Basic and Diluted Earnings
(Loss) Per Share.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Sills Cummis Radin Tischman Epstein & Gross, P.A.
(included in Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page).
27.1 Financial Data Schedule.
- -------------
* To be supplied by amendment.
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement"), dated as of
February 1, 1998, between Comverse Technology Inc., a New York corporation
("Comverse"), and Ulticom, Inc., a New Jersey corporation (together with its
subsidiaries, the "Company").
WHEREAS, the Company is a wholly owned subsidiary of
Comverse; and
WHEREAS, the Company desires that Comverse, its
subsidiaries and affiliates (hereinafter collectively referred to as "Comverse")
provide to the Company certain services in order to assist the Company, and
Comverse is willing to do so, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Services. During the period commencing on the date
hereof and ending upon termination of this Agreement (as provided in Section 3
below), Comverse shall provide to the Company the following services (the
"Services"):
1.1 Consulting on Financial Planning and Reporting.
Comverse shall provide consulting services with respect to financial planning
and reporting, including without limitation, managing the external auditor
relationship (including fee negotiation, audit scheduling and management letter
representation) as well as handling daily banking activities, cash flow
planning, including loan borrowings and paydowns, investing idle cash balances,
cash forecasting, cash flow reporting and budgeting and capital spending
administration.
1.2 Routine Legal Services. Comverse shall provide routine
legal services to the Company, including without limitation, consultations on
strategies and governmental compliance, attorney selection, reviewing legal
bills and participating in settlement discussions.
1.3 Administration of Employee Benefit Plans. Comverse
shall assist the Company in administering the Company's employee benefit plans,
including without limitation, administering any management incentive plans and
employee profit sharing plans, monitoring and processing pension and 401(k)
plans and employee benefit enrollment, making required employee benefit related
IRS filings, handling other related compliance tasks and general benefits
consulting.
1.4 Directors' and Officers' Insurance. Comverse shall
cause to be maintained in effect a policy of directors' and officers' liability
insurance covering the
hcyq05.DOC
<PAGE>
Company's directors and officers with at least the same coverage with respect to
matters and terms as in effect for Comverse and its directors and officers.
1.5 Consulting on Public Relations. Comverse shall provide
consulting services with respect to the Company's public relations, including
without limitation, reviewing accounting pronouncements and advising the Company
on proper accounting and reportable amounts related to pronouncements [(such as
FASB 106 and FASB 109)].
Comverse and the Company agree that Comverse shall furnish
the Services using commercially reasonable efforts consistent with the needs of
the Company and the availability of Comverse's officers and other employees.
Comverse in its sole discretion will determine which personnel shall perform the
Services.
2. Fees and Payment. The Company shall pay Comverse a
quarterly fee of $150,000, payable in arrears at the end of each fiscal quarter,
in consideration for all Services provided by Comverse to the Company under this
Agreement during such fiscal quarter. The quarterly fee shall be subject to
adjustment as may be agreed upon in writing from time to time by Comverse and
the Company. In addition, the Company shall reimburse Comverse for any
out-of-pocket expenses incurred by Comverse in providing Services hereunder
(other than compensation to Comverse's officers and employees engaged in
rendering such Services to the Company). After the end of each fiscal quarter,
Comverse shall deliver to the Company an invoice for the quarterly fee payable
with respect to Services provided by Comverse under this Agreement, plus all
expenses in respect of which Comverse seeks reimbursement hereunder. The Company
shall pay in full the amount due as stated on each Comverse invoice within
thirty days of the date of such invoice.
3. Term. The term of this Agreement shall commence as of
and from February 1, 1998 and shall continue until January 31, 2002 (the
"Initial Term"); provided, however, that on January 31, 2002 and on each
anniversary of such day thereafter, this Agreement shall be automatically
extended for one (1) additional twelve-month period, unless either party gives
the other party written notice of its election to terminate this Agreement at
least thirty (30) days prior to the end of the Initial Term or the end of any
subsequent twelve-month extension period.
4. Post-Termination Obligation.
4.1 Company's Obligations. The termination of this
Agreement shall not terminate the Company's obligation to provide to Comverse
all information required by Comverse if and when necessary in order to present
Comverse's financial and accounting information in accordance with generally
accepted accounting principles.
4.2 Comverse's Obligation. Comverse agrees to (i) furnish
to the Company such further information, (ii) execute and deliver to the Company
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<PAGE>
such other documents, and (iii) do such other acts and things, all as the
Company may reasonably request in order to permit the Company to file all
certificates, notices, tax returns, documents or other instruments that may be
required by law to be filed by the Company.
5. Confidentiality. Comverse shall keep confidential and
shall not disclose to others any information that is confidential or proprietary
to the Company or that the Company has labeled in writing as confidential or
proprietary to the same extent as it protects its own confidential information
and trade secrets, except as required by law or court order. Comverse may
disclose to third parties any such information provided that (i) the Company
consents to such disclosure, which consent shall not be unreasonably withheld,
and (ii) such third party agrees in writing to be bound by the provisions of
this Section 5 with respect to such information.
6. Compliance with Laws. Each of the Company and Comverse
shall comply in all material respects with any and all applicable statutes,
rules, regulations, orders or restrictions of any domestic or foreign
government, or instrumentality or agency thereof, in respect of the conduct of
its obligations under this Agreement.
7. Default and Remedies.
7.1 Event of Default. A party shall be in default hereunder
if (i) such party commits a material breach of any term of this Agreement and
such breach continues uncured for 30 days following receipt of written notice
thereof from the other party, (ii) such party makes a general assignment for the
benefit of its creditors, (iii) there is a filing seeking an order for relief in
respect of such party in an involuntary case under any applicable bankruptcy,
insolvency or other similar law and such case remains undismissed for 30 days or
more, (iv) a trustee or receiver is appointed for such party or its assets or
any substantial part thereof, or (v) such party files a voluntary petition under
any bankruptcy, insolvency or similar law of the relief of debtors.
7.2 Remedies.
(a) If there is any default by the Company hereunder,
Comverse may exercise any or all of the following remedies: (a) declare
immediately due and payable all sums for which the Company is liable under this
Agreement (including the entire quarterly fee payable in respect of the fiscal
quarter in which such default occurs); (b) decline to perform any of its
obligations hereunder; and/or (c) terminate this Agreement.
(b) If there is any default by Comverse hereunder, the
Company may terminate this Agreement and recover any fees paid in advance for
Services not performed.
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<PAGE>
(c) In addition to the remedies set forth in clauses (i)
and (ii), a non-defaulting party shall have all other remedies available at law
or equity, subject to Section 7.3 below.
7.3 Limitation on Remedies. NOTWITHSTANDING THE FORUM IN
WHICH ANY CLAIM OR ACTION MAY BE BROUGHT OR ASSERTED OR THE NATURE OF ANY SUCH
CLAIM OR ACTION, IN NO EVENT SHALL ANY DIRECTOR, OFFICER, EMPLOYEE OR AGENT OF
COMVERSE BE PERSONALLY LIABLE TO THE COMPANY IN RESPSECT OF ANY SERVICES
RENDERED HEREUNDER BY SUCH PERSON EXCEPT IN THE CASE OF FRAUD. NOTWITHSTANDING
ANYTHING HEREIN TO THE CONTRARY, IN NO EVENT SHALL COMVERSE, ITS SUBSIDIARIES
AND ITS AFFILIATES EXCEPT IN THE CASE OF FRAUD, BE LIABLE TO THE COMPANY IN
CONNECTION WITH OR ARISING OUT OF COMVERSE PROVIDING OR FAILING TO PROVIDE THE
SERVICES SPECIFIED IN THIS AGREEMENT IN AN AMOUNT WHICH SHALL EXCEED THE LESSER
OF (A) THE AMOUNT OF THE CLAIM, OR (B) THE QUARTERLY FEE PAID OR PAYABLE BY THE
COMPANY IN RESPECT OF THE FISCAL QUARTER IN WHICH THE SERVICES GIVING RISE TO
SUCH CLAIM OR ACTION WERE RENDERED OR REQUIRED TO BE RENDERED.
The parties agree that this provision limiting remedies and
liquidating damages is reasonable under the circumstances and the Company
acknowledges that Comverse, its subsidiaries and its affiliates (including
directors, officers, employees and agents) shall have no other financial
liability to the Company whatsoever.
8. Indemnification. The Company shall indemnify, defend and
hold harmless Comverse and its officers, directors, employees or agents from and
against any and all liabilities, claims, damages, losses and expenses
(including, but not limited to, court costs and reasonable attorneys' fees) of
any kind or nature, related to, arising out of or in connection with (a) the
Company's failure to fulfill its obligations hereunder or (b) the performance by
Comverse of Services hereunder, except to the extent that any such liability,
claim, damage, loss or expense is found by a court of competent jurisdiction in
a judgment which has become final in that it is no longer subject to appeal or
review to have resulted primarily from Comverse's willful misconduct, bad faith
or gross negligence.
9. General Provisions.
9.1 Notices. All communications to either party hereunder
shall be in writing and shall be delivered in person or sent by facsimile,
telegram, telex, by registered or certified mail (postage prepaid, return
receipt requested) or by reputable overnight courier to the respective parties
at the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 9.1):
4
<PAGE>
(i) If to Comverse, to:
Comverse Technology, Inc.
909 Third Avenue
New York, New York 10022
Telecopier: (212) 414-1499
Attn: Senior Counsel
(ii) If to the Company, to:
Ulticom, Inc.
1020 Briggs Road
Mt. Laurel, New Jersey 08054
Telecopier: (856) 866-2033
Attn: President and Chief Executive Officer
9.2 Force Majeure. A party shall not be deemed to have
breached this Agreement to the extent that performance of its obligations or
attempts to cure any breach are made impossible or impracticable due to any act
of God, fire, natural disaster, act of government, shortage of materials or
supplies after the date hereof, labor disputes or any other cause beyond the
reasonable control of such party (a "Force Majeure"); provided that the party
whose performance is delayed or prevented promptly notifies the other party of
the Force Majeure cause of such prevention or delay.
9.3 Access. The Company shall make available on a timely
basis to Comverse all information reasonably requested by Comverse to enable it
to provide the Services. The Company shall give Comverse reasonable access,
during regular business hours and at such other times as are reasonably
required, to its premises for the purposes of providing the Services.
9.4 Books and Records. Upon the termination of Services
with respect to which Comverse holds books, records or files, including, but not
limited to, current and archived copies of computer files, owned by the Company
and used by Comverse in connection with the provision of a Service to the
Company, Comverse will return all of such books, records or files as soon as
reasonably practicable. In the event Comverse needs access to such books,
records or files for legal or tax reasons, the Company shall cooperate with
Comverse and make such books, records or files available to Comverse.
9.5 Independent Contractors. The parties shall operate as,
and have the status of, independent contractors and neither party shall act as
or be a partner, co-venturer or employee of the other party. Unless specifically
authorized to do so in writing, neither party shall have any right or authority
to assume or create any obligations or to make any representations or warranties
on behalf of the other party, whether express or implied, or to bind the other
party in any respect whatsoever.
5
<PAGE>
9.6 Amendment and Waiver. No supplement, modification,
waiver or amendment of this Agreement or any provision hereof shall be binding
unless executed in writing and signed by the party to be charged.
9.7 Assignment. Neither Comverse, on the one hand, nor the
Company, on the other, shall be entitled to assign its rights or delegate its
obligations under this Agreement to any third party without the prior written
consent of the other party. Any attempted or purported assignment or delegation
without such required consent shall be void. Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective permitted successors and assigns.
9.8 Governing Law. This Agreement shall be governed by the
law of the State of New York.
9.9 Severability. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid, illegal or
otherwise unenforceable, then such provision shall, to the extent permitted by
the court, not be voided but shall instead be construed to give effect to its
intent to the maximum extent permissible under applicable law and the remainder
of this Agreement shall remain in full force and effect according to its terms.
9.10 Sections and Headings. The sections and headings
contained herein are for the convenience of reference only and are not intended
to define, limit, expand or describe the scope or intent of any clause or
provision of this Agreement.
9.11 Entire Agreement. This Agreement, together with all
exhibits hereto, constitutes the entire agreement and understanding of the
parties relating to the subject matter hereof and supersedes all prior
negotiations and understandings among the parties, both oral and written,
regarding such subject matter.
9.12 Counterparts. This Agreement may be signed in
counterparts and all signed copies of this Agreement shall together constitute
one original of this Agreement.
9.13 No Third Party Beneficiaries. Except as provided in
Section 8, nothing contained in this Agreement, express or implied, is intended
to or shall confer upon anyone other than the parties hereto (and their
successors and permitted assigns) any right, benefit or remedy of any nature
whatsoever under or because of this Agreement except that Services to be
provided by Comverse hereunder shall also be provided, as directed by the
Company, to any wholly-owned subsidiary of the Company, which shall be entitled
to the benefit thereof.
[SIGNATURE PAGE FOLLOWS]
6
<PAGE>
[SIGNATURE PAGE FOR SERVICES AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have duly executed
and delivered this Agreement effective as of the day and year first written
above.
COMVERSE TECHNOLOGY, INC.
By: /s/ David Kreinberg
---------------------------------
Name: David Kreinberg
Title: Cheif Financial Officer
ULTICOM, INC.
By: /s/ Shawn Osborne
---------------------------------
Name: Shawn Osborne
Title: President and
Chief Executive Officer
7
FEDERAL INCOME TAX SHARING AGREEMENT
------------------------------------
This Federal Income Tax Sharing Agreement (the "Agreement")
is made and entered into as of the 21st day of December, 1999, by and among
Comverse Technology, Inc., a New York corporation ("Parent"), and Ulticom, Inc.,
a New Jersey corporation ("Subsidiary").
WHEREAS, Parent and Subsidiary are members of an affiliated
group of corporations, as defined in Section 1504(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), of which Parent is the common parent (the
"Company Group");
WHEREAS, Parent files and will continue to file
consolidated federal income tax returns with Subsidiary; and
WHEREAS, the parties hereto wish to provide for the
allocation among them of consolidated federal income tax liability for taxable
years and certain related matters;
NOW THEREFORE, in consideration of the foregoing promises
and of the mutual covenants herein contained, the parties hereto agree as
follows:
1. Definitions
(a) Terms used in this Agreement shall have the meanings
ascribed to them in, and shall be interpreted in accordance with, the relevant
provisions of the Code and the regulations and rulings issued thereunder, as
from time to time in effect.
(b) For purposes of this Agreement, the terms set forth
below shall be defined as follows:
[email protected]
<PAGE>
(i) Determination - The term "Determination" means and
includes any determination within the meaning of Section 1313(a) of the Code and
any of the events specified in Sections 6213(b) or (d) of the Code.
(ii) Hypothetical Tax Liability - The term "Hypothetical
Tax Liability" as it relates to Subsidiary for a taxable year is the federal
income tax liability and federal estimated tax payments determined by Parent in
its reasonable discretion and computed as if Subsidiary had filed its own
separate federal income tax return or had been required to make its own separate
estimated tax payments (computed without regard to the carryforward or carryback
of any loss, deduction or credit to such taxable year), but subject to the
modifications specified in Treas. Reg. Section 1.1552-1(a)(2)(ii); provided,
that (i) such liability shall be computed using the highest marginal corporate
tax rate in effect for such taxable year; and (ii) if for any taxable year a Tax
would be imposed on Subsidiary pursuant to Section 55 of the Code, Subsidiary's
Hypothetical Tax Liability shall be increased by the amount of Tax that would be
imposed under such section, computed using the alternative minimum tax rates set
forth in Section 55(b)(1) of the Code and taking into account items specified in
Section 55(b)(2) of the Code attributable to Subsidiary.
2. ALLOCATION OF CONSOLIDATED
FEDERAL INCOME TAX LIABILITY
(a) If a consolidated federal income tax return is filed by
Parent on behalf of the Company Group for any taxable year, Subsidiary shall pay
to Parent an amount equal to its Hypothetical Tax Liability for such taxable
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<PAGE>
year. Parent shall provide to Subsidiary a schedule that sets forth in
reasonable detail the calculation of its Hypothetical Tax Liability for such
taxable year.
(b) For purposes of the payment of such Hypothetical Tax
Liability, Parent shall calculate an amount that would be required to be paid
under the estimated tax requirements of Section 6655 of the Code and any other
relevant sections of the Code for Subsidiary. The amount required to be paid by
Subsidiary to Parent pursuant to this paragraph for such taxable year shall be
paid on a current basis not later than the date on which the Company Group's
consolidated federal income tax quarterly estimated tax payments are due to be
paid for such quarter of such taxable year. To the extent that Subsidiary's
Hypothetical Tax Liability for a given year exceeds the aggregate of the
quarterly estimated tax payments made by Subsidiary for such year, Subsidiary
shall make an additional tax payment (together with any and all interest,
additions to tax, fines and penalties with respect thereto) under the
requirements of Section 6151 of the Code. Such final tax payment shall be made
to Parent no later than the date the Company Group consolidated final tax
payment is due. To the extent that the quarterly estimated tax payments made by
Subsidiary during a particular tax year exceed its Hypothetical Tax Liability
for such year, the excess shall be refunded by Parent or credited toward such
Subsidiary's subsequent year's estimated tax payment.
(c) Subsidiary shall provide Parent with all of the tax
related information necessary for Parent to compute (i) Subsidiary's quarterly
estimated tax payments no later than fifteen (15) days before the Company
Group's consolidated federal income tax quarterly estimated tax payments are due
for a particular quarter and (ii) Subsidiary's Hypothetical Tax Liability and
(iii) Subsidiary's share of the Company Group's final tax payment for a taxable
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<PAGE>
year no later than fifteen (15) days before the Company Group's federal income
tax return for such taxable year is due.
3. TAX SAVINGS
No payments shall be made by Parent to Subsidiary for any
loss, deduction or credit generated by such Subsidiary in a taxable year.
4. ADJUSTMENTS TO CONSOLIDATED
FEDERAL INCOME TAX LIABILITY
If pursuant to a Determination, the filing of an amended
tax return or a claim for refund, a change or adjustment (other than a change or
adjustment resulting from the carryback of a deduction, loss or credit) is made
to items reported on a consolidated federal income tax return of the Company
Group, then the amount of the payments required to be made pursuant to Section 2
hereof shall be recomputed for such taxable year in accordance with the
provisions of Section 2 hereof, taking into account such change or adjustment.
The parties recognize that the recomputed liability is not necessarily the final
tax liability and that there may be additional recomputations. Not later than
(i) five (5) days before the due date for any additional payment of tax by
Parent, (ii) five (5) days after the receipt of a refund or (iii) promptly
following the event giving rise to the recomputation if such event will not
result in the payment of additional tax or the receipt of a refund, Parent shall
pay to the Subsidiary, or Subsidiary shall pay to Parent, as the case may be,
the difference between the amount originally paid under Section 2 hereof and the
recomputed amounts.
5. TERMINATION OF AFFILIATION
(a) The parties recognize that at some future date
Subsidiary may cease to be included in the Company Group but continue to be a
corporation subject to federal income tax ( the "Former Member"). In such event,
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<PAGE>
Parent and the Former Member shall consult and shall furnish each other with
information required to prepare accurately (a) the consolidated federal income
tax return of the Company Group for the last taxable year in which the Former
Member was included in the Company Group, and (b) the federal income tax returns
for all taxable years thereafter of the Former Member and Parent, respectively,
in which the tax liability of either may be affected by their former affiliation
(including, for example, the apportionment of any consolidated net operating or
capital loss or general business or foreign tax credit carryover to the Former
Member).
(b) Parent and the Former Member also shall consult and
furnish each other with information concerning the status of any tax audit or
tax refund claim relating to a taxable year in which the Former Member was
included in the Company Group and a consolidated federal income tax return was
filed. The Former Member shall have the right to participate, at its own
expense, with Parent in the relevant portions of any audit of a taxable year
during which the Former Member was a Member of the Company Group and as to which
the Former Member's tax liability for such taxable year may be affected.
(c) Payments which would have been required under this
Agreement to or by the Former Member, were the Former Member still a member of
the Company Group, and with respect to taxable year(s) as to which the Former
Member was a member of the Company Group, shall be so made in accordance with
principles and methodologies set forth in this Agreement and at the time(s) set
forth herein.
5
<PAGE>
6. TERM OF AGREEMENT
This Agreement shall continue in effect until sixty days
after the expiration of the applicable statute of limitations (including all
periods of extension, whether automatic or permissive) with respect to the final
taxable year of the Company Group which includes Subsidiary.
7. INTEREST ON LATE PAYMENTS
Any payment due and owing by one party hereto to another
which is not paid on or before the due date (if any) specified herein shall bear
interest at the blended rate in effect under Section 6621(a)(1) of the Code for
the period beginning on the day after the date the payment is due hereunder to
the date on which the payment is made.
8. EFFECTIVE DATE
This Agreement shall be effective as of August 31, 1995.
9. MISCELLANEOUS PROVISIONS
(a) This Agreement supersedes all prior written or oral
understandings between the parties hereto relating to the subject matter hereof
and contains the entire understanding of the parties hereto with respect to such
subject matter. No alteration, amendment, or modification of any of the terms of
this Agreement shall be valid unless made by an instrument signed in writing by
an authorized officer of each party hereto.
(b) This Agreement has been made in, and shall be construed
and enforced in accordance with the laws of, the State of New York, without
regard to New York's conflict of law principles.
(c) As between the parties hereto, the provisions of this
Agreement shall fix the liability of each to the other as to the matters
provided for herein, regardless of whether such provisions are controlling for
6
<PAGE>
federal income tax or other purposes (including, without limitation,
computations of earnings and profits).
(d) This Agreement shall be binding upon, enforceable by
and against, and inure to the benefit of, the parties hereto and their
respective successors and assigns, and no assignment shall relieve any party's
obligation hereunder without the written consent of the other party.
(e) In case any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be affected or impaired
thereby.
(f) All determinations required hereunder for each taxable
year shall be made by Parent. Such determination shall be final and binding upon
the parties for the purposes hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the 21st day of December, 1999.
COMVERSE TECHNOLOGY, INC.
By: /s/ David Kreinberg
---------------------------------
Name: David Kreinberg
Title: Cheif Financial Officer
ULTICOM, INC.
By: /s/ Shawn Osborne
---------------------------------
Name: Shawn Osborne
Title: President and
Chief Executive Officer
7
PATENT LICENSE AGREEMENT BETWEEN ULTICOM, INC.
AND
COMVERSE PATENT HOLDING COMPANY, INC.
Effective as of December 30, 1999 (the "EFFECTIVE DATE"), by and
between Ulticom, Inc., a New Jersey corporation ("ULTICOM"), having an office at
1020 Briggs Road, Mt. Laurel, New Jersey 08054 and Comverse Patent Holding
Company, Inc. ("COMVERSE"), a Delaware corporation, having a principal place of
business at 1201 Hays Street, Tallahassee, Florida 32301.
WHEREAS, COMVERSE and Lucent Technologies GRL Corp. ("LUCENT GRL")
are entering into a patent license agreement entitled PATENT LICENSE AGREEMENT
between LUCENT TECHNOLOGIES GRL CORP. and COMVERSE PATENT HOLDING COMPANY, INC.
(the "LUCENT AGREEMENT");
WHEREAS, under the LUCENT AGREEMENT, COMVERSE shall license to LUCENT
GRL certain patents owned or otherwise licensable by COMVERSE and the related
companies of COMVERSE and LUCENT GRL shall license to COMVERSE certain patents
owned or otherwise licensable by LUCENT GRL and the related companies of LUCENT
GRL;
WHEREAS, under the LUCENT AGREEMENT, COMVERSE has the right to grant
to ULTICOM a sublicense under the patents that LUCENT GRL has licensed to
COMVERSE; and
WHEREAS, ULTICOM is desirous of acquiring a sublicense under the
patents that LUCENT GRL has licensed to COMVERSE.
NOW, THEREFORE ULTICOM and COMVERSE hereby agree as follows:
1. ULTICOM hereby grants to COMVERSE a paid up license for the term
of this Agreement to make, have made, use, lease, sell, offer to sell, or
import, any product, process, or service under any patent in any country of the
world that ULTICOM owns or otherwise has the right to license at any time during
the term of this Agreement.
2. COMVERSE shall not have the right to grant sublicenses under the
license of paragraph one (1) of this Agreement, except COMVERSE shall have the
right to grant a sublicense to LUCENT GRL in accordance with the terms and
conditions of the LUCENT AGREEMENT.
3. COMVERSE agrees to grant a sublicense to ULTICOM under the patents
licensed to COMVERSE by the LUCENT AGREEMENT and in accordance with the terms
and conditions of the LUCENT AGREEMENT.
4. The term of this Agreement shall be from the EFFECTIVE DATE of
this Agreement until such time as the LUCENT AGREEMENT expires or is otherwise
terminated.
Date January 12, 2000 For COMVERSE PATENT HOLDING COMPANY, INC.
----------------------
by /s/ Paul Z. Robinson
----------------------------------------
Date Jnauary 12, 2000 For ULTICOM, INC.
----------------------
by /s/ Shawn Osborne
----------------------------------------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of January 1,
2000 (this "Agreement"), by and among Ulticom, Inc., a New Jersey corporation
(the "Company"), Comverse Technology, Inc., a New York corporation ("Comverse"),
and any other Person that may be designated by Comverse from time to time and
that agrees to become a party to this Agreement in accordance with the
provisions hereof.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Comverse is the holder of a majority of the
outstanding shares of common stock, no par value, of the Company ("Common
Stock"); and
WHEREAS, Comverse has granted, and from time to time after
the date hereof may continue to grant, to a number of directors, officers and
employees of Comverse or of any subsidiary thereof options to purchase from
Comverse shares of Common Stock held by Comverse ("Options"); and
WHEREAS, a number of directors and officers of Comverse
have purchased shares of Common Stock from Comverse by exercising Options
granted to them by Comverse; and
WHEREAS, the parties hereto desire to enter into this
Agreement which sets forth the registration rights, and certain other related
covenants, applicable to the shares of Common Stock that are (i) held from time
to time by Comverse and/or any of its subsidiaries or (ii) acquired from time to
time by directors, officers or employees of Comverse or of any subsidiary
thereof upon the exercise of Options.
NOW, THEREFORE, in consideration of the premises and the
mutual obligations, covenants and agreements herein contained, the parties
hereto agree as follows:
Article I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" shall mean, with respect to any given Person,
any other Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such Person, and when used with respect to any individual shall also include the
Relatives of such individual. The term "control" (including, with correlative
meaning, the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
$_y205.DOC
<PAGE>
"Business Day" means any day other than a Saturday, Sunday
or other day on which commercial banks in New York City are authorized or
required by law to close.
"Commission" means the Securities and Exchange Commission
or any other similar or successor agency of the United States government
administering the Securities Act.
"Common Stock" means the common stock, no par value, of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934,
and any similar or successor federal statute, and the rules and regulations of
the Commission thereunder, as in effect at the time.
"NASD" shall mean the National Association of Securities
Dealers, Inc. or any successor corporation thereto.
"Option Holder" means any current or former director,
officer or employee of Comverse or of any subsidiary thereof that holds one or
more Options or any Registrable Securities acquired upon the exercise of one or
more Options.
"Options" has the meaning set forth in the recitals hereto.
"Person" means a corporation, an association, a trust, a
partnership, a limited liability company, a joint venture, an organization, a
business, an individual, a government or political subdivision thereof, or a
governmental body.
"Prospectus" means the prospectus included in any
Registration Statement, together with and including any amendment or supplement
to such prospectus, covering the public offering of any portion of the
Registrable Securities covered by a Registration Statement, and all material
incorporated by reference in such Prospectus.
"Registering Shareholder" means any Shareholder whose
Registrable Securities are included in a Registration Statement filed pursuant
to this Agreement.
"Registrable Securities" means: (i) the shares of Common
Stock held by Comverse or any subsidiary thereof on the date hereof or that may
be acquired by Comverse or any subsidiary thereof from time to time after the
date hereof; (ii) the shares of Common Stock acquired before or after the date
hereof upon the exercise of Options and held by any Shareholder; and (iii) any
shares or other securities into which or for which the shares of Common Stock
referred to in clauses (i) and (ii) above may be changed, converted or exchanged
after the date hereof and any other shares or securities issued after the date
hereof in respect of such shares (or such shares or other securities into which
or for which such shares are so changed, converted or exchanged), in each case
2
<PAGE>
upon any reclassification, stock combination, stock subdivision, stock dividend,
share exchange, merger, consolidation or similar transaction; provided, however,
that a security will cease to be a Registrable Security when it (i) has been
effectively registered under the Securities Act and disposed of in accordance
with the Registration Statement covering it or (ii) is sold pursuant to Rule 144
(or any similar rule then in force) under the Securities Act.
"Registration Statement" means a registration statement
filed or to be filed by the Company with the Commission covering Registrable
Securities.
"Relatives" means, with respect to any individual, the
spouse, parents, siblings and descendants of such individual and their
respective issue (whether by blood or adoption and including stepchildren) and
the spouses of such persons.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar federal statute, together with the rules and regulations
of the Commission promulgated thereunder, as in effect at the time.
"Shareholder" means (i) Comverse, any subsidiary thereof or
successor thereto that holds Registrable Securities, (ii) any Option Holder that
agrees to become a party to this Agreement in accordance with the provisions
hereof or (iii) an Affiliate of any Option Holder that agrees to become a party
to this Agreement in accordance with the provisions hereof.
Article II
REGISTRATION RIGHTS
2.1 Demand Registration.
(a) Request for Registration. Subject to the provisions
hereof, at any time and from time to time Comverse may make a written request (a
"Demand") that the Company prepare and file with the Commission a Registration
Statement on Form S-1 or, if the Company is then eligible to do so, that the
Company prepare and file with the Commission a Registration Statement on Form
S-3, so as to permit a public offering and sale of Registrable Securities held
by any Shareholder. Any Demand shall specify the number of Registrable
Securities proposed to be registered and the intended method of disposition
thereof. A registration effected pursuant to this Section 2.1 is hereinafter
referred to as a "Demand Registration."
(b) Limitation on Demand Rights. Notwithstanding anything
to the contrary set forth in Section 2.1(a) hereof: (i) no Demand may be made
less than (A) one hundred and eighty (180) days following the effective date of
the Registration Statement on Form S-1 filed by the Company in connection with
an initial public offering of the Common Stock; or (B) ninety (90) days
following the effective date of any Registration Statement filed by the Company
pursuant to Sections 2.1 or 2.4 hereof; and (ii) Comverse shall not be entitled
3
<PAGE>
to make more than one Demand that the Company prepare and file with the
Commission a Registration Statement on Form S-1.
(c) Right to Delay Demand Registration. If, at any time
when a Demand is received by the Company, (i) the Company has undertaken to
prepare a registration statement which is intended to be filed within ninety
(90) days from the date the Demand was received, or (ii) the Company's Board of
Directors determines, in good faith, that filing a Registration Statement in
response to such Demand either (A) would require the Company to make a public
disclosure of information which would have a material adverse effect upon the
Company or would be seriously detrimental to the Company or its shareholders or
(B) could interfere with, or would require the Company to accelerate public
disclosure of, any material financing, acquisition, disposition, corporate
reorganization or other material transaction involving the Company or its
subsidiaries, then the Company may, at its option, cause the registration
requested pursuant to the Demand to be delayed for a period not in excess of
ninety (90) days from the effective date of the registration statement which the
Company is preparing or from the date such Demand was received (such right to
delay a request pursuant to clause (ii) of this Section 2.1(c) may be exercised
by the Company not more than twice in any calendar year). If there is a
postponement under this Section 2.1(c), Comverse may withdraw such Demand by
giving notice in writing to the Company. In such case, no Demand will have been
delivered for the purposes of this Section 2.1.
(d) Company Participation. The Company may elect to
register in any Registration Statement prepared pursuant to a Demand made under
this Section 2.1 any additional shares of Common Stock (including, without
limitation, any shares of Common Stock to be distributed in a primary offering
made by the Company). Such election, if made, shall be made by the Company
giving written notice to Comverse stating (i) that the Company proposes to
include additional shares of Common Stock in such Registration Statement and
(ii) the number of shares of Common Stock proposed to be so included.
(e) Withdrawal Right. Comverse shall have the right to
withdraw any Demand by giving written notice to the Company of its request to
withdraw; provided, however, that (i) such withdrawal request must be made in
writing prior to the earlier of (A) the execution of the underwriting agreement
or the execution of the custody agreement with respect to such Demand
Registration or (B) in the absence of any such agreement, the date on which the
Registration Statement filed pursuant to such Demand is declared effective, and
(ii) such withdrawal shall be irrevocable and, after making such withdrawal,
Comverse shall not be entitled to make any subsequent Demand for a period of
ninety (90) days after the date of such withdrawal.
(f) Effective Demand. For purpose of clause (ii) of Section
2.1(b) hereof, a Demand, if made pursuant to Section 2.1(a) and not withdrawn in
accordance with Section 2.1(e), shall be deemed to have been made only if (i) in
response thereto, the Company shall have filed a Registration Statement, (iii)
such Registration Statement shall have been declared effective under the
4
<PAGE>
Securities Act and (iii) such Registration Statement shall not have become the
subject of any stop order, injunction or other order or requirement of the
Commission or any other governmental or administrative agency which prevents the
sale of Registrable Securities pursuant to such Registration Statement, and no
court prevents or otherwise limits the sale of such securities pursuant to such
Registration Statement; provided, however, that, notwithstanding anything to the
contrary set forth in this Section 2.1(f), a Demand shall be deemed to have been
made by Comverse, if Comverse made a Demand and either (x) Comverse withdrew
such Demand after the earlier of (A) the execution of the underwriting agreement
or the execution of the custody agreement with respect to such Demand
Registration or (B) in the absence of any such agreement, the date on which the
Registration Statement filed pursuant to such Demand is declared effective, or
(y) the failure of one or more of the conditions set forth in clauses (i), (ii)
or (iii) of this Section 2.1(f) to be satisfied is attributable to the acts or
omissions of Comverse.
2.2 Piggyback Registration.
(a) Notice of Registration. If, at any time, the Company
proposes to file a registration statement with the Commission in connection with
any public offering of Common Stock (other than in connection with an initial
public offering of Common Stock), whether for the account of the Company or any
other Person (other than a registration statement on Form S-4 or Form S-8 (or
any successor forms under the Securities Act) or other registrations relating
solely to employee benefit plans or any transaction governed by Rule 145 under
the Securities Act), the Company shall give written notice of such proposed
filing and proposed date thereof to each Shareholder that owns Registrable
Securities at least fifteen (15) days before the anticipated filing of such
registration statement, offering such Shareholder the opportunity to offer and
sell Registrable Securities, by means of the prospectus contained in such
registration statement. If such Shareholder desires to have its Registrable
Securities registered under such registration statement pursuant to this Section
2.2, such Shareholder shall advise the Company thereof in writing within ten
(10) days after the date of its receipt of the Company's notice (which request
shall set forth the number of Registrable Securities for which registration is
requested). Subject to Sections 2.3 hereof, the Company shall include in such
registration statement, if filed, all Registrable Securities so requested by
such Shareholder to be included so as to permit such securities to be sold or
disposed of in the manner and on the terms set forth in such request. Such
registration shall hereinafter be called a "Piggyback Registration". The Company
shall have the right at any time to delay or discontinue, without liability to
the Shareholders, any Piggyback Registration under this Section 2.2 at any time
prior to the effective date of the Registration Statement if the proposed
offering of Common Stock contemplated thereunder is discontinued.
(b) Withdrawal Right. Any Shareholder shall have the right
to withdraw its request for inclusion of its Registrable Securities in any
Registration Statement pursuant to this Section 2.2 by giving written notice to
the Company of its request to withdraw; provided, however, that (i) such
withdrawal request must be made in writing prior to the earlier of the execution
of the underwriting agreement or the execution of the custody agreement with
5
<PAGE>
respect to such Piggyback Registration and (ii) such withdrawal shall be
irrevocable and, after making such withdrawal, such Shareholder shall no longer
have any right to include Registrable Securities in the Piggyback Registration
from which such Shareholder withdrew.
2.3 Allocation of Securities Included in Registration
Statements. In connection with any Registration Statement in which the
Shareholders have requested to include Registrable Securities which relates to
an underwritten public offering, if the managing underwriter(s) of such offering
advise(s) that the inclusion in such Registration Statement of some or all of
the shares sought to be registered thereunder exceeds the number of shares (the
"Saleable Number") that can be sold in an orderly fashion without a substantial
risk that the price per share to be derived from such registration will be
materially and adversely affected, then the number of shares offered thereunder
shall be limited to the Saleable Number and shall be allocated, subject to
Section 3.5 below, as follows:
(i) if such registration is being effected in connection with
any Piggyback Registration requested by the Shareholders for
inclusion pursuant to Section 2.2 hereof, (1) first, to all
the shares of Common Stock that the Company proposes to
register for its own account, (2) second, the difference, if
any, between the Saleable Number and the number of shares to
be included pursuant to clause (1) above, to Registrable
Securities of Comverse, (3) third, the difference, if any,
between the Salable Number and the number of shares to be
included pursuant to clauses (1) and (2) above, to Registrable
Securities of the other Shareholders, pro rata on the basis of
the number of Registrable Securities requested to be included
in such Piggyback Registration by each such Shareholder, until
such Shareholders have sold all such Registrable Securities,
and (4) fourth, the difference, if any, between the Saleable
Number and the number of shares to be included pursuant to
clauses (1), (2) and (3) above, to all other selling
shareholders, pro rata on the basis of the number of shares
offered for sale by each such shareholder; and
(ii) if the registration is being effected pursuant to a
Demand Registration requested by Comverse pursuant to Section
2.1 hereof, (1) first, to Registrable Securities of Comverse,
(2) second, the difference, if any, between such number and
number of shares to be included in such Demand Registration
pursuant to clause (1) above, to Registrable Securities of the
other Shareholders participating in the offering, pro rata, on
the basis of the number of Registrable Securities requested to
be included in such Demand Registration by each such
Shareholder, until such Shareholders have sold all such
Registrable Securities, (3) third, the difference, if any,
between the Saleable Number and the number of shares to be
included pursuant to clauses (1) and (2) above, to shares that
the Company proposes to register for its own account, and (4)
fourth, the difference, if any, between the Saleable Number
and the number of shares to be included pursuant to clauses
6
<PAGE>
(1), (2) and (3) above, to all other selling shareholders, pro
rata on the basis of the number of shares requested to be
included by each such shareholder.
2.4 Initial Registration. The Company shall, no later than
60 days after it becomes eligible to file a Registration Statement on Form S-3,
prepare and file a Registration Statement on Form S-3 (or other appropriate
form) for an offering to be made on a continuous basis pursuant to Rule 415
under the Securities Act covering an offering of Registrable Securities, if any,
then owned by Shareholders (other than Comverse) or then purchasable upon the
exercise of outstanding Options held by Shareholders. The Company shall use its
best efforts to cause such Registration Statement to be declared effective as
soon as reasonably practicable after filing thereof with the Commission. Subject
to Section 2.5 hereof, the Company shall use its best efforts to keep such
Registration Statement effective for as long as reasonably specified in the plan
of distribution contained therein.
2.5 Certain Notices; Suspension of Sales. The Company may,
upon written notice to the Registering Shareholders, suspend such Registering
Shareholder's use of any Prospectus (which is a part of any Registration
Statement) for a reasonable period not to exceed ninety (90) days if the Company
in its reasonable judgment believes it may possess material non-public
information the disclosure of which in its reasonable judgment would have a
material adverse effect on the Company and its subsidiaries taken as a whole.
Each Registering Shareholder of Registrable Securities agrees by its acquisition
of such Registrable Securities to hold any communication by the Company pursuant
to this Section 2.5 in confidence.
Article III
REGISTRATION PROCEDURES
3.1 Registration Procedures. Subject to the terms of this
Agreement, whenever the Company is required to effect or cause the registration
of Registrable Securities pursuant to Article II hereof, the Company shall use
commercially reasonable efforts to effect the registration of such Registrable
Securities in accordance with the intended method of disposition thereof as
quickly as practicable. In connection with any Demand Registration, the Company
shall, except as set forth in Section 2.1(c), as expeditiously as possible (and
in no event more than sixty (60) days from the date of receipt of a Demand)
prepare and file with the Commission a Registration Statement on such form
(including Form S-3) for which the Company then qualifies as the Company shall
deem appropriate and which shall be available for the sale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement and in accordance with the intended method of disposition of such
Registrable Securities. The Company shall use commercially reasonable efforts to
cause any Registration Statement filed hereunder to be declared effective as
soon as reasonably practicable after the filing thereof with the Commission,
including, without limitation, preparing and/or filing with the Commission such
other documents as may be necessary to comply with the provisions of the
Securities Act. Subject to the provisions of Section 2.5 hereof, the Company
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<PAGE>
shall as expeditiously as possible prepare and file with the Commission such
amendments and supplements to any Registration Statement filed hereunder and the
Prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective (pursuant to Rule 415 under the Securities Act
or otherwise) until the earlier of (i) the date on which all of the Registrable
Securities registered therein shall have been sold, and (ii) ninety (90) days
after such Registration Statement is declared effective.
3.2 Copies; Review.
(a) At least five (5) Business Days before filing a
Registration Statement or Prospectus or any amendment or supplement thereto
(whether before or after effectiveness), the Company will furnish to the
Registering Shareholders copies of all such documents proposed to be filed. Such
documents will be subject to the review of the Registering Shareholders. The
Company will immediately amend such Registration Statement and Prospectus to
include such reasonable changes as the Registering Shareholders and the Company
reasonably agree should be included therein. Any Registering Shareholder
requesting a change which in its reasonable judgment is unreasonably refused by
the Company may withdraw its Registrable Securities from such Registration
Statement.
(b) The Company shall make available for inspection by any
Registering Shareholder, any underwriter participating in any disposition
pursuant to a Registration Statement, and any attorney, accountant or other
agent retained by any such shareholder or underwriter (collectively, the
"Inspectors"), all material financial and other records, pertinent documents and
properties of the Company as shall be necessary to enable them to exercise their
due diligence responsibility. The Company shall cause its officers, directors
and employees to supply all material information requested by any such Inspector
in connection with any such Registration Statement.
3.3 Amendments. Subject to Section 2.5 hereof, the Company
shall (a) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable time period
required herein, (b) cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and (c) comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Registering Shareholders set forth in
such Registration Statement or Prospectus supplement.
3.4 Notification. The Company shall promptly notify the
Registering Shareholders and (if requested by any such Person) confirm such
notification in writing, (a) when the Prospectus has been filed, and, with
respect to the Registration Statement, when it has become effective, (b) of any
request by the Commission for amendments or supplements to the Registration
Statement or the Prospectus or for additional information, (c) of the issuance
8
<PAGE>
of any stop order suspending the effectiveness of the Registration Statement, or
the refusal or suspension of qualification of registration of Registrable
Securities, or the initiation of any proceedings for that purpose, (d) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, and (e) of any event that makes any material
statement made in the Registration Statement, the Prospectus or any document
incorporated therein by reference untrue or that requires the making of any
changes in the Registration Statement, the Prospectus or any document
incorporated therein by reference in order to make the statements therein, in
light of the circumstances under which they were made, not misleading in any
material respect. Subject to Section 2.5 hereof, the Company will make every
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the Registration Statement at the earliest possible moment. If
any event contemplated by clause (e) occurs, subject to Section 2.5 hereof, the
Company shall promptly prepare a supplement or post-effective amendment to the
Registration Statement or the Prospectus or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Securities,
the Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Upon receipt of
any notice from the Company that any event of the kind described in clause (b),
(c), (d) or (e) has happened, each Registering Shareholder shall discontinue
offering the Registrable Securities until the Registering Shareholder receives
the copies of the supplemented or amended Prospectus contemplated by the
previous sentence, or until it is advised in writing by the Company that the use
of the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus.
3.5 Information Included. The Company may require each
Registering Shareholder to furnish in writing to the Company such information
regarding the Registering Shareholder and the distribution of the Registrable
Securities as the Company may from time to time reasonably require for inclusion
in the Registration Statement, and such other information as may be legally
required in connection with such registration including, without limitation, all
such information as may be requested by the Commission or the NASD. Each
Registering Shareholder shall provide such information in writing and signed by
such Shareholder and stated to be specifically for inclusion in the Registration
Statement. The Company may exclude from such registration the Registrable
Securities of any Registering Shareholder that fails to furnish such information
within a reasonable time after receiving such request. Each Registering
Shareholder agrees to furnish to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such Registering Shareholder not misleading. If requested by the Registering
Shareholders, the Company will as soon as practicable incorporate in a
Prospectus supplement or post-effective amendment such information as the
Registering Shareholders reasonably request be included therein relating to the
sale of the Registrable Securities, including, but not limited to, information
with respect to the number of Registrable Securities being sold and any other
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terms of the distribution of the Registrable Securities to be sold in such
Offering. Subject to Section 2.5 hereof, the Company will make all required
filings of such Prospectus supplement or post-effective amendment as promptly as
practicable after being notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.
3.6 Underwritten Offerings. In the event that the
distribution of the Registrable Securities covered by a Registration Statement
filed hereunder shall be effected by means of an underwriting, the following
provisions shall apply:
(a) if such distribution of Registrable Securities is being
effected pursuant to a Demand Registration, the underwriter(s) shall be
designated by Comverse;
(b) the Company shall (i) cooperate with the
underwriter(s), including attending any road shows and providing such assistance
as the underwriter(s) may reasonably request in connection with the preparation
of any materials necessary or desirable to effect such underwriting, (ii) enter
into any such underwriting agreement as shall be appropriate in the
circumstances, (iii) use commercially reasonable efforts to comply with and
satisfy all of the terms and conditions of each such underwriting agreement to
which it shall be a party, and (iv) comply with all applicable rules and
regulations of the Commission including, without limitation, applicable
reporting requirements under the Exchange Act; and
(c) if such distribution of Registrable Securities is being
effected pursuant to a Demand Registration, including, without limitation, in
any primary offering by the Company, any over-allotment option to be granted to
the managing underwriter(s) shall be allocated to and granted by any Person
designated by Comverse, and if such distribution is being effected pursuant to a
Piggyback Registration, any over-allotment option to be granted to the managing
underwriter(s) shall be allocated to and granted by the Company (in the event of
any primary offering by the Company) and all selling shareholders pro-rata based
on the number of shares sold pursuant to such offering.
3.7 Copies. The Company will (i) promptly furnish to the
Registering Shareholders without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference), and (ii)
promptly deliver to the Registering Shareholders without charge, as many copies
of the Prospectus (including each preliminary Prospectus) and any amendment or
supplement thereto as such Persons may reasonably request. The Company consents
to the use of the Prospectus or any amendment or supplement thereto by the
Registering Shareholders in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto.
3.8 Blue Sky Registration. Prior to any offering of
Registrable Securities covered by a Registration Statement under Sections 2.1,
2.2 or 2.4, the Company will register or qualify or cooperate with the
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Registering Shareholders and their respective counsel in connection with the
registration or qualification of such Registrable Securities under the
securities or blue sky laws of any such jurisdictions in the United States as
the Registering Shareholders reasonably request in writing, and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of such Registrable Securities. The Company will not be required
to take any actions under this Section 3.8 if such actions would require the
Company to submit to the general taxation of any jurisdiction where it is not
then so subject or to file in any jurisdiction any general consent to service of
process.
3.9 Certificates. The Company will cooperate with the
Registering Shareholders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold that do not bear any
restrictive legends. Such certificates will be in such denominations and
registered in such names as the Registering Shareholders request at least two
(2) Business Days prior to any sale of Registrable Securities.
3.10 Section 11(a) Notice. The Company will make generally
available to its shareholders the information required pursuant to the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
3.11 Registration Expenses.
(a) Company Expenses. Subject to the provisions of Section
3.11(b) below, the Company shall pay all expenses incident to the Company's
performance of or compliance with this Agreement, including, but not limited to,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, fees and expenses incurred in connection with the
quotation or listing of the Registrable Securities on Nasdaq (or any other
exchange on which such securities are then listed), transfer agent fees,
printing expenses, messenger expenses, telephone and delivery expenses, and fees
and disbursements of counsel to the Company and of independent certified public
accountants of the Company. The Company shall also pay for (i) the fees and
expenses of one firm of legal counsel, if any, retained to represent all the
Registering Shareholders in connection with any Registration Statement filed
hereunder, (ii) the Company's internal expenses, including the expense of any
annual audit, and (iii) the fees and expenses of any Person retained by the
Company.
(b) Shareholder Expenses. The Registering Shareholders
shall pay all underwriting fees, commission and discounts with respect to the
sale of any Registrable Securities and any transfer taxes incurred in respect of
such sale. Each Registering Shareholder shall also be responsible for the
payment of all fees and expenses of legal counsel retained by it, other than the
fees and expenses of the firm of legal counsel retained to represent all the
Registering Shareholders in connection with any Registration Statement filed
hereunder for which the Company is responsible pursuant to Section 3.11(a)
above.
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Article IV
INDEMNIFICATION
4.1 Indemnification by the Company. The Company will
indemnify and hold harmless each of the Registering Shareholders from and
against any and all losses, claims, damages and liabilities ("Losses")
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted to which the Registering
Shareholder may become subject under the Securities Act, the Exchange Act or
other federal or state securities law or regulation, at common law or otherwise,
insofar as such Losses arise out of or are based upon (a) any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any amendment or supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or (b)
any violation by the Company of the Securities Act or the Exchange Act, or other
federal or state securities law applicable to the Company and relating to any
action or inaction required of the Company in connection with such registration.
In addition, the Company will reimburse the Registering Shareholder for any
reasonable investigation, legal or other expenses incurred by such Registering
Shareholder in connection with investigating or defending any such Loss.
Notwithstanding anything herein to the contrary, the Company will not be liable
with respect to the portion of any such Loss that (i) arises out of or is based
upon any alleged untrue statement or alleged omission made in such Registration
Statement, preliminary Prospectus, Prospectus, or amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by the Registering Shareholders specifically for use therein or (ii)
attributable to a Registering Shareholder's (A) use of a Prospectus after being
notified by the Company to suspend use thereof pursuant to Section 3.4 above or
(B) failure to deliver a final Prospectus to the Person asserting any losses,
claims, damages and liabilities and judgments caused by any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such material misstatement or omission or alleged
material misstatement or omission was cured in an amended or supplemented
Prospectus prepared by the Company and delivered to the Registering Shareholder
at or prior to the time written confirmation of sale to such Person was required
to be made. The foregoing indemnity will remain in full force and effect
regardless of any investigation made by or on behalf of the Registering
Shareholder, and will survive the transfer of such securities by the Registering
Shareholder.
4.2 Indemnification by Registering Shareholders. If a
Registering Shareholder sells Registrable Securities under a Prospectus that is
part of a Registration Statement, the Registering Shareholder shall indemnify
and hold harmless the Company, its directors and each officer who signed such
Registration Statement and each Person who controls the Company (within the
meaning of Section 15 of the Securities Act) (each, a "Controlling Person")
under the same circumstances as the foregoing indemnity from the Company to the
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Registering Shareholders but only to the extent that such Losses arise out of or
are based upon any untrue or allegedly untrue statement of a material fact or
omission or alleged omission of a material fact that was made in the Prospectus,
the Registration Statement, or any amendment or supplement thereto, in reliance
upon and in conformity with written information relating to a Registering
Shareholder furnished to the Company by a Registering Shareholder expressly for
use therein. In no event will the aggregate liability of a Registering
Shareholder exceed the amount of the net proceeds received by the Registering
Shareholder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. Such indemnity will remain in full force and effect
regardless of any investigation made by or on behalf of the Company or such
officer, director, employee or Controlling Person, and will survive the transfer
of such securities by the Registering Shareholder.
4.3 Contribution. If the indemnification provided for in
Sections 4.1 or 4.2 is unavailable to an indemnified party, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, will have a
joint and several obligation to contribute to the amount paid or payable by such
indemnified party as a result of such Losses. Such contribution will be in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party, on the one hand, and such indemnified party, on the other hand, in
connection with the actions, statements or omissions that resulted in such
Losses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party, on the one hand, and indemnified party, on the
other hand, will be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
taken or made by, or relates to information supplied by, such indemnifying party
or indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement or
omission. The amount paid or payable by a party as a result of any such Losses
will be deemed to include any investigation, legal or other fees or expenses
incurred by such party in connection with any investigation or proceeding, to
the extent such party would have been indemnified for such expenses if the
indemnification provided for in Sections 4.1 or 4.2 was available to such party.
If, however, the allocation provided above is not permitted by applicable law,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative faults but also the relative benefits of the indemnifying party
and the indemnified party as well as any other relevant equitable
considerations. The parties hereto agree that it would not be just and equitable
if contributions pursuant to this Section 4.3 were to be determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the preceding sentences of this
Section 4.3. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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4.4 Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (a) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification,
and (b) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided that the
failure to give such notice shall not relieve an indemnifying party of liability
except to the extent it has been prejudiced as a result. Any Person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in (but not control) the defense of such claim, but the fees and
expenses of such counsel will be at the expense of such Person and not of the
indemnifying party unless (x) the indemnifying party has agreed to pay such fees
or expenses, (y) the indemnifying party has failed to assume the defense of such
claim and employ counsel reasonably satisfactory to such Person within a
reasonable period of time pursuant to this Agreement, or (z) a conflict of
interest exists between such Person and the indemnifying party with respect to
such claims that would make such separate representation required under
applicable ethical rules. In the case of clause (z) above, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person. If such defense is not assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent (but such consent shall not be unreasonably withheld). No
indemnified party will be required to consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term the giving of
a release, by all claimants or plaintiffs, to such indemnified party from all
liability with respect to such claim or litigation. Any indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel (other than
required local counsel) for all parties indemnified by such indemnifying party
with respect to such claim.
Article V
OTHER AGREEMENTS
5.1 Restrictions on Public Sale by the Shareholders. If
requested by the managing underwriter(s) of an underwritten public offering, the
Shareholders will not effect any public sale or distribution of securities of
the same class (or securities exchangeable or exercisable for or convertible
into securities of the same class) as the securities included in such offering
(including, but not limited to, a sale pursuant to Rule 144 of the Securities
Act) during the 10-day period prior to and the 180-day period (or shorter period
requested by the underwriter) beginning on the effective date of, such offering.
5.2 Rule 144. The Company shall file, on a timely basis,
all reports required to be filed by it under the Securities Act and the Exchange
Act, and will take such further action and provide such documents as the
Shareholders may reasonably request, all to the extent required from time to
time to enable the Shareholders to sell Registrable Securities without
registration under the Securities Act within the limitation of the conditions
provided by (i) Rule 144 under the Securities Act, as such rule may be amended
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from time to time, or (ii) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of a Shareholder, the Company will deliver to
the Shareholder a statement verifying that it has complied with such information
and requirements.
Article VI
MISCELLANEOUS
6.1 Amendments; Waivers. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the parties
hereto.
6.2 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to its subject matter, and
supersedes and replaces all prior agreements and understandings of the parties
in connection with such subject matter.
6.3 Notices. All notices and other communications hereunder
shall be given in writing and delivered personally, by registered or certified
mail (postage prepaid, return receipt requested), by overnight courier (postage
prepaid), facsimile transmission or similar means, to the party to receive such
notices or communications at the address set forth below (or such other address
as shall from time to time be designated by such party to the other parties in
accordance with this Section 6.3):
If to the Company: Ulticom, Inc.
1020 Briggs Road
Mt. Laurel, NJ 08054
Attention: President & Chief
Executive Officer
Telecopy: (856) 866-2033
If to Comverse: Comverse Technology, Inc.
909 Third Avenue
New York, NY 10022
Attention: Senior Counsel
Telecopy: (212) 414-1499
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the signed acknowledgment of receipt of the person to
whom such notice or communication shall have been personally delivered, the
acknowledgment of receipt returned to the sender by the applicable postal
authorities, the confirmation of delivery rendered by the applicable overnight
courier service, or the confirmation of a successful facsimile transmission of
such notice or communication. A copy of any notice or other communication given
by any party to any other party hereto, with reference to this Agreement, shall
be given at the same time to the other parties to this Agreement.
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6.4 GOVERNING LAW. THE PARTIES HERETO AGREE THAT THIS
AGREEMENT, AND THE RESPECTIVE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES
HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREUNDER.
6.5 Assignment. No Shareholder shall be permitted assign
any of its rights or obligations hereunder by operation of law or otherwise
without the prior written consent of the Company; provided, that a Shareholder
may assign any of its rights or obligations hereunder to any Affiliate of such
Shareholder without obtaining the prior written consent of the Company, provided
that such Affiliate agrees in writing to be bound by the provisions of this
Agreement that are applicable to such Shareholder as if such Affiliate was an
original party hereto; provided, further, however, that notwithstanding any such
assignment such Shareholder shall continue to be liable for the performance of
all obligations of such Shareholder and those of its assignee hereunder.
6.6 Severability. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law. If any provision or portion of
any provision of this Agreement is held to be invalid, illegal or unenforceable
in any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
6.7 No Waiver. The failure of any party hereto to exercise
any right, power or remedy provided under this Agreement or otherwise available
in respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
6.8 No Third Party Beneficiaries. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any Person
who or which is not a party hereto. Any Person who or which is not a party
hereto shall not be entitled to any benefit hereunder except that any Option
Holder designated in writing by Comverse from time to time shall be entitled to
become a party hereto by executing a counterpart to this Agreement in the form
annexed hereto as Exhibit A. If such Option Holder executes a counterpart to
this Agreement in the form annexed hereto as Exhibit A, such Option Holder shall
thereafter be deemed to have agreed to be bound by the provisions hereof
applicable to Shareholders as if such Option Holder was an original party
hereto, and such Option Holder shall thereafter be entitled to all benefits
accorded to a Shareholder hereunder.
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6.9 Headings. The Section headings in this Agreement are
for convenience of reference only and are not intended to be a part of this
Agreement or to affect the meaning or interpretation of this Agreement.
6.10 Counterparts. This Agreement may be executed in one or
more counterparts, all of which taken together shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first set forth above.
ULTICOM, INC.
By: /s/ Shawn Osborne
---------------------------------
Name: Shawn Osborne
Title: President and
Chief Executive Officer
COMVERSE TECHNOLOGY, INC.
By: /s/ David Kreinberg
---------------------------------
Name: David Kreinberg
Title: Cheif Financial Officer
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EXHIBIT A
[COUNTERPART SIGNATURE PAGE TO THE REGISTRATION
RIGHTS AGREEMENT DATED FEBRUARY 1, 2000]
REFERENCE IS MADE to the Registration Rights Agreement,
dated as of February 1, 2000, by and among Ulticom, Inc. (the "Company"),
Comverse Technology, Inc. ("Comverse") and the other parties, if any, thereto
(the "Agreement"). Capitalized terms defined in the Agreement and not otherwise
defined herein shall have the meanings ascribed to them in the Agreement.
THE UNDERSIGNED hereby represents to the Company that (i)
it is a current or former director, officer and/or employee of Comverse or of
any subsidiary thereof or an Affiliate of a current or former director, officer
or employee, and (ii) it beneficially owns one or more options to purchase from
Comverse shares of common stock, no par value, of the Company ("Common Stock")
or it beneficially owns shares of Common Stock acquired upon the exercise of
such options. The undersigned hereby irrevocably agrees to be a party to the
Agreement and to be bound by all provisions thereof applicable to Shareholders,
as if the undersigned was an original party thereto.
IN WITNESS THEREOF, the undersigned has executed this
counterpart to the Agreement on this ____ day of _____________, _____.
--------------------------------------
Name:
BUSINESS OPPORTUNITIES AGREEMENT
--------------------------------
THIS BUSINESS OPPORTUNITIES AGREEMENT dated as of January 1, 1999
(this "Agreement"), by and between Ulticom, Inc., a New Jersey corporation (the
"Corporation"), and Comverse Technology, Inc., a New York corporation
("Comverse").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Comverse is the holder of a majority of the outstanding
shares of common stock, no par value, of the Corporation ("Common Stock"); and
WHEREAS, certain directors, officers and/or employees of Comverse may
from time to time also serve as directors and/or officers of the Corporation;
and
WHEREAS, such directors and/or officers of the Corporation may from
time to time encounter business opportunities or transactions in which both the
Corporation and Comverse may have a reasonable expectation or interest; and
WHEREAS, the parties desire to enter into an agreement which provides
for the allocation of such business opportunities and transactions between the
parties; and
NOW, THEREFORE, in consideration of the premises and the mutual
obligations, covenants and agreements herein contained, the parties hereto agree
as follows:
Article I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following
capitalized terms shall have the meanings set forth below:
"Affiliate" shall mean, with respect to any given Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person. For
purpose of this Agreement the term "control" (including, with correlative
meaning, the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Board" shall mean the Board of Directors of the Corporation.
"Claims" means any and all claims, demands, causes of action,
liabilities, losses, costs, damages, and expenses of any kind or nature
whatsoever, in law or in equity (including attorneys' fees and costs), and
irrespective of whether any such claims or matters arise out of common law,
contract, tort, strict liability, violation of statutory laws, or regulations,
or any other theory or basis.
$q9w04.DOC
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"Comverse Designee" shall mean any director, officer or employee of
any Comverse Party who also serves as a director or officer of any Corporation
Party.
"Comverse Party" shall mean Comverse or any of its Affiliates (other
than any Person that is a Corporation Party).
"Corporation Party" shall mean the Corporation and any Person
controlled by the Corporation, whether or not such Person is also controlled by
any Comverse Party.
"Disinterested Director" shall mean any director of the Corporation
who is not a director, officer or employee of any Comverse Party.
"Person" shall mean a natural person, a corporation, a limited
liability company, a joint stock company, a partnership, a limited partnership,
a joint venture, a trust, an estate, an unincorporated organization,
association, agency or any other entity.
1.2 Chairman or Vice Chairman of a Corporation Party. For purposes of
this Agreement, a director of any Corporation Party who is Chairman or Vice
Chairman of the Board of Directors of such Corporation Party or any committee
thereof shall not be deemed to be an officer of such Corporation Party by reason
of holding such position (regardless of whether such position is deemed an
office of the Corporation Party under such Corporation Party's By-laws), unless
such person is a full-time employee of such Corporation Party.
Article II
CONDUCT OF BUSINESS
2.1 Conduct of Comverse's Business. Subject to the provisions of
Section 3.1(a)(2), unless otherwise agreed in writing between Comverse and the
Corporation, a Comverse Party shall have the right to, and shall not have a duty
not to, (i) engage in the same or similar business activities or lines of
business as any Corporation Party engages in, (ii) do business with any
potential or actual customer or supplier of any Corporation Party and (iii)
employ or otherwise engage, or solicit for such purpose, any director, officer
or employee of a Corporation Party. No Comverse Party and no director, officer,
employee or agent of any Comverse Party, whether or not such Person is also a
director, officer, employee, agent or shareholder of a Corporation Party, shall
be liable to any Corporation Party or its stockholders for breach of any
fiduciary or other duty that such Person may have by reason of any Comverse
Party undertaking any activity permitted in this Section 2.1.
Article III
CORPORATE OPPORTUNITIES
3.1 Allocation of Opportunities Relating to Both Parties.
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(a) The parties agree that in determining whether any business
opportunity or transaction shall belong to Comverse or the Corporation for the
purposes of this Agreement, the following rules shall apply:
(1) If such business opportunity or transaction was offered to
an individual who is a director but not an officer or employee
of a Corporation Party and who is also an officer or employee
(whether or not a director) of a Comverse Party, then such
business opportunity or transaction shall belong to Comverse;
(2) If such business opportunity or transaction was offered to
an individual who is an officer or employee (whether or not a
director) of a Corporation Party and who is also a director
but not an officer or employee of a Comverse Party, then such
business opportunity or transaction shall belong to the
Corporation; and
(3) If such business opportunity or transaction was offered to
any other individual who is (i) an officer or employee of a
Corporation Party and an officer or employee of a Comverse
Party or (ii) a director of both a Corporation Party and a
Comverse Party but not an officer or employee of any such
party, then such business opportunity or transaction shall
belong to Comverse.
(b) The provisions of this Section 3.1 shall not apply to any
business transaction or opportunity which the parties agree in writing shall be
excluded from the provisions of this Section 3.1, provided that such agreement
is approved by a majority of the Disinterested Directors or otherwise in
accordance with the New Jersey Business Corporation Act or any other applicable
law; provided, further, however, that no presumption or implication shall arise
from the existence or absence of such agreement as to whether any other business
opportunity or transaction not explicitly covered by such agreement is excluded
from the provisions of this Section 3.1.
3.2 Other Opportunities Acquired by Comverse. In the event that any
director, officer or employee of a Comverse Party who is not also a director,
officer or employee of a Corporation Party acquires knowledge of any business
opportunity or transaction (including any business opportunity or transaction
that by its nature may be in the line or lines of business of a Corporation
Party), such Comverse Party shall have no duty to communicate or present such
business opportunity or transaction to any Corporation Party and shall not be
liable to any Corporation Party or its stockholders for breach of any fiduciary
or other duty that such Comverse Party may have as a stockholder of the
Corporation or otherwise by reason of the fact that such Comverse Party pursues
or acquires such business opportunity or transaction for itself, directs such
business opportunity or transaction to another Person or does not present such
business opportunity to any Corporation Party.
3.3 Other Obligations; Failure to Pursue an Opportunity. Any business
opportunity or transaction that belongs to either Comverse or the Corporation
pursuant to this Agreement shall not be pursued by the other, or directed by the
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other to another Person, unless and until Comverse or the Corporation, as the
case may be, determine not to pursue such opportunity. Notwithstanding anything
herein to the contrary, if the party to whom a business opportunity or
transaction belongs pursuant to this Agreement does not within a reasonable
period of time begin to pursue, or thereafter continue to pursue, such business
opportunity or transaction diligently and in good faith, the other party may
then pursue such business opportunity or transaction or direct it to another
Person.
3.4 Agreements Respecting Opportunities. Nothing herein shall
prohibit one or more Corporation Parties and one or more Comverse Parties from
entering into any contract, agreement, arrangement or transaction involving a
business opportunity, provided that such contract, agreement, arrangement or
transaction is approved in accordance with the New Jersey Business Corporation
Act or any other applicable law. Any such contract, agreement, arrangement or
transaction not so approved shall not by reason thereof result in any breach of
any fiduciary or other duty, but shall be governed by the New Jersey Business
Corporation Act or any other applicable law.
3.5 Acknowledgment, Release and Indemnity.
(a) The Corporation hereby (i) acknowledges and agrees that, except
as provided in this Agreement, no Comverse Party shall have any obligation to
offer a Corporation Party any business opportunity or transaction, (ii)
renounces any interest or expectancy in any business opportunity or transaction
pursued by a Comverse Party in accordance with this Agreement, and (iii) waives
any claim that any such business opportunity or transaction pursued by a
Comverse Party constitutes a corporate opportunity of a Corporation Party,
unless such business opportunity was pursued by a Comverse Party in violation of
this Agreement.
(b) The Corporation hereby acknowledges and agrees that any Comverse
Party and any Comverse Designee that complies with the provisions of this
Agreement relating to business opportunities or transactions (i) shall have
fully satisfied and fulfilled any fiduciary or other duties such Person may have
to such Corporation Party and their stockholders with respect to such business
opportunity or transaction, (ii) shall not be liable to the Corporation Party or
its stockholders for breach of any fiduciary or other duty by reason of the fact
that any Comverse Party pursues or acquires such business opportunity or
transaction for itself or directs such business opportunity or transaction to
another Person or does not communicate information regarding such business
opportunity or transaction to the Corporation Party, (iii) shall be deemed to
have acted in good faith and in a manner such Person reasonably believes to be
in and not opposed to the best interests of the Corporation Party and (iv) shall
be deemed not to have breached any duty of loyalty or other duty such Person may
have to the Corporation Party or its stockholders and not to have derived an
improper benefit therefrom.
(c) The Corporation acknowledges and agrees that with respect to any
business opportunity or transaction not specifically belonging to the
Corporation pursuant to this Agreement, a Comverse Party may pursue such
business opportunity or transaction and conduct the business related thereto
without any obligation to offer it to a Corporation Party. The Corporation
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<PAGE>
acknowledges and agrees that in such case, to the extent that a court might hold
that the pursuit of such business opportunity or transaction or the conduct of
any other activity permitted hereunder is a breach of any standard of care, a
duty of loyalty, or other duty owed to the Corporation (and without admitting
that the pursuit of such opportunity or the conduct of such activity is such a
breach of any such standard or duty), the Corporation hereby fully and
irrevocably renounces, releases and waives, to the extent permitted by
applicable law, any interest or expectancy in such business opportunity or
transaction or permitted activity pursued by a Comverse Party pursuant to this
Agreement and any and all Claims that the Corporation or any Person claiming by,
through, or under the Corporation may have to claim that such business
opportunity or transaction is a corporate opportunity of the Corporation or that
the pursuit by a Comverse Party of any such business opportunity or transaction
or the conduct of such activity permitted hereunder is a breach of any standard
of care, duty of loyalty, or other duty owed to the Corporation (including, to
the extent permitted by applicable law, any and all Claims arising either
directly or derivatively, and whether brought by, through, or under the
Corporation, or by any stockholder, creditor, subsidiary or Affiliate of the
Corporation).
(d) The Corporation, for itself and its successors and assigns,
hereby agrees to indemnify, defend, and hold harmless, to the extent permitted
by applicable law, Comverse and its predecessors and successors in interest, and
all of Comverse' and its respective predecessors and successors in interests'
respective Affiliates, stockholders, directors, officers, employees, agents,
attorneys, servants, invitees, contractors, licensees, legal representatives,
successors, and assigns, from any and all such Claims relating to the subject
matter hereof that may be asserted (i) by any Person whomsoever claiming by,
through, or under the Corporation or (ii) by any successors of the Corporation.
It is the express intention of the Corporation that, to the extent permitted by
applicable law, the indemnity to Comverse herein provided covers any such Claims
asserted by, through, or under the Corporation, notwithstanding that such
Persons are not signatories to this Agreement, and whether or not the release
provisions are directly enforceable against any Persons who are not signatories
to this Agreement. This indemnity applies for the benefit of Comverse regardless
of whether such claims are based in whole or in part upon the alleged partial or
sole negligence or strict liability of Comverse (or its predecessors or
successors in interest, or Comverse' or its respective predecessors or
successors in interests' respective Affiliates, stockholders, directors,
officers, employees, agents, attorneys, servants, invitees, contractors,
licensees, legal representatives, successors, and assigns), but shall not apply
in the case of bad faith, willful misconduct or breach of this Agreement by a
Comverse Party or any director, officer or employee of a Comverse Party or any
other indemnified party. The renunciations, waivers and agreements herein apply
equally to activities to be conducted in the future and activities that have
been conducted in the past.
3.6 Other Conduct. Any conduct by any Comverse Party or any of its
directors, officers, employees or agents in connection with the affairs of such
Comverse Party, and any conduct of any Comverse Designee, that does not comply
with this Agreement shall not by reason thereof void a transaction or make it
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voidable or be deemed a breach of any fiduciary or other duty that may be owed
to any Corporation Party but shall be governed by the New Jersey Business
Corporation Act or any other applicable law.
Article IV
TERM
4.1 Term. This Agreement shall expire on the first day on which all
Comverse Parties no longer beneficially own Common Stock representing at least
20 percent (20%) of the combined voting power of outstanding shares of Common
Stock of the Corporation and no person who is a director or officer of a
Corporation Party is also a director, officer or employee of a Comverse Party.
Article V
MISCELLANEOUS
5.1 Amendments; Waivers. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by the parties hereto.
The failure of any party hereto to exercise any right, power or remedy provided
under this Agreement or otherwise available in respect hereof at law or in
equity, or to insist upon compliance by any other party hereto with its
obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
5.2 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to its subject matter, and supersedes and
replaces all prior agreements and understandings of the parties in connection
with such subject matter.
5.3 Notices. All notices and other communications hereunder shall be
given in writing and delivered personally, by registered or certified mail
(postage prepaid, return receipt requested), by overnight courier (postage
prepaid), facsimile transmission or similar means, to the party to receive such
notices or communications at the address set forth below (or such other address
as shall from time to time be designated by such party to the other parties in
accordance with this Section 5.3):
If to the Corporation: Ulticom, Inc.
1020 Briggs Road
Mt. Laurel, NJ 08054
Attention: President & Chief
Executive Officer
Telecopy: (856) 866-2033
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If to Comverse: Comverse Technology, Inc.
909 Third Avenue
New York, NY 10022
Attention: Senior Counsel
Telecopy: (212) 414-1499
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the signed acknowledgment of receipt of the person to
whom such notice or communication shall have been personally delivered, the
acknowledgment of receipt returned to the sender by the applicable postal
authorities, the confirmation of delivery rendered by the applicable overnight
courier service, or the confirmation of a successful facsimile transmission of
such notice or communication.
5.4 Governing Law. THE PARTIES HERETO AGREE THAT EXCEPT AS OTHERWISE
PROVIDED IN THIS AGREEMENT, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT GIVING EFFECT TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREUNDER.
5.5 Assignment; Binding Effect. No party hereto shall have the right
to assign this Agreement or any of its rights or obligations hereunder without
the prior written consent of the other party hereto; and any purported
assignment of this Agreement or any of the rights or obligations of a party
hereunder without such consent shall be deemed to be null and void ab initio.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their successors and permitted assigns.
5.6 No Partnership. No term or provision of this Agreement shall be
construed to establish any partnership, agency, or joint venture relationship
between the parties hereto.
5.7 Invalidity. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law. If any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
5.8 Headings. The headings in this Agreement are for convenience of
reference only and are not intended to be a part of this Agreement or to affect
the meaning or interpretation of this Agreement.
5.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first set forth above.
ULTICOM, INC.
By: /s/ Shawn Osborne
---------------------------------
Name: Shawn Osborne
Title: President and
Chief Executive Officer
COMVERSE TECHNOLOGY, INC.
By: /s/ David Kreinberg
---------------------------------
Name: David Kreinberg
Title: Cheif Financial Officer
8
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, made as of ________, 2000 between Ulticom,
Inc., a New Jersey corporation (the "Company") and _________________ (the
"Indemnitee").
WHEREAS, the Indemnitee is a member of the Board of Directors of the
Company and/or an officer of the Company and in such capacity is performing a
valuable service for the Company; and
WHEREAS, the Company's Certificate of Incorporation (the "Certificate
of Incorporation") provides for indemnification in accordance with Section 3-5
of the New Jersey Business Corporation Act (the "Indemnification Statute");
WHEREAS, the Indemnification Statute provides that the
indemnification rights provided thereunder are not exclusive, and that
agreements may be entered into between the Company and members of its Board of
Directors and Officers with respect to indemnification; and
WHEREAS, the Company deems it desirable and in its best interests for
it to enter into this contract with the Indemnitee.
NOW THEREFORE, the parties hereto agree as follows:
1. Mandatory Indemnification. The Company shall, to the fullest extent allowed
by applicable law (including the indemnification permitted by Section 14A:3-5 of
the New Jersey Business Corporation Act) indemnify and hold harmless the
Indemnitee from and against any and all expenses (including reasonable attorneys
fees), amounts paid or incurred in satisfaction of settlements, judgments,
fines, penalties, liabilities and similar or related items incurred or suffered
or threatened to be incurred or suffered in any pending, threatened or completed
actions, suits or proceedings, whether civil, criminal, administrative
arbitrative or investigative (including any appeal therein and any inquiry or
investigation which could lead to such suit, action or procedure) by reason of
his being or having been (or to the fullest extent permitted by law otherwise
related to the fact that he is or was) (a) a director, officer, employee or
agent of the Company or of any constituent corporation absorbed by the Company
in a consolidation or merger or (b) a director, officer, trustee, employee or
agent of any direct or indirect subsidiary of the Company (collectively,
"Subsidiary") or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise or entity of any kind or nature
(collectively, including such Subsidiaries, "Other Enterprises"), which he
served in such capacity with respect to such Other Enterprise at the request of
the Company or any such constituent corporation (collectively, "Proceedings). To
the fullest extent permitted by applicable law, the Indemnitee shall be entitled
to a conclusive presumption that any service as a director, officer, employee or
agent for a Subsidiary was at the request of the Company, and the confirmation
in any one or more instances that such service was at the request of the Company
shall not alter such conclusive presumption. The foregoing right to
indemnification applies to any Proceeding in which the Indemnitee is made, or is
<PAGE>
threatened to be made, a party. It is understood that the Company shall not be
obligated pursuant to the terms of this Agreement to indemnify the Indemnitee if
a final decision by a court having jurisdiction in the matter shall determine
that such indemnification is not lawful; in this respect, the Indemnitee has
been advised that the Securities and Exchange Commission takes the position that
indemnification for liabilities arising under the federal securities laws is
against public policy and is, therefore, unenforceable. To the extent such
claims relate to securities laws, the Company may, prior to the Company being
obligated to make payments under this Agreement, submit for resolution to a
court the question of whether the Company has the right to indemnify the
Indemnitee under applicable securities laws.
1. Mandatory Advancement of Expenses. The Company shall to the fullest extent
permitted by the New Jersey Business Corporation Act from time to time in effect
(the "BCA") advance, within 15 days of the presentation of same to the Company,
all costs and expenses (including attorneys' fees and expenses) incurred by the
Indemnitee with respect to any one or more Proceedings, whether civil, criminal,
administrative or investigative. The Indemnitee hereby agrees to repay such
costs and expenses if it shall ultimately be determined that the Indemnitee is
not entitled to be indemnified by the Company under the BCA. Such mandatory
obligation to advance costs and expenses shall, to the extent permitted by law,
include costs and expenses incurred in asserting affirmative defenses,
counterclaims and cross-claims.
2. Continuation of Indemnification. All obligations of the Company hereunder
shall continue during the period the Indemnitee is a director, officer, employee
or agent of the Company (or is serving at the request of the Company as a
director, officer, employee, trustee or agent of any Other Enterprise) and shall
continue thereafter so long as the Indemnitee shall be subject to any possible
Proceeding by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company or is or was serving on behalf of an Other
Enterprise in any capacity referred to in Paragraph 1 hereof.
3. Procedural Requirements. With respect to any claims or other matters for
which the Indemnitee seeks indemnification from the Company, (a) the Indemnitee
shall not settle any such claims or other matters without the prior written
consent of the Company, which consent shall not be unreasonably withheld or
delayed; (b) except to the extent that the Company and the Indemnitee have a
conflict of interest, the Company shall have the right to defend the Indemnitee;
and (c) except to the extent the Indemnitee has a conflict of interest with
other directors and officers, the Company shall be entitled to have one law firm
represent all of the directors and officers making indemnification claims in
connection with the same matter.
4. Non-Exclusive Provisions Re: Indemnification and Advancement. The
indemnification against settlements, judgments, expenses and other matters and
the advancement of costs and expenses provided for in this Agreement shall not
be deemed exclusive of any other rights to indemnification and/or advancement
which the Indemnitee may be entitled under any agreement, any vote of
stockholders and/or disinterested directors, the Company's Certificate of
Incorporation or Bylaws, or otherwise.
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5. Other Provisions. It is understood that the parties intend this Agreement to
be interpreted and enforced so as to provide indemnification and advancement of
expenses to the Indemnitee to the fullest extent permitted by applicable law as
then in effect. Without limiting the generality of Section 1 hereof or the
preceding sentence, if the Indemnitee is successful in any material respect in
bringing any action to enforce any rights under this Agreement, the Indemnitee
shall, to the fullest extent permitted by law, be entitled to recover all
reasonable fees and expenses in bringing and pursuing such action. In addition,
the Indemnitee may in his sole discretion apply to any court of competent
jurisdiction for specific performance and/or injunctive relief in order to
enforce, or prevent any violations of, the provisions of this Agreement. If any
provision of this Agreement or the application thereof to any entities or
individuals ("Persons") or circumstance(s) shall be invalid or unenforceable to
any extent, (i) the remainder of this Agreement and the application of such
provision to other Persons or circumstance(s) shall not be effected thereby; and
(ii) each such provision shall be enforced to the greatest extent permitted by
law. Use of the words "hereby," "herein," "hereto," `hereof," "hereunder," and
similar words, shall be deemed to refer to this Agreement in its entirety, and
not solely to the Section or Subsection in which any such word appears; "
including," "includes," or "include" shall mean "including but not limited to,"
"includes but is not limited to," and "include but not limited to". All personal
pronouns used in this Agreement, whether used in the masculine, feminine or
neuter gender, shall include all other genders; the singular shall include the
plural, and vice versa. Titles of Sections are for convenience only, and shall
not modify rights and obligations created by this Agreement. This Agreement
shall be binding on and inure to the benefit of successors, assigns, legatees,
distributees, heirs, executors, guardians, administrators, estates and other
legal representatives. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instruction in
writing, signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one Agreement. It shall not be
necessary that any counterpart be signed by the parties so long as each Party
shall have executed a counterpart. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof and
supersedes any prior understandings, agreements or representations between the
parties, written or oral, which may relate to the subject matter hereof,
provided that the provisions of this Agreement are supplementary to, and not in
place of any provisions relating to indemnification and/or liability of
directors and officers contained in the Company's Certificate of Incorporation
and By-Laws and rights and remedies provided under any insurance policy. This
Agreement shall be governed by and construed according to the laws of the State
of New Jersey, without giving effect to principles of conflicts of law in New
Jersey.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first set forth above.
ULTICOM, INC.
By:
-----------------------------------
Name:
Title:
INDEMNITEE
---------------------------------------
4
ULTICOM, INC.
1998 STOCK INCENTIVE COMPENSATION PLAN
(as amended, through January 20, 2000)
1. Purpose of the Plan
The purpose of the Plan is to assist the Company, its
Subsidiaries and Affiliates in attracting and retaining valued employees by
offering them a greater stake in the Company's success and a closer identity
with it, and to encourage ownership of the Company's stock by such employees.
2. Definitions
2.1 "Affiliate" means any entity other than the
Subsidiaries in which the Company has a substantial direct or indirect equity
interest, as determined by the Board.
2.2 "Award" means an award of Deferred Stock, Restricted
Stock, Options or SARs under the Plan.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Change in Control" means (i) the Board (or, if
approval of the Board is not required as a matter of law, the shareholders of
the Company) shall approve (a) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which shares of Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after the merger, or (b)
any sale, lease, exchange or other transfer (on one transaction or a series of
related transactions) of all, or substantially all, the assets of the Company or
(c) the adoption of any plan or proposal for the liquidation or dissolution of
the Company; (ii) any person (as such term is defined in Section 13(d) of the
1934 Act), corporation or other entity other than the Company shall make a
tender offer or exchange offer to acquire any Common Stock (or securities
convertible into Common Stock) for cash, securities or any other consideration,
provided that (a) at least a portion of such securities sought pursuant to the
offer in question is acquired and (b) after consummation of such offer, the
person, corporation or other entity in question is the "beneficial owner" (as
such term is defined in Rule 13d-3 under the 1934 Act), directly or indirectly,
of 20% or more of the outstanding shares of Common Stock (calculated as provided
in paragraph (d) of such Rule 13d-3 in the case of rights to acquire Common
Stock); (iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the entire Board ceased for any reason to
<PAGE>
constitute a majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or (iv) the occurrence of any other
event the Committee determines shall constitute a "Change in Control" hereunder.
2.5 "Code" means the Internal Revenue Code of 1986, as
amended.
2.6 "Common Stock" means the common stock of the Company,
without par value, or such other class or kind of shares or other securities
resulting from the application of Section 10.
2.7 "Company" means ULTICOM, INC., a New Jersey
corporation, or any successor corporation.
2.8 "Committee" means the committee designated by the Board
to administer the Plan under Section 4. . The Committee shall have at least
three members, each of whom shall be a member of the Board, a Non-Employee
Director and an Outside Director.
2.9 "Deferred Stock" means an Award made under Section 6 of
the Plan to receive Common Stock at the end of a specified Deferral Period.
2.10 "Deferral Period" means the period during which the
receipt of a Deferred Stock Award under Section 6 of the Plan will be deferred.
2.11 "Director" means each member of the Board who is not
an Employee, who does not receive compensation from the Company, or from any
parent corporation or Subsidiary of the Company in any capacity other than as a
Director, and whose membership on the Board is not attributable to any contract
between the Company and such Director or any other entity with which such
Director is affiliated.
2.12 "Employee" means an officer or other key employee of
the Company, a Subsidiary or an Affiliate including a director who is such an
employee.
2.13 "Fair Market Value" means, on any given date, the mean
between the highest and lowest prices of actual sales of shares of Common Stock
on the principal national securities exchange on which the Common Stock is
listed on such date or, if Common Stock was not traded on such date, on the last
preceding day on which the Common Stock was traded.
2.14 "Holder" means an Employee to whom an Award is made.
2.15 "Hostile Change in Control" means any Change in
Control described in Section 2.4(ii) that is not approved or recommended by the
Board.
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2.16 "Incentive Stock Option" means an Option intended to
meet the requirements of an incentive stock option as defined in Section 422 of
the Code and designated as an Incentive Stock Option.
2.17 "1934 Act" means the Securities Exchange Act of 1934,
as amended.
2.18 "Non-Employee Director" means a person defined in Rule
16b-3(b)(3) promulgated by the Securities and Exchange Commission under the 1934
Act, or any successor definition adopted by the Securities and Exchange
Commission.
2.19 "Non-Qualified Option" means an Option not intended to
be an Incentive Stock Option, and designated as a Non-Qualified Option.
2.20 "Option" means any stock option granted from time to
time under Section 8 of the Plan.
2.21 "Outside Director" means a member of the Board who is
an "outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.22 "Plan" means the Ulticom, Inc. 1998 Stock Incentive
Compensation Plan herein set forth, as amended from time to time.
2.23 "Restricted Stock" means Common Stock awarded by the
Committee under Section 7 of the Plan.
2.24 "Restriction Period" means the period during which
Restricted Stock awarded under Section 7 of the Plan is subject to forfeiture.
2.25 "Retirement" means retirement from the active
employment of the Company, a Subsidiary or an Affiliate pursuant to the relevant
provisions of the applicable pension plan of such entity or as otherwise
determined by the Committee.
2.26 "SAR" means a stock appreciation right awarded by the
Committee under Section 9 of the Plan.
2.27 "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company (or any
subsequent parent of the Company) if each of the corporations other than the
last corporation in the unbroken chain owns stock possession 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
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2.28 "Ten Percent Shareholder" means a person who on any
given date owns, either directly or indirectly (taking into account the
attribution rules contained in Section 424(d) of the Code), stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or a Subsidiary.
3. Eligibility
3.1 Any Employee is eligible to receive an Award.
3.2 Each Director shall receive (i) upon joining the Board,
Options to purchase 4,583 shares of Common Stock having an exercise price per
share equal to the Fair Market Value as of the date he or she becomes a Director
and (ii) in each fiscal year of the Company, commencing with the year after the
year such Director first joins the Board, Options to purchase 1,528 shares of
Common Stock having an exercise price per share equal to the Fair Market Value
as of the date two business days after the publication of the audited year-end
financial statements of the Company for the immediately preceding fiscal year
(the "Annual Options"). The Annual Options shall vest and become non-forfeitable
incrementally, to the extent of one-fifth of the total number of shares per
meeting of the Board, and any committees of the Board of which such Director is
a member, attended by the recipient during the year of grant.
4. Administration and Implementation of Plan
4.1 The Plan shall be administered by the Committee, which
shall have full power to interpret and administer the Plan and full authority to
act in selecting the Employees to whom Awards will be granted, in determining
the type and amount of Awards to be granted to each such Employee, the terms and
conditions of Awards granted under the Plan and the terms of agreements which
will be entered into with Holders.
4.2 The Committee's powers shall include, but not be
limited to, the power to determine whether, to what extent and under what
circumstances an Option may be exchanged for cash, Common Stock, Restricted
Stock, Deferred Stock or some combination thereof; to determine whether, to what
extent and under what circumstances an Award is made and operates in tandem with
other Awards made hereunder; to determine whether, to what extent and under what
circumstances Common Stock or cash payable with respect to an Award shall be
deferred, either automatically or at the election of the Holder (including the
power to add deemed earnings to any such deferral); and to grant Awards (other
than Incentive Stock Options) that are transferable by the Holder.
4.3 The Committee shall have the power to adopt regulations
for carrying out the Plan and to make changes in such regulations as it shall,
from time to time, deem advisable. Any interpretation by the Committee of the
terms and provisions of the Plan and the administration thereof, and all action
taken by the Committee, shall be final and binding on Holders.
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<PAGE>
4.4 The Committee may condition the grant of any Award or
the lapse of any Deferral or Restriction Period (or any combination thereof)
upon the Holder's achievement of a Performance Goal that is established by the
Committee before the grant of the Award. For this purpose, a "Performance Goal"
shall mean a goal that must be met by the end of a period specified by the
Committee (but that is substantially uncertain to be met before the grant of the
Award) based upon: (i) the price of Common Stock, (ii) the market share of the
Company, its Subsidiaries or Affiliates (or any business unit thereof), (iii)
sales by the Company, its Subsidiaries or Affiliates (or any business unit
thereof), (iv) earnings per share of Common Stock, (v) return on shareholder
equity of the Company, (vi) costs of the Company, its Subsidiaries or Affiliates
(or any business unit thereof) or (vii) any other performance goal that would
satisfy the applicable requirements of Section 162(m) of the Code. The Committee
shall have discretion to determine the specific targets with respect to each of
these categories of Performance Goals. Before granting an Award or permitting
the lapse of any Deferral or Restriction Period subject to this Section, the
Committee shall certify that an individual has satisfied the applicable
Performance Goal.
4.5 In the event that a committee of the Board shall not
have been appointed hereunder, or having been appointed shall at any time be
incapacitated or unavailable, the Board may exercise all powers and authority of
the Committee and all references in this Plan to the Committee shall be deemed
to refer to the Board, acting in such capacity.
5. Shares of Stock Subject to the Plan
5.1 Subject to adjustment as provided in Section 10, the
total number of shares of Common Stock available for Awards under the Plan shall
be 1,986,128 shares.
5.2 The maximum number of shares of Common Stock subject to
an Award that may be awarded to any Employee shall not exceed 250,000 during any
calendar year (the "Individual Limit"). Subject to Section 5.3 and Section 10,
any shares of Common Stock subject to an Award that is canceled or repriced by
the Committee shall count against the Individual Limit. Notwithstanding the
foregoing, the Individual Limit may be adjusted to reflect the effect on shares
of Common Stock of any transaction or event described in Section 10.
5.3 Any shares issued by the Company through the assumption
or substitution of outstanding grants from an acquired company shall not (i)
reduce the shares available for Awards under the Plan, or (ii) be counted
against the Individual Limit. Any shares issued hereunder may consist, in whole
or in part, of authorized and unissued shares or treasury shares. If any shares
subject to any Award granted hereunder are forfeited or such Award otherwise
terminates without the issuance of such shares or the payment of other
consideration in lieu of such shares, the shares subject to such Award, to the
extent of any such forfeiture or termination, shall again be available for
Awards under the Plan.
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6. Deferred Stock
An Award of Deferred Stock is an agreement by the Company
to deliver to the recipient a specified number of shares of Common Stock at the
end of a specified deferral period or periods. Such an Award shall be subject to
the following terms and conditions:
6.1 Deferred Stock Awards shall be evidenced by Deferred
Stock agreements. Such agreements shall conform to the requirements of the Plan
and may contain such other provisions as the Committee shall deem advisable.
6.2 Upon determination of the number of shares of Deferred
Stock to be awarded to a Holder, the Committee shall direct that the same be
credited to the Holder's account on the books of the Company but that issuance
and delivery of the same shall be deferred until the date or dates provided in
Section 6.5 hereof. Prior to issuance and delivery hereunder the Holder shall
have no rights as a stockholder with respect to any shares of Deferred Stock
credited to the Holder's account.
6.3 Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered by a Deferred Stock
Award will be paid to the Holder currently, or deferred and deemed to be
reinvested in additional Deferred Stock, or otherwise reinvested on such terms
as are determined at the time of the Award by the Committee, in its sole
discretion, and specified in the Deferred Stock agreement.
6.4 The Committee may condition the grant of an Award of
Deferred Stock or the expiration of the Deferral Period upon the Employee's
achievement of one or more Performance Goal(s) specified in the Deferred Stock
agreement. If the Employee fails to achieve the specified Performance Goal(s),
either the Committee shall not grant the Deferred Stock Award to the Employee or
the Holder shall forfeit the Award and no Common Stock shall be transferred to
him pursuant to the Deferred Stock Award. Unless otherwise determined by the
Committee at the time of an Award, dividends paid during the Deferral Period on
Deferred Stock subject to a Performance Goal shall be reinvested in additional
Deferred Stock and the lapse of the Deferral Period for such Deferred Stock
shall be subject to the Performance Goal(s) previously established by the
Committee.
6.5 The Deferred Stock agreement shall specify the duration
of the Deferral Period taking into account termination of employment on account
of death, disability, Retirement or other cause. The Deferral Period may consist
of one or more installments. At the end of the Deferral Period or any
installment thereof the shares of Deferred Stock applicable to such installment
credited to the account of a Holder shall be issued and delivered to the Holder
(or, where appropriate, the Holder's legal representative) in accordance with
the terms of the Deferred Stock agreement. The Committee may, in its sole
discretion, accelerate the delivery of all or any part of a Deferred Stock Award
or waive the deferral limitations for all or any part of a Deferred Stock Award.
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7. Restricted Stock
An Award of Restricted Stock is a grant by the Company of a
specified number of shares of Common Stock to the Employee, which shares are
subject to forfeiture upon the happening of specified events. Such an Award
shall be subject to the following terms and conditions:
7.1 Restricted Stock shall be evidenced by Restricted Stock
agreements. Such agreements shall conform to the requirements of the Plan and
may contain such other provisions as the Committee shall deem advisable.
7.2 Upon determination of the number of shares of
Restricted Stock to be granted to the Holder, the Committee shall direct that a
certificate or certificates representing the number of shares of Common Stock be
issued to the Holder with the Holder designated as the registered owner. The
certificate(s) representing such shares shall be legended as to sale, transfer,
assignment, pledge or other encumbrances during the Restriction Period and
deposited by the Holder, together with a stock power endorsed in blank, with the
Company, to be held in escrow during the Restriction Period.
7.3 Unless otherwise determined by the Committee at the
time of an Award, during the Restriction Period the Holder shall have the right
to receive dividends from and to vote the shares of Restricted Stock.
7.4 The Committee may condition the grant of an Award of
Restricted Stock or the expiration of the Restriction Period upon the Employee's
achievement of one or more Performance Goal(s) specified in the Restricted Stock
Agreement. If the Employee fails to achieve the specified Performance Goal(s),
either the Committee shall not grant the Restricted Stock to the Employee or the
Holder shall forfeit the Award of Restricted Stock and the Common Stock shall be
forfeited to the Company.
7.5 The Restricted Stock agreement shall specify the
duration of the Restriction Period and the performance, employment or other
conditions (including termination of employment on account of death, disability,
Retirement or other cause) under which the Restricted Stock may be forfeited to
the Company. At the end of the Restriction Period the restrictions imposed
hereunder shall lapse with respect to the number of shares of Restricted Stock
as determined by the Committee, and the legend shall be removed and such number
of shares delivered to the Holder (or, where appropriate, the Holder's legal
representative). The Committee may, in its sole discretion, modify or accelerate
the vesting and delivery of shares of Restricted Stock.
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8. Options
Options give an Employee or Director the right to purchase
a specified number of shares of Common Stock, Deferred Stock or Restricted Stock
(as selected by the Committee) from the Company for a specified time period at a
fixed price. Options granted to Employees may be either Incentive Stock Options
or Non-Qualified Stock Options. Option granted to Directors pursuant to Section
3.2 shall be Non-Qualified Stock Options. The grant of Options shall be subject
to the following terms and conditions:
8.1 Options shall be evidenced by Option agreements. Such
agreements shall conform to the requirements of the Plan, and may contain such
other provisions as the Committee shall deem advisable.
8.2 Subject to Section 3.2, the price per share at which
Common Stock may be purchased upon exercise of an Option shall be determined by
the Committee, but, in the case of grants of Incentive Stock Options, shall be
not less than the Fair Market Value of a share of Common Stock on the date of
grant. In the case of any Incentive Stock Option granted to a Ten Percent
Shareholder, the option price per share shall not be less than 110% of the Fair
Market Value of a share of Common Stock on the date of grant. The option price
per share for Non-Qualified Options may be less than the Fair Market Value of a
share of Common Stock on the date of grant.
8.3 The Option agreements shall specify when an Option may
be exercised and the terms and conditions applicable thereto. The term of an
Option shall in no event be greater than ten years (five years in the case of an
Incentive Stock Option granted to a Ten Percent Shareholder).
8.4 Each provision of the Plan and each Option agreement
relating to an Incentive Stock Option shall be construed so that each Incentive
Stock Option shall be an incentive stock option as defined in Section 422 of the
Code, and any provisions of the Option agreement thereof that cannot be so
construed shall be disregarded. Incentive Stock Options may not be granted to
employees of Affiliates.
8.5 No Incentive Stock Option shall be transferable
otherwise than by will or the laws of descent and distribution and, during the
lifetime of the Holder, shall be exercisable only by the Holder. Upon the death
of a Holder, the person to whom the rights have passed by will or by the laws of
descent and distribution may exercise an Incentive Stock Option only in
accordance with this Section 8.
8.6 Except as provided in an Option Agreement, the option
price of the shares of Common Stock upon the exercise of an Option shall be paid
in full at the time of the exercise in cash, in Shares of Common Stock valued at
Fair Market Value on the date of exercise or a combination of cash and such
shares of Common Stock. With the consent of the Committee, payment upon the
exercise of a Non-Qualified Option may be made in whole or in part by Restricted
Stock (based on the fair market value of the Restricted Stock on the date the
Option is exercised, as determined by the Committee). In such case the Common
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Stock to which the Option relates shall be subject to the same forfeiture
restrictions originally imposed on the Restricted Stock exchanged therefor. The
Committee may provide in the applicable Option agreement for other methods for
exercising options including by delivery of a note by the Holder in the amount
of the exercise price.
8.7 With the Holder's consent, the Committee may amend any
outstanding Option to deliver shares of Deferred Stock or Restricted Stock
instead of Common Stock.
8.8 If a Holder's employment by the Company, a Subsidiary
or Affiliate terminates by reason of death, any Option granted to such Holder
may thereafter be exercised (to the extent such Option was exercisable at the
time of death or on such accelerated basis as the Committee may determine at or
after grant) by, where appropriate, the Holder's transferee or by the Holder's
legal representative, until the earlier of the date specified in the applicable
Option Agreement or one year after the Holder's death.
8.9 If a Holder's employment by the Company, a Subsidiary
or Affiliate terminates by reason of disability (as determined by the Committee)
or Retirement, any unexercised Option granted to the Holder shall become
immediately exercisable and may thereafter be exercised by the Holder (or, where
appropriate, the Holder's transferee or legal representative) until the earlier
of the date specified in the applicable Option Agreement or 90 days after such
termination of employment.
8.10 If a Holder's employment by the Company, Subsidiary or
Affiliate terminates for any reason other than death, disability or Retirement,
all unexercised Options awarded to the Holder shall terminate on the earlier of
the date specified in the applicable Option Agreement or 90 days after such
termination of employment.
8.11 The Committee or the Board may in their discretion
extend the period during which an Option held by an Employee may be exercised to
such period, not to exceed three years following the termination of an
Employee's employment or service with the Company or any of the Subsidiaries, as
the committee or the Board may determine to be appropriate in any particular
instance.
9. Stock Appreciation Rights
SARs are rights to receive a payment in cash, Common Stock,
Restricted Stock or Deferred Stock (as selected by the Committee) equal to the
increase in the Fair Market Value of a specified number of shares of Common
Stock from the date of grant of the SAR to the date of exercise. The grant of
SARs shall be subject to the following terms and conditions:
9.1 SARs shall be evidenced by SAR agreements. Such
agreements shall conform to the requirements of the Plan and may contain such
other provisions as the committee shall deem advisable. A SAR may be granted in
tandem with all or a portion of a related Option under the Plan ("Tandem SAR"),
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or may be granted separately ("Freestanding SAR"). A Tandem SAR may be granted
either at the time of the grant of the Option or at any time thereafter during
the term of the Option and shall be exercisable only to the extent that the
related Option is exercisable. In no event shall any SAR be exercisable within
the first six months of its grant.
9.2 The base price of a Tandem SAR shall be the option
price under the related Option. The base price of a Freestanding SAR shall be
not less than 100% of the Fair Market Value of the Common Stock, as determined
by the Committee, on the date of grant of the Freestanding SAR.
9.3 A SAR shall entitle the recipient to receive a payment
equal to the excess of the Fair Market Value of the shares of Common Stock
covered by the SAR on the date of exercise over the base price of the SAR. Such
payment may be in cash, in shares of Common Stock, in shares of Deferred Stock,
in shares of Restricted Stock or any combination, as the Committee shall
determine. Upon exercise of a Tandem SAR as to some or all of the shares of
Common Stock covered by the grant, the related Option shall be canceled
automatically to the extent of the number of shares of Common Stock covered by
such exercise, and such shares shall no longer be available for purchase under
the Option pursuant to Section 8. Conversely, if the related Option is exercised
as to some or all of the shares of Common Stock covered by the Award, the
related Tandem SAR, if any, shall be canceled automatically to the extent of the
number of shares of Common Stock covered by the Option exercise.
9.4 SARs shall be subject to the same terms and conditions
applicable to Options as stated in Sections 8.3, 8.5, 8.7, 8.8, 8.9 and 8.10.
10. Adjustments upon Changes in Capitalization
In the event of a reorganization, recapitalization, stock
split, spin-off, split-off, split-up, stock dividend, issuance of stock rights,
combination of shares, merger, consolidation or any other change in the
corporate structure of the Company affecting Common Stock, or any distribution
to stockholders other than a cash dividend, the Board shall make appropriate
adjustment in the number and kind of shares authorized by the Plan and any
adjustments to outstanding Awards as it determines appropriate. No fractional
shares of Common Stock shall be issued pursuant to such an adjustment. The
Committee may determine to pay the Fair Market Value of any fractional shares
resulting from adjustments pursuant to this Section in cash to the Holder.
11. Adjustments Upon a Change in Control
Except as otherwise provided in an applicable agreement,
upon the occurrence of a Change in Control (other than a Hostile Change of
Control), the Committee may elect to provide that all outstanding Options and
Stock Appreciation Rights shall immediately vest and become exercisable, each
Deferral Period and Restriction Period shall immediately lapse or all shares of
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Deferred Stock subject to outstanding Awards shall be issued and delivered to
the Holder. In the event of a Hostile Change in Control, each of the foregoing
actions shall occur automatically upon the occurrence of such Hostile Change in
Control. At any time before a Change in Control, the Committee may, without the
consent of any Holder of an Option, (i) require the entity effecting the Change
in Control or a parent or subsidiary of such entity to assume each outstanding
Option or substitute an equivalent option therefor or (ii) terminate and cancel
all outstanding Options upon the Change in Control and pay the Holder of each
such Option cash equal to the product of (x) the difference between the Fair
Market Value of Common Stock on the date of the Change in Control and the
exercise price of such Option and (y) the number of shares of Common Stock
subject to such Option. For the purposes of this Section, an Option shall be
considered assumed if, following the merger, the option confers the right to
purchase, for each share of Common Stock subject to the Option immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger was not solely common stock of the successor corporation
or its parent, the Committee may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each share of Common Stock subject to the Option, to be solely common stock
of the successor corporation or its parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger.
12. Effective Date, Termination and Amendment
The Plan shall become effective on December 21, 1998,
subject to shareholder approval. The Plan shall remain in full force and effect
until the earlier of 10 years from the date of its adoption by the Board, or the
date it is terminated by the Board. The Board shall have the power to amend,
suspend or terminate the Plan at any time, provided that no such amendment shall
be made without stockholder approval which shall:
12.1 Increase (except as provided in Section 10) the total
number of shares available for issuance pursuant to the Plan;
12.2 Change the class of individuals eligible to be
Holders;
12.3 Modify the Individual Limit (except as provided in
Section 10) or the categories of Performance Goals previously disclosed to
shareholders;
12.4 Change the provisions of this Section 12; or
12.5 Make any other change for which shareholder approval
is required under Section 16(b) or any successor provision of the 1934 Act.
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Termination of the Plan pursuant to this Section 12 shall
not affect Awards outstanding under the Plan at the time of termination.
13. Transferability
Except as provided below, Awards may not be pledged,
assigned or transferred for any reason during the Holder's lifetime, and any
attempt to do so shall be void and the relevant Award shall be forfeited. The
Committee may grant Awards (except Incentive Stock Options) that are
transferable by the Holder during his lifetime, but such Awards shall be
transferable only to the extent specifically provided in the agreement entered
into with the Holder. The transferee of the Holder shall, in all cases, be
subject to the provisions of the agreement between the Company and the Holder.
14. General Provisions
14.1 Nothing contained in the Plan, or any Award granted
pursuant to the Plan, shall confer upon any Employee any right with respect to
continued employment by the Company, a Subsidiary or Affiliate, nor interfere in
any way with the right of the Company, a Subsidiary or Affiliate to terminate
the employment of any Employee at any time.
14.2 For purposes of this Plan, transfer of employment
between the Company and its Subsidiaries and Affiliates shall not be deemed
termination of employment.
14.3 In connection with the transfer of shares of Common
Stock as a result of the exercise or vesting of an Award or upon any other event
that would subject the Holder to taxation, the Company shall have the right to
require the Holder to pay an amount in cash or to retain or sell without notice,
or to demand surrender of, shares of Common Stock in value sufficient to cover
any tax, including any Federal, state or local income tax, required by any
governmental entity to be withheld or otherwise deducted and paid with respect
to such transfer ("Withholding Tax"), and to make payment (or to reimburse
itself for payment made) to the appropriate taxing authority of an amount in
cash equal to the amount of such Withholding Tax, remitting any balance to the
employee. For purposes of this Section 14.3, the value of shares of Common Stock
so retained or surrendered shall be the Fair Market Value on the date that the
amount of the Withholding Tax is to be determined (the "Tax Date"), and the
value of shares of Common Stock so sold shall be the actual net sale price per
share (after deduction of commissions) received by the Company.
Notwithstanding the foregoing, the Holder shall be entitled
to satisfy the obligation to pay any Withholding Tax, in whole or in part, by
providing the Company with funds sufficient to enable the Company to pay such
Withholding Tax or by requiring the Company to retain or to accept upon delivery
thereof shares of Common Stock (other than unvested Restricted Stock) sufficient
in value (determined in accordance with the last sentence of the preceding
paragraph) to cover the amount of such Withholding Tax. Each election by a
Holder to have shares retained or to deliver shares for this purpose shall be
subject to the following restrictions: (i) the election must be in writing and
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made on or prior to the Tax Date; and (ii) the election shall be subject to the
disapproval of the Committee.
14.4 With respect to Holders subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
14.5 Without amending the Plan, Awards may be granted to
Employees who are foreign nationals or employed outside the United States or
both, on such terms and conditions different from those specified in the Plan as
may, in the judgment of the Committee, be necessary or desirable to further the
purpose of the Plan.
14.6 To the extent that Federal laws (such as the 1934 Act,
the Code or the Employee Retirement Income Security Act of 1974) do not
otherwise control, the Plan and all determinations made and actions taken
pursuant hereto shall be governed by the law of New Jersey and construed
accordingly.
14.7 The Committee may amend any outstanding Awards to the
extent it deems appropriate. Such amendment may be made by the Committee without
the consent of the Holder, except in the case of amendments adverse to the
Holder, in which case the Holder's consent is required for any such amendment.
Notwithstanding the foregoing, the Committee may exercise its authority under
Section 11 without the consent of Holders.
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