<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CASCADE SYSTEMS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7373 04-3236319
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
300 BRICKSTONE SQUARE, ANDOVER, MASSACHUSETTS 01810
(978) 749-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MALCOLM P. MCGRORY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CASCADE SYSTEMS INCORPORATED
300 BRICKSTONE SQUARE, ANDOVER, MASSACHUSETTS 01810
(978) 749-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN A. BURGESS, ESQ. STEVEN P. ROSENTHAL, ESQ.
HALE AND DORR LLP MINTZ, LEVIN, COHN, FERRIS,
60 STATE STREET GLOVSKY AND POPEO, P.C.
BOSTON, MASSACHUSETTS 02109 ONE FINANCIAL CENTER
(617) 526-6000 BOSTON, MASSACHUSETTS 02111
(617) 542-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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. [ ]
------------------------
<TABLE>
<S> <C> <C> <C> <C>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value
per share.................... 3,220,000 shares $11.00 $35,420,000 $10,734
===============================================================================================================
</TABLE>
(1) Includes an aggregate of 420,000 shares which the Underwriters have the
option to purchase from the Company and certain Selling Stockholders to
cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
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.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
, 1997
2,800,000 SHARES
[Cascade Systems Incorporated Logo]
COMMON STOCK
------------------
Of the 2,800,000 shares of Common Stock offered hereby, 2,250,000 are being
sold by Cascade Systems Incorporated ("Cascade" or the "Company") and 550,000
shares are being sold by certain Selling Stockholders (the "Selling
Stockholders"). The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $9.00 and $11.00 per share. See "Underwriting" for the factors
to be considered in determining the initial public offering price. Application
has been made for the listing of the Common Stock on the Nasdaq National Market
under the symbol "CSCD."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
<TABLE>
<S> <C> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1) SELLING STOCKHOLDERS
- ----------------------------------------------------------------------------------------------------------
Per Share......... $ $ $ $
- ----------------------------------------------------------------------------------------------------------
Total(2).......... $ $ $ $
</TABLE>
================================================================================
(1) Before deducting expenses of the offering estimated at $750,000, all of
which will be paid by the Company.
(2) The Company and certain of the Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 420,000 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ , respectively. See
"Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated on or about , 1997.
BT ALEX. BROWN HAMBRECHT & QUIST
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
- -------------------------------------------------------------------------------
CASCADE SYSTEMS INCORPORATED MANAGING CONTENT--THE RAW MATERIAL OF PUBLISHING
- -------------------------------------------------------------------------------
[CASCADE SYSTEMS LOGO]
Cascade's asset and workflow management systems enable publishers to leverage
their content and prepare themselves for the multi-media future:
DATAFLOW
[ ] Track History -- Track individual objects through the production process,
keeping a record of those who have used the file and changes of status.
[ ] Manage Workflow -- Automatically move a job in digital form through the
various steps of a defined production workflow.
[ ] Archive -- Store the elements associated with a particular job from
individual text or image files to pages and complete publications.
[ ] Retrieve -- Find and recall all the elements related to a particular job or
publication.
MEDIASPHERE
( ) Store -- Store and index multimedia data in a secure archive ready for
re-use in future projects.
( ) Search -- Search with a probabilistic search engine using natural language
queries. Results are ranked in order of relevance to the original query.
( ) Browse -- Browse through the results to select media objects required for a
project or refine the search to produce a closer match.
( ) Retrieve -- Retrieve the chosen objects and deliver them to a defined
location such as a network folder, desktop, news agency or CD-ROM.
/W3
[ ] Web-based client access to both
( ) MediaSphere and DataFlow* via the Internet or an Intranet. Applications
include remote proofing/approval, and remote access to distributed assets.
* Scheduled for release in October 1997.
[PICTURES]
Graphic diagram depicting three vertical sections, connected with
arrows, each entitled, from top to bottom,: Acquire & Retain Assets, Process
Assets, and Leverage Assets.
The "Acquire & Retain Assets" section depicts the Company's acquisition
and retention sequence, accompanied by a symbolic icon, in the form of a
flowchart as follows: Still Photos, Graphics, Text Files, Page Elements, Saved
Pages, Video Sequences, and Sound Clips.
The "Process Assets" section outlines the Company's Workflow Content
Management Solution in a central box with DataFlow and MediaSphere captions
running along the left side. The outline reads: Workflow Management, Track
History, Manage Workflow, Archive, Retrieve, Optimize Assets, Edit, Manipulate,
Layout, Compose, Content Management, Store, Search, Browse, and Retrieve.
The "Leverage Assets" section contains captions and icons similar to
the flow chart in the first section as follows: Output to On, Demand, Master to
Video, Output to Print, Publish to Web and Master to CD.
------------------------
Cascade Systems is a registered servicemark of the Company and MediaSphere is a
registered trademark of the Company. Other trademarks, servicemarks or trade
names that appear in this Prospectus are the property of their respective
owners.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Prospective investors should consider
carefully the information under "Risk Factors."
THE COMPANY
Cascade Systems Incorporated ("Cascade" or the "Company") designs,
develops, markets and supports workflow and content management software
solutions for newspapers, magazine and book publishers, commercial printers,
retailers and other corporate publishers. The Company's DataFlow system manages
the process of publishing information by providing content and data management,
tracking, workflow and archiving functionality. The Company's MediaSphere system
is designed to meet the archiving, search and retrieval needs of organizations
dealing with large amounts of multimedia data. DataFlow and MediaSphere also are
designed to permit access to and delivery of content over the Internet. The
Company's newspaper customers include The Los Angeles Times, Newsday, The Miami
Herald, The Mirror Group PLC (U.K.), The Boston Globe and The Daily Telegraph
(U.K.). Other customers include magazine publishers such as The McGraw-Hill
Companies, Inc. and Conde Nast Publications Inc., commercial printers such as
Bowne & Co., Inc. and R.R. Donnelley & Sons Company, and retailers and catalog
publishers including Amway Corporation and Val-Pak Direct Marketing Systems,
Inc.
The worldwide publishing industry is undergoing significant change in
response to competitive pressures. Publishers of newspapers and magazines are
consolidating into larger organizations with multiple titles, formats and
geographic locations. Publishing enterprises are also facing competition from
alternative publishing on new media such as the Internet. Increased competition
for subscribers has resulted in a trend toward more demographically targeted
editorial, feature and advertising content. As a result, publishers are
beginning to view their content assets, such as photos, graphics, illustrations,
text and captions, as key competitive differentiators. Newspapers, publishers
and other organizations are seeking ways to improve content management and
utilization while continuing to meet demanding time schedules and reduce costs.
The Company has established a pre-eminent position in the newspaper
marketplace for workflow and content management solutions. The Company's
products are designed to handle complex data formats and large files associated
with the pre-press production process and are able to fit seamlessly with other
pre-press applications, while maintaining a record of job status throughout the
process. As part of its strategy, the Company intends to continue to leverage
opportunities created by its technology and client base to expand its position
in the newspaper market in the U.S. and internationally, both for advertising
and other editorial applications. The Company also intends to continue to
leverage its technology through enhancements to support the Internet and other
evolving technologies. In addition, the Company believes that the expertise that
it has acquired in developing workflow and content management solutions for
time-critical applications in the newspaper industry will permit it to expand to
other publishing markets which face similar requirements for workflow and
content management solutions, such as magazines, catalogs, and special purpose
publishers. The Company is developing a workgroup content management solution to
address the requirement of commercial printers and trade shops, and intends to
apply its solutions to meet the needs of other organizations, such as retailers
and consumer product companies, that manage a high volume of text and images
internally.
The Company intends to expand its global sales capabilities by increasing
the size of its direct sales organization in major markets to target strategic
accounts and by developing VAR and OEM relationships to target specific vertical
markets. The Company markets its products and services primarily through its own
direct sales force and distributors in certain overseas markets. The Company has
a sales and marketing organization of 27 persons, as well as a services and
support
3
<PAGE> 5
organization of 35 persons. In addition, the Company has established a strategic
relationship with Applied Graphics Technologies, Inc. for selling its solutions
to corporate customers.
The Company was initially incorporated in February 1994 under the name
Cascade Systems International Inc., the parent company of Cascade Systems
Limited, a United Kingdom based company, and Cascade Systems Incorporated, a
Massachusetts corporation, both of which were organized in 1993. In 1996, the
Massachusetts corporation was merged into the Company and the Company changed
its name to Cascade Systems Incorporated.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............................... 2,250,000 shares
Common Stock offered by the Selling Stockholders.................. 550,000 shares
Common Stock to be outstanding after the offering................. 7,125,525 shares(1)
Use of proceeds................................................... For working capital and
other general corporate
purposes.
Proposed Nasdaq National Market symbol............................ CSCD
</TABLE>
- ---------------
(1) Excludes 1,917,650 shares of Common Stock issuable upon the exercise of
options outstanding as of August 31, 1997 at a weighted average exercise
price of $4.51 per share, of which options to purchase 311,730 shares were
then exercisable. See "Capitalization," "Management -- Executive
Compensation," and "Description of Capital Stock."
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INCEPTION SIX MONTHS
(FEBRUARY 5, 1993) YEAR ENDED ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------- ---------------
1993 1994 1995 1996 1996 1997
------------------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Software license
revenues................. $ 494 $ 2,658 $ 4,905 $5,913 $2,558 $4,386
Maintenance and service
revenues................. 236 1,177 2,243 4,428 1,653 2,639
Hardware and other
revenues................. 2,071 8,238 10,564 8,170 5,067 2,334
------------------- ------- ------- ------ ------ ------
Total revenues...... 2,801 12,073 17,712 18,511 9,278 9,359
Income (loss) from
operations............... (312) (793) (1,390) 4 (204) 172
Net income (loss).......... $ (313) $ (745) $(1,400) $ 93 $ (114) $ 231
Pro forma net income per
common and common
equivalent share......... $ 0.02 $ 0.04
Weighted average common and
common equivalent shares
outstanding.............. 6,008 6,066
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash......................................................... $2,071 $ 22,246
Working capital.............................................. 1,260 21,435
Total assets................................................. 6,933 27,108
Total stockholders' equity................................... 2,305 22,480
</TABLE>
- ---------------
(1) As adjusted to give effect to the sale of the 2,250,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $10.00 per share, after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by the Company.
--------------------
Except as otherwise indicated, all information in this Prospectus (i)
reflects the conversion of all outstanding shares of the Company's Series A
and Series B Preferred Stock into an aggregate of 2,100,000 shares of Common
Stock upon the closing of this offering, (ii) reflects the further amendment
and restatement of the Company's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of this offering, to remove
the Company's existing series of Preferred Stock and to create a class of
authorized but undesignated Preferred Stock, and (iii) assumes no exercise
of the Underwriters' over-allotment option.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Common
Stock offered by this Prospectus. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, the Risk Factors discussed below.
Limited Operating History. The Company's predecessor was founded in 1993,
and until 1996 the Company operated primarily as a systems integrator. The
Company shipped its first software product in 1994. Accordingly, the Company has
a limited operating history and, although the Company has experienced growth in
recent periods, continued growth at the same rate may not be sustainable and
past operating results are not necessarily indicative of future operating
results. The limited operating history of the Company makes the prediction of
future results difficult and, therefore, there can be no assurance that the
Company will sustain revenue growth or profitability on a consistent basis. The
Company's future prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in their early stage of
development, particularly companies in a new and rapidly evolving market. To
address these risks, the Company must, among other things, respond to
competitive developments, complete development of its product lines, continue to
attract, retain and motivate qualified persons, commercialize products and
services incorporating its technologies and successfully execute its sales and
distribution strategy. There can be no assurance that the Company will be
successful in addressing such risks, or that the Company will achieve or sustain
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Selected Consolidated Financial Data."
Potential Fluctuations in Quarterly Results; Seasonality. As a result of
the Company's limited operating history, the Company does not have historical
financial data for a significant period on which to base planned operating
expenses. The Company's expense levels are fixed in advance and are based in
part on its expectations as to future revenues. As a result, quarterly sales and
operating results will generally depend on the volume and timing of and ability
to fulfill orders received within the quarter and the closing of orders which
are difficult to forecast. The Company's sales cycles have in the past been long
and a significant lead time is, at times, required to sell the Company's
products. Revenues from sales efforts initiated in one quarter may not be
recognized until subsequent quarters, and the delay in the closing of a
significant sale from one quarter to the next may cause wide variations in the
Company's quarterly results. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenues shortfall. Accordingly,
any significant shortfall in demand for the Company's products and services in
relation to the Company's expectations would have an immediate adverse impact on
the Company's business, operating results and financial condition.
In addition, the Company plans to continue to increase its operating
expenses to fund greater levels of research and development, increase its sales
and marketing operations, develop new distribution channels and broaden its
customer support capabilities. There could be a material adverse effect on the
Company's business, operating results and financial condition to the extent that
such expenses precede or are not followed by increased revenues. The Company
expects in the future to experience significant fluctuations in quarterly
operating results that may be caused by many factors, including demand for the
Company's products, introduction or enhancement of products by the Company and
its competitors, market acceptance of new products, mix of distribution channels
through which products are sold, pricing and mix of products and services sold,
changes in pricing policies by its competitors, seasonality in the demand for
its products and general economic conditions. In particular, the Company has
experienced seasonality in the demand for its products from the newspaper
industry, with fewer orders being placed in the fourth calendar quarter of the
year, when newspapers typically are focused on their own holiday advertising
demands. As a result, the Company believes that period-to-period comparisons of
its results of
6
<PAGE> 8
operations may not be necessarily meaningful and should not be relied upon as an
indication of future performance. Due to all of the foregoing factors, it is
likely that in some future quarter the Company's operating results will be below
the expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock would likely be materially adversely
affected.
Lengthy Sales and Implementation Cycles. The license of the Company's
software products involves significant investment by customers which in many
cases have complex approval
procedures, fixed capital budgets and limited experience with technological
innovation. The Company generally experiences a lengthy sales cycle (typically
six months), and the Company is often required to provide a significant level of
education to prospective customers regarding the use and benefits of the
Company's products. In addition, the implementation by customers of the
Company's products involves a significant commitment of resources over an
extended period of time and is commonly associated with substantial
implementation efforts. For these and other reasons, the sales and customer
implementation cycles are subject to a number of significant delays over which
the Company has little or no control. Delay of a limited number of sales or
customer implementations could have a material adverse effect on the Company's
business, operating results and financial condition and could cause the
Company's operating results to vary significantly from quarter to quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Sales and Marketing."
Industry Concentration. To date, a substantial portion of the Company's
revenues have been derived from sales to the newspaper industry. Historically,
newspapers have often been relatively slow to innovate technologically, and
their willingness to make significant capital expenditures on technology
solutions has varied significantly, depending upon such factors as the technical
sophistication and union work rules of production personnel and the level of
overall production costs, including the cost of newsprint. These factors can
adversely affect the Company's efforts to market its products both in specific
instances and across the newspaper industry generally. Furthermore, the
Company's future results will depend upon its ability to expand beyond these
markets to other publishing markets such as magazines, catalogs and special
purpose publishers. The failure of the Company to attract and retain customers
in this broader market could have a material adverse effect on the Company's
business, operating results and financial condition.
Developing Market; Unproven Acceptance of the Company's Products. The
market for the Company's products and services has only recently begun to
develop, is rapidly evolving and is characterized by an increasing number of
market entrants. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty. Because the market for the
Company's products and services is new and evolving, it is difficult to predict
with any assurance the future growth rate, if any, and size of this market.
There can be no assurance that the market for the Company's products and
services will continue to develop or that the Company's products or services
will continue to be adopted. If the market fails to develop, develops more
slowly than expected or becomes saturated with competitors, or if the Company's
products fail to achieve market acceptance, such conditions could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Industry Background."
Dependence on Principal Products. The Company believes that sales of its
DataFlow and MediaSphere systems will account for a majority of the Company's
revenues in 1997 and for the foreseeable future. Therefore, the Company's future
operating results, particularly in the near term, are substantially dependent on
the continued market acceptance of these products, including improvements and
enhancements thereto. Any factors adversely affecting the sales of the Company's
applications, such as price competition or the introduction of technologically
superior products, could have a material adverse effect on the Company. There
can be no assurance that the Company will continue to achieve market acceptance
for these products or that the Company will be successful in developing
improvements and enhancements to such products. A decline in the
7
<PAGE> 9
demand for these products as a result of competition, technological change or
other factors would have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Products."
Dependence upon Product Development; Risks of Technological Change and
Evolving Industry Standards. The Company's success will depend upon its ability
to develop new products and provide new services that meet changing customer
requirements. The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, emerging competition, short
product life cycles and frequent new product and service introductions. There
can be no assurance that the Company can successfully identify new product
opportunities and develop and bring new products and services to market in a
timely manner. Failure of the Company, for technological or other reasons, to
develop and introduce new products, product enhancements and new services that
are compatible with industry standards and that satisfy customer requirements
would have a material adverse effect on the Company's business, operating
results and financial condition. In particular, the Company, as part of its
strategy, is currently developing a new workgroup content management system for
use by commercial printers, trade shops, advertisers and similar organizations.
Any failure to develop this product on a timely basis or the failure to gain
market acceptance of this product once released would have a material adverse
effect on the Company's business, operating results and financial condition.
In addition, the Company or its competitors may announce enhancements to
existing products or services, or new products or services embodying new
technologies, industry standards or customer requirements, that have the
potential to replace or provide lower cost alternatives to the Company's
existing products and services. The introduction of such enhancements or new
products and services could render the Company's existing products and services
obsolete and unmarketable. There can be no assurance that the announcement or
introduction of new products or services by the Company or its competitors or
any change in industry standards will not cause customers to defer or cancel
purchases of existing products or services, which could have a material adverse
effect on the Company's business, operating results and financial condition.
Furthermore, introduction by the Company of products or services with
reliability, quality or compatibility problems could result in reduced orders,
delays in collecting accounts receivable and additional service costs. The
failure to introduce a new product, service or product enhancement on a timely
basis could delay or hinder market acceptance of the Company's products and
services. Any such event could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Products."
New Distribution Strategy. The Company's distribution strategy
contemplates expansion of its indirect sales channels, including both systems
integrators and service providers selling its solutions to corporate customers
as well as VARs and OEMs selling its workgroup content management solution
product, currently under development, to customers in the commercial print,
trade shop and advertising markets. To date, the Company has sold its products
only through its direct sales organization and select distributors. The Company
has begun marketing its products through strategic alliances with technology
partners and expects to continue to seek strategic relationships with
significant computer software service and equipment providers. Any failure by
the Company to broaden its distribution channels, including any failure or delay
in introducing products for such channels, to maintain its relationship with
existing strategic partners, to attract additional technology partners that will
be able to market the Company's products effectively, or to manage conflicts
among its channels as they evolve, could have a material adverse effect on the
Company's business, operating results and financial condition. Sales to VARs and
OEMs generally provide lower gross margins, and an increase in sales to VARs and
OEMs as a percentage of net sales could contribute to a decrease in the
Company's gross profits and/or gross profit margin and could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Sales and Marketing."
8
<PAGE> 10
The Company also plans to expand its direct sales and support organization.
There can be no assurance that such internal expansion will be successfully
completed, that the cost of such expansion will not exceed the revenues
generated, or that the Company's sales and marketing organization will be able
to successfully compete against the significantly more extensive and well-funded
sales and marketing operations of certain of the Company's current or potential
competitors. The Company's inability to effectively manage its internal
expansion could have a material adverse effect on the Company's business,
operating results and financial condition.
Competition. The market for software and services is highly competitive,
rapidly evolving and subject to rapid technological change. The Company expects
competition to increase in the future. The Company believes that while it
competes with no single organization across its entire product line, a variety
of companies offer products which compete either with its DataFlow or its
MediaSphere systems. In addition, desktop publishing vendors such as Quark, Inc.
("Quark") or Adobe Systems Incorporated ("Adobe") may in the future offer
functionality competitive with the Company's products as part of their own
product offerings. Also, potential customers of the Company's products may elect
to develop internal applications that provide the functionality of the Company's
products, or obtain such functionality from third-party service bureaus. Such
competition could materially adversely affect the Company's business, operating
results or financial condition. As the Company expands its target markets to
include large organizations outside the printing industry, it anticipates that
it will encounter additional competitors.
Competitive factors in the software and services market include core
technology, breadth of product features, product quality, marketing and
distribution resources, customer service and support and price. The Company
believes it presently competes favorably with respect to each of these factors.
However, the market and competition are still relatively new and rapidly
emerging, and there can be no assurance that the Company's current and potential
competitors will not develop software and services that may be more effective or
achieve greater market acceptance than the Company's current or future products
or services, or that the Company's technology products or services would not be
rendered obsolete by such developments. Also, the Company's current and
prospective competitors include companies that have substantially greater name
recognition and financial, technical and marketing resources than the Company.
See "Business -- Competition."
Management of Growth. The rapid execution necessary for the Company to
fully exploit the market for its products and services requires an effective
planning and management process. The Company's rapid growth has placed, and is
expected to continue to place, a significant strain on the Company's management,
operations and systems. The Company expects to hire personnel at a rapid pace.
In addition, the Company employs personnel engaged in research and development
in the U.S., the U.K. and Canada. To manage its growth and geographically
dispersed operations, the Company must continue to implement and improve its
operational and financial systems and to expand, train and manage its employee
base. Due to the level of technical and management expertise necessary to
support growth, the Company must recruit and retain highly qualified and
well-trained personnel. Competition for all such personnel is intense, and there
can be no assurance that the Company will be able to attract, assimilate or
retain other highly qualified technical, managerial and sales personnel in the
future. There may be only a limited number of persons with the requisite skills
to serve in these positions, and it may become increasingly difficult for the
Company to hire such personnel over time.
Furthermore, the Company will be required to manage multiple relationships
with various customers and other third parties and to continue to provide to
them ongoing and comprehensive customer support and services by trained Company
personnel. Although the Company believes that it has properly planned for the
costs and risks associated with this expansion, there can be no assurance that
the Company's systems, procedures, controls or personnel will be adequate to
support the Company's operations or that Company management will be able to
achieve the rapid execution necessary to fully exploit the market for the
Company's products and services. The Company's future operating results will
also depend on its ability to expand its sales and marketing
9
<PAGE> 11
organizations, implement a distribution channel to penetrate different and
broader markets and expand its support organization commensurate with the
increasing base of its installed products. Many of the Company's sales personnel
have been employed by the Company for less than one year and there can be no
assurance that they will develop the skills necessary to sell the Company's
products effectively. The failure of the Company to manage its growth
effectively would have a material adverse effect on the Company's business,
operating results and financial condition.
International Revenues; International Operations. The Company maintains a
sales office in the United Kingdom and has derived a large portion of its
revenues from international operations. In 1994, 1995, 1996 and the six months
ended June 30, 1997, international revenues accounted for 52%, 52%, 51% and 41%
of the Company's total revenues, respectively, primarily from sales in the
United Kingdom. There can be no assurance that the Company will be able to
maintain international sales of its products or that, as the Company implements
its distribution strategy, international distribution channels will develop or
be able to effectively market, sell, service and support the Company's products.
International operations generally are subject to certain risks, including
difficulties in staffing and managing operations, dependence on independent
relicensors, fluctuations in foreign currency exchange rates, compliance with
foreign regulatory and market requirements, unexpected changes in regulatory
requirements, variability of foreign economic conditions and changing
restrictions imposed by United States export laws. Additional risks inherent in
the Company's international business activities generally include tariffs and
other trade barriers, costs of localizing products for foreign countries, lack
of acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences, including restrictions on the repatriation
of earnings, and the burdens of complying with a wide variety of foreign laws.
There can be no assurance that such factors will not have a material adverse
effect on the Company's future international sales and, consequently, the
Company's business, results of operations and financial condition. The Company
does not engage in any hedging transactions through the purchase of derivative
securities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Sales and Marketing" and
" -- Customers."
Dependence on Key Personnel. The Company's performance depends
substantially on the performance of its executive officers and key employees,
none of whom has had experience in managing a public company. Given the
Company's early stage of development, the Company is dependent on its ability to
retain and motivate high quality personnel, especially its management and highly
skilled development team. The Company does not have employment contracts with
any of its key personnel. The loss of the services of any of the Company's
executive officers or other key employees could have a material adverse effect
on the business, operating results and financial condition of the Company. See
"Business -- Employees" and " -- Management."
Dependence on Proprietary Rights. The Company's success is heavily
dependent upon proprietary technology. The Company relies primarily on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights. The
Company seeks to protect its software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection. The
Company presently has no patents or patent applications pending. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. In addition, many companies
do business under or use the name "Cascade." The Company holds a servicemark for
the name in connection with services and has applied for a trademark for the
name in connection with its products. There can be no assurance that claims will
not be made by third parties alleging that the Company's use of its corporate or
product names infringes upon their rights or that the name will be available to
the Company in the future.
Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be
10
<PAGE> 12
expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not claim infringement by the Company with respect to
current or future products. The Company expects that software product developers
will increasingly be subject to infringement claims as the number of products
and competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
cause product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
The Company relies on certain software that it licenses from third parties,
including software that is integrated with internally developed software and
used in the Company's products, to perform key functions, including the
MediaSphere search engine. There can be no assurances that such firms will
remain in business, that they will continue to support their products or that
their products will otherwise continue to be available to the Company on
commercially reasonable terms. The loss or inability to maintain any of these
software licenses could result in delays or reductions in product shipments
until equivalent software can be developed, identified, licensed and integrated,
which would have a material adverse effect on the Company's business, operating
results and financial condition.
Product Liability; Potential for Undetected Errors. The Company's license
agreements with its customers generally contain provisions designed to limit the
Company's exposure to potential product liability claims. However, it is
possible that the limitation of liability provisions contained in the Company's
license agreements may not be effective as a result of federal, state or local
laws or ordinances enacted in the future or unfavorable judicial decisions.
Although the Company has not experienced any product liability claims to date
and carries product liability insurance, there can be no assurance that the
Company will not be subject to such claims in the future. A successful product
liability claim brought against the Company could have a material adverse effect
upon the Company's business, operating results and financial condition.
Software products as complex as those offered by the Company may contain
undetected errors or failures when first introduced or as new versions or
enhancements are released. There can be no assurance that, despite significant
testing by the Company and by current and potential customers, errors will not
be found in new products, versions or enhancements after commencement of
commercial shipment. In addition, third-party products, upon which the Company's
products are dependent, such as the MediaSphere search engine, and various
hardware components, may contain defects that could reduce the performance of
the Company's products. Although the Company has not experienced any material
adverse effects resulting from any such errors or defects to date, there can be
no assurance that errors or defects will not be discovered in the future, which
could cause delays in product introduction and shipments or require design
modifications that could have a material adverse effect on the Company's
business, operating results and financial condition.
Concentration of Stock Ownership. Upon completion of this offering, the
Company's present directors, executive officers and their respective affiliates
and other principal stockholders, including Adobe, will beneficially own
approximately 37% of the outstanding Common Stock. As a result, these
stockholders, if acting together, will be able to influence all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. Further, such stockholders, if acting
together, could prevent the election of any person nominated to the Board of
Directors by any other stockholder. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of the Company.
See "Description of Capital
11
<PAGE> 13
Stock -- Delaware Law and Certain Charter and By-Law Provisions" and "Principal
and Selling Stockholders."
Broad Discretion Over Use of Proceeds. The Company expects to use the net
proceeds of this offering for working capital and other general corporate
purposes. A portion of the net proceeds of the offering may also be used to
acquire or invest in products, technologies or businesses which broaden or
enhance the Company's current product offerings or expand its distribution
channels. There are no current agreements or negotiations with respect to any
acquisitions, investments or other transactions. As of the date of this
Prospectus, the Company has no specific plans as to the use of the net proceeds
from this offering, and will have broad discretion in the application of the
proceeds. Pending any such uses, the net proceeds will be invested in investment
grade, interest-bearing securities. See "Use of Proceeds."
No Prior Public Market for the Common Stock; Potential Limited Trading
Market; Volatility of Stock Price. Prior to this offering, there has been no
public market for the Common Stock and there can be no assurance that an active
trading market will develop or be sustained after the offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial offering price will be determined by negotiation
between the Company and the representatives of the Underwriters based upon
several factors. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The market price of
the Company's Common Stock is likely to be highly volatile and could be subject
to wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, changes in financial estimates by securities analysts, or other
events or factors. In addition, the stock market has experienced significant
price and volume fluctuations that have particularly affected the market price
of equity securities of many high technology companies and that often have been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect on the Company's business, operating results and
financial condition. See "Underwriting."
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the net tangible book value per share of the currently
outstanding Common Stock of the Company. Investors participating in this
offering therefore will incur immediate, substantial dilution to the tangible
net book value of their investment from the initial public offering price. To
the extent outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Dilution."
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of shares of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. On the date of this
Prospectus, in addition to the 2,800,000 shares offered hereby, approximately
8,500 shares of Common Stock, which are not subject to 180-day or 270-day
lock-up agreements (the "Lock-Up agreements") with the Representatives of the
Underwriters, will be eligible for immediate sale in the public market pursuant
to Rule 144(k) under the Securities Act of 1933, as amended (the "Securities
Act"). Approximately 59,452 additional shares of Common Stock, which are not
subject to the Lock-Up Agreements, will be eligible for sale in the public
market in accordance with Rule 144 or Rule 701 under the Securities Act
beginning 90 days after the date of this Prospectus. Upon expiration of the
Lock-Up Agreements 180 days and 270 days after the date of this Prospectus,
approximately 3,906,817 and 350,756 additional shares of Common Stock,
respectively, will be available for sale in the public market, subject to the
provisions of the Lock-Up Agreements and Rule 144 under the Securities Act. In
addition, Adobe will hold 1,300,500 shares eligible for resale pursuant to Rule
144 under the Securities Act after the expiration of the 180-day lock-up period.
Any subsequent disposition by Adobe of its holdings or distribution by Adobe of
12
<PAGE> 14
such shares to its own stockholders for resale could, as noted above, have an
adverse impact on the market price for the Company's stock. Promptly following
the consummation of this offering, the Company intends to register an aggregate
of 400,000 shares of Common Stock issuable under its 1997 Director Stock Option
Plan and 1997 Employee Stock Purchase Plan. In addition, the Company intends to
register approximately 2,384,350 shares of Common Stock issuable under its
Second Amended 1994 Stock Option Plan and 1997 Stock Incentive Plan following
the 90th day after the date of this Prospectus. Holders of approximately
4,086,888 shares of Common Stock (including 180,071 shares of Common Stock which
may be acquired pursuant to the exercise of vested options held by them) and
350,756 shares of Common Stock have agreed, pursuant to the Lock-Up Agreements,
not to sell, offer, contract or grant any option to sell, pledge, transfer
establish an open put equivalent position or otherwise dispose of such shares
for 180 days and 270 days, respectively, after the date of the final Prospectus.
The Company is unable to predict the effect that sales made under Rule 144, or
otherwise, may have on the then prevailing market price of the Common Stock. The
holders of approximately 4,245,073 shares of Common Stock are entitled to
certain piggyback and demand registration rights with respect to such shares. By
exercising their registration rights, such holders could cause a large number of
shares to be registered and sold in the public market. Sales pursuant to Rule
144 or other exemptions from registration, or pursuant to registration rights,
may have an adverse effect on the market price for the Common Stock and could
impair the Company's ability to raise capital through a subsequent offering of
its equity securities. See "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."
Certain Anti-Takeover Effect Provisions Affecting Stockholders. The
Company's Certificate of Incorporation and Amended and Restated Bylaws requires
reasonable advance notice by a stockholder of a proposal or director nomination
which such stockholder desires to present at any annual or special meeting of
stockholders and that special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer (or, if none, the President)
or by the Board of Directors. The Certificate of Incorporation and Bylaws also
provides for a classified Board of Directors, and that members of the Board of
Directors may be removed only for cause. In addition, the Board of Directors has
the authority, without further action by the stockholders, to fix the rights and
preferences of, and issue shares of, authorized Preferred Stock with rights
senior to the Common Stock. These provisions may have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management of
the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. In addition,
these provisions may limit the ability of stockholders to approve transactions
that they may deem to be in their best interests. See "Description of Capital
Stock -- Preferred Stock" and "-- Delaware Law and Certain Charter and By-law
Provisions."
No Present Intention to Pay Dividends; Restrictions on Payment of
Dividends. The Company currently intends to retain future earnings, if any, to
fund development and growth of its business and does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future. In addition, the
Company's existing credit facilities prohibit the payment of cash dividends
without the consent of the lenders. See "Dividend Policy" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,250,000 shares of
Common Stock offered by the Company hereby are estimated to be $20,175,000
($22,013,210 if the Underwriters' over-allotment option is exercised in full)
assuming an initial public offering price of $10.00 per share and after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company. The Company will not receive any proceeds from
the sale of shares of Common Stock by the Selling Stockholders. See "Principal
and Selling Stockholders."
The Company intends to use the net proceeds of this Offering for general
corporate purposes, including working capital. A portion of the net proceeds may
also be used for investments in or acquisitions of complementary businesses,
products or technologies, although the Company has no plans, commitments or
agreements, nor is it engaged in any negotiations, with respect to any such
transactions as of the date of this Prospectus. Pending such uses, the Company
expects to invest the net proceeds in short-term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain any future earnings for use in
developing and growing its business and, therefore, does not anticipate paying
any cash dividends on its capital stock in the foreseeable future. The Company
is subject to certain restrictions on the payment of dividends imposed by its
commercial bank.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth as of June 30, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
as described in Note 1 below, and (iii) the pro forma capitalization of the
Company as adjusted to reflect the issuance and sale by the Company of the
2,250,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $10.00 per share and receipt of the net proceeds therefrom,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. This table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, $.001 par value; no shares
authorized, issued or outstanding (actual);
1,000,000 shares authorized, no shares issued or
outstanding (pro forma and pro forma as
adjusted).......................................... $ -- $ -- $ --
Series A Preferred Stock, $.001 par value; 1,700,000
shares authorized, issued and outstanding (actual);
no shares authorized, issued or outstanding (pro
forma and pro forma as adjusted)................... 1,700 -- --
Series B Preferred Stock, $.001 par value; 400,000
shares authorized, issued and outstanding (actual);
no shares authorized, issued or outstanding (pro
forma and pro forma as adjusted)................... 2,000 -- --
Common Stock, $.001 par value; 7,500,000 shares
authorized, 2,777,276 shares issued (actual);
25,000,000 shares authorized, 4,877,276 shares
issued (pro forma); and 25,000,000 shares
authorized, 7,127,276 shares issued (pro forma as
adjusted)(2)....................................... 3 5 7
Additional paid-in capital............................ 612 4,310 24,483
Accumulated deficit................................... (2,110) (2,110) (2,110)
Cumulative translation adjustment..................... 101 101 101
Treasury stock, 2,344 shares at cost.................. (1) (1) (1)
------ -------- -------
Total stockholders' equity............................ 2,305 2,305 22,480
------ -------- -------
Total capitalization.................................. $2,305 $2,305 $22,480
====== ======== =======
</TABLE>
- ---------------
(1) Presented on a pro forma basis to give effect to (i) the conversion of all
outstanding shares of the Company's Series A and Series B Preferred Stock
into an aggregate of 2,100,000 shares of Common Stock upon the closing of
this Offering, and (ii) the further amendment and restatement of the
Company's Amended and Restated Certificate of Incorporation, to be effective
upon the closing of this Offering, removing the Company's existing series of
Preferred Stock and creating a class of authorized but undesignated
Preferred Stock. See Note 13 of Notes to Consolidated Financial Statements.
(2) Excludes an aggregate of 1,841,900 shares of Common Stock issuable upon the
exercise of options outstanding as of June 30, 1997 at a weighted average
exercise price of $4.37 per share, of which options to purchase 300,080
shares were then exercisable. See "Management -- Stock Plans" and Note 8 of
Notes to Consolidated Financial Statements.
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997
was approximately $2,286,000 or $0.47 per share of Common Stock. "Pro forma net
tangible book value" represents the amount of the Company's total tangible
assets reduced by the amount of its total liabilities and divided by the total
number of shares of Common Stock outstanding, after giving effect upon closing
of this Offering to the conversion of the Convertible Preferred Stock into
2,100,000 shares of Common Stock. After giving effect to the sale by the Company
of 2,250,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $10.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the pro forma net tangible book value of the Company as of June
30, 1997 would have been approximately $22,462,000 or $3.15 per share. This
represents an immediate increase in pro forma net tangible book value of $2.68
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $6.85 per share to new investors purchasing Common Stock
in the offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................................... $10.00
Pro forma net tangible book value at June 30, 1997.......................... $0.47
Increase per share attributable to new investors............................ 2.68
Pro forma net tangible book value per share after the offering(1)................... 3.15
------
Dilution per share to new investors................................................. $ 6.85
======
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value after this offering would be approximately
$24,300,000, resulting in dilution to new investors in the offering of $6.68
per share. See "Underwriting."
The following table sets forth, on a pro forma basis as of June 30, 1997,
after giving effect to the conversion of all outstanding shares of Convertible
Preferred Stock into 2,100,000 shares of Common Stock upon the closing of this
offering, the difference between the total consideration and the average price
per share paid by the existing stockholders for their shares of the Company's
Common Stock and that paid by the purchasers of shares offered by the Company
hereby at an assumed initial public offering price of $10.00 per share and
before deducting estimated underwriting discounts and commissions and estimated
offering expenses by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).............. 4,874,932 68.4% $ 4,366,000 16.3% $ 0.90
New investors......................... 2,250,000 31.6% 22,500,000 83.7% 10.00
--------- ----- ----------- -----
Total....................... 7,124,932 100.0% $26,866,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this offering will cause the number of
shares held by existing stockholders to be reduced to 4,324,932 shares, or
60.7% of the total number of shares of Common Stock outstanding after this
offering, and will increase the number of shares held by new investors to
2,800,000, or 39.3% (3,220,000 shares, or 44.0% if the Underwriters'
overallotment option is exercised in full) of the total number of shares of
Common Stock outstanding after this offering. See "Principal and Selling
Stockholders."
As of June 30, 1997, there were 1,841,900 shares of Common Stock issuable
upon the exercise of options outstanding on that date at a weighted average
exercise price of $4.37 per share. The issuance of shares upon exercise of these
options is not reflected in the preceding tables. If all of the outstanding
options were exercised in full, the dilution per share to new investors would be
$6.60.
16
<PAGE> 18
Such exercises would (i) increase the number of shares held by existing
stockholders to 6,166,832 shares, or 68.8% of the total number of shares of
Common Stock to be outstanding after this offering, (ii) decrease the number of
shares held by the new investors to 31.2% of the total number of shares of
Common Stock to be outstanding after this offering, (iii) increase the total
consideration paid to the Company by existing stockholders to approximately
$12,416,000, or 30.7% of the total consideration paid to the Company, and (iv)
increase the average price per share paid by existing stockholders to $2.01.
17
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data set forth below for
each of the fiscal years ended December 31, 1994, 1995 and 1996 and the balance
sheet data as of December 31, 1995 and 1996 have been derived from the Company's
consolidated financial statements, which have been audited by Arthur Andersen
LLP, independent public accountants, and are included elsewhere in this
Prospectus. The consolidated balance sheet data at December 31, 1994 is derived
from the Company's consolidated financial statements, which have been audited by
Arthur Andersen LLP and are not included in this Prospectus. The data presented
as of and for the period ended December 31, 1993 are derived from the Company's
unaudited financial statements which are not included in this Prospectus. The
data presented as of June 30, 1997 and for the six months ended June 30, 1996
and 1997 are derived from unaudited consolidated financial statements included
elsewhere in this Prospectus. In the opinion of management, all unaudited
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the data for such periods.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year or for
any future period. The selected consolidated financial data set forth below
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto and with Management's Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 5,
1993) SIX MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------------- -----------------
1993 1994 1995 1996 1996 1997
------------ ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license revenues.............................. $ 494 $ 2,658 $ 4,905 $ 5,913 $2,558 $4,386
Maintenance and service revenues....................... 236 1,177 2,243 4,428 1,653 2,639
Hardware and other revenues............................ 2,071 8,238 10,564 8,170 5,067 2,334
-------- ------- ------- ------- ------ ------
Total revenues................................... 2,801 12,073 17,712 18,511 9,278 9,359
-------- ------- ------- ------- ------ ------
Cost of revenues:
Cost of software license revenues...................... 159 913 1,223 1,551 787 801
Cost of maintenance and service revenues............... 180 790 2,157 2,981 1,298 1,640
Cost of hardware and other revenues.................... 1,657 6,797 8,851 5,311 3,314 1,687
-------- ------- ------- ------- ------ ------
Total cost of revenues........................... 1,996 8,500 12,231 9,843 5,399 4,128
-------- ------- ------- ------- ------ ------
Gross profit............................................. 805 3,573 5,481 8,668 3,879 5,231
-------- ------- ------- ------- ------ ------
Operating expenses:
Research and development............................... -- 444 1,177 1,890 859 1,170
Sales and marketing.................................... 339 1,957 3,171 4,061 1,958 2,267
General and administrative............................. 778 1,965 2,523 2,713 1,266 1,622
-------- ------- ------- ------- ------ ------
Total operating expenses......................... 1,117 4,366 6,871 8,664 4,083 5,059
-------- ------- ------- ------- ------ ------
Income (loss) from operations............................ (312) (793) (1,390) 4 (204) 172
Other income (expense)................................... (1) 54 12 109 65 106
-------- ------- ------- ------- ------ ------
Income (loss) before provision (benefit) for income
taxes.................................................. (313) (739) (1,378) 113 (139) 278
Provision (benefit) for income tax....................... -- 6 22 20 (25) 47
-------- ------- ------- ------- ------ ------
Net income (loss)........................................ $ (313) $ (745) $(1,400) $ 93 $ (114) $ 231
======== ======= ======= ======= ====== ======
Pro forma net income per common share.................... $ 0.02 $ 0.04
======= ======
Pro forma weighted average common shares and common share
equivalents outstanding................................ 6,008 6,066
======= ======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------
DECEMBER 31, AS
--------------------------------------- ADJUSTED
1993 1994 1995 1996 ACTUAL (1)
------ ------ ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................................... $ 213 $1,100 $1,327 $3,103 $2,071 $22,246
Working capital (deficit)................................ 104 434 (936) 1,014 1,260 21,435
Total assets............................................. 2,542 4,204 6,497 7,699 6,933 27,108
Total stockholders' equity (deficit)..................... (35) 1,270 (83) 2,075 2,305 22,480
</TABLE>
- ---------------
(1) As adjusted to give effect to the sale of the 2,250,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $10.00 per share after deducting the Underwriters discounts and
commissions and estimated offering expenses payable by the Company.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, and the other financial
information included elsewhere in this Prospectus.
OVERVIEW
The Company designs, develops, markets and supports software solutions
designed to permit newspapers, magazines and large organizations to address
critical workflow and content management needs on a timely and cost-effective
basis. The Company's DataFlow system manages the process of publishing
information by providing data management, tracking, workflow and archiving
functionality. The Company's MediaSphere system is designed to meet the
archiving, search and retrieval needs of organizations dealing with large
amounts of multimedia data. The Company's products are client/server based and
support leading industry standards, permitting users to access, manipulate,
store and reuse content on a scalable basis across different media. The Company
introduced Internet capability to its MediaSphere system in 1996 and is
scheduled to make generally available Internet capability for its DataFlow
system in October 1997. These features are designed to enable users both to
exploit the Internet as a delivery medium, and also to make use of the Internet
(and corporate Intranets) as a communications channel to facilitate the
production process within their organizations.
From 1994 through early 1996, the Company operated primarily as a systems
integrator, providing a "turn-key solution," including hardware, software and
services. As a result, the Company derived a significant portion of its revenues
from the resale of hardware, principally Sun Microsystems servers and related
peripherals. During 1996, the Company revised its strategy and began to unbundle
its offering to focus on the software and service elements of the solution. The
resale of hardware was de-emphasized and is being phased out. The emphasis on
the software and service elements has led to a more rapid growth in software
license fees and maintenance and service revenues.
Software license revenues include revenues from noncancellable software
license agreements entered into between the Company and its customers with
respect to the Company's products. Additionally, the Company has entered into
selected arrangements with distributors that are authorized to relicense the
Company's products to end-users. See "Business -- Sales and Marketing." Software
license revenues are recognized in accordance with Statement of Position 91-1,
Software Revenue Recognition or Statement of Position 81-1, Contract Accounting,
depending upon the nature of the transaction. See Note 2 of Notes to
Consolidated Financial Statements. The Company offers a server and per client
license for each of its systems. Depending upon the specific configuration, the
license fee paid by a specific customer can vary significantly. Server license
fees range from $60,000 to $100,000 and the average fee for a typical system is
approximately $250,000.
The Company's maintenance and service revenues are comprised of software
maintenance revenues and consulting services and training revenues. Maintenance
revenues are billed separately and are recognized ratably over the period of the
maintenance agreement, which is typically one year. Consulting services and
training revenues are recognized as the services are performed.
Hardware and other revenues include revenues derived from the resale of
hardware including hardware maintenance fees by the Company to its customers.
Such revenues are recognized upon shipment of the hardware, or in the case of
hardware maintenance fees, over the service period. As noted above, the Company
has been phasing out the resale of hardware and does not expect hardware and
other revenues to represent a material portion of its business in the future.
19
<PAGE> 21
The table below summarizes the Company's transition from a systems
integration business model to an application software business model company and
the corresponding change in the composition and growth in the Company's revenue
components.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Software license revenues............... $ 2,658 $ 4,905 $ 5,913 $2,558 $4,386
Maintenance and service revenues........ 1,177 2,243 4,428 1,653 2,639
Hardware and other revenues............. 8,238 10,564 8,170 5,067 2,334
------- ------- ------- ------ ------
Total revenues................ $12,073 $17,712 $18,511 $9,278 $9,359
======= ======= ======= ====== ======
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
consolidated statement of operations data expressed as a percentage of total
revenues.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ---------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license revenues...................... 22% 28% 32% 27% 47%
Maintenance and service revenues............... 10% 13% 24% 18% 28%
Hardware and other revenues.................... 68% 59% 44% 55% 25%
--- --- --- --- ---
Total revenues......................... 100% 100% 100% 100% 100%
--- --- --- --- ---
Cost of revenues:
Cost of software license revenues.............. 8% 7% 8% 8% 9%
Cost of maintenance and service revenues....... 6% 12% 16% 14% 17%
Cost of hardware and other revenues............ 56% 50% 29% 36% 18%
--- --- --- --- ---
Total cost of revenues................. 70% 69% 53% 58% 44%
--- --- --- --- ---
Gross profit..................................... 30% 31% 47% 42% 56%
--- --- --- --- ---
Operating expenses:
Research and development....................... 4% 7% 10% 9% 13%
Sales and marketing............................ 16% 18% 22% 21% 24%
General and administrative..................... 16% 14% 15% 14% 17%
--- --- --- --- ---
Total operating expenses............... 36% 39% 47% 44% 54%
--- --- --- --- ---
Income (loss) from operations.................... (6)% (8)% --% (2)% 2%
Other income (expense)........................... -- -- 1% 1% 1%
Provision for income taxes....................... -- -- -- -- 1%
--- --- --- --- ---
Net income(loss)................................. (6)% (8)% 1% (1)% 2%
=== === === === ===
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues
Total revenues were $9.4 million for the six months ended June 30, 1997 as
compared to $9.3 million for the six months ended June 30, 1996. In line with
the Company's transition strategy, this increase in total revenues was
attributable to an increase in software license revenues, offset in part by a
decrease in hardware and other revenues. Software license revenues increased 71%
to $4.4
20
<PAGE> 22
million for the six months ended June 30, 1997 from $2.6 million for the six
months ended June 30, 1996, primarily due to increased sales of the Company's
DataFlow and MediaSphere products. Maintenance and service revenues increased
60%, to $2.6 million for the six months ended June 30, 1997 from $1.7 million
for the six months ended June 30, 1996. This increase was primarily attributable
to an increase in the installed base of customers, leading to an increase in
maintenance revenues, and new customer implementations, resulting in increased
consulting services and training revenues. Hardware and other revenues decreased
54% to $2.3 million for the six months ended June 30, 1997 from $5.1 million for
the six months ended June 30, 1996. This decrease was attributable to the
Company's decision in 1996 to phase out the resale of hardware. International
revenues decreased 3% to $3.8 million for the six months ended June 30, 1997
from $3.9 million for the six months ended June 30, 1996. International revenues
as a percentage of total revenues decreased to 40.5% for the six months ended
June 30, 1997 from 42.1% for the six months ended June 30, 1996.
Cost of Revenues
Cost of Software License Revenues. Cost of software license revenues
consists primarily of costs of sublicensing third party software products,
product media and duplication. Cost of software license revenues increased 2%,
to $801,000 for the six months ended June 30, 1997 from $787,000 for the six
months ended June 30, 1996. The increase was primarily due to the corresponding
increase in software license revenues. Cost of software license revenues as a
percentage of software license revenues decreased to 18% for the six months
ended June 30, 1997 from 31% for the six months ended June 30, 1996. The
decrease as a percentage of revenues was due to fewer third party products being
embedded in the Company's product offerings, thereby reducing royalties due to
third parties.
Cost of Maintenance and Service Revenues. Cost of maintenance and service
revenues consists of the costs of consulting engineers and support personnel and
the related facilities, computers and communications costs to provide training,
technical support and implementation consulting services to licensees of the
Company's products. Cost of maintenance and service revenues was $1.6 million
for the six months ended June 30, 1997 and $1.3 million for the six months ended
June 30, 1996. Cost of maintenance and service revenues as a percentage of
maintenance and service revenues declined to 62% for the six months ended June
30, 1997 from 79% for the six months ended June 30, 1996. The decrease as a
percentage of revenues resulted primarily from operating efficiencies.
Cost of Hardware and Other Revenues. Cost of hardware and other revenues
consists primarily of the costs of third-party hardware products. The cost of
hardware and other revenues decreased 49% to $1.7 million for the six months
ended June 30, 1997 from $3.3 million for the six months ended June 30, 1996,
primarily due to the Company's shift in business strategy to phase out the
resale of hardware. Cost of hardware and other revenues as a percentage of
hardware and other revenues increased to 72% for the six months ended June 30,
1997 from 65% for the six months ended June 30, 1996.
Operating Expenses
Research and Development. Research and development expenses include
expenses associated with the development of new products, enhancements of
existing products and quality assurance activities and consist primarily of
engineering personnel costs and the related facilities, computers and
communications costs. Research and development expenses increased 36% to $1.2
million for the six months ended June 30, 1997 from $859,000 for the six months
ended June 30, 1996. Research and development expenses as a percentage of total
revenues were 12.5% for the six months ended June 30, 1997 and 9.3% for the six
months ended June 30, 1996 due to the hiring of additional engineers to support
the Company's software development activities. The Company
21
<PAGE> 23
anticipates that research and development spending in total and as a percentage
of revenues will continue to increase.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses, travel, promotional expenses, facilities,
computers and communications costs. Sales and marketing expenses increased 16%
to $2.3 million for the six months ended June 30, 1997 from $2.0 million for the
six months ended June 30, 1996. Sales and marketing expenses as a percentage of
total revenues increased to 24.2% for the six months ended June 30, 1997 from
21.1% for the six months ended June 30, 1996. The increase in dollar amount and
as a percentage of total revenues was attributable to the increase in the number
of direct sales personnel and increased software revenues resulting in increased
commissions. The Company anticipates that sales and marketing spending in total
and as a percentage of revenues will continue to increase as the Company
launches new products, continues to invest in its direct and indirect sales
force, and builds new sales channels.
General and Administrative. General and administrative expenses consist
primarily of salaries of executive, administrative and financial personnel, as
well as provisions for doubtful accounts and outside professional fees. General
and administrative expenses increased 28% to $1.6 million for the six months
ended June 30, 1997 from $1.3 million for the six months ended June 30, 1996.
General and administrative expenses as a percentage of total revenues increased
to 17.3% for the six months ended June 30, 1997 from 13.6% for the six months
ended June 30, 1996. The increase in dollar amount and as a percentage of total
revenues was attributable primarily to severance payments made in the first
quarter of 1997 relating to the Company's UK management personnel as well as
additional provisions to the allowance for doubtful accounts.
Provision for Income Taxes. In accordance with generally accepted
accounting principles, the Company provides for income taxes on an interim
basis, using its estimated effective annual income tax rate. The Company
anticipates an effective annual income tax rate for 1997 of approximately 17%,
which is less than the combined federal, state and foreign tax rates. The
Company's effective annual income tax rate is less than the combined federal,
state and foreign statutory rates primarily due to the utilization of net
operating loss and tax credit carryforwards. The Company provided for minimum
state income taxes only in 1996 due to the fact that the Company was in a net
operating loss position.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues
Total revenues were $18.5 million for the year ended December 31, 1996 as
compared to $17.7 million for the year ended December 31, 1995, which was
primarily attributable to an increase in software license revenues and
maintenance and service revenues, offset by a decrease in hardware and other
revenues, as the Company transitioned from a systems integration business model
to an application software business model. Software license revenues increased
21% to $5.9 million for the year ended December 31, 1996 from $4.9 million for
the year ended December 31, 1995. This increase was attributable to increased
sales of DataFlow and the initial market acceptance of MediaSphere, which was
introduced in the latter part of 1995. Maintenance and service revenues
increased 97% to $4.4 million for the year ended December 31, 1996 from $2.2
million for the year ended December 31, 1995. This increase was primarily
attributable to an increase in the installed base of customers, leading to an
increase in maintenance revenues and new customer implementations, driving the
increase in consulting services and training revenues. Hardware and other
revenues decreased 23% to $8.2 million for the year ended December 31, 1996 from
$10.6 million for the year ended December 31, 1995. This decrease was
attributable to the Company's decision in 1996 to phase out the resale of
hardware. International revenues increased 2% to $9.4 million for the year ended
December 31, 1996 from $9.2 million for the year ended December 31, 1995.
22
<PAGE> 24
International revenues decreased to 51% of total revenues in 1996 as compared to
52% of total revenues in 1995.
Cost of Revenues
Cost of Software License Revenues. Cost of software license revenues
increased 27% to $1.6 million for the year ended December 31, 1996 from $1.2
million for the year ended December 31, 1995. Cost of software license revenues
as a percentage of software license revenues increased to 26% for the year ended
December 31, 1996 from 25% for the year ended December 31, 1995. The increase in
dollar amount as well as percentage of revenues was primarily due to the
corresponding increase in software license fees resulting in increased
commissions partially offset by a change in the mix of products sold to those
which carried lower royalties to third parties.
Cost of Maintenance and Service Revenues. Cost of maintenance and service
revenues increased 38% to $3.0 million for the year ended December 31, 1996 from
$2.2 million for the year ended December 31, 1995. The increase related
primarily to the hiring of additional consulting service engineers. Cost of
maintenance and service revenues as a percentage of maintenance and service
revenues declined to 67% for the year ended December 31, 1996 from 96% for the
year ended December 31, 1995. The decline in percentage of revenues related
primarily to operating efficiencies.
Cost of Hardware and Other Revenues. The cost of hardware and other
revenues decreased 40% to $5.3 million for the year ended December 31, 1996 from
$8.9 million for the year ended December 31, 1995, primarily due to a
corresponding decline in hardware and other revenues.
Operating Expenses
Research and Development. Research and development expenses increased 61%
to $1.9 million for the year ended December 31, 1996 from $1.2 million for the
year ended December 31, 1995. Research and development expenses as a percentage
of total revenues increased to 10.2% for the year ended December 31, 1996 from
6.6% for the year ended December 31, 1995 due to the hiring of additional
engineers to support the Company's software development activities.
Sales and Marketing. Sales and marketing expenses increased 28% to $4.1
million for the year ended December 31, 1996 from $3.2 million for the year
ended December 31, 1995. Sales and marketing expenses as a percentage of total
revenues increased to 21.9% for the year ended December 31, 1996 from 17.9% for
the year ended December 31, 1995. The increase in dollar amount and as a
percentage of total revenues was attributable to the increase in the number of
direct sales personnel and increased software revenues resulting in increased
commissions.
General and Administrative. General and administrative expenses increased
8% to $2.7 million for the year ended December 31, 1996 from $2.5 million for
the year ended December 31, 1995. General and administrative expenses as a
percentage of total revenues increased to 14.7% for the year ended December 31,
1996 from 14.2% for the year ended December 31, 1995. The increase in dollar
amount and as a percentage of total revenues was attributable primarily to
normal salary increases for management and administrative personnel.
Provision for Income Taxes. The provision for income taxes in 1996 and
1995 represents minimum federal and state income taxes. As of December 31, 1996
the Company had available U.K. net operating loss carryforwards of approximately
$637,000, which can be carried forward indefinitely to offset U.K. income. In
addition, the Company had available U.S. operating loss carryforwards of
approximately $354,000 and research and development tax credits of approximately
$44,000. The Company has provided a full valuation allowance against the net
operating loss and tax credit carryforwards, as management believes that it is
more likely than not that the net operating loss and tax credit carryforwards
will not be realized.
23
<PAGE> 25
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues
Total revenues were $17.7 million for the year ended December 31, 1995 as
compared to $12.1 million for the year ended December 31, 1994. Software license
revenues increased 85% to $4.9 million for the year ended December 31, 1995 from
$2.7 million for the year ended December 31, 1994. This increase was
attributable to increased sales of DataFlow, introduced in mid-1994 and
available for all of 1995, as well as the initial market acceptance of
MediaSphere, which was introduced in the latter part of 1995. Maintenance and
service revenues increased 91% to $2.2 million for the year ended December 31,
1995 from $1.2 million for the year ended December 31, 1994. The increase was
primarily attributable to an increase in the installed base of customers,
leading to an increase in maintenance revenues, and new customer
implementations, driving an increase in consulting services and training
revenues. Hardware and other revenues increased 28% to $10.6 million for the
year ended December 31, 1995 from $8.2 million for the year ended December 31,
1994. The increase was primarily due to increased system sales in 1995.
International revenues increased 46% to $9.2 million for the year ended December
31, 1995 from $6.3 million for the year ended December 31, 1994. International
revenues were 52% of total revenues in 1995 and 1994.
Cost of Revenues
Cost of Software License Revenues. Cost of software license revenues
increased to $1.2 million for the year ended December 31, 1995 from $913,000 for
the year ended December 31, 1994. The increase in dollar amount was primarily
due to the corresponding increase in software license fees. Cost of software
license revenues as a percentage of software license revenues decreased to 24.9%
for the year ended December 31, 1995 from 34.3% for the year ended December 31,
1994. The decrease as a percentage of software license revenues reflected the
change in the mix of products sold to those which carried lower royalties to
third parties.
Cost of Maintenance and Service Revenues. Cost of maintenance and service
revenues increased to $2.2 million for the year ended December 31, 1995 from
$790,000 for the year ended December 31, 1994. Cost of services as a percentage
of service revenues increased to 96.2% for the year ended December 31, 1995 from
67.1% for the year ended December 31, 1994 due to the hiring of additional
consulting service engineers to support the growth in customers and introduction
of new products.
Cost of Hardware and Other Revenues. The cost of hardware and other
revenues increased to $8.9 million for the year ended December 31, 1995 from
$6.8 million for the year ended December 31, 1994, primarily due to a
corresponding increase in hardware and other revenues.
Operating Expenses
Research and Development. Research and development expenses increased
165.1% to $1.2 million for the year ended December 31, 1995 from $444,000 for
the year ended December 31, 1994. Research and development expenses as a
percentage of total revenues increased to 6.6% for the year ended December 31,
1995 from 3.7% for the year ended December 31, 1994, due to the hiring of
additional engineers.
Sales and Marketing. Sales and marketing expenses increased 62% to $3.2
million for the year ended December 31, 1995 from $2.0 million for the year
ended December 31, 1994. Sales and marketing expenses as a percentage of total
revenues increased to 17.9% for the year ended December 31, 1995 from 16.2% for
the year ended December 31, 1994. The increase in dollar amount and as a
percentage of total revenues was attributable primarily to the increase in the
number of direct sales personnel and increased sales leading to increased
commissions.
24
<PAGE> 26
General and Administrative. General and administrative expenses increased
28.4% to $2.5 million for the year ended December 31, 1995 from $2.0 million for
the year ended December 31, 1994. General and administrative expenses as a
percentage of total revenues decreased to 14.2% for the year ended December 31,
1995 from 16.3% for the year ended December 31, 1994. The increase in dollar
amount related primarily to the hiring of additional management and
administrative personnel.
Provision for Income Taxes. The provision for income taxes in 1995 and
1994 represents minimum state income taxes.
SELECTED QUARTERLY OPERATING RESULTS
The following tables present certain consolidated financial information for
the last six fiscal quarters. In management's opinion, this unaudited
information has been prepared on the same basis as the audited Consolidated
Financial Statements and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information for
the quarters presented, when read in conjunction with the audited Consolidated
Financial Statements and Notes thereto, included elsewhere in this Prospectus.
The results of operations for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1996 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license revenues............... $1,238 $1,320 $ 1,452 $1,903 $2,076 $2,310
Maintenance and service revenues........ 594 1,059 1,442 1,333 1,308 1,331
Hardware and other revenues............. 3,079 1,988 1,398 1,705 1,355 979
------ ------ ------ ------ ------ ------
Total revenues.................. 4,911 4,367 4,292 4,941 4,739 4,620
------ ------ ------ ------ ------ ------
Cost of revenues:
Cost of software license revenues....... 480 307 392 372 324 477
Cost of maintenance and service
revenues............................. 606 692 838 845 849 791
Cost of hardware and other revenues..... 2,006 1,308 898 1,099 961 726
------ ------ ------ ------ ------ ------
Total cost of revenues.......... 3,092 2,307 2,128 2,316 2,134 1,994
------ ------ ------ ------ ------ ------
Gross profit.............................. 1,819 2,060 2,164 2,625 2,605 2,626
------ ------ ------ ------ ------ ------
Operating expenses:
Research and development................ 401 458 474 557 608 562
Sales and marketing..................... 976 982 1,034 1,069 1,097 1,170
General and administrative.............. 688 578 648 799 854 768
------ ------ ------ ------ ------ ------
Total operating expenses........ 2,065 2,018 2,156 2,425 2,559 2,500
------ ------ ------ ------ ------ ------
Income (loss) from operations............. (246) 42 8 200 46 126
Other income, net......................... 15 50 29 15 44 62
------ ------ ------ ------ ------ ------
Income (loss) before provision for income
taxes................................... (231) 92 37 215 90 188
Provision (benefit) for income taxes...... (42) 17 7 38 15 32
------ ------ ------ ------ ------ ------
Net income (loss)......................... $ (189) $ 75 $ 30 $ 177 $ 75 $ 156
====== ====== ====== ====== ====== ======
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license revenues........... 25% 30% 34% 39% 44% 50%
Maintenance and service revenues.... 12% 24% 34% 27% 28% 29%
Hardware and other revenues......... 63% 46% 32% 34% 28% 21%
--- --- --- --- --- ---
Total revenues.............. 100% 100% 100% 100% 100% 100%
--- --- --- --- --- ---
Cost of revenues:
Cost of software license revenues... 10% 7% 9% 8% 7% 10%
Cost of maintenance and service
revenues......................... 12% 16% 20% 17% 18% 17%
Cost of hardware and other
revenues......................... 41% 30% 21% 22% 20% 16%
--- --- --- --- --- ---
Total cost of revenues...... 63% 53% 50% 47% 45% 43%
--- --- --- --- --- ---
Gross profit.......................... 37% 47% 50% 53% 55% 57%
--- --- --- --- --- ---
Operating expenses:
Research and development............ 8% 11% 11% 11% 13% 12%
Sales and marketing................. 20% 22% 24% 22% 23% 25%
General and administrative.......... 14% 13% 15% 16% 18% 17%
--- --- --- --- --- ---
Total operating expenses.... 42% 46% 50% 49% 54% 54%
--- --- --- --- --- ---
Income (loss) from operations......... (5)% 1% -- 4% 1% 3%
Other income, net..................... -- 1% 1% -- 1% 1%
--- --- --- --- --- ---
Income (loss) before provision for
income taxes........................ (5)% 2% 1% 4% 2% 4%
Provision (benefit) for income
taxes............................... (1)% -- -- -- -- 1%
--- --- --- --- --- ---
Net income (loss)..................... (4)% 2% 1% 4% 2% 3%
=== === === === === ===
</TABLE>
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results may fluctuate as
a result of a variety of factors, including the timing of large software license
transactions, the Company's lengthy sales cycle, the proportion of revenues
attributable to license revenues versus maintenance and service revenues,
changes in the level of operating expenses, demand for the Company's products,
the introduction of new products and product enhancements by the Company or its
competitors, changes in customer budgets, competitive conditions in the industry
and general economic conditions. The Company typically pursues one or more large
orders in each fiscal quarter, and the achievement of its quarterly revenue
plans are dependent upon concluding and shipping at least one such order within
the quarter. The Company has experienced seasonality in the demand for its
products from the newspaper industry, with fewer orders being placed in the
fourth calendar quarter of the year, at which time newspapers typically are
focused on their own holiday advertising demands. The Company has often
recognized a substantial portion of its revenues in the last month of the
quarter and often in the last week of that month. As a result, license fees in
any quarter are substantially dependent on orders booked and shipped in the last
month or last week of that quarter. See "Risk Factors -- Potential Fluctuations
in Quarterly Results; Seasonality," and "-- Lengthy Sales and Implementation
Cycles."
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations principally through
cash flows from operating activities, equipment financing arrangements and
private placements of capital stock to venture capital investors in 1994 and
1996.
26
<PAGE> 28
The Company's principal sources of cash have been the private placements of
1,700,000 shares of Series A Preferred Stock for $1,700,000 in 1994 and 400,000
shares of Series B Preferred Stock for $2,000,000 in 1996. The principal uses of
cash were to fund operations and lease and purchase computers and equipment.
As of June 30, 1997, the Company had cash and cash equivalents of $2.1
million as compared to $3.1 million at December 31, 1996. This decrease was
primarily due to utilization of cash to fund operations, a reduction in accounts
payable in the first six months of 1997, as well as expenditures related to
certain fixed asset purchases in that period.
The Company presently has available a $2.0 million working capital
revolving line of credit with a bank, which is secured by the Company's accounts
receivable. This facility is limited to the lesser of a percentage of the
Company's qualifying accounts receivable or $2.0 million and will expire in June
1998. The agreement under which the line of credit was established contains
certain covenants, including provisions requiring the Company to maintain
minimum levels of tangible net worth, profitability and cash flows. The Company
has not made any borrowings under this facility and no amounts were outstanding
at August 31, 1997. See Note 6 of Notes to Consolidated Financial Statements.
The Company does not currently have commitments for any material capital
expenditures. The Company believes that the net proceeds from this offering,
cash flows from operations and funds available under the line of credit will be
sufficient to fund its operations for the foreseeable future.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
In 1995, the Company dismissed Coopers & Lybrand L.L.P. and engaged Arthur
Andersen LLP, as its independent public accountants. The decision was made by
the Company's Board of Directors, upon the recommendation of management, and was
not due to any disagreement with the former accountants. During the fiscal year
ended December 31, 1994 and the subsequent interim period immediately preceding
the date of this change, the Company had no disagreements with the former
accountants on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement if not
resolved to the satisfaction of the former accountants would have caused Coopers
& Lybrand L.L.P. to make reference thereto in their report on the Company's
financial statements; and the reports of the former accountants on the Company's
financial statements for 1994 did not contain any adverse opinion, disclaimer of
opinion or qualification or modification as to uncertainty, audit scope or
accounting principles.
FORWARD-LOOKING INFORMATION
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
"Risk Factors," which could cause actual results to differ materially from those
indicated by such forward-looking statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 128, Earnings Per Share, which is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted. This statement requires restatement of all prior-period earnings per
share data presented. The Company has not yet determined the impact of this
statement on the earnings per share data presented.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.
27
<PAGE> 29
BUSINESS
OVERVIEW
Cascade Systems Incorporated ("Cascade" or the "Company") designs,
develops, markets and supports workflow and content management software
solutions for newspapers, magazine and book publishers, commercial printers,
retailers and other corporate publishers. The Company's DataFlow system manages
the process of publishing information by providing content and data management,
tracking, workflow and archiving functionality. The Company's MediaSphere system
is designed to meet the archiving, search and retrieval needs of organizations
dealing with large amounts of multimedia data. The Company's products are
client/server based and support leading industry standards, permitting operators
to access, manipulate, store and reuse content on a scalable basis across
different media. The Company introduced Internet capability to its MediaSphere
system in 1996 and is scheduled to make generally available Internet capability
for its DataFlow system in October 1997. These features are designed to enable
users both to exploit the Internet as a delivery medium and also to make use of
the Internet (and corporate Intranets) as a communications channel to facilitate
the production process within their organizations. The Company's newspaper
customers include The Los Angeles Times, Newsday, The Miami Herald, The Mirror
Group PLC (U.K.), The Boston Globe and The Daily Telegraph (U.K.). Other
customers include magazine publishers such as The McGraw-Hill Companies, Inc.
and Conde Nast Publications Inc., commercial printers such as Bowne & Co., Inc.
and R.R. Donnelley & Sons Company, and retailers and catalog publishers
including Amway Corporation and Val-Pak Direct Marketing Systems, Inc.
The Company believes that its products are the leading solutions for
tracking and managing production of advertisements by large newspapers. The
Company intends to leverage the opportunities created by its technology and
client base to expand its position in the newspaper market in the U.S. and
internationally, both for advertising and for other editorial applications. The
Company is also developing a workgroup content management solution to address
the requirements of commercial printers and trade shops, and intends to apply
its solutions to meet the needs of large organizations, such as retailers and
consumer product companies, that manage a high volume of text and images
internally. The Company markets its products and services primarily through its
own direct sales force and distributors in certain overseas markets. The Company
has a sales and marketing organization of 27 persons in locations throughout the
United States, Canada and in the United Kingdom, as well as a services and
technical support organization of 35 persons supporting custom implementation of
its systems and ongoing maintenance. In addition, the Company has established a
strategic relationship with Applied Graphics Technologies, Inc. for selling its
solutions to corporate customers, and intends to establish a new channel of VARs
and OEMs selling the workgroup content management solution in its targeted
markets.
INDUSTRY BACKGROUND
The worldwide publishing industry is undergoing significant change in
response to competitive pressures. Publishers of newspapers and magazines are
consolidating into larger organizations with multiple titles, formats and
geographic locations. Publishing enterprises are also facing competition from
alternative publishing on new media such as the Internet. Increased competition
for subscribers has resulted in a trend toward more demographically targeted
editorial, feature and advertising content. As a result, publishers are
beginning to view their content assets, such as photos, graphics, illustrations,
text and captions, as key competitive differentiators. Publishers are seeking
ways to improve the management and utilization of that content both within their
organizations and with their customers, while continuing to meet demanding time
schedules and reduce costs.
Traditionally, publishers used highly labor-intensive systems for
production of printed materials, such as manual typesetting. As computer
technology evolved during the 1960's and 1970's, publishers invested in
mainframe-based computer equipment which automated and emulated these
traditional production processes. Mainframe systems shortened the production
process but were expensive, difficult to access, inflexible to use and required
significant training, support and service.
28
<PAGE> 30
These limitations were addressed by the widespread adoption during the late
1980's of PC-based solutions for desktop publishing that were cost-effective,
easy to use and highly flexible. For the first time, personnel across the
editorial and production process could use software supplied by Quark, Aldus
Corporation and Adobe to perform typesetting and page-making functions at the
desktop, bringing reporters, writers and editors closer to the final, printed
product. This software also enabled users outside the traditional publishing
industry to publish and distribute high-quality printed materials in-house.
TRADITIONAL PUBLISHING SOLUTION
[GRAPHIC DESCRIPTION: Picture diagram depicting six bubbles each with a
computer inside and a phrase describing one element of the Company's products.
The phrases are as follows (clockwise from top right): Manage Workflow, Text
Archiving, Manage Output, Web Publishing, Photo Archiving, and File Server OPI.]
These developments have presented new challenges. In the absence of any
automated content management system, the creation, manipulation, and storage of
content by geographically dispersed workers with varying skills and
responsibilities has remained inefficient and error prone. The need to transfer
content to disks and to subsequently transfer such disks among operators, as
well as the lack of any method to manage content and monitor job status,
resulted in critical delays and errors. These challenges have been magnified and
exacerbated by the advent of the Internet, presenting publishers and their
customers with greater amounts of content to be managed.
Publishers therefore require workflow and content management systems which
can:
- simplify and automate the tasks of manipulating content during the
production process across an organization, regardless of geographic
location or stage in the production process;
- permit reliable, real time monitoring of the production process to assure
that jobs meet applicable quality standards and are completed on time;
- ensure that content can be located on a timely basis;
- leverage content such as photos, graphics, illustrations, text and
captions to be reused as a corporate asset; and
- support complementary media and new delivery and communications channels,
including the Internet, as they evolve.
THE CASCADE SOLUTION
Cascade offers software solutions designed to permit publishers and large
organizations to address critical workflow and content management needs in a
rapidly evolving business and
29
<PAGE> 31
technological environment on a timely and cost-effective basis. Using the
Company's DataFlow system, publishers can manage data, track job progress,
monitor workflow and archive content. The Company's MediaSphere system applies
intelligent indexing and search technology to accelerate search and retrieval,
thereby permitting content reuse on a timely basis. These products are
client/server based, support industry standards and permit operators to access,
manipulate, store and reuse large amounts of content on a scalable basis across
media.
[GRAPHIC DESCRIPTION: Picture diagram depicting one computer in the center
surrounded by six bubbles, each one containing a phrase that describes one
element of the Company's product, with the product written beneath each bubble.
Captions as follows (proceeding clockwise from left to right starting at top
right): Manage Workflow -- DataFlow, Text Archiving -- MediaSphere, Manage
Output -- DataFlow, Web Publishing -- W3 Extensions, Photo
Archiving -- MediaSphere, File Server OPI -- DataFlow. Arrows point from each of
the bubbles to the computer.]
The Company's products deliver the following critical business benefits:
- Automated Content Manipulation and Tracking. Because the Company's
solutions permit the retrieval, search, manipulation and use of content
on an automated basis, unnecessary manual production steps are
eliminated. Operators can access content from files regardless of size
without the use of disks, and each job can be tracked automatically from
operator to operator across functions, reducing risks of errors attendant
to manual intervention or data transfer.
- Job Management Reporting. In addition, the DataFlow system permits
real-time monitoring of scheduling and quality requirements by allowing a
supervisor or user to identify the status of any job within the system,
access the job, review its status, measure productivity and, if
necessary, change the job's priority.
- Timely, Reliable Access and Version Control. Because the Company's
DataFlow system records the relationship between content, pages and jobs,
production workers can find components of a particular page or job
quickly and monitor that content is accurately manipulated at the
appropriate stage of the production process, thereby reducing the need
for costly rework.
- Support of Multimedia and Internet Communications. The Company's
MediaSphere system permits users to archive and retrieve data regardless
of media type, including images, text, video and audio, to meet content
management requirements as they evolve. In addition, the Company has
added Internet capability to both MediaSphere and DataFlow. As a result,
customers can exploit the Internet for access to content within their
organizations and also as a delivery medium to their customers.
STRATEGY
The Company's objective is to become a leading supplier of comprehensive
automated workflow and content management solutions for the publishing industry
and other large organiza-
30
<PAGE> 32
tions, building on its strong base in the newspaper and other publishing
markets. The Company's strategy incorporates the following key elements:
- Extend Leadership in Core Market. The Company believes that its products
are the leading solution for tracking and managing production of
advertisements by large newspapers. The ability of the Company's products
to handle complex data formats and large files associated with the
pre-press production process, and their ability to fit seamlessly within
demanding production schedules, has permitted the Company to establish a
pre-eminent position in the newspaper marketplace. The Company intends to
continue to leverage opportunities created by its technology, client base
and industry expertise to expand its position in the newspaper market in
the U.S. and internationally, both for advertising and other
applications.
- Extend Functionality to Address New Technologies. The Company intends to
continue to leverage the value of its technology through enhancements to
support the Internet and other evolving technologies. These solutions
enable the Company's users to utilize the Internet as a delivery medium,
and make use of the Internet and Intranets as a communications channel to
facilitate the production process within organizations and between
organizations and customers. For example, publishers can provide proofs
of advertisements or catalog pages to customers for their approval over
the Internet, reducing delays and improving output and quality, all at
reduced cost.
- Leverage Expertise to Broaden Markets. The Company believes that its
expertise in developing workflow and content management solutions for
time-critical applications in the newspaper industry will permit it to
expand to other publishing markets which face similar challenges, such as
magazines, catalogs, retailers, and corporate and special purpose
publishers. The Company is developing a workgroup content management
solution to address the requirements of commercial printers and trade
shops, and intends to apply its solutions to meet the needs of large
organizations, such as retailers and consumer products companies, that
manage a high volume of text and images internally as part of in-house
publishing and similar functions.
- Expand Distribution Capabilities. The Company intends to expand its
global sales capabilities by increasing the size of its direct sales
organization in major markets to target strategic accounts. The Company
plans to expand its direct sales and marketing activities in both North
America and Europe, while expanding its distribution network elsewhere.
To achieve these goals, the Company is actively engaged in the
development of localized versions of its workflow and content
management solutions. In addition, the Company has established a
strategic relationship with Applied Graphics Technologies for selling
its solutions to corporate customers, and intends to establish a new
channel of VARs and OEMs to sell the workgroup content management
solution in its targeted markets.
PRODUCTS
The Company's principal products, DataFlow and MediaSphere, monitor and
control the collaborative efforts required to integrate images, graphics and
texts in the production and publication of newspapers, magazines and catalogs,
and automate and accelerate the access, manipulation, storage and reuse of
publishing assets. Its DataFlow system manages the process of publishing
information by providing content management, tracking, workflow and archiving
functionality. The MediaSphere system is designed to meet the archiving, search
and retrieval needs of organizations dealing with large amounts of multimedia
data. Cascade introduced Internet capability to its MediaSphere system in 1996,
and is scheduled to make generally available Internet capability for its
DataFlow system in October 1997. These features are designed to enable users
both to exploit the Internet as a delivery medium, and also to make use of it
(and corporate Intranets) as a communications channel to facilitate the
production process within organizations. These systems
31
<PAGE> 33
can be purchased and used separately, or operated together to provide users an
integrated content management solution.
DataFlow System
First introduced in 1994, the Company's DataFlow system manages the process
of publishing information by providing content management, tracking, workflow
and archiving functionality. Text, images and pages developed by production
operators using desktop publishing software are organized in the DataFlow system
and routed through pre-defined workflows which include each step in the
production process, such as creation, editing, proofing, correction, output and
archiving.
Using the DataFlow system, any job can be tracked against deadlines imposed
for each step of the production process on a fully automated basis, while
providing users with progress reports and an overview status of the entire
production process. The DataFlow system eliminates many of the problems commonly
associated with managing large amounts of data, tracking all production elements
for efficient reuse of data and eliminating lost or duplicated information.
DataFlow currently runs on a Sun server platform, using a Sybase relational
database, and supports clients using PC or Macintosh workstations across a user
network.
DataFlow client software consists of a basic module that provides the
functionality required for typical users, including the ability to access
objects, move them through the production workflow process, archive them and
restore them. In addition to the system's core functionality, modules may be
purchased to fulfill specific production tasks, including:
- Askme Reporting provides production reports for real time management of
jobs and analysis of the production process. Every event in the DataFlow
system is stored with details of time, user, and comments regarding each
event. This information permits managers to monitor whether jobs are on
schedule, check the overall load or productivity of any user or group,
and change the priority of work to be completed.
- Cascade Quark Xtension Suite consists of six Quark Xtensions that perform
utility functions on an integrated basis with Quark XPress, a widely used
page make-up application. These utilities can be used to expedite and
facilitate the production process by updating pictures and images,
modifying text slug lines, automatically placing ads on a page and
automatically generating encapsulated PostScript files.
- Cascade DataFlow Xtension enables users to access content from the
DataFlow system without leaving a Quark XPress application, eliminating
the need to run a DataFlow client as a separate application on each
workstation.
- ScanClients tracks non-electronic content across the production process
through the use of bar code scanning devices, permitting users to manage
the workflow of non-digitized content within the DataFlow environment.
- ViewFlow provides a pictorial representation of the real time status of
components on a page, permitting users to determine when material is
ready for the printer.
Additional components of the DataFlow system include:
- Business System Interfaces. DataFlow Business System Interfaces provide
a method for initializing work orders in the production process, assuring
that job scheduling and delivery requirements are integrated into the
system on an automated basis.
- Ad Stacking automates make-up and layout of advertisements on a page (the
"Ad Stack"), so that individual advertisements can be appropriately
scaled to fit space allocated without the need for manual intervention,
thereby accelerating the production process.
32
<PAGE> 34
- ImageFlow provides Open Pre-press Interface (OPI) functionality, allowing
page makeup and image placement to be carried out using low resolution
images that are swapped out for high resolution images at the conclusion
of the job. Users therefore do not have to wait for long periods while
pages physically print at intervals during the production process,
eliminating network bottlenecks and production delays.
- SureCast supports complete merchandising planning of advertising events
in catalog and retail publishing environments by interfacing with a
user's SKU itemization system to access product and price information.
Merchandisers and buyers may plan events, assign products to pages,
generate promotional copy and pricing, and then electronically
communicate the plan to the DataFlow system, further automating the
document planning and production process.
MediaSphere
First introduced in 1995, the MediaSphere system is designed to meet the
content management needs of organizations dealing with large amounts of
multimedia data. The system works on an integrated basis with client
applications to index all relevant metadata, search for items using
sophisticated search tools and retrieve them for usage or redistribution. Like
the DataFlow system, MediaSphere currently runs on a Sun server platform, using
a Sybase relational database, supports clients using either PC or Macintosh
workstations and supports leading mass storage technology such as RAID and
CD-ROM jukeboxes.
MediaSphere was developed to meet the demand by publishers and other
organizations for a multi-user library/archive system that can handle all types
of digital objects: text, graphics, images, pages, video and audio. By
eliminating the need to maintain separate retrieval systems for each form of
media, MediaSphere allows users to easily find items of interest across multiple
data types from a single system. This also eliminates the need for systems
administrators and library/archiving staffs to update, maintain and monitor more
than one archiving and retrieval system.
The MediaSphere system supports multiple databases and indices, while
providing scalable performance across an organization. As a result, the
MediaSphere system can meet the requirements of large organizations to access
both small, localized archives, as well as large data repositories involving
terabytes of information. MediaSphere can be installed in various network
configurations, ranging from small LAN workgroup environments to large
distributed network environments.
The MediaSphere system permits users to access data and multimedia objects
across multiple storage platforms. Key components of the MediaSphere system
include:
- The index stores and references all metadata. Data is entered into the
index through a series of customized processes that appear as network
drop areas or directories called "funnels." These funnels are
configurable and customizable to adapt to the changing and evolving
requirements of data archiving and data format. A general funnel indexes
and stores standard image formats automatically (together with all
associated metadata) and generates a thumbnail and preview file for each
image. Quark XPress funnels add the ability to index and store complete
Quark XPress pages and related graphics, text files and embedded header
data, and text funnels offer the ability to index and store text files
with all associated header information.
- The search engine is a natural language indexing and search engine that
uses probabilistic theory and the user's own actions to define and search
for relevant information. Users may apply category, date and time
filters, as well as Boolean operators to help narrow the searches, and
search results are ranked by relevance, permitting users to establish
subsequent preferences.
- The database manages the allocation of archive files and the data is
stored on disk, RAID or CD-ROM jukeboxes. The database is also used to
keep an audit trail of information and relationships, such as who
accessed the specific image and at what time.
33
<PAGE> 35
Internet Enhancements and New Products
Cascade introduced Internet capability to its MediaSphere system in 1996
and is scheduled to make generally available Internet capability for its
DataFlow system in October 1997. These features are designed to enable users
both to exploit the Internet as a delivery medium, and also to make use of the
Internet (and corporate Intranets) as a communications channel to facilitate the
production process within organizations. Use of Intranets can generate
substantial cost savings by eliminating the expense associated with traditional
communications methods (including courier and mail services) while leveraging
the use of the Company's systems across organizations. For example, publishers
can provide proofs of advertisements or catalog pages to customers for approval
on the Internet, reducing delays and improving output quality, while eliminating
the need to mail or deliver physical copy.
The Company's DataFlow/W3 Internet client software is designed to
facilitate the reuse of content by allowing an organization to manage remotely
disbursed content, drawing on processes tailored to the needs of each specific
customer. The software is configurable to allow publishers to control
presentation and content available to users. The Company's MediaSphere/W3
interface provides web accessibility to MediaSphere data from standard browsers
such as Netscape's Navigator or Microsoft's Internet Explorer, and can be easily
integrated with electronic commerce systems. The MediaSphere system supports the
use of HTML, Java applets and Javascript in order to facilitate the integration
of the MediaSphere system with customer applications and processes.
The Company is also building upon its content management expertise to
introduce a compact, easily-configured content management solution for
workgroups at organizations such as commercial printers, trade shops and
advertising agencies. Built using Internet standards and technologies such as
CORBA and Java, the system will be fully integrated with Netscape servers and
support the Sun Solaris operating system, Windows NT, and a wide range of
relational databases including Oracle, Sybase, Microsoft SQL/Server and
Informix. The system is designed to be easy to configure and use, and to
integrate directly with Quark or Adobe pre-press and page make-up applications.
CUSTOMER APPLICATIONS
- The Los Angeles Times ("The LA Times"), one of the largest U.S.
newspapers, relied on a mainframe-based, legacy system to manage and
track its advertising production. The legacy system could not support the
geographically dispersed advertising sales and composition network
developed by The LA Times for zoned advertising in the southern
California market, necessitating the use of line printer reports and
paper links between offices to track the status of jobs. As a result, The
LA Times was unable to effectively implement its advertising strategy and
incurred lost revenues and increased expenses due to late, missing or
inaccurate advertisements. To solve the problem, the Company installed 11
DataFlow systems over a two-year period to support a distributed ad
tracking system involving over 200 users. This system receives over
20,000 retail and classified advertising bookings weekly and retains the
completed ads for up to 90 days on an automated, highly reliable basis,
providing the functionality and flexibility needed by The LA Times to
meet its requirements for effective ad-tracking in a highly competitive
market.
- Channel 4, one of the U.K.'s leading independent television stations,
purchased Cascade's MediaSphere and MediaSphere/W3 web extension software
to create an Extranet to provide promotional publicity images to magazine
and newspaper publishers. The web based service has been completely
branded in the Channel 4 corporate style to provide a consistent
corporate image. Before purchasing MediaSphere, Channel 4 used a bulletin
board on a proprietary service, mail, couriers and hard copy press packs
to provide publicity photographs to the press. Channel 4 faced the
problems of maintaining a hard copy library, with the consequent staffing
costs, along with the high costs of postage and couriers to deliver
information. The MediaSphere system has enabled Channel 4 to provide a
faster, better and
34
<PAGE> 36
more up-to-date information service to the press as well as creating an on-line
archive, while reducing the high costs previously associated with the
maintenance of the hard copy system.
- Newsday, with a daily circulation of more than 570,000 on Long Island and
in New York City, traditionally relied on a manual process for production
of advertising, using job bags to physically transfer copy work from
stage to stage. At the same time, it relied on a legacy system to provide
automation of its editorial processes. To automate Newsday's workflow
requirements, the Company developed an interface between the legacy
editorial system and the DataFlow system, to allow the Newsday staff to
monitor the status of individual page elements at each stage of the
production process. By capturing changes in status and translating those
changes into a color-coded "picture" of each page, the Newsday staff can
monitor progress and take appropriate action as deadlines approach. At
the same time, by off-loading CPU-intensive tasks to the DataFlow system,
Newsday has been able to increase sections and page counts significantly
without making further investment in its legacy system. In addition,
automation of its page make-up process has also reduced the high labor
costs associated with traditional paste-up operations.
- In addition to its DataFlow system, Newsday has implemented a MediaSphere
system to assist with photo archiving. Newsday traditionally relied on a
photo-archiving system with limited text indexing capabilities that held
only basic details of date, photographer, storage location and picture
number. Consequently, editors could not find images relating to a
particular event or subject on a reliable basis, and were forced to
resort to the expensive and time-consuming alternatives of using a wire
service or library, often ordering the same photographs on a repetitive
basis. Newsday has avoided these delays and costs by digitizing its
photographs and loading them onto a MediaSphere system. Once a picture
for a particular page has been selected, MediaSphere transmits the
information to DataFlow to be incorporated onto the page, thus
facilitating layout, while assuring access to photographs on a reliable
and timely basis, and eliminating the costs associated with multiple
orders for the same photograph.
SALES AND MARKETING
The Company has historically sold its products in the United States and the
United Kingdom through its direct sales organization and in South America and
Europe through distributors. As of August 31, 1997, the Company's direct sales
force included 11 sales professionals and six dedicated technical specialists.
As part of its growth strategy, the Company intends to increase the size of
its direct sales organization and is seeking to expand and enhance its channels
of distribution. The Company has entered into a strategic business alliance with
Applied Graphics Technologies, Inc., a third-party pre-press service provider,
for sales to magazine and other publishers. In addition, the Company maintains
alliances with certain technology providers, including Sun Microsystems, to
market the Company's products on a collaborative basis. The Company anticipates
that the percentage of its total revenues derived from indirect sales,
particularly through value-added resellers and systems integrators, will
increase in the future. There can be no assurance, however, that the Company
will be successful in establishing or maintaining these distribution channels.
See "Risk Factors -- Evolving Distribution Strategy."
The Company's marketing organization consists of five persons and is
responsible for evaluating and developing market opportunities and providing
sales support. The Company's marketing activities include generation of client
leads, targeted direct mail campaigns, advertising and public relations efforts.
In addition, the Company attends major trade shows and technology conferences
relating to its target markets.
35
<PAGE> 37
CUSTOMERS
Traditionally, the majority of the Company's revenues have been derived
from the newspaper industry, reflecting the Company's experience and established
reputation in that market. The Company also markets its products to
organizations in the broader publishing industry or companies which are
otherwise involved in producing a printed product. The Company's target sectors
include newspapers, magazine and book publishers, commercial printers, retailers
and catalog, corporate and directory publishers.
As of August 31, 1997 the Company had licensed its products to over 140
customers. In 1996, one newspaper accounted for 13% of the Company's revenues.
In 1995 and for the six months ended June 30, 1997 no one customer accounted for
more than 10% of the Company's revenues. The following list includes customers
in each of the Company's target markets:
<TABLE>
<CAPTION>
NEWSPAPERS COMMERCIAL PRINTERS
- --------------------------------------------------------------------------------------------
<S> <C>
The Los Angeles Times Bowne & Co., Inc.
Newsday Royle Communications Group Inc.
The Minneapolis Star Tribune R.R. Donnelley & Sons Company
The Pittsburgh Post -- Gazette Wace Group PLC
The Seattle Times Banta Corp.
The Miami Herald
Associated Newspapers (U.K.) Limited
Mirror Group PLC
The Boston Globe
The Telegraph PLC
</TABLE>
<TABLE>
<CAPTION>
RETAILERS, CATALOG PUBLISHERS
MAGAZINE/BOOK PUBLISHERS AND OTHER CORPORATE PUBLISHERS
- --------------------------------------------------------------------------------------------
<S> <C>
The McGraw-Hill Companies, Inc. Viking Office Products
Miller Freeman Incorporated United States Gypsum Company
Miller Freeman PLC Amway Corporation
Addison-Wesley Publishing Company TransWestern Publishing
Conde Nast Publications Inc. Val-Pak Direct Marketing Systems, Inc.
BBC Worldwide Limited Avon Products, Inc.
Random House Limited Circuit City Stores, Inc.
</TABLE>
CUSTOMER SUPPORT AND TRAINING
The Company believes that its success is highly dependent upon a satisfied
customer base. The Company has developed and implemented a multi-faceted
strategy which provides a range of professional customer services designed to
ensure successful product implementations, and currently employs 35 persons
worldwide in its services and support organization. The two primary components
of this strategy are the Company's Consulting Services group, which provides a
wide range of professional services, and its standard maintenance services,
which include telephone technical support.
Consulting and Training
The Company's Consulting Services group is responsible for implementing the
Company's software products to meet the customers' production requirements
through project management, systems engineering and training. Key accounts are
assigned a project manager to assist customers in defining requirements and
specifications, and to coordinate installation, testing and training. Consulting
engineers provide customization services and direct technical support during
implemen-
36
<PAGE> 38
tation, as well as integration services related to a customer's database, to
assure successful customer roll-out and to meet specific customer requirements.
Training services offered by the Consulting Services group include end-user
training on the Company's products and a variety of system administration
courses to assist the customer's production personnel in the management and
customization of the Company's products.
Support
The Company offers maintenance contracts to its customers at an annual fee
equal to 15% of the list price of the product to which the contract relates. The
Company's standard maintenance contract includes telephone technical support
during regular business hours which is provided by the Company's highly trained
Help Desk staff. Help Desk support is supplemented by 7-by-24 support on a
per-call fee basis. Maintenance customers also receive maintenance releases and
new versions of the product which are released during the maintenance term.
Historically, more than 95% of the Company's customers have renewed their
maintenance service contracts on an annual basis.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success is heavily dependent upon proprietary technology. The
Company relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection. The Company presently has no patents or patent applications
pending. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as the laws of the United States. There
can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not claim
infringement by the Company with respect to current or future products. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be
time-consuming to defend, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company or at all, which could have a material adverse effect
upon the Company's business, operating results and financial condition.
In addition, the Company relies on certain software that it licenses from
third parties that is integrated with internally developed software and used in
the Company's products to perform key functions, including the MediaSphere
search engine. There can be no assurances that such firms will remain in
business, that they will continue to support their products or that their
products will otherwise continue to be available to the Company on commercially
reasonable terms. The loss of or inability to maintain any of these software
licenses could result in delays or reductions in product shipments until
equivalent software can be developed, identified, licensed and integrated, which
would adversely affect the Company's business, operating results and financial
condition.
COMPETITION
The market for software and services is very competitive, rapidly evolving
and subject to rapid technological change. The Company believes that while it
competes with no single organization
37
<PAGE> 39
across its entire product line, a variety of companies offer products which
compete either with its DataFlow or MediaSphere systems. Autologic offers
products competitive with DataFlow. Companies offering products competitive with
MediaSphere include T/One, Inc., The Bulldog Group USA, Inc., Gannett Media
Technologies International, a division of Gannett Company, Inc. and Archetype,
Inc., a subsidiary of Bitstream Inc. Other potential competition may come from
desktop publishing vendors such as Quark or Adobe who may in the future offer
functionality competitive with the Company's products or from potential
customers who elect to develop internally applications that provide the
functionality of the Company's products, or obtain such functionality from
third-party service bureaus. As the Company expands its target markets to
include large organizations outside the publishing industry, it anticipates that
it will encounter additional competitors.
The Company believes that the principal competitive factors affecting its
market include product features and functionalities, such as scalability, ease
of integration, ease of implementation, ease of use, quality, performance,
price, customer service and support, and effectiveness of sales and marketing
efforts. Although the Company believes that it currently competes effectively
with respect to such factors, there can be no assurance that the Company will be
able to maintain its competitive position against current and potential
competitors.
EMPLOYEES
As of August 31, 1997 the Company had a total of 108 employees, of which 66
were located in the United States, 40 in the United Kingdom, and two in Canada.
Of the total, 27 were engaged in sales and marketing, 26 in product development,
35 in services and support, and 20 in administration and finance. The loss of
the services of one or more of the Company's key employees could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's future success also depends on its continuing ability
to attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company can retain its key technical, sales and managerial
personnel in the future. None of the Company's employees is represented by a
labor union. The Company has not experienced any work stoppages and considers
its relations with its employees to be good.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
FACILITIES
The Company's principal administrative, sales, marketing, support and
research and development facilities are located in sites of approximately 20,000
square feet and 7,000 square feet in Andover, Massachusetts and Needham Market,
England, respectively. The Company also leases a facility in London, England.
The Andover lease expires in June 2001. The Needham Market lease expired in
August 1997, and the Company is in the process of moving these operations.
38
<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The executive officers, directors and other key employees of the Company
and their ages as of August 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Executive Officers
Malcolm P. McGrory................... 40 President, Chief Executive Officer and Director
Andrew J. Zimmon..................... 34 Senior Vice President, Operations
Timothy M. Cunningham................ 35 Vice President, Finance, Chief Financial Officer,
Treasurer and Secretary
David J. Green....................... 33 Vice President, Research and Development
Brian F. Gorman...................... 44 Vice President, Sales
Key Employees
Ian L. Bryson........................ 41 Director of Marketing
Ian Smith............................ 37 Director of United Kingdom Sales and Marketing
Other Directors
Peter Jarrold (1)(2)................. 64 Director
Gordon C. Murray (1)(2).............. 50 Director
Standish H. O'Grady (1)(2)........... 37 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. McGrory has been President of the Company since its inception in
February 1993 and Chief Executive Officer and a Director of the Company since
July 1996. From October 1988 to February 1993, Mr. McGrory was engaged in
various capacities with Hyphen Ltd. ("Hyphen"), a pre-press systems vendor,
serving as President of Hyphen Incorporated, a U.S. affiliate of Hyphen, from
March 1989 to October 1992.
Mr. Zimmon has been Senior Vice President, Operations, of the Company since
the Company's inception in February 1993. From July 1995 to February 1996, Mr.
Zimmon also served as interim Managing Director of Cascade Systems Limited, a
wholly owned subsidiary of the Company in the United Kingdom ("Cascade
Limited"). From October 1992 to February 1993, Mr. Zimmon was engaged in various
capacities with Hyphen Ltd. From April 1990 to October 1992, Mr. Zimmon served
as Vice President of Operations of Hyphen Incorporated.
Mr. Cunningham has been the Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary of the Company since November 1996. From
January 1991 to November 1996, Mr. Cunningham was the Corporate Controller with
Infinium Software, Inc. (formerly, Software 2000, Inc.), an application software
company. Earlier in his career, Mr. Cunningham was a Certified Public Accountant
with Price Waterhouse LLP.
Mr. Green has been Vice President, Research and Development, of the Company
since January 1994. From February 1993 to January 1994, Mr. Green served as
Technical Director of Cascade Limited. From March 1987 to February 1993, Mr.
Green was Technical Director of Hyphen.
Mr. Gorman has been Vice President, Sales of the Company since December
1993. From November 1991 through October 1993, Mr. Gorman served as Vice
President, Sales of Hyphen Incorporated.
Mr. Bryson has been Director of Marketing of the Company since June 1997.
From October 1996 to May 1997, Mr. Bryson was Sales and Marketing Director of
International Imaging Ltd., a microfilm
39
<PAGE> 41
and document scanning services provider. From June 1994 to September 1996, Mr.
Bryson was Business Development Director of Wace Group PLC, a pre-press and
specialist printing services provider. From May 1990 to January 1994, Mr. Bryson
was Marketing Manager of Hyphen.
Mr. Smith has been Director of United Kingdom Sales and Marketing of
Cascade Limited since September 1993. From September 1989 to September 1993, Mr.
Smith served in various sales capacities with Hyphen, becoming Sales Director in
April 1992.
Mr. Jarrold has been a director of the Company since July 1994. Mr. Jarrold
is presently Chairman of Jarrold & Sons Ltd., a printer, publisher and retailer
in the United Kingdom and has served in such capacity since 1956.
Mr. Murray has been a director of the Company since July 1994. Mr. Murray
is presently a senior lecturer at the Warwick Business School, University of
Warwick (U.K.), and has taught and conducted research in such capacity since
1989.
Mr. O'Grady has been a director of the Company since July 1994. Mr. O'Grady
is a Managing Director in the venture capital department of Hambrecht & Quist
California, a subsidiary of Hambrecht & Quist Group, a venture capital,
investment banking and securities brokerage firm specializing in emerging growth
companies. Mr. O'Grady has served in various positions with Hambrecht & Quist
California's venture capital department since 1986. Moreover, he has been the
President of H&Q Adobe Ventures Management Corp., the General Partner of H&Q
Adobe Ventures Management, L.P., the General Partner of Adobe Ventures L.P.,
since its inception in 1994.
BOARD OF DIRECTORS
Upon the closing of the offering, the Company's Board of Directors will be
divided into three classes. Messrs. Murray and O'Grady will serve in Class I,
the term of which expires on the date of the Company's 1998 Annual Meeting of
Stockholders; Mr. McGrory will serve in Class II, the term of which expires on
the date of the Company's 1999 Annual Meeting of Stockholders; and Mr. Jarrold
will serve in Class III, the term of which expires on the date of the Company's
2000 Annual Meeting of Stockholders.
Mr. O'Grady and Mr. Jarrold were elected to the Board of Directors in July
1994 pursuant to a Voting Agreement, dated as of July 25, 1994, by and among the
Company and certain of its stockholders named therein. The Voting Agreement will
terminate upon the closing of this offering.
COMMITTEES OF THE BOARD OF DIRECTORS
In February 1996, the Board of Directors established a Compensation
Committee and in September 1997, the Board of Directors established an Audit
Committee. The Compensation Committee (i) establishes the compensation,
including bonuses, and compensation policies applicable to all executive
officers of the Company, and (ii) exercises all rights, authority and functions
of the Board of Directors under the Company's Second Amended 1994 Stock Option
Plan, 1997 Stock Incentive Plan, 1997 Director Stock Option Plan and 1997
Employee Stock Purchase Plan. The Audit Committee is responsible for (i) making
recommendations regarding the appointment or replacement of and reviewing the
scope and results of audits and other services provided by the Company's
independent public accountants, and (ii) making recommendations and implementing
any changes to the Company's audit procedures.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to February 1996, the Company had no separate compensation or stock
option committee or other board committee performing equivalent functions, and
these functions were performed by the Company's Board of Directors. In February
1996, the Company's Board of Directors established a Compensation Committee,
which currently consists of Messrs. Jarrold, Murray and O'Grady. No member of
the Compensation Committee serves as a member of the board of directors or
40
<PAGE> 42
compensation committee of any entity that has one or more executive officers
serving as a member of the Board or Compensation Committee.
DIRECTOR COMPENSATION
1997 Director Stock Option Plan. The Company's 1997 Director Stock Option
Plan (the "Director Plan") was adopted by the Board of Directors and approved by
the stockholders of the Company in September and October 1997, respectively.
Under the terms of the Director Plan, directors of the Company who are not
full-time employees of the Company or any subsidiary of the Company are eligible
to receive nonstatutory options to purchase shares of Common Stock. Options to
purchase 100,000 shares of Common Stock may be granted under the Director Plan.
Pursuant to the Director Plan, each non-employee director who is first
elected or appointed to the Board of Directors after September 1, 1997 receives
an initial option to purchase 10,000 shares of Common Stock upon the date on
which he or she first is so elected or appointed. Each non-employee director
also receives an option to purchase 5,000 shares of Common Stock on the date of
each Annual Meeting of Stockholders commencing with the 1998 Annual Meeting of
Stockholders, provided that he or she is a non-employee director immediately
prior to such Annual Meeting and continues to serve as a director immediately
following such Annual Meeting. The exercise price per share of such options will
be the closing price of a share of Common Stock on the Nasdaq National Market or
on a nationally recognized securities exchange on the date of grant or, if the
Common Stock is not then traded on the Nasdaq National Market or a nationally
recognized securities exchange, the fair market value per share on the date of
grant as determined by the Board of Directors. All options granted under the
Director Plan vest in full on the first anniversary of the date of grant
provided that the optionee continues to serve as a director of the Company.
Mr. Murray receives an annual retainer of $10,000, paid quarterly, for his
service on the Company's Board of Directors. No other director of the Company is
compensated for services rendered as a director.
In May 1997, each of Messrs. Jarrold, Murray and O'Grady received an option
to purchase 25,000 shares of Common Stock under the Company's 1997 Stock
Incentive Plan.
41
<PAGE> 43
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for the fiscal year ended December 31, 1996 for the following
officers of the Company (collectively, the "Named Executive Officers"): (i) the
Company's Chief Executive Officer, (ii) the one other person who served as chief
executive officer in 1996, and (iii) the four other most highly compensated
executive officers of the Company having annual compensation in 1996 greater
than $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION(1) SALARY BONUS COMPENSATION(2) UNDERLYING OPTIONS
- ------------------------------- -------- ------- --------------- ------------------
<S> <C> <C> <C> <C>
Malcolm P. McGrory............. $121,407 $25,000 $ 6,153 --
President and Chief Executive
Officer
Richard L. Patterson(3)........ $107,200 $27,334 $ 9,600
Former Chief Executive
Officer
Andrew J. Zimmon............... $111,579 $15,000 $ 3,688 --
Senior Vice President,
Operations
Brian F. Gorman................ $ 60,008 $82,548(4) -- 40,000
Vice President, Sales
David J. Green................. $105,112 $10,000 $ 6,962 --
Vice President, Research &
Development
Graham Frankland(5)............ $104,714 -- -- 100,000
Former Managing Director of
United Kingdom Operations
</TABLE>
- ---------------
(1) Timothy M. Cunningham joined the Company as Vice President, Finance, and
Chief Financial Officer in November 1996.
(2) Represents amounts paid for automobile allowances.
(3) Mr. Patterson resigned as Chief Executive Officer in July 1996.
(4) Includes bonus equal to $3,000 and commissions equal to $79,548 earned in
1996.
(5) Mr. Frankland resigned from his position in March 1997. The option was
cancelled pursuant to the terms of Mr. Frankland's option agreement upon his
departure from the Company in March 1997.
42
<PAGE> 44
The following table sets forth grants of stock options to each of the Named
Executive Officers during the fiscal year ended December 31, 1996. No stock
appreciation rights were granted during the fiscal year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION --------------------
NAME GRANTED YEAR PER SHARE(1) DATE 5% 10%
- ------------------------ ---------- ---------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Malcolm P. McGrory...... -- -- -- -- -- --
Richard L. Patterson.... -- -- -- -- -- --
Andrew J. Zimmon........ -- -- -- -- -- --
Brian F. Gorman......... 40,000 9.8% $ 5.00 10/17/01 $ 55,256 $122,102
David J. Green.......... -- -- -- -- -- --
Graham Frankland(3)..... 100,000 24.6% $ 2.00 2/9/01 $ 55,256 $122,102
</TABLE>
- ---------------
(1) All options were granted at fair market value as determined by the Board of
Directors of the Company on the date of grant.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules promulgated
by the Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Common Stock. There can be no
assurance that the rates of appreciation assumed in this table will be
achieved or that the amounts reflected will be received by the individuals.
The values shown do not consider non-transferability, vesting or termination
of the options upon termination of employment.
(3) The option was cancelled pursuant to the terms of Mr. Frankland's option
agreement upon his departure from the Company in March 1997.
In May 1997, the Company granted Mr. McGrory an option to purchase 160,000
shares of Common Stock and each of Messrs. Zimmon, Gorman, Green and Cunningham
an option to purchase 80,000 shares of Common Stock. All of such options have an
exercise price of $5.75 per share and vest over a four year period, becoming
exercisable with respect to (i) 25% of the shares underlying the option one year
from the date of grant and (ii) 6.25% of the shares underlying the option at the
end of each three month period thereafter.
43
<PAGE> 45
The following table sets forth information regarding unexercised stock
options held by each of the Named Executive Officers as of December 31, 1996. No
Named Executive Officer exercised stock options during fiscal 1996.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END(1)
NAME (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- -------------------------------- ------------------------------- ---------------------------------
<S> <C> <C>
Malcolm P. McGrory.............. 12,375/9,625 $ 58,163/$45,238
Richard L. Patterson............ 16,875/13,125 $ 79,313/$61,688
Andrew J. Zimmon................ 12,375/9,625 $ 58,163/$45,238
Brian F. Gorman................. 10,937/64,063 $ 32,811/$72,189
David J. Green.................. 12,375/9,625 $ 58,162/$45,238
Graham Frankland................ --/100,000 --/$300,000
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1996, which was $5.00, as determined by the
Company's Board of Directors, minus the exercise price.
STOCK PLANS
Second Amended 1994 Stock Option Plan. The Company's Second Amended 1994
Stock Option Plan (the "1994 Plan") was originally adopted by the Board of
Directors in November 1994 and approved by the stockholders of the Company in
January 1995. Under the 1994 Plan, 745,300 shares of the Company's Common Stock
are reserved for issuance. As of August 31, 1997, options to purchase 729,650
shares of Common Stock (of which options to purchase 311,730 shares were then
exercisable) at a weighted average exercise price of $2.33 per share were
outstanding under the 1994 Plan. Generally, options granted under the 1994 Plan
vest over a four year period, becoming exercisable with respect to (i) 25% of
the shares underlying the option one year from the date of grant and (ii) 6.25%
of the shares underlying the option at the end of each three-month period
thereafter. Options granted under the 1994 Plan expire five years from the date
of grant. In May 1997 the Company's Board of Directors resolved that no
additional option grants would be made under the 1994 Plan.
1997 Stock Incentive Plan. The Company's 1997 Stock Incentive Plan (the
"Incentive Plan") was adopted by the Board of Directors and approved by the
stockholders of the Company in May 1997 and July 1997, respectively. The
Incentive Plan is intended to replace the Company's 1994 Plan. Up to 1,654,700
shares of Common Stock (subject to adjustment in the event of stock splits and
other similar events) may be issued pursuant to awards granted under the
Incentive Plan. As of August 31, 1997, options to purchase 1,188,000 shares of
Common Stock (none of which were then exercisable) at a weighted average
exercise price of $5.85 per share were outstanding under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options
intended to qualify as such under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), nonstatutory stock options, restricted stock
awards and other stock-based awards, including the grant of shares based upon
certain conditions, the grant of securities convertible into Common Stock and
the grant of stock appreciation rights (collectively, "Awards").
Officers, employees and directors of, and consultants and advisors to the
Company are eligible to be granted Awards under the Incentive Plan. However,
both the Incentive Plan and present tax law prohibit the granting of incentive
stock options to persons other than employees. The maximum
44
<PAGE> 46
number of shares with respect to which an Award may be granted to any
participant under the Incentive Plan may not exceed 200,000 shares per calendar
year.
Optionees may receive the right to purchase a specified number of shares of
Common Stock at a specified option price and are subject to such other terms and
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). The Incentive Plan permits the Board to determine the
manner of payment of the exercise price of options, including through payment by
cash, check or in connection with a "cashless exercise" through a broker, by
surrender to the Company of shares of Common Stock, by delivery to the Company
of a promissory note, or by any combination of the permitted forms of payment.
As of August 31, 1997, approximately 108 persons were eligible to receive
Awards under the Incentive Plan, including the Company's executive officers and
directors. The granting of Awards under the Incentive Plan is discretionary.
The Incentive Plan is administered by the Board of Directors. The Board has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the Incentive Plan and to interpret the provisions
thereof. Pursuant to the terms of the Incentive Plan and to the extent permitted
by applicable law, the Board of Directors may delegate any or all of its
authority under the Incentive Plan to one or more committees of the Board, and
subject to certain limitations, to one or more executive officers of the
Company. The Board has authorized the Compensation Committee to administer the
Incentive Plan, including the granting of options to executive officers. Subject
to any applicable limitations contained in the Incentive Plan, the Board of
Directors, the Compensation Committee, or any other committee or executive
officer to whom the Board delegates authority, as the case may be, selects the
recipients of Awards, may amend, modify or terminate any outstanding Award and
determines (i) the number of shares of Common Stock covered by options and the
dates upon which such options became exercisable, (ii) the exercise price of
options, (iii) the duration of options, and (iv) the number of shares of Common
Stock subject to any restricted stock or other stock-based Awards and the terms
and conditions of such Awards, including conditions for repurchase, issue price
and repurchase price.
In the event of a merger, liquidation or other Acquisition Event (as
defined in the Incentive Plan), the Board of Directors is authorized to provide
for outstanding options or other stock-based Awards to be assumed or substituted
by the successor corporation or a parent or subsidiary thereof, or if not
assumed or substituted, to provide for acceleration of the Awards to make them
fully exercisable or free from all conditions or restrictions, as applicable to
each such Award, prior to the Acquisition Event. In addition, all assumed or
substituted Awards will provide for acceleration of vesting during the first
year after the Acquisition Event under certain circumstances, such as
termination without cause.
No award may be made under the Incentive Plan after May 2007, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the Incentive Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or vested
(to the extent such amendment was required to grant such Award) unless and until
such amendment is approved by the Company's stockholders.
1997 Employee Stock Purchase Plan. The Company's 1997 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
September 1997 and is expected to be approved by the stockholders of the Company
in October 1997, respectively. The Purchase Plan authorizes the issuance of up
to a total of 300,000 shares of Common Stock to participating employees.
45
<PAGE> 47
All employees of the Company, including directors of the Company who are
employees, and all employees of any designated subsidiaries are eligible to
participate in the Purchase Plan if they are employees of the Company or such a
subsidiary on the first day of the applicable Offering Period (as defined
below). Employees who would immediately after the grant own 5% or more of the
total combined voting power or value of the stock of the Company or any
subsidiary are not eligible to participate. As of August 31, 1997, approximately
108 of the Company's employees would have been eligible to participate in the
Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock.
The employee may authorize an amount (a whole percentage from 1% to 15% of such
employee's base pay) to be deducted by the Company from such pay during the
Offering Period. On the last day of the Offering Period, the employee is deemed
to have exercised the option, at the option exercise price, to the extent of
accumulated payroll deductions. Under the terms of the Purchase Plan, the option
price is an amount equal to 85% of the Average Market Price (as defined in the
Purchase Plan) of the Common Stock on either the first day or the last day of
the Offering Period, whichever is lower. In no event may an employee be granted
an option under the Purchase Plan which permits his or her rights to purchase
Common Stock under the Purchase Plan and any other stock purchase plan of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock, as determined on the first day of the
applicable Offering Period, for each calendar year in which the Option is
outstanding at any time.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason,
whether as a result of the employee's voluntary or involuntary termination,
retirement, death or otherwise.
401(k) PROFIT SHARING PLAN
The Company maintains a tax-qualified profit sharing plan for eligible
employees that also includes a 401(k) component (the "Profit Sharing Plan"). All
full-time employees are eligible to participate in the Profit Sharing Plan upon
the attainment of age 18. Under the Profit Sharing Plan, an employee may elect
to defer up to 15% of his compensation and direct the Company to contribute such
deferred amounts to the Profit Sharing Plan. Each year the Company will
determine whether to make a discretionary matching contribution equal to a
percentage, determined by the Company, of the employee's deferred compensation
contribution. The Company has not made any matching contributions to the Profit
Sharing Plan to date. All contributions to the Profit Sharing Plan by or on
behalf of employees are subject to annual limits prescribed by the Code.
CERTAIN TRANSACTIONS
Mr. O'Grady, a director of the Company, is an employee and Managing
Director of Hambrecht & Quist California and is also president of H&Q Adobe
Ventures Management Corp., both of which are related parties of Hambrecht &
Quist LLC, a co-managing underwriter of this offering which will receive
compensation in the form of the underwriters' discount. See "Underwriting." H&Q
Adobe Management Ventures Corp. is the general partner of H&Q Adobe Ventures
Management, L.P., the general partner of Adobe Ventures, L.P., which, prior to a
distribution of 1,445,000 shares of Common Stock to Adobe Systems Incorporated
in September 1997, was a greater than five percent stockholder of the Company.
In March 1996, the Company sold 400,000 shares of Series B Preferred Stock
to Adobe Ventures, L.P., a greater than five percent stockholder of the Company,
for aggregate consideration of $2,000,000.
46
<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of September 15, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers, (iv) all directors and executive
officers of the Company as a group, and (v) each of the other Selling
Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(2) AFTER OFFERING(2)(3)
NAME AND ADDRESS OF ------------------------ NUMBER OF ------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT(3) SHARES OFFERED NUMBER PERCENT(4)
- -------------------------- --------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Adobe Systems
Incorporated............ 1,445,000 29.6% 144,500 1,300,500 18.3%
345 Park Avenue
P.O. Box 2704
San Jose, CA 95110-2704
Jarrold & Sons Ltd........ 400,000 8.2 -- 400,000 5.6
White Friars
Norwich England NR3 1SH
NAMED EXECUTIVE OFFICERS
AND DIRECTORS
Malcolm P. McGrory(5)..... 384,775 7.9 -- 384,775 5.4
Brian Gorman(6)........... 76,750 1.6 -- 76,750 1.1
David Green(7)............ 186,625 3.8 -- 186,625 2.6
Andrew J. Zimmon(8)....... 219,625 4.5 -- 219,625 3.1
Richard Patterson(9)...... 326,250 6.7 126,900 196,350 2.8
Graham Frankland.......... 1,000 * -- 1,000 *
Standish H. O'Grady(10)... 1,700,000 34.9 144,500 255,000 3.6
Gordon C. Murray(11)...... 13,125 * -- 13,125 *
Peter Jarrold(12)......... 400,500 8.2 -- 400,500 5.6
OTHER SELLING STOCKHOLDERS
Linda Patterson(13)....... 326,250 * 3,000 196,350 *
Paul Baker(14)............ 173,885 3.6 56,354 117,531 1.7
Ann Baker(15)............. 173,885 * 5,000 117,531 *
Wayne Sadlowski(16)....... 164,450 3.4 -- 164,450 2.3
Timothy Bosworth(17)...... 160,560 3.3 -- 160,560 2.3
Ian Smith(18)............. 159,872 3.3 -- 159,872 2.2
Philip Williams(19)....... 109,875 2.3 40,000 59,875 *
Karen Elizabeth
Williams(20)............ 109,875 2.3 10,000 59,875 *
Ian Castleton(21)......... 89,875 1.8 -- 89,875 1.3
Judith Andree
Castleton(22)........... 89,875 1.8 -- 89,875 1.3
Shirley Farrow(23)........ 79,750 1.6 -- 79,750 1.1
Karl Vickers(24).......... 76,000 1.6 -- 76,000 1.1
Paul M. Breedon........... 74,750 1.5 56,063 18,687 *
Philip Cook(25)........... 68,500 1.4 -- 68,500 *
Andrew Robert
Melville(26)............ 57,500 1.2 9,111 48,389 *
Sean Barnes............... 42,188 1.0 31,641 10,547 *
Maria M. Bosworth(27)..... 38,064 * -- 38,064 *
Paul R. Bosworth(28)...... 38,064 * -- 38,064 *
Simon Crowfoot(29)........ 29,000 * 12,450 16,550 *
Emma Philip(30)........... 29,000 * 6,550 22,450 *
Sarah Elizabeth Gates..... 27,500 * 7,000 20,500 *
Caralyn Harvey(31)........ 26,250 * -- 26,250 *
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(2) AFTER OFFERING(2)(3)
NAME AND ADDRESS OF ------------------------ NUMBER OF ------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT(3) SHARES OFFERED NUMBER PERCENT(4)
- -------------------------- --------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
John Norton David
Harvey(32).............. 26,250 * -- 26,250 *
Valerie Hale(33).......... 25,000 * -- 25,000 *
Andrew John Hale(34)...... 25,000 * -- 25,000 *
William David Smith....... 25,000 * 15,000 10,000 *
Nigel Lubbock............. 22,250 * 1,200 21,050 *
James W. Spurrell,
Jr.(35)................. 22,000 * -- 22,000 *
Glyn Burton(36)........... 20,125 * -- 20,125 *
Bruce C. McDowell(37)..... 20,125 * -- 20,125 *
Thomas O. Mooney(38)...... 16,700 * -- 16,700 *
Nicholas Barber(39)....... 16,375 * -- 16,375 *
John Cole(40)............. 16,125 * -- 16,125 *
Paul & Ann E. Baker as
Trustees for Edmond
Thomas Baker, Emmelyn
Rose Baker & Herold
Charles David Baker
under "The Paul Baker
1996 Interest in
Possession Trust"....... 15,000 * 5,000 10,000 *
Thomas J. Hall(41)........ 12,250 * -- 12,250 *
Julie Goodwin(42)......... 10,750 * -- 10,750 *
Ian Castleton, Judith
Castleton & John Harvey
as Trustees for Anna
Castleton, David
Castleton & Nicholas
Castleton under "Ian
Castleton 1996 Interest
in Possession Trust".... 10,000 * -- 10,000 *
Thomas Oliver Lubbock..... 10,000 * 1,000 9,000 *
Judith Elizabeth Lubbock... 10,000 * 1,200 8,800 *
Anna Lubbock.............. 10,000 * 1,000 9,000 *
Dorothy M. Lourie......... 10,000 * -- 10,000 *
Shirley Farrow and
Catherine Cheney as
Trustees for Claire
Farrow under "S. Farrow
1996 Interest in
Possession Trust"....... 7,500 * -- 7,500 *
Caralyn Harvey and John
Norton David Harvey for
Lucy Elizabeth Harvey
and David William Norton
Harvey under "The C.
Harvey 1996 Interest in
Possession Trust"....... 7,000 * -- 7,000 *
Philip Rugile............. 6,359 * 3,750 2,609 *
Guy Bushnell.............. 6,031 * 4,523 1,508 *
Jillian Ann McDowell...... 3,250 * -- 3,250 *
Olive Rose Lubbock........ 2,000 * 2,000 -- --
Doris Lillian Barrow...... 2,000 * 2,000 -- --
Michael DePalo............ 2,000 * -- 2,000 *
Nicholas Beadman.......... 1,758 * 1,758 -- --
Harold Charles David
Baker................... 1,000 * 1,000 -- --
Emmelyn Rose Baker........ 1,000 * 1,000 -- --
Edmund Thomas Baker....... 1,000 * 1,000 -- --
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(2) AFTER OFFERING(2)(3)
NAME AND ADDRESS OF ------------------------ NUMBER OF ------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT(3) SHARES OFFERED NUMBER PERCENT(4)
- -------------------------- --------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
All directors and
executive officers (8
persons) as a group(43) 2,813,400 56.6 144,500 1,368,400 19.0
</TABLE>
- ---------------
* Less than 1%
(1) The address for each director and officer of the Company is c/o Cascade
Systems Incorporated, 300 Brickstone Square, Andover, Massachusetts 01810.
(2) Each stockholder has sole voting and investment power with respect to the
shares listed, except as otherwise noted. Shares of Common Stock which an
individual or group has a right to acquire within the 60-day period
following September 15, 1997 pursuant to the exercise of options or
warrants are deemed to be outstanding for purposes of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for purposes of computing the percentage ownership of any other
person shown in the table.
(3) The number of shares deemed outstanding includes 4,875,252 shares
outstanding as of September 15, 1997 and any shares subject to stock
options held by the person in question that are currently exercisable or
exercisable within the 60-day period following September 15, 1997. The
number of shares deemed outstanding after this offering includes the
additional 2,250,000 shares of Common Stock which are being offered by the
Company hereby.
(4) In the event that the Underwriter's overallotment option is exercised in
full, the following Selling Stockholders will sell the number of shares
immediately following their names: Mr. McGrory, 50,000; Mr. Gorman, 2,000;
Mr. Green, 16,000; Mr. Zimmon, 35,000; Mr. Sadlowski, 15,000; Mr. T.
Bosworth, 18,000; Mr. I. Smith, 17,000; Mr. Vickers, 8,000; Ms. Farrow,
7,500; Mr. Cook, 8,000; Mr. Castleton, 8,400; Ms. Bosworth, 1,902;
Mr. P. Bosworth, 1,903; Mr. Spurrell, 3,000; Ms. Castleton, 1,500; Mr.
Cole, 2,000; Mr. Burton, 2,000; Mr. Barber, 2,000; Mr. McDowell, 2,500; Ms.
Harvey, 900; Ian Castleton, Judith Castleton and John Harvey as Trustees,
1,000; Ms. Lourie, 5,000; Mr. Hall, 2,000; Ms. Goodwin, 1,000; Ms. Hale,
1,000; Shirley Farrow and Catherine Cheney as Trustees, 750; Caralyn Harvey
and John Norton David Harvey for Lucy Elizabeth Harvey and David William
Norton Harvey, 300; Mr. Mooney, 1,788; Mr. Harvey, 900; Mr. Melville,
1,000; Ms. McDowell, 500; Mr. Hale, 3,500 and Mr. DePalo, 1,000.
(5) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997. Also includes 16,000 shares held by Mr. McGrory's minor children, as
to which shares Mr. McGrory disclaims beneficial ownership.
(6) Includes 27,500 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997. Also includes 6,000 shares held by Mr. Gorman as custodian for his
minor children, as to which shares Mr. Gorman disclaims beneficial
ownership.
(7) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(8) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(9) Mr. Patterson resigned from his positions with the Company in January 1997.
Includes 3,000 shares of Common Stock held by Mr. Patterson's spouse, 3,000
of which shares will be sold in this offering, and an aggregate of 6,000
shares of Common Stock held by three minor children of Mr. Patterson.
(10) Consists of 1,445,000 shares of Common Stock held by Adobe Systems
Incorporated (the "Adobe Shares"), 240,404 shares of Common Stock held by
Adobe Ventures, L.P. (the "Partnership Shares") and 14,596 shares of Common
Stock held by H&Q Adobe Ventures Management L.P. (the "H&Q Shares"). Mr.
O'Grady is a limited partner of H&Q Adobe
49
<PAGE> 51
Ventures Management, L.P. H&Q Adobe Ventures Management, L.P. is the
general partner of Adobe Ventures, L.P. Pursuant to a Voting Agreement,
Adobe Ventures, L.P. exercises voting control over the Adobe Shares. Of the
Adobe Shares, 144,500 are being sold in this offering. Upon the closing of
this offering, the Voting Agreement will terminate and Adobe Ventures, L.P.
will no longer have voting control over the Adobe Shares. Mr. O'Grady
disclaims beneficial ownership of the Adobe Shares, and disclaims
beneficial ownership of the Partnership Shares and the H&Q Shares, except
to the extent of his pecuniary interest therein.
(11) Consists of 13,125 shares of Common Stock subject to outstanding stock
options which are exercisable within the 60-day period following September
15, 1997.
(12) Includes 400,000 shares of Common Stock held by Jarrold & Sons Ltd. Mr.
Jarrold is Chairman of Jarrold & Sons Ltd. Mr. Jarrold disclaims beneficial
ownership as to such shares.
(13) Includes 317,250 shares held by the stockholder's spouse, 126,900 of which
shares will be sold in this offering, and an aggregate of 6,000 shares of
Common Stock held by three minor children of the stockholder.
(14) Includes 15,000 shares of Common Stock held by the stockholder's spouse,
5,000 of which shares will be sold in this offering, 3,000 shares of Common
Stock held by the stockholder's children, 3,000 of which shares will be
included in this offering, and 15,000 shares of Common Stock held by a
trust of which the stockholder is a trustee, 5,000 of which shares will be
included in this offering and as to which shares the stockholder disclaims
beneficial ownership.
(15) Includes 140,885 shares of Common Stock held by the stockholder's spouse,
56,354 of which shares will be included in this offering, 3,000 shares of
Common Stock held by the stockholder's children, 3,000 shares of which will
be included in this offering, and 15,000 shares held by a trust of which
the stockholder is a trustee, 5,000 of which shares will be included in
this offering and as to which shares the stockholder disclaims beneficial
ownership.
(16) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(17) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(18) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(19) Includes 40,000 shares of Common Stock held by the stockholder's spouse,
10,000 of which shares will be sold in this offering.
(20) Includes 69,875 shares of Common Stock held by the stockholder's spouse,
40,000 of which shares will be sold in this offering.
(21) Includes 15,000 shares held by the stockholder's spouse, 10,000 shares held
by a trust of which the stockholder is a trustee and 17,875 shares of
Common Stock subject to outstanding stock options which are exercisable
within the 60-day period following September 15, 1997.
(22) Includes 47,000 shares of Common Stock held by the stockholder's spouse,
17,875 shares of Common Stock subject to outstanding stock options held by
the stockholder's spouse which are exercisable within the 60-day period
following September 15, 1997 and 10,000 shares held by a trust of which the
stockholder is a trustee.
(23) Includes 500 shares of Common Stock held by the stockholder's child, 7,500
shares of Common Stock held by a trust of which the stockholder is a
trustee and 750 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(24) Includes 1,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(25) Includes 1,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(26) Includes 5,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
50
<PAGE> 52
(27) Includes 19,033 shares of Common Stock held by the stockholder's spouse.
(28) Includes 19,032 shares of Common Stock held by the stockholder's spouse.
(29) Includes 10,000 shares of Common Stock held by the stockholder's spouse,
6,550 shares of which will be sold in the offering.
(30) Includes 19,000 shares of Common Stock held by the stockholder's spouse,
12,450 of which shares will be sold in this offering.
(31) Includes 3,500 shares of Common Stock held by the stockholder's spouse,
7,000 shares of Common Stock held by a trust of which the stockholder is a
trustee and 750 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(32) Includes 15,000 shares of Common Stock held by the stockholder's spouse,
7,000 shares of Common Stock held by a trust of which the stockholder is a
trustee and 750 shares of Common Stock subject to outstanding stock options
held by the stockholder's spouse which are exercisable within the 60-day
period following September 15, 1997.
(33) Includes 9,375 shares of Common Stock held by the stockholder's spouse and
6,250 shares of Common Stock subject to outstanding stock options held by
the stockholder's spouse which are exercisable within the 60-day period
following September 15, 1997.
(34) Includes 9,375 shares of Common Stock held by the stockholder's spouse and
6,250 shares of Common Stock subject to outstanding stock options which are
exercisable within the 60-day period following September 15, 1997.
(35) Includes 3,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(36) Includes 5,125 shares of Common Stock subject to outstanding stock options
exercisable within the 60-day period following September 15, 1997.
(37) Includes 3,250 shares held by the stockholder's spouse and 1,875 shares of
Common Stock subject to outstanding stock options exercisable within the
60-day period following September 15, 1997.
(38) Includes 13,125 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(39) Includes 1,375 shares of Common Stock subject to outstanding stock options
exercisable within the 60-day period following September 15, 1997.
(40) Includes 1,125 shares of Common Stock subject to outstanding stock options
exercisable within the 60-day period following September 15, 1997.
(41) Includes 2,750 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(42) Includes 1,375 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(43) Includes 94,250 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
51
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, the authorized capital stock
of the Company will consist of 25,000,000 shares of Common Stock, $.001 par
value per share, and 1,000,000 shares of Preferred Stock, $.001 par value per
share (the "Preferred Stock").
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by the provisions of applicable law and the provisions of the
Company's Amended and Restated Certificate of Incorporation, as further amended
and restated upon the closing of this offering (the "Certificate of
Incorporation"), which is included as an exhibit to the Registration Statement
of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the offering will be, when issued and paid for, fully
paid and nonassessable. 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 the Company may
designate and issue in the future.
PREFERRED STOCK
Under the terms of the Certificate of Incorporation, the Board of Directors
is authorized, subject to any limitations prescribed by law, without stockholder
approval, to issue such shares of Preferred Stock in one or more series. Each
such series of Preferred Stock shall have such rights, preferences, privileges
and restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Section 203 of the General Corporation Law of Delaware prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock. The Company has elected not to be subject to the
provisions of Section 203.
52
<PAGE> 54
The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. See "Management." In addition, the Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the Company issued and outstanding and entitled to vote. Under the Certificate
of Incorporation, any vacancy on the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, may only be
filled by vote of a majority of the directors then in office. The classification
of the Board of Directors and the limitations on the removal of directors and
filling of vacancies could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of the Company.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual meeting or
special meeting of stockholders may only be taken if it is properly brought
before such meeting. The Certificate of Incorporation further provides that
special meetings of the stockholders may only be called by the Chairman of the
Board of Directors, the Chief Executive Officer or, if none, the President of
the Company or by the Board of Directors. Under the Company's Amended and
Restated Bylaws (the "Bylaws"), in order for any matter to be considered
"properly brought" before a meeting, a stockholder must comply with certain
requirements regarding advance notice to the Company. The foregoing provisions
could have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or Bylaws, unless
a corporation's Certificate of Incorporation or Bylaws, as the case may be,
requires a greater percentage. The Bylaws require the affirmative vote of the
holders of at least 75% of the shares of capital stock of the Company issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.
The Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law.
Further, the Certificate of Incorporation contains provisions to indemnify the
Company's directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe
LP.
53
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the securities
of the Company. Upon completion of this offering, based upon the number of
shares outstanding at August 31, 1997, there will be 7,125,525 shares of Common
Stock of the Company outstanding (assuming no exercise of the Underwriters'
over-allotment option or outstanding warrants or options of the Company). Of
these shares, the 2,800,000 shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 4,325,525 shares of Common Stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, approximately 8,500
shares of Common Stock, which are not subject to 180-day or 270-day lock-up
agreements (the "Lock-Up Agreements") with the Representatives of the
Underwriters, will be eligible for immediate sale in the public market pursuant
to Rule 144(k) under the Securities Act. Approximately 59,452 additional shares
of Common Stock which are not subject to Lock-Up Agreements, will be eligible
for sale in the public market in accordance with Rule 144 or Rule 701 under the
Securities Act beginning 90 days after the date of this Prospectus. Upon
expiration of the Lock-Up Agreements 180 days and 270 days after the date of
this Prospectus, approximately 3,906,817 and 350,756 additional shares of Common
Stock, respectively, will be available for sale in the public market, subject to
the provisions of Rule 144 under the Securities Act; provided that the resale of
the 350,756 shares eligible for resale upon the expiration of the 270-day
lock-up agreements will, pursuant to the terms of the 270-day lock-up
agreements, be additionally restricted as follows: (i) the resale of 196,350
shares of Common Stock by the holders thereof will be limited to one-sixth of
such amount per 90-day period for the six immediately succeeding 90-day periods
and (ii) the resale of 154,406 shares of Common Stock by the holders thereof
will be limited to one-fourth of such amount per 90-day period for the four
immediately succeeding 90-day periods.
The officers and directors of the Company, and certain securityholders,
which executive officers directors and securityholders in the aggregate hold
approximately 4,086,888 and 350,756 shares of Common Stock (including 180,071
shares of Common Stock, respectively, that may be acquired pursuant to the
exercise of vested options and warrants held by them) on the date of this
Prospectus, have agreed that, for a period of 180 days and 270 days,
respectively, after the date of this Prospectus, they will not sell, consent to
sell or otherwise dispose of any shares of Common Stock, or any shares
convertible into or exchangeable for shares of Common Stock, owned directly by
such persons or with respect to which they have the power of disposition,
without the prior written consent of the Representatives of the Underwriters.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 71,255 shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at
54
<PAGE> 56
the time of sale and has not been an Affiliate of the Company for at least three
months prior to the sale is entitled to sell the shares immediately without
compliance with the foregoing requirement under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
acquired pursuant to the exercise of certain options granted under the Company's
stock plans) are also restricted securities and, beginning 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
may be sold by stockholders other than Affiliates of the Company subject only to
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144
without compliance with its one-year holding period requirement.
OPTIONS
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1994
Plan, Incentive Plan, Director Plan and Purchase Plan. The Company intends to
file registration statements on Form S-8 with respect to the shares of Common
Stock issuable under the Director Plan and the Purchase Plan promptly following
the consummation of this offering, but has agreed with the Underwriters that it
will not file any registration statements on Form S-8 relating to the 1994 Plan
and the Incentive Plan until at least 90 days after the effective date of the
Registration Statement of which this Prospectus is a part. Shares issued upon
the exercise of stock options after the effective date of the Form S-8
registration statements will be eligible for resale in the public market without
restriction, subject to Rule 144 limitations applicable to Affiliates and the
Lock-up Agreements noted above, if applicable.
REGISTRATION RIGHTS
Certain persons and entities (the "Rightsholders") are entitled to certain
rights with respect to the registration under the Securities Act of a total of
approximately 4,245,073 shares of Common Stock (the "Registrable Shares")
pursuant to the terms of the Rights Agreement, as amended (the "Rights
Agreement"). The Rights Agreement generally provides that, in the event the
Company proposes to register any of its securities under the Securities Act, the
Rightsholders shall be entitled to include Registrable Shares in such
registration, subject to the right of the managing underwriter of any
underwritten offering to limit for marketing reasons the number of Registrable
Shares included in such "piggyback" registration.
The Rightsholders have the right at any time and from time to time to
require the Company to prepare and file registration statements under the
Securities Act with respect to their Registrable Shares; provided, however, that
(a) such demand requests the registration of Registrable Shares (i) representing
at least 40% of the aggregate outstanding Registrable Shares held by the
Rightsholders, or (ii) having an anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $5,000,000 (b) the Company
need only effect two such demand registrations, (c) once in any twelve month
period, the Company shall have the right to delay any such demand registration
up to 60 days if the Board of Directors resolves in good faith that a materially
disadvantageous condition exists at that time and (d) the Company is not
required to file a demand registration statement within 180 days after the
closing of this offering.
EFFECT OF SALES OF SHARES
Prior to the offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of the Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through a subsequent
offering of its equity securities.
55
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated and Hambrecht & Quist LLC, have severally agreed to
purchase from the Company and the Selling Stockholders the following respective
numbers of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------- ----------
<S> <C>
BT Alex. Brown Incorporated....................................................
Hambrecht & Quist LLC..........................................................
---------
Total.......................................................................... 2,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives of
the Underwriters.
The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 197,657 and 222,343 additional shares of
Common Stock, respectively, at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 420,000 and the Company and such Selling
Stockholders will be obligated, pursuant to the option, to sell such shares to
the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those on which the 2,800,000 shares are being offered.
56
<PAGE> 58
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company, the Selling Stockholders and each of the Company's directors
and executive officers and certain of its securityholders, who in the aggregate
will hold after this offering 4,257,573 shares of Common Stock and options to
purchase 955,344 shares of Common Stock, have agreed not to offer, sell,
contract to sell, pledge or otherwise dispose of any shares of Common Stock or
any securities convertible into shares of Common Stock for a period of 180 days
(270 days with respect to securityholders holding an aggregate of 350,756 of
such shares) after the date of this Prospectus without the prior written consent
of BT Alex. Brown Incorporated. In addition, individuals who will hold, after
this offering, 196,350 and 154,406 shares, respectively, have agreed to limit
their sales or transfer of shares to one-sixth and one-fourth of their holdings
in the six and four 90-day periods, respectively, beginning 270 days after the
date of this Prospectus. See "Shares Eligible for Future Sale."
To facilitate the offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such over-
allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations among the Company, the Selling
Stockholders and the Representatives of the Underwriters. Among the factors to
be considered in such negotiations will be prevailing market conditions, the
results of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies which the Company
and the Representatives of the Underwriters believed to be comparable to the
Company, estimates of the business potential of the Company, the present stage
of the Company's development and other factors deemed relevant.
Adobe Systems Incorporated ("Adobe Systems") owns 1,445,000 shares of
Common Stock, which Adobe Systems received in a partial distribution from Adobe
Ventures, L.P. ("Adobe Ventures") in September 1997. Adobe Ventures originally
purchased such shares from the Company in July 1994 and in March 1996. The
General Partner of Adobe Ventures is H&Q Adobe Ventures Management, L.P., a
partnership related to Hambrecht & Quist LLC, one of the Representatives of the
Underwriters. Through a voting agreement which expires upon the closing of this
offering, Adobe Ventures directs the voting of Adobe Systems' shares in the
Company. Standish O'Grady, a Director of the Company, is President of H&Q Adobe
Ventures Management Corp., the general partner of H&Q Adobe Ventures Management,
L.P. Mr. O'Grady is also a Managing Director of Hambrecht & Quist California,
the parent corporation of Hambrecht & Quist LLC. William R. Hambrecht is a
Director of Adobe Systems and is Chairman of Hambrecht & Quist Group and
Hambrecht & Quist LLC. Pursuant to Section 2720(b) of the Conduct Rules of the
National Association of Securities Dealers, Inc., Adobe Systems may be deemed to
be an "affiliate" of Hambrecht & Quist LLC as such term is defined in Section
2720(b). For the above reasons, the
57
<PAGE> 59
Underwriters have determined to conduct this Offering in accordance with Rule
2720(c) of the Conduct Rules. In particular, the public offering price of the
Common Stock can be no higher than that recommended by a "qualified independent
underwriter" meeting certain standards. In accordance with this requirement, BT
Alex. Brown Incorporated will serve in such capacity and will recommend the
public offering price in compliance with the requirements of Rule 2720. BT Alex.
Brown Incorporated, in its role as qualified independent underwriter, is
participating in due diligence investigations and is reviewing and participating
in the preparation of this Prospectus and the Registration statement of which
this Prospectus forms a part. See "Management," "Certain Transactions" and
"Principal and Selling Stockholders."
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CSCD."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hale and Dorr LLP, Boston, Massachusetts. Certain legal
matters will be passed upon for the Underwriters by Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., Boston, Massachusetts.
EXPERTS
The audited consolidated financial statements and related schedule of the
Company, included in this Prospectus and elsewhere in the Registration Statement
of which this Prospectus is a part, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Act with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission, to which Registration Statement reference is hereby made. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
may be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
58
<PAGE> 60
CASCADE SYSTEMS INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997
(Unaudited and Pro Forma).......................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and
1996, and for the Six Months Ended June 30, 1996 and 1997 (Unaudited).............. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1994, 1995 and 1996 and for the Six Months Ended June 30, 1997 (Unaudited)......... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996 and for the Six Months Ended June 30, 1996 and 1997 (Unaudited)............... F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cascade Systems Incorporated:
We have audited the accompanying consolidated balance sheets of Cascade
Systems Incorporated (a Delaware corporation) and subsidiary as of December 31,
1995 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cascade Systems Incorporated and subsidiary as of December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 28, 1997
F-2
<PAGE> 62
CASCADE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ JUNE 30, JUNE 30,
1995 1996 1997 1997
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 1,327 $ 3,103 $ 2,071 $ 2,071
Accounts receivable, less reserves of $113, $182
and $273 in 1995, 1996, and 1997,
respectively................................. 2,409 2,358 3,295 3,295
Inventories..................................... 913 605 181 181
Prepaid expenses and other current assets....... 995 572 341 341
------- ------- ------- -------
Total current assets....................... 5,644 6,638 5,888 5,888
Property and equipment, net......................... 742 771 769 769
Other assets, net................................... 111 290 276 276
------- ------- ------- -------
Total assets............................... $ 6,497 $ 7,699 $ 6,933 $ 6,933
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 2,103 $ 1,349 $ 634 $ 634
Accrued expenses................................ 1,463 1,526 2,246 2,246
Deferred revenue................................ 1,182 1,949 1,507 1,507
Customer deposits............................... 1,832 800 241 241
------- ------- ------- -------
Total current liabilities.................. 6,580 5,624 4,628 4,628
------- ------- ------- -------
Commitments (Note 7)
Stockholders' equity:
Preferred stock, $.001 par value; no shares
authorized, issued or outstanding, actual;
1,000,000 shares authorized, no shares issued
or outstanding pro forma..................... -- -- -- --
Convertible preferred stock, $.001 par value-
Authorized -- 2,100,000 shares
Issued and outstanding -- 1,700,000 shares at
December 31, 1995, 2,100,000 shares at
December 31, 1996 and June 30, 1997 (at
liquidation value); none
pro forma at June 30, 1997................. 1,700 3,700 3,700 --
Common stock, $.001 par value-
Authorized -- 7,500,000 shares at June 30,
1997 and 25,000,000 pro forma at June 30,
1997
Issued and outstanding -- 2,886,330 shares at
December 31, 1995, 2,920,299 shares at
December 31, 1996, 2,777,276 shares at
June 30, 1997 and 4,877,276 shares pro
forma at June 30, 1997..................... 3 3 3 5
Additional paid-in capital...................... 631 634 612 4,310
Accumulated deficit............................. (2,434) (2,341) (2,110) (2,110)
Cumulative translation adjustment............... 38 119 101 101
Treasury stock, 103,442 shares in 1995, 189,038
shares in 1996 and 2,344 shares in 1997 and
pro forma, at cost........................... (21) (40) (1) (1)
------- ------- ------- -------
Total stockholders' equity................. (83) 2,075 2,305 2,305
------- ------- ------- -------
Total liabilities and stockholders'
equity................................... $ 6,497 $ 7,699 $ 6,933 $ 6,933
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 63
CASCADE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license revenues................ $ 2,658 $ 4,905 $ 5,913 $2,558 $4,386
Maintenance and service revenues......... 1,177 2,243 4,428 1,653 2,639
Hardware and other revenues.............. 8,238 10,564 8,170 5,067 2,334
------ ------ ------ ------
Total revenues...................... 12,073 17,712 18,511 9,278 9,359
------ ------ ------ ------
Cost of revenues:
Cost of software license revenues........ 913 1,223 1,551 787 801
Cost of maintenance and service
revenues............................... 790 2,157 2,981 1,298 1,640
Cost of hardware and other revenues...... 6,797 8,851 5,311 3,314 1,687
------ ------ ------ ------
Total cost of revenues.............. 8,500 12,231 9,843 5,399 4,128
------ ------ ------ ------
Gross profit........................ 3,573 5,481 8,668 3,879 5,231
------ ------ ------ ------
Operating expenses:
Research and development................. 444 1,177 1,890 859 1,170
Sales and marketing...................... 1,957 3,171 4,061 1,958 2,267
General and administrative............... 1,965 2,523 2,713 1,266 1,622
------ ------ ------ ------
Total operating expenses............ 4,366 6,871 8,664 4,083 5,059
------ ------ ------ ------
Income (loss) from operations....... (793) (1,390) 4 (204) 172
Other income (expense), net................... 54 12 109 65 106
------ ------ ------ ------
Income (loss) before provision
(benefit) for income taxes........ (739) (1,378) 113 (139) 278
Provision (benefit) for income taxes.......... 6 22 20 (25) 47
------ ------ ------ ------
Net income (loss)................... $ (745) $(1,400) $ 93 $ (114) $ 231
====== ====== ====== ====== ======
Pro forma net income per common and common
equivalent share............................ $ 0.02 $ 0.04
====== ======
Pro forma weighted average number of common
and common equivalent shares outstanding.... 6,008 6,066
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 64
CASCADE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE
------------------- ---------------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT ADJUSTMENT
--------- ------- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.............. -- $ -- 1,252,080 $1 $ 253 $ (289) $ --
Sale of common stock................. -- -- 1,634,250 2 378 -- --
Sale of Series A convertible
preferred stock.................... 1,700,000 1,700 -- -- -- -- --
Net loss............................. -- -- -- -- -- (745) --
Translation adjustment............... -- -- -- -- -- -- (30)
--
--------- ------ --------- ---- ------- ----
Balance, December 31, 1994.............. 1,700,000 1,700 2,886,330 3 631 (1,034) (30)
Purchase of treasury stock........... -- -- -- -- -- -- --
Net loss............................. -- -- -- -- -- (1,400) --
Translation adjustment............... -- -- -- -- -- -- 68
--
--------- ------ --------- ---- ------- ----
Balance, December 31, 1995.............. 1,700,000 1,700 2,886,330 3 631 (2,434) 38
Stock option exercises............... -- -- 33,969 -- 14 -- --
Compensation expense related to stock
options............................ -- -- -- -- 21 -- --
Sale of Series B convertible
preferred stock, net of issuance
costs of $32....................... 400,000 2,000 -- -- (32) -- --
Purchase of treasury stock........... -- -- -- -- -- -- --
Net income........................... -- -- -- -- -- 93 --
Translation adjustment............... -- -- -- -- -- -- 81
--
--------- ------ --------- ---- ------- ----
Balance, December 31, 1996.............. 2,100,000 3,700 2,920,299 3 634 (2,341) 119
Stock option exercises (unaudited)... -- -- 68,515 -- 22 -- --
Purchase of treasury stock
(unaudited)........................ -- -- -- -- -- -- --
Retirement of treasury stock
(unaudited)........................ -- -- (211,538) -- (44) -- --
Net income (unaudited)............... -- -- -- -- -- 231 --
Translation adjustment (unaudited)... -- -- -- -- -- -- (18)
--
--------- ------ --------- ---- ------- ----
Balance, June 30, 1997 (unaudited)...... 2,100,000 $3,700 2,777,276 $3 $ 612 $ (2,110) $ 101
========= ====== ========= == ==== ======= ====
<CAPTION>
TREASURY STOCK TOTAL
-------------------- STOCKHOLDER'S
SHARES AMOUNT EQUITY (DEFICIT)
-------- -------- -----------------
<S> <<C> <C> <C>
Balance, December 31, 1993.............. -- $ -- $ (35)
Sale of common stock................. -- -- 380
Sale of Series A convertible
preferred stock.................... -- -- 1,700
Net loss............................. -- -- (745)
Translation adjustment............... -- -- (30)
----- ---- ------
Balance, December 31, 1994.............. -- -- 1,270
Purchase of treasury stock........... (103,442) (21) (21)
Net loss............................. -- -- (1,400)
Translation adjustment............... -- -- 68
----- ---- ------
Balance, December 31, 1995.............. (103,442) (21) (83)
Stock option exercises............... -- -- 14
Compensation expense related to stock
options............................ -- -- 21
Sale of Series B convertible
preferred stock, net of issuance
costs of $32....................... -- -- 1,968
Purchase of treasury stock........... (85,596) (19) (19)
Net income........................... -- -- 93
Translation adjustment............... -- -- 81
----- ---- ------
Balance, December 31, 1996.............. (189,038) (40) 2,075
Stock option exercises (unaudited)... -- -- 22
Purchase of treasury stock
(unaudited)........................ (24,844) (5) (5)
Retirement of treasury stock
(unaudited)........................ 211,538 44 --
Net income (unaudited)............... -- -- 231
Translation adjustment (unaudited)... -- -- (18)
----- ---- ------
Balance, June 30, 1997 (unaudited)...... (2,344) $ (1) $ 2,305
===== ==== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 65
CASCADE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ (745) $(1,400) $ 93 $ (114) $ 231
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Compensation expense related to stock options...... -- -- 21 10 --
Depreciation and amortization...................... 176 328 265 135 203
Changes in current assets and liabilities-
Accounts receivable.............................. 85 (891) (29) (633) (984)
Inventories...................................... (245) (304) 359 603 412
Prepaid expenses and other current assets........ (604) (251) 491 394 225
Accounts payable................................. (272) 1,034 (857) (399) (687)
Deferred revenue................................. 1,036 134 869 767 (405)
Accrued expenses................................. 394 737 (10) 475 743
Customer deposits................................ 86 1,099 (1,121) (1,101) (544)
------ ------- ------- ------- -------
Net cash provided by (used in) operating
activities.................................. (89) 486 81 137 (806)
------ ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................... (575) (458) (243) (54) (179)
(Increase) decrease increase in other assets......... (265) 153 (200) (104) 16
------ ------- ------- ------- -------
Net cash used in investing activities......... (840) (305) (443) (158) (163)
------ ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock........ 1,400 -- 1,968 1,968 --
Net proceeds from issuance of common stock........... 380 -- -- -- --
Net proceeds from long-term debt..................... 59 -- -- -- --
Net proceeds from exercise of stock options.......... -- -- 14 -- 22
Purchase of treasury stock........................... -- (21) (19) (8) (5)
------ ------- ------- ------- -------
Net cash provided by (used in) financing
activities.................................. 1,839 (21) 1,963 1,960 17
------ ------- ------- ------- -------
Foreign currency exchange rate effects................. (23) 67 175 (38) (80)
------ ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents... 887 227 1,776 1,901 (1,032)
Cash and cash equivalents, beginning of year........... 213 1,100 1,327 1,327 3,103
------ ------- ------- ------- -------
Cash and cash equivalents, end of year................. $1,100 $ 1,327 $ 3,103 $ 3,228 $ 2,071
====== ======= ======= ======= =======
Supplemental disclosure of cash flow information and
noncash financing activities:
Cash paid for interest................................. $ 23 $ 5 $ 5 $ 3 $ 1
Cash paid for income taxes............................. $ -- $ 102 $ -- $ -- $ 1
Conversion of note payable to preferred stock.......... $ 300 $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 66
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS
Cascade Systems Incorporated (the "Company") designs, develops, markets and
supports software solutions for newspapers, other publishers and large
organizations to address workflow and content management needs. The Company's
products manage the process of publishing information by providing data
management, tracking, workflow, archiving, search and retrieval functionality.
The Company is subject to risks common to companies in similar stages of
development. Principal among these risks are the Company's limited operating
history, developing markets, dependence on principal products, competition from
substitute products and other companies, management of growth, dependence on key
personnel and the ability to obtain adequate financing to fund future
operations.
(2) SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies, as discussed below and elsewhere in
the notes to consolidated financial statements.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary Cascade Systems Ltd. ("Cascade UK"). All
material intercompany transactions and balances have been eliminated in
consolidation.
(b) Use of Estimates
The preparation of these consolidated 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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.
(c) Revenue Recognition
The Company generates revenue from licensing the rights to use its software
products directly to end users. The Company also generates revenue from sales of
software maintenance and consulting services to customers who license its
products and from the resale of related hardware products.
Transactions without customer specific acceptance criteria are recognized
in accordance with the AICPA's Statement of Position 91-1,Software Revenue
Recognition. Software license revenues are recognized upon shipment of the
software provided there is a noncancelable agreement, there are no significant
post delivery obligations, payment is due within one year and the services sold
in conjunction with the license agreement are not essential to the functionality
of the base product.
Maintenance and service revenues, including those bundled with the initial
license fee, are deferred and recognized ratably over the service period, which
is typically one year. Consulting services and training revenue are recognized
as the services are performed. Hardware and other revenues are recognized when
the equipment is shipped to the customer.
Transactions with customer specific acceptance criteria are recognized in
accordance with the AICPA's Statement of Position 81-1, Contract Accounting.
Revenue on such transactions is recognized as the customer acknowledges
achievement of specific milestones under the arrangement.
F-7
<PAGE> 67
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
When contract accounting is followed, hardware and other revenues are recognized
as the milestones are met under the arrangement.
(d) Research and Development Expenses for Software Products
Software development costs are considered for capitalization when
technological feasibility is established in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. The Company sells
software in a market that is subject to rapid technological change, new product
introductions and changing customer needs. Accordingly, the Company has
determined that it cannot determine technological feasibility until the
development of the product is nearly complete. The time period during which
costs could be capitalized from the point of reaching technological feasibility
until the time of general product release is very short and, consequently, the
amounts that could be capitalized are not material to the Company's financial
position or results of operations. Therefore, the Company has charged all
software development costs to operations in the period incurred.
(e) Foreign Currency Translation
The assets and liabilities of Cascade UK were translated using the exchange
rate in effect at the balance sheet date in accordance with SFAS No. 52, Foreign
Currency Translation. Revenue and expense accounts were translated using a
weighted average of exchange rates in effect during the period. The resulting
translation adjustments are excluded from net income and are accumulated as a
separate component of stockholders' equity. Foreign currency transaction gains
or losses are reflected in operations and are not material.
(f) Cash Equivalents
The Company considers all highly liquid debt instruments with maturities of
three months or less at the date of purchase to be cash equivalents. Cash and
cash equivalents at December 31, 1995, December 31, 1996 and June 30, 1997
consist primarily of money market accounts and 30-day government-backed
securities that are valued at cost, which approximates market value.
(g) Inventories
Inventories are stated at the lower of cost (specific identification) or
market and consist primarily of purchased computers and related equipment held
for resale.
(h) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of assets over their
estimated useful lives. The estimated useful lives of computers and equipment
are two to three years; furniture and fixtures are seven years and leasehold
improvements are the life of the lease.
(i) Other Assets
Other assets consist principally of deposits and organization costs.
Organization costs are amortized on a straight-line basis over five years.
Amortization of these costs was $2,500, $8,700 and $9,200 for 1994, 1995 and
1996, respectively.
F-8
<PAGE> 68
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(j) Income Taxes
The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
(k) Third-Party Royalty Agreements
The Company has paid licensing fees to software vendors which entitle the
Company to use, develop, copy, distribute and sublicense software to be used in
the Company's products. The Company also pays royalties to software vendors
based on product sales. These license agreements expire over various terms. The
costs associated with purchasing certain license agreements are capitalized and
amortized over the shorter of the life of the individual agreement, or the
period over which corresponding revenues are recognized.
(l) Postretirement Benefits
The Company has no obligations for postretirement or postemployment
benefits.
(m) Concentrations of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments, which potentially subject the Company to
concentrations of credit risk, are principally cash and cash equivalents and
accounts receivable. Concentration of credit risk, with respect to cash and cash
equivalents, is limited because the Company places its investments in rated
financial institutions. Concentration of credit risk with respect to accounts
receivable is limited to certain customers (end users and distributors) to whom
the Company makes substantial sales. To reduce risk, the Company routinely
assesses the financial strength of its customers and, as a consequence, believes
that its accounts receivable credit risk exposure is limited. The Company
maintains an allowance for potential credit losses but historically has not
experienced any significant losses related to individual customers or groups of
customers in any particular industry or geographic area.
(n) Pro Forma Presentation
The pro forma balance sheet as of June 30, 1997 reflects the automatic
conversion of all outstanding shares of Series A and Series B preferred stock
into an aggregate of 2,100,000 shares of common stock, which will occur upon the
closing of the Company's proposed initial public offering.
(o) Pro Forma Net Income per Common and Common Equivalent Share
For the year ended December 31, 1996 and the six months ended June 30,
1997, pro forma net income per common and common equivalent share is based on
the weighted average number of common and common equivalent shares outstanding
during the period, assuming the conversion of all outstanding shares of
convertible preferred stock into 2,100,000 shares of common stock at the time of
issuance. Pursuant to the requirements of the Securities and Exchange Commission
Staff Accounting Bulletin No. 83, common and common equivalent shares issued
during the 12 months
F-9
<PAGE> 69
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
immediately prior to the date of the initial filing of the Company's
registration statement have been included in the calculation of weighted average
number of common and common equivalent shares outstanding for all periods
presented using the treasury stock method. Fair market value for the purpose of
the calculation was assumed to be $10.00. Historical net income per share data
have not been presented, as such information is not considered to be relevant or
meaningful.
(p) Unaudited Interim Financial Statements
In the opinion of the Company's management, the June 30, 1996 and 1997
unaudited interim financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of results
for the respective interim period. The results of operations for the six months
ended June 30, 1997 are not necessarily indicative of the results to be expected
for the full year or for any future period.
(q) Derivative Financial Instruments and Fair Value of Financial Instruments
The Company does not have any derivative or other financial instruments as
defined by SFAS No. 119, Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments.
SFAS No. 107, Disclosures About Fair Value of Financial Instruments ,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash equivalents,
short-term investments, accounts receivable and accounts payable. The estimated
fair value of these financial instruments approximates their carrying value at
December 31, 1995 and 1996 and at June 30, 1997 due to the short-term nature of
these instruments.
(r) Recently Issued Accounting Standards
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which is effective for financial statements issued for
periods ending after December 15, 1997; earlier application is not permitted.
This statement requires restatement of all prior-period earnings per share data
presented. The Company has not yet determined the impact of this statement on
the earnings per share data presented.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.
F-10
<PAGE> 70
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Computers and equipment........................ $ 849 $1,196 $1,410
Furniture and fixtures......................... 210 213 215
Leasehold improvements......................... 120 69 69
------ ------ ------
1,179 1,478 1,694
Less -- Accumulated depreciation and
amortization................................. 437 707 925
------ ------ ------
$ 742 $ 771 $ 769
====== ====== ======
</TABLE>
(4) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued salaries and salary-related
expenses.................................. $ 454 $ 374 $ 366
Accrued software royalties.................. 271 327 689
Other accrued expenses...................... 738 825 1,191
------ ------ ------
$1,463 $1,526 $2,246
====== ====== ======
</TABLE>
(5) OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------------------- ---------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income....................... $34 $23 $132 $46 $ 51
Interest expense...................... (23) (6) (5) (3) (1)
Other income (expense)................ 43 (5) (18) 22 56
--- --- ---- --- ----
Total other income.................... $54 $12 $109 $65 $106
=== === ==== === ====
</TABLE>
(6) CREDIT FACILITIES
(a) Working Capital Line of Credit
In August 1997, the Company entered into a working capital line of credit
with a commercial bank. Under the terms of this agreement, the Company can
borrow the lesser of $2,000,000 or 80% of qualified accounts receivable, as
defined. Borrowings under the line of credit bear interest at the higher of the
bank's prime rate or the Federal funds rate plus 1/2% or, at the Company's
option, the LIBOR base rate, as defined, plus 2%. Borrowings are collateralized
by the Company's accounts receivable. In addition, the Company is required to
comply with certain restrictive covenants, which include among other things,
minimum levels of tangible net worth, profitability and cash flows. Unless
renewed, the line of credit expires on June 30, 1998.
F-11
<PAGE> 71
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(b) Equipment Lease Line of Credit
In August 1997, the Company entered into a $500,000 equipment lease line of
credit with the same bank. Borrowings under the equipment lease line of credit
will bear interest at a lease factor which is based on the bank's cost of funds
at the time of the transaction and will be repaid in 36 equal monthly
installments.
(7) CONVERTIBLE PREFERRED STOCK
The Company's Board of Directors has authorized 2,100,000 shares of
preferred stock of which 1,700,000 shares have been designated as Series A and
400,000 shares have been designated as Series B. The rights and preferences of
the Series A and Series B convertible preferred stock are as follows.
(a) Voting
Convertible preferred stockholders are entitled to the number of votes
equal to the number of shares of common stock into which each share of preferred
stock is then convertible.
(b) Dividends
Convertible preferred stockholders are entitled to receive dividends when
and as declared by the Board of Directors. Dividends are not cumulative. To
date, the Board of Directors has not declared any dividends, and as such, the
Company has not accrued any dividends.
(c) Liquidation Rights
In certain events, including liquidation, dissolution or winding up of the
Company, the holders of the Series A and Series B convertible preferred stock
are entitled to $1.00 and $5.00 per share, respectively, plus any accrued and
unpaid dividends before any distribution may be made to common stockholders. If
the assets of the Company shall be insufficient to permit payment in full to the
holders of preferred stock, then the entire assets of the Company that are
available for distribution shall be distributed in proportion to the full
preferential amount to which each such holder is entitled.
(d) Conversion
Each share of convertible preferred stock is convertible into one share of
common stock at any time, subject to certain antidilutive adjustments. The
Company has reserved 2,100,000 shares of common stock for the conversion of
convertible preferred stock. The convertible preferred stock will be
automatically converted into common stock upon the closing of a public stock
offering resulting in minimum net proceeds, as defined.
(e) Reserved Common Stock
As of June 30, 1997, 4,500,100 shares of common stock were reserved for the
following:
<TABLE>
<S> <C>
Conversion of Series A preferred stock.............. 1,700,000
Conversion of Series B preferred stock.............. 400,000
Exercise of stock options........................... 2,400,100
---------
4,500,100
=========
</TABLE>
F-12
<PAGE> 72
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) STOCK OPTION PLANS
(a) 1997 Stock Option Plan
During July 1997, the Company's stockholders voted to approve the Company's
1997 Stock Incentive Plan ("the 1997 Plan"). Under the 1997 Plan, the Company
may grant to officers, employees, directors, consultants and advisors of the
Company incentive stock options, nonstatutory stock options, restricted stock
awards and other stock-based awards. An aggregate of 1,654,700 shares of common
stock may be issued pursuant to awards granted under the 1997 Plan. The Board of
Directors determines the dates upon which options become exercisable, the
duration of the options and the terms and conditions of other awards. Generally,
options or awards will become exercisable over four years and expire ten years
from the date of grant. At June 30, 1997, options and awards to purchase 558,200
shares of common stock were available for future grant under the 1997 Plan.
(b) 1994 Stock Option Plan
In addition, the Company has a 1994 stock option plan ("the 1994 Plan").
The aggregate number of stock options that may be granted under the 1994 plan is
1,215,720. Options generally vest over a minimum of four years and expire five
years from the date of grant. In May 1997, the Company's Board of Directors
resolved not to grant additional options under the 1994 Plan.
The following schedule summarizes the activity under all of the Company's
stock option plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, December 31, 1994..................... -- $ --
Granted.......................................... 799,650 .96
Canceled......................................... (65,500) .34
---------
Outstanding, December 31, 1995..................... 734,150 $ 1.02
Granted.......................................... 406,200 3.83
Exercised........................................ (33,969) .43
Canceled......................................... (91,581) 1.73
---------
Outstanding, December 31, 1996..................... 1,014,800 $ 2.10
Granted.......................................... 1,108,500 5.74
Exercised........................................ (68,515) .32
Canceled......................................... (212,885) 1.99
---------
Outstanding, June 30, 1997......................... 1,841,900 $ 4.37
=========
Exercisable, June 30, 1997......................... 300,080 $ 1.14
=========
</TABLE>
The exercise price range for outstanding options to purchase 1,841,900
shares of common stock was $0.30 to $5.75 at June 30, 1997. The exercise price
range for exercisable options to purchase 300,080 shares of common stock was
$0.30 to $5.00 at June 30, 1997.
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation, effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes a fair-value-based
method of accounting for stock-based compensation plans. The Company has adopted
the
F-13
<PAGE> 73
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
disclosure-only alternative under SFAS No. 123, which requires disclosure of the
pro forma effects on earnings as if the fair-value-based method of accounting
under SFAS No. 123 had been adopted, as well as certain other information.
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted for the years ended December 31, 1995 and 1996
using the Black-Scholes option pricing model prescribed by SFAS No. 123. The
assumptions used for grants during the years ended December 31, 1995 and 1996
included an expected volatility of 62.9% for both periods; dividend yield of
0.0% for both periods; risk-free interest rates of 6.25% for both periods; and
an expected option term of 4 to 5 years for the year ended December 31, 1995 and
5 years for the year ended December 31, 1996.
In addition, the weighted average value of grants for the years ended
December 31, 1995 and 1996 was $0.96 and $3.83, respectively, and the weighted
average remaining contractual life of options outstanding at December 31, 1995
and 1996 was 9.65 years and 8.92 years, respectively.
Had compensation cost for the Company's stock option plans been determined
consistent with SFAS No. 123, pro forma net income (loss) would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1996
------- ------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net income (loss)
As reported.............................. $(1,400) $ 93
Pro forma................................ (1,430) (74)
Pro forma net income per share
As reported.............................. $ 0.02
Pro forma................................ (0.01)
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity may involve a different expected volatility
factor and because additional option grants are expected to be made in future
years, the above pro forma disclosures are not representative of pro forma
effects on results for future years.
(9) INCOME TAXES
The provision for income taxes in the accompanying statements of operations
consists primarily of currently payable minimum state income taxes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
----- ------- -----
<S> <C> <C> <C>
Income (loss) before provision for income taxes
Domestic...................................................... $(429) $ (188) $(455)
Foreign....................................................... (310) (1,190) 568
----- ------- -----
$(739) $(1,378) $ 113
===== ======= =====
</TABLE>
F-14
<PAGE> 74
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A reconciliation of the provision for income taxes that would be expected
using the appropriate federal statutory income tax rate to the provision for
income taxes as presented in the accompanying statements of operations is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory rate........ $(251) $ (469) $ 38
Increase (decrease) in tax resulting from:
State tax provision, net of federal benefit................... 6 20 20
Utilization of net operating loss carryforwards............... -- -- (176)
Effect of lower tax rate jurisdictions........................ -- -- 57
Increase in valuation allowance............................... 251 469 66
Other......................................................... -- 2 15
----- ------- -----
Provision for income taxes...................................... $ 6 $ 22 $ 20
===== ======= =====
</TABLE>
As of December 31, 1996, Cascade UK has net operating loss carryforwards of
approximately $637,000, which can be carried forward for an indefinite period of
time and utilized to offset UK income. In addition, the Company has U.S. net
operating loss carryforwards of approximately $354,000 and research and
development credit carryforwards of approximately $44,000 as of December 31,
1996. The Internal Revenue Code contains provisions that may limit the amount of
net operating loss carryforwards that the Company may utilize in any one year,
in the event of certain cumulative changes in ownership, over a three-year
period. In the event the Company has had a change of ownership, as defined,
utilization of the carryforwards may be restricted.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Accrued expenses....................................... $117 $143
Net operating loss and research and development credits
carryforwards........................................ 337 317
Depreciation........................................... 35 88
Other temporary differences............................ 65 72
---- ----
Total........................................ 554 620
Less -- Valuation allowance............................ 554 620
---- ----
Net deferred tax asset....................... $ -- $ --
==== ====
</TABLE>
Under SFAS No. 109, the Company cannot recognize a deferred tax asset for
the future benefit of its net operating losses and temporary differences unless
the Company concludes that it is "more likely than not" that the deferred tax
asset would be realized. Due to the Company's short operating history and
limited profitability, the Company has recorded a full valuation allowance
against its otherwise recognizable deferred tax asset, in accordance with SFAS
No. 109.
F-15
<PAGE> 75
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(10) COMMITMENTS
The Company leases its facilities and certain equipment under various
operating leases that expire through 2001. At December 31, 1996, future minimum
payments due under noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR
---- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1997.......................... $ 571
1998.......................... 468
1999.......................... 356
2000.......................... 331
2001.......................... 139
------
$1,865
======
</TABLE>
Rent expense amounted to approximately $146,000, $370,000 and $400,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
(11) EMPLOYEE BENEFIT PLAN
In January 1996, the Company established the Cascade Systems 401(k) Plan
("the 401(k) Plan") for U.S. employees. The 401(k) plan allows employees to make
pretax contributions up to the allowable amount set by the Internal Revenue
Code. Under the 401(k) plan, the Company may, but is not obligated to, provide
profit sharing to employees. No profit sharing contribution was awarded in 1996.
Cascade UK participates in two defined contribution benefit plans. These
plans are open to all employees of the Company who have been with the Company
for a minimum of three months. Employer contributions are 5% of base salary, and
employee contributions are a minimum of 1.5% of base salary.
The total benefit costs relative to these plans for 1994, 1995 and 1996
were approximately $40,000, $79,000 and $84,000, respectively.
F-16
<PAGE> 76
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(12) GEOGRAPHIC AND SIGNIFICANT CUSTOMER DATA
The Company operates in one business segment (see Note 1). A summary of the
Company's operations by geographic location for the years ended December 31,
1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
United States........................ $ 5,795 $10,481 $10,450
United Kingdom....................... 6,466 7,529 8,061
Eliminations......................... (188) (298) --
------- ------- -------
Consolidated.................... $12,073 $17,712 $18,511
======= ======= =======
Income (loss) from operations
United States........................ $ (477) $ (270) $ (506)
United Kingdom....................... (316) (1,120) 510
Eliminations......................... -- -- --
------- ------- -------
Consolidated.................... $ (793) $(1,390) $ 4
======= ======= =======
Identifiable assets
United States........................ $ 3,456 $ 5,005 $ 5,313
United Kingdom....................... 1,775 2,570 4,005
Eliminations......................... (1,028) (1,078) (1,619)
------- ------- -------
Consolidated.................... $ 4,203 $ 6,497 $ 7,699
======= ======= =======
</TABLE>
Export sales from the United States to unaffiliated customers accounted for
11% of revenues in 1995. Export sales were less than 10% of revenues in 1994 and
1996.
In 1994, two customers accounted for 24% and 14% of net sales,
respectively. In 1995, one distributor accounted for 13% of net sales. In 1996,
one customer accounted for 13% of net sales.
(13) SUBSEQUENT EVENTS
(a) Amended and Restated Certificate of Incorporation
Effective upon the closing of the Company's proposed initial public
offering, and after giving effect to the amendment and restatement of the
Company's Restated Certificate of Incorporation immediately prior to the closing
of the offering, the authorized capital stock of the Company will consist of
25,000,000 shares of common stock, $0.001 par value per share, and 1,000,000
shares of undesignated preferred stock, $0.001 par value per share.
(b) 1997 Director Stock Option Plan
During September 1997, the 1997 Director Stock Option Plan ("the 1997
Director Plan") was approved by the Company's Board of Directors and
stockholders. The 1997 Director Plan provides for the issuance of up to 100,000
shares of common stock to eligible directors. Each director who becomes eligible
after September 1, 1997 shall be granted options to purchase 10,000 shares on
their initial election to the board. Each eligible director shall then receive
an option to purchase 5,000 shares on the date of each annual meeting of
stockholders. Stock options granted pursuant to
F-17
<PAGE> 77
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
the 1997 Director Plan will be made at fair market value, become exercisable on
the first anniversary of the grant date and expire ten years from the grant
date.
(c) 1997 Employee Stock Purchase Plan
During September 1997, the Company's Board of Directors and stockholders
voted to approve the 1997 Employee Stock Purchase Plan (the "Purchase Plan").
Under the terms of the Purchase Plan, the Company has reserved for issuance and
eligible participants may purchase up to an aggregate of 300,000 shares of
common stock at a price equal to 85% of fair market value, as defined.
F-18
<PAGE> 78
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cascade Systems Incorporated:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Cascade Systems, Inc. and Subsidiary included in this
registration statement and have issued our report thereon dated January 28,
1997. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index above
are for the purposes of complying with the Securities and Exchange Commissions
rules and are not part of the basic financial statements. These schedules have
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 28, 1997
S-1
<PAGE> 79
CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
CASCADE SYSTEMS INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED BALANCE BEGINNING AMOUNTS CHARGED AMOUNTS BALANCE
DECEMBER 31, OF PERIOD TO EXPENSE WRITTEN OFF OTHER END OF PERIOD
- ------------------- ----------------- --------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
1994............... $ 3,500 $ 302 $ (302) $ -- $ 3,500
1995............... 3,500 109,340 -- -- 112,840
1996............... $ 112,840 $ 170,451 $ (51,243 $(50,500 $ 181,548
</TABLE>
S-2
<PAGE> 80
======================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 14
Dividend Policy........................... 14
Capitalization............................ 15
Dilution.................................. 16
Selected Financial Data................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 19
Business.................................. 28
Management................................ 39
Certain Transactions...................... 46
Principal and Selling Stockholders........ 47
Description of Capital Stock.............. 52
Shares Eligible for Future Sale........... 54
Underwriting.............................. 56
Legal Matters............................. 58
Experts................................... 58
Additional Information.................... 58
Index to Consolidated Financial
Statements.............................. F-1...
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
2,800,000 SHARES
[Cascade Systems Incorporated Logo]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
BT ALEX. BROWN
HAMBRECHT & QUIST
, 1997
======================================================
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................................... $ 10,734
NASD Filing Fee................................................................ 4,042
Nasdaq Listing Fee............................................................. 30,313
Blue Sky Fees and Expenses..................................................... 3,000
Transfer Agent and Registrar Fees.............................................. 3,000
Accounting Fees and Expenses................................................... 225,000
Legal Fees and Expenses........................................................ 275,000
Printing, Engraving and Mailing Expenses....................................... 100,000
Miscellaneous.................................................................. 98,911
--------
Total..................................................................... $ 750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be personally liable for any monetary
damages for any breach of fiduciary duty as a director, except to the extent
that the Delaware General Corporation law prohibits the elimination or
limitation of liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a Director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct
II-1
<PAGE> 82
required for indemnification, or if the Registrant fails to make an
indemnification payment within 60 days after such payment is claimed by such
person, such person is permitted to petition the court to make an independent
determination as to whether such person is entitled to indemnification. As a
condition precedent to the right of indemnification, the director or officer
must give the Registrant notice of the action for which indemnity is sought and
the Registrant has the right to participate in such action or assume the defense
thereof.
Article NINTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the full extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the Act.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1
hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Company has issued the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). Also included is the
consideration, if any, received by the Company for such securities, and
information relating to the section of the Securities Act, or rule of the
Securities and Exchange Commission under which the exemption from registration
was claimed.
(a) ISSUANCES OF CAPITAL STOCK
1. On March 28, 1996 the Company issued 400,000 shares of Series B
Preferred Stock to Adobe Ventures, L.P., for aggregate consideration of
$2,000,000.
(b) GRANTS AND EXERCISES OF STOCK OPTIONS
1. From the adoption of the Company's Second Amended 1994 Stock Option
Plan on December 30, 1994, to September 19, 1997, the Company has granted
options to purchase an aggregate of 834,914 shares of Common Stock, net of
cancellations of 382,936 options, at a weighted average exercise price of
$1.43 per share under such plan to certain of it officers and employees. As
of September 19, 1997, the Company had issued an aggregate of 105,920
shares of Common Stock upon the exercise of such options, and options
granted under the Second Amended 1994 Stock Option Plan to purchase an
aggregate of 728,994 shares of Common Stock remained outstanding.
2. From the adoption of the Company's 1997 Stock Incentive Plan on May
16, 1997 to September 19, 1997, the Company has granted options to purchase
an aggregate of 1,188,000 shares of Common Stock, net of cancellations of
7,000 options, at a weighted average exercise price of $5.85 per share
under such plan to certain of its officers, directors and employees. As of
II-2
<PAGE> 83
September 19, 1997, no shares of Common Stock had been issued upon the
exercise of such options, and options granted under the 1997 Stock
Incentive Plan to purchase an aggregate of 1,188,000 shares of Common Stock
remained outstanding.
No underwriters were engaged in connection with any of the foregoing sales
of securities. The shares of capital stock and securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D or Rule
701 promulgated under the Securities Act, relative to sales by an issuer not
involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended to
date.
3.2 Form of Certificate of Amendment to Certificate of Incorporation of the
Registrant.
3.3 Form of Second Amended and Restated Certificate of Incorporation.
3.4 Bylaws of the Registrant, as amended to date.
3.5 Form of Amended and Restated Bylaws of the Registrant.
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the
Registrant.
5* Opinion of Hale and Dorr LLP with respect to the validity of the Common Stock
being offered.
10.1 Second Amended 1994 Stock Option Plan.
10.2 1997 Stock Incentive Plan.
10.3 1997 Director Stock Option Plan.
10.4 1997 Employee Stock Purchase Plan.
10.5+ License and Distribution Agreement, dated March 18, 1994, by and between
Footprints International Limited and Cascade Systems Limited, as amended to date.
10.6+ Source Code License Agreement, dated September 21, 1994, by and between Midsystems
Technology Limited and Cascade Systems Limited, as amended to date.
10.7 Lease, dated February 27, 1996, by and between Andover Mills Realty Limited
Partnership and the Registrant.
10.8 Rights Agreement, dated July 25, 1994, by and among the Company and the other
parties listed therein.
10.9 Loan Agreement, dated August 8, 1997, between BankBoston, N.A. and the Registrant.
11 Calculation of shares used in determining pro forma net income per common share.
16 Letter, dated September 16, 1997, from Coopers & Lybrand L.L.P.
21 Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
</TABLE>
II-3
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------------------------
<C> <S>
24 Powers of Attorney (included on page II-5).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
(b) FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Schedule
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions contained in the Certificate of Incorporation and
Bylaws of the Registrant and the laws of the State of Delaware, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 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 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 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Act, as amended, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Andover, Commonwealth of
Massachusetts, on this 23rd day of September, 1997.
CASCADE SYSTEMS INCORPORATED
By: /s/ MALCOM P. MCGRORY
-----------------------------------
Malcolm P. McGrory
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Malcolm P. McGrory, Andrew J. Zimmon, Timothy M. Cunningham
and John A. Burgess and each of them, with full power of substitution, to
execute in the name and on behalf of such person any amendment (including any
post-effective amendment) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act) and to file the same, with
exhibits thereto, and other documents in connection therewith, making such
changes in this Registration Statement as the person(s) so acting deems
appropriate, and appoints each of such persons, each with full power of
substitution, attorney-in-fact to sign any amendment (including any
post-effective amendment) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act) and to file the same, with
exhibits thereto, and other documents in connection therewith.
Pursuant to the requirements of the Act, this Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ MALCOLM P. MCGRORY President, Chief Executive September 23, 1997
- ------------------------------------------ Officer and Director
Malcolm P. McGrory (Principal Executive
Officer)
/s/ TIMOTHY M. CUNNINGHAM Vice President, Finance, September 23, 1997
- ------------------------------------------ Chief Financial Officer,
Timothy M. Cunningham Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ PETER JARROLD Director September 22, 1997
- ------------------------------------------
Peter Jarrold
/s/ GORDON MURRAY Director September 22, 1997
- ------------------------------------------
Gordon Murray
/s/ STANDISH H. O'GRADY Director September 23, 1997
- ------------------------------------------
Standish H. O'Grady
</TABLE>
II-5
<PAGE> 86
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ---------------------------------------------------------------------------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as
amended to date.............................................................
3.2 Form of Certificate of Amendment to Certificate of Incorporation of the
Registrant..................................................................
3.3 Form of Second Amended and Restated Certificate of Incorporation............
3.4 Bylaws of the Registrant, as amended to date................................
3.5 Form of Amended and Restated Bylaws of the Registrant.......................
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the
Registrant..................................................................
5* Opinion of Hale and Dorr LLP with respect to the validity of the Common
Stock being offered.........................................................
10.1 Second Amended 1994 Stock Option Plan.......................................
10.2 1997 Stock Incentive Plan...................................................
10.3 1997 Director Stock Option Plan.............................................
10.4 1997 Employee Stock Purchase Plan...........................................
10.5+ License and Distribution Agreement, dated March 18, 1994, by and between
Footprints International Limited and Cascade Systems Limited, as amended to
date........................................................................
10.6+ Source Code License Agreement, dated September 21, 1994, by and between
Midsystems Technology Limited and Cascade Systems Limited, as amended to
date........................................................................
10.7 Lease, dated February 27, 1996, by and between Andover Mills Realty Limited
Partnership and the Registrant..............................................
10.8 Rights Agreement, dated July 25, 1994, by and among the Company and the
other parties listed therein................................................
10.9 Loan Agreement, dated August 8, 1997, between BankBoston, N.A. and the
Registrant..................................................................
11 Calculation of shares used in determining pro forma net income per common
share.......................................................................
16 Letter, dated September 16, 1997, from Coopers & Lybrand L.L.P..............
21 Subsidiaries of the Registrant..............................................
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5)........................
23.2 Consent of Arthur Andersen LLP..............................................
24 Powers of Attorney (included on page II-5)..................................
27 Financial Data Schedule.....................................................
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CERTIFICATE OF INCORPORATION
OF
CASCADE SYSTEMS INTERNATIONAL INC.
It is hereby certified that:
I. The following Amended and Restated Certificate of Incorporation of
Cascade Systems International Inc. (the "Corporation") has been duly adopted by
the sole director of the Corporation in accordance with the provisions of
Sections 241 and 245 of the Delaware General Corporation Law, the Corporation
not having received any payment for any of its stock and no stock being issued
or outstanding. The original Certificate of Incorporation was filed on February
10, 1994.
II. The Certificate of Incorporation of the Corporation is hereby amended
and restated in its entirety to conform to the Amended and Restated Certificate
of Incorporation of Cascade Systems International, Inc. attached hereto as
Exhibit A and incorporated by reference herein.
Signed and attested to this 18 day of July, 1994.
ATTEST:
/s/ Andrew Zimmon /s/ Malcolm McGrory
- ---------------------------------- ---------------------------------
Andrew Zimmon, Secretary Malcolm McGrory, Vice
President
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CASCADE SYSTEMS INTERNATIONAL, INC.
A Delaware Corporation
ARTICLE I
NAME
----
The name of the Corporation is Cascade Systems International Inc.
ARTICLE II
PURPOSES
--------
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Delaware General Corporation
Law.
ARTICLE III
STOCK
-----
The Corporation is authorized to issue two classes of shares to be
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock authorized is 1,700,000, $0.001 par value per
share. The total number of shares of Common Stock authorized is 5,500,000,
$0.001 par value per share.
A. PREFERRED STOCK. The Preferred Stock shall be comprised of 1,700,000
shares designated as "Series A Preferred Stock." The relative rights,
preferences, restrictions and other matters relating to the Preferred Stock are
as follows:
1
<PAGE> 3
1. DIVIDENDS RIGHTS OF PREFERRED.
(a) The holders of the then outstanding Series A Preferred Stock
shall be entitled to receive in any fiscal year, when, as and if, declared by
the Board of Directors, out of any assets at the time legally available
therefor, dividends in cash at the rate per annum of $.08 per share (adjusted
for any splits, combinations, consolidations or stock dividends or distributions
with respect to such shares) payable in preference and priority to any payment
of any cash dividend on Common Stock. After dividends shall have been paid on
account of the Series A Preferred Stock in any given fiscal year as aforesaid,
the holders of the then outstanding Common Stock shall be entitled to receive in
that fiscal year, when, as and if, declared by the Board of Directors, out of
any assets at the time legally available therefor, dividends in cash at the rate
per annum of $.08 per share (adjusted for any splits, combinations,
consolidations or stock dividends or distributions with respect to such shares)
payable in preference and priority to any payment of any additional cash
dividends on the Preferred Stock. The right to such cash dividends on the
Preferred Stock and the Common Stock shall not be cumulative, and no right shall
accrue to holders of the Preferred Stock or Common Stock by reason of the fact
that dividends on such shares are not declared in any prior year. Except as set
forth above, no dividends shall be paid on any Common Stock unless a
corresponding dividend is paid with respect to all outstanding shares of
Preferred Stock in an amount for each such share of Preferred Stock equal to
the aggregate amount of such dividends for all Common Stock into which each such
share of Preferred Stock could then be converted.
(b) Each holder of Preferred Stock shall be deemed to have
consented to distributions made by the Corporation in connection with the
repurchase of Common Stock issued to or held by employees, directors or
consultants upon termination of their employment or services pursuant to
agreements providing for such repurchase.
2
<PAGE> 4
2. PREFERENCE ON LIQUIDATION.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid, out of the assets
of the Corporation available for distribution to its shareholders before any
payment shall be made in respect of the Common Stock, an amount equal to (i)
$1.00 per share for each share of Series A Preferred Stock then held by them,
adjusted for any stock split, combination, consolidation, or stock distributions
or stock dividends with respect to such shares, and (ii) an amount equal to all
declared but unpaid dividends on the Series A Preferred Stock as provided in
Section 1 above. If the assets and funds available to be distributed among the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
in proportion to their aggregate preferential amounts.
(b) After payment has been made to the holders of the Preferred
Stock of the full preferential amounts to which they shall be entitled, if any,
as aforesaid, the remaining assets of the Corporation available for distribution
to stockholders, if any, shall be distributed ratably on a per share basis among
the holders of Common Stock and the holders of Preferred Stock, based on the
number of shares of Common Stock then held, with each share of Preferred Stock
treated as the number of shares of Common Stock into which such share of
Preferred Stock is then convertible.
(c) A consolidation or merger of the Corporation with or into any
other corporation or corporations (other than a wholly-owned subsidiary), or the
sale, transfer or other disposition of all or substantially all of the assets of
the Corporation or the consummation
3
<PAGE> 5
of any transaction or series of related transactions which results in the
Corporation's stockholders immediately prior to such transaction not holding at
least 50% of the voting power of the surviving or continuing entity shall be
deemed a liquidation, dissolution or winding up within the meaning of this
Section 2.
3. VOTING RIGHTS.
(a) Except as set forth to the contrary in Sections 3(b) and 5
below or as required by law, each holder of shares of Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the number of shares of Common Stock into which such shares of
Preferred Stock could be converted on the record date for the vote or consent of
stockholders. The holder of each share of Preferred Stock shall be entitled to
notice of any stockholders' meeting in accordance with the Bylaws of the
corporation and, except as provided in this Certificate of Incorporation, shall
vote with holders of the Common Stock upon any matter submitted to a vote of
stockholders, except those matters required by law to be submitted to a class
vote. Fractional votes by the holders of Preferred Stock shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number.
(b) So long as at least 850,000 shares of Series A Preferred
Stock remain outstanding (adjusted to reflect subsequent stock dividends or
distributions, stock splits or combinations or recapitalizations) the holders of
shares of Series A Preferred Stock shall be entitled, voting as a separate
class, to elect two (2) members of the Board of Directors of this corporation.
The holders of shares of Common Stock shall be entitled, voting as a separate
class, to elect two (2) members of the Board of Directors of this corporation.
In all other cases, the holders of shares of Common Stock and Preferred Stock,
voting together as a single class
4
<PAGE> 6
with each holder of shares of Preferred Stock entitled to the number of votes
equal to the number of shares of Common Stock into which such shares of
Preferred Stock could be converted on the record date for the vote, shall be
entitled to elect the remaining directors of the Corporation, if any. In the
case of any vacancy in the office of a director elected by the holders of a
particular class or series of stock, the vacancy may be filled only by the vote
of the holders of such class or series of stock. Any director who shall have
been elected by the holders of a particular class or series of stock may be
removed with or without cause by, and only by, the applicable vote of the
holders of shares of such class or series of stock.
4. CONVERSION. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT; AUTOMATIC CONVERSION.
(i) Subject to subsection 4(c), each share of Series A
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such shares, at the office of the
Corporation or any transfer agent for the Series A Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $1.00 by the Conversion Price (as defined below) in effect at the
time of conversion for such share (the "Conversion Rate"). The Conversion Price
shall initially be $1.00, provided, however, that the Conversion Price for the
Series A Preferred Stock shall be subject to adjustment as set forth in
subsection 4(c).
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Rate at
the time in effect for such Series A Preferred Stock immediately upon the
earlier of the following:
(A) the closing of the Corporation's sale of its Common
Stock in an underwritten public offering pursuant to a registration statement on
Form S-1 under
5
<PAGE> 7
the Securities Act of 1933, as amended, in which the Corporation receives
aggregate cash proceeds of more than $10,000,000 (net of any underwriting
discounts and commissions), and the public offering price of which is not less
than $3.00 per share (adjusted to reflect subsequent stock dividends or
distributions, stock splits or combinations or recapitalizations); or
(B) the election of the holders of more than 50% of the
outstanding shares of Series A Preferred Stock; or
(C) if less than 340,000 shares of the Series A Preferred
Stock (adjusted to reflect subsequent stock dividends or distributions, stock
splits or combinations or recapitalizations) remain outstanding.
(b) MECHANICS OF CONVERSION. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, the
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for the Preferred
Stock, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office, of the election to convert the
same. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK.
The Conversion Price from time to time in effect shall be subject to
adjustment from time to time as follows:
6
<PAGE> 8
(i) In case the Corporation shall at any time subdivide the
outstanding shares of Common Stock, or shall issue a stock dividend on its
outstanding Common Stock, without an equivalent subdivision of, or dividend on,
the Series A Preferred Stock, the Conversion Price in effect immediately prior
to such subdivision or the issuance of such dividend shall be proportionately
decreased, and in case the Corporation shall at any time combine the outstanding
shares of Common Stock, without an equivalent combination of the Series A
Preferred Stock, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased, effective at the close of
business on the date of such subdivision, dividend or combination, as the case
may be.
(ii) If the Corporation shall issue or sell Equity
Securities (as defined below) at a consideration per share less than the
Conversion Price in effect immediately prior to the time of such issue or sale,
then forthwith upon such issue or sale, the Conversion Price of each share of
Series A Preferred Stock shall be adjusted to a price (calculated to the nearest
cent) determined by dividing:
(A) an amount equal to the sum of (1) the number of shares
of Common Stock issuable upon conversion of Preferred Stock outstanding
immediately prior to such issue or sale multiplied by the then existing
Conversion Price, and (2) an amount equal to the aggregate "consideration
actually received" by the Corporation upon such issue or sale, by
(B) the sum of the number of shares of Common Stock
issuable upon conversion of Preferred Stock outstanding immediately prior to
such issue or sale and the number of shares (on a common-equivalent basis) of
the Equity Securities so issued or sold.
7
<PAGE> 9
(iii) For purposes of this subsection 4(c) the following
provisions shall be applicable:
(A) The term "Equity Securities" shall mean any shares
of Common Stock, any shares of stock convertible into Common Stock or any
option, warrant or other right to purchase either Common Stock or stock or other
securities of the Corporation convertible into or exchangeable for Common Stock
except for (1) Common Stock issued or issuable, after the date of the initial
issuance of shares of Series A Preferred Stock, to officers, directors,
employees or consultants of the Corporation pursuant to stock grants, stock
purchase and stock option plans or other stock incentive programs, agreements or
arrangements approved by the Board of Directors, (2) shares issued pursuant to
transactions described in subsection 4(c)(i), and (3) shares of Common Stock
issued upon conversion of the Series A Preferred Stock.
(B) In the case of an issue or sale for cash of shares
of Common Stock, the "consideration actually received" by the Corporation
therefor shall be deemed to be the amount of cash received, before deducting
therefrom any commissions or expenses paid by the Corporation.
(C) In case of the issuance (otherwise than upon
conversion or exchange of rights or shares of stock of the Corporation) of
additional shares of Common Stock for a consideration other than cash or a
consideration partly other than cash, the amount of the consideration other than
cash received by the Corporation for such shares shall be deemed to be the value
of such consideration as determined in good faith by the Board of Directors.
(D) In case of the issuance by the Corporation in any
manner of any rights, including options or warrants, to subscribe for or to
purchase shares of
8
<PAGE> 10
Common Stock or stock convertible into Common Stock, all shares of Common Stock
to which the holders of such rights shall be entitled to subscribe for or
purchase pursuant to such rights shall be deemed issued as of the date of the
issuance of such rights, and the minimum aggregate consideration named in such
rights for the shares of Common Stock or stock convertible into Common Stock
covered thereby, plus the consideration, if any, received by the Corporation for
such rights, shall be deemed to be the "consideration actually received" by the
Corporation (as of the date of the issuance of such rights) for the issuance of
such shares.
(E) In case of the issuance or issuances by the
Corporation in any manner of any obligations or of any shares of stock of the
Corporation that shall be convertible into or exchangeable for Common Stock, all
shares of Common Stock issuable upon the conversion or exchange of such
obligations or shares shall be deemed issued as of the date such obligations or
shares are issued, and the amount of the "consideration actually received" by
the Corporation for such additional shares of Common Stock shall be deemed to be
the total of (1) the amount of consideration received by the Corporation upon
the issuance of such obligations or shares, as the case may be, plus (2) the
minimum aggregate consideration, if any, other than such obligations or shares,
receivable by the Corporation upon such conversion or exchange, except in
adjustment of dividends.
(F) The amount of the "consideration actually received"
by the Corporation upon the issuance of any rights or options referred to in
subsection (D) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in subsection (E) above, and the amount
of the consideration, if any, other than such obligations" or shares so
convertible or exchangeable, receivable by the Corporation upon the exercise,
conversion or exchange thereof shall be determined in the same manner provided
in subsections (B) and (c) above with respect to the consideration received by
the Corporation in
9
<PAGE> 11
case of the issuance of additional shares of Common Stock; provided, however,
that if such obligations or shares of stock so convertible or exchangeable are
issued in payment or satisfaction of any dividend upon any stock of the
Corporation other than Common Stock, the amount of the "consideration actually
received" by the Corporation upon the original issuance of such obligations or
shares or stock so convertible or exchangeable shall be deemed to be the value
of such obligations or shares of stock, as of the date of the adoption of the
resolution declaring such dividend, as determined by the Board of Directors at
or as of that date. On the expiration of any rights or options referred to in
subsection (D), or the termination of any right of conversion or exchange
referred to in subsection (E), or any change in the number of shares of Common
Stock deliverable upon exercise of such options or rights or upon conversion of
or exchange of such convertible or exchangeable securities, the Conversion Price
then in effect shall forthwith be readjusted to such Conversion Price as would
have obtained had the adjustments made upon the issuance of such option, right
or convertible or exchangeable securities been made upon the basis of the
delivery of only the number of shares of Common Stock actually delivered or to
be delivered upon the exercise of such rights or options or upon the conversion
or exchange of such securities.
(d) OTHER DISTRIBUTIONS. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(iii), then,
in each such case for the purpose of this subsection 4(d), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series A Preferred Stock are
convertible as of the record
10
<PAGE> 12
date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.
(e) RECAPITALIZATION. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 3 above) provision shall be made so that the holders
of the Preferred Stock shall thereafter be entitled to receive upon conversion
of the Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Preferred Stock after the recapitalization to the end that the provisions of
this Section 4 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Preferred Stock) shall
be applicable after that event as nearly equivalent as may be practicable.
(f) NO IMPAIRMENTS. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the rights, preferences or privileges of the
Preferred Stock set forth herein, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 4 and in the taking of
all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
11
<PAGE> 13
(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon
conversion of the Preferred Stock, and the number of shares of Common Stock to
be issued shall be rounded to the nearest whole share. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Preferred Stock pursuant to this Section
4, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Preferred Stock.
(h) NOTICES OF RECORD DATE. In the event of any setting of a
record date by the Corporation for the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least 20 days prior to the date
specified therein, a notice
12
<PAGE> 14
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(j) NOTICE. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
5. PROTECTIVE PROVISIONS.
(a) So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of the holders of a
majority of the total number of shares of Series A Preferred Stock outstanding,
voting together as a separate class: (1) alter or change any of the powers,
preferences, privileges or rights of the Series A Preferred Stock; (2) increase
the authorized number of shares of Preferred Stock; (3) amend the provisions of
this paragraph (a) of
13
<PAGE> 15
Section 5; or (4) create any new class or series of shares having preferences
prior to or on parity with those of the Series A Preferred Stock.
(b) So long as at least 850,000 shares of Series A Preferred
Stock (adjusted to reflect subsequent stock dividends or distributions, stock
splits or combinations or recapitalizations) are outstanding, the Corporation
shall not, without first obtaining the approval by vote or written consent, in
the manner provided by law, of the holders of a majority of the total number of
shares of Series A Preferred Stock outstanding, voting together as a separate
class: (1) undertake or effect any consolidation or merger of the Corporation
with or into another corporation (except into or with a wholly-owned subsidiary)
or any acquisition by or the conveyance of all or substantially all of the
assets of the Corporation to another person or effectuate any transaction or
series of related transactions which results in the corporation's stockholders
immediately prior to such transaction not holding at least 50% of the voting
power of the surviving or continuing entity; (2) effect a material change in the
principal business of the Corporation; (3) repurchase any shares of Common Stock
except the repurchase of Common Stock of employees, consultants or directors
pursuant to a stock or option agreement duly approved by the Corporation's Board
of Directors; or (4) amend the Corporation's Certificate of Incorporation or
Bylaws.
B. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefore, such dividends as may be declared from time to time by the
Board of Directors.
14
<PAGE> 16
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Article III.A.
3. VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law or as
provided by Section 3 of Article III.A above. Except as otherwise expressly
provided herein or required by law, the holders of shares of Common Stock and
the holders of shares of Preferred Stock shall vote together as a single class
on all matters.
ARTICLE IV
DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS
--------------------------------------------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
If the Delaware General Corporation Law is hereafter amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article IV
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of
15
<PAGE> 17
the Corporation existing at the time of such repeal or modification.
ARTICLE V
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
registered office is The Corporation Trust Company.
16
<PAGE> 18
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE RESTATED CERTIFICATE OF INCORPORATION
OF CASCADE SYSTEMS INTERNATIONAL INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON JULY 19, 1994
Cascade Systems International Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
I. The name of the corporation is Cascade Systems International Inc.
2. That a Restated Certificate of Incorporation was filed by the
Secretary of State of Delaware on July 19, 1994 and that said
Certificate requires correction as permitted by Section 103 of the
General Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows: a comma was omitted in the corporation name.
4. Article I of the Certificate is corrected to read as follows: The name
of the corporation is Cascade Systems International, Inc.
IN WITNESS WHEREOF, said Cascade Systems International Inc. has caused this
Certificate to be signed by Malcolm McGrory, its Vice President, this 25th day
of July, 1994.
CASCADE SYSTEMS INTERNATIONAL INC.
By: /s/ Malcolm McGrory
------------------------------------
Malcolm McGrory, Vice President
<PAGE> 19
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CASCADE SYSTEMS INTERNATIONAL, INC.
Pursuant to Section 242
of the General Corporation Law of
THE STATE OF DELAWARE
---------------------
Cascade Systems International, Inc. (the "Corporation"), a corporation duly
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
By written action of the Board of Directors of the Corporation a resolution
was duly adopted, pursuant to Sections 141 and 242 of the General Corporation
Law of the State of Delaware, setting forth an amendment to the Amended and
Restated Certificate of Incorporation of the Corporation and declaring said
amendment to be advisable and directing that it be submitted to and be
considered by the stockholders of the Corporation for approval. The stockholders
of the Corporation duly approved said proposed amendment by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware, and written notice of such consent has been given to all
stockholders who have not consented in writing to said amendment. The resolution
setting forth the amendment is as follows:
RESOLVED: That Article III of the Amended and Restated Certificate of
Incorporation be and hereby is deleted and the following
Article III is inserted in lieu thereof:
ARTICLE III
STOCK
The Corporation is authorized to issue two classes of shares to be
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock authorized is 2,100,000, $0.001 par value per
share. The total number of shares of Common Stock authorized is 7,500,000,
$0.001 par value per share.
A. PREFERRED STOCK. The Preferred Stock shall be comprised of 2,100,000
shares, of which 1,700,000 shares are designated as Series A Preferred Stock
(the "Series A Preferred Stock"), and 400,000 shares are designated as Series B
Preferred Stock (the "Series B Preferred Stock"). The relative rights,
preferences, restrictions and other matters relating to the Preferred Stock are
as follows:
1. DIVIDENDS RIGHTS.
<PAGE> 20
(a) The holders of the then outstanding Series A Preferred
Stock and Series B Preferred Stock shall be entitled to receive in any fiscal
year, when, as and if, declared by the Board of Directors, out of any assets at
the time legally available therefor, dividends in cash at the rate per annum of
$.08 per share in the case of the Series A Preferred Stock, and $.40 per share
in the case of the Series B Preferred Stock (in each case adjusted for any
splits, combinations, consolidations or stock dividends or distributions with
respect to such shares) payable in preference and priority to any payment of any
cash dividend on Common Stock. After dividends shall have been paid on account
of the Series A Preferred Stock and Series B Preferred Stock in any given fiscal
year as aforesaid, the holders of the then outstanding Common Stock shall be
entitled to receive in that fiscal year, when, as and if, declared by the Board
of Directors, out of any assets at the time legally available therefor,
dividends in cash at the rate per annum of $.08 per share (adjusted for any
splits, combinations, consolidations or stock dividends or distributions with
respect to such shares) payable in preference and priority to any payment of any
additional cash dividends on the Preferred Stock. The right to such cash
dividends on the Preferred Stock and the Common Stock shall not be cumulative,
and no right shall accrue to holders of the Preferred Stock or Common Stock by
reason of the fact that dividends on such shares are not declared in any prior
year. Except as set forth above, no dividends shall be paid on any Common Stock
unless a corresponding dividend is paid with respect to all outstanding shares
of Preferred Stock in an amount for each such share of Preferred Stock equal to
the aggregate amount of such dividends for all Common Stock into which each such
share of Preferred Stock could then be converted.
(b) Each holder of Preferred Stock shall be deemed to have
consented to distributions made by the Corporation in connection with the
repurchase of Common Stock issued to or held by employees, directors or
consultants upon termination of their employment or services pursuant to
agreements providing for such repurchase.
2. PREFERENCE ON LIQUIDATION.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Preferred
Stock then outstanding shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders before any payment
shall be made in respect of the Common Stock, an amount equal to (i) in the case
of the holders of the Series A Preferred Stock, $1.00 per share for each share
of Series A Preferred Stock then held by them, and in the case of the holders of
the Series B Preferred Stock, $5.00 per share for each share of Series B
Preferred Stock then held by them, in each case as adjusted for any stock split,
combination, consolidation, or stock distributions or stock dividends with
respect to such shares, and (ii) an amount equal to all declared but unpaid
dividends on the Series A Preferred
-2-
<PAGE> 21
Stock and Series B Preferred Stock as provided in Section 1 above. If the assets
and funds available to be distributed among the holders of the Series A
Preferred Stock and the Series B Preferred Stock shall be insufficient to permit
the payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
and Series B Preferred Stock in proportion to their aggregate preferential
amounts.
(b) After payment has been made to the holders of the Preferred
Stock of the full preferential amounts to which they shall be entitled, if any,
as aforesaid, the remaining assets of the Corporation available for distribution
to stockholders, if any, shall be distributed ratably on a per share basis among
the holders of Common Stock and the holders of Preferred Stock, based on the
number of shares of Common Stock then held, with each share of Preferred Stock
treated as the number of shares of Common Stock into which such share of
Preferred Stock is then convertible.
(c) A consolidation or merger of the Corporation with or into any
other corporation or corporations (other than a wholly owned subsidiary), or the
sale, transfer or other disposition of all or substantially all of the assets of
the Corporation or the consummation of any transaction or series of related
transactions which results in the Corporation's stockholders immediately prior
to such transaction not holding at least 50% of the voting power of the
surviving or continuing entity shall be deemed a liquidation, dissolution or
winding up within the meaning of this Section 2.
3. VOTING RIGHTS.
(a) Except as set forth to the contrary in Sections 3(b) and 5
below or as required by law, each holder of shares of Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the number of shares of Common Stock into which such shares of
Preferred Stock could be converted on the record date for the vote or consent of
stockholders. The holder of each share of Preferred Stock shall be entitled to
notice of any stockholders' meeting in accordance with the Bylaws of the
Corporation and, except as provided in this Certificate of Incorporation, shall
vote with holders of the Common Stock upon any matter submitted to a vote of
stockholders, except those matters required by law to be submitted to a class
vote. Fractional votes by the holders of Preferred Stock shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number.
(b) So long as at least 1,050,000 shares of Preferred Stock
remain outstanding (adjusted to reflect subsequent stock dividends or
distributions,
-3-
<PAGE> 22
stock splits or combinations or recapitalizations) the holders of shares of
Series A Preferred Stock and Series B Preferred Stock shall be entitled, voting
together as a separate class, to elect two (2) members of the Board of Directors
of this Corporation. The holders of shares of Common Stock shall be entitled,
voting together as a separate class, to elect two (2) members of the Board of
Directors of this Corporation. In all other cases, the holders of shares of
Common Stock and Preferred Stock, voting together as a single class with each
holder of shares of Preferred Stock entitled to the number of votes equal to the
number of shares of Common Stock into which such shares of Preferred Stock could
be converted on the record date for the vote, shall be entitled to elect the
remaining directors of the Corporation, if any. In the case of any vacancy in
the office of a director elected by the holders of a particular class or series
of stock, the vacancy may be filled only by the vote of the holders of such
class or series of stock. Any director who shall have been elected by the
holders of a particular class or series of stock may be removed with or without
cause by, and only by, the applicable vote of the holders of shares of such
class or series of stock.
4. CONVERSION. The holders of the Series A Preferred Stock and Series
B Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) RIGHT TO CONVERT; AUTOMATIC CONVERSION.
(i) Subject to subsection 4(c), each share of Series A Preferred Stock and
Series B Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such shares, at the office of
the Corporation or any transfer agent for the Series A Preferred Stock or Series
B Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined (x) in the case of the Series A Preferred Stock,
by dividing $1.00 by the Conversion Price (as defined below) in effect at the
time of conversion for such share of Series A Preferred Stock, and (y) in the
case of the Series B Preferred Stock, by dividing $5.00 by the Conversion Price
in effect at the time of conversion for such share of Series B Preferred Stock
(the "Conversion Rate"). The Conversion Price for the Series A Preferred Stock
and the Series B Preferred Stock shall initially be $1.00 and $5.00,
respectively, provided, however, that the Conversion Price for the Series A
Preferred Stock and the Series B Preferred Stock shall be subject to adjustment
as set forth in subsection 4(c).
(ii) Each share of Series A Preferred Stock and Series B Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Rate at the time in effect for such Series A Preferred Stock and Series B
Preferred Stock immediately upon the earlier of the following:
(A) the closing of the Corporation's sale of its Common
Stock in an underwritten public offering pursuant to a registration
-4-
<PAGE> 23
statement on Form S-1 under the Securities Act of 1933, as amended, in which the
Corporation receives aggregate cash proceeds of more than $10,000,000 (net of
any underwriting discounts and commissions), and the public offering price of
which is not less than $10.00 per share (adjusted to reflect subsequent stock
dividends or distributions, stock splits or combinations or recapitalizations);
or
(B) the election of the holders of more than 50% of the
outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
voting together as a separate class; or
(C) if less than 420,000 shares in the aggregate of the
Series A Preferred Stock and Series B Preferred Stock (adjusted to reflect
subsequent stock dividends or distributions, stock splits or combinations or
recapitalizations) remain outstanding.
(b) MECHANICS OF CONVERSION. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, the holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred Stock, and
shall give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred Stock a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The
Conversion Price for the Series A Preferred Stock and the Series B Preferred
Stock from time to time in effect shall be subject to adjustment from time to
time as follows:
(i) In case the Corporation shall at any time subdivide the outstanding
shares of Common Stock, or shall issue a stock dividend on its outstanding
Common Stock, without an equivalent subdivision of, or dividend on, the Series A
Preferred Stock and the Series B Preferred Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in case the Corporation shall at any time combine
the outstanding shares of Common Stock, without an equivalent combination of the
Series A Preferred Stock and the Series B Preferred Stock, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased, effective at
-5-
<PAGE> 24
the close of business on the date of such subdivision, dividend or combination,
as the case may be.
(ii) If the Corporation shall issue or sell Equity Securities (as defined
below) at a consideration per share less than the Conversion Price for the
Series A Preferred Stock or the Series B Preferred Stock in effect immediately
prior to the time of such issue or sale, as the case may be, then forthwith upon
such issue or sale, the Conversion Price of each share of Series A Preferred
Stock or Series B Preferred Stock, as the case may be, shall be adjusted to a
price (calculated to the nearest cent) determined by dividing:
(A) an amount equal to the sum of (1) the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock or the Series B
Preferred Stock, as the case may be, outstanding immediately prior to such issue
or sale multiplied by the then existing Conversion Price for the Series A
Preferred Stock or the Series B Preferred Stock, as the case may be, and (2) an
amount equal to the aggregate "consideration actually received" by the
Corporation upon such issue or sale, by
(B) the sum of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock or the Series B Preferred Stock
Preferred Stock, as the case may be, outstanding immediately prior to such issue
or sale and the number of shares (on a common-equivalent basis) of the Equity
Securities so issued or sold.
(iii) For purposes of this subsection 4(c) the following provisions shall
be applicable:
(A) The term "Equity Securities" shall mean any shares of
Common Stock, any shares of stock convertible into Common Stock or any option,
warrant or other right to purchase either Common Stock or stock or other
securities of the Corporation convertible into or exchangeable for Common Stock
except for (1) Common Stock issued or issuable, after the date of the initial
issuance of shares of Series A Preferred Stock, to officers, directors,
employees or consultants of the Corporation pursuant to stock grants, stock
purchase and stock option plans or other stock incentive programs, agreements or
arrangements approved by the Board of Directors, (2) shares issued pursuant to
transactions described in subsection 4(c)(i), (3) securities issued in
connection with an equipment lease, equipment financing or bank line financing,
or (4) shares of Common Stock issued upon conversion of the Series A Preferred
Stock or Series B Preferred Stock.
(B) In the case of an issue or sale for cash of shares of
Common Stock, the "consideration actually received" by the Corporation
-6-
<PAGE> 25
therefor shall be deemed to be the amount of cash received, before deducting
therefrom any commissions or expenses paid by the Corporation.
(C) In case of the issuance (otherwise than upon conversion
or exchange of rights or shares of stock of the Corporation) of additional
shares of Common Stock for a consideration other than cash or a consideration
partly other than cash, the amount of the consideration other than cash received
by the Corporation for such shares shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors.
(D) In case of the issuance by the Corporation in any manner
of any rights, including options or warrants, to subscribe for or to purchase
shares of Common Stock or stock convertible into Common Stock, all shares of
Common Stock to which the holders of such rights shall be entitled to subscribe
for or purchase pursuant to such rights shall be deemed issued as of the date of
the issuance of such rights, and the minimum aggregate consideration named in
such rights for the shares of Common Stock or stock convertible into Common
Stock covered thereby, plus the consideration, if any, received by the
Corporation for such rights, shall be deemed to be the "consideration actually
received" by the Corporation (as of the date of the issuance of such rights) for
the issuance of such shares.
(E) In case of the issuance or issuances by the Corporation
in any manner of any obligations or of any shares of stock of the Corporation
that shall be convertible into or exchangeable for Common Stock, all shares of
Common Stock issuable upon the conversion or exchange of such obligations or
shares shall be deemed issued as of the date such obligations or shares are
issued, and the amount of the "consideration actually received" by the
Corporation for such additional shares of Common Stock shall be deemed to be the
total of (1) the amount of consideration received by the Corporation upon the
issuance of such obligations or shares, as the case may be, plus (2) the minimum
aggregate consideration, if any, other than such obligations or shares,
receivable by the Corporation upon such conversion or exchange, except in
adjustment of dividends.
(F) The amount of the "consideration actually received" by
the Corporation upon the issuance of any rights or options referred to in
subsection (D) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in subsection (E) above, and the amount
of the consideration, if any, other than such obligations or shares so
convertible or exchangeable, receivable by the Corporation upon the exercise,
conversion or exchange thereof shall be determined in the same manner provided
in subsections (B) and (C) above with respect to the consideration received by
the Corporation in case of the issuance of additional shares of Common Stock;
provided, however, that if such obligations or shares of stock so convertible or
exchangeable are issued in
-7-
<PAGE> 26
payment or satisfaction of any dividend upon any stock of the Corporation other
than Common Stock, the amount of the "consideration actually received" by the
Corporation upon the original issuance of such obligations or shares or stock so
convertible or exchangeable shall be deemed to be the value of such obligations
or shares of stock, as of the date of the adoption of the resolution declaring
such dividend, as determined by the Board of Directors at or as of that date. On
the expiration of any rights or options referred to in subsection (D), or the
termination of any right of conversion or exchange referred to in subsection
(E), or any change in the number of shares of Common Stock deliverable upon
exercise of such options or rights or upon conversion of or exchange of such
convertible or exchangeable securities, the Conversion Price for the Series A
Preferred Stock and the Series B Preferred Stock then in effect shall forthwith
be readjusted to such Conversion Price as would have been obtained had the
adjustments made upon the issuance of such option, right or convertible or
exchangeable securities been made upon the basis of the delivery of only the
number of shares of Common Stock actually delivered or to be delivered upon the
exercise of such rights or options or upon the conversion or exchange of such
securities.
(d) OTHER DISTRIBUTIONS. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(iii), then,
in each such case for the purpose of this subsection 4(d), the holders of the
Series A Preferred Stock and the Series B Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series A Preferred Stock or Series B Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock of
the Corporation entitled to receive such distribution.
(e) RECAPITALIZATION. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 3 above) provision shall be made so that the holders
of the Preferred Stock shall thereafter be entitled to receive upon conversion
of the Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Preferred Stock after the recapitalization to the end that the provisions of
this Section 4 (including adjustment of the Conversion Price for the Series A
Preferred Stock and the Series B Preferred Stock then in effect and the number
of shares purchasable upon conversion of the
-8-
<PAGE> 27
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(f) NO IMPAIRMENTS. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the rights, preferences or privileges of the Preferred
Stock set forth herein, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon conversion of the Preferred
Stock, and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of the Series A Preferred Stock or the Series B Preferred Stock
pursuant to this Section 4, the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price of the Series A Preferred
Stock or the Series B Preferred Stock, as the case may be, at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series A Preferred Stock or Series B Preferred Stock, as the case may
be.
(h) NOTICES OF RECORD DATE. In the event of any setting of a
record date by the Corporation for the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying
-9-
<PAGE> 28
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(j) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
5. PROTECTIVE PROVISIONS.
(a) So long as any shares of Series A Preferred Stock or Series B
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided by
law, of the holders of a majority of the total number of shares of Series A
Preferred Stock and Series B Preferred Stock outstanding, voting together as a
separate class (except as otherwise provided by law): (1) alter or change any of
the powers, preferences, privileges or rights of the Series A Preferred Stock or
Series B Preferred Stock; (2) increase the authorized number of shares of
Preferred Stock; (3) amend the provisions of this paragraph (a) of Section 5; or
(4) create any new class or series of shares having preferences prior to or on
parity with those of the Series A Preferred Stock or the Series B Preferred
Stock.
(b) So long as at least 1,050,000 shares of Series A Preferred
Stock and Series B Preferred Stock in the aggregate (adjusted to reflect
subsequent stock dividends or distributions, stock splits or combinations or
recapitalizations) are outstanding, the Corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided by
law, of the holders of a majority of the total number of shares of Series A
Preferred Stock and Series B Preferred Stock outstanding, voting together as a
separate class: (1) undertake or effect any consolidation or merger of the
Corporation with or into another corporation (except
-10-
<PAGE> 29
into or with a wholly-owned subsidiary) or any acquisition by or the conveyance
of all or substantially all of the assets of the Corporation to another person
or effectuate any transaction or series of related transactions which results in
the Corporation's stockholders immediately prior to such transaction not holding
at least 50% of the voting power of the surviving or continuing entity; (2)
effect a material change in the principal business of the Corporation; (3)
repurchase any shares of Common Stock except the repurchase of Common Stock of
employees, consultants or directors pursuant to a stock or option agreement duly
approved by the Corporation's Board of Directors; or (4) amend the Corporation's
Certificate of Incorporation or Bylaws.
B. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefore, such dividends as may be declared from time to time by the
Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Article III.A.
3. VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law or as
provided by Section 3 of Article III.A above. Except as otherwise expressly
provided herein or required by law, the holders of shares of Common Stock and
the holders of shares of Preferred Stock shall vote together as a single class
on all matters.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
and attested by its Secretary this 26th day of March, 1996.
CASCADE SYSTEMS INTERNATIONAL,
INC.
By: /s/ Malcolm P. McGrory
--------------------------------
President
-11-
<PAGE> 30
ATTEST:
/s/ Andrew Zimmon
- ------------------------------------------
Secretary
(Corporate Seal)
-12-
<PAGE> 31
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
CASCADE SYSTEMS INCORPORATED
WITH AND INTO
CASCADE SYSTEMS INTERNATIONAL, INC.
Pursuant to Section 253 of the General Corporation Law of the State of Delaware
Cascade Systems International, Inc., a Delaware corporation (the
"Corporation"), HEREBY CERTIFIES AS FOLLOWS:
FIRST: The Corporation is a corporation incorporated on February 10, 1994,
under the laws of the State of Delaware.
SECOND: The Corporation owns all of the outstanding capital stock of
Cascade Systems Incorporated, a corporation incorporated on February 5, 1993,
under the laws of the Commonwealth of Massachusetts ("Cascade-Mass").
THIRD: The Corporation, by the following resolutions of its Board of
Directors, duly adopted by unanimous written consent of its members, filed with
the minutes of its Board of Directors, as of March 21, 1996, determined to
merge Cascade-Mass with and into the Corporation:
RESOLVED, that the Corporation merge Cascade-Mass, a Massachusetts
corporation ("Cascade-Mass"), with and into the Corporation (the "Merger");
RESOLVED, that the Merger shall become effective at the time (the
"Effective Time") of the filing of a Certificate of Ownership and Merger
with the Secretary of State of the State of Delaware in accordance with the
provisions of the General Corporation Law at the State of Delaware;
RESOLVED, that, at the Effective Time, the separate existence of
Cascade-Mass shall cease Cascade-Mass shall be merged with and into the
Corporation, which shall be the surviving corporation (the "Surviving
Corporation"), and the Surviving Corporation, without
<PAGE> 32
further action, shall possess all the rights, privileges, powers and
franchises, public and private, of both the Corporation and Cascade-Mass
and shall be subject to all the debts, liabilities, obligations,
restrictions, disabilities and duties of both the Corporation and
Cascade-Mass;
RESOLVED, that the Amended and Restated Certificate of Incorporation
and By-Laws of the Corporation, as in effect immediately prior to the
Effective Time and as amended hereby, shall be the Certificate of
Incorporation and By-laws of the Surviving Corporation until thereafter
amended as provided by law or such Certificate of Incorporation;
RESOLVED, that, at the Effective Time, Article I of the Amended and
Restated Certificate of Incorporation be amended and restated in its
entirety to read as follows:
"The name of the Corporation is Cascade Systems Incorporated."
RESOLVED, that, at the Effective Time, each share of the Common Stock,
par value $.01 per share, of Cascade-Mass which is issued and outstanding
immediately prior to the Effective Time, shall be deemed cancelled;
RESOLVED, that, at the Effective Time, each share of the Common
Stock, par value $.01 per share, and each share of Preferred Stock, par
value $.00l per share, of the Corporation which is issued and outstanding
immediately prior to the Effective Time, shall remain outstanding following
the Effective Time;
RESOLVED, that the directors and officers of the Corporation as of the
Effective Time shall be the directors and officers of the Surviving
Corporation, until their successors are duly elected or appointed;
RESOLVED, that anything herein or elsewhere to the contrary
notwithstanding, the Merger may be amended, terminated and abandoned by the
Board of Directors of the Corporation at any time prior to the filing of
the Certificate of Ownership and Merger in the office of the Secretary of
State of the State of Delaware;
RESOLVED, that the proper officers of the Corporation be, and each of
them acting alone hereby is, authorized to take all actions and to prepare,
execute, deliver and file all agreement, instruments, documents
-2-
<PAGE> 33
and certificates in the name and on behalf of the Corporation, and under
its corporate seal or otherwise, and to pay all such fees and expenses as
they, or any one of them, may deem necessary, proper or advisable in order
to effect the Merger.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Ownership and Merger to be executed by its President, and attested to by its
Secretary, as of this 24th day of March, 1996.
CASCADE SYSTEMS INTERNATIONAL, INC.
By: /s/ Malcolm McGrory
--------------------------------
Malcolm McGrory
President
ATTEST:
By: /s/ Andrew Zimmon
-------------------------
Andrew Zimmon
Secretary
[CORPORATE SEAL]
-3-
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CASCADE SYSTEMS INCORPORATED
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------
Cascade Systems Incorporated (the "Corporation"), a corporation duly
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
By vote of the Board of Directors of the Corporation a resolution was duly
adopted, pursuant to Sections 141 and 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Amended and Restated
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable and directing that it be submitted to and be considered by the
stockholders of the Corporation for approval. The stockholders of the
Corporation duly approved said proposed amendment by written consent in lieu of
a special meeting in accordance with Sections 228 and 242 of the General
Corporation Law of the State of Delaware. The resolutions setting forth the
amendment are as follows:
RESOLVED: That Article III of the Amended and Restated Certificate of
Incorporation be and hereby is deleted and the following
Article III is inserted in lieu thereof:
ARTICLE III
STOCK
The Corporation is authorized to issue two classes of shares to be
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock authorized is 2,100,000, $0.001 par value per
share. The total number of shares of Common Stock authorized is 25,000,000,
$0.001 par value per share.
A. PREFERRED STOCK. The Preferred Stock shall be comprised of 2,100,000
shares, of which 1,700,000 shares are designated as Series A Preferred Stock
(the "Series A Preferred Stock"), and 400,000 shares are designated as Series B
Preferred Stock (the "Series B Preferred Stock"). The relative rights,
preferences, restrictions and other matters relating to the Preferred Stock are
as follows:
1. DIVIDENDS RIGHTS.
<PAGE> 2
(a) The holders of the then outstanding Series A Preferred Stock
and Series B Preferred Stock shall be entitled to receive in any fiscal year,
when, as and if, declared by the Board of Directors, out of any assets at the
time legally available therefor, dividends in cash at the rate per annum of $.08
per share in the case of the Series A Preferred Stock, and $.40 per share in the
case of the Series B Preferred Stock (in each case adjusted for any splits,
combinations, consolidations or stock dividends or distributions with respect to
such shares) payable in preference and priority to any payment of any cash
dividend on Common Stock. After dividends shall have been paid on account of the
Series A Preferred Stock and Series B Preferred Stock in any given fiscal year
as aforesaid, the holders of the then outstanding Common Stock shall be entitled
to receive in that fiscal year, when, as and if, declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
in cash at the rate per annum of $.08 per share (adjusted for any splits,
combinations, consolidations or stock dividends or distributions with respect to
such shares) payable in preference and priority to any payment of any additional
cash dividends on the Preferred Stock. The right to such cash dividends on the
Preferred Stock and the Common Stock shall not be cumulative, and no right shall
accrue to holders of the Preferred Stock or Common Stock by reason of the fact
that dividends on such shares are not declared in any prior year. Except as set
forth above, no dividends shall be paid on any Common Stock unless a
corresponding dividend is paid with respect to all outstanding shares of
Preferred Stock in an amount for each such share of Preferred Stock equal to the
aggregate amount of such dividends for all Common Stock into which each such
share of Preferred Stock could then be converted.
(b) Each holder of Preferred Stock shall be deemed to have
consented to distributions made by the Corporation in connection with the
repurchase of Common Stock issued to or held by employees, directors or
consultants upon termination of their employment or services pursuant to
agreements providing for such repurchase.
2. PREFERENCE ON LIQUIDATION.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Preferred
Stock then outstanding shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders before any payment
shall be made in respect of the Common Stock, an amount equal to (i) in the case
of the holders of the Series A Preferred Stock, $1.00 per share for each share
of Series A Preferred Stock then held by them, and in the case of the holders of
the Series B Preferred Stock, $5.00 per share for each share of Series B
Preferred Stock then held by them, in each case as adjusted for any stock split,
combination, consolidation, or stock distributions or stock dividends with
respect to such shares, and (ii) an amount equal to all declared but unpaid
dividends on the Series A Preferred Stock and Series B Preferred
-2-
<PAGE> 3
Stock as provided in Section 1 above. If the assets and funds available to be
distributed among the holders of the Series A Preferred Stock and the Series B
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock and Series B Preferred Stock
in proportion to their aggregate preferential amounts.
(b) After payment has been made to the holders of the Preferred
Stock of the full preferential amounts to which they shall be entitled, if any,
as aforesaid, the remaining assets of the Corporation available for distribution
to stockholders, if any, shall be distributed ratably on a per share basis among
the holders of Common Stock and the holders of Preferred Stock, based on the
number of shares of Common Stock then held, with each share of Preferred Stock
treated as the number of shares of Common Stock into which such share of
Preferred Stock is then convertible.
(c) A consolidation or merger of the Corporation with or into
any other corporation or corporations (other than a wholly owned subsidiary), or
the sale, transfer or other disposition of all or substantially all of the
assets of the Corporation or the consummation of any transaction or series of
related transactions which results in the Corporation's stockholders immediately
prior to such transaction not holding at least 50% of the voting power of the
surviving or continuing entity shall be deemed a liquidation, dissolution or
winding up within the meaning of this Section 2.
3. VOTING RIGHTS.
(a) Except as set forth to the contrary in Sections 3(b) and 5
below or as required by law, each holder of shares of Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the number of shares of Common Stock into which such shares of
Preferred Stock could be converted on the record date for the vote or consent of
stockholders. The holder of each share of Preferred Stock shall be entitled to
notice of any stockholders' meeting in accordance with the Bylaws of the
Corporation and, except as provided in this Certificate of Incorporation, shall
vote with holders of the Common Stock upon any matter submitted to a vote of
stockholders, except those matters required by law to be submitted to a class
vote. Fractional votes by the holders of Preferred Stock shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number.
(b) So long as at least 1,050,000 shares of Preferred Stock
remain outstanding (adjusted to reflect subsequent stock dividends or
distributions,
-3-
<PAGE> 4
stock splits or combinations or recapitalizations) the holders of shares of
Series A Preferred Stock and Series B Preferred Stock shall be entitled, voting
together as a separate class, to elect two (2) members of the Board of Directors
of this Corporation. The holders of shares of Common Stock shall be entitled,
voting together as a separate class, to elect two (2) members of the Board of
Directors of this Corporation. In all other cases, the holders of shares of
Common Stock and Preferred Stock, voting together as a single class with each
holder of shares of Preferred Stock entitled to the number of votes equal to the
number of shares of Common Stock into which such shares of Preferred Stock could
be converted on the record date for the vote, shall be entitled to elect the
remaining directors of the Corporation, if any. In the case of any vacancy in
the office of a director elected by the holders of a particular class or series
of stock, the vacancy may be filled only by the vote of the holders of such
class or series of stock. Any director who shall have been elected by the
holders of a particular class or series of stock may be removed with or without
cause by, and only by, the applicable vote of the holders of shares of such
class or series of stock.
4. CONVERSION. The holders of the Series A Preferred Stock and
Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) RIGHT TO CONVERT; AUTOMATIC CONVERSION.
(i) Subject to subsection 4(c), each share of Series A Preferred Stock and
Series B Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such shares, at the office of
the Corporation or any transfer agent for the Series A Preferred Stock or Series
B Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined (x) in the case of the Series A Preferred Stock,
by dividing $1.00 by the Conversion Price (as defined below) in effect at the
time of conversion for such share of Series A Preferred Stock, and (y) in the
case of the Series B Preferred Stock, by dividing $5.00 by the Conversion Price
in effect at the time of conversion for such share of Series B Preferred Stock
(the "Conversion Rate"). The Conversion Price for the Series A Preferred Stock
and the Series B Preferred Stock shall initially be $1.00 and $5.00,
respectively, provided, however, that the Conversion Price for the Series A
Preferred Stock and the Series B Preferred Stock shall be subject to adjustment
as set forth in subsection 4(c).
(ii) Each share of Series A Preferred Stock and Series B Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Rate at the time in effect for such Series A Preferred Stock and Series B
Preferred Stock immediately upon the earlier of the following:
(A) immediately prior to the closing of the Corporation's
sale of its Common Stock in an underwritten public offering pursuant
-4-
<PAGE> 5
to a registration statement on Form S-1 under the Securities Act of 1933, as
amended, in which the Corporation receives aggregate cash proceeds of more than
$10,000,000 (net of any underwriting discounts and commissions), and the public
offering price of which is not less than $8.00 per share (adjusted to reflect
subsequent stock dividends or distributions, stock splits or combinations or
recapitalizations); or
(B) the election of the holders of more than 50% of the
outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
voting together as a separate class; or
(C) if less than 420,000 shares in the aggregate of the
Series A Preferred Stock and Series B Preferred Stock (adjusted to reflect
subsequent stock dividends or distributions, stock splits or combinations or
recapitalizations) remain outstanding.
(b) MECHANICS OF CONVERSION. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, the
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for the Preferred
Stock, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office, of the election to convert the
same. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The
Conversion Price for the Series A Preferred Stock and the Series B Preferred
Stock from time to time in effect shall be subject to adjustment from time to
time as follows:
(i) In case the Corporation shall at any time subdivide the outstanding
shares of Common Stock, or shall issue a stock dividend on its outstanding
Common Stock, without an equivalent subdivision of, or dividend on, the Series A
Preferred Stock and the Series B Preferred Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in case the Corporation shall at any time combine
the outstanding shares of Common Stock, without an equivalent combination of the
Series A Preferred Stock and the Series B Preferred Stock, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased, effective at
-5-
<PAGE> 6
the close of business on the date of such subdivision, dividend or combination,
as the case may be.
(ii) If the Corporation shall issue or sell Equity Securities (as defined
below) at a consideration per share less than the Conversion Price for the
Series A Preferred Stock or the Series B Preferred Stock in effect immediately
prior to the time of such issue or sale, as the case may be, then forthwith upon
such issue or sale, the Conversion Price of each share of Series A Preferred
Stock or Series B Preferred Stock, as the case may be, shall be adjusted to a
price (calculated to the nearest cent) determined by dividing:
(A) an amount equal to the sum of (1) the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock or the Series B
Preferred Stock, as the case may be, outstanding immediately prior to such issue
or sale multiplied by the then existing Conversion Price for the Series A
Preferred Stock or the Series B Preferred Stock, as the case may be, and (2) an
amount equal to the aggregate "consideration actually received" by the
Corporation upon such issue or sale, by
(B) the sum of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock or the Series B Preferred Stock
Preferred Stock, as the case may be, outstanding immediately prior to such issue
or sale and the number of shares (on a common-equivalent basis) of the Equity
Securities so issued or sold.
(iii) For purposes of this subsection 4(c) the following provisions shall
be applicable:
(A) The term "Equity Securities" shall mean any shares of
Common Stock, any shares of stock convertible into Common Stock or any option,
warrant or other right to purchase either Common Stock or stock or other
securities of the Corporation convertible into or exchangeable for Common Stock
except for (1) Common Stock issued or issuable, after the date of the initial
issuance of shares of Series A Preferred Stock, to officers, directors,
employees or consultants of the Corporation pursuant to stock grants, stock
purchase and stock option plans or other stock incentive programs, agreements or
arrangements approved by the Board of Directors, (2) shares issued pursuant to
transactions described in subsection 4(c)(i), (3) securities issued in
connection with an equipment lease, equipment financing or bank line financing,
or (4) shares of Common Stock issued upon conversion of the Series A Preferred
Stock or Series B Preferred Stock.
(B) In the case of an issue or sale for cash of shares of
Common Stock, the "consideration actually received" by the Corporation
-6-
<PAGE> 7
therefor shall be deemed to be the amount of cash received, before deducting
therefrom any commissions or expenses paid by the Corporation.
(C) In case of the issuance (otherwise than upon conversion
or exchange of rights or shares of stock of the Corporation) of additional
shares of Common Stock for a consideration other than cash or a consideration
partly other than cash, the amount of the consideration other than cash received
by the Corporation for such shares shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors.
(D) In case of the issuance by the Corporation in any
manner of any rights, including options or warrants, to subscribe for or to
purchase shares of Common Stock or stock convertible into Common Stock, all
shares of Common Stock to which the holders of such rights shall be entitled to
subscribe for or purchase pursuant to such rights shall be deemed issued as of
the date of the issuance of such rights, and the minimum aggregate consideration
named in such rights for the shares of Common Stock or stock convertible into
Common Stock covered thereby, plus the consideration, if any, received by the
Corporation for such rights, shall be deemed to be the "consideration actually
received" by the Corporation (as of the date of the issuance of such rights) for
the issuance of such shares.
(E) In case of the issuance or issuances by the Corporation
in any manner of any obligations or of any shares of stock of the Corporation
that shall be convertible into or exchangeable for Common Stock, all shares of
Common Stock issuable upon the conversion or exchange of such obligations or
shares shall be deemed issued as of the date such obligations or shares are
issued, and the amount of the "consideration actually received" by the
Corporation for such additional shares of Common Stock shall be deemed to be the
total of (1) the amount of consideration received by the Corporation upon the
issuance of such obligations or shares, as the case may be, plus (2) the minimum
aggregate consideration, if any, other than such obligations or shares,
receivable by the Corporation upon such conversion or exchange, except in
adjustment of dividends.
(F) The amount of the "consideration actually received" by
the Corporation upon the issuance of any rights or options referred to in
subsection (D) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in subsection (E) above, and the amount
of the consideration, if any, other than such obligations or shares so
convertible or exchangeable, receivable by the Corporation upon the exercise,
conversion or exchange thereof shall be determined in the same manner provided
in subsections (B) and (C) above with respect to the consideration received by
the Corporation in case of the issuance of additional shares of Common Stock;
provided, however, that if such obligations or shares of stock so convertible or
exchangeable are issued in
-7-
<PAGE> 8
payment or satisfaction of any dividend upon any stock of the Corporation other
than Common Stock, the amount of the "consideration actually received" by the
Corporation upon the original issuance of such obligations or shares or stock so
convertible or exchangeable shall be deemed to be the value of such obligations
or shares of stock, as of the date of the adoption of the resolution declaring
such dividend, as determined by the Board of Directors at or as of that date. On
the expiration of any rights or options referred to in subsection (D), or the
termination of any right of conversion or exchange referred to in subsection
(E), or any change in the number of shares of Common Stock deliverable upon
exercise of such options or rights or upon conversion of or exchange of such
convertible or exchangeable securities, the Conversion Price for the Series A
Preferred Stock and the Series B Preferred Stock then in effect shall forthwith
be readjusted to such Conversion Price as would have been obtained had the
adjustments made upon the issuance of such option, right or convertible or
exchangeable securities been made upon the basis of the delivery of only the
number of shares of Common Stock actually delivered or to be delivered upon the
exercise of such rights or options or upon the conversion or exchange of such
securities.
(d) OTHER DISTRIBUTIONS. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(iii), then,
in each such case for the purpose of this subsection 4(d), the holders of the
Series A Preferred Stock and the Series B Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series A Preferred Stock or Series B Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock of
the Corporation entitled to receive such distribution.
(e) RECAPITALIZATION. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 3 above) provision shall be made so that the holders
of the Preferred Stock shall thereafter be entitled to receive upon conversion
of the Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Preferred Stock after the recapitalization to the end that the provisions of
this Section 4 (including adjustment of the Conversion Price for the Series A
Preferred Stock and the Series B Preferred Stock then in effect and the number
of shares purchasable upon conversion of the
-8-
<PAGE> 9
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(f) NO IMPAIRMENTS. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the rights, preferences or privileges of the
Preferred Stock set forth herein, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 4 and in the taking of
all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon conversion of the Preferred
Stock, and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of the Series A Preferred Stock or the Series B Preferred Stock
pursuant to this Section 4, the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price of the Series A Preferred
Stock or the Series B Preferred Stock, as the case may be, at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series A Preferred Stock or Series B Preferred Stock, as the case may
be.
(h) NOTICES OF RECORD DATE. In the event of any setting of a
record date by the Corporation for the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying
-9-
<PAGE> 10
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(j) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
5. PROTECTIVE PROVISIONS.
(a) So long as any shares of Series A Preferred Stock or Series
B Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided by
law, of the holders of a majority of the total number of shares of Series A
Preferred Stock and Series B Preferred Stock outstanding, voting together as a
separate class (except as otherwise provided by law): (1) alter or change any of
the powers, preferences, privileges or rights of the Series A Preferred Stock or
Series B Preferred Stock; (2) increase the authorized number of shares of
Preferred Stock; (3) amend the provisions of this paragraph (a) of Section 5; or
(4) create any new class or series of shares having preferences prior to or on
parity with those of the Series A Preferred Stock or the Series B Preferred
Stock.
(b) So long as at least 1,050,000 shares of Series A Preferred
Stock and Series B Preferred Stock in the aggregate (adjusted to reflect
subsequent stock dividends or distributions, stock splits or combinations or
recapitalizations) are outstanding, the Corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided by
law, of the holders of a majority of the total number of shares of Series A
Preferred Stock and Series B Preferred Stock outstanding, voting together as a
separate class: (1) undertake or effect any consolidation or merger of the
Corporation with or into another corporation (except
-10-
<PAGE> 11
into or with a wholly-owned subsidiary) or any acquisition by or the conveyance
of all or substantially all of the assets of the Corporation to another person
or effectuate any transaction or series of related transactions which results in
the Corporation's stockholders immediately prior to such transaction not holding
at least 50% of the voting power of the surviving or continuing entity; (2)
effect a material change in the principal business of the Corporation; (3)
repurchase any shares of Common Stock except the repurchase of Common Stock of
employees, consultants or directors pursuant to a stock or option agreement duly
approved by the Corporation's Board of Directors; or (4) amend the Corporation's
Certificate of Incorporation or Bylaws.
B. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefore, such dividends as may be declared from time to time by the
Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Article III.A.
3. VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law or as
provided by Section 3 of Article III.A above. Except as otherwise expressly
provided herein or required by law, the holders of shares of Common Stock and
the holders of shares of Preferred Stock shall vote together as a single class
on all matters.
RESOLVED: That Article IV of the Amended and Restated Certificate of
Incorporation be and hereby is deleted and the following Article
IV is inserted in lieu thereof:
ARTICLE IV
DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS
1. ACTION, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify each person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was,
-11-
<PAGE> 12
or has agreed to become, a director or officer of the Corporation, or is or was
serving, or has agreed to serve, at the request of the Corporation, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees) judgment,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. Notwithstanding anything to the contrary in this Article, except
as set forth in Section 6 below, the Corporation shall not indemnify an
Indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of Delaware shall deem
proper.
-12-
<PAGE> 13
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
-13-
<PAGE> 14
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; PROVIDED,
HOWEVER, that the payment of such expense incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of the directors of the Corporation
consisting of persons who are not at that time parties to the action, suit or
proceeding in question ("disinterested directors"), even though less than a
quorum, (b) a majority vote of a quorum of the outstanding shares of stock of
all classes entitled to vote for directors, voting as a single class, which
quorum shall consist of stockholders who are not at that time parties to the
action, suit or proceeding in question, (c) independent legal counsel (who may
be regular legal counsel to the Corporation), or (d) a court of competent
jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advanced of expenses under this
Article shall be on the Corporation. Neither the failure of the Corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct,
-14-
<PAGE> 15
nor an actual determination by the Corporation pursuant to Section 6 that the
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. The Indemnitee's expenses (including attorneys'
fees) incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal,
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
-15-
<PAGE> 16
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation law
of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
ARTICLE V
DIRECTORS' FIDUCIARY LIABILITY
Except to the extent that the General Corporation Law of the State of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this _____ day of September, 1997.
CASCADE SYSTEMS INCORPORATED
By:
-------------------------------------
Malcolm P. McGrory
President and Chief Executive Officer
-17-
<PAGE> 1
Exhibit 3.3
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CASCADE SYSTEMS INCORPORATED
Cascade Systems Incorporated, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of State of Delaware on February 10, 1994. The Certificate of
Incorporation was amended and restated by an Amended and Restated Certificate of
Incorporation filed on July 19, 1994, by a Certificate of Correction filed on
July 26, 1994, by a Certificate of Amendment filed on March 27, 1996 and by a
Certificate of Ownership and Merger filed on March 29, 1996.
2. By vote of the Board of Directors of the Corporation, a resolution was
duly adopted, pursuant to Section 245 of the General Corporation Law of the
State of Delaware, setting forth a Second Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Second Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation duly
approved said proposed Second Amended and Restated Certificate of Incorporation
in accordance with Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware by written consent in lieu of a special meeting. The
resolution setting forth the Second Amended and Restated Certificate of
Incorporation is as follows:
<PAGE> 2
RESOLVED: That the Certificate of Incorporation of the Corporation, as
amended, be and hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
Cascade Systems Incorporated
SECOND. The address of the its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle 19801. The name of its registered agent at such address is
The Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-six million (26,000,000)
shares, consisting of (i) twenty million (25,000,000) shares of Common Stock,
$.001 par value per share ("Common Stock"), and (ii) one million (1,000,000)
shares of Preferred Stock, $.001 par value per share ("Preferred Stock"), which
may be issued from time to time in one or more series as set forth in Part B of
this Article FOURTH.
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled
-2-
<PAGE> 3
to vote, irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in this Second Amended and
Restated Certificate of Incorporation, no vote of the holders of the Preferred
Stock or Common Stock shall be a prerequisite to the designation or issuance of
any shares of any series of the Preferred Stock authorized by and complying with
the conditions of this Second Amended and Restated Certificate of Incorporation,
the right to have such vote being expressly waived by all present and future
holders of the capital stock of the Corporation.
-3-
<PAGE> 4
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided that the Board of Directors is expressly
authorized to adopt, amend or repeal the Bylaws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any promise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of the
State of Delaware prohibits the elimination or limitation of liability of
directors for breaches of fiduciary duty, no director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
NINTH. 1. ACTION, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any
-4-
<PAGE> 5
employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. Notwithstanding anything to the contrary in this Article, except
as set forth in Section 6 below, the Corporation shall not indemnify an
Indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of Delaware shall deem
proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or
-5-
<PAGE> 6
on appeal from any such action, suit or proceeding, he shall be indemnified
against all expenses (including attorneys' fees) actually and reasonably
incurred by him or on his behalf in connection therewith. Without limiting the
foregoing, if any action, suit or proceeding is disposed of, on the merits or
otherwise (including a disposition without prejudice), without (i) the
disposition being adverse to the Indemnitee, (ii) an adjudication that the
Indemnitee was liable to the Corporation, (iii) a plea of guilty or NOLO
CONTENDERE by the Indemnitee, (iv) an adjudication that the Indemnitee did not
act in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, and (v) with respect to any criminal
proceeding, an adjudication that the Indemnitee had reasonable cause to believe
his conduct was unlawful, the Indemnitee shall be considered for the purposes
hereof to have been wholly successful with respect thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or
-6-
<PAGE> 7
investigation or any appeal therefrom shall be paid by the Corporation in
advance of the final disposition of such matter; PROVIDED, HOWEVER, that the
payment of such expense incurred by an Indemnitee in advance of the final
disposition of such matter shall be made only upon receipt of an undertaking by
or on behalf of the Indemnitee to repay all amounts so advanced in the event
that it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Corporation as authorized in this Article. Such undertaking
shall be accepted without reference to the financial ability of the Indemnitee
to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of the directors of the Corporation
consisting of persons who are not at that time parties to the action, suit or
proceeding in question ("disinterested directors"), even though less than a
quorum, (b) a majority vote of a committee of disinterested directors designated
by a majority vote of disinterested directors, whether or not a quorum, (c) a
majority vote of a quorum of the outstanding shares of stock of all classes
entitled to vote for directors, voting as a single class, which quorum shall
consist of stockholders who are not at that time parties to the action, suit or
proceeding in question, (d) independent legal counsel (who may be regular legal
counsel to the Corporation), or (e) a court of competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred
-7-
<PAGE> 8
in connection with successfully establishing his right to indemnification, in
whole or in part, in any such proceeding shall also be indemnified by the
Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal,
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation law
of Delaware.
-8-
<PAGE> 9
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Second Amended and Restated Certificate
of Incorporation, in the manner now or hereafter prescribed by statute and this
Second Amended and Restated Certificate of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. NUMBER OF DIRECTORS. The number of directors of the Corporation shall
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's Bylaws.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-
-9-
<PAGE> 10
thirds, one of the extra directors shall be a member of Class I and one of the
extra directors shall be a member of Class II, unless otherwise provided from
time to time by resolution adopted by the Board of Directors.
3. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot except as and to the extent provided in the Bylaws of the Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; PROVIDED, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 1998; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 1999; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 2000; and PROVIDED, FURTHER, that
the term of each director shall be subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the Bylaws of the Corporation or by this
Second Amended and Restated Certificate of Incorporation.
-10-
<PAGE> 11
7. REMOVAL. Directors of the Corporation may be removed only for cause by
the affirmative vote of the holders of at least two-thirds of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote.
8. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the Bylaws of the Corporation.
10. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Second Amended and Restated Certificate of Incorporation or the Bylaws of
the Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by written
consent in lieu of a meeting. Notwithstanding any other provisions of law, this
Second Amended and Restated Certificate of Incorporation or the Bylaws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the Chief Executive Officer (or if
there is no Chief Executive Officer, the President) or the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
Notwithstanding any other provision of law, this Second Amended and Restated
Certificate of Incorporation or the Bylaws of the Corporation, each as amended,
and notwithstanding the fact that a lesser percentage may be specified by law,
the affirmative vote of the holders of at least seventy-five percent (75%) of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be
-11-
<PAGE> 12
required to amend or repeal, or to adopt any provision inconsistent with, this
Article THIRTEENTH.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Second Amended and Restated Certificate of Incorporation
to be signed by its President and Chief Executive Officer this ____ day of
___________, 1997.
CASCADE SYSTEMS INCORPORATED
By:
-------------------------------------
Malcolm P. McGrory
President and Chief Executive Officer
-12-
<PAGE> 1
EXHIBIT 3.4
BY-LAWS
OF
CASCADE SYSTEMS INTERNATIONAL, INC.
<PAGE> 2
I N D E X
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting .....................................1
Section 1.2 Special Meetings ...................................1
Section 1.3 Notice of Meetings .................................1
Section 1.4 Quorum .............................................1
Section 1.5 Conduct of the Stockholders' Meeting ...............2
Section 1.6 Conduct of Business ................................2
Section 1.7 Notice of Stockholder Business .....................2
Section 1.8 Proxies and Voting .................................3
Section 1.9 Stock List .........................................4
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office ..........................4
Section 2.2 Vacancies and Newly Created Directorships ..........4
Section 2.3 Removal ............................................5
Section 2.4 Regular Meetings....................................5
Section 2.5 Special Meetings ...................................5
Section 2.6 Quorum .............................................5
Section 2.7 Participation in Meetings by Conference Telephone ..5
Section 2.8 Conduct of Business ................................5
Section 2.9 Powers .............................................6
Section 2.10 Compensation of Directors ..........................6
Section 2.11 Nomination of Director Candidates ..................6
ARTICLE III
COMMITTEES
Section 3.1 Committees of the Board of Directors............... 8
Section 3.2 Conduct of Business................................ 8
ARTICLE IV
OFFICERS
Section 4.1 Generally ..........................................9
Section 4.2 Chairman of the Board ..............................9
Section 4.3 President ..........................................9
Section 4.4 Vice President .....................................9
Section 4.5 Treasurer ..........................................9
Section 4.6 Secretary...........................................9
Section 4.7 Delegation of Authority ............................9
i
<PAGE> 3
Section 4.8 Removal........................................... 9
Section 4.9 Action With Respect to Securities of Other
Corporations ................................... 9
ARTICLE V
STOCK
Section 5.1 Certificates of Stock ............................10
Section 5.2 Transfers of Stock ...............................10
Section 5.3 Record Date ......................................10
Section 5.4 Lost, Stolen or Destroyed Certificates ...........10
Section 5.5 Regulations ......................................10
ARTICLE VI
NOTICES
Section 6.1 Notices ..........................................11
Section 6.2 Waivers ..........................................11
ARTICLE VII
MISCELLANEOUS
Section 7.1 Facsimile Signatures ..............................11
Section 7.2 Corporate Seal ....................................11
Section 7.3 Reliance Upon Books, Reports and Records ..........11
Section 7.4 Fiscal Year .......................................12
Section 7.5 Time Periods ......................................12
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1 Right to Indemnification...........................12
Section 8.2 Right of Claimant to Bring Suit ...................13
Section 8.3 Non-Exclusivity of Rights . . .. ..................13
Section 8.4 Indemnification Contracts .........................13
Section 8.5 Insurance .........................................13
Section 8.6 Effect of Amendment ...............................13
ARTICLE IX
AMENDMENTS
Section 9.1 Amendment of By-laws ..............................14
ii
<PAGE> 4
CASCADE SYSTEMS INTERNATIONAL, INC.
a Delaware corporation
BY-LAWS
ARTICLE I
---------
STOCKHOLDERS
------------
SECTION 1.1 ANNUAL MEETING. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
SECTION 1.2 SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes prescribed in the notice of the meeting, may be called by
either the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there exists any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board of Directors for adoption) or by the President or by
stockholders owning at least twenty-five (25%) of the then-outstanding shares
of stock of the Corporation entitled to vote on matters submitted to
stockholders, upon written request to the Secretary of the Corporation, and
shall be held at such place, on such date, and at such time as they shall fix.
Business transacted at special meetings shall be confined to the purpose or
purposes stated in the notice.
SECTION 1.3 NOTICE OF MEETINGS. Written notice of the purpose or purposes,
place, date, and time of all meetings of the stockholders shall be given, not
less than ten (10) nor more than sixty (60) days before the date on which the
meeting is to be held, to each stockholder entitled to vote at such meeting,
except as otherwise provided hereto or required by law (meaning, here and
hereinafter, as required from time to time by the Delaware General Corporation
Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
SECTION 1.4 QUORUM. At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law.
1
<PAGE> 5
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority, of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
SECTION 1.5 CONDUCT OF THE STOCKHOLDERS' MEETING. At every meeting of the
stockholders, the Chairman, if there is such an officer, or if not, the
President of the Corporation, or in his or her absence the Vice President
designated by the President, or in the absence of such designation any Vice
President, or in the absence of the President or any Vice President, a chairman
chosen by the majority of the voting shares represented in person or by proxy,
shall act as chairman. The Secretary of the Corporation or a person designated
by the chairman shall act as Secretary of the meeting. Unless otherwise approved
by the chairman, attendance at the stockholders' meeting is restricted to
stockholders of record, persons authorized in accordance with Section 1.8 of
these By-laws to act by proxy, and officers of the Corporation.
SECTION 1.6 CONDUCT OF BUSINESS. The chairman shall call the meeting to
order, establish the agenda, and conduct the business of the meeting in
accordance therewith or, at the chairman's discretion, it may be conducted
otherwise in accordance with the wishes of the stockholders in attendance. The
date and time of the opening and closing of the polls for each matter upon which
the stockholders will vote at the meeting shall be announced at the meeting.
The chairman shall also conduct the meeting in an orderly manner, role on
the precedence of and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the By-laws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.6 and
Section 1.7, below. The chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.6 and
Section 1.7, and if he should so determine, he shall so declare to the meeting
and any such business not property brought before the meeting shall not be
transacted.
SECTION 1.7 NOTICE OF STOCKHOLDER BUSINESS. At an annual or special meeting
of the stockholders, only such business shall be conducted as shall have been
property brought before the meeting. To be property brought before a meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board
2
<PAGE> 6
of Directors, (b) properly brought before the meeting by or at the direction of
the Board of Directors, (c) properly brought before an annual meeting by a
stockholder, or (d) property brought before a special meeting by a stockholder,
but if, and only if, the notice of a special meeting provides for business to be
brought before the meeting by stockholders. For business to be properly brought
before a meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder proposal to be presented at an annual meeting shall be received at
the Corporation's principal executive offices not less than 60 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessor's)
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a special meeting, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual or special meeting (a) a brief description of the
business desired to be brought before the annual or special meeting and the
reasons for conducting such business at the special meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business.
SECTION 1.8 PROXIES AND VOTING. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing or by a transmission permitted by law filed in accordance
with the procedure established for the meeting. No stockholder may authorize
more than one proxy for his shares.
Each stockholder shall have the voting rights set forth in the
Corporation's Certificate of Incorporation, as amended.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
SECTION 1.9 STOCK LIST. A complete list of stockholders entitled to vote at
any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name,
3
<PAGE> 7
shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
SECTION 2.1 NUMBER. The authorized number of Directors of the Corporation
shall be five (5). Directors are not required to be citizens of the United
States of America.
SECTION 2.2 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
Corporation's Certificate of Incorporation, as amended, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification or other cause (including removal from office by a
vote of the stockholders) may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the next annual meeting of stockholders at which
the term of office of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
SECTION 2.3 REMOVAL. Subject to the Corporation's Certificate of
Incorporation, as amended, any directors, or the entire Board of Directors, may
be removed from office at any time, with or without cause, but only by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class.
SECTION 2.4 REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held on such date or dates and at such time or times as shall have been
established by the Board of Directors and publicized among all directors,
provided that meetings are held every two months until the Board determines the
Corporation is profitable and at least quarterly thereafter and provided further
that at least one-half of the regular meetings held each calendar year shall be
held within the continental United States of America. If no place is fixed by
the Board of Directors, meetings of the Board shall be held in Andover,
Massachusetts at the offices of the Corporation or its subsidiary. A notice of
each regular meeting shall not be required.
4
<PAGE> 8
SECTION 2.5 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by one-third of the directors then in office (rounded up to the
nearest whole number) or by the President or Chairman, if any, and shall be held
at such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not fewer than
ten (10) days before the meeting or by delivering such notice personnally or by
telegraph, telex or facsimile transmission not fewer than seventy-two (72) hours
before the meeting. Unless otherwise indicated in the notice thereof, any and
all business may be transacted at a special meeting.
SECTION 2.6 QUORUM. At any meeting of the Board of Directors, a majority of
the total number of authorized directors shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
SECTION 2.7 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of
the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
SECTION 2.8 CONDUCT OF BUSINESS. At any meeting of the Board of Directors,
business shall be transacted in such order and manner as the Board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the directors present, except as otherwise provided herein or required by
law. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
SECTION 2.9 AUTHORIZED POWERS. The Board of Directors may, except as
otherwise required by law, exercise all such powers and do all such acts and
things as may be exercised or done by the Corporation, including, without
limiting the generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law and
the Corporation's Certificate of Incorporation, as amended;
(2)To purchase or otherwise acquire any property, rights or privileges
on such terms as it shall determine;
(3) To authorize the creation, making and issuance in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
5
<PAGE> 9
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these bylaws, for the management of the Corporation's business and affairs.
SECTION 2.10 EXCLUSIVE POWERS. The Board of Directors shall, except as
otherwise required or prohibited by law, excercise the exclusive power over the
following matters, with respect to which all decisions of the Corporation must
be approved by a majority of the Board of Directors:
(1) Hiring officers of the Corporation;
(2) Compensation programs for all officers and Founders (as defined in
Schedule 1 attached hereto), including base salaries;
(3) Stock option programs, including the issuance of all stock and
stock options;
(4) Annual budgets, business and financial plans;
(5) Real estate purchases and leases;
(6) The Corporation's entrance into all obligations or committments
(other than customary purchases and sales in the ordinary course of its business
on standard terms and conditions approved by the Board of Directors) having a
total value greater than $25,000 and which are outside the Corporation's most
recent business plan or budget approved by the Board of Directors.
SECTION 2.11 COMPENSATION OF DIRECTORS. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
SECTION 2.12 RESIGNATION. Any director of the Corporation may resign at any
time by giving written notice of such resignation to the Board of Directors or
the President or to the Secretary of the Corporation. Such resignation shall
take effect at the time specified therein; and unless otherwise specified
therein the acceptance of such resignation shall not be necessary to make it
effective.
6
<PAGE> 10
ARTICLE III
-----------
COMMITTEES
----------
SECTION 3.1 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors,
by a vote of a majority of the whole Board, may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any other provided for herein, elect, solely from the Board of
Directors, a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee present at the
meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by anonymous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
SECTION 3.2 CONDUCT OF BUSINESS. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third of the authorized members shall constitute a quorum unless the
committee shall consist of one or two members, in which event one member shall
constitute a quorum; and all matters shall be determined my a majority vote of
the members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE IV
----------
OFFICERS
--------
SECTION 4.1 GENERALLY. The officers of the Corporation shall consist of a
President, one or more Vice Presidents, a Secretary and a Treasurer, The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. The Chairman of the Board, if there shall be such an officer, and the
President shall each be members of the Board of Directors. Any number of offices
may be held by the same person.
7
<PAGE> 11
SECTION 4.2 CHAIRMAN OF THE BOARD. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as
may be from time to time assigned to him by the Board of Directors or
prescribed by these bylaws.
SECTION 4.3 PRESIDENT. The President shall be the chief executive officer
of the Corporation. Subject to the provisions of these bylaws and to the
direction of the Board of Directors, he or she shall have the responsibility for
the general management and control of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the office of chief executive or which are delegated to him or her
by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the other
officers, employees and agents of the Corporation.
SECTION 4.4 VICE PRESIDENT. Each Vice President shall have such powers and
duties as may be delegated to him or her by the Board of Directors. One Vice
President shall be designated by the Board to perform the duties and exercise
the powers of the President in the event of the President's absence or
disability.
SECTION 4.5 TREASURER. Unless otherwise designated by the Board of
Directors, the Chief Financial Officer of the Corporation shall be the
Treasurer. The Treasurer shall have the responsibility for maintaining the
financial records of the Corporation and shall have custody of all monies and
securities of the Corporation. He or she shall make such disbursements of the
funds of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe.
SECTION 4.6 SECRETARY. The Secretary shall issue all authorized notices for
and shall keep, or cause to be kept, minutes of all meetings of the
stockholders, the Board of Directors, and all committees of the Board of
Directors. He or she shall have charge of the corporate books and shall perform
such other duties as the Board of Directors may from time to time prescribe.
SECTION 4.7. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
SECTION 4.8 REMOVAL. Any officer of the Corporation may be removed at any
time, with or without cause, by the Board of Directors.
SECTION 4.9 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
otherwise directed by the Board of Directors, the President or any officer of
the Corporation authorized by the President shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities
8
<PAGE> 12
and otherwise to exercise any and all rights and powers which this Corporation
may possess by reason of its ownership of securities in such other corporation.
ARTICLE V
---------
STOCK
SECTION 5.1 CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the President or a
Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer, certifying the number of shares owned by him or her.
Any of or all the signatures on the certificate may be facsimile.
SECTION 5.2 TRANSFERS OF STOCK. Transfers of stock shall be made only upon
the transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 5.4 of Article V
of these bylaws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor. In the event the Corporation shall issue shares of stock pursuant to
Regulation S promulgated under the Securities Act of 1933, the Corporation shall
refuse to transfer any such securities sold in contravention of Regulation S.
SECTION 5.3 RECORD DATE. The Board of Directors may fix a record date,
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, as of which there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
SECTION 5.4 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
SECTION 5.5 REGULATIONS. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board of Directors may establish.
ARTICLE VI
----------
NOTICES
-------
SECTION 6.1 NOTICES. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or
9
<PAGE> 13
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram, mailgram, telecopy
or commercial courier service. Any such notice shall be addressed to such
stockholder, director, officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice shall be deemed to be given shall be the time such notice is received by
such stockholder, director, officer, employee or agent, or by any person
accepting such notice on behalf of such person, if hand delivered, or the time
such notice is dispatched, if delivered through the mails or by telegram,
facsimile transmission or mailgram.
SECTION 6.2 WAIVERS. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need by specified
in such a waiver unless otherwise required by law.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
SECTION 7.1 FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
SECTION 7.2 CORPORATE SEAL. The Board of Directors may provide a suitable
seal, containing the name of the Corporation, which seal shall be in the charge
of the Secretary. If and when so directed by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the Treasurer
or by an Assistant Secretary or Assistant Treasurer.
SECTION 7.3 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his duties, be fully protected
in relying in good faith upon the books or account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected with
reasonable care.
SECTION 7.4 FISCAL YEAR. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
SECTION 7.5 TIME PERIODS. In applying any provision of the bylaws which
require that an act be done or not done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
10
<PAGE> 14
ARTICLE VIII
------------
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
SECTION 8.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a Partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer of employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by Delaware law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said Law permitted the Corporation
to provide prior to such amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this bylaw or any
agreement with the Corporation) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of his or her heirs, executors and administrators; PROVIDED, HOWEVER,
that, except as provided in Section 8.2 of this Article VIII, the Corporation
shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit
or proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or
part thereof) is brought to establish or enforce a right to indemnification
under an indemnity agreement or any other statute or law or otherwise as
required under Section 145 of the Delaware General Corporation Law. Such right
shall be a contract right and shall include the right to be paid by the
Corporation expenses incurred in defending any such proceeding in advance of
its final disposition; PROVIDED, HOWEVER, that, unless the Delaware General
Corporation Law then so prohibits, the payment of such expenses incurred by a
director or officer of the Corporation in his or her capacity as a director or
officer (and not in any other capacity in which service was or is tendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of such
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it should be determined ultimately that such director or officer
is not entitled to be indemnified under this Section or otherwise.
SECTION 8.2 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 8.1
is not paid in full by the Corporation within ninety (90) days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the
11
<PAGE> 15
Corporation to recover the unpaid amount of the claim and, if such suit is not
frivolous or brought in bad faith, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. The burden of proving such claim
shall be on the claimant. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to this Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct.
SECTION 8.3 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
in Section 1 and 2 shall not be exclusive of any other right which such persons
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
SECTION 8.4 INDEMNIFICATION CONTRACTS. The Board of Directors is authorized
to enter into a contract with any director, officer, employee or agent of the
Corporation, or any person serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than, those provided for in this Article VIII.
SECTION 8.5 INSURANCE. The Corporation shall maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
SECTION 8.6 EFFECT OF AMENDMENT. Any amendment, repeal or modification of
any provision of this Article VIII by the Stockholders and the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE IX
----------
AMENDMENTS
----------
12
<PAGE> 16
SECTION 9.1 AMENDMENT OF BY-LAWS. Subject to any conditions set forth in
the Corporation's Certificate of Incorporation, as amended, the Board of
Directors is expressly empowered to adopt, amend or repeal By-laws of the
Corporation. Any adoption, amendment or repeal of By-laws of the Corporation by
the Board of Directors shall require the approval of a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the Board). Subject to any
conditions set forth in the Corporation's Certificate of Incorporation, as
amended, the stockholders shall also have power to adopt, amend or repeal the
By-laws of the Corporation. Any adoption, amendment or repeal of By laws of the
Corporation by the stockholders shall require, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or by
this Certificate of Incorporation, the affirmative vote of the holders of a
majority of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
13
<PAGE> 17
Schedule 1
List of Officers and Founders
for purposes of
section 2.10(2)
of
By-Laws
Andrew Zimmon
Wayne Sadlowski
Timothy Bosworth
Malcolm McGrory
Richard Patterson
Paul Baker
David Green
Ian Smith
William Smith
Philip Williams
Ian Castleton
<PAGE> 1
Exhibit 3.5
AMENDED AND RESTATED BYLAWS
OF
CASCADE SYSTEMS INCORPORATED
<PAGE> 2
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
ARTICLE 1 -- Stockholders.....................................................1
1.1 Place of Meetings.................................................1
1.2 Annual Meeting....................................................1
1.3 Special Meetings..................................................1
1.4 Notice of Meetings................................................1
1.5 Voting List.......................................................2
1.6 Quorum............................................................2
1.7 Adjournments......................................................2
1.8 Voting and Proxies................................................2
1.9 Action at Meeting.................................................2
1.10 Nomination of Directors...........................................3
1.11 Notice of Business at Annual Meetings.............................3
1.12 Action without Meeting............................................4
1.13 Organization......................................................5
ARTICLE 2 -- Directors........................................................5
2.1 General Powers....................................................6
2.2 Number; Election and Qualification................................6
2.3 Classes of Directors..............................................6
2.4 Terms of Office...................................................6
2.5 Allocation of Directors Among Classes in the Event
of Increases or Decreases in the Number of Directors..............6
2.6 Vacancies.........................................................7
2.7 Resignation.......................................................7
2.8 Regular Meetings..................................................7
2.9 Special Meetings..................................................7
2.10 Notice of Special Meetings........................................7
2.11 Meetings by Telephone Conference Calls............................8
2.12 Quorum............................................................8
2.13 Action at Meeting.................................................8
2.14 Action by Consent.................................................8
2.15 Removal...........................................................8
2.16 Committees........................................................8
2.17 Compensation of Directors.........................................9
ARTICLE 3 -- Officers.........................................................9
3.1 Enumeration.......................................................9
3.2 Election..........................................................9
3.3 Qualification.....................................................9
<PAGE> 3
3.4 Tenure............................................................9
3.5 Resignation and Removal...........................................9
3.6 Vacancies........................................................10
3.7 Chairman of the Board and Vice Chairman of the Board.............10
3.8 President........................................................10
3.9 Vice Presidents..................................................10
3.10 Secretary and Assistant Secretaries..............................11
3.11 Treasurer and Assistant Treasurers...............................11
3.12 Salaries.........................................................11
ARTICLE 4 -- Capital Stock...................................................12
4.1 Issuance of Stock................................................12
4.2 Certificates of Stock............................................12
4.3 Transfers........................................................12
ARTICLE 5 -- General Provisions..............................................13
5.1 Fiscal Year......................................................13
5.2 Corporate Seal...................................................13
5.3 Waiver of Notice.................................................13
5.4 Voting of Securities.............................................14
5.5 Evidence of Authority............................................14
5.6 Certificate of Incorporation.....................................14
5.7 Transactions with Interested Parties.............................14
5.8 Severability.....................................................15
5.9 Pronouns.........................................................15
ARTICLE 6 -- Amendments......................................................15
6.1 By the Board of Directors........................................15
6.2 By the Stockholders..............................................15
6.3 Certain Provisions...............................................15
<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
CASCADE SYSTEMS INCORPORATED
ARTICLE 1 -- STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held within six months after the end of each
fiscal year of the corporation on a date to be fixed by the Board of Directors
or the President (which date shall not be a legal holiday in the place where the
meeting is to be held) at the time and place to be fixed by the Board of
Directors or the President and stated in the notice of the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these Bylaws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at any
time by the Chairman of the Board of Directors, the Chief Executive Officer (or,
if there is no Chief Executive Officer, the President) or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, shall be given not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notices of all meetings shall
state the place, date and hour of the meeting. The notice of a special meeting
shall state, in addition, the purpose or purposes for which the meeting is
called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
- 1 -
<PAGE> 5
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any other
time and to any other place at which a meeting of stockholders may be held under
these Bylaws by the stockholders present or represented at the meeting and
entitled to vote, although less than a quorum, or, if no stockholder is present,
by any officer entitled to preside at or to act as Secretary of such meeting. It
shall not be necessary to notify any stockholder of any adjournment of less than
30 days if the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the adjournment a new record
date is fixed for the adjourned meeting. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each share
of stock entitled to vote held of record by such stockholder and a proportionate
vote for each fractional share so held, unless otherwise provided by the General
Corporation Law of the State of Delaware, the Certificate of Incorporation or
these Bylaws. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting, may vote or express such consent or dissent in person or may
authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, the holders
of a majority of the stock present or represented and voting on a matter (or if
there are two or more classes of stock entitled to vote as separate classes,
then in the case of each such class, the holders of a majority of the stock of
that class present or
- 2 -
<PAGE> 6
represented and voting on a matter) shall decide any matter to be voted upon by
the stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these Bylaws. Any
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election.
1.10 NOMINATION OF DIRECTORS. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nomination for election to the Board of Directors of the corporation at a
meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.11 NOTICE OF BUSINESS AT ANNUAL MEETINGS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought
- 3 -
<PAGE> 7
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, if
such business relates to the election of directors of the corporation, the
procedures in Section 1.10 must be complied with. If such business relates to
any other matter, the stockholder must have given timely notice thereof in
writing to the Secretary. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than 60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever occurs
first. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 1.11 and except that
any stockholder proposal which complies with Rule 14a-8 of the proxy rules (or
any successor provision) promulgated under the Securities Exchange Act of 1934,
as amended, and is to be included in the corporation's proxy statement for an
annual meeting of stockholders shall be deemed to comply with the requirements
of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
1.12 ACTION WITHOUT MEETING. Unless otherwise provided in the Certificate
of Incorporation, any action required or permitted to be taken by stockholders
for or in connection with any corporate action may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the corporation by
delivery to its registered office in Delaware by hand or certified or registered
mail, return receipt requested, to its principal place of business or to an
officer or agent of the corporation having custody of the book in
- 4 -
<PAGE> 8
which proceedings of meetings of stockholders are recorded. Each such written
consent shall bear the date of signature of each stockholder who signs the
consent. No written consent shall be effective to take the corporate action
referred to therein unless written consents signed by a number of stockholders
sufficient to take such action are delivered to the corporation in the manner
specified in this paragraph within sixty days of the earliest dated consent so
delivered.
If action is taken by consent of stockholders and in accordance with the
foregoing, there shall be filed with the records of the meetings of stockholders
the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders, prompt
notice of the taking of such action without a meeting shall be given to those
who have not consented in writing and a certificate signed and attested to by
the Secretary of the corporation that such notice was given shall be filed with
the records of the meetings of stockholders.
In the event that the action which is consented to is such as would have
required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement required by such provision
concerning a vote of stockholders, that written consent has been given under
Section 228 of said General Corporation Law and that written notice has been
given as provided in such Section 228.
Notwithstanding the foregoing, if at any time the corporation shall have a
class of stock registered pursuant to the provisions of the Securities Exchange
Act of 1934, as amended, for so long as such class is registered, any action by
the stockholders of such class must be taken at an annual or special meeting of
stockholders and may not be taken by written consent.
1.13 ORGANIZATION. The Chairman of the Board, or in his absence the Vice
Chairman of the Board designated by the Chairman of the Board, or the President,
in the order named, shall call meetings of the stockholders to order, and shall
act as chairman of such meeting; PROVIDED, however, that the Board of Directors
may appoint any stockholder to act as chairman of any meeting in the absence of
the Chairman of the Board. The Secretary of the corporation shall act as
secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
- 5 -
<PAGE> 9
ARTICLE 2 -- DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of the
Board of Directors, but in no event shall be less than three. The number of
directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
2.4 TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; PROVIDED, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1998; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 1999; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2000; and PROVIDED FURTHER, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease
- 6 -
<PAGE> 10
shall be apportioned by the Board of Directors among the three classes of
directors so as to ensure that no one class has more than one director more than
any other class. To the extent possible, consistent with the foregoing rule, any
newly created directorships shall be added to those classes whose terms of
office are to expire at the latest dates following such allocation, and any
newly eliminated directorships shall be subtracted from those classes whose
terms of offices are to expire at the earliest dates following such allocation,
unless otherwise provided from time to time by resolution adopted by the Board
of Directors.
2.6 VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
2.7 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.8 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 24 hours in
advance of the meeting, (ii) by sending a telegram, telecopy, or telex, or
delivering written notice by hand, to his last known business or home address at
least 24 hours in advance of the meeting, or (iii) by mailing written notice to
his last known business or home address
- 7 -
<PAGE> 11
at least 72 hours in advance of the meeting. A notice or waiver of notice of a
meeting of the Board of Directors need not specify the purposes of the meeting.
2.11 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 QUORUM. A majority of the total number of the whole Board of Directors
shall constitute a quorum at all meetings of the Board of Directors. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the number so fixed constitute a quorum. In the absence of a quorum at any
such meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 ACTION AT MEETING. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these Bylaws.
2.14 ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
2.15 REMOVAL. Directors of the corporation may be removed only for cause by
the affirmative vote of the holders of two-thirds of the shares of the capital
stock of the corporation issued and outstanding and entitled to vote.
2.16 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or
- 8 -
<PAGE> 12
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
Bylaws for the Board of Directors.
2.17 COMPENSATION OF DIRECTORS. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 -- OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or
- 9 -
<PAGE> 13
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in any
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Treasurer and
Secretary. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the Board
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions
- 10 -
<PAGE> 14
upon the President. The Board of Directors may assign to any Vice President the
title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these Bylaws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
- 11 -
<PAGE> 15
3.12 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 -- CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, these Bylaws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these Bylaws, the corporation shall be entitled to treat the record holder
of stock as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to vote with respect to such
stock, regardless of any transfer, pledge or other disposition of
- 12 -
<PAGE> 16
such stock until the shares have been transferred on the books of the
corporation in accordance with the requirements of these Bylaws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a new
certificate of stock in place of any previously issued certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 -- GENERAL PROVISIONS
5.1 FISCAL YEAR. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws, a waiver
of such
- 13 -
<PAGE> 17
notice either in writing signed by the person entitled to such notice or such
person's duly authorized attorney, or by telegraph, cable or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 VOTING OF SECURITIES. Except as the directors may otherwise designate,
the President or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and/or restated and in effect from
time to time.
5.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
- 14 -
<PAGE> 18
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 SEVERABILITY. Any determination that any provision of these Bylaws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
5.9 PRONOUNS. All pronouns used in these Bylaws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 6 -- AMENDMENTS
6.1 BY THE BOARD OF DIRECTORS. These Bylaws may be altered, amended or
repealed or new bylaws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 BY THE STOCKHOLDERS. Except as otherwise provided in Section 6.3,
these Bylaws may be altered, amended or repealed or new bylaws may be adopted by
the affirmative vote of the holders of a majority of the shares of the capital
stock of the corporation issued and outstanding and entitled to vote at any
regular or special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new bylaws shall have been stated in the notice
of such regular or special meeting.
6.3 CERTAIN PROVISIONS. Notwithstanding any other provision of law, the
Certificate of Incorporation or these Bylaws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least seventy-five percent (75%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with Section 1.3,
Section 1.10, Section 1.11, Section 1.12, Section 1.13, Article 2 or Article 6
of these Bylaws.
- 15 -
<PAGE> 1
EXHIBIT 10.1
CASCADE SYSTEMS INCORPORATED
SECOND AMENDED 1994 STOCK OPTION PLAN
1. ESTABLISHMENT AND PURPOSE OF THE PLAN.
(a) Subject to the approval of its stockholders, Cascade Systems
Incorporated, a Delaware corporation, hereby adopts and establishes a stock
option plan to be known as the "Cascade Systems Incorporated Second Amended 1994
Stock Option Plan", as amended March 22, 1996.
(b) The purpose of this Plan is to advance the interests of the Company and
its stockholders by affording Eligible Participants (as defined herein), upon
whose judgment, initiative and efforts the Company is largely dependent, an
opportunity for investment in the Company. It is anticipated that the
acquisition of an interest in the Company will provide those persons with
further incentives for maintaining their relationship with the Company and
increasing their efforts on behalf of the Company.
(c) This Plan will become effective on the date of its adoption by the
Board, provided this Plan is approved by the stockholders of the Company
(excluding shares of Stock issued by the Company pursuant to the exercise of
Options granted under this Plan) within twelve (12) months before or after that
date. If this Plan is not so approved by the stockholders of the Company within
that twelve (12) month period of time, any Options granted under this Plan will
be rescinded and will be void. This Plan will remain in effect until the tenth
(10th) anniversary of the date of its adoption by the Board or its approval by
the stockholders of the Company, whichever is earlier, unless it is terminated
earlier pursuant to section 10 of this Plan. This Plan will be governed by, and
construed in accordance with, the laws of the State of Delaware.
2. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the defined terms set forth in
EXHIBIT A attached hereto and incorporated herein (together with other
capitalized terms defined elsewhere in this Plan) will govern the construction
of this Plan, and of all Option Agreements entered into pursuant to this Plan.
3. ELIGIBILITY.
The Company may grant Options under this Plan only to persons who are
Eligible Participants as of the time of such grant. Subject to the provisions of
sections 4(d), 5 and 6 of this Plan, there is no limitation on the number of
Options that may be granted to an Eligible Participant.
<PAGE> 2
4. ADMINISTRATION.
(a) COMMITTEE. The Committee, if appointed by the Board, will administer
and interpret this Plan. Upon a First Public Offering, the Board will decide
whether to appoint a Committee, if the Board has not already done so, or if such
a committee has already been appointed, whether to change the composition of the
Committee such that it is comprised entirely of Disinterested Directors. If the
Board, in its discretion, does not appoint a Committee, the Board itself will
administer and interpret this Plan and, without limiting the authority of the
Board under the Company's certificate of incorporation and by-laws generally,
take such other actions as the Committee is authorized to take hereunder.
(b) DISCRETION OF COMMITTEE. The Committee will have full and final
authority in its discretion, subject to the specific limitations on that
discretion as are set forth herein, at any time and from time to time: (i) to
select and approve the persons, from among the Eligible Participants, to whom
Options will be granted; (ii) to grant to any person so selected one or more
Options to purchase that number of shares of Option Stock as the Committee may
determine, subject to the limitations specifically set forth in this Plan; (iii)
with respect to each such Option, to determine the Option Price, Vesting
Period(s), Expiration Date and/or Option Term and other matters to be determined
by the Committee as specified under this Plan; and (iv) to delegate all or a
portion of its authority under subsections (i), (ii) and (iii) of this section
4(b) to one or more directors of the Company who are executive officers of the
Company, but only in connection with Options granted to Eligible Participants
who are not Section 16 Participants, and subject to such restrictions and
limitations (such as the maximum aggregate number of shares of Option Stock
called for by such Options that may be granted) as the Committee may decide to
impose on such delegate directors.
(c) INTERPRETATION. Subject to the express terms and conditions hereof, the
Committee is authorized to interpret this Plan, to prescribe, amend and rescind
rules and regulations relating to this Plan, and to make all other
determinations necessary or advisable for its administration.
(d) DESIGNATION OF OPTIONS. The Committee will designate each Option
granted hereunder either as an ISO or as an NQO. To the extent that the Fair
Market Value (determined at the time the Option is granted) of Stock with
respect to which all ISOs are exercisable for the first time by any individual
during any calendar year (pursuant to this Plan and all other plans of the
Company and/or its Subsidiaries) exceeds $100,000, the Option will be treated as
an NQO. Notwithstanding the general eligibility provisions of section 3 hereof,
the Committee may grant ISOs only to persons who are employees of the Company
and/or its Subsidiaries.
-2-
<PAGE> 3
(e) OPTION AGREEMENTS. Options will be deemed granted hereunder only upon
the execution of an Option Agreement by the Optionee and a duly authorized
officer of the Company. Options will not be deemed granted hereunder merely upon
the authorization thereof by the Committee.
5. SHARES RESERVED FOR OPTIONS.
(a) OPTION POOL. The aggregate number of shares of Option Stock that may be
issued pursuant to the exercise of Options granted under this Plan will not
exceed One Million, Two Hundred Fifteen Thousand Seven Hundred Twenty
(1,215,720) shares (the "Option Pool"), provided that the foregoing number will
be increased by the number of shares of Option Stock that the Company
subsequently may reacquire through repurchase or otherwise. To the extent any
portion of an Option remains unexercised upon its expiration or termination, the
shares of Option Stock called for thereunder (i.e., shares that were never
purchased by the Optionee) will be deemed not to have been issued for purposes
of computing the number of shares of Option Stock remaining in the Option Pool
that are available for issuance pursuant to future Options granted hereunder.
(b) ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change in the
outstanding Stock of the Company as a result of a stock split, reverse stock
split, stock dividend, recapitalization, combination or reclassification,
appropriate proportionate adjustments will be made in: (i) the aggregate number
of shares of Option Stock in the Option Pool that may be issued pursuant to the
exercise of Option granted hereunder; (ii) the Option Price and the number of
shares of Option Stock called for in each outstanding Option granted hereunder;
and (iii) other rights and matters determined on a per share basis under this
Plan or any Option Agreement evidencing an outstanding Option granted hereunder.
Any such adjustments will be made only by the Board, and when so made will be
effective, conclusive and binding for all purposes with respect to this Plan and
all Options then outstanding. No such adjustments will be required by reason of
the issuance or sale by the Company for cash or other consideration of
additional shares of its Stock or securities convertible into or exchangeable
for shares of its Stock.
6. TERMS OF STOCK OPTION AGREEMENTS.
Each Option granted pursuant to this Plan will be evidenced by an Option
Agreement between the Company and the Eligible Participant to whom that Option
is granted, in form and substance satisfactory to the Committee in its sole
discretion, consistent with this Plan. Without limiting the foregoing, each
Option Agreement will specify, or will be deemed to include (unless otherwise
stated therein), the following terms and conditions:
-3-
<PAGE> 4
(a) OPTION PRICE. Each Option Agreement will specify the Option Price to be
paid by the Optionee to the Company for the exercise of the Option and the
acquisition of Option Stock called for thereunder. The Option Price will be
fixed by the Committee in its discretion, provided that in any event: (i) in the
case of an ISO, the Option Price will be greater than or equal to the Fair
Market Value (or, in case the Optionee is a 10% Stockholder, one hundred ten
percent (110%) of such Fair Market Value) of the Option Stock as of the Grant
Date; and (ii) in the case of an NQO, the Option Price will be greater than or
equal to eighty-five percent (85%) of the Fair Market Value of the Option Stock
as of the Grant Date.
(b) VESTING PERIODS. Each Option Agreement will specify the period or
periods of time ("Vesting Periods") only AFTER WHICH the Option or portion
thereof becomes a Vested Option (i.e., becomes exercisable with respect to all
or a portion of the total number of shares of Option Stock called for
thereunder). Vesting Periods will be fixed, accelerated or shortened by the
Committee in its discretion, provided that in any event: (i) no Vesting Period
will be longer than five (5) years from the Grant Date; (ii) in the case of an
Option that has multiple Vesting Periods corresponding to portions of the
Option, such portions corresponding to not less than twenty percent (20%) of the
shares of Option Stock called for under the Option will become Vested Options,
on a cumulative basis, as of the first and each subsequent anniversary of the
Grant Date; (iii) the Vesting Period of an Option granted to a Section 16
Participant will be at least six (6) months from the Grant Date; and (iv) no
Option or portion thereof that is not already a Vested Option as of the date
that the original holder of the Option ceases (for any reason) to be an Eligible
Participant, will become a Vested Option thereafter. Unless otherwise determined
by unanimous vote of the Board of Directors, Options granted hereunder shall
vest over a period of not less than forty-eight (48) months, with the first
vesting date to occur after twelve (12) months; provided, however, that the
Board may permit Options for up to 250,000 Option Shares to founders and
directors of the Company, with vesting to occur quarterly over a period of
forty-eight (48) months.
(c) TERMINATION OF THE OPTION. Each Option Agreement will specify, in
addition to the Vesting Periods, the last date (the "Expiration Date") on which
the Option granted therein may be exercised. Any Expiration Date may be
expressed in terms of the maximum period of time, measured from the Grant Date,
during which the Option may be exercised (the "Option Term"). The Expiration
Date and/or
-4-
<PAGE> 5
Option Term will be fixed by the Committee in its discretion, provided that in
any event:
(i) the Expiration Date may not be later than, and the Option
Term may not be longer than, ten (10) years (or, in case the Optionee
is a 10% Stockholder, five (5) years) from the Grant Date; and
(ii) the Option will terminate, to the extent not previously
exercised, PRIOR TO the Expiration Date or end of the Option Term, (A)
thirty (30) days after the date that the original holder of that
Option ceases to be an Eligible Participant for any reason, other than
by reason of death or Disability, and (B) twelve (12) months after the
date that the original holder of that Option ceases to be an Eligible
Participant by reason of his or her death or Disability.
(d) EXERCISE OF THE OPTION. Vested Options may be exercised by giving
written notice thereof to the Company, on such form as may be specified by the
Committee, if any, but in any event stating the number of full shares of Option
Stock to be purchased and giving such assurances of the Optionee's investment
intent as the Company may require to ensure that the transaction complies in all
respects with the requirements of the 1933 Act and other applicable securities
laws. The notice of exercise will be accompanied by full payment of the Option
Price for the number of shares of Option Stock to be purchased, in United States
dollars, in cash, by check made payable to the Company, or in the form of such
other legal consideration for the purchase of Stock as may be approved by the
Committee, in its discretion. In addition, if the Option being exercised is an
NQO, as a condition to that exercise, the Optionee will tender to the Company
the amount of the applicable Tax Withholding Liability in connection with that
exercise, in cash, by check made payable to the Company, or in the form of such
other payment as may be approved by the Committee, in its discretion.
(e) OPTIONS NONTRANSFERABLE. No Option will be transferable by the Optionee
otherwise than by will or the laws of descent and distribution. During the
lifetime of the Optionee, the Option will be exercisable only by him or her.
(f) BUSINESS COMBINATIONS. Notwithstanding any other provision of this
Plan, in the event of a Business Combination, the Board, in its sole discretion,
may determine that it is in the best interests of the Company, and if so may
take all appropriate action, either to: (i) cancel all outstanding Options
granted hereunder effective as of the consummation of the Business Combination
and, either (A) notify holders of Vested Options of the proposed Business
Combination reasonably prior to its consummation so that those holders will have
an opportunity to exercise that portion of each outstanding Option that is a
Vested Option immediately prior to such consummation, or (B) make a payment to
the Optionee equal to the amount, if any,
-5-
<PAGE> 6
by which the Fair Market Value per share of the Option Stock called for under
such Vested Option exceeds the Option Price, multiplied by the number of shares
of Option Stock subject to the Vested Option, such payment to be made either in
cash or in Stock having a Fair Market Value as of the date of issuance equal to
such excess amount; or (ii) require the successor corporation (including in the
case of a Business Combination involving a sale of all or substantially all of
the assets of the Company, the corporation acquiring such assets) to assume the
outstanding Options or substitute therefor comparable options of such successor
corporation or a parent or Subsidiary of such successor corporation.
(g) OPTION OF FIRST REFUSAL. Unless otherwise determined by unanimous vote
of the Board of the Directors, each Option Agreement shall include a provision
granting the Company an option of first refusal on the transfer of Option Stock.
Each certificate representing shares of Option Stock shall bear a legend
consistent with the existence of such option of first refusal.
(h) COMPLIANCE WITH LAW. Notwithstanding any other provision of this Plan,
Options may be granted pursuant to this Plan, and Option Stock may be issued
pursuant to the exercise thereof by an Optionee, only after and on the condition
that there has been compliance with all applicable federal and state securities
laws. The Company will not be required to list, register or qualify any shares
of Option Stock upon any securities exchange, under any state or federal law, or
with the Securities and Exchange Commission or any State agency, or secure the
consent or approval of any governmental regulatory authority, except that if at
any time the Board determines, in its discretion, that such listing,
registration or qualification of the shares of Option Stock, or any such consent
or approval, is necessary or desirable as a condition of or in connection with
the exercise of an Option and the purchase of shares of Option Stock thereunder,
that Option may not be exercised, in whole or in part, unless and until such
listing, registration, qualification, consent or approval is effected or
obtained free of any conditions that are not acceptable to the Board, in its
discretion. However, the Company will seek to register or qualify with, or as
may be provided by applicable local law, file for and secure an exception from
such registration or qualification requirements from, the applicable securities
administrator and other officials of each jurisdiction in which an Eligible
Participant would be granted an Option hereunder prior to such grant. The
Transfer of any shares of Option Stock requires full compliance with the
provisions of all applicable laws.
(i) ADDITIONAL RESTRICTIONS ON TRANSFER; INVESTMENT INTENT. By accepting an
Option and/or Option Stock under this Plan, the Optionee will be deemed to
represent, warrant and agree that, unless a registration statement is in effect
with respect to the sale of shares of Option Stock: (A) those shares are not
freely tradable and must be held indefinitely unless such shares are either
registered under the 1933 Act or an exemption from such registration is
available; (B) the Company is under no obligation to register those shares of
Option Stock; (C) upon exercise of that Option,
-6-
<PAGE> 7
the Optionee will purchase the shares of Option Stock for his or her own account
and not with a view to distribution within the meaning of the 1933 Act, other
than as may be effected in compliance with the 1933 Act and the rules and
regulations promulgated thereunder; (D) no one else will have any beneficial
interest in the Option Stock; and (E) the Optionee has no present intention of
disposing of the Option Stock at any particular time.
(j) STOCK CERTIFICATES. Certificates representing the shares of Option
Stock issued pursuant to the exercise of Options will bear all legends required
by law and necessary or appropriate in the Committee's discretion to effectuate
the provisions of this Plan. The Company may place a "stop transfer" order
against shares of Option Stock until full compliance with all restrictions and
conditions set forth in this Plan and in the legends referred to in this section
6(j).
(k) MARKET STANDOFF. To the extent requested by the Company and any
underwriter of securities of the Company in connection with a firm commitment
underwriting, the holder of any shares of Option Stock will: (i) not sell or
otherwise Transfer any such shares not included in such underwriting, or not
previously registered pursuant to a registration statement filed under the 1933
Act, during the one hundred eighty (180) day period following the effective date
of the registration statement filed with the Securities and Exchange Commission
in connection with such offering; and (ii) execute such instruments as such
underwriter may reasonably require to evidence compliance with this section
6(k).
(l) NOTICES. Any notice to be given to the Company under the terms of an
Option Agreement will be addressed to the Company at its principal executive
office, Attention: Corporate Secretary, or at such other address as the Company
may designate in writing. Any notice to be given to an Optionee will be
addressed to him or her at the address provided to the Company by the Optionee.
Any such notice will be deemed to have been duly given if and when enclosed in a
properly sealed envelope, addressed as aforesaid, certified and deposited,
postage and certification fee prepaid, in a post office or branch post office
regularly maintained by the United States Postal Service.
(m) OTHER PROVISIONS. The Option Agreement may contain such other terms,
provisions and conditions, including restrictions on the transfer of Option
Stock issued upon exercise of any Options, and rights of the Company to
repurchase shares of Option Stock, not inconsistent with this Plan, as may be
determined by the Committee in its sole discretion.
7. COVENANTS OF OPTIONEE.
At the discretion of the Committee, the person to whom an Option is
granted, as a condition to such grant, may be required to execute and deliver to
the Company,
-7-
<PAGE> 8
a confidential information agreement approved by the Committee. Nothing
contained in this Plan, any Option Agreement or in any other agreement executed
in connection with the granting of an Option under this Plan, except as
expressly stated herein or therein, will confer upon any Optionee any right with
respect to the continuation of his or her status as an employee of, consultant
or independent contractor to, or director of the Company and/or its
Subsidiaries.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations of this
Plan, the Committee may modify, extend or renew outstanding Options granted
under this Plan, or accept the surrender of outstanding Options (to the extent
not theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised). Notwithstanding
the foregoing, however, no modification of any Option will, without the consent
of the Optionee, alter or impair any rights or obligations under any outstanding
Option.
9. AMENDMENT AND DISCONTINUANCE.
The Board may amend, suspend or discontinue this Plan at any time or from
time to time; provided that no action of the Board will cause ISOs granted under
this Plan not to comply with Section 422 of the Code unless the Board
specifically declares such action to be made for that purpose and provided
further that no such action may, without the approval of the stockholders of the
Company, materially increase (other than by reason of an adjustment pursuant to
section 5(b) hereof) the maximum aggregate number of shares of Option Stock in
the Option Pool, materially increase the benefits accruing to Eligible
Participants, or materially modify the category of, or eligibility requirements
for, persons who are Eligible Participants. However, no such action may alter or
impair any Option previously granted under this Plan without the consent of the
holder thereof.
10. PLAN COMPLIANCE WITH RULE 16B-3.
With respect to Section 16 Participants, transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its successor
provisions under the 1934 Act. To the extent any provision of this Plan or
action by the Committee in administering this Plan fails so to comply, such
provision or action will be deemed null and void, to the extent permitted by law
and deemed advisableby the Committee.
11. INFORMATION PROVIDED BY COMPANY.
Prior to a First Public Offering: (a) the Company annually will make
available to each Optionee the Company's financial statements (which statements
need not be
-8-
<PAGE> 9
audited); and (b) at the discretion of the Board, each such Optionee (and any
investment advisers to whom the Optionee proposes to make such information
available) may be required to sign an agreement prohibiting disclosure or use of
such financial information for any purpose whatsoever (other than determining
whether to exercise an Option).
12. COPIES OF PLAN.
A copy of this Plan will be delivered to each Optionee at or before the
time he or she executes an Option Agreement.
* * *
Date Plan Adopted by Board of Directors: December 30, 1994; Second Amended Plan
approved March 21, 1996
Date Plan Approved by Stockholders: March 14, 1995; Seconded Amended Plan
approved on March 22, 1996
-9-
<PAGE> 10
CASCADE SYSTEMS INCORPORATED
SECOND AMENDED 1994 STOCK OPTION PLAN
EXHIBIT A
DEFINITIONS
1. "10% Stockholder" means a person who owns, either directly or indirectly by
virtue of the ownership attribution provisions set forth in Section 424(d) of
the Code at the time he or she is granted an Option, stock possessing more than
ten percent (10%) of the total combined voting power or value of all classes of
stock of the Company and/or of its Subsidiaries.
2. "1933 Act" means the Securities Act of 1933, as amended.
3. "1934 Act" means the Securities Exchange of 1934, as amended.
4. "Board" means the Board of Directors of the Company.
5. "Business Combination" means a transaction resulting in the sale of all
or substantially all of the assets of the Company, or a merger or consolidation
or other reorganization in which the Company is not the surviving corporation,
or in which the Company becomes a subsidiary of another corporation, unless at
least sixty-six and two-thirds percent (66.67%) of the outstanding voting
securities of the surviving or parent corporation, as the case may be,
immediately following such transaction are beneficially held by such persons and
entities in the same proportion as such persons and entities beneficially held
the outstanding voting securities of the Company immediately prior to such
transaction.
6. "Called for under an Option," or words to similar effect, means issuable
pursuant to the exercise of an Option.
7. "Code" means the Internal Revenue Code of 1986, as amended (references
herein to Sections of the Code are intended to refer to Sections of the Code as
enacted at the time of the Plan's adoption by the Board and as subsequently
amended, or to any substantially similar successor provisions of the Code
resulting from recodification, renumbering or otherwise).
8. "Committee" means a committee of two or more members of the Board,
appointed by the Board, to administer and interpret the Plan; provided that the
term
-10-
<PAGE> 11
"Committee" will refer to the Board during such times as no Committee is
appointedby the Board.
9. "Company" means Cascade Systems Incorporated, a Delaware corporation.
10. "Disability" means "permanent and total disability" within the meaning of
Section 22(e)(3) of the Code.
11. "Disinterested Director" means a member of the Board who is not during the
period of one year prior to his or her service as an administrator of the Plan,
or for the period since the effective date of the Registration Statement in
connection with the first public offering, whichever is shorter, or during the
period of such service, granted or awarded Stock, options to acquire Stock, or
similar equity securities of the Company under the Plan or any similar plan of
the Company, except to the extent any such grant or award would not disqualify
that individual from being "a disinterested person" for purposes of Rule 16b-3
(or its successor provisions) under the 1934 Act, as set forth in subparagraphs
(A) through (D) or paragraph (c)(2)(i) of that rule.
12. "Eligible Participant" means a person who, at a particular time, is an
employee, officer, consultant, independent contractor and/or director of the
Company and/or any of its Subsidiaries.
13. "Expiration Date" means the last date on which an Option granted under the
Plan may be exercised as specified in the Option Agreement evidencing that
Option, which date may be expressed in terms of an Option Term measured from the
Grant Date, subject to the provisions of section 6(c) of the Plan.
14. "Fair Market Value" means, with respect to the Stock and as of the date an
Option is granted hereunder, the market price per share of such Stock determined
by the Committee, consistent with the requirements of Section 422 of the code
and to the extent consistent therewith, as follows:
(a) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value will be equal to the closing price reported
by the applicable composite-transactions report for such date;
(b) If the Stock was traded over-the-counter on the date in question
and was classified as a national market issue, then the Fair Market Value will
be equal to the last-transaction price quoted by the NASDAQ system for such
date;
-11-
<PAGE> 12
(c) If the Stock was traded over-the-counter on the date in question
but was not classified as a national market issue, then the Fair Market Value
will be equal to the mean between the last reported representative bid and asked
prices quoted by the NASDAQ system for such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value will be determined by the Committee in good faith on such basis as
it deems appropriate.
15. "First Public Offering" means the closing of the first sale of Stock to the
public, through a firm commitment underwriting, for an aggregate price of at
least five million dollars ($5,000,000), pursuant to an effective registration
statement filed with the Securities and Exchange Commission under the 1933 Act.
16. "Grant Date" means, with respect to an Option, the date on which the Option
Agreement evidencing that Option is entered into between the Company and the
Optionee, or such later date as may be set forth in that Option Agreement as the
"Grant Date" which will be the effective date of that Option Agreement.
17. "ISO" has the same meaning as "incentive stock option," as defined in
Section 422 of the Code.
18. "Non-employee Director" means a member of the Board who is not an employee
of the Company or its Subsidiaries.
19. "NQO" means any option granted under the Plan whether designated by the
Committee as a "non-qualified stock option," a "non-statutory stock option" or
otherwise, other than an option designated by the Committee as an ISO.
20. "Option" means an option granted pursuant to the Plan entitling the
Optionee to acquire shares of Option Stock issued by the Company pursuant to the
valid exercise of the option.
21. "Optionee" means an Eligible Participant to whom an Option is granted
hereunder, and any transferee thereof pursuant to a Transfer authorized under
the Plan, during the Option Term and prior to the exercise in full or expiration
of the Option.
22. "Option Agreement" means a written agreement between the Company and an
Optionee to evidence an Option granted under the Plan, setting forth the terms
and conditions thereof, in form and substance satisfactory to the Committee in
its sole discretion, consistent with the Plan.
-12-
<PAGE> 13
23. "Option Pool" means, at any given time, the maximum number of shares of
Option Stock that are issuable pursuant to the exercise of Options granted under
the Plan, as provided in section 5.
24. "Option Price" with respect to any particular Option means the exercise
price at which the Optionee may acquire each share of the Option Stock called
for under such Option.
25. "Option Stock" means Stock issued or issuable by the Company pursuant to
the valid exercise of an Option.
26. "Option Term" means, with respect to any Option granted under the Plan, the
maximum period or term during which that Option is exercisable as specified in
the Option Agreement evidencing that Option, ending on the Expiration Date,
subject to the provisions of section 6(c) of the Plan.
27. "Plan" means the Second Amended 1994 Stock Option Plan of the Company.
28. "Section 16 Participant" means an Eligible Participant who, at the time an
Option is granted to him or her, is subject to the reporting and liability
provisions of Section 16 of the 1934 Act, and the rules and regulations
thereunder, by virtue of the fact that the Company has registered a class of
equity securities under Section 12 of the 1934 Act.
29. "Stock" means shares of the Company's Common Stock, $0.001 par value.
30. "Subsidiary" has the same meaning as "subsidiary corporation" as defined in
Section 424(f) of the Code.
31. "Tax Withholding Liability" in connection with the exercise of any NQO
means all federal and state income taxes, social security tax, and any other
taxes applicable to the compensation income arising from the transaction
required by applicable law to be withheld by the Company.
32. "Transfer," with respect to Option Stock, includes, without limitation, a
voluntary or involuntary sale, assignment, transfer, conveyance, pledge,
hypothecation, encumbrance, disposal, loan, gift, attachment or levy of that
Option Stock, including without limitation an assignment for the benefit of
creditors of the Optionee, a transfer by operation of law, such as a transfer by
will or under the laws of descent and distribution, an execution of judgment
against that Option Stock or the acquisition of record or beneficial ownership
thereof by a lender or creditor, a transfer pursuant to any decree of divorce,
dissolution or separate maintenance, any property settlement, any separation
agreement or any other agreement with a spouse (except for estate planning
purposes) under which a part or all of the shares of that
-13-
<PAGE> 14
Option Stock are transferred or awarded to the spouse of the Optionee or are
required to be sold; or a transfer resulting from the filing by the Optionee of
a petition for relief, or the filing of any involuntary petition against the
Optionee, under the bankruptcy laws of the United States or of any other nation.
33. "Vested Option" means, at any given date, that portion of an outstanding
Option that is currently exercisable by the Optionee with respect to all or a
portion of the shares of Option Stock called for under that Option, pursuant to
the Vesting Period and the other terms and conditions set forth in the Option
Agreement evidencing the Option.
34. "Vesting Period" has the meaning set forth in section 6(b) of the Plan.
-14-
<PAGE> 1
Exhibit 10.2
CASCADE SYSTEMS INCORPORATED
1997 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1997 Stock Incentive Plan (the "Plan") of Cascade
Systems Incorporated, a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any present or future subsidiary corporations of Cascade Systems Incorporated as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder (the "Code").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
a. ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be
administered by the Board of Directors of the Company (the "Board"). The Board
shall have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. All decisions by the Board shall be
made in the Board's sole discretion and shall be final and binding on all
persons having or claiming any interest in the Plan or in any Award. No director
or person acting pursuant to the authority delegated by the Board shall be
liable for any action or determination relating to or under the Plan made in
good faith.
<PAGE> 2
b. DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
c. APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
common stock, $.001 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act. All references in the Plan to the "Board" shall mean
the Board or a Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.
4. STOCK AVAILABLE FOR AWARDS
a. NUMBER OF SHARES. Subject to adjustment under Section 4(c), Awards
may be made under the Plan for up to 1,654,700 shares of Common Stock. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as hereinafter defined), to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
b. PER-PARTICIPANT LIMIT. Subject to adjustment under Section 4(c),
for Awards granted after the Common Stock is registered under the Exchange Act,
the maximum number of shares with respect to which an Award may be granted to
any Participant under the Plan shall be 200,000 per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
c. ADJUSTMENT TO COMMON STOCK. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the
- 2 -
<PAGE> 3
number and class of security and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
stock-based Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 4(c) applies and Section 8(e)(1) also applies to
any event, Section 8(e)(1) shall be applicable to such event, and this Section
4(c) shall not be applicable.
5. STOCK OPTIONS
a. GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
b. INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
c. EXERCISE PRICE. The Board shall establish the exercise price at
the time each Option is granted and specify it in the applicable option
agreement.
d. DURATION OF OPTIONS. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
e. EXERCISE OF OPTION. Options may be exercised only by delivery to
the Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
f. PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
i. in cash or by check, payable to the order of the Company;
- 3 -
<PAGE> 4
ii. except as the Board may otherwise provide in an Option
Agreement, delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
iii. to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the Participant valued at their fair market value as determined by the Board
in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by delivery of a
promissory note of the Participant to the Company on terms determined by the
Board, or (iii) by payment of such other lawful consideration as the Board may
determine; or
iv. any combination of the above permitted forms of payment.
6. RESTRICTED STOCK
a. GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
b. TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the
Common
- 4 -
<PAGE> 5
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. GENERAL PROVISIONS APPLICABLE TO AWARDS
a. TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
b. DOCUMENTATION. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
c. BOARD DISCRETION. Except as otherwise provided by the Plan, each
type of Award may be made alone or in addition or in relation to any other type
of Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
d. TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
e. ACQUISITION EVENTS
i. CONSEQUENCES OF ACQUISITION EVENTS. Upon the occurrence of
an Acquisition Event (as defined below), each outstanding Option or Award shall
be assumed or an equivalent option or award substituted by the successor
corporation or a parent or subsidiary of the successor corporation, provided
that any such Options substituted for Incentive Stock Options shall satisfy, in
the determination of the Board, the requirements of Section 424(a) of the Code,
unless the successor corporation refuses to assume or substitute for the Option
or Award, in which case (i) the Participant shall have the right to exercise the
Option in full, including with respect to shares of Common Stock as to which it
would not otherwise be exercisable, (ii) all Restricted Stock Awards then
outstanding shall become free of all restrictions prior to the consummation of
the Acquisition Event; and (iii) any other stock-based Awards outstanding shall
become exercisable, realizable or vested in full, or shall be
- 5 -
<PAGE> 6
free of all conditions or restrictions, as applicable to each such Award, prior
to the consummation of the Acquisition Event. If an Option or Award is
exercisable in lieu of assumption or substitution in the event of an Acquisition
Event, the Board shall notify the Participant in writing or electronically that
the Option or Award shall be fully exercisable for a period of not less than
forty-five (45) days from the date of such notice, and the Option or Award shall
terminate upon the expiration of such period.
Each Option or other Award assumed or substituted pursuant to the
immediately preceding paragraph shall include a provision to the effect that
such Option or Award shall become immediately exercisable (or vested) in full
if, on or prior to the first anniversary of the Acquisition Event, the
Participant terminates his or her employment for Good Reason or is terminated
without Cause by the surviving or acquiring corporation. "Good Reason" shall
mean any significant diminution in the optionee's title, authority, or
responsibilities from and after such Acquisition Event or any reduction in the
annual cash compensation payable to the Participant from and after such
Acquisition Event. "Cause" shall mean any willful misconduct by the Participant
which affects the business reputation of the Company or willful failure by the
Participant to perform his or her material responsibilities to the Company
(including, without limitation, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or other
similar agreement between the Participant and the Company). The Participant
shall be considered to have been discharged for "Cause" if the Company
determines, within 30 days after the Participant's resignation, that discharge
for Cause was warranted.
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto representing immediately thereafter (either by remaining outstanding or
by being converted into voting securities of the surviving or acquiring entity)
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (b) any sale of all or substantially all of the assets
of the Company; or (c) the complete liquidation of the Company.
ii. ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. The Board may
grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
- 6 -
<PAGE> 7
(f) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) ACCELERATION. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. MISCELLANEOUS
a. NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
- 7 -
<PAGE> 8
b. NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
c. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective
on the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of (i)
the date on which the Plan was adopted by the Board or (ii) the date the Plan
was approved by the Company's stockholders, but Awards previously granted may
extend beyond that date.
d. AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
e. STOCKHOLDER APPROVAL. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 162(m) of the Code.
f. GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Approved by the Board of Directors
on May 16, 1997
Approved by the Stockholders
on July 1, 1997
- 8 -
<PAGE> 1
Exhibit 10.3
CASCADE SYSTEMS INCORPORATED
1997 DIRECTOR STOCK OPTION PLAN
1. PURPOSE.
The purpose of this 1997 Director Stock Option Plan (the "Plan") of
Cascade Systems Incorporated (the "Company") is to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate outside directors of the Company by providing such directors with
equity ownership opportunities and thereby better aligning the interests of such
directors with those of the Company's stockholders.
2. ADMINISTRATION.
The Board of Directors of the Company (the "Board") shall supervise and
administer the Plan. Grants of stock options under the Plan and the amount and
nature of the awards to be granted shall be automatic in accordance with Section
5. However, all questions concerning interpretation of the Plan or any options
granted under it shall be resolved by the Board. The Board shall have authority
to adopt, amend and repeal such administrative rules, guidelines and practices
relating to the Plan as it shall deem advisable. The Board may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or any
option in the manner and to the extent it shall deem expedient to carry the Plan
into effect and it shall be the sole and final judge of such expediency. No
member of the Board shall be liable for any action or determination relating to
the Plan. All decisions by the Board shall be made in the Board's sole
discretion and shall be final and binding on all persons having or claiming any
interest in the Plan or in any option granted pursuant to the Plan. No director
or person acting pursuant to the authority delegated by the Board shall be
liable for any action or determination under the Plan made in good faith.
3. PARTICIPATION IN THE PLAN.
Directors of the Company who are not full-time employees of the Company
or any subsidiary of the Company ("outside directors") shall be eligible to
receive options under the Plan.
<PAGE> 2
4. STOCK SUBJECT TO THE PLAN.
(a) The maximum number of shares of the Company's Common Stock, par
value $.001 per share ("Common Stock"), which may be issued under the Plan shall
be 100,000 shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires or
is terminated, surrendered or canceled without having been exercised in full or
is forfeited in whole or in part or results in any Common Stock not being
issued, the shares covered by the unexercised portion of such option shall again
become available for issuance pursuant to the Plan. Shares issued under the Plan
may consist in whole or in part of authorized but unissued shares or treasury
shares.
(c) All options granted under the Plan shall be non-statutory options
not entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
5. TERMS, CONDITIONS AND FORM OF OPTIONS.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board shall from time to time approve, which
agreements may contain terms and conditions in addition to but not inconsistent
with those set forth in the Plan.
(a) OPTION GRANT DATES. Options shall automatically be granted to all
eligible outside directors as follows:
(i) each person who first becomes an eligible outside director
after September 1, 1997 shall be granted an option to purchase 10,000 shares of
Common Stock on the date of his or her initial election or appointment to the
Board; and
(ii) each eligible outside director shall be granted an
additional option to purchase 5,000 shares of Common Stock on the date of each
Annual Meeting of Stockholders of the Company commencing with the 1998 Annual
Meeting of Stockholders, provided that he or she is an eligible director
immediately prior to such Annual Meeting and continues to serve as a director
immediately following such Annual Meeting.
(b) OPTION EXERCISE PRICE. The option exercise price per share of
Common Stock for each option granted under the Plan shall equal (i) the last
reported sales price per share of Common Stock on the Nasdaq National Market
(or, if the Company is traded on a nationally recognized securities exchange on
the date of grant, the reported closing sales price per share of Common Stock by
such exchange) on the date of grant (or if no such price is reported on such
date such price as
-2-
<PAGE> 3
reported on the nearest preceding day) or (ii) if the Common Stock is not traded
on the Nasdaq National Market or such an exchange, the fair market value per
share of Common Stock on the date of grant as determined by the Board.
(c) OPTIONS NON-TRANSFERABLE. Except as the Board may otherwise
determine or provide in an option agreement, any option granted under the Plan
to an optionee shall not be sold, assigned, transferred, pledged or otherwise
encumbered by the person to whom it was granted, either voluntarily or by
operation of law, other than by will or the laws of descent and distribution and
shall be exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative.
(d) EXERCISE PERIOD.
(i) GENERAL. Each option granted under the Plan shall become
exercisable in full on the first anniversary of the date such option was
granted; provided, however, that the optionee continues to serve as a director
on such date.
(ii) BOARD ACTION. The Board may at any time provide that any
options granted under the Plan become immediately exercisable in full or in
part.
(e) TERMINATION. Each option shall terminate, and may no longer be
exercised, on the earlier of the date (i) 10 years after the date such option
was granted or (ii) 60 days after the optionee ceases to serve as a director of
the Company; provided that, in the event an optionee ceases to serve as a
director due to his or her death or disability (within the meaning of Section
22(e)(3) of the Code or any successor provision), then the exercisable portion
of the option may be exercised within the period of 180 days following the date
the optionee ceases to serve as a director (but in no event later than 10 years
after the date such option was granted) by the optionee or by the person to whom
the option is transferred by will, by the laws of descent and distribution, or
by written notice pursuant to Section 5(g).
(f) EXERCISE PROCEDURE. An option may be exercised only by written
notice to the Company at its principal office accompanied by payment of the full
consideration for the shares as to which the option is exercised. Such payment
may be made as follows:
(i) in cash or by check, payable to the order of the Company;
(ii) except as the Board may otherwise provide in an option,
delivery of an irrevocable and unconditional undertaking by a creditworthy
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or delivery by the optionee to the Company of a copy of irrevocable and
unconditional instructions
-3-
<PAGE> 4
to a credit worthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;
(iii) (x) by delivery of shares of Common Stock owned by the
optionee valued at their fair market value as determined by the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the optionee at
least six months prior to such delivery, (y) by delivery of a promissory note of
the optionee to the Company on terms determined by the Board, or (z) by payment
of such other lawful consideration as the Board may determine; or
(iv) any combination of the above permitted forms of payment.
(g) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. An
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain the optionee as a director for any period of time.
(b) NO STOCKHOLDER RIGHTS FOR OPTIONS. No optionee nor a designated
beneficiary thereof shall have any rights as a stockholder with respect to any
shares of Common Stock to be distributed with respect to an option until
becoming the record holder of such shares.
7. ADJUSTMENT TO COMMON STOCK.
In the event of any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of shares,
liquidation, spin-off or other similar change in capitalization or event, or any
distribution to holders of Common Stock other than a normal cash dividend, (i)
the number and class of securities available under this Plan, (ii) the number
and class of securities subject to future option grants, and (iii) the number
and class of securities and exercise price per share subject to each outstanding
option shall be appropriately adjusted by the Company (or substituted options
may be made, if applicable) to the extent the Board shall determine, in good
faith, that such an adjustment (or substitution) is necessary and
-4-
<PAGE> 5
appropriate. If this Section 7 applies and Section 8 also applies to any event,
Section 8 shall be applicable to such event, and this Section 7 shall not be
applicable.
8. ACQUISITION EVENTS.
Except to the extent otherwise provided in the option agreement or in any
other agreement between the optionee and the Company, upon the occurrence of an
Acquisition Event (as defined herein) or, upon the execution by the Company of
any agreement with respect to an Acquisition Event, all options then outstanding
under the Plan shall become immediately exercisable in full as of the fifth
business day prior to the Acquisition Event (the "Acceleration Date"), and the
Board shall provide written notice to the optionees informing them that all such
options have become exercisable in full and will terminate immediately prior to
the consummation of such Acquisition Event, except to the extent exercised by
the optionees between the Acceleration Date and the consummation of such
Acquisition Event.
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
60% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of the
Company; (c) the complete liquidation of the Company; or (d) the acquisition of
"beneficial ownership" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities (other than through a merger or consolidation or an
acquisition of securities directly from the Company) by any "person", as such
term is used in Sections 13(d) and 14(d) of the Exchange Act, other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company.
9. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
The Board shall have the power to modify or amend outstanding options;
provided, however, that no modification or amendment may (i) have the effect of
altering or impairing any rights or obligations of any option previously granted
without the consent of the optionee, or (ii) modify the number of shares of
Common Stock subject to the option (except as provided in Section 7).
-5-
<PAGE> 6
10. AMENDMENT OF THE PLAN.
The Board may amend, suspend or terminate the Plan or any portion thereof
at any time, provided that no amendment shall be made without stockholder
approval if such approval is necessary to comply with any applicable tax or
regulatory requirements. Amendments requiring stockholder approval shall become
effective when adopted by the Board.
11. WITHHOLDING.
Each optionee shall pay to the Company, or make provision satisfactory to
the Board for payment of, any taxes required by law to be withheld in connection
with options granted under the Plan to such optionee no later than the date of
the event creating the tax liability. The Board may allow optionees to satisfy
such tax obligations in whole or in part in shares of Common Stock, including
shares retained from the option creating the tax obligation, valued at their
Fair Market Value. The Company may, to the extent permitted by law, deduct any
such tax obligations from any payment of any kind otherwise due to an optionee.
12. NOTICE.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
13. GOVERNING LAW.
The provisions of the Plan, all determinations made and actions taken
pursuant hereto and all options made hereunder shall be governed by and
interpreted in accordance with the laws of the State of Delaware, without regard
to any applicable conflicts of law.
14. EFFECTIVE DATE AND TERM OF PLAN.
The Plan shall become effective on the effective date of the Company's
initial public offering of Common Stock, subject to approval by the stockholders
of the Company. No options shall be granted under the Plan after the completion
of ten years from the earlier of (i) the date on which the Plan was adopted by
the Board or (ii) the date the Plan was approved by the Company's stockholders,
but options previously granted may extend beyond that date.
Adopted by the Board on September 22, 1997
-6-
<PAGE> 7
Approved by the stockholders on October ___, 1997
-7-
<PAGE> 1
Exhibit 10.4
CASCADE SYSTEMS INCORPORATED
1997 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this 1997 Employee Stock Purchase Plan (the "Plan") is to
provide eligible employees of Cascade Systems Incorporated, a Delaware
corporation (the "Company"), and certain of its subsidiaries with opportunities
to purchase shares of the Company's Common Stock, $.001 par value (the "Common
Stock"). Three Hundred Thousand (300,000) shares of Common Stock in the
aggregate have been approved and reserved for this purpose.
1. ADMINISTRATION. The Plan will be administered by the Company's
Board of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. Participation in the Plan will neither be permitted
nor denied contrary to the requirements of Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"), and regulations promulgated thereunder.
All employees of the Company, including directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined below) to purchase Common Stock under the Plan, provided
that they are employees of the Company or a Designated Subsidiary on the first
day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the Option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
3. OFFERINGS. The Company will make one or more offerings
("Offerings") to employees to purchase Common Stock under this Plan. The Board
or the Committee shall determine the commencement dates of each of the Offerings
(the "Offering Commencement Dates"). Each Offering Commencement Date will begin
a
-1-
<PAGE> 2
period (a "Plan Period") during which payroll deductions will be made and held
for the purchase of Common Stock at the end of the Plan Period. The Board or the
Committee shall choose a Plan Period of twelve (12) months or less for each of
the Offerings and may, at its discretion, choose a different Plan Period for
each Offering. Notwithstanding any of the foregoing, unless the Board or the
Committee determines that the number of Offerings in any calendar year (the
"Annual Number of Offerings") shall be zero (0), the Annual Number of Offerings
shall be constant during the term of the Plan. Moreover, prior to the Offering
Commencement Date of the first Plan Period pursuant to the Plan, the Board or
the Committee shall establish and fix the Annual Number of Offerings.
4. PARTICIPATION. An employee eligible on the Offering Commencement
Date of any Offering may participate in such Offering by completing and
forwarding a payroll deduction authorization form to the Treasurer of the
Company at least twenty (20) days prior to the applicable Offering Commencement
Date. The form will authorize a regular payroll deduction from the Compensation
(as defined below) received by the employee during the Plan Period. Unless an
employee files a new form or withdraws from the Plan, his deductions and
purchases will continue at the same rate for future Offerings under the Plan as
long as the Plan remains in effect. The term "Compensation" means the amount of
money reportable on the employee's Federal Income Tax Withholding Statement,
excluding overtime, shift premium, incentive or bonus awards, allowances and
reimbursements for expenses such as relocation allowances for travel expenses,
income or gains on the exercise of Company stock options or stock appreciation
rights, and similar items, whether or not shown on the employee's Federal Income
Tax Withholding Statement, but including, in the case of salespersons, sales
commissions to the extent determined by the Board or the Committee.
5. DEDUCTIONS.
(a) The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction of any whole number percentage of
Compensation from 1% through 15% from the Compensation he or she receives during
the Plan Period or such shorter period during which deductions from payroll are
made. Any change in a participating employee's Compensation during a Plan Period
shall result in an automatic corresponding change in the dollar amount withheld.
(b) No employee may be granted an Option which permits his
rights to purchase Common Stock under this Plan and any other stock purchase
plan of the Company and its subsidiaries, to accrue at a rate which exceeds
$25,000 of the fair market value of such Common Stock (determined at the
Offering Commencement
-2-
<PAGE> 3
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. DEDUCTION CHANGES. An employee may not increase or decrease his
payroll deduction during a Plan Period. However, an employee may discontinue his
payroll deduction once during any Plan Period, by filing a new payroll deduction
authorization form. If an employee elects to discontinue his payroll deductions
during a Plan Period, such election shall constitute an election to withdraw his
funds pursuant to Section 8 hereof.
7. INTEREST. Interest will not be paid on any employee payroll
deduction accounts, except to the extent that the Board or its Committee, in its
sole discretion, elects to credit such accounts with interest at such per annum
rate as it may from time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may at any time not less than
twenty (20) days prior to the close of business on the last business day in a
Plan Period and for any reason permanently draw out the balance accumulated in
the employee's account and thereby withdraw from participation in an Offering.
Partial withdrawals are not permitted. The employee may not begin participation
again during the remainder of the Plan Period. The employee may participate in
any subsequent Offering by filing a new payroll authorization form no later than
20 days prior to the beginning date of such Offering.
9. PURCHASE OF SHARES.
(a) On the Offering Commencement Date of each Plan Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option (an "Option") to purchase on the last business day of such Plan
Period (the "Exercise Date"), at the Option Price (as defined below), such
number of whole shares of Common Stock of the Company reserved for the purposes
of the Plan as does not exceed the number of shares determined by dividing (i)
the quotient of $25,000 divided by the Annual Number of Offerings by (ii) the
Average Market Price (as defined below) on the Offering Commencement Date of
such Plan Period. The Average Market Price on any date shall be (a) the average
(on that date) of the high and low prices of the Common Stock on any national
securities exchange on which the Common Stock is listed, (b) the last reported
sale price of the Common Stock on the Nasdaq National Market or (c) the average
of the closing bid and asked prices last quoted on that date in the
over-the-counter-market, whichever is applicable, as published in THE WALL
STREET JOURNAL. If no sales of Common Stock were made on such a day, the price
of the Common Stock for purposes of clauses (a) and (b) above shall be the
reported price for the next preceding day on which sales were made.
-3-
<PAGE> 4
(b) The purchase price for each share purchased (the "Option
Price") will be 85% of the Average Market Price of the Common Stock on (i) the
first business day of such Plan Period or (ii) the Exercise Date, whichever is
less.
(c) Each employee who continues to be a participant in the Plan
on the Exercise Date shall be deemed to have exercised his Option at the Option
Price on such date and shall be deemed to have purchased from the Company the
number of full shares of Common Stock reserved for the purpose of the Plan that
his accumulated payroll deductions on such date will pay for at the purchase
price set forth in 9(b) above (but not in excess of the maximum number of shares
for which such Option was granted pursuant to 9(a) above). The Board may set a
higher purchase price for an Offering at any time at least 30 days prior to the
Offering Commencement Date of such Offering.
(d) Any balance remaining in an employee's payroll deduction
account at the end of a Plan Period will be automatically refunded to the
employee, except that any balance which is less than the purchase price of one
share of Common Stock will be carried forward into the employee's payroll
deduction account for the following Offering, unless the employee elects not to
participate in the following Offering under the Plan, in which case such balance
shall be refunded.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or (in the Company's sole discretion) in
the street name of a brokerage firm, bank or other nominee holder designated by
the employee.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the
event of a participating employee's termination of employment prior to the last
business day of a Plan Period (whether as a result of the employee's voluntary
or involuntary termination, retirement, death or otherwise), no payroll
deduction shall be taken from any pay due and owing to the employee and the
balance in the employee's payroll deduction account shall be paid to the
employee or, in the event of the employee's death, (a) to a beneficiary
previously designated in a revocable notice signed by the employee (with any
spousal consent required under state law) or (b) in the absence of such a
designated beneficiary, to the executor or administrator of the employee's
estate or (c) if no such executor or administrator has been appointed to the
knowledge of the Company, to such other person(s) as the Company may, in its
discretion, designate. If, prior to the last business day of the Plan Period,
the Designated Subsidiary by which an employee is employed shall cease to be a
subsidiary of the Company, or if the employee is transferred to a subsidiary of
the Company that is not a Designated Subsidiary, the employee shall be deemed to
have terminated employment for the purposes of this Plan.
-4-
<PAGE> 5
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to
an employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
14. APPLICATION OF FUNDS. All funds received or held by the Company
under this Plan may be combined with other corporate funds and may be used for
any corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event
of a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. MERGER.
(a) If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Board or the Committee shall take such
steps in connection with such merger as the Board or the Committee shall deem
necessary to assure that the provisions of Section 15 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities
or property as to which such holder of such Option might thereafter be entitled
to receive thereunder.
(b) In the event of a merger or consolidation of the Company
with or into another corporation which does not involve Continuity of Control
(as defined herein), or of a sale of all or substantially all of the assets of
the Company while unexercised Options remain outstanding under the Plan, the
Board of Directors shall provide that the acquiring or surviving corporation
assume the Plan, provided, however, that if such corporation refuses to assume
the Plan, then the then current
-5-
<PAGE> 6
Offering shall end ten (10) days prior to the effective date of such
transaction, and each holder of an Option, and each holder of an Option shall
have the right to exercise such Option in full based on payroll deductions then
credited to his account as of such date.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 16 of the Exchange Act and the rules promulgated thereunder, as in
effect from time to time, or Section 423 of the Code.
18. INSUFFICIENT SHARES. In the event that the total number of shares
of Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan exceeds
the maximum number of shares issuable under this Plan, the Board or the
Committee will allot the shares then available on a pro rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time
by the Board. Upon termination of this Plan all amounts in the payroll deduction
accounts of participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS.
(a) The Company's obligation to sell and deliver Common Stock
under this Plan is subject to listing on a national stock exchange or quotation
on the Nasdaq National Market and the approval of all governmental authorities
required in connection with the authorization, issuance or sale of such stock.
(b) Except to the extent preempted by federal law, the
provisions of the Plan, all determinations made and actions taken pursuant
hereto and all options made hereunder shall be governed by and interpreted in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law.
(c) The Plan is intended to comply with the provisions of Rule
16b-3 promulgated under the Exchange Act. Any provision inconsistent with such
Rule shall to that extent be inoperative and shall not affect the validity of
the Plan.
21. ISSUANCE OF SHARES. Shares may be issued upon exercise of an
Option from authorized but unissued Common Stock, from shares held in the
treasury of the Company, or from any other proper source.
-6-
<PAGE> 7
22. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by
entering the Plan, to promptly give the Company notice of any disposition of
shares purchased under the Plan where such disposition occurs within two years
after the date of grant of the Option pursuant to which such shares were
purchased.
23. EFFECTIVE DATE AND APPROVAL OF STOCKHOLDERS. The Plan shall take
effect upon the closing of the Company's initial public offering of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, subject to approval by the stockholders of the Company as
required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.
Adopted by the Board of Directors on September 22, 1997
Approved by the stockholders on October __, 1997
-7-
<PAGE> 1
Exhibit 10.5
Confidential materials omitted and filed
separately with the Securities and Exchange
Commission.
Asterisks denote omissions.
DATED 18th March 1994
- --------------------------------------------------------------------------------
LICENCE AND DISTRIBUTION AGREEMENT
FOOTPRINTS INTERNATIONAL LIMITED (1)
(trading as Cambridge CD Publishing)
CASCADE SYSTEMS LIMITED (2)
LAWRENCE GRAHAM
190 Strand
London WC2R 1JN
Tel: 071-379 0000
Ref WXB/0004624.01
<PAGE> 2
CONTENTS
--------
No. Heading Page
- --- ------- ----
1 DEFINITIONS 1
2 APPOINTMENT 5
3 GRANT OF LICENCES 5
4 CSUK's OBLIGATIONS AND REPRESENTATIONS 6
5 CCDP's OBLIGATIONS 9
6 PAYMENT OF LICENCE FEES 10
7 WARRANTY 13
8 LIMITATION OF LIABILITY 14
9 PATENT, DESIGN RIGHT, COPYRIGHT AND TRADE SECRET INDEMNITY 15
10 PROPRIETARY RIGHTS AND PROTECTION OF PROGRAMS 16
11 TERM AND TERMINATION 18
12 INDEMNITY 20
13 CONFIDENTIALITY 20
14 ENTIRE AGREEMENT 21
15 NON-WAIVER AND AMENDMENT 21
16 NOTICES 21
17 ASSIGNMENT 21
18 CONFLICT WITH STATUTE OR LAW 22
19 COMPLIANCE WITH LAWS 22
20 NO PARTNERSHIP OR AGENCY 23
21 FORCE MAJEURE 23
22 SURVIVAL 23
23 EQUITABLE RELIEF 23
24 APPLICABLE LAW AND JURISDICTION 24
25 HEADINGS 24
SCHEDULE 1: PROGRAMS
SCHEDULE 2: ACCEPTANCE TESTS
SCHEDULE 3: LOCATION OF DEMONSTRATION SITES
ANNEX 1: COPYRIGHT DECLARATION
-2-
<PAGE> 3
THIS AGREEMENT is made the 18th day of March 1994 BETWEEN:
(1) FOOTPRINTS INTERNATIONAL LIMITED whose registered office is at St.
Mary's House, 47 High Street, Trumpington, CB2 2HZ, trading as
Cambridge CD Publishing ("CCDP"); and
(2) CASCADE SYSTEMS LIMITED whose registered office is at 2 Norwich
Business Park, Whiting Road, Norwich NR4 6DJ ("CSUK").
WHEREAS:
(A) CCDP has the exclusive world-wide marketing and sub-licensing rights of
certain computer software referred to herein as the "Programs";
(B) CSUK is engaged in the business of systems integration in servicing UK
(and, through its sister company Cascade Systems Inc. formerly known as
Advanced Prepress Systems Inc. USA), newspaper and commercial
publishing companies. It develops, markets and licenses computer
software products for high-end printing techniques in the Territory (as
hereinafter defined); and
(C) CSUK desires to obtain a non-exclusive licence to use the Programs to
develop, market and sub-license software products for newspaper and
commercial publishing companies;
IT IS AGREED as follows:
1. DEFINITIONS
The following terms are defined for the purpose of this Agreement as
follows:
"Acceptance Date" shall mean the date on which the
Program passes the Acceptance Tests
in accordance with Clause 5.3
hereof and incorporating the
Runtime Programs;
"Acceptance Tests" shall mean the tests set forth in
SCHEDULE 2;
"Application Product or Products" shall mean an integrated system
comprising the Index Product linked
with one or more Reader Products,
developed by CSUK using the
Programs in accordance with Clause
3.1.1 hereof and incorporating the
Runtime Programs;
"Customer" shall mean a sub-licensee of one or
more Application Products in the
Territory;
"Index Product" shall mean a server based product
that can extract text from an
Acrobat or other database archive,
apply indexing strategies including
the English stem stripping
-3-
<PAGE> 4
component, to produce an index with
pointers back to the documents held
within the original Acrobat or
other database system archive which
shall have a minimum published list
price of p2500 or the US dollar
equivalent;
"Normal UK Working Hours" shall mean between 9:00 a.m. to
5:00 p.m. (UK time) from Monday to
Friday but excluding public
holidays;
"Product Market" shall mean the newspaper and
magazine prepress industry and
commercial publishing business;
"Program or Programs" shall mean CCDP's indexing and text
retrieval software programs known
as MUSCAT together with a standard
Application Program Interface which
enables the MUSCAT program to be
linked with, and called from, other
programs which use C programming
language as listed in SCHEDULE 1 in
machine readable binary code and
all Updates thereof furnished to
CSUK. "Programs" shall include all
Runtime Programs;
"Proprietary Material" shall mean the Programs, related
instructional and operational
manuals and other documentation,
and all parts, copies and
modifications thereof, and any
other information, in whatever
form, received by CSUK from CCDP
which is identified as being
proprietary or confidential or
which is not generally known or
available to others in the trade;
"Published List Price" shall mean the price set forth in
the local, publically declared and
published price list generally
applicable to purchasers (in US
dollars, Canadian Dollars or pounds
sterling as relevant) (net of Value
Added Tax or any other similar
sales tax payable thereon) for the
Application Product and each part
thereof which is in force from time
to time in that part of the
Territory in which the purchaser
operates;
-4-
<PAGE> 5
"Quarter Day" shall mean 31st March, 30th June,
30th September and 31st December in
any year;
"Reader Product" shall mean a client based product
that can read indexes crated by the
Index Product. The Reader Product
can be created on a number of
different operating system
platforms, each reading the one
index on a central server. The
Reader Product shall have a minimum
published retail list price of p200
or the US dollar equivalent;
"Relevant Part" shall mean that part of the
Application Product which
incorporates, demonstrates and
relates in any other way to the use
and modification of the Runtime
Programs or any part of the Runtime
Programs and which contains an
outline of the basic structure of
the Application Product;
"Runtime Programs" shall mean the Programs or portions
of Programs or other programs which
are derived directly or indirectly
from and which use the technology
incorporated in the Programs, that
are embedded in the Application
Product as a result of CSUK's
operation of the Programs in
accordance with Clause 3.1.1
hereof;
"Sub-Distributor" shall refer to a party which has an
agreement with CSUK to distribute
Application Products to Customers
in accordance with the terms of
this Agreement (including, without
limitation, Cascade Systems
International, Inc.);
"Territory" shall mean the United Kingdom, the
United States of America and
Canada;
"Updates" shall mean error corrections,
modifications, and updates that
CCDP incorporates officially into
its standard UK version of any of
the Programs together with related
documentation.
2. APPOINTMENT
2.1 Subject to the terms and conditions of this Agreement, CCDP hereby
appoints CSUK, and CSUK hereby accepts and agrees to act, as a
non-exclusive value
-5-
<PAGE> 6
added reseller for the Application Product for CCDP in the Product
Market in the Territory for the term of this Agreement.
2.1.1 Notwithstanding anything to the contrary herein, nothing in
this Agreement shall be deemed to limit or prevent CCDP
directly or indirectly, from marketing, distributing,
licensing or selling the Programs anywhere throughout the
world, including in the Territory.
2.1.2 Except as otherwise authorised in writing by CCDP, CSUK shall
not market, demonstrate, advertise, promote, distribute or
engage in other activities to sub-license the Programs outside
the Territory but CSUK may respond to and fill unsolicited
orders for the Runtime Programs as part of or embedded in the
Application Product from Customers and potential Customers in
any member state of the European Community.
2.1.3 CSUK may appoint Sub-Distributors for the sub-licensing of the
Application Product in the Product Market in the Territory,
provided that each Sub-Distributor shall be bound by a written
agreement with CSUK that (i) protects the confidentiality of
CCDP's proprietary rights in, the Proprietary Material to the
same extent as provided herein and (ii) limits the liability
of CCDP to the same extent as provided herein.
3. GRANT OF LICENCES
3.1 CCDP hereby grants to CSUK, and CSUK hereby accepts, the following
non-exclusive and non-transferable licences, to commence on the
Acceptance Date subject to the terms and conditions of this Agreement:
3.1.1 A licence to operate the Programs in the Territory in
accordance with CCDP's instructional and operational manuals
for the purposes of CSUK's internal use, development of
Application Product and providing support services to
Customers.
3.1.2 A licence to market, distribute and sub-license in the Product
Market and in the Territory by itself and through authorised
Sub-Distributors the Runtime Programs as part of and embedded
in Application Products on any operating system. This licence
includes a licence to copy the Runtime Programs in conjunction
with copying Application Products for the purposes of
distributing and sub-licensing Application Products.
3.1.3 A licence to operate the Runtime Programs at two sites in the
UK and at two sites in the USA, such sites to be at the
locations specified in SCHEDULE 3 and at trade shows in the
Territory such as WONA, Seybold and Ipex for the sole purpose
of demonstrating the operation and capabilities of the
Application Products to prospective Sub-Distributors and
Customers.
3.1.4 A licence to adapt and rewrite but not copy certain related
portions (but not the whole) of the instructional or
operational manuals relating to the Programs in conjunction
with producing documentation for the purposes of distributing
and sub-licensing the Application Products provided that CSUK
shall in each case obtain CCDP's prior written approval of
such documentation, such approval not to be unreasonably
withheld or delayed.
3.2 The licences granted herein do not include the right to distribute or
sub-license Runtime Programs outside the Product Market or separate or
apart from
-6-
<PAGE> 7
Application Products, or as part of rather than the whole of an
Application Product to modify, enhance, translate or crate any works
derivative of the Programs other than Application Products, or to
permit any other person to have access to the Programs by means of time
sharing, remote computing services, networking, batch processing or any
means other than sub-licensing Application Products in accordance with
Clause 3.1.2 hereof.
3.3 The licences granted herein shall commence on the Acceptance Date.
4. CSUK'S OBLIGATIONS AND REPRESENTATIONS
4.1 CSUK shall, at its own expense, promote, publicise and market the
Application Products in the Territory.
4.2 When delivery by CSUK of a copy of a Runtime Program to a
Sub-Distributor or Customer is authorised hereunder, CSUK may copy the
Application Product in which the Runtime Program is embedded, provided
that every such copy of the Runtime Programs provided to a
Sub-Distributor or Customer by CSUK shall include clearly legible
reproductions within the local routine, on related documentation, on
the disc and on the packaging, of CCDP's and, as the case may be, Dr.
Martin Porter's copyright and proprietary rights notices and (unless
CCDP give CSUK not less than 30 days notice in writing not to use such
logo or mark) a copy of CCDP's logo and trademark "MUSCAT" as provided
to CSUK from time to time.
4.3 It is acknowledged by CSUK and CCDP that from the Acceptance Date, CSUK
shall own all copyright in the Application Product except for the
Runtime Programs.
4.4
4.4.1 Prior to or upon delivery of an Application Product to a
Customer, CSUK shall or shall ensure that a Sub-Distributor
shall enter into a binding agreement with the Customer to
sub-license the Runtime Programs, which agreement shall
incorporate standard software end-user licence terms which are
adequate to protect CCDP's rights to no lesser extent than in
this Agreement and the form of such agreement shall be
approved by CCDP prior to such agreement becoming binding.
4.4.2 CSUK shall, at its own expense, enforce the obligations of
each Sub-Distributor under the agreement described in Clause
2.1.3 hereof and each Customer under the agreement described
in Clause 4.4.1 hereof, and shall promptly report to CCDP any
breach of such a Sub-Distributor or Customer agreement that
arises out of or relates to the confidentiality of, or CCDP's
or Dr. Martin Porter's proprietary rights in, the Proprietary
Materials or the limitation of CCDP's liability. CSUK shall
assign to CCDP, at CCDP's sole option, any rights that CSUK
has against its Sub-Distributors and Customers under such
agreements arising from any of CCDP's or Dr. Martin Porter's
confidentiality or proprietary rights provisions and, after
any such assignment, CSUK agrees to co-operate fully with CCDP
in any proceedings or actions connected therewith at CCDP's
expense;
4.4.3 CSUK may grant to a Customer an Application Product temporary
trial sub-licence at no charge, provided that:
-7-
<PAGE> 8
(a) the Customer enters into a sub-licence agreement in
accordance with Clause 4.4.1 hereof;
(b) at any one time, the total trial sub-licences in the
Territory shall not exceed sixteen;
(c) each trial sub-licence shall be for a period not to
exceed sixty days; and
(d) CSUK shall pay to CCDP a sub-licence fee as described
in Clause 6.3 hereof for each copy of an Application
Product that a trial sub-licence Customer retains for
longer than sixty days.
4.5 CSUK shall report to CCDP on a quarterly basis the identity, address
and customer contacts of Sub-Distributors. CSUK shall report to CCDP on
a quarterly basis the identity and address of all Customers who have
entered into an agreement with CSUK in accordance with Clauses 2.1.3 or
4.4.1 hereof. At CCDP's request, CSUK shall provide CCDP with periodic
forecasts estimating value and closing dates of Runtime Program
sub-licences and such other information relating to Customers and the
marketing and distribution of the Runtime Programs as CCDP shall
reasonably request from time to time.
4.6 For the term of this Agreement and one year thereafter, CCDP shall have
the right, at its own expense and under reasonable conditions of time
and place from time to time to have a mutually agreed to independent
auditor audit and copy all records of CSUK and its Sub-Distributors
relating to any of CSUK's obligations under this Agreement. In the
event any such audit discloses any material breach of this Agreement by
CSUK or its Sub-Distributors, employees or agents, CSUK shall, in
addition to such other rights and remedies as may be available to CCDP
as the result of such breach, pay to CCDP the full cost of such audit
and copying. CCDP shall use such information only to verify and enforce
CSUK's compliance with the terms of this Agreement, to comply with any
governmental reporting requirement or for such other purposes as
required by law.
4.7 CSUK shall, at its own cost, provide full and adequate maintenance and
support services for the Runtime Programs as part of the Application
Product.
4.8 CSUK shall provide CCDP with a copy (in a form easily readable by CCDP)
of the Relevant Part of each and every version of the Application
Product including related documentation within 90 days of the
completion of each applicable version. CCDP agrees to use such copies
solely for the purposes of back up and reference to be able to support
the Programs and not to sell or part with the possession of such copies
to any third party.
4.9 CSUK and CCDP agree that CSUK shall pay a fee in an amount to be
reasonably agreed from time to time with CCDP, in respect of any copies
of Runtime Programs licensed to third parties where CCDP was directly
or indirectly, the effective cause of such licence or licences.
5. CCDP's OBLIGATIONS
5.1 CCDP shall provide to CSUK a copy of the Programs indicated in
SCHEDULE 1 in binary form for use by CSUK in accordance with Clause
3.1.1 hereof.
5.2 CCDP shall provide to CSUK copies of the related instructional and
operational manuals and other reference documentation which can only be
-8-
<PAGE> 9
copied in accordance with Clause 3.1.4. CCDP will be responsible for
maintaining and updating such reference documentation as it deems
necessary.
5.3 CCDP shall carry out the installation of the Program promptly after
delivery and shall carry out the Acceptance Tests in the presence of
CSUK as soon as possible after installation. CCDP & CSUK agree to take
all reasonable steps to ensure that the Programs pass the Acceptance
Tests. CSUK shall be deemed to accept the Programs upon the date on
which such Programs pass the Acceptance Tests and CCDP shall reasonably
agree on whether such tests have been passed or not provided that if
agreement has not been reached by that date which is thirty calendar
days after the date of this agreement, then this Agreement shall
automatically terminate. Upon such termination, CSUK shall promptly
return all Proprietary Material to CCDP in accordance with Clause 10.7,
the provisions of Clause 11 shall not apply and CCDP shall have no
obligation to refund the amounts set forth under Clauses 6.1.1 and
6.1.2 hereof.
5.4 CCDP shall provide, free of charge, CSUK with any Updates as soon as
reasonably practicable.
5.5 CCDP shall, subject to the availability of personnel and other
resources, provide to CSUK, during Normal UK Working Hours, consulting
services per day or per half day at CSUK's request. Up to and including
31st December 1994 the cost of such consulting services shall be
p350.00 per man day and p175.00 per half day and from 1st
January 1995 onwards the cost shall be such amount as is agreed between
CSUK and CCDP.
5.6 CCDP shall, subject to the availability of personnel and other
resources, provide to CSUK during normal UK working hours a reasonable
amount of hotline support and advice by telephone on the Programs and
such advice shall be free of charge to CSUK.
5.7 CCDP agrees to provide, free of charge, CSUK with 10 man-days of
training in the use of the Programs. The timing of such days shall be
reasonably agreed between CCDP and CSUK. Any further training required
by CSUK shall be on terms and at a charge to be agreed from time to
time by CCDP and CSUK.
5.8 Notwithstanding Clause 7.4, CCDP agrees to use all reasonable
endeavours to rectify any errors or defects in the Programs which are
reported in writing to CCDP by CSUK, by the issue of fixes or a
corrected version of the Programs or the applicable part of the Program
provided that CCDP shall have no obligation to assist CSUK in the
circumstances set forth in Clauses 7.3.2, 7.3.3 or 7.3.4 or 7.3.5.
5.9 CCDP shall within 2 months of the date of this Agreement deposit the
source code of the Programs in human readable form with the National
Computing Centre ("NCC") and enter into a source code deposit agreement
with the NCC. Such agreement will all CSUK to have right of access to
the source code solely for the purpose of maintaining the Runtime
Programs if CCDP shall be the subject of any of the events set forth in
Clause 11.3.
-9-
<PAGE> 10
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
6. PAYMENT OF LICENCE FEES
6.1 CSUK shall pay to CCDP ******* as a non-refundable licence fee and
maintenance fee for the licence granted in Clause 3.1.1 hereof. These
fees are due and payable (or due and paid in the case of 6.1.1 only) as
follows:
6.1.1 as to ******* on the signing of the heads of agreement between
CCDP and CSUK;
6.1.2 as to ******* on the date hereof; and
6.1.3 as to ******* on the Acceptance Date.
6.2 On account and in anticipation of the licence fees due under this
Agreement in accordance with Clause 6.3 CSUK agrees to pay CCDP the sum
of ******* of which ******* is payable not later than 16th May 1994 and
******* is payable on whichever is the earlier of 31st December 1994 or
the date on which the first sale of Application Product is made in
accordance with Clause 3.1.2 of this Agreement. Such sums shall not be
refundable to CSUK under any circumstances.
6.3
6.3.1 CSUK shall provide CCDP with a copy of its current Published
List Price for the Application Product in each part of the
Territory as soon as such price has been determined. CSUK
shall not amend the Published List Price more often than once
in any period of 3 months ending on a Quarter Day;
6.3.2 On any licence of an Application Product or any part thereof
granted by CSUK to a Sub-Distributor or Customer (except for
an Application Product delivered pursuant to a trial licence
unless payment of a sub-licence fee is required by Clause
4.4.3) CSUK shall pay to CCDP a licence fee of ***** of the
Published List Price.
6.4 CSUK shall within 30 days after each Quarter Day during the continuance
of this Agreement and after the end of each month falling within one
year after its termination send to CCDP a statement showing the
aggregate Published List Price of each Application Product or any part
sold in the Territory by CSUK to a Sub-Distributor or Customer during
that quarter and the licence fee thereon to which CCDP is entitled
pursuant to Clause 6.3 and at the same time send to CCDP a remittance
in sterling in respect to that amount.
6.5 CSUK shall keep separate records and accurate accounts of all sales of
the Application Product or any part made by it or its Sub-Distributors
in the Territory and shall permit CCDP or its duly appointed
representatives to inspect all such records and accounts and take
copies thereof at all reasonable times and all such records and
accounts shall be kept confidential by CCDP in accordance with the
terms of Clause 13.2 hereof.
6.6 In addition to the provisions of Clause 4.6 hereof, CSUK shall, if so
requested by CCDP within 30 days after the end of any calendar year of
this Agreement or after the end of the 12 month period following the
termination of this Agreement, provide to CCDP a report from its
external auditors as to accuracy of the information submitted by it in
respect of that year or period pursuant to
-10-
<PAGE> 11
Clause 6.4. Such report shall be at CCDP's expense unless the
information submitted by CSUK in respect of that year or period
pursuant to Clause 6.4 is found to be inaccurate in any material way in
which case CSUK shall bear the full cost of such report.
6.7 CSUK shall pay the amounts due to CCDP hereunder without any deduction
other than such amount (if any) as it is required to deduct by law. IF
CSUK is required to make such deduction, it shall do all things in its
power which may be reasonably necessary to enable or assist CCDP to
claim exemption therefrom under any double tax or similar agreement
from time to time in force and shall from time to time give to CCDP
proper evidence as to the deduction and payment over of the tax or sums
withheld.
6.8 CCDP shall have no obligation to refund to CSUK any licence fees for
Application Products.
6.9 CSUK shall pay, as and when chargeable, all import duties, levies or
imposts, and all sales, use, value added, property, or other taxes of
any nature, assessed upon or with respect to any Programs, Application
Products or other products or services ordered by CSUK from CCDP
(including, without limitation, the licence fees in Clause 6.3) which
are imposed by any community of nations, nation, or political
subdivision thereof, but excluding taxes based on CCDP's net income or
profits. CSUK shall, and shall cause its Sub-Distributors to, pay on or
before their due dates all such taxes, fees, duties and charges which
arise out of or in connection with this Agreement or any licence or
sub-licence granted herein or any use of the Programs. In the event
CCDP is required at any time to pay any such tax, fee, duty or charge,
CSUK shall promptly reimburse CCDP therefor. If any successor of CSUK
which is resident outside the United Kingdom is required by law to make
any deduction or to withhold from any sum payable to CCDP by CSUK or
any successor hereunder, then the sum payable by CSUK or any successor
upon which the deduction or withholding is based shall be increased to
the extent necessary to ensure that, after all deduction and
withholding, CCDP receives and retains, free from liability for any
deduction or withholding, a net amount equal to the amount CCDP would
have received and retained in the absence of required deduction or
withholding.
6.10 Save insofar as otherwise expressly provided in this Agreement, all
amounts stated in this Agreement are expressed exclusive of value added
tax or other applicable sales tax.
6.11 CSUK shall pay to CCDP interest on any amount payable to CCDP hereunder
which is not paid promptly and when due at a rate equal to 3% per annum
over the base rate from time to time of Barclays Bank Plc.
6.12 All payments to CCDP hereunder shall be paid in pounds sterling unless
otherwise agreed by CCDP in writing.
6.13 All shipments to CSUK hereunder shall be ex-works CCDP's offices in
Cambridge and all costs for shipping and insurance shall be paid for by
CSUK.
7. WARRANTY
7.1 Subject to the other provisions of this Clause 7, CCDP warrants that:
-11-
<PAGE> 12
7.1.1 for ninety days after delivery of the Programs to CSUK in
accordance with Clause 5.1 above, the media in which the
Programs are stored shall be free from defects in materials,
design and workmanship; and
7.1.2 that CCDP has the right power and authority to license the
Programs upon the terms and conditions of this Agreement; and
7.1.3 that to its knowledge and belief the Programs do not infringe
the copyright of any third party.
7.2 CCDP's sole responsibility under this warranty shall be to replace any
defective media returned by CSUK during the ninety day period free of
charge.
7.3 CCDP shall have no liability under the foregoing warranty, to the
extent permitted by applicable law, to anyone other than CSUK or to the
extent that:
7.3.1 within ninety days after delivery of the Programs to CSUK,
CSUK has failed to report in writing any defect claimed to be
a breach of warranty.
7.3.2 the Program has been misused or exposed to environmental or
operating conditions other than those specified by CCDP;
7.3.3 the Program has been damaged, altered by accident, neglect,
misuse or other abuse;
7.3.4 the claimed defect has been caused, in whole or in part, by a
person or persons other than CCDP, or by CSUK or the
Application Product developed by CSUK or other products or
equipment not manufactured or developed by CCDP;
7.3.5 the claimed defect is in a superseded version of the Program.
7.4 CSUK acknowledges and understands that software in general, including
the Programs is not error free and agrees expressly that the existence
of any errors or defects in the Programs shall not under any
circumstances constitute a breach of this Agreement.
7.5 THE EXPRESS WARRANTY SET FORTH IN THIS CLAUSE 7 IS THE ONLY WARRANTY
MADE BY CCDP WITH RESPECT TO THE PROGRAMS AND ANY SERVICES PROVIDED BY
CCDP. CCDP MAKES NO OTHER WARRANTIES, EXPRESS, IMPLIED OR ARISING BY
CUSTOM OR TRADE USAGE, AND, SPECIFICALLY, MAKES NO WARRANTY OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. CCDP'S EXPRESS
WARRANTY SHALL NOT BE ENLARGED, DIMINISHED OR AFFECTED BY, AND NO
OBLIGATION OR LIABILITY SHALL ARISE OUT OF, CCDP RENDERING TECHNICAL OR
OTHER ADVICE OR SERVICE IN CONNECTION WITH THE PROGRAMS.
7.6 CSUK and its Sub-Distributors shall make no representation or warranty
concerning the quality, performance or other characteristics of the
Runtime Programs as embedded in the Application Product other than
those which are consistent in all respects with, and do not expand the
scope of, the warranties of CCDP set forth in this Agreement.
7.7 CSUK acknowledges that it has considerable expertise in producing
software products for the Product Market and that it has carefully
considered and accepted the provisions of Clause 7 and Clause 8 as
being commercially reasonable in view of the purposes of this
Agreement.
-12-
<PAGE> 13
8. LIMITATION OF LIABILITY
8.1 CCDP's liability (including liability for the acts and omissions of its
employees, agents and sub-contractors), whether in contract, tort
including negligence, or otherwise, arising out of or in connection
with the Programs or this Agreement shall not exceed the amounts paid
to CCDP by CSUK for the applicable copy of the Program that gave rise
to any claim.
8.2 IN NO EVENT SHALL CCDP OR ITS LICENSORS BE LIABLE FOR SPECIAL,
INCIDENTAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR TORT DAMAGES,
INCLUDING, WITHOUT LIMITATION, ANY DAMAGES RESULTING FROM LOSS OF USE,
LOSS OF DATA, LOSS OF PROFITS, LOSS OF GOODWILL, LOSS SUFFERED BY CSUK
AS A RESULT OF AN ACTION BROUGHT BY A THIRD PARTY OR LOSS OF BUSINESS
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, THE PERFORMANCE OF
THE PROGRAMS OR CCDP'S PERFORMANCE OF SERVICES OR OF ANY OTHER
OBLIGATIONS RELATING TO THIS AGREEMENT OR THE PROGRAMS, WHETHER OR NOT
CCDP HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8.3 Nothing in this Agreement shall be taken to exclude any liability for
death or personal injury which cannot be excluded or restricted under
the terms of the Unfair Contract Terms Act 1977.
8.4 CSUK shall include in each Customer sub-license agreement and each
Sub-Distributor agreement relating to any of the Programs appropriate
provisions effective to limit the liability of CCDP as provided in this
Agreement.
8.5 IN NO EVENT SHALL CCDP BE LIABLE FOR ANY DAMAGES OR CLAIMS ARISING OUT
OF OR RELATED TO CSUK'S UNAUTHORISED USE OF CCDP'S TRADEMARKS.
8.6 CCDP shall always be afforded reasonable opportunity to correct any
deficiency in the Programs before it is considered to be in breach of
its obligations under this Agreement.
8.7 With the exception of claims in respect of death or personal injury,
the parties shall be discharged of all liability in respect of any
transaction subject to this Agreement, whether in contract or in tort,
including negligence, unless suit is brought within three years after
the party bringing the suit first becomes, or should reasonably have
become aware of the facts constituting the cause of action.
9. PATENT, DESIGN RIGHT, COPYRIGHT AND TRADE SECRET INDEMNITY
9.1 CCDP shall defend or, at it option, settle, any claim, action or
proceeding brought against CSUK on grounds (a) that the Program
infringes a United Kingdom patent, design right, copyright or trade
secret or (b) that CCDP does not have the right to grant the licenses
granted herein, and shall indemnify CSUK against all damages and costs
reasonably incurred (to be taxed if not agreed) against CSUK in any
such action or proceeding which results from any such claim. CCDP shall
have no liability under this Clause 9 unless CSUK (c) promptly notifies
CCDP in writing of the claim (d) gives CCDP full authority, information
and assistance to defend such claim and (e) gives CCDP
-13-
<PAGE> 14
sole control of the defence of such claim and all negotiations for the
compromise or settlement thereof. If a Program or any part thereof
becomes, or in CCDP's opinion is likely to become, the subject of a
valid claim of infringement or the like under any patent, design right,
copyright or trade secret law, CCDP shall have the right, at its option
and expense, either to obtain for CSUK a licence permitting the
continued use of the Program or such part, to replace or modify it so
that it becomes non-infringing, or to refund an amount equal to the
depreciated licence fee paid by CSUK for the Program (calculated on a
straight line basis over a five-year life) and to terminate the license
therefor. CCDP shall have no liability hereunder for any costs incurred
or settlement entered into without its prior written consent. CCDP
shall have no liability hereunder with respect to any claim based upon
(f) the operation of an Application Program or the combination of the
Program with other products insofar as such claims relate to other
products not furnished by CCDP (g) any addition to or modification to
the Program by any person or entity other than CCDP or (h) CCDP
furnishing to CSUK any information, data, service and applications
assistance, other than the Programs and the instructional and
operational manuals relating thereto.
9.2 THE PROVISIONS OF THIS CLAUSE 9 STATE THE EXCLUSIVE LIABILITY OF CCDP
AND THE EXCLUSIVE REMEDY OF CSUK OR ITS SUCCESSORS WITH RESPECT TO ANY
CLAIM OF PATENT, DESIGN RIGHT, COPYRIGHT, TRADE SECRET OR ANY OTHER
INTELLECTUAL PROPERTY RIGHT INFRINGEMENT BY THE PROGRAMS OR CLAIM THAT
CCDP LACKS THE RIGHT TO GRANT THE LICENCES GRANTED HEREIN, ANY PART
THEREOF OR THE USE THEREOF, AND ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, AND INDEMNITIES WITH RESPECT THERETO.
10. PROPRIETARY RIGHTS AND PROTECTION OF PROGRAMS
10.1 CSUK agrees that the Programs, related documentation, manuals and other
Proprietary Material provided to CSUK hereunder are proprietary
information of CCDP and its licensors and that CCDP and its licensors
shall retain all title, copyright, design, patent and other proprietary
rights to all Proprietary Material and to all copies thereof.
10.2 CSUK acknowledges that the Proprietary Material constitutes a valuable
asset of CCDP. CSUK shall hold the Proprietary Material strictly
confidential and shall utilise it only in accordance with the terms of
this Agreement. Except as expressly permitted by this Agreement, CSUK
shall limit the use of, and access to, the Programs and all other
Proprietary Material to its employees or agents whose use of or access
to the Programs and all other Proprietary Material is necessary for
CSUK's business. CSUK shall, by all appropriate means, prevent
unauthorised disclosure, publication, display or use of any Proprietary
Material including, where applicable, obtaining written binding
agreements for any disclosees to keep such Proprietary Material in
confidence to the same extent at least as CSUK is so bound hereunder.
10.3 CSUK shall not remove any copyright, proprietary rights or
confidentiality notices included in or affixed to any Proprietary
Material, and shall legibly
-14-
<PAGE> 15
reproduce all such notices on any copies of Proprietary Material which
CSUK shall make.
10.4 Except as specifically permitted in Clause 3.1, Clause 10.5 and in this
Clause 10.4, CSUK shall not copy, alter, modify, adapt or reverse
engineer any Programs, including, without limitation, any related
documentation, whether by converting, translating, de-compiling,
disassembling, creating derivative works, or merging the Programs or
any part thereof with any other software. If CSUK wishes to obtain
information necessary to achieve interoperability of an independently
created computer program with the Programs or other programs
("Interoperability Information"), then CSUK shall notify CCDP in
writing, specifying the nature of the Interoperability Information it
needs and the purposes for which it will be used. CCDP may, at its
option, make available such Interoperability Information to CSUK and
CSUK shall provide all information and assistance reasonably requested
by CCDP to enable CCDP to make such Interoperability Information. If
CCDP decides not to make such Interoperability Information available to
CSUK, then provided that CSUK complies with the conditions set forth in
Clause 50B(3) of the Copyright, Designs and Patents Act 1988, CSUK
shall be entitled to reverse engineer the Programs solely to obtain
such Interoperability Information and to use such Interoperability
Information to the extent necessary for the purpose of achieving
interoperability of an independently created computer program with the
Programs or other programs.
10.5 Except as specifically permitted in Clause 3.1, Clause 10.4 and this
Clause 10.5, CSUK shall not copy any of the Proprietary Material
without the prior written permission of CCDP. CSUK shall have the right
to make copies of the object code of the Programs for back-up purposes,
to replace a defective copy or for program error verification (but
excluding error correction) so far as is necessary for the purposes of
CSUK as a lawful user as defined in Clause 50A of the Copyright,
Designs and Patent Act 1988.
10.6 CSUK shall use CCDP's trademark MUSCAT in accordance with the terms of
Clause 4.2 only but not otherwise.
10.7 Within thirty days after the termination or expiration of this
Agreement for any reason, CSUK shall return to CCDP all materials
provided to it by CCDP hereunder, including, without limitation, all
Proprietary Material and all copies thereof in the possession, custody
or control of CSUK and shall destroy or render unusable all other
Proprietary Material and copies thereof which for any reason cannot be
delivered to CCDP. In such event, an executive officer of CSUK shall
certify in writing to CCDP that all Proprietary Material has been
delivered to CCDP or destroyed and that use of the Program has been
discontinued by CSUK. In no event shall CSUK be entitled to any refund
or credit against any portion of the licence fees by reason of the
return or destruction of Programs pursuant to this Clause 10.7.
11. TERM AND TERMINATION
11.1 This Agreement shall, subject to clause 5.3, be effective from the date
hereof and shall remain in effect for an initial five year period
thereafter, unless earlier terminated as provided herein.
11.2 If CSUK shall:
-15-
<PAGE> 16
11.2.1 disclose, publish, display or otherwise make available any
Proprietary Material to any person in violation of Clause 10
hereof; or
11.2.2 materially fail to perform, or be in material breach of any of
its obligations hereunder (including any payment obligation)
and, if such breach is capable of remedy, fail to remedy such
failure or breach within thirty days after receipt of notice
from CCDP with respect thereto
then CCDP may terminate this Agreement and the licences granted to CSUK
and its Sub-Distributors hereunder by giving written notice of
termination to CSUK, effective immediately.
11.3 This Agreement may be terminated by CCDP if CSUK shall convene a
meeting of its creditors, or if a proposal shall be made for a
voluntary arrangement within Part I of the Insolvency Act 1986, or a
proposal for any other composition scheme or arrangement with (or
assignment for the benefit of) its creditors, or if CSUK shall be
unable to pay its debts within the meaning of Clause 123 of the
Insolvency Act 1986, or if a trustee receiver administrative receiver
or similar officer is appointed in respect of all or any part of the
business or assets of CSUK, or if a petition is presented or a meeting
is convened for the purpose of considering a resolution, or other steps
are taken for the winding up of CSUK, or for the making of an
administration order (otherwise than for the purpose of an amalgamation
or reconstruction), or upon the occurrence of the equivalent events
under any other relevant jurisdiction.
11.4 Expiration or termination of this Agreement (a) shall not relieve
either party of any obligation to pay amounts due as a result of
transactions occurring prior to such expiration or termination and (b)
shall not, subject to Clause 5.3, terminate the Application Product
licences granted to Customers in accordance with this Agreement.
Following any termination or expiration of this Agreement, CSUK shall
return all Proprietary Material to CCDP as set forth in Clause 10.7 and
CSUK shall supply CCDP with a complete listing of all Customers and
Sub-Distributors who have copies of the Runtime Programs. Such listing
shall include each Customer and Sub-Distributor's name, address,
telephone number, customer contact, and the Program, platform operating
system and host identification number for each Application Program
licensed to each such Customer or Sub-Distributor.
11.5 CSUK acknowledges that this Agreement is for a limited period only. The
expiration or termination of this Agreement at the end of the original
term or any renewal term shall not give rise to the payment of any
indemnity, compensation or damages whatsoever by either party to the
other. Without limiting the generality of the foregoing, CSUK agrees
that the expiration of this Agreement or the termination of this
Agreement by either party at the end of the original term or any
renewal term shall not entitle CSUK to any termination or severance
compensation or to any payment in respect of any goodwill established
by CSUK during the initial term of this Agreement, or any renewals
hereof, or render CCDP liable for damages on account of the loss of
prospective profits loss of opportunity or any consequential loss or on
account of any expenditure, investment or obligation incurred or made
by CSUK. CSUK further agrees to make every effort to minimise its costs
and
-16-
<PAGE> 17
expenses related to this Agreement in the event this Agreement is
terminated or not extended for an additional term.
11.6 Following expiration of this Agreement, but not termination pursuant to
Clauses 11.2.1 or 11.3 hereof, CCDP shall grant to CSUK a license to
use the Programs for the sole purpose of providing Application Product
maintenance services to CSUK's Customers, provided that (a) such
licence shall be subject to the terms and conditions of CCDP's
then-standard written licence agreement for such Programs (b) CSUK
shall enter into and execute such agreement (c) CSUK shall pay CCDP
maintenance fees in accordance with CCDP's then-current price list and
(d) CSUK shall comply with all the other terms of Clause 11 hereof.
12. INDEMNITY
CSUK agrees to indemnify and hold harmless CCDP and its officers,
directors, employees and agents, from and against any and all claims,
demands, costs and liabilities (including all reasonable legal fees)
arising out of or related to any representation, action or omission by
CSUK or a Sub-Distributor inconsistent with the terms of this
Agreement, including, without limitation, CSUK's unauthorised use of
CCDP's trademarks, CSUK's failure to perform its obligations under
Clause 4.4 hereof provided that (a) CCDP shall notify CSUK in writing
of such a claim and (b) CCDP shall, to the extent reasonable,
co-operate with CSUK in the defence or settlement of such claim.
13. CONFIDENTIALITY
13.1 Both parties agree that neither CSUK nor CCDP shall disclose the nature
or substance matter of this Agreement or mention the other party's name
in connection with this Agreement in any marketing or publicity
material or other similar communications to third parties, without the
other party's prior consent in writing, such consent not to be
reasonably withheld or delayed provided that CSUK and CCDP hereby agree
that a formal public announcement of this Agreement shall be made
during the week following the date of this Agreement and the content of
that formal public announcement may be repeated without further
consent.
13.2 CSUK may from time to time impart to CCDP certain confidential
information relating to the Application Products, and any other
software developed by CSUK including specifications therefor. CCDP
agrees that it shall for the duration of this Agreement and for a
period of 5 years after the date of termination or expiration of this
Agreement, use all such confidential information which is clearly
identified as being proprietary or confidential solely for the purposes
of this Agreement and shall not disclose, whether directly or
indirectly to any third party such information other than as required
to carry out the purposes of this Agreement. In the event of such
disclosure, CCDP will obtain from such third parties duly binding
agreements to maintain in confidence the information to be disclosed to
the same extent at least as CCDP is so bound hereunder.
-17-
<PAGE> 18
14. ENTIRE AGREEMENT
This Agreement, including the Schedules and Annex attached hereto, sets
forth the entire agreement and understanding of the parties with
respect to the subject matter hereof, and supersedes all prior oral and
written agreements and understandings relating thereto.
15. NON-WAIVER AND AMENDMENT
No waiver, alteration, modification, or cancellation of any of the
provisions of this Agreement shall be binding unless made in writing
and signed by both CCDP and CSUK. The failure of either CCDP or CSUK at
any time or times to require performance of any provision hereof shall
in no manner affect the right at a later time to enforce such
provision. No remedy referred to in this Agreement is intended to be
exclusive, but each shall be cumulative and in addition to any other
remedy referred to herein or otherwise available at law, in equity or
otherwise.
16. NOTICES
All notices to be given in connection with this Agreement shall be
effective upon receipt, shall be made in writing and shall be
sufficiently given if personally delivered or if sent by courier or
other express mail service, postage prepaid, addressed to the party
entitled or required to receive such notice at the address for such
party set forth on the signature page hereof. Either party may by such
notice to the other change such address.
17. ASSIGNMENT
Neither CSUK or CCDP may assign any of their respective rights under
this Agreement to any person and delegate any of their respective
duties hereunder to any person or entity without the express prior
written consent of the other party. CCDP acknowledges that CSUK may
want to assign its rights and delegate its duties to Cascade
International Inc. or Cascade Systems Inc., formerly known as Advanced
Prepress Systems Inc. in the USA and CCDP shall not unreasonably refuse
its consent to assignment or delegation to such third parties. The
parties agree that, in particular but without limitation, it shall be
reasonable for CCDP to withhold its consent if such assignment or
delegation would increase its liabilities or reduce its rights
(including enforcement rights) under this Agreement under any relevant
anti-trust or competition laws or intellectual property laws. Subject
to the foregoing, this Agreement shall be binding upon, and inure to
the benefit of, CCDP and CSUK and their respective legal
representatives, successors and permitted assigns.
18. CONFLICT WITH STATUTE OR LAW
In the event that any provisions contained in this Agreement or any
part thereof shall for any reason be held invalid, illegal or
unenforceable in any respect by a court or administrative body of
competent jurisdiction, to such extent such provision shall be deemed
null and void and severed from this Agreement, and the remainder of
this Agreement shall remain in full force and
-18-
<PAGE> 19
effect. The parties hereby agree to attempt to substitute for any
invalid or unenforceable provision a valid or enforceable provision
which achieves to the greatest extent possible the economic, legal and
commercial objectives of the invalid or unenforceable provision.
19. COMPLIANCE WITH LAWS
19.1 CSUK shall comply with all applicable export control laws, including
export controls imposed by the United Kingdom government or any other
relevant jurisdiction. Without limiting the generality of the
foregoing, CSUK agrees that it shall not export or re-export any
Programs, or the direct product thereof, to any country without first
obtaining all necessary and required licences, consents and approvals.
CSUK acknowledges that shipments of the Programs are subject to the
export laws of the United Kingdom and that such laws could delay or
preclude delivery of Programs in the future. CSUK shall, at its sole
cost and expense, obtain and maintain in effect all permits, licences
and other consents necessary to the conduct of its activities
hereunder.
19.2 CSUK shall inform CCDP of any and all government requirements, approval
procedures or filings in the Territory relevant to this Agreement. If
any approval of this Agreement or related agreements is required to
make it effective or to make CCDP's rights hereunder enforceable
(including, without limitation, for any licences to the US Federal
Government or an agency thereof), or otherwise to protect CCDP's
proprietary rights hereunder, or to comply with exchange regulations or
other requirements so as to allow payments to CCDP in connection with
the licensing of the Application Product, CSUK shall immediately take
all such required action, and any charges incurred shall be or the
account of CSUK. CSUK shall keep CCDP currently informed of its efforts
in this area. CCDP shall have no obligation to export Programs to any
country in the Territory until CSUK has provided CCDP with satisfactory
evidence that either any such approval or filing is not required or all
such requirements have been met and all such approvals and filings have
been obtained.
20. NO PARTNERSHIP OR AGENCY
CSUK agrees that it, and each Sub-Distributor, is an independent
contractor and that this Agreement and the relations between CCDP and
CSUK hereby established do not constitute a partnership, joint venture,
agency or contract of employment between them, or any other similar
relationship.
21. FORCE MAJEURE
Neither CSUK nor CCDP shall be liable for any delays in the performance
of any of their respective obligations hereunder due to causes beyond
their reasonable control, including, without limitation, fire, strike,
war, riots, acts of any civil or military authority, acts of God,
judicial action, unavailability or shortages of labour, materials or
equipment, failure or delays in delivery of vendors and suppliers or
delays in transportation.
-19-
<PAGE> 20
22. SURVIVAL
CSUK agrees that the provisions of Clauses 6, 7, 8, 9, 10, 11, 12,
13.1, 19, 22, 23 and 24 shall survive the expiration or earlier
termination of this Agreement for any reason.
23. EQUITABLE RELIEF
23.1 The covenants and agreements of CSUK and CCDP in Clauses 4.4, 10 and
13.2 hereof are of a special and unique character, and CSUK and CCDP
acknowledge that money damages alone will not reasonably or adequately
compensate CCDP or CSUK for any breach of such covenants and
agreements.
23.2 CCDP and CSUK expressly agree that in the event of the breach or
threatened breach of any such covenants or agreements, in addition to
other rights or remedies which CCDP or CSUK may have, at law, in
equity, or otherwise, CCDP or CSUK shall be entitled to injunctive or
other equitable relief compelling specific performance of, and other
compliance with, the terms of such Clauses.
24. APPLICABLE LAW AND JURISDICTION
24.1 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of England and the parties hereto agree to
submit to the non-exclusive jurisdiction of the English Courts.
25. HEADINGS
25.1 Headings to sections in this Agreement are for the purposes of
information and identification only and shall not be construed as
forming part of this Agreement.
AS WITNESS the parties hereto have caused this Agreement to be signed the date
first above written by their respective duly authorised signatories.
CCDP: CSUK:
DR. MARTIN PORTER PAUL BAKER
/s/ Martin Porter /s/ Paul Baker
- ------------------------------------- ---------------------------------------
JOHN SNYDER PHIL WILLIAMS
/s/ John Snyder /s/ Phil Williams
- ------------------------------------- ---------------------------------------
-20-
<PAGE> 21
SIGNED by Dr. Martin Porter and John SIGNED by Paul Baker and Phil
Snyder for and on behalf of Williams for and on behalf of
FOOTPRINTS INTERNATIONAL LIMITED CASCADE SYSTEMS LIMITED of
(trading as Cambridge CD Publishing) of St. James Yarn Mill
St. Johns Innovation Centre Whitefriars
Cowley Road Norwich NR3 1SH
Cambridge CB4 4WS in the presence of:
in the presence of:
/s/ S.A. Farrow /s/ Cheryl Dunn
S.A. Farrow Cheryl Dunn
-21-
<PAGE> 22
SCHEDULE 1
The Programs delivered to Cascade Systems Ltd. under this agreement comprise the
following items:
A. Muscat modules as listed below in List 1, delivered as binary modules
for both little-endian and big-endian machines.
B. "C" software drivers for the MUSCAT API, including machine code
interpreter. These enable Muscat to be implemented on most machines which
recognise "C".
C. Executables for MUSCAT running under DOS, Windows and SUN OS4.1.1.
<PAGE> 23
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
LIST 1
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
*******
<PAGE> 24
DATED 28th April 1994
- --------------------------------------------------------------------------------
DEED OF ASSIGNMENT AND AMENDMENT
relating to
a Software Licence and Distribution Agreement
FOOTPRINTS INTERNATIONAL LIMITED (1)
(trading as Cambridge CD Publishing)
CASCADE SYSTEMS LIMITED (2)
CASCADE SYSTEMS INCORPORATED (3)
LAWRENCE GRAHAM
190 Strand
London
WC2R 1JN
Tel: 071 379 0000
Ref: WXB/0008894.01
<PAGE> 25
THIS DEED OF ASSIGNMENT AND AMENDMENT is made this 28th day of April 1994
BETWEEN:
(1) FOOTPRINTS INTERNATIONAL LIMITED whose registered office is at St.
Mary's House, 47 High Street, Trumpington, CB2 2HZ, trading as
Cambridge CD Publishing ("CCDP");
(2) CASCADE SYSTEMS LIMITED whose registered office is at 2 Norwich
Business Park, Whiting Road, Norwich NR4 6DJ ("CSUK"); and
(3) CASCADE SYSTEMS INCORPORATED whose principal place of business is at
1 Corporate Drive, Andover, Massachusetts, 01810, USA ("CSUSA")
WHEREAS:
(A) By virtue of a Software Licence and Distribution Agreement (the
"Agreement") dated 18th March 1994 between CCDP and CSUK, CCDP has
granted to CSUK the right to use the Programs in the Product Market in
the Territory (as all such terms are therein defined) upon the terms
and conditions of this Agreement.
(B) CSUK wishes to assign and grant to CSUSA all rights and benefits and
delegate to CSUSA all duties in and to the Agreement and CCDP consents
to such assignment on the terms and conditions and subject to the
amendments to the Agreement hereinafter appearing.
NOW THIS DEED WITNESSETH as follows:
1. In consideration of the sum of P1 (receipt of which is hereby
acknowledged) CSUK hereby assigns and grants to CSUSA all those rights
and benefits contained in the Agreement.
2. The Agreement shall from the date above written be amended to
incorporate the following changes:
2.1 In Clause 1 the words "which shall have a minimum published list price
of P2,500 or the US dollar equivalent" at the end of the
definition of the "Index Product" shall be deleted;
2.2 In Clause 1 the words "The Reader Product shall have a minimum
published retail list price of P200 or the US dollar equivalent"
at the end of the definition of the "Reader Product" shall be deleted;
2.3 In Clause 3.2 the words "part of rather than the whole of" shall be
deleted and the following words shall be substituted therefor "a
separate Index Product or Reader Product which is not part of";
<PAGE> 26
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
2.4 An additional Clause 5.10 shall be added as follows: "In this
Agreement, the reasonable food, lodging, travel and incidental costs
and expenses incurred by CCDP's employees or agents in connection with
the provision of any consulting or training services shall be borne by
CSUK";
2.5 In Clause 6.3.1 the words "CSUK shall not amend the Published List
Price more often than once in any period of 3 months ending on a
Quarter Day" shall be deleted;
2.6 In Clause 6.3.2 after the words "licence fee of ***** of the Published
List Price" the following words shall be added" and such licence fee
shall in no event be less than ***** for each Index Product and *****
for each Reader Product";
2.7 In Clause 6.4 the words "in sterling in respect of that amount" shall
be deleted and the following words shall be added in substitution
therefor "in the same currency, namely US dollars, Canadian Dollars or
pounds sterling as the currency of the Published List Price applicable
to the sale."
2.8 All other terms and conditions of the Agreement shall remain in full
force and effect and references herein shall be references to the
Agreement as amended and/or supplemented by the terms hereof.
3. CSUSA hereby agrees to observe and comply with all the terms of the
Agreement and to perform from the date hereof all obligations on the
part of CSUK to be performed by virtue of the Agreement as if CSUSA had
been a party to the Agreement and had been defined therein as "CSUK"
and shall keep CCDP indemnified against any non-observance or
non-performance of the same.
IN WITNESS whereof this document has been executed and delivered as a Deed the
day and year first before written.
EXECUTED as a Deed
for and on behalf of FOOTPRINTS
INTERNATIONAL LIMITED
in the presence of:
Director: /s/ John Snyder
Director
-2-
<PAGE> 27
EXECUTED as a Deed
for and on behalf of CASCADE
SYSTEMS LIMITED
in the presence of:
Director: /s/ Paul Baker
Director: /s/ W.D. Smith
EXECUTED as a Deed
for and on behalf of CASCADE
SYSTEMS INCORPORATED
in the presence of:
Director: /s/ Malcolm P. McGrory
Director: /s/ Andrew Zimmon
-3-
<PAGE> 28
DATED: 2ND FEBRUARY 1996
(1) MUSCAT LIMITED
(2) CASCADE SYSTEMS INCORPORATED
(3) CASCADE SYSTEMS LIMITED
-------------------------------------------
FIRST ADDENDUM TO A LICENCE AND
DISTRIBUTION AGREEMENT
DATED 18TH MARCH 1994
-------------------------------------------
<PAGE> 29
THIS FIRST ADDENDUM is made the 2nd day of February 1996
BETWEEN:
(1) MUSCAT LIMITED whose registered office is at St. Mary's House, 47 High
Street, Trumpington CB2 2HZ ("CCDP"); and
(2) CASCADE SYSTEMS INCORPORATED whose principal place of business is at
1 Corporate Drive, Andover, Massachusetts 01810 USA ("CSUSA"); and
(3) CASCADE SYSTEMS LIMITED whose registered office is at 2 The Norwich
Business Park, Whiting Road, Norwich NR4 6DJ ("CSUK")
WHEREAS:
(A) CCDP and CSUK entered into a Licence and Distribution Agreement on 18th
March 1994 ("the Licence Agreement") and CCDP, CSUK and CSUSA assigned
and amended the Agreement by a Deed of Assignment and Amendment on the
28th April 1994 ("the Deed of Assignment"). The Deed of Assignment and
the Licence Agreement shall jointly be referred to as "the Agreement".
(B) The Parties hereby wish to amend and extend certain terms of the
Agreement.
NOW THIS DEED WITNESSETH AS FOLLOWS:
PART I
1. CCDP, CSUK and CSUSA agree that with effect from 28th April 1994, the
Deed of Assignment be amended to incorporate the following changes:
1.1 Clause 1 shall be deleted and the following shall be
substituted therefor: "In consideration of the sum of P1
(receipt of which is hereby acknowledged) CSUK hereby assigns
and grants to itself and CSUSA to be held jointly as tenants
in common all those rights and benefits contained in the
Agreement as if CSUSA and CSUK had both been parties to the
Agreement and both had been defined therein as "CSUK".
1.2 Clause 3 shall be deleted and the following shall be
substituted therefor: "CSUSA and CSUK hereby agree to comply
with all the terms of the Agreement and to be jointly and
severally liable to CCDP for and to perform from the 28th
April 1994, all the obligations on the part of CSUK to be
performed by virtue of the Agreement as if CSUSA and CSUK both
had been parties to the Agreement and both had been defined
therein as "CSUK".
PART II
<PAGE> 30
1. CCDP, CSUK and CSUSA agree that this First Addendum is supplementary to
and forms part of the Agreement which from the date above written be
amended to incorporate the following changes.
2. Clause 1 of the Licence Agreement ("Definitions") is amended with
effect from the date above written as follows:
"Application Product
or Products" shall mean an integrated product comprising the Index
Product linked with one or more Reader Products
developed by CSUK using the Programs in accordance
with Clause 3.1.1 hereof and incorporating the
Runtime Programs.
"CCDP MUSCAT
WebExplorer Code" shall mean the C and Perl code and any Updates
supplied by CCDP to CSUK upon the signing of this
Addendum to assist CSUK to develop the CCDP MUSCAT
WebExplorer Extension.
"CCDP MUSCAT
WebExplorer Extension" shall mean a software program which is a customised
version of the CCDP MUSCAT WebExplorer Code
integrated with CSUK's MediaSphere system providing
the ability to search using free text and fielding
searches across the data set, using HTTP and HTML
protocols.
"CDROM Client Product" shall mean an information storage product which
includes one or more Reader Products and one or more
indexes created by an Application Product, already
purchased by a Customer or produced internally by
CSUK, where the Index Product used to create the
index(es) is not linked via electronic cable,
satellite or other communications means to the Reader
Product on the information storage medium. The CDROM
Client Product definition includes CD-ROM, CD-I and
other mass distribution digital storage products
produced by CSUK or a Customer which include any part
of the Runtime Programs or any binary files created
using any part of the Application Product.
"Customer" shall mean a sub-licensee of one or more Application
Products or CDROM Client Product or CCDP MUSCAT
WebExplorer Extension, in the Territory.
"MediaSphere" An example of an Application Product developed by
CSUK using the Runtime Programs as demonstrated
<PAGE> 31
by CSUSA at Seybold Boston 1994 and publicised and
documented as "MediaSphere" in recent editions of the
national press and trade journals.
"Net Selling Price" shall mean the price at which the Application
Product, CDROM Client Product and CCDP MUSCAT
WebExplorer Extension and each part thereof is
actually invoiced (excluding local sales taxes) by
CSUK to a Customer or Sub-Distributor.
"Product Market" shall mean any and all markets.
"Program or Programs" shall mean CCDP's indexing and text retrieval
software programs known as MUSCAT together with the
CCDP MUSCAT WebExplorer Code, a standard Application
Program Interface which enables the MUSCAT program to
be linked with, and called from, other programs (as
listed in Schedule 1 and Schedule 1A) in machine
readable binary code and all Updates thereof
furnished to CSUK. "Programs" shall include all
Runtime Programs and any Updates to the Programs.
"Runtime Programs" shall mean the Programs or portions of the Programs
or other programs which are derived directly or
indirectly from and which use the technology
incorporated in the Programs that are embedded in the
Application Product, the CDROM Client Product or the
CCDP MUSCAT WebExplorer Extension as a result of
CSUK's operation of the Programs in accordance with
Clause 3.1.1 hereof.
"Sub-Distributor" shall refer to a party which has an agreement with
CSUK to distribute Application Products or CDROM
Client Products or CCDP MUSCAT WebExplorer
Extensions.
"Territory" shall mean worldwide.
"Updates" shall mean error corrections, modifications and
updates that CCDP incorporates officially into its
standard English language version of any of the
Programs or the CCDP MUSCAT WebExplorer Code, as
applicable, together with related documentation if
any.
3. Clause 2.1.2 of the Licence Agreement shall be deleted.
4. Clause 3.1 of the Licence Agreement shall be supplemented as follows:
<PAGE> 32
"3.1.5 A licence to operate the Programs and the CCDP MUSCAT
WebExplorer Code in accordance with CCDP's instructional and
operational manuals for the purposes of CSUK's internal use
for development of CDROM Client Product and CCDP MUSCAT
WebExplorer Extension, excluding any right to operate or
develop any product or system that involves the remote
indexing of web servers or that crawls amongst web servers.
3.1.6 A licence to market and sub-license in the Product market and
in the Territory the Runtime Programs as part of and embedded
in the CDROM Client Product.
3.1.7 A licence to market and sub-license in the Product Market and
in the Territory the Runtime Programs as part of and embedded
in the CCDP MUSCAT WebExplorer Extension excluding any right
to market or sub-license the Runtime Programs as part of and
embedded in any product or system that involves the remote
indexing of web servers or that crawls amongst web servers."
5. Clause 3.2 of the Licence Agreement shall be amended so that after
every reference to "Application Products" the words "or CDROM Client
Product or CCDP MUSCAT WebExplorer Extension" shall be added.
6. Clause 3.3 of the Licence Agreement shall be amended as follows:
"The licences granted herein in Clauses 3.1.1, 3.1.2, 3.1.3 and 3.1.4
shall commence on the Acceptance Date and the licences granted herein
in Clauses 3.1.5 and 3.1.6 shall commence on the date of the First
Addendum".
7. A new Clause 4.2.1 shall be added as follows:-
"4.2.1 CSUK shall (unless otherwise requested by CCDP) include and
use the trademark MUSCAT to refer to the MUSCAT search engine
or any part included as a Runtime Program in any Application
Product or CCDP MUSCAT WebExplorer Extension or CDROM Client
Product in all marketing material, publicity material (whether
in paper or electronic form) which is produced by or on behalf
of CSUK and which (i) describes or refers to the Application
Product or CDROM Client Product or CCDP MUSCAT WebExplorer
Extension, or (ii) refers to the MUSCAT search engine
integrated within the Application Product or CDROM Client
Product or CCDP MUSCAT WebExplorer Extension in any way, or
(iii) refers to any other trade mark used in connection with
technologies incorporated as part of the Application Product
or CDROM Client Product or CCDP MUSCAT WebExplorer Extension
including, without limitation, Adobe Acrobat and Sybase. Each
reference to the trademark MUSCAT shall be in a form approved
by CCDP from time to time, shall clearly acknowledge that it
is a trademark of CCDP and shall appear with no less
prominence than any references to the other trademarks
described in (iii) above."
<PAGE> 33
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
8. Clause 4 of the Licence Agreement (except for Clause 4.4.3) shall be
amended so that after every reference to the "Application Products" the
words "CCDP MUSCAT WebExplorer Extension and the CDROM Client Product"
shall be added.
9. Clause 5 of the Licence Agreement shall be amended as follows:
9.1 Clause 5.3 shall be amended to add the words "(excluding the
CCDP MUSCAT WebExplorer Code) after the words "Program" in the
first line thereof.
9.2 Clause 5.9 shall be amended to add the words "(excluding the
CCDP MUSCAT WebExplorer Code) after the word "Programs" in
line 2 thereof.
10. The wording of Clause 6.3.2 of the Licence Agreement shall be replaced
by the following clauses:-
"6.3.2.1 On any licence of an Application Product or any part
thereof granted by CSUK to a Sub-Distributor or
Customer (except for an Application Product delivered
pursuant to a trial licence unless payment of a
sub-licence fee is required by Clause 4.4.3) CSUK
shall pay to CCDP a licence fee as follows:
6.3.2.1.1 ***** of the Net Selling Price for Local
Area Networks ("LAN")-based applications
with a minimum payment of the amount payable
for LAN based applications in CCDP's latest
published MUSCAT Prices VAR list current at
the time of the Licence, appended hereto as
Appendix 1, as the same may vary from time
to time ("the MUSCAT List");
6.3.2.1.2 ***** of any rental payments, lease
payments, licence payments, technology
access fees or any other charge for access
to or the use of the Runtime Programs or any
part which are invoiced by CSUK to a third
party for Wide Area Network ("WAN")-based
applications for remote access by clients
with a minimum payment of the amount payable
for LAN based applications in the then
current MUSCAT List.
6.3.2.1.3 ***** of the Net Selling Price for any other
Application Product or any part not included
in Clauses 6.3.2.1.1 or 6.3.2.1.2 above with
a minimum payment of the amount payable for
such Application Products (or the nearest
equivalent thereto) in the then current
MUSCAT List.
<PAGE> 34
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
6.3.2.2 For the avoidance of doubt:-
6.3.2.2.1 A single organisation, company or
group of companies located on more
than one site connected by a WAN
("Organisational WAN") will be
treated as a LAN for the purposes of
calculating the licence fee under
this Clause 6.3.
6.3.2.2.2 Servers for Organisational Wan
applications are to be deemed to be
servers for LAN-based applications
for the purpose of determining the
price in the MUSCAT List.
6.3.2.2.3 Foreign Language Algorithms forming
part of any Application Product will
be priced in accordance with the
MUSCAT List."
11. A new Clause 6.3.3 of the Licence Agreement shall be added as follows:
"6.3.3 CCDP undertakes:
6.3.3.1 not to increase the prices in the MUSCAT
List more than once every quarter;
6.3.3.2 if it shall license the same products
contained in the MUSCAT List as form part of
the Application Products to any other person
for the same type of application or product
as the Application Product and in the same
market sector as that in which CSUK licenses
to Customers, at a price which is less than
the price offered to CSUK then CCDP will
offer such products to CSUK at such lower
price.
6.3.3.3 to give 30 days' written notice to CSUK of
any increase in the prices in the MUSCAT
List."
12. A new Clause 6.3.4 of the Licence Agreement shall be added as follows:
"6.3.4.1 CSUK shall pay to CCDP ***** of all technology access
fees, rental payments, lease payments, royalties or
other licence fees or any other charge for access to
or the use of the Runtime Programs or any part which
are invoiced by CSUK to a third party in respect of
CDROM Client Products with minimum payments of such
technology access fees or licence fees of the amount
payable (or the nearest equivalent thereto) as set
out in CCDP's then current MUSCAT List.
<PAGE> 35
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
6.3.4.2 CSUK shall pay to CCDP licence fees for any
Application Products used by CSUK to collate, index
or master the CDROM Client Product as if such
products were LAN-based Applications as defined in
6.3.2.1."
13. A new Clause 6.3.5 of the Licence Agreement shall be added as follows:
"6.3.5.1 For sales of CCDP MUSCAT WebExplorer Extension where
all accesses are made exclusively by employees of a
single Customer which has previously purchased, or is
in the process of purchasing as part of the sale,
MediaSphere then CSUK shall pay to CCDP ***** of the
Net Selling Price of the CCDP MUSCAT WebExplorer
Extension to MediaSphere with a minimum payment of
the amount payable for the WebExplorer Extension
(Integrators) OEM product in the then current MUSCAT
List.
6.3.5.2 For all access to the CCDP MUSCAT WebExplorer
Extension by any third party except that defined in
6.3.5.1 CSUK shall pay to CCDP ***** of any licence
fees, royalty, access, rental and lease fees which
are invoiced by CSUK for CCDP MUSCAT WebExplorer
Extension with a minimum payment of the amount
payable for the CCDP MUSCAT WebExplorer Extension
(Integrators) OEM product in the then current MUSCAT
List."
14. Clause 6.4 of the Licence Agreement is amended as follows:
"6.4 CSUK shall within 30 days after each Quarter Day during the
continuance of this Agreement and after the end of each
Quarter Day falling within one year after its termination send
to CCDP a statement showing the aggregate Net Selling Price,
rental payments, lease payments, licence payments, royalties,
technology access fees or any other charge for access or for
the use of the Runtime Programs or any part which are invoiced
by CSUK to a third party or CCDP MUSCAT WebExplorer Extension
or any part or the CDROM Client Product or any part, in the
Territory by CSUK during that quarter and the licence fee due
thereon to which CCDP is entitled pursuant to Clause 6.3 and
at the same time send to CCDP remittance in pounds sterling,
converted at the closing mid point on the normal Quarter Day
as published in the Financial Times".
15. A new Clause 6.4.1 of the Licence Agreement shall be added as follows:-
"6.4.1 The statement referred to in Clause 6.4 above is a completed
written statement taking substantially the form of that shown
in Schedule 4 of this Agreement".
<PAGE> 36
16. Clause 11.1 of the Licence Agreement is amended as follows:-
"11.1 This Agreement shall be effective from the 18th March 1994 and
shall remain in effect for an initial ten year period
thereafter unless earlier terminated as provided herein."
17. Clauses 6.5, 6.8, 6.9, 7.6, 11.4, 11.6 and 19.2 shall be amended so
that after the reference to the "Application Product" the words "the
CCDP MUSCAT WebExplorer Extension and the CDROM Client Product" shall
be added.
18. Clause 7.1 shall be amended so that after every reference to the
"Programs" the words (CCDP MUSCAT WebExplorer Code)" shall be added.
19. Schedule 1A attached to this Addendum shall be added to Schedule 1 of
the Licence Agreement.
20. Schedule 3 attached to this Addendum shall replace Schedule 3 in the
Licence Agreement.
21. All other terms of the Agreement remain unaffected by this First
Addendum and shall remain in full force and effect.
<PAGE> 37
AS WITNESS whereof this document has been executed and delivered as a Deed the
date first above written by their respective duly authorised signatories
CCDP:
/s/ Martin Porter
- --------------------------------------
SIGNED as a deed by Dr. Martin Porter,
director for and on behalf of
MUSCAT LIMITED
/s/ John Snyder
- ------------------------------------
SIGNED as a deed by Mr. John Snyder,
director for and on behalf of
MUSCAT LIMITED
CSUSA:
/s/ Andrew Zimmon
- -----------------------------------------------
Executed as a deed under seal by ANDREW ZIMMON,
a director for and on behalf of
CASCADE SYSTEMS INCORPORATED
CSUK:
/s/ Andrew Zimmon
- ---------------------------------
SIGNED as a deed by ANDREW ZIMMON
a director for and on behalf of
CASCADE SYSTEMS LIMITED
/s/ Graham Frankland
- ------------------------------------
SIGNED as a deed by GRAHAM FRANKLAND
a director for and on behalf of
CASCADE SYSTEMS LIMITED
<PAGE> 38
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
SCHEDULE 1A
The following files contain all the source code to the MUSCAT WEBEXPLORER
(version 2) product using the Local Site indexer (version 4)
*************************************
*************************************
*************************************
********************
********************
********************
********************
********************
********************
********************
********************
********************
********************
********************
********************
********************
********************
********************
********* *******
********* *******
********* *******
********* *******
********* *******
********* *******
********* *******
********
*******
*****
This source code does not permit indexing of remote web-sites. The supply of
this source code to CSUK is purely to facilitate Web access to data already
stored or indexed by the Mediasphere Application Product on a local server. A
licence for CSUK to use this source code in any other way is not permitted.
This source code is supplied to CSUK on one 3.5" floppy disc at the time of
signature of the FIRST ADDENDUM on 2nd February 1996.
<PAGE> 39
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
Appendix 1 2 February 1996
MUSCAT OEM PRICE LIST
API TECHNOLOGY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
MUSCAT OEM PRICE LIST
- ----------------------------------------------------------------------------------------------------------------------
API TECHNOLOGY RPL OEM
- ----------------------------------------------------------------------------------------------------------------------
P STERLING P STERLING
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
I) CORE TECHNOLOGY
- ----------------------------------------------------------------------------------------------------------------------
MULTI-PLATFORM API DEVELOPMENT KIT (OEMS)
- ----------------------------------------------------------------------------------------------------------------------
licence for any platform (ref: market sector & territory) *****
- ----------------------------------------------------------------------------------------------------------------------
C source code for interpreter
- ----------------------------------------------------------------------------------------------------------------------
on-board BCPL compiler
- ----------------------------------------------------------------------------------------------------------------------
full documentation and on-line help
- ----------------------------------------------------------------------------------------------------------------------
telephone support
- ----------------------------------------------------------------------------------------------------------------------
re-distribution of Runtime Programs in bespoke applications
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
II) SERVERS
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
BESPOKE "NATIVE" SERVERS
- ----------------------------------------------------------------------------------------------------------------------
SUN & other UNIX ***** *****
- ----------------------------------------------------------------------------------------------------------------------
VMS & mainframes ***** *****
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MACHINE-CODE INTERPRETER SERVERS
- ----------------------------------------------------------------------------------------------------------------------
SUN, OS/2, Windows 32, Dos 32 ***** *****
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
C INTERPRETER SERVERs
- ----------------------------------------------------------------------------------------------------------------------
Windows 16, DOS 16, SUN, UNIX, OS/2, Mac ***** *****
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 40
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
III) CLIENTS
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LOCAL AREA NETWORK (LAN) PER SINGLE SERVER INSTALLED
- ----------------------------------------------------------------------------------------------------------------------
SUN, Windows NT, Windows 32 & 16
- ----------------------------------------------------------------------------------------------------------------------
DOS 32 & 16, OS/2 & other UNIX
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
1-4 ***** *****
- ----------------------------------------------------------------------------------------------------------------------
5-10 ***** *****
- ----------------------------------------------------------------------------------------------------------------------
11-25 ***** *****
- ----------------------------------------------------------------------------------------------------------------------
16-50 ***** *****
- ----------------------------------------------------------------------------------------------------------------------
51-100 ***** *****
- ----------------------------------------------------------------------------------------------------------------------
>100 ***** *****
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
IV) REMOTE CLIENTS
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
CD-ROM RUNTIME
- ----------------------------------------------------------------------------------------------------------------------
i. Royalty on net selling price ***** *****
*****
- ----------------------------------------------------------------------------------------------------------------------
ii. Technology fee for each CD-ROM title (ISBN no.) ***** *****
- ----------------------------------------------------------------------------------------------------------------------
iii. Minimum runtime fee ***** *****
- ----------------------------------------------------------------------------------------------------------------------
(ii + (i or ii, whichever >))
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
WIDE AREA NETWORK (WAN)
- ----------------------------------------------------------------------------------------------------------------------
i. Equivalent fee per id user (over 20 months) *****
- ----------------------------------------------------------------------------------------------------------------------
ii. Technology fee for each WAN service ***** *****
- ----------------------------------------------------------------------------------------------------------------------
(i or ii, whichever >)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 41
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADDITIONAL API COMPONENTS
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
WEBEXPLORER EXTENSION (INTEGRATORSOEM)
- ----------------------------------------------------------------------------------------------------------------------
"Explorers" server code, with source CGI ***** *****
- ----------------------------------------------------------------------------------------------------------------------
Additional to UNIX Server Cost
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LANGUAGE ALGORITHMS
- ----------------------------------------------------------------------------------------------------------------------
French on a single server ***** *****
- ----------------------------------------------------------------------------------------------------------------------
Italian on a single server ***** *****
- ----------------------------------------------------------------------------------------------------------------------
Russian C on a single server ***** *****
- ----------------------------------------------------------------------------------------------------------------------
Spanish on a single server ***** *****
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MAINTENANCE
- ----------------------------------------------------------------------------------------------------------------------
20% of software cost per annum
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
CONSULTANCY
- ----------------------------------------------------------------------------------------------------------------------
Daily rate ***** *****
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OTHER MUSCAT PRODUCTS ***** *****
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
INDEX-ME ***** *****
- ----------------------------------------------------------------------------------------------------------------------
quarterly
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
WEBEXPLORER LITE ***** *****
- ----------------------------------------------------------------------------------------------------------------------
free-text, single index on local server
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 42
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
WEBEXPLORER ***** *****
- ----------------------------------------------------------------------------------------------------------------------
free-text and Boolean, multiple indexes on single server
- ----------------------------------------------------------------------------------------------------------------------
plus consultancy (indexing scripts & Boolean filters)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
WEBRETRIEVER ***** *****
- ----------------------------------------------------------------------------------------------------------------------
single index of multiple remotes webservers
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
WEBCRAWLER
- ----------------------------------------------------------------------------------------------------------------------
multi-processing, multi-site web indexing *****
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LOTUS EXPLORER
- ----------------------------------------------------------------------------------------------------------------------
Server and Client software ***** *****
- ----------------------------------------------------------------------------------------------------------------------
Unlimited client use
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 43
SCHEDULE 3
Location of Demonstration Sites
In the United Kingdom
1) Headquarters Office: 16 Maitland Road, Needham Market, Suffolk
IP14 8SE
2) Main Marketing Office: South Quay Plaza II, 183 Marsh Wall,
Docklands, London E14 9SH
In the United States of America
1) Headquarters Office: 1 Corporate Drive, Andover, MA 01810, USA
2) Main Marketing Office: (to be notified)
or such other substituted addresses (but not more than two in each country at
any one time) as CSUK shall notify to CCDP in writing from time to time.
<PAGE> 44
SCHEDULE 4
QUARTERLY REPORTING SHEET
QUARTERLY REPORTING FORM - INSTALLATION SUBSTANTIALLY COMPLETE
Customer Name
Location
No. of Index Products
No. of Clients
No. of Reader Products
Price Quoted/Invoiced
Revenue Recognised
Royalty to CCDP
Any other comments
QUARTERLY REPORTING FORM - SYSTEMS SOLD BUT NOT INSTALLED OR FOR EVALUATION ONLY
Customer Name
Location
Date of Order
Planned Installation Date
No. of Clients quoted
No. of Reader Products quoted
Price Quoted/Invoiced
Royalty to CCDP
Revenue Recognised
Any other comments
<PAGE> 45
CERTIFICATE OF INCORPORATION
ON CHANGE OF NAME
Company No. 2345573
The Registrar of Companies for England and Wales hereby certifies that
CAMBRIDGE CD PUBLISHING LIMITED
having by special resolution changed its name, is now incorporated under the
name of
MUSCAT LIMITED
Given at Companies House, Cardiff, the 6th December 1995
/s/ L. Parry
MRS. L. PARRY
For the Registrar of Companies
<PAGE> 46
CERTIFICATE OF INCORPORATION
ON CHANGE OF NAME
Company No. 2345573
The Registrar of Companies for England and Wales hereby certifies that
FOOTPRINTS INTERNATIONAL LIMITED
having by special resolution changed its name, is now incorporated under the
name of
CAMBRIDGE CD PUBLISHING LIMITED
Given at Companies House, Cardiff, the 6th December 1995
/s/ P. Bevan
P. BEVAN
For the Registrar of Companies
<PAGE> 47
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
SCHEDULE 2
BENCHMARK TESTS FOR MUSCAT
The Benchmark tests to be run for acceptance of Muscat by Cascade Systems Ltd
are defined as the following:
1. The tests will be run on the following combinations of hardware and
operating systems.
SPARC Station LX with SunOS 4.1.3
486 PC 33 MHz with 32 bit OS (OS/2 or Windows 32)
2. The first test will consist of ****************************************
************************************ and ********************.
3. The second test will consist of ***************************************
which contains a *****************************************************.
This second acceptance test should be *******************************
**********************************.
4. The criterion for acceptance is the following: ************************
*********************************************************.
<PAGE> 48
SCHEDULE 3
Location of Demonstration Sites
In the United Kingdom
1) Headquarters Office: St James Yarn Mill, Whitefriars, Norwich
NR3 1SH
2) Main Marketing Office: Little Hyde Farm, Little Hyde Lane,
Ingatestone, CM4 ODU
In the United States of America
1) Headquarters Office: 1, Corporate Drive, Andover, MA 01810,
USA.
2) Main Marketing Office: [to be notified]
or such other substituted addresses (but not more than two in each country at
any one time) as CSUK shall notify to CCDP in writing from time to time.
<PAGE> 49
ANNEX I
COPYRIGHT DECLARATION
I, Dr. Martin Porter, hereby declare for the purposes of the Licence and
Distribution Agreement between CCDP and CSUK dated 18th March 1994 that to the
best of my knowledge and belief, I own the copyright in the Programs and I have
licensed such copyright to CCDP to the extent necessary to allow CCDP to carry
out the terms of such agreement and I warrant that Clause 7.1.2 is correct. I
make no other declaration whatsoever in connection with the terms of such
agreement.
/s/ Martin Porter
- -----------------------------
DR. MARTIN PORTER
Dated 18th day of March 1994.
<PAGE> 1
Exhibit 10.6
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
SOURCE CODE LICENCE AGREEMENT
between
The Licensor: MIDSYSTEMS TECHNOLOGY LIMITED
Unit 3, Vinces Road, Diss, Norfolk IP22 3HQ
and
The License: CASCADE SYSTEMS LIMITED
16 Maitland Road, Needham Market, Suffolk IP6 8SE
<PAGE> 2
THIS AGREEMENT IS MADE THE 21ST DAY OF SEPTEMBER 1994 BETWEEN
(1) MidSystem Technology Limited whose registered office is at Unit 3,
Vinces Road, Diss, Norfolk ("the Licensor") and
(2) Cascade Systems International Inc. a Delaware Corporation, Cascade
Systems Ltd whose main place of business is at 16, Maitland Road,
Needham Market, Suffolk and Cascade Systems Inc whose main place of
business is at 1, Corporate Drive, Andover, Massachusetts, USA
(together known as "the Licensee").
WHEREAS:-
(a) The Licensor is engaged in creating developing and marketing production
tracking and management systems and associated software.
(b) The Licensee is engaged in the business of creating developing
licensing marketing distributing selling and supporting computer
systems.
(c) The Licensee wishes to receive a licence in perpetuity to use, develop
and distribute the System hereinafter defined and the Licensor has
agreed to grant such licence to the Licensee on the terms and
conditions of this Agreement.
IT IS AGREED AS FOLLOWS:-
1 DEFINITIONS AND INTERPRETATIONS
1.1 In this Agreement the following words and expressions shall have the
meanings set out alongside them.
"AGREEMENT" This Agreement and its Schedules.
"DISTRIBUTORS" All or any of the following appointed now or
in the future by the Licensee: OEMs,
Resellers, Value Added Resellers,
Distributors or any other form of selling or
marketing intermediary.
"INTELLECTUAL PROPERTY" All copyright patents design rights service
marks and trade marks relating to the
System.
- 2 -
<PAGE> 3
"LICENCE FEE" The licence fee payable under clause 4.1.
'MINIMUM SALES PERIOD" The eighteen months period from the date
when the first payment for Royalties is due
under clause 8.6.1.
"REVIEW DATE(S)" The last day of the Minimum Sales Period and
each subsequent anniversary thereof.
"ROYALTIES" The Royalties payable under clause 5 and
Schedule 2.
"RUN TIME SOFTWARE" The executable form of the MidSystem Command
Language Server and Macintosh Client
complied from the Source Code as the same
may be upgraded and amended from time to
time.
"SOURCE CODE" The Source Code for the MidSystem Command
Language Server as the same may be upgraded
and amended from time to time; and
The Source Code of the Macintosh Client.
"SYSTEM DOCUMENTATION" All manuals and other such documentation
produced by the Licensor relating to or for
use with the System, as the same may be
amended from time to time.
"THE SYSTEM" All the software collectively known as the
MidSystem Production Tracking and Management
System including Source Code Run Time
Software and Utilities as the same may be
upgraded and amended from time to time all
of which is described in Schedule 1.
"UTILITIES" The MidSystem Utilities for the installation
configuration and authorisation key
generation of the System as the same may be
upgraded and amended from time to time.
1.2 Clause headings are for convenience only and shall not affect the
construction of this Agreement.
- 3 -
<PAGE> 4
1.3 Words denoting the singular shall include the plural and vice versa,
and words importing a gender include every gender and reference to
persons include bodies corporate and unincorporate including
partnerships.
1.4 References to any clause, sub-clause or Schedule are (unless otherwise
stated) to a clause, sub-clause or Schedule of or to this Agreement.
2 DELIVERY
Immediately after the signing of this Agreement the Licensor shall
deliver to the Licensee the Source Code and all available supporting
documentation namely the MCL manual and installation guide.
3 GRANT OF RIGHTS
3.1 From the date hereof the Licensor grants to the Licensee on the terms
and conditions of this Agreement the worldwide non exclusive right to
use develop copy distribute and license the use of the System either as
a single produce or as an integral component of the Licensees own
products so long as such usage is limited to the supply to newspaper
publishers, commercial publishers, printers and any others whose
business is in the process of printing or publishing information.
3.2 The Licensor grants the right to the Licensee to use The MidSystem
Macintosh Client as amended from time to time free of charge.
3.3 Under no circumstances will the Licensee disclose or release to any
third party the Source Code without the prior written consent of the
Licensor.
3.4 The Licensor will not release version 3 of the System or the Macintosh
Client to any other party whatsoever before 1st October 1994.
3.5 The Licensor undertakes and will procure that its employees undertake
not to compete either directly or indirectly with the Licensee in
offering the Licensee's customers support contracts or upgraded
versions of the System without the prior written consent of the
Licensee.
- 4 -
<PAGE> 5
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
4 PAYMENT OF LICENCE FEE
4.1 The Licensee shall pay to the Licensor a Licence Fee of ******** in the
following tranches:-
4.1.1 On the 10th October 1994 *******
4.1.2 Two months from the first payment date *******
4.1.3 Six months from the first payment date *******
4.2 The Licence Fee and any other sums payable by the Licensee under this
Agreement are exclusive of Value Added Tax which shall be paid by the
Licensee at the prevailing rate at the time of payment.
5 ROYALTIES
In addition to the Licence Fee the Licensee shall pay to the Licensor
the Royalties for each copy of the System sold licensed or distributed
by the Licensee or its Distributors calculated in accordance with the
provisions set out in Schedule 2 provided that no Royalties shall be
payable for demonstration copies supplied temporarily (for a period no
longer than 90 days) and in good faith to customers for evaluation
purposes and provided further that Royalties shall only be paid once
for each copy of the System.
6 PROPRIETARY RIGHTS
6.1 Save as mentioned in clauses 6.5 and 6.6 the Intellectual Property
shall remain vested wholly in the Licensor and the Licensee
acknowledges that it has no rights whatsoever in respect of the System
save for those expressly granted to it by this Agreement.
6.2 The Licensee undertakes to the Licensor not to use the System in breach
of the Intellectual Property or in violation of any of the Licensors
trade secrets.
6.3 The Licensee will add the following statement in reasonably legible
letters on the banner screen only of the user interfaces of the
products that contain any of the System that the Licensee supplies:
"Using software licensed from MidSystem Technology Limited".
- 5 -
<PAGE> 6
6.4 The obligations set out in this clause shall remain in force at all
times during the continuance of this Agreement and after termination of
the Agreement (howsoever caused).
6.5 All intellectual property in any supplements to, enhancements of and
developments to the System developed by the Licensee shall vest
exclusively in the Licensee.
6.6 If the Licensor is placed into liquidation, receivership or
administration the Intellectual Property shall vest in the Licensee for
a consideration to be agreed between the Licensee and the liquidator,
receiver or administrator or failing agreement within 28 days of the
order for liquidation, receivership or administration by an arbitrator
acting as an expert. Such arbitrator shall be appointed by agreement by
the parties failing which on the application of either party by the
President for the time being of the Institute of Chartered Accountants.
Costs arising on the arbitration shall be at the discretion of the
arbitrator.
7 PROTECTION OF PROPRIETARY AND CONFIDENTIAL INFORMATION
7.1 Both the Licensor and the Licensee hereby acknowledge and agree that
the System and System Documentation ("Confidential Information") are
highly confidential and are to be used solely as authorised by this
Agreement and the Licensee undertakes that at all times during the
continuance of this Agreement and after its termination (howsoever
caused) it shall procure that its employees and agents shall keep all
Confidential Information secret and not disclose any of it to any third
party other than in accordance with this Agreement save that the
Licensee in the ordinary course of business may pass to Distributors
such part of the Confidential Information as may be necessary to enable
the Distributors to utilise the System provided that such Distributors
shall enter into an agreement to maintain the confidentiality on terms
no less onerous than this clause.
7.2 The Licensor hereby acknowledges and agrees that the programs relating
to the Licensees products and all information provided in connection
with them ("the Licensees Confidential Information") are highly
confidential and are to be used solely as authorised by this Agreement
and the Licensor undertakes that at all times during the continuance of
this Agreement and after its termination (howsoever caused) it shall
procure that its employees and agents shall keep all the Licensees
Confidential Information secret and not disclose any of it to any third
party other than in accordance with this Agreement.
- 6 -
<PAGE> 7
7.3 Both the Licensor and the Licensee shall effect and maintain all
reasonable security measures to safeguard all Confidential Information
and the Licensees Confidential Information and prevent access to or use
of it by any unauthorised source or for any purpose whatsoever other
than the fulfillment of this Agreement.
8 RECORDS REPORTING AND PAYMENT
8.1 The Licensee shall keep full and accurate records of all agreements
relating to copies of the System or part thereof and such records shall
include sufficient information to enable the Royalties to be determined
and to enable the identity of each end user thereof and the whereabouts
of all copies of the System to be established.
8.2
8.2.1 Subject to clause 8.3, the Licensee shall make such
records available for inspection by the Licensor or
its representatives at any reasonable time during
normal business hours so that the Licensor may verify
that the Licensee is fulfilling its obligations under
this Agreement.
8.2.2 Subject to clause 8.3 the Licensee hereby authorises
the Licensor entirely at the Licensor's expense to
obtain from the Licensee's auditor at the time of the
Licensee's annual audit confirmation that the
Licensee has complied with Clause 8.1 hereof provided
that the Licensee shall be entitled to any reports
prepared by the said auditors to the Licensor in this
respect.
8.2.3 Should any discrepancy in the records by found the
Licensee will provide to the Licensor copies of any
such discrepancy. The Licensee shall if reasonably
necessary amend its records so as to comply with this
Agreement.
8.3 The Licensor shall keep in strict confidence all confidential
information obtained from such reporting or inspections and under no
circumstances shall use such confidential information for any purpose
other than the verification and calculation of the Royalties due to the
Licensor.
8.4 By 30th September 1994 and thereafter by the last business day of each
subsequent calendar month the Licensee shall render to the Licensor a
statement ("Royalty Report") certified by an authorised representative
of the Licensee setting out in respect of the immediately preceding
calendar month the following information strictly upon the condition
that this information is kept confidential by the Licensor:-
- 7 -
<PAGE> 8
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
8.4.1 The total number of installations of the System or
part thereof supplied by the Licensee directly to end
users.
8.4.2 The total number of copies of the System or part
thereof supplied by each of the Licensees
Distributors to end users, with name and address of
each Distributor.
8.4.3 The name and address of each end user and
installation site supplied by the Licensee directly.
8.5 During the Minimum Sales Period services provided by the Licensor to
the Licensee in addition to those expressly included in this Agreement
shall be charged at the rate of ***** per day plus reasonable expenses
wholly and exclusively relating to the provision of such services.
8.6 The Licensee shall pay:-
8.6.1 All invoices relating to Royalties within ten days of
the date of invoice.
8.6.2 All other invoices within thirty days of the date of
invoice.
8.7 If any sum date under this Agreement is not paid on the due date or if
the Royalty Report for any month remains undelivered 2 working days
after notification of it being overdue the Licensor may (without
prejudice to any other rights and remedies available to it) charge
interest on any outstanding sums from the date payment became due to
the date of actual payment at an annual rate of 3% above the base rate
for the time being fixed by Lloyds Bank plc.
8.8 During the Minimum Sales Period the Licensee shall pay to the Licensor
each month in accordance with clause 8.4 not less than ***** in
Royalties and for services irrespective of the number of products
actually supplied by the Licensee ("Guaranteed Monthly Payments").
8.9 If the Royalties calculated on products actually sold by the Licensee
and the fees for the services actually rendered in any month ("Actual
Payments") total less than the Guaranteed Monthly Payments the balance
between the Actual Payments and the Guaranteed Monthly Payments shall
be carried forward as a
- 8 -
<PAGE> 9
credit against Actual Payments in excess of the Guaranteed Monthly
Payments payable in the succeeding months provided that if at the end
of the Minimum Sales Period the Licensee shall have accumulated any
credit under this clause the Licensee shall use the value of such
credit to purchase base licences or user licences in any proportion
that it chooses, at the prices set out in Schedule 2.
8.10
8.10.1 On each of the Review Dates the level of all fees and
prices payable from time to time thereafter under
this Agreement shall be reviewed taking into account
the then prevailing market conditions. Any such new
pricing will be operative from the day immediately
following the Review Date.
8.10.2 At any Review Date an increase in the pricing will be
limited to such sum as bears the same proportion to
the then existing fees and prices as is borne by the
figure shown in the General Index of Retail Prices
for the month of the Review Date to such figure in
the month of the previous Review Date (for the
avoidance of doubt the date hereof shall be deemed
for the purposes of this clause only to be the first
Review Date).
9 WARRANTIES AND LIMITATION ON LIABILITY
9.1 The Licensor and the Licensee hereby warrant to each other that they
have the power to enter into and perform this Agreement and that as the
date of this Agreement there are no outstanding encumbrances
obligations or agreements which relate to them which are inconsistent
with this Agreement.
9.2 The Licensor warrants that the title to all the Intellectual Property
is vested solely and exclusively in the Licensor and that the Licensor
is not subject to any claim by any third party in respect thereof and
that it has the unfettered right to grant the rights referred to in
clause 3.
9.3 The Licensor warrants that the System will operate efficiently in
accordance with the specifications provided to the Licensee as defined
in the First Schedule.
9.4 The Licensor warrants that it will provide its services with reasonable
care and skill to the Licensee or to the Licensees customer.
9.5 Save as provided by statute the Licensor shall in no circumstances be
liable to the Licensee or any end user for damages in respect of loss
of business loss of profits loss of data interruption of business or
any other consequential loss whether such liability would arise out of
alleged breach of warranty breach of
- 9 -
<PAGE> 10
this Agreement delay negligence or otherwise or from any representation
made to any end user or other person by the Licensee.
9.6 The Licensee hereby acknowledges that the System is a complex set of
computer programs and that inevitably there will be errors and
omissions in the System and/or the System Documentation. Accordingly
the System and the System Documentation are licensed on these terms and
save as expressly provided in this Agreement no warranty condition or
representation either express or implied (by statute or otherwise) is
given by the Licensor as to either the design quality merchantability
or fitness for a particular purpose of the System.
9.7 The Licensors liability for damages in respect of this Agreement and in
particular the warranties contained hereunder shall save as provided
otherwise by statute be limited to the total amount of Licence Fees and
Royalties actually paid by the Licensee to the Licensor under this
Agreement.
10 INTELLECTUAL PROPERTY INDEMNITY
10.1 The Licensor will indemnify and hold harmless the Licensee against all
damages (including costs) that may be awarded or agreed to be paid to
any third party in respect of any claim or action that the normal
operation process or use of the System and/or System Documentation by
the Licensee or the Licensee's customers represents an infringement
against any third party's Intellectual Property ("Intellectual Property
Infringement") provided that the Licensee:-
10.1.1 Gives notice to the Licensor of any Intellectual
Property Infringement forthwith upon becoming aware
of the same;
10.1.2 Gives the Licensor the sole conduct of the defence of
any claim or action in respect to the Intellectual
Property Infringement and does not at any time admit
liability or otherwise attempt to settle or
compromise the said claim or action except upon the
express instructions of the Licensor; and
10.1.3 Acts in accordance with the reasonable instructions
of the Licensor and gives to the Licensor such
assistance as it shall reasonably require in respect
of the conduct of the claim or action including
without prejudice to the generality of the foregoing
the filing of all pleadings and other court process
and the provision of all relevant documents.
- 10 -
<PAGE> 11
10.2 The Licensor shall reimburse the Licensee its reasonable costs incurred
in compliance with the provisions of clause 10.1.
10.3 The Licensor shall have no liability to the Licensee in respect of an
Intellectual Property Infringement if the same arises out of or in
connection with any breach of the Licensees obligations under this
Agreement.
10.4 In the event of an Intellectual Property Infringement the Licensor
shall be entitled at its own expense and option either to:-
10.4.1 Procure the right for the Licensee and/or the
Licensee's customer to continue using the System
and/or the System Documentation; or
10.4.2 Make such alterations modifications or adjustments to
the System and/or the System Documentation so that
they become non-infringing without incurring a
material diminution in the performance or function
thereof; or
10.4.3 Replace the System and/or Documentation with
non-infringing substitutes provided that such
substitutes do not entail material diminution in
performance or function thereof.
10.5 If the Licensor in its reasonable judgment is not able to exercise any
of the options set out above within 90 days of the date it received
notice of the Intellectual Property Infringement the Licensee shall
without prejudice to any other rights or remedies it may have hereunder
or at law be entitled to terminate this Agreement whereupon all
payments made by the Licensee to the Licensor for the Licence Fees and
Royalties shall become immediately repayable by the Licensor to the
Licensee.
11 UPDATES AND MAINTENANCE
11.1 The Licensor shall use its best endeavors to:
11.1.1 continue as before actively to correct errors develop
and upgrade the System (not including the Macintosh
Client) in order to maintain a competitive level of
performance and functionally during the Minimum Sales
Period; and
11.1.2 continue as before actively to correct errors develop
and upgrade the System (not including the Macintosh
Client) in order to maintain a competitive level of
performance and functionality after the Minimum Sales
Period for which a separate support fee
- 11 -
<PAGE> 12
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
will be agreed by the Licensor and the Licensee at
the end of the Minimum Sales Period using ***** per
month as a guide.
11.1.3 continue as before actively to correct errors in the
Macintosh Client and when they are so corrected to
send this Licensee as soon as available the further
copy of the source code of the Macintosh Client so
corrected.
11.2 During the Minimum Sales Period the Licensor shall supply regularly to
the Licensee updates of the System in source code form (not including
the Macintosh Client) and any appropriate training, support and
documentation as soon as reasonably practicable free of charge.
11.3 During the Minimum Sales Period the Licensor shall provide to the
Licensee:-
11.3.1 on the telephone error correction services support
and advice (but excluding development support) in
respect of the System (not including the Macintosh
Client) at a monthly support fee of *****; and
11.3.2 internal development schedules and planned delivery
and release dates.
11.4 During the Minimum Sales Period the Licensor shall provide to the
Licensee all updates of the Macintosh Client Run Time Software
including a native Power Macintosh version if and when developed.
12 TRAINING AND TRADESHOW SUPPORT
12.1 The Licensor will at the reasonable request of the Licensee provide
training and/or tradeshow support at the agreed level of expertise
directly to the Licensee's customers on behalf of the Licensee and will
invoice the Licensee therefor in accordance with the terms of this
Agreement or as otherwise agreed between the parties.
- 12 -
<PAGE> 13
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
12.2 The Licensor will provide free of charge to the Licensee eight working
man days training and support at the agreed level of expertise during
the first three months after the date hereof. Thereafter all further
training and support services other than those contained in clause 11.2
hereto shall be provided on the terms set out in this Agreement.
13 LICENSORS OTHER PRODUCTS
The Licensor undertakes to supply to the Licensee during the Minimum
Sales Period the following products at the following prices:-
13.1 MidSystem Spooler ***** per Spooler
13.2 MidSystem Autosize Quark Extension ***** per installation
13.3 SyClone ***** per installation
14 TERMINATION
14.1 If either party is in material breach of any term or condition of this
Agreement the non-breaching party may at its discretion at any time
whilst such breach is continuing serve written on the other party
specifying the breach. The breaching party shall then have 30 days
within which to remedy the breach and if at the expiry of such 30 day
period the breach has not been remedied the non-breaching party may
terminate this Agreement by notice served on the other party.
14.2 Should the Licensee directly install or supply copies of the system, or
having been fully notified by any Distributor fail to include such
copies in the Royalty Report within 90 days of supply or installation,
then payment for all royalties becomes due within 10 working days of
notice of the breach detailing the unreported system, failing which
this Agreement may be terminated by the Licensor by notice. Should more
than 3 such failures to report occur in any 12 month period then the
Licensor will be entitled to terminate this Agreement by notice.
14.3 Either party may terminate this Agreement forthwith by notice served on
the other if the other is placed into liquidation, receivership or
administration.
- 13 -
<PAGE> 14
14.4 Termination for any reason shall be without prejudice to any other
rights and remedies available to the parties and to any payments
accrued due.
15 FORCE MAJEURE
15.1 Neither party shall be liable for non-performance or delays caused by
acts of God, wars, riots, strikes, fires, shortages of labour or
materials, labour disputes, governmental restrictions or other
circumstances beyond its reasonable control. The affected party shall
notify the other in writing of such circumstances promptly after their
occurrence and shall use its reasonable endeavors to cure or remedy
such circumstances.
16 NOTICES
16.1 Any notices given pursuant to this Agreement shall be in writing and
shall be given by the person giving notice or by its duly authorised
representative and may be served by leaving it at or sending it by
facsimile or pre-paid recorded delivery or third party courier service
to the following address (or such other place in the United Kingdom as
either of the parties from time to time may notify to the other) as
follows:-
To the Licensor at 14 Prebendal Court, Oxford, Aylesbury HB19 3EY
marked for the attention of Chris Hodges.
To the Licensee at 16 Maitland Road, Needham Market, Suffolk IP6 8SE
marked for the attention of Paul Baker.
Any such notice so served shall be deemed to have been received at the
following times (if such is a business day in the place of receipt, if
such is not the case the next business day):-
16.1.1 In the case of facsimile - 12 hours after receipt of
answerback
16.1.2 In the case of third party courier service or in the
case of note or reference of the address on signature
for receipt
16.1.3 In the case of recorded delivery on the date of
delivery.
17 LAW AND JURISDICTION
This Agreement shall be governed by and construed in accordance with
the English law and each of the parties hereto agrees to submit to the
exclusive jurisdiction of the English Courts.
- 14 -
<PAGE> 15
18 ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of both
of the parties and their respective successors and permitted assigns,
and this Agreement shall be assignable by either party in whole or in
part at its sole discretion upon giving written notice to the other
party and provided that the other party shall have given prior written
consent which consent shall not be unreasonably refused (for the
avoidance of doubt the Licensor shall be deemed to have consented to
the assignment by the Licensee to any subsidiary of the Licensee as
defined under Section 736 of the Companies Act 1985 or any statutory
amendment thereof).
19 COMPLETE AGREEMENT
This Agreement constitutes the entire Agreement between the parties in
respect of the System. No modification in this Agreement shall be
effective unless it is in writing and executed by both the parties.
Save as mentioned in Schedule 2 Clause 4 this Agreement supersedes any
and all other agreements between the parties whether written or oral
with respect to the System.
20 MISCELLANEOUS
20.1 In the event that any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or
unenforceable, such unenforceability shall not affect any other
provisions thereof and this Agreement shall be construed as if such
invalid illegal or unenforceable provisions had never been contained
herein.
20.2 No relaxation, forbearance, delay or indulgence by either party in
enforcing any of the terms and conditions of this Agreement against the
other or the granting of time by either party to the other shall
prejudice affect or restrict the rights and powers of the parties
hereunder nor shall any waiver by either party of any breach of this
Agreement operate as a waiver of any subsequent or continuing breach of
it.
20.3 In consideration of the presents the Licensor hereby undertakes to the
Licensee that whilst this Agreement remains in force between them the
Licensor has not entered nor shall enter into any contractual
relationship with a third party in relation to the use, development
and/or distribution of the System or any substantial elements of the
System upon terms which are more favourable to such third party than
those contained herein. Should the Licensor wish to enter into any such
agreement it may do so with the prior written agreement of the Licensee
who shall then have the right to incorporate those more favourable
terms in this Agreement and in such circumstances those more
- 15 -
<PAGE> 16
favourable terms shall be deemed to have been incorporated from the
date hereof.
20.4 No restrictions in this Agreement by virtue of which registration under
the Restrictive Trade Practices Act 1976 is required shall take effect
until the day after that on which relevant particulars have been
furnished to the Director General of Fair Trading pursuant to that Act.
As witness the hands of duly authorised representatives of the parties the day
and year first before written.
Signed for and on behalf of Licensor:
Name: /s/ Martin Collis
-------------------------------------
Title: Director
------------------------------------
Signed for and on behalf of Licensee:
Name: /s/ Paul Baker
-------------------------------------
Title: Managing Director
-----------------------------------
- 16 -
<PAGE> 17
SCHEDULE 1 - THE SYSTEM
20/8/94 MidSystem Functional OverView
MIDSYSTEM
Production Tracking and Control System
Functional Overview
MidSystem is a production control and management system for electronic
composition. By means of industry standard components and an open systems
architecture, MidSystem enables the full integration of all aspects of
electronic document production. Utilising a powerful database, MidSystem tracks
all of the elements of a publication from creation to completion and allows the
user to ensure that work is completed accurately and to the necessary deadlines.
Storage, archival and retrieval functions make it possible to easily and quickly
find and modify previous work, while production monitoring facilities enable the
necessary control to maintain the maximum efficiency within the composition
process.
Text and graphics integration are managed by MidSystem to optimise system
performance and control output. Electronic composition and graphics manipulation
are carried out on any standard hardware platforms using the majority of
suitable text and graphics packages. Output is available in either proof or
final form to any Postscript Laserprinters and Imagesetters. In addition,
MidSystem may be linked to page dummy and layout applications to automate parts
of the composition tasks.
The open systems philosophy adopted by MidSystem means that interfacing to new
or existing equipment is relatively simple and is "seamless". In particular,
data and control information can be accepted from Front Systems (Ad booking,
Planning and Editorial) or other production applications to link the composition
process to the commercial and management aspects of production. The problems of
file management on a composition system are removed by MidSystem and double
keying of text and information can be eliminated.
BASE PLATFORM
The MidSystem database and main application software currently support the full
range of Sun SparcServer and SparcStation computers. In the future, MidSystem
will be available for a wider range of Unix platforms. Redundancy in case of
hardware failure may be achieved by disk mirroring or adding a second Sun
SparcStation to shadow the main unit.
<PAGE> 18
20/8/94 MidSystem Functional OverView
DISK STORAGE
Disk Storage is also determined by the type and volume of work. The workflow is
important when deciding disk capacities as the length of time that the data must
remain available online will considerably affect the disk storage needs. The Sun
range support SCSI, SMD and IPI disk technology. Online storage may be increased
as required (subject to the model on Sun SparcServer) Midsystem provides for
storage of files across various NFS fileservers on a network (subject to
suitable network connections). This allows storage of the data files on
different platforms and new or existing fileservers.
OFFLINE STORAGE
Offline storage for Archive will normally be to HP or IDEoptical Jukebox. A
K-Par Jukebox driver is required to interface the Jukebox to the MidSystem
Server.
WORKSTATIONS
The user interface for Midsystem is presented on each workstation to allow the
operator access to all necessary functions and information from a single seat.
This user interface may be replaced by a vendor's own interface where
appropriate. MidSystem currently supports the Apple Macintosh workstation.
Support of IBM compatible PCs and Unix-based Clients is available. A MidSystem
application is run on each workstation to enable data transfer to and from
MidSystem and to provide the local user interface.
NETWORKING
Connection of MidSystem with workstations is normally via TCPIP Ethernet.
Depending upon the size and geography of the system, this may be thinwire or
thickwire. Where a lower data rate is tolerable, LocalTalk cabling may be used
and "bridged" onto the Ethernet with a Kienetics Fastpath or similar.
Connection to other external systems, for example a front end system, is
dependent upon the interfaces supported by that system. This may be Ethernet or
serial line.
OPERATING SYSTEM
MidSystem runs under Unix (currently SunOS 4.1.3/Solaris 1.1) and is designed to
be easily ported to other implementations of Unix on various hardware platforms.
Solaris 2 support is available from October 1994.
DATABASE
The database employed by MidSystem is Sybase. This is a new generation of
relational database which was originally chosen for it's advanced client/server
<PAGE> 19
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
20/8/94 MidSystem Functional OverView
architecture (providing the tools to achieve a high level of systems
integration) and high performance characteristics for this type of application.
Sybase supports the Standard Query Language. SQL.
Two Sybase components are used by MidSystem:
SQL Server
Open Client
These are software modules that provide the management and access for the
MidSystem database. The database carries all of the information regarding the
documents that are necessary for production. This includes composition details
such as borders, dimensions, colours etc., production data such as publications
and run dates plus commercial information like customer details and
classification of ads or origin and revision of stores. In addition, the
database records the location and status of all of the actual elements of the
publication. This enables MidSystem to track online and archive offline high
volumes of graphics and text, removing the problems associated with finding
missing artwork and text files or reworking expired Ads. Summaries of production
status may be called to the screen of a workstation to view the progress of a
publication at any time.
FUNCTIONALITY
MidSystem version three provides the following functions:
***
*** **************** from MidSystem. The files are ***********
****************** . The appropriate ************************
*************************************************************
********* to start. ******** may be any *********************
************************************************.
*** **************** from MidSystem. The file *******************
**************************************. The *****************
*************to start. The file may be **********************
**************.
*** **************** from MidSystem. MidSystem ******************
*************************************************************
**********.
<PAGE> 20
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
20/8/94 MidSystem Functional OverView
*** ***************** to MidSystem. When finished with a file, ****
***************************************************************
**************************************************************.
*** Print ********************************************************
**************************************************************
the proof cycle. Provided only when **************************
************.
*** ************** from the *******************************.
*** ************** from the *****************************.
*** *********************** to MidSystem. ***********************
concerning the ***************** may be *********************
********. Used when *****************************************
**** of an **************************************************
******** at time of ************** must be ******************
*************************************************************
******** are always ***********************.
*** ********************************* from the system. **********
*************************************************************
*************.
*** *****************************************.
*** ************************************************ file types.
*** *************************************************************
******* of them. *******************************.
*** ******************* to protect ******************************.
*** *****************************************************.
***
*** Provides ******************************************** which
**************************************** of their work.
<PAGE> 21
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
20/8/94 MidSystem Functional Overview
*** *************************************** in the system and the
*************************************************************
*** *************************************************************
*** *************************************************************
(not supplied as standard). As the **************************
is available *****************************.
***
*** ***************************** and to ************************
Examples are, ***********************************************
*** *************************************************************
*** ****************************** to the ********************* on
a Page *** of the selected Page.
*** ***************************** within the ************* Used to
************************ Ads, Customers,*********************
May be used in a *********************************************
*** ***************************************** or details of a Page.
*** ****************************** from MidSystem. May be used in a
****************** Can be ************************************
*** ********************************************** when appropriate.
*** ************************************************* when necessary.
*** ****************************************************************
*** ****************************************************************
<PAGE> 22
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
20/8/94 MidSystem Functional OverView
*** ******************************************************
may be found.
*** ******************************************************
********** includes ****************
*
*** ******************************************************
that gave occurred *****************
*** ************************************************** and
related data.
*** ************************** that are used by ***********
*** *********************************** from a user defined
query. ************************************************
***
*** ****************************************** that is to be
presented in *******************************************
*** ***************************** to be applied to any field
********************************************************
*** All MidSystem functions ********************************
managers can allocate a ********************************
*** ************************************************** in the
database to provide ********************** to ***********
This is used as an **************************************
*** *********************************************************
*** *********************************************************
*** ************************************* is available to all
users of the MidSystem client.
<PAGE> 23
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
20/8/94 MidSystem Functional OverView
*** *************************************************************
*** *************************************************************
*** ******************************************* within the system.
***
Each MidSystem installation is configured by the installer to match the users
needs. All aspects of the system are *** the users existing on desired
workflow. The *** set of tables within MidSystem. These define the
data *** the types *** will be known. *** loaded, the menus can be
customised. *** within MidSystem is *** it's format. This *** is a
simple to ***
*The MidSystem *** by MidSystem must be ***
*** ******************************************* within the system.
*** *************************************************************
*** ************************ that is ****************************
*** ************************* such as ***************************
*** ************************* such as ***************************
SYSTEMS INTEGRATION
MidSystem is a component of a total installation, it links to other components
of the installation to form an integrated system. MidSystem will operate with
all of the
<PAGE> 24
20/8/94 MidSystem Functional OverView
popular Mac applications such as MultiAd Creator, Quark Express, Adobe
Illustrator and Adobe Photoshop.
The level of integration of each application depends upon the Macintosh system 7
support within the application. Most applications will operate with the
MidSystem as though they are one. In all cases user operations are kept to a
minimum by presenting the user with the data and information rather than waiting
for requests. The MidSystem Notification Manager and Mail facilities may be
utilised to alert users of significant events.
Much of the data and control input required by MidSystem already exists within
Front End and Commercial systems. Where this is the case, MidSystem provides a
Server (the External Systems Link or ESL) to connect the two systems and
receive/send data. MidSystem operates internally on a set of commands called the
MidSystem Command Language (MCL). These commands may also be sent via the ESL
from an external system to further automate the production control and
management process. This language allows the integration of a vendor's own
products and of customer's existing front end systems. Connections of this type
are subject to individual specification and pricing.
<PAGE> 25
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
SCHEDULE 2
CALCULATION OF THE ROYALTIES
1.1 Any Production Management Product sold by the Licensee will attract
Royalties for the Licensor so long as the Licensor continues actively
as before to develop and release the Source Code to the Licensee. After
the Minimum Sales Period should the Licensor not continue actively as
before to develop and release the Source Code Royalties will not be due
if the Production Management Product sold by the Licensee includes
******* of the Source Code of the MidSystem Command Language Server.
1.2 During the Minimum Sales Period Royalty payments shall be payable in
respect of all products sold by the Licensee for Production Management
or Library Systems.
1.3 During the Minimum Sales Period Royalty payments shall be payable in
respect of all products sold by the Licensee (other than Production
Management and Library Systems) only if the products include ******* of
the Source Code of the MidSystem Command Language Server.
1.4 Subject to Clause 1.1 of Schedule 2 after the Minimum Sales Period
Royalties will only be payable in respect of products if they include
******* of the Source Code of the MidSystem Command Language Server.
2. Subject to clause 3 of Schedule 2 in all other cases where the System
or part thereof is copied the Royalties in respect thereof shall be
calculated as follows:-
2.1 For Production Management Systems
2.1.1 Base Licence fee per MCL Server *******
2.1.2 Cost per user (per installation)
1 -16 *****
17-32 *****
33-64 *****
65 and over *****
2.2 For Library Systems
2.2.1 Base Licence per MCL Server user *******
2.2.2 Cost per use (per installation)
<PAGE> 26
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
1 -16 *****
17-32 *****
33-64 *****
65 and over *****
3 All Royalties payable for the sale of the System or part thereof by the
Licensee's Distributors shall be discounted by ***** and the Licensor's
invoice in respect thereof shall be adjusted accordingly.
4 Royalties due to the Licensor in respect of the current supply by the
Licensor to the Licensee of products in respect of the Licensee's
contract with National Magazines Ltd shall be calculated under the
previous agreement between the Licensor and the Licensee and not under
the terms of this Agreement. All other orders placed upon the Licensor
by the Licensee from the 1st August 1994 shall be calculated under this
Agreement as shall all future supplies by the Licensor to the Licensee
in respect of National Magazines Ltd.
5 The Parties agree that any dispute arising out of this Schedule 2 which
they cannot resolve between them shall be referred to the arbitration
of two persons (one to be nominated by each of the Parties) or their
mutually agreed umpire in accordance with the provisions of the
Arbitration Acts of 1950 to 1979 or any statutory amendment thereof.
<PAGE> 27
ADDENDUM TO THE SOURCE CODE LICENCE AGREEMENT DATED 21ST SEPTEMBER 1994.
The following terms are agreed between MidSystem Technology Limited
("MidSystems") and Cascade Systems Limited ("Cascade") in respect of the
Software Licence Agreement between Cascade and Linotype-Hell Aktiengesellschaft
("Linotype-Hell").
- - MidSystems and Cascade agree to deposit the Source Code for Cascade
products licensed under the above named agreement to Linotype-Hell,
which incorporate MidSystem Source Code, into Escrow under the National
Computer Centre standard Escrow Agreement.
- - Royalties for systems sold to Linotype-Hell under the agreement will be
reported by Cascade to MidSystems on a QUARTERLY basis in accordance
with the terms set out in Clause 8 of the Source Code Licence Agreement
dated 21st September 1994.
- - MidSystems agrees to the provision by Cascade of ten (10) free of
charge demonstration copies of the software products to Linotype-Hell.
Signed for and on behalf of Cascade Systems Limited
Name: /s/ Paul Baker
------------------------------
Title: Managing Director
-----------------------------
Date: 17 January 1995
------------------------------
Signed for and on behalf of MidSystem Technology Limited
Name: /s/ C. R. Hodges
------------------------------
Title: Managing Director
-----------------------------
Date: 18 January 1995
------------------------------
<PAGE> 28
Dated 1st February, 1996
(1) MIDSYSTEM TECHNOLOGY LIMITED
(2) CASCADE SYSTEMS LIMITED
----------------------------------------------
SECOND ADDENDUM TO A SOURCE CODE LICENCE
AND DISTRIBUTION AGREEMENT
DATED 24TH SEPTEMBER 1994
----------------------------------------------
<PAGE> 29
THIS SECOND ADDENDUM is made the 1st day of February 1996
BETWEEN:-
(1) MIDSYSTEM TECHNOLOGY LIMITED whose registered office is at Unit 3,
Vinces Road, Diss, Norfolk ("the Licensor"); and
(2) CASCADE SYSTEMS INTERNATIONAL INC. a Delaware Corporation, Cascade
Systems Limited whose main place of business is at 16 Maitland Road,
Needham Market, Suffolk and Cascade Systems Inc. whose main place of
business is at 1 Corporate Drive, Andover, Massachusetts, USA (together
known as "the Licensee").
WHEREAS:-
(A) The Licensor and the Licensee ("the Parties") entered into a Source
Code Licence and Distribution Agreement on 21st September 1994 ("the
Agreement").
(B) The Parties hereby wish to amend and extend certain terms of the Agreement.
NOW IT IS HEREBY AGREED as follows:-
1 This Second Addendum is supplementary to and forms part of the
Agreement.
2 Clause 1 of the Agreement ("Definitions") shall be amended as follows:-
"INSTALLATION" Installation shall be deemed complete when The System
has been delivered to the customer the software keys (temporary or
permanent) have been issued and the customer agrees that training on
The System can commence. Should any component which is NOT provided by
the Licensor cause The System to be incapable of being ready for
training to commence then Installation shall be deemed complete.
"SOURCE CODE" shall have added to it: "The Source Code of the MEAM
Software".
"THE SYSTEM" shall have added to it, at the end ". . . together with
the MEAM Software.
3 Clause 3.2 of the Agreement ("Grant of Rights") is amended as follows:-
"3.2 The Licensor grants the right to the Licensee to use, develop,
copy, distribute, license and sub-license the MidSystem
Macintosh Client as amended from time to time free of charge."
4 Clause 4 shall have a new clause 4.3 as follows:-
<PAGE> 30
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
4.3 The Source Code Licence Fee for the MEAM software will be
***** (pounds sterling), already paid by the Licensee. On
signing this Addendum the Licensor will issue a credit note
against the balance due on the invoice relating the MEAM
software already issued by the Licensor to the Licensee.
5 Clause 5 of the Agreement shall be amended as follows:-
"In addition to the Licence Fee the Licensee shall pay to the Licensor
the Royalties for each copy of the System sold licensed or distributed
as part of an Installation by the Licensee or its Distributors...."
6 Clause 8.4 of the Agreement shall be deleted and replaced as follows:-
8.4 By the last business day of each calendar month the Licensee
shall render to the Licensor a statement ("Royalty Report")
certified by an authorised representative of the Licensee
setting out in respect of the immediately preceding calendar
month's INSTALLATIONS the following information strictly upon
the condition that this information is kept confidential by
the Licensor:-
8.4.1 The total number of INSTALLATIONS of the System or
part thereof supplied by the Licensee directly to end
users.
8.4.2 The total number of copies of the System or part
thereof supplied by each of the Licensees
Distributors to end users, with name and address of
each Distributor.
8.4.3 The name and address of the end user for each
INSTALLATION supplied by the Licensee directly.
8.4.4 The name and address of each end user where the
System has been delivered by the Licensee and a
software key issued but Installation is not yet
complete. These will be marked as "Pending" meaning
they will be reported for the Royalty purposes as
soon as the INSTALLATION is complete.
7 Clause 8 shall have new clauses 8.11 and 8.12 added as follows:-
8.11 Any System where the Installation has been complete for ninety
days or more will be considered nonrefundable unless it is
agreed in writing between the Licensor and the Licensee to
extend this period.
<PAGE> 31
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
8.12 Full credits will be issued by the Licensor against Royalties
paid for any System previously installed but subsequently
removed if claimed by the Licensee within ninety days of the
Installation date. Extensions to this period may be agreed in
writing between the Licensor and the Licensee.
8 Clause 13 shall have a new clause 13.4 added as follows:-
13.4 The fee for MidSystem Advance Archive Module (MEAM) software
will be as follows:
For a system supplied with a CD Jukebox component *****
For a system supplied with no CED Jukebox component
in the sale *****
9 Schedule 2 of the Agreement shall have a new clause 3.1 added as
follows:-
"3.1 For Production Management Systems and Library Systems that are
sold (in whole or in part) purely as back-up for an already
existing (or as part of a current sale) Production Management
System or Library System all Royalties will be calculated as
per clauses 2.1.1, 2.2.1 and 3 above and then *******."
10 All other terms of the Agreement remain unaffected by this Second
Addendum.
AS WITNESS the parties hereto have caused this Second Addendum to be signed the
date first above written by their respective duly authorised signatories
THE LICENSOR: THE LICENSEE:
SIGNED: /s/ C.R. Hodges SIGNED: /s/ G. Frankland
------------------------- ---------------------------
Name: C.R. Hodges Name: G. Frankland
--------------------------- -----------------------------
Title: Director Title: Managing Director
-------------------------- ----------------------------
<PAGE> 32
Dated 1st August, 1996
(1) MIDSYSTEM TECHNOLOGY LIMITED
(2) CASCADE SYSTEMS LIMITED
-----------------------------------------------
THIRD ADDENDUM TO A SOURCE CODE LICENCE
AND DISTRIBUTION AGREEMENT
DATED 24TH SEPTEMBER 1994
-----------------------------------------------
<PAGE> 33
THIS THIRD ADDENDUM is made the 1st day of August 1996
BETWEEN:-
(1) MIDSYSTEM TECHNOLOGY LIMITED whose registered office is at Unit 3,
Vinces Road, Diss, Norfolk ("the Licensor"); and
(2) CASCADE SYSTEMS INTERNATIONAL INC. a Delaware Corporation, Cascade
Systems Limited whose main place of business is at 16 Maitland Road,
Needham Market, Suffolk and Cascade Systems Inc. whose main place of
business is at 1 Corporate Drive, Andover, Massachusetts, USA (together
known as "the Licensee").
WHEREAS:-
(A) The Licensor and the Licensee ("the Parties") entered into a Source
Code Licence and Distribution Agreement on 21st September 1994 ("the
Agreement").
(B) The Parties hereby wish to amend and extend certain terms of the
Agreement.
NOW IT IS HEREBY AGREED as follows:-
1 This THIRD Addendum is supplementary to and forms part of the
Agreement.
2 Clause 1 of the Agreement ("Definitions") shall be amended as follows:-
"SOURCE CODE" shall have added to it: "The Source Code of the SYCLONE
Software".
"THE SYSTEM" shall be amended as follows from Addendum 2 to state "...
together with the MEAM and SYCLONE Software.
3 Clause 4 shall have a new clause 4.4 as follows:-
<PAGE> 34
Confidential materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote omissions.
4.4 The Source Code Licence Fee for the Syclone software will be
***** (pounds sterling), to be paid by the Licensee' and will
include one day "hand over" training at the Licensors'
offices.
4 Clause 13 shall have an amended clause 13.3 as follows:-
13.3 Syclone ***** per installation
The additional royalty of ***** per installation will be paid from the
effective date of this Third Addendum until such time as the Licensee
has paid to the Licensor ***** in additional fees under this clause
13.3. Thereafter the fee will be ***** per installation.
10. All other terms of the Agreement remain unaffected by this Third
Addendum.
AS WITNESS the parties hereto have caused this Third Addendum to be signed the
date first above written by their respective duly authorised signatories
THE LICENSOR: THE LICENSEE:
SIGNED: /s/ C. R. Hodges SIGNED: /s/ G. Franland
------------------------- ---------------------------
Name: C. R. Hodges Name: G. Frankland
--------------------------- -----------------------------
Title: Managing Director Title: Managing Director
-------------------------- ----------------------------
<PAGE> 1
EXHIBIT 10.7
BRICKSTONE SQUARE
ANDOVER, MASSACHUSETTS
LEASE
LANDLORD: ANDOVER MILLS REALTY LIMITED PARTNERSHIP, a
Massachusetts Limited Partnership
TENANT: CASCADE SYSTEMS, INC., a Massachusetts Corporation
DATE: 2/27, 1996
BUILDING NO.: 300
LEASE NO.: 3001A
<PAGE> 2
TABLE OF CONTENTS
1. BASIC LEASE PROVISIONS .............................................. 1
2. CONSTRUCTION OF PREMISES ............................................ 2
3. POSSESSION AND SURRENDER OF PREMISES ................................ 3
4. TERM ................................................................ 3
5. RENT ................................................................ 3
6. TAXES ............................................................... 4
7. OPERATING COSTS ..................................................... 4
8. INSURANCE ........................................................... 6
9. MONTHLY PAYMENT OF TAXES, OPERATING COSTS AND INSURANCE
PREMIUMS ............................................................ 7
10. UTILITIES ........................................................... 8
11. USE OF PREMISES ..................................................... 8
12. MAINTENANCE AND REPAIRS ............................................. 10
13. ALTERATIONS ......................................................... 10
14. INDEMNITY; SATISFACTION OF REMEDIES ................................. 11
15. COMMON AREA AND PARKING ............................................. 13
16. DAMAGE OR DESTRUCTION ............................................... 13
17. CONDEMNATION ........................................................ 15
18. ASSIGNMENT AND SUBLETTING ........................................... 16
19. MORTGAGEE PROTECTION ................................................ 19
20. ESTOPPEL CERTIFICATES ............................................... 20
(i)
<PAGE> 3
21. DEFAULT ............................................................. 20
22. REMEDIES FOR DEFAULT ................................................ 21
23. BANKRUPTCY. [SEE EXHIBIT "F"] ...................................... 24
24. GENERAL PROVISIONS .................................................. 24
25. HAZARDOUS SUBSTANCES ................................................ 30
EXHIBIT LIST
"A" Project Site Plan
"B" Premises
"C" Workletter
"D" Base Rent
"E" Current Rules and Regulations
"F" Bankruptcy Provisions (Article 23)
(ii)
<PAGE> 4
INDEX TO DEFINED TERMS
Term Section Page
- ---- ------- ----
Affiliates 24.18(a) 29
Alterations 13 10
Bankruptcy Code Exhibit "F"
Building 1.1(d) 1
Common Area 15 13
Condemnation 17 15
Default Rate 22.4 23
Guarantor 1.1(k) 2
Hazardous Substances 25 30
Landlord's Mortgagee 24.18(b) 29
Landlord's Work 2 2
Laws 24.18(c) 29
Lease Year 4 3
Liabilities 24.18(d) 29
Liens 13.4 11
Base Rent 1.1(e) 1
Operating Costs 7.1 4
Premises 1.1(c) 1
Project 1.2 2
Rent 5 3
Rent Commencement Date 1.1(a) 1
Security Deposit 1.1(g) 1
Systems and Equipment 24.18(f) 30
(iii)
<PAGE> 5
Term Section Page
- ---- ------- ----
Superior Leases and Mortgages 24.18(e) 30
Taxes 6.2 4
Tenant's Broker 1.1(l) 2
Tenant's Percentage 1.1(f) 1
Tenant's Property 3 3
Transfer 18.1 16
(iv)
<PAGE> 6
LEASE
THIS LEASE, dated as of 2/27, 1996, is between ANDOVER MILLS REALTY
LIMITED PARTNERSHIP, a Massachusetts Limited Partnership ("Landlord"), and
CASCADE SYSTEMS, INC., a Massachusetts corporation ("Tenant").
Landlord leases the Premises to Tenant and Tenant leases the Premises
from Landlord on the following terms and conditions:
1. BASIC LEASE PROVISIONS.
1.1 Summary.
(a) Rent Commencement Date: When Landlord's Work is
substantially completed or Tenant occupies the Premises to conduct business,
whichever is earlier. Subject to cooperation from Tenant, Landlord will
diligently attempt to substantially complete Landlord's Work within three (3)
months after the full execution and delivery of this Lease. (But, Tenant
acknowledges that although Landlord will attempt to complete within this period,
completion within this period is not an obligation or a condition in this
Lease.)
(b) Term: Five (5) Lease Years after the Rent Commencement
Date.
(c) Premises: Space on the first (1st) floor of the Building
(as shown in Exhibit "B"), with an agreed rentable area of 19,492 square feet. A
portion of the Premises is designated on Exhibit "B" as the "Initial Storage
Space."
(d) Building: Building No. 300 (as shown in Exhibit "A") in
which the Premises are located.
(e) Base Rent: (see Exhibit "D").
(f) Tenant's Percentage: 2.07%. (Refer to Section 7.3 for
Tenant's share of Building 300 Operating Costs).
(g) Security Deposit: $120,000 (See Section 24.17).
(h) Use of Premises: As offices, primarily for the business of
developing and integrating computer software, and for general office use and
uses incidental thereto.
<PAGE> 7
(i) Notice to Tenant Before Possession of Premises:
Cascade Systems, Inc.
One Corporate Drive
Andover, MA 01810
Attn: Janet Dougherty
(j) Notice to Landlord:
Andover Mills Realty Limited Partnership
300 Brickstone Square, Fifth Floor
Andover, Massachusetts 01810
Attn: Martin Spagat
With a Copy to:
Brickstone Properties, Inc.
The Plaza at Continental Park
Suite 5252
2101 Rosecrans Avenue
El Segundo, California 90245
Attn: John G. Baker, Esq.
(k) Guarantor: N/A.
(l) Tenant's Broker: Sam Oddo.
(m) Certain Other Defined Terms: [See Section 24.18]
If there is a conflict between this summary and the rest of this Lease, the rest
of this Lease will control.
1.2 Project. Exhibit "A" is the general site plan of the principal
buildings, improvements and areas that are now part of the project commonly
known as Brickstone Square, Andover, Massachusetts (the "Project").
2. CONSTRUCTION OF PREMISES.
Landlord will diligently perform "Landlord's Work" and Tenant will
diligently perform "Tenant's Work" (if any) as described in the Workletter
attached as Exhibit "C" and in accordance with the Workletter and the rest of
this Lease. Landlord's Work will be deemed substantially completed even if
Landlord has not completed "punch list" or other minor items, as long as the
Premises can be occupied by Tenant without unreasonable interference and
interruption and Landlord agrees to
-2-
<PAGE> 8
complete these items diligently. Tenant's final punch list will be submitted to
Landlord within fifteen (15) days after Landlord notifies Tenant that Landlord's
Work is substantially completed. Certification in good faith by Landlord's
architect of the substantial completion of Landlord's Work, or the issuance of a
temporary or final certificate of occupancy, whichever is earlier, will be
binding on the parties as to the date of substantial completion.
3. POSSESSION AND SURRENDER OF PREMISES.
When this Lease terminates, Tenant will remove all of its signs,
movable trade fixtures and equipment inventory and other personal property,
whether owned by Tenant or its Affiliates ("Tenant's Property"). Tenant's
Property remaining after termination will be deemed abandoned and Landlord may
keep, sell, destroy or dispose of it without incurring any Liabilities to Tenant
or its Affiliates. Tenant will repair all damage and surrender the Premises
broom clean and in good order, condition and repair (reasonable wear and tear
and unavoidable casualty excepted), and otherwise in the same condition as on
the Rent Commencement Date, unless otherwise specifically requested in writing
by Landlord.
4. TERM.
The terms of this Lease are effective as of the date that this Lease is
executed and delivered by both parties, but except as otherwise specifically set
forth in this Lease, Tenant's obligation to pay base rent, Operating Costs and
Taxes begins as of the Rent Commencement Date. The Lease term ends five (5)
Lease Years after the Rent Commencement Date, unless terminated earlier in
accordance with this Lease or extended by mutual written agreement of the
parties. A "Lease Year" is a period of twelve (12) consecutive calendar months
during the Lease term, starting with the Rent Commencement Date. However, the
first Lease Year is the first twelve (12) full calendar months plus the partial
month (if any) after the Rent Commencement Date if the Rent Commencement Date is
not the first day of the month, and the last Lease Year may be less than twelve
(12) months if the expiration or termination date of this Lease is not the last
day of a Lease Year.
5. RENT.
(a) Subject to Subsection (b) below, Tenant shall pay the base rent as
shown in Exhibit "D" in equal monthly installments in advance beginning on the
Rent Commencement Date and thereafter on the first day of each month during the
term, prorated for any portion of a month. The term "rent" includes base rent,
additional rent and all other amounts to be paid by Tenant under this Lease,
whether or not specifically described as rent. All rent shall be paid to
Landlord without demand, deduction, counterclaim or offset of any type in good
funds and lawful U.S. legal tender at The Plaza at Continental Park, Suite 5252,
2101 Rosecrans Avenue, El
-3-
<PAGE> 9
Segundo, California 90245, Attn: Accounting Dept., or to such other person or
place as Landlord may from time to time designate. Tenant will pay the first
month's base rent when it executes this Lease.
(b) Provided that Tenant does not default under this Lease and uses the
Initial Storage Space for storage purposes only during the first eight (8)
calendar months of the term, the monthly installments of base rent due for the
first eight (8) full calendar months of the term will be abated by $6,497 per
month (for a total of $51,976).
6. TAXES.
6.1 Definition of Taxes. "Taxes" means all taxes, assessments, levies,
charges and fees imposed against, for or in connection with all or any portion
of: the Project; the use, ownership, leasing, occupancy, operation, management,
repair, maintenance, demolition or improvement of the Project; Landlord's right
to receive, or the receipt of, rent, profit or income from the Project;
improvements, utilities and services, whether because of special assessment
districts or otherwise; the value of Landlord's interest in the Project; a
reassessment due to any change in ownership or other transfer of all or any
portion of the Project; and fixtures, equipment and other real or personal
property used in connection with the Project. Taxes also include, without
limitation, license fees, sales, use, capital and value-added taxes, penalties,
interest and costs incurred in contesting taxes, and any charges or taxes in
addition to, in substitution or in lieu of, partially or totally, any taxes or
charges previously included within this definition, including taxes or charges
completely unforeseen by the parties and collected from whatever source. Taxes
do not include: Landlord's federal or state net income, franchise, excise,
inheritance, gift or estate taxes.
6.2 Payment of Taxes. Subject to Article 9, as of the Rent Commencement
Date Tenant will pay its Tenant's Percentage of all Taxes directly to Landlord
as additional rent within fifteen (15) days after receipt of Landlord's bill.
6.3 Tenant's Taxes. Tenant will pay before delinquency all taxes
assessments, license fees and charges levied, assessed or imposed on Tenant,
Tenant's business operations and Tenant's Property.
7. OPERATING COSTS.
7.1 Definition of Operating Costs. "Operating Costs" are all costs and
expenses incurred in connection with the Project and its ownership, operation,
management, maintenance, repair, replacement and improvement, including, without
limitation costs for services: costs and utilities not otherwise directly paid
or reimbursed by tenants; materials, supplies and equipment; insurance costs;
wages and payroll, including bonuses, fringe benefits, workers compensation and
payroll
-4-
<PAGE> 10
taxes; professional and consulting fees; management fees at prevailing rates or,
if no managing agent is retained, an amount in lieu thereof not in excess of
prevailing rates; complying with any Laws and insurance requirements; and the
Common Area (including the parking area). Operating Costs do not include: Taxes;
depreciation of the Project structures and Improvements; Landlord's loan or
ground lease payments; brokerage commissions; tenant allowances or workletter
costs; costs of negotiating or enforcing leases; free rent, rent abatements or
similar inducements offered by Landlord to obtain tenants; expenses for repairs
or maintenance to the extent reimbursed warranties, guaranties, service
contracts or insurance proceeds; and costs directly paid or specifically
reimbursed by tenants in the Project (other than by an allocation of Operating
Costs).
7.2 Payment of Operating Costs. Subject to Article 9, as of the Rent
Commencement Date Tenant will pay its Tenant's Percentage of Operating Costs to
Landlord as additional rent within thirty (30) days after receipt of Landlord's
bill.
7.3 Building Operating Costs. From time to time, Landlord may determine
that certain costs otherwise included within the definition of Operating Costs
more properly relate solely or primarily to the Building or to some but not all
of the buildings in the Project (as a hypothetical example, elevator
maintenance). If Landlord so elects, these costs will be deducted from Operating
Costs and allocated only to tenants of the building(s) to which those costs
solely or primarily relate, Tenant's share of these costs will be calculated by
dividing Tenant's rentable square footage by the rentable square footage leased
to all tenants in the building(s), and otherwise Tenant will pay its share of
these costs in the manner described in Section 7.2.
7.4 Determining Operating Costs. Notwithstanding anything to the
contrary, in determining Operating Costs for any calendar year, Lease Year or
other relevant year, if during that period less than 95% of the area held for
lease by Landlord in the Project is leased and occupied by tenants, then the
Operating Costs for that period will be deemed to be equal to the Operating
Costs which Landlord would expect to have incurred if the Project had been fully
leased and occupied for such period, as reasonably determined by Landlord.
7.5 Tenant's Audit. Once during each 12-month period during the term,
Tenant may audit Landlord's records of Operating Costs for the current and/or
prior Lease Year at the Project during Landlord's normal business hours on at
least one week's prior written notice, and at Tenant's cost. Tenant agrees to
keep strictly confidential the results of such audit and any claims,
negotiations, proceedings or settlements with Landlord in connection therewith
or in connection with Operating Costs, and shall cause its Affiliates to comply
with the same requirements.
-5-
<PAGE> 11
8. INSURANCE.
8.1 Tenant's Insurance.
(a) Tenant will maintain during the term:
(i) Commercial general public liability insurance
(Broad Form), with contractual liability, cross-liability and fire legal
liability endorsements, protecting against all claims and liabilities for
personal, bodily and other injuries, death and property damage including,
without limitation, broad form property damage insurance, automobile and
personal injury coverage. This insurance also will insure Tenant's indemnities.
The amount of this insurance will not be less than Three Million Dollars
($3,000,000) combined single limit for each occurrence. If this policy includes
a "general aggregate" limit, the limit will be at least Four Million Dollars
($4,000,000).
(ii) "All risk" casualty insurance, covering all of
Tenant's Work, Tenant's Property and all Alterations made by or for the benefit
of Tenant. This insurance will be for full replacement value.
(iii) Loss of income and business interruption
insurance in an amount that will reimburse Tenant for direct and indirect loss
of three (3) months of earnings and other costs attributable to all perils
commonly insured against by prudent Tenants or attributable to prevention of
access to the Premises or to the Building as a result of such perils.
(iv) Employer's liability insurance of not less than
One Million Dollars ($1,000,000) and worker's compensation insurance in
statutory limits.
(v) Builder's risk insurance (completed value form)
for work required of or permitted to be made by Tenant. The amount of this
insurance will be reasonably satisfactory to Landlord and must be obtained
before any work is begun.
(b) The initial amounts of insurance described above shall be
subject to reasonable periodic increase (but not more often than annually) based
on inflation, increased liability awards and other relevant factors, as
reasonably determined by Landlord.
(c) All policies of insurance carried by Tenant must: name
Landlord and its designees as additional insureds; contain a waiver by the
insurer of any right to subrogation against Landlord and its Affiliates; be
written on an "occurrence" basis; be from insurers in good standing and licensed
to do business in Massachusetts with a Best's rating of at least A-X; and state
that the insurers will not cancel, fail to
-6-
<PAGE> 12
renew or modify the coverage without first giving Landlord and any other
additional insureds at least thirty (30) days prior written notice.
(d) Tenant will supply copies of each paid-up policy or a
certificate from the insurer certifying that the policy has been issued and
complies with all of the terms of this Article. The policies or certificates
will be delivered to Landlord when the Lease is signed and renewals provided not
less than thirty (30) days before the expiration of the coverage. Landlord
always may inspect and copy any of the policies. Tenant waives subrogation and
any right to claim or recover against Landlord or its Affiliates for Liabilities
in connection with any type of cause or peril which is supposed to be insured
against under the insurance policies required to be maintained by Tenant.
(e) Tenant and its Affiliates will not undertake, fail to
undertake or permit any acts or omissions which will in any way increase the
cost of, violate, void or make voidable all or any portion of any insurance
policies maintained by Landlord, unless Landlord gives its specific written
consent and Tenant pays all increased costs directly to Landlord on demand.
8.2 Landlord's Insurance; Waiver of Subrogation. Landlord will maintain
casualty insurance of at least 90% of the full replacement cost of the Project
(excluding foundations, footings, below-grade space and any historic items or
structures), commercial general public liability insurance (Broad Form or the
functional equivalent) of at least Five Million Dollars ($5,000,000), and other
insurance policies (including, without limitation, rental loss insurance
policies), all in such amounts (except as may be specified above), with such
deductibles and providing protection against such perils as Landlord determines
to be necessary in its sole discretion. All losses on all policies maintained
pursuant to this Article will be settled in Landlord's name (or as otherwise
designated by Landlord) and proceeds will belong and be paid to or at the
direction of Landlord. Landlord hereby waives subrogation. Landlord makes no
representations or warranties as to the adequacy of any insurance to protect
Landlord's or Tenant's interests.
9. MONTHLY PAYMENT OF TAXES, OPERATING COSTS AND INSURANCE
PREMIUMS.
At any time and from time to time, and subject to later change,
Landlord may elect to have Tenant pay Tenant's share of Taxes, Operating Costs
and Landlord's insurance premiums (or any of them) in monthly installments in
advance on the first of each month, based on amounts estimated by Landlord (as
revised from time to time). If these estimated monthly payments are required,
after the end of each tax fiscal year, Lease Year or other relevant periods
selected by Landlord, Landlord will deliver to Tenant a statement of the actual
amounts due for the period. Any additional amounts due from Tenant will be
payable as additional rent within thirty
-7-
<PAGE> 13
(30) days after receipt of Landlord's statement, and any overpayment by Tenant
will be refunded by Landlord or deducted from the next monthly installments of
rent. At any time or from time to time, Landlord may deliver a bill to Tenant
for Tenant's share of Taxes, Operating Costs or insurance premiums, and Tenant
will pay the amount due to Landlord as additional rent within thirty (30) days
(fifteen [15] days for Taxes) after receipt of Landlord's bill. Tenant will
receive a credit for any estimated monthly payments already paid by Tenant for
the period covered by that bill.
10. UTILITIES.
Landlord will be solely responsible for bringing utility services to
the Premises to the extent now existing and/or as provided as part of Landlord's
Work in Exhibit "C." Tenant will pay when due to the furnishing parties all fees
and costs for utility services, meters and equipment furnished to the Premises,
including, without limitation, telephone, electricity, sewer, water and gas (if
furnished). If utilities and services are not separately metered, submetered,
"intellimetered" or otherwise tracked or charged, Tenant will pay its share (as
reasonably determined by Landlord) of such costs directly to Landlord as
additional rent, either monthly when base rent is due, or within thirty (30)
days after receipt of Landlord's bill, at Landlord's option. Landlord will
diligently attempt to restore malfunctioning or interrupted utility service as
soon as reasonably possible, but Landlord is not responsible for any Liabilities
incurred by Tenant or Tenant's Affiliates nor may Tenant abate rent, terminate
this Lease or pursue any other right or remedy against Landlord or Landlord's
Affiliates, as a result of any malfunction, interruption or suspension of any
utilities, services or associated Systems and Equipment.
11. USE OF PREMISES.
Tenant will use the Premises for the purposes described in Section
1.1(h), but for no other purpose. Tenant will:
(a) Operate its business in an attractive and first class
manner and will not permit any objectionable or unreasonable noises, vibrations,
odors or fumes in or to emanate from the Premises, nor commit or permit any
waste, improper, immoral or offensive use of the Premises, any public or private
nuisance or anything that disturbs the quiet enjoyment of the other tenants,
licensees, occupants or customers of the Project. All deliveries and pickups
must be conducted at times and in the manner prescribed by Landlord, and only in
those loading docks or areas specified by Landlord. All trash and waste products
must be stored, discharged, processed and removed in the manner prescribed by
Landlord, and so as not to be visible to other tenants or create any health or
fire hazard.
-8-
<PAGE> 14
(b) Install only window coverings and treatments approved by
Landlord and, once installed, keep them sufficiently closed to shield from
outside view any machinery or other equipment that Landlord determines is
unsightly or inconsistent with that portion of the Project. Tenant will vent
only through louvers in the windows of the Premises, but Tenant may not detach
those louvers.
(c) Not permit any coin or token operated vending, video,
pinball, gaming or other mechanical devices on the Premises, except for
telephones and vending machines solely for use by Tenant's employees; conduct
retail sales; permit diplomatic, governmental or quasi-governmental agencies to
occupy the Premises; use the Premises for retail sales to the general public or
as doctors' offices, a school or educational institution (but training of
tenants sales personnel will be permitted), living or sleeping quarters; store,
sell or distribute obscene, graphic, sexually-explicit, lewd or pornographic
materials (as determined in Landlord's judgment) or engage in related businesses
in or from the Premises; or conduct any auction, distress, fire, bankruptcy or
going-out-of-business sale.
(d) Comply with: Laws and insurance requirements affecting the
Premises, the Project or any use and occupancy thereof (including, without
limitation, making required improvements to the Premises, but not structural
modifications or improvements or modifications or improvements to the
base-building life-safety system unless required because of Tenant's specific
use or manner of use of the Premises); and Landlord's rules and regulations and
reasonable changes thereto. Tenant will, at its expense, obtain and maintain all
licenses, approvals and variances necessary to conduct its business and occupy
the Premises, but none of those licenses, permits or variances will be binding
on or in any way affect or restrict Landlord, any other tenants in the Project
or the Project itself.
(e) If it wishes, install signs or lettering on the entry
doors to the Premises identifying its tenancy in the manner customary to
first-class office buildings. Tenant will conform to standards established by
Landlord from time to time for these signs or lettering and submit for
Landlord's prior approval a plan or sketch of Tenant's proposed sign or
lettering. Landlord will place Tenant's name on an indoor and outdoor Building
directory or sign at no cost to Tenant, and all other signs, lettering, awnings,
canopies or other decorations require Landlord's prior approval.
(f) Not use any advertising or other media or other device
which can be heard or experienced outside the Premises (except as permitted in
subparagraph (e) above), including without limitation, lights or audio or visual
devices. Tenant will not distribute handbills or advertising, promotional or
other materials anywhere in the Project or solicit business in the Project other
than within its own Premises.
-9-
<PAGE> 15
12. MAINTENANCE AND REPAIRS.
12.1 Landlord's Obligations. Landlord will repair and maintain the
elevators, the structural parts of the roof, floor and load-bearing walls of the
Premises (but not the interior surfaces), the common base-building life-safety
system, the common base-building electrical Systems and Equipment, the common
base-building plumbing Systems and Equipment, and the Common Areas, but
specifically excluding any supplemental or additional electrical, plumbing or
other Systems and Equipment that are above base-building standard or involve
special Tenant requirements or equipment, which will be Tenant's responsibility
to repair and maintain (e.g., computer-room electrical or HVAC systems,
audio/visual, computer, data or telephone systems, special security systems,
interior bathrooms, kitchens and kitchen appliances, etc.), ordinary wear and
tear and casualty excepted. However Tenant will be responsible for all repairs
and maintenance resulting from Tenant's Alterations or the negligent or
intentional acts or omissions of Tenant or its Affiliates. Landlord will make
its repairs within a reasonable time following Tenant's notification that the
repairs are required. Landlord's obligations are subject to the provisions of
Articles 16 and 17 and the rest of this Lease.
12.2 Tenant's Obligations. Except for Landlord's obligations in Section
12.1, Tenant will clean, maintain and repair the Premises and the Systems and
Equipment serving the Premises in a first-class manner, and keep the Premises in
good order and condition, including, without limitation, Tenant's Property, all
doors, windows, window treatments, wall coverings, floor coverings,
non-structural portions of the ceiling, floor and walls, and Tenant's
Alterations (unless otherwise requested by Landlord). Tenant also will be
responsible for repairing and maintaining any HVAC Systems and Equipment that
specifically serve the Premises and will maintain a maintenance contract with a
licensed HVAC contractor reasonably approved by Landlord to provide for the
periodic maintenance and repair of those HVAC Systems and Equipment. At
Landlord's election, Landlord may engage the HVAC contractor and bill and
collect from Tenant the cost thereof.
13. ALTERATIONS.
13.1 Landlord's Consent. "Alterations" means Tenant's alterations,
additions, improvements, remodeling, repainting, decorations or other changes.
Tenant may make nonstructural Alterations to the interior of the Premises
without Landlord's consent as long as the Alterations do not: affect the
windows, the exterior of the Building, or any portion of the Building or the
rest of the Project outside of the Premises; affect the strength, structural
integrity or load-bearing capacity of any portion of the Building; affect the
Systems and Equipment in the Premises or the rest of the Building or increase
Tenant's usage; or, in Landlord's reasonable judgment, cost more than a total of
$75,000 in any Lease Year when combined with the cost of other Alterations made
in that Lease Year. All other Alterations require Landlord's
-10-
<PAGE> 16
prior written consent. Whether or not Landlord's consent is required,
Alterations are subject to the rest of this Article.
13.2 Notice. Tenant will notify Landlord not less than fifteen (15)
days before beginning any Alterations. Together with Tenant's notice, Tenant
will give Landlord copies of the necessary permits and approvals and, if
Landlord deems it necessary, plans and specifications for the Alterations (but
not for minor, non-structural Alterations, such as wall coverings, wall hanging,
built-in cabinetry, movable partitions and painting). Landlord's review or
approval of Tenant's plans and specifications is solely for Landlord's benefit
and will not be considered a representation or warranty to Tenant as to safety,
adequacy, efficiency, compliance with Laws or any other matter, or a waiver of
any of Tenant's obligations. Except for items of Tenant's Property, all
Alterations will be deemed Landlord's property and part of the realty, and will
be surrendered with the Premises at the end of this Lease, unless otherwise
requested by Landlord.
13.3 Compliance with Laws. Alterations will comply in all respects with
this Lease and applicable Laws and insurance requirements. Alterations will be
done in a first-class manner, using first quality materials, and so as not to
interfere in any way with Landlord or any other tenant in the Project, cause
labor disputes, disharmony or delay, or impose any Liabilities on Landlord.
Alterations will be performed only by experienced, licensed and bonded
contractors and subcontractors approved in writing by Landlord. At Landlord's
request, Tenant will cause its contractors and subcontractors to carry workmen's
compensation insurance.
13.4 Liens. Tenant will pay when due, all claims for labor, materials
and services claimed to be furnished for Tenant or Tenant's Affiliates or for
their benefit and keep the Premises and the Project free from all liens,
security interests and encumbrances ("Liens"). Tenant will indemnify Landlord
for, and hold Landlord harmless from, all Liens, the removal of all Liens and
any related actions or proceedings, and all Liabilities incurred by Landlord in
connection therewith.
NOTICE IS HEREBY GIVEN TO ALL PERSONS FURNISHING LABOR OR MATERIALS TO TENANT
THAT NO MECHANICS', MATERIALMENS' OR OTHER LIENS SOUGHT ON THE PREMISES WILL IN
ANY MANNER AFFECT LANDLORD'S RIGHT, TITLE OR INTEREST.
14. INDEMNITY; SATISFACTION OF REMEDIES.
14.1 Indemnification. In addition to any other indemnities in this
Lease, Tenant will indemnify Landlord for and hold Landlord harmless from
Liabilities arising from or in connection with: acts or omissions of Tenant or
its Affiliates or the conduct of Tenant's business and injuries, death or damage
occurring in or on the Premises; Tenant's breach of or default under this Lease;
claims made by Tenant's Affiliates against Landlord if Tenant has waived those
claims in this Lease or
-11-
<PAGE> 17
Landlord would not be responsible to Tenant for such claims if such claims were
made by Tenant in accordance with this Lease; [(carat)(carat)(carat)] and claims
by Tenant's Affiliates or other persons if Landlord declines to consent to any
act, event or document requiring Landlord's consent under this Lease (although,
subject to the terms of this Lease, this will not prevent Tenant from making its
own claim on its own behalf if Landlord declines to consent where Landlord is
required to consent under the terms of this Lease).
14.2 Damage to Persons or Property. Subject to the rest of this Section
and the rest of this Lease, Landlord will be liable for damages caused solely by
its own negligence or willful misconduct in breach of this Lease, but Landlord
will not be liable for any special, indirect, consequential, punitive or similar
damages (including, without limitation, any loss of use or revenue by Tenant or
any other person) under any circumstances, or for any Liabilities arising from
or in connection with: acts or omissions of Tenant, any other tenants of the
Project, any third parties, or their Affiliates, including, without limitation,
burglary, vandalism, theft, or criminal or illegal activity; explosion, fire,
steam, electricity, water, gas, rain, pollution, contamination, hazardous
substances, motor vehicles or any casualties; breakage, cracking, leakage,
malfunction, obstruction or other defects in Systems and Equipment or the roof,
walls, floors, surfaces or structure, or of any services or utilities; any work,
demolition, maintenance or repairs permitted under this Lease; any exercise of
Landlord's rights under any Laws or under this Lease, including any entry by
Landlord or its Affiliates on the Premises in accordance with this Lease; or any
of the matters described in Section 24.5. Tenant and Tenant's Affiliates assume
the risk of all of these Liabilities and waive all claims against Landlord in
connection therewith. Tenant also waives any Laws or rights that would permit
Tenant to terminate this Lease, perform repairs or maintenance in lieu of
Landlord (or on Landlord's behalf), or offset or withhold any amounts due
because of damage to or destruction of the Premises, any repairs or maintenance,
or for any other reason except to the extent otherwise specifically set forth in
this Lease. Tenant immediately will notify Landlord of any damage or injury to
persons or property and any events which could be anticipated to give rise to
any of the foregoing Liabilities. This exculpation of Landlord and all of
Tenant's waivers in this Lease will apply to all of Tenant's Affiliates to the
greatest extent possible. If and to the extent that this exculpation and these
waivers do not so apply, Tenant will indemnify Landlord for and hold Landlord
free and harmless from all Liabilities incurred by Landlord to or in connection
with Tenant's Affiliates.
14.3 Satisfaction of Remedies. Notwithstanding anything in this Lease
or elsewhere to the contrary: Tenant and its Affiliates will look solely to
Landlord's interest in the Project to satisfy any claims, rights or remedies,
and Landlord and its Affiliates (and any property managers), at every level of
ownership and interest, have no personal or individual liability of any type,
whether for breach of this Lease or
-12-
<PAGE> 18
otherwise, their assets will not be subject to lien or levy of any type, nor
will they be named individually in any suits, actions or proceedings of any
type.
15. COMMON AREA AND PARKING.
15.1 Common Area. "Common Area" means all areas and improvements within
the Project, as it now exists or as it exists in the future, not held or
designated for the exclusive use or occupancy of Landlord, Tenant, or other
tenants. Tenant may use the Common Area on a nonexclusive basis during this
Lease. Landlord reserves all rights in connection with the Common Area and the
rest of the Project, including, without limitation, the right to change,
relocate, add to, improve or demolish portions and promulgate rules and
regulations with respect thereto, limit the use of any portion of the Common
Area by Tenant or its Affiliates, and place certain portions of the Common Area
off limits to Tenant and its Affiliates, including, without limitation,
janitorial, maintenance, equipment and storage areas, and entrances, loading
docks, corridors, elevators and parking areas. Landlord reserves the space above
hung ceilings, below the floor and within the walls of the Premises, and the
right to install, relocate, remove, use, maintain, repair and replace Systems
and Equipment within or serving the Premises or other parts of the Building or
the Project. Except during emergencies or by reason of force majeure or
necessary maintenance, repair or construction, Landlord's exercise of the rights
in this Article will not ever prevent Tenant from having access to the Premises,
but will not require Landlord to compensate Tenant in any way, result in any
Liabilities to Landlord, entitle Tenant to abate rent, or reduce Tenant's Lease
obligations.
15.2 Parking. Tenant may park fifty-nine (59) passenger cars (19
assigned spaces and 40 unassigned spaces) in the areas designated by Landlord
from time to time for Tenant's parking (Tenant's assigned and unassigned parking
areas are shown in Exhibit "A"). Tenant may not park in spaces assigned to other
tenants. If Tenant does not use all of its parking spaces, Landlord may allow
others to use those spaces at no charge, subject to Tenant's right to reclaim
those spaces when needed. As permitted by Section 15.1, Landlord may: limit
access to portions of the parking areas; change signs, lanes and the direction
of traffic within the parking areas; change, eliminate or add parking spaces or
areas devoted to parking; allow free parking or parking with a validation,
valet, sticker or other system; promulgate rules and regulations; and take any
other actions deemed necessary by Landlord.
16. DAMAGE OR DESTRUCTION.
16.1 Repairs. Subject to the rest of this Article and the rest of this
Lease, Landlord will repair damage to the Premises caused by casualties insured
against under the casualty policies that Landlord is required to maintain
hereunder. However, Landlord is not obligated to repair damage for which
Landlord has no liability under other provisions of this Lease. Except as may
otherwise be required
-13-
<PAGE> 19
by then-applicable Laws, Landlord will attempt to restore the damaged portions
to their prior condition, but Landlord is not required to undertake repairs
unless insurance proceeds are available, spend more than the net insurance
proceeds it actually receives and is permitted to retain for any repair or
replacement, or repair or replace any damage to Tenant's Work, Tenant's Property
or any Alterations. Landlord will begin repairs within a reasonable time after
receiving notice of the damage, required building permits or licenses and the
insurance proceeds payable on account of the damage.
16.2 Election to Terminate.
(a) Landlord has the option either to repair the casualty
damage, or terminate this Lease by delivering written notice within sixty (60)
days after the damage occurs, if: the damage occurs during the last year of the
term; or Tenant is in default; or the repairs would take more than one hundred
twenty (120) days to complete or cost more than fifty percent (50%) of the cost
of Landlord's Work; or the damage was caused primarily by the intentional act or
omission of Tenant or its Affiliates; or the casualty damages more than
twenty-five percent (25%) of either: the leasable space in the rest of the
Building, or the leasable space in the rest of the Project (other than the
Building), or the Common Area of the Building, or the parking area.
(b) Tenant also has the option to terminate this Lease by
delivering written notice to Landlord if: the casualty damages the Premises and
renders it untenantable, Landlord is required or elects to repair and the
repairs which Landlord is required to make are not substantially completed
within nine (9) months after the damage occurs (subject to extension of this
period for up to an additional two (2) months for delays caused by strikes,
labor troubles, war, sabotage, governmental regulations, controls or guidelines,
inability to obtain materials, acts of God or other causes beyond Landlord's
reasonable control); the damage was not caused by the acts or omissions of
Tenant or its Affiliates and Tenant is not in default; and Tenant delivers its
written termination notice to Landlord within fifteen (15) days after the end of
Landlord's repair period and Landlord fails to substantially complete within
sixty (60) day after receiving this notice. Under these circumstances, this
Lease will terminate at the end of this sixty (60)-day period.
16.3 Abatement of Rent. If the Premises are damaged so as to be
untenantable for more than three (3) consecutive business days and Landlord is
required or elects to repair the damage, base rent and Tenant's share of Taxes
and Operating Costs will abate until Landlord has substantially completed the
repairs and given Tenant access to the Premises, or Tenant reoccupies part of
the Premises, whichever is earlier. If Tenant continues to occupy or reoccupies
the Premises before substantial completion of these repairs but cannot occupy
substantially all of the Premises because of these ongoing repairs, base rent
and Tenant's share of Taxes and
-14-
<PAGE> 20
Operating Costs will abate in proportion to the degree to which Tenant's use of
the Premises is impaired, as reasonably determined by Landlord. The base rent
abatement will not exceed the annual base rent for the Lease Year in which the
damage occurs. Base rent and Tenant's share of Taxes and Operating Costs will
not be abated if the acts or omissions of Tenant or its Affiliates render
Landlord unable to collect the rental loss insurance proceeds that otherwise
would have been payable to Landlord. The abatement of base rent and Tenant's
share of Taxes and Operating Costs described above is Tenant's sole remedy and
compensation in connection with any damage, destruction or repairs.
17. CONDEMNATION
If all or substantially all of the Premises are condemned, taken or
appropriated by any public or quasi-public authority under the power of eminent
domain, police power or otherwise, or if there is a sale in lieu thereof
("Condemned"), this Lease will terminate when title or possession is taken by
the condemning authority or its designee. If:
(a) More than twenty-five percent (25%) of the usable area of
the Premises is Condemned, either Landlord or Tenant may terminate this Lease
when title or possession is taken by the condemning authority or its designee by
delivering written notice to the other within fifteen (15) days thereafter.
Landlord also may terminate this Lease above if more than twenty-five percent
(25%) of any of the following are Condemned: the leasable area of the rest of
the Building; the leasable area of the Project (other than the Building); the
Common Area of the Building; or the parking area.
(b) Part of the Premises is Condemned and this Lease is not
terminated, Landlord will make the necessary repairs so that, to the extent
reasonably possible, the remaining part of the Premises will be a complete
architectural unit. Otherwise, Landlord's restoration will be conducted as
described in Section 16.1, except that Landlord will not be required to begin
repairs until a reasonable time after it receives any necessary building permits
and substantially all of the proceeds of any awards granted for the
Condemnation. After the date title or possession is taken by the condemning
authority or its designees, base rent will abate in proportion to the area of
the Premises Condemned.
All proceeds, income, rent, awards and interest in connection with any
Condemnation will belong to Landlord, whether awarded as compensation for
diminution of value to the leasehold improvements, or the unexpired portion of
this Lease, or otherwise. Tenant waives all claims against Landlord and the
condemning authority with respect thereto, but nothing in this Section prevents
Tenant from bringing a separate action against the condemning authority for
moving costs or for lost goodwill (as long as this separate action does not
diminish Landlord's recovery).
-15-
<PAGE> 21
18. ASSIGNMENT AND SUBLETTING.
18.1 Landlord's Consent Required. Tenant will not, and does not have
the right or power to, voluntarily, involuntarily or by operation of any Laws,
sell, convey, mortgage, subject to a security interest, license, assign, sublet
or otherwise transfer or encumber all or any part of Tenant's interest in this
Lease or the Premises, or allow anyone other than Tenant's employees to occupy
the Premises (singularly or collectively, "Transfer"), without first obtaining
Landlord's prior written consent in each case and complying with this Article
and any attempt to do so without this consent and compliance will be null and
void and a default, unless otherwise specifically elected by Landlord in writing
18.2 Notice. Tenant will notify Landlord in writing at least thirty
(30) days before any proposed or pending Transfer and will deliver to Landlord
such information as Landlord may reasonably request in connection with the
proposed or pending Transfer and the proposed Transferee, including, without
limitation, a copy of the final executed Transfer documents, certified current
financial statements and balance sheets, a current Dun & Bradstreet report,
banking and accounting references and other relevant financial information for
the proposed Transferee, and information as to the type of business and business
experience of the propose Transferee. All of this information must be suitably
authenticated.
18.3 Reasonable Consent. Landlord will not unreasonably withhold its
consent to an assignment or sublease by Tenant, but Landlord may withhold its
consent arbitrarily and in its sole discretion to any hypothecation, assignment
for security purposes or other Transfer or to any requested assignment or
sublease before the end of the first full Lease Year. Tenant agrees that
Landlord's withholding of consent to a proposed sublease or assignment will be
deemed reasonable if Tenant is in default or any of the other terms and
conditions of this Article have not been complied with, or if any of the
following conditions are not satisfied: (a) the subtenant or assignee will use
the Premises only for the uses permitted in Section 1.1(h) and otherwise in
accordance with this Lease, and the business and reputation of the subtenant or
assignee are consistent with the other tenancies and standards of the Project in
Landlord's reasonable judgement; (b) the subtenant or assignee is reputable and
creditworthy and has the independent financial ability to perform the
obligations of Tenant under this Lease without undue financial burden in
Landlord's reasonable judgement, and neither it nor its predecessors in interest
has been subject to a bankruptcy or reorganization, or had a receiver appointed
to manage its affairs or in connection with any of its assets, been subject to
criminal judgments, sanctions, consent decrees or similar actions by the SEC or
other governmental or quasi-governmental authorities; (c) Landlord's Mortgagees
consent (if their consent is required); and (d) there will be no more than an
aggregate of two (2) subleases of the Premises. These conditions are not
exclusive and Landlord may
-16-
<PAGE> 22
consider other factors deemed to be relevant in determining if Landlord should
grant or reasonably withhold its consent.
18.4 No Release of Tenant. Whether or not Landlord consents, no
Transfer will release or alter the liability of Tenant to pay rent and perform
all of Tenant's other obligations under this Lease. The acceptance of rent by
Landlord from any person other than Tenant is not a waiver by Landlord. Consent
to one Transfer will not be deemed to be consent to any subsequent Transfer. If
Tenant or any Transferee defaults under this Lease, Landlord may proceed
directly against the Transferee and/or against Tenant without proceeding or
exhausting its remedies against the other. After any Transfer, Landlord may
consent to subsequent Transfers of or amendments to or waivers under this Lease
without notifying Tenant or any other person, without obtaining consent thereto,
and without relieving Tenant of its Liabilities under this Lease (as it may be
modified).
18.5 Additional Terms.
(a) This Article is binding on and will apply to every
Transferee, at every level. The surrender of this Lease or its termination will
not be a merger, but Landlord will have the right to terminate all subleases and
the occupancy rights of all Transferees. Tenant will pay to Landlord as
additional rent: (i) fifty percent (50%) of all consideration paid or payable
for or by reason of any assignment of this Lease; or (ii) in the case of
sublease, fifty percent (50%) of the amount by which the sublease rent and other
consideration paid or payable exceeds the base rent for the sublease term
(prorated if the area subleased is less than the entire area of the Premises),
in each case after Tenant first recovers its bona fide, reasonable,
out-of-pocket costs paid to unaffiliated third parties to obtain the subtenant
or assignee, including without limitation, attorneys fees, brokerage
commissions, new tenant improvements made solely for the subtenant or assignee
and free rent. At Landlord's option, Landlord may collect all or any part of
this additional rent directly from the payor, and consideration paid or payable
will be defined in its broadest sense. Tenant will promptly deliver to Landlord
copies of all executed Transfer documents, all collateral agreements and all
later amendments. Tenant will pay Landlord's reasonable attorneys' fees and
other costs in connection with any request for Landlord's consent to a Transfer.
(b) An assignee will be deemed to have assumed all of Tenant's
obligations and Liabilities under this lease and will be deemed to be bound by
this Lease, and Tenant and the assignee will indemnify Landlord and hold it
harmless from all Liabilities in connection with the assignment. To confirm the
foregoing, a prospective assignee will be required to execute and deliver to
Landlord an unconditional written assumption of Tenant's Liabilities under this
Lease and the indemnity described above. Tenant and the assignee will be deemed
to be jointly and severally liable for all Liabilities of the tenant under this
Lease and any existing
-17-
<PAGE> 23
and future amendments thereto. A sublease will be deemed to be subject and
subordinate to this Lease in all respects. Tenant and the subtenant will
indemnify Landlord and hold it harmless from all Liabilities in connection with
the sublease. The subtenant will acquire no rights or claims against Landlord or
its Affiliates and will not have the right to enforce any of Tenant's rights and
remedies under this Lease against Landlord. If this Lease is terminated or
Landlord rightfully reenters or repossesses the Premises, Landlord may terminate
the sublease, or at its option, become the sublessor under the sublease and the
subtenant will attorn to Landlord, but Landlord will not be liable for Tenant's
acts or omissions, subject to any existing defenses or offsets against Tenant or
bound by any amendment to the sublease made without Landlord's prior written
consent. By entering into a sublease, Tenant and the sublessee agree that if the
sublessee breaches an obligation under its sublease which would also constitute
a default by Tenant under this Lease if not cured within applicable grace
periods, then Landlord will have all of the rights and remedies against the
subtenant that is also has against Tenant for such a default. Without limiting
the generality of the foregoing, Landlord will be permitted (by assignment of
the cause of action or otherwise) to join the Tenant in any action or proceeding
against subtenant or to proceed against the subtenant directly in the name of
Tenant to enforce these rights and remedies. Tenant will cooperate with Landlord
and execute such documents as may be reasonably necessary to implement these
rights granted to Landlord. The exercise of these rights and remedies will not
constitute an election of remedies and will not in any way impair Landlord's
right to pursue other or similar rights and remedies directly against Tenant,
nor will the grant or exercise of these rights or remedies result in the
subtenant acquiring any rights or claims against Landlord or its Affiliates.
Tenant and its Affiliates will not, directly or indirectly, assign, sublease or
otherwise Transfer to, take an assignment, sublease or other Transfer from, or
otherwise occupy premises leased to, any current or then-existing tenants (or
their Affiliates, assignees, sublessees or successors) in the Project nor to any
person (or any of his Affiliates) to whom Landlord has shown space in the
Project or with whom Landlord has negotiated to lease space in the Project
within the 6-month period prior to Tenant's request for approval, and any
attempt to do so will be null and void and a default. Transferees will not have
the right or power to make further Transfers, and any attempt to do so will be
null and void and a default unless otherwise specifically elected by Landlord in
writing. As a material inducement to Landlord to enter into this Lease, Tenant
agrees to make each prospective Transferee aware of the terms of this Article
and will deliver to each prospective Transferee a true and correct copy of this
Lease prior to any Transfer, and each document of assignment, sublease or other
Transfer, at every level, will include or explicitly incorporate the terms of
this Article. Landlord may require confirming and/or additional assurances and
agreements for its protection from Tenant and the assignee or subtenant, each of
whom agrees to give such assurances and execute such agreements.
-18-
<PAGE> 24
(c) If Tenant is a corporation, the Transfer of more than
twenty-five percent (25%) of Tenant's capital stock to any person or entity or
affiliated persons or entities, whether directly or indirectly or by one or more
transactions, or any dissolution, merger, consolidation or other reorganization
of Tenant, or the Transfer of all or substantially all of Tenant's assets, will
deemed to be an attempted assignment of this Lease and subject to all of the
terms of this Article and the rest of this Lease and the other party will be
deemed to be a prospective assignee. However, an assignment or sublease by
Tenant to its parent corporation or wholly-owned subsidiary, or to an entity
that acquires all or substantially all of Tenant's assets, will be deemed to be
a permitted assignment or sublease, as applicable, provided that the rest of
this Article is complied with, the Transferee has a net worth, credit rating and
financial capability at least equal to Tenant's when Tenant executed this Lease
or at the time of the proposed Transfer (whichever is greater), and Tenant
continues in existence. Tenant agrees that, despite anything to the contrary, a
Transferee of all or substantially all of Tenant's assets (and for these
purposes Tenant's assets will not include this Lease) will be deemed to have
assumed all of Tenant's Liabilities under this Lease, and Tenant will make such
Transferee aware of this provision.
19. MORTGAGEE PROTECTION.
19.1 Subordination and Attornment. This Lease is subordinate to all
Superior Leases and Mortgages, and Tenant will attorn to each person or entity
that succeeds to Landlord's interest under this Lease. This Section is
self-operative as to Superior Leases and Mortgages and Landlord's Mortgagees
existing when this Lease is executed, but if requested to confirm a
subordination and/or attornment, Tenant will execute the standard-form
subordination and attornment agreements furnished by the current Landlord's
Mortgagees within fifteen (15) days after request. These subordination and
attornment provisions will apply for the benefit of subsequent Landlord's
Mortgagees, provided that they agree not to disturb Tenant's rights under this
Lease if Tenant is not in default, and at the request of those Landlord's
Mortgagees, Tenant will execute their standard form subordination and attornment
agreements. However, if a Landlord's Mortgagee elects in writing, this Lease
will be superior to the Superior Leases and Mortgages specified, regardless of
the date of recording, and Tenant will execute an agreement confirming this
election on request.
19.2 Mortgagee's Liability. The obligations and Liabilities of
Landlord, Landlord's Mortgagees or their successors under this Lease will exist
only if and for so long as each of these respective parties owns fee title to
the Project or is the lessee under a ground lease of the Project. Tenant will be
liable to Landlord's Mortgagees or their successors if any of those parties
become the owner of the Project for any base rent paid more than thirty (30)
days in advance. Landlord's Mortgagees and their successors will not be liable
for: (a) acts or omissions of prior owners; (b) the return of any security
deposit not delivered to them; or (c) amendments to this Lease
-19-
<PAGE> 25
made without their consent (if their consent is required under a Superior Lease
or Mortgage).
19.3 Mortgagee's Right to Cure. No act or omission (if any) which
otherwise entitles Tenant under the terms of this Lease to be released from any
Lease obligations or to terminate this Lease will result in such a release or
termination unless Tenant first gives written notice of the act or omission to
Landlord and Landlord's Mortgagees and those parties then fail to correct or
cure the act or omission within a reasonable time thereafter (which will not be
less than ninety [90] days). Nothing in this Section or the rest of this Lease
obligates Landlord's Mortgagees to correct or cure any act or omission or is
meant to imply that Tenant has the right to terminate this Lease or be released
from its obligations unless that right is explicitly granted elsewhere in this
Lease.
20. ESTOPPEL CERTIFICATES.
Tenant will from time to time, within fifteen (15) days after request
by Landlord, execute and deliver an estoppel certificate in form satisfactory to
Landlord or its designees which will certify (except as may be truthfully and
accurately noted) such information concerning this Lease or Tenant or it's
Affiliates as Landlord or its designees may request. If Tenant fails to execute
and deliver estoppel certificates as required, Landlord's representations
concerning the matters covered by the estoppel certificate will conclusively be
presumed to be correct and binding on Tenant and its Affiliates. Within fifteen
(15) days after Tenant's request from time to time Landlord will execute and
deliver an estoppel certificate regarding this Lease to Tenant.
21. DEFAULT.
The occurrence of one or more of the following events will be a default
by Tenant under this Lease: (a) [INTENTIONALLY OMITTED]; (b) the failure to pay
rent or any other required amount within five (5) days after written notice that
the payment is due; (c) as provided in Articles 23 and 25; (d) a Transfer or
attempted Transfer in violation of Article 18; (e) the failure to maintain its
required insurance policies; or (f) the failure to observe or perform any other
obligation, term or condition within the time period specified in this Lease
and, if no time period is specified, it will be a default if this failure
continues for fifteen (15) days after written notice from Landlord to Tenant,
but if more than fifteen (15) days are reasonably required to cure, Tenant will
not be in default if Tenant begins to cure within the fifteen (15)-day period
and then diligently completes the cure as soon as possible but in any case
within sixty (60) days after the notice of default is given.
-20-
<PAGE> 26
22. REMEDIES FOR DEFAULT.
22.1 General. If Tenant defaults, Landlord may at any time thereafter,
with or without notice or demand, choose any or all of the following remedies or
pursue any other right or remedy now or hereafter available to Landlord under
this Lease or at law or in equity:
(a) At Landlord's written election the following amounts will
become immediately due and payable in advance:
(i) The unpaid rent which has accrued and would have
accrued up to the date of payment, plus late charges, plus interest from the
dates such rent was due to the date of payment at the Default Rate; plus
(ii) Rent as it becomes due from time to time, plus
late charges and interest from the dates such rent becomes due at the Default
Rate if rent is not paid when due, without the necessity of any further notices
or cure periods; plus
(iii) The reasonable costs of enforcing the terms of
this Lease, including, without limitation, costs for attorneys' fees,
investigations and performing Tenant's obligations as necessary, and/or
(b) Landlord may terminate this Lease by written notice to
Tenant. If Landlord elects to terminate this Lease under the provisions of this
Section, Landlord may recover from Tenant a judgment and Tenant will be liable
for damages computed in accordance with the following formula, in addition to
Landlord's other remedies:
(i) The unpaid rent which has accrued and would have
accrued up to the time of judgment, plus late charges, plus interest from the
dates such rent was due to the date of the judgment at the Default Rate; plus
(ii) The amount by which the whole balance of unpaid
rent which would have become due had this Lease continued for the balance of the
term after the date of judgment (discounted to the date of payment at the rate
of seven percent (7%) per annum) exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided (also discounted at the rate of
7% per annum). Tenant will have the burden of proving the amount of rental loss
that reasonably could have been avoided, which Tenant agrees will never be more
than the scheduled net rental to be received by Landlord until the expiration of
the term of this Lease from any reletting of the Premises entered into by
Landlord at the time (discounted at the rate of 7% per annum, and excluding from
such net rental utility charges and other charges, if any, that must be remitted
by Landlord to any governmental or quasi-governmental authority); plus
-21-
<PAGE> 27
(iii) The reasonable costs of enforcing the terms of
this Lease, repossessing, repairing, altering, performing tenant improvements to
and reletting the Premises, reasonable marketing, brokerage and attorneys' fees
and costs, and any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease and/or which in the ordinary course would be likely to result
therefrom; plus
(iv) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted by applicable Laws,
and/or
(c) Subject to the terms of this Lease, Landlord or its
designees may, without further notice or demand but otherwise subject to law,
enter the Premises without being guilty of trespass and without incurring (and
Tenant hereby waives) Liabilities for damages for such entry or for the manner
thereof, for the purpose of distraint or execution and/or to take possession of
the Premises, and/or to terminate Tenant's right of possession and/or to expel
Tenant and its Affiliates and remove their property, and/or
(d) Landlord may enforce this Lease in accordance with its
terms and Tenant will continue to be responsible for all charges as and when
they become due, and/or
(e) After reentry, retaking or recovering of the Premises,
with or without terminating this Lease, and without limiting Landlord's
acceleration right or other rights and remedies, Landlord may (but will not be
obligated to) relet the Premises or any part(s) thereof to such person(s) upon
such terms as may in Landlord's sole discretion seem best for a term within or
beyond the term of this Lease. Any such reletting by Landlord before termination
of this Lease will be for Tenant's account, and may be in Landlord's name or
Tenant's name, and Tenant will remain liable for all rent and additional rent
(including all charges and damages) due at the time of the reletting plus all of
such amounts that otherwise would have been due under this Lease for the balance
of the term absent any expiration, termination, repossession or reletting, plus
all costs of the type described in Sections 22.1(b)(iii) and (iv), as
accelerated or, if not accelerated, as they accrue. However, until this Lease
expires or is terminated, each month Tenant will receive a credit against its
obligations equal to the net rental proceeds (excluding utility charges or other
charges, if any, that must be remitted by Landlord to any governmental or
quasi-governmental authority), if any, actually paid to Landlord in that month
by the party or parties to whom the Premises were relet, but this credit will
never be more than the amounts owed by Tenant to Landlord for that month.
Further, Tenant, for itself and its successors and assigns, hereby irrevocably
constitutes and appoints Landlord as Tenant's agent to collect the rents due and
to become due from all sublessees and Transferees and apply the same to the rent
due hereunder without in
-22-
<PAGE> 28
any way affecting Tenant's obligation to pay any unpaid balance of rent due or
to become due hereunder.
Tenant waives the right under any Laws to any notice to remove or quit and any
and all rights of redemption or similar rights regardless of the circumstances.
For the purposes of computing any rent due hereunder, the amounts of additional
rent which would have been payable per year under this Lease will be such
amounts as were or would have been payable as specified in this Lease or, if not
specified, as reasonably estimated by Landlord (in either case without the
benefit of any abatement to which Tenant may have been entitled) for the
calendar year in which the default occurred, increasing annually on the first
day of each calendar year thereafter at the rate of seven percent (7%) per
annum, cumulative and compounded. As used in this Article, the "term" means the
initial term of this Lease and any renewals or extensions to which Tenant shall
have become bound prior to the default.
22.2 Remedies Cumulative. All remedies available to Landlord hereunder
and at law and in equity will be cumulative and concurrent. No termination of
this Lease nor taking or recovering possession of the Premises will deprive
Landlord of any remedies or actions against Tenant for rent, for charges or for
damages for the breach of any covenant, agreement or condition, nor will the
bringing of any such action for rent, charges or breach, nor the resort to any
other remedy or right for the recovery of rent, charges, or damages for such
breach be construed as a waiver or release of the right to insist upon the
forfeiture and to obtain possession. No reentering or taking possession of the
Premises, or making of repairs, alterations or improvements thereto, or
reletting thereof, will be construed as an election by Landlord to terminate
this Lease unless specific written notice of such election is given by Landlord
to Tenant.
22.3 Performance by Landlord. If Tenant defaults or fails to perform
any of its obligations under this Lease, Landlord, without waiving or curing the
default or failure, may, but will not be obligated to, perform Tenant's
obligations for the account and at the expense of Tenant. Notwithstanding
Article 21, in the case of an emergency or to prevent damage or injury or
protect health, safety or property, Landlord need not give any notice before
performing Tenant's obligations. Tenant will pay on demand all costs and
expenses incurred by Landlord in connection with Landlord's performance of
Tenant's obligations, and Tenant will indemnify Landlord for and hold Landlord
harmless from all Liabilities incurred by Landlord in connection therewith.
22.4 Post-Judgment Interest. The amount of any judgment obtained by
Landlord against Tenant in any legal proceeding arising out of Tenant's default
under this Lease will bear interest until paid at the Well's Fargo Bank prime
rate plus four percent (4%), or the maximum rate permitted by law, whichever is
less (the "Default Rate"). Notwithstanding anything to the contrary contained in
any Laws,
-23-
<PAGE> 29
with respect to any damages that are certain or ascertainable by calculation,
interest will accrue from the day that the right to the damages vests in
Landlord, and in the case of any unliquidated claim, interest will accrue from
the day the claim arose.
23. BANKRUPTCY. [SEE EXHIBIT "F"]
24. GENERAL PROVISIONS.
24.1 Holding Over. Tenant will not hold over in the Premises after the
end of the Lease term without the express prior written consent of Landlord.
Tenant will indemnify Landlord for, and hold Landlord harmless from, any and all
Liabilities arising out of or in connection with any holding over, including,
without limitation, any claims made by any succeeding tenant and any loss of
rent suffered by Landlord. If, despite this express agreement, any tenancy is
created by Tenant's holding over, except as specifically set forth in the next
sentence the tenancy will be a tenancy at will terminable immediately at
Landlord's sole option on written notice to Tenant, but otherwise subject to the
terms of this Lease, except that the most recent annual base rent will be
doubled and will be payable weekly in advance. Nothing in this Article or
elsewhere in this Lease permits Tenant to hold over or in any way limits
Landlord's other rights and remedies if Tenant holds over.
24.2 Entry By Landlord. Landlord and its Affiliates at all times have
the right to enter the Premises, and Landlord will retain (or be given by
Tenant) keys to unlock all the doors to or within the Premises, excluding doors
to Tenant's vaults and files. Landlord in good faith will attempt to give Tenant
oral or written notice before entering the Premises and to avoid disturbing the
conduct of Tenant's business by such entry more than is reasonably necessary
under these circumstances. But, Landlord need not give notice and will have the
right to use any means necessary to enter the Premises if Landlord believes
there is an emergency or that entry is necessary to prevent damage or injury or
protect health, safety or property. Entry to the Premises and the exercise of
Landlord's rights will not, under any circumstances, be deemed to be a default,
a forcible or unlawful entry into or a detainer of the Premises or an eviction
of Tenant from the Premises or any portion thereof, nor will it subject Landlord
to any Liabilities or entitle Tenant to any compensation, abatement of rent or
other rights and remedies.
24.3 Brokers. Tenant represents and warrants that it has had no
dealings with any agent, broker, finder or other person who is or might be
entitled to a commission or other fee from Landlord in connection with this or
any related transaction, except for Tenant's Broker.
24.4 Quiet Enjoyment. So long as Tenant pays all rent and performs its
other obligations as required. Tenant may quietly enjoy the Premises without
hindrance or molestation by Landlord or any person lawfully claiming through or
under Landlord,
-24-
<PAGE> 30
subject to the terms of this Lease and the terms of any Superior Leases and
Mortgages, and all other agreements or matters of record or to which this Lease
is subordinate.
24.5 Security. Tenant is solely responsible for providing security for
the Premises and Tenant's personnel. Without limiting the generality of this
Article, Tenant agrees that: (a) Landlord may, but will not be required to,
supply security personnel and systems for the Premises, the Common Area or the
rest of the Project and remove or restrain unauthorized persons and prevent
unauthorized acts; (b) Landlord will incur no Liabilities for failing to provide
security personnel or systems or, if provided, for acts, omissions or
malfunctions of the security personnel or systems; and (c) Landlord and its
Affiliates make no representations or warranties of any kind in connection with
the security or safety of the Premises, the Common Area or the rest of the
Project.
24.6 Obligations; Successors; Recordation. If Tenant consists of more
than one person or entity, the obligations and liabilities of those persons or
entities are joint and several. Time is of the essence of this Lease. Subject to
the restrictions in Article 18, this Lease inures to the benefit of and binds
Landlord, Tenant and their respective Affiliates. Tenant will not record this
Lease or a memorandum of lease.
24.7 Late Charges. If any rent or other amounts payable by Tenant are
not received within five (5) days after the due date, Tenant will pay to
Landlord on demand a late charge equal to seven percent (7%) of the overdue
amount, and if not received within ten (10) days after the due date, the amounts
also will bear interest from the due date until paid at the Default Rate.
Collection of these late charges and interest will not: be a waiver or cure of
Tenant's default or failure to perform; be deemed to be liquidated damages, an
invalid penalty or an election of remedies; or prevent Landlord from exercising
any other rights and remedies.
24.8 Accord and Satisfaction. Payment by Tenant or acceptance by
Landlord of less than the full amount of rent due is not a waiver, but will be
deemed to be on account of amounts next due, and no endorsements or statements
on any check or any letter accompanying any check or payment will be deemed an
accord and satisfaction or binding on Landlord. Landlord may accept the check or
payment without prejudice to any of Landlord's rights and remedies, including,
without limitation, the right to recover the full amount due.
24.9 Prior Agreements; Amendments; Waiver. This Lease is an integrated
document and contains all of the agreements of the parties with respect to any
matter covered or mentioned in this Lease, and supersedes all prior agreements
or understandings. This Lease may not be amended except by an agreement in
writing signed by the parties. All waivers must be in writing, specify the act
or omission waived and be signed by Landlord. No other alleged waivers will be
effective,
-25-
<PAGE> 31
including, without limitation, Landlord's acceptance of rent, collection of a
late charge or application of a security deposit. Landlord's waiver of any
specific act, omission, term or condition will not be a waiver of any other, or
subsequent, act, omission, term or condition.
24.10 Representations; Inability to Perform. Landlord and its
Affiliates have not made, and Tenant is not relying on, any representations or
warranties of any kind, express or implied, with respect to the Premises, the
Project or this transaction. Landlord will not be in default nor incur any
Liabilities if it can't fulfill any of its obligations, or is delayed in doing
so, because of accidents, breakage, strike, labor troubles, war, sabotage,
governmental regulations or controls, inability to obtain materials or services,
acts of God, or any other cause, whether similar or dissimilar, beyond
Landlord's reasonable control (sometimes referred to as "force majeure").
24.11 Legal Proceedings. In any action or proceeding involving or
relating in any way to this Lease, the court or other person or entity having
jurisdiction in such action or proceeding will award to the party in whose favor
judgment is entered the actual attorneys' fees and costs incurred. Tenant also
will indemnify Landlord for, and hold Landlord harmless from and against, all
Liabilities incurred by Landlord if Landlord becomes or is made a party to any
proceeding or action: (a) by or against any person holding any interest
under or using the Premises by license of or agreement with Tenant; or (b)
necessary to protect Landlord's interest under this Lease in a proceeding under
the Bankruptcy Code. Unless prohibited by law, Tenant and Landlord each waives
the right to trial by jury in all actions involving or related to this Lease,
the Project or any collateral or subsequent agreements between the parties, and
Tenant waives any right to impose a counterclaim in any proceeding brought for
possession of the Premises as a result of Tenant's default (although Tenant will
retain whatever rights it may have to bring a separate claim against Landlord).
Tenant and Landlord each also submits to and agrees not to contest the sole and
exclusive jurisdiction of the state and federal courts located in Massachusetts
to adjudicate all matters in connection with this Lease and agrees that it will
bring all suits and actions only in such Massachusetts courts and not to seek a
change of venue. Service on any one or more of the individuals comprising Tenant
will conclusively be deemed service on all of those individuals. In any
circumstance where a party is obligated to indemnify or hold harmless the other
party under this Lease, that obligation also will run in favor of the other
party's Affiliates, and will include the obligation to protect the other party
and its Affiliates, and defend them with counsel acceptable to the other party
or, at the other party's election, the other party and its Affiliates may employ
their own counsel and the indemnifying party will pay when due all attorneys'
fees and costs. These obligations to indemnify, hold harmless, protect and
defend will survive the expiration or termination of this Lease.
24.12 Ownership; Invalidity; Remedies; Choice of Law. As used in this
Lease, the term "Landlord" means only the current owner or owners of the fee
title to the
-26-
<PAGE> 32
Premises. Upon each conveyance (whether voluntary or involuntary) of fee title,
the conveying party will be relieved of all Liabilities and obligations
contained in or derived from this Lease or arising out of any act, occurrence or
omission occurring after the date of such conveyance. Landlord may Transfer all
or any portion of its interests in this Lease, the Premises, or the Project
without affecting Tenant's obligations and Liabilities under this Lease. Tenant
has no right, title or interest in the name of the Building or the Project, and
may use these names only to identify its location. Any provision of this Lease
which is invalid, void or illegal will not affect, impair or invalidate any of
the other provisions and the other provisions will remain in full force and
effect. Landlord's rights and remedies are cumulative and not exclusive. This
Lease is governed by the laws of Massachusetts applicable to transactions to be
performed wholly therein.
24.13 Expense; Consent. Unless otherwise provided in this Lease, a
party's obligation will be performed at that party's sole cost and expense,
except when Landlord is performing Tenant's obligations because of Tenant's
default or failure to perform or as otherwise permitted in this Lease. Landlord
has agreed in a number of instances in this Lease to consent, approve or
exercise its judgment reasonably. Therefore, to avoid potential
misunderstandings, except where it is expressly provided that Landlord will not
unreasonably withhold its consent or approval or exercise its judgment
reasonably, Landlord may grant or withhold its consent or approval and exercise
its judgment arbitrarily and in its sole and absolute discretion. In any dispute
involving Landlord's withholding of consent or exercise of judgement, the sole
right and remedy of Tenant and its Affiliates is declaratory relief (i.e., that
such consent should be granted), and Tenant and its Affiliates waive all other
rights and remedies, including, without limitation, claims for damages.
24.14 Presumptions; Exhibits; Submission; Net Lease. This Lease will be
construed without regard to any presumption or other rule requiring construction
or interpretation against the party drafting the document. The titles to the
Articles and Sections of this Lease are not a part of this Lease and will have
no effect on its construction or interpretation. Whenever required by the
context of this Lease, the singular includes the plural and the plural includes
the singular, and the masculine, feminine and neuter genders each include the
others, and the word "person" includes individuals, corporations, partnerships
or other entities. All exhibits and riders attached to this Lease are
incorporated in this Lease by this reference. The submission of this Lease to
Tenant or its broker, agent or attorney for review or signature is not an offer
to Tenant to lease the Premises or the grant of an option to lease to Premises.
This Lease will not be binding unless and until it is executed and delivered by
both Landlord and Tenant. This Lease is intended to be a completely "triple net"
lease, unless specifically otherwise provided in this Lease.
24.15 Cooperation. Tenant will cooperate reasonably with Landlord in
connection with this Lease, Landlord's ownership, operation, management,
-27-
<PAGE> 33
improvement, maintenance and repair of the Premises and the rest of the Project,
and Landlord's exercise of its rights and obligations under this Lease. If
necessary, this cooperation will include, without limitation, moving machinery,
equipment or Alterations within the Premises and allowing Landlord sufficient
space within the Premises to enable Landlord to perform any work that Landlord
has the right or is required to perform under this Lease.
24.16 Notices. All notices, demands or communications required or
permitted under this Lease (the "Notices") will be in writing and personally or
electronically delivered, or sent by certified mail, return receipt requested,
postage prepaid. Notices to Tenant will be delivered to the address for Tenant
in Section 1.1, except that when Tenant takes possession of the Premises, the
address of the Premises will be used for the purpose of delivering notices to
Tenant. If Tenant is comprised of more than one entity or individual, Notices to
any one or more of the entities or individuals comprising Tenant will be deemed
valid Notices to Tenant and to all of those entities and/or individuals. Notices
to Landlord will be delivered to the addresses for Landlord in Section 1.1.
Notices will be effective on the earlier of: delivery; or, if mailed, three (3)
days after they are mailed in accordance with this Section.
24.17 Security Deposit.
(a) On Tenant's execution of this Lease, Tenant will deliver
to and deposit with Landlord an irrevocable, unconditional Standby Letter of
Credit in accordance with the terms of this Section (the "Letter of Credit").
The Letter of Credit will: have an initial face amount of One Hundred Twenty
Thousand Dollars ($120,000); be issued by a bank in Massachusetts reasonably
acceptable to Landlord; have an initial term of one (1) year and be renewed and
continuously maintained for a term expiring at least one (1) month after the end
of the last Lease Year; name Landlord (or, at Landlord's request, one or more of
Landlord's lenders) as the beneficiary thereof; and be acceptable in form and
substance to Landlord and its counsel. The Letter of Credit shall provide that:
(i) the Letter Credit shall automatically renew unless the issuer provides at
least fifteen (15) days' prior written notice of non-renewal to the beneficiary;
and (ii) the beneficiary thereof has the right to draw under the Letter of
Credit on one or more occasions from time to time during its terms imply upon
presentation to the issuer of a sight draft executed by the beneficiary or its
authorized representative, without further condition, and that the issuer shall
pay upon presentation of such sight draft without delay, deduction or offset of
any type.
(b) Provided that Letter of Credit is not drawn upon, starting
on the first day of the fourth (4th) month after the end of the second Lease
Year, and every three (3) months thereafter, the face amount of the Letter
Credit shall be reduced by Ten Thousand Dollars ($10,000).
-28-
<PAGE> 34
(c) The Letter of Credit is security for the timely payment
and performance of Tenant's Lease obligations. If Tenant fails to pay and
perform its Lease obligations as required, the beneficiary may, but will
not be obligated to, draw under the Letter of Credit on one or more occasions
and apply the amounts drawn against amounts owed Landlord under this Lease, and
the beneficiary's draw(s) under or failure to draw down all or any portion of
the Letter of Credit in any particular instance will not be deemed to be a
waiver or election of any rights and remedies of any type, a limitation on
damages, a payment of liquidated damages or an accord or satisfaction. If Tenant
fails to deliver to the beneficiary renewals of the Letter of Credit at least
fifteen (15) days before the expiration thereof, and whether or not Tenant has
timely paid and performed its Lease obligations, the beneficiary may, but will
not be obligated to, draw down the Letter of Credit and hold the amounts drawn
as a cash security deposit, or return the Letter of Credit to Tenant, in which
case Tenant will concurrently deposit with Landlord as a security deposit cash
in an amount equal to the then-required face amount of the Letter of Credit per
Section 24.17(b) above. The amount of the cash security deposit will reduce in
accordance with the schedule set forth in Section 24.17(b) above, and otherwise
such cash security deposit will be subject to the terms of this Section
24.17(c). If Tenant complies with all of the provisions of this Lease, the
Letter of Credit will be returned undrawn (or the cash security deposit will be
returned) to Tenant or its assignee after the end of this Lease and the
surrender of possession of the Premises to Landlord in the condition required.
24.18 Other Defined Terms.
(a) "Affiliates" means: partners, directors, officers,
shareholders, agents, employees, parents, subsidiaries, affiliated parties,
invitees, customers, licensees, concessionaires, contractors, subcontractors,
successors, assigns, subtenants, and representatives.
(b) "Landlord's Mortgagees" means the lessors or mortgagees
under the Superior Leases and Mortgagees and their successors and assigns. The
current Landlord's Mortgagee is The Bank of Nova Scotia, One Liberty Plaza, 25th
Floor, New York, New York 10006.
(c) "Laws" means: laws, codes, decisions, ordinances, rules,
regulations, licenses, permits, and directives of governmental and
quasi-governmental officers, including, without limitation, those relating to
building and safety, fire prevention, health, energy conservation, Hazardous
Substances and environmental protection.
(d) "Liabilities" means: all costs, damages, claims, injuries,
liabilities and judgments, including, without limitation, attorneys' fees and
costs (whether or not suit is commenced or judgment entered).
-29-
<PAGE> 35
(e) "Superior Leases and Mortgages" means all present and
future ground leases, underlying leases, mortgages, deeds of trust or other
encumbrances, and all renewals, modifications, consolidations, replacements or
extensions thereof and advances made thereunder, affecting all or any portion of
the Premises or the Project.
(f) "Systems and Equipment" means: when used generally, all
HVAC, plumbing, mechanical, electrical, lighting, water, gas, sewer, safety,
sanitary and any other utility or service facilities, systems and equipment, and
all associated pipes, ducts, poles, stacks, chases, conduits, wires and
facilities, and when used specifically, a specified installation or type of
equipment or utility service and all associated pipes, ducts, poles, stacks,
chases, conduits, wires and facilities.
25. HAZARDOUS SUBSTANCES.
Without limiting the generality of any portion of this Lease, Tenant
and its Affiliates will:
(a) Not store, handle, transport, use, process, generate,
discharge or dispose of any hazardous, toxic, corrosive, dangerous, explosive,
flammable or noxious substances, gasses or waste, whether now or hereafter
defined under any Laws or otherwise (collectively, "hazardous substances"),
from, in or about the Premises or the rest of the Project, or create any release
or threat of release of any hazardous substances, nor permit any of the
foregoing to occur. If any of the foregoing occur, or if Landlord in good faith
believes that any of the foregoing have occurred or are like to occur or that
Tenant and its Affiliates are not complying fully with the requirements of this
Article, in addition to any other rights and remedies of Landlord, Tenant and
its Affiliates immediately will cease the acts or omissions and in addition to
any other rights and remedies (all of which are cumulative), at Landlord's
request Tenant will take such actions as may be required by Laws and as Landlord
may direct to cure or prevent the problem. Tenant and its Affiliates will comply
fully with all Laws and insurance requirements in connection with or related to
hazardous substances, whether now or hereafter existing, including, without
limitation, CERCLA, SARA, RCRA, TSCA, CWA, Chapter 21E of Massachusetts General
Laws and any other Laws promulgated by the EPA, OSHA or Commonwealth of
Massachusetts.
(b) immediately pay, and indemnify Landlord for and hold
Landlord harmless from, all Liabilities in connection with or arising directly
or indirectly from any breach by Tenant or its Affiliates of their
obligations in this Article, including, without limitation, the costs of any of
the following, whether required by Landlord, applicable Laws or insurance
requirements or otherwise: any "response actions" or "responses"; any surveys,
"audits", inspections, tests, reports or procedures deemed necessary or
desirable by Landlord or governmental or quasi-governmental
-30-
<PAGE> 36
authorities to determine the existence or scope of any hazardous substances or
Tenant's compliance with this Article, and any actions recommended to be taken
in connection therewith; compliance with any applicable Laws and insurance
requirements; any requirements, directives or plans for the prevention,
containment, processing, storage, clean-up or disposal of hazardous substances;
the release and discharge of any resulting liens; and any other injury or
damage. On the expiration or earlier termination of this Lease, Tenant will
leave the Premises free of hazardous substances.
(c) Immediately deliver to Landlord copies of any notices,
information, reports, and communications of any type received or given in
connection with hazardous substances, including, without limitation, notices of
violation and settlement actions from or with governmental or quasi-governmental
authorities, reports from Tenant's engineers or consultants, and the results of
any analyses conducted by or for Tenant. Tenant specifically grants Landlord the
right to participate in all discussions and meetings regarding actual or
potential violations, settlements or abatements.
Tenant's failure to comply with the requirements of this Article will be a
material default under this Lease. All of Tenant's obligations under this
Article will survive the expiration or earlier termination of this Lease.
IN WlTNESS WHEREOF, intending to be legally bound, each party has
executed this Lease as a sealed instrument as of the date first set forth above
on the date specified below next to its signature.
"LANDLORD"
ANDOVER MILLS REALTY LIMITED
PARTNERSHIP,
Executed: MARCH 1, 1996 a Massachusetts limited partnership
By: Niuna-Andover, Inc., a Massachusetts
WITNESS: corporation general partner
/s/ John G. Baker By: /s/ John Kusmiersky
- ------------------------------ ------------------------------
Name Printed: JOHN G. BAKER Name: JOHN KUSMIERSKY
Its: PRESIDENT
Executed: 2/27, 1996 "TENANT"
-31-
<PAGE> 37
CASCADE SYSTEMS, INC.,
a Massachusetts corporation
WITNESS:
/s/ Steven J. Azuth By: /s/ Janet Dougherty
- ------------------------------ ------------------------------
Name Printed: Steven J. Azuth Name: Janet Dougherty
Vice President, Finance
Authorized Signature
By: /s/ Andrew Zimmon
------------------------------
Name: Andrew Zimmon, Clerk
Authorized Signature
-32-
<PAGE> 38
EXHIBIT "A"
PROJECT SITE PLAN
[Project Site Plan Schematic]
<PAGE> 39
EXHIBIT "B"
PREMISES
BUILDING 300
FIRST FLOOR
[Premises Schematic, Building 300, First Floor]
<PAGE> 40
EXHIBIT "C"
WORKLETTER
1. General Conditions.
1.1 Tenant and its contractors may have access to the Premises for the
purpose of preparing the Premises for Tenant's occupancy before Landlord's Work
has been substantially completed, but only with Landlord's prior written
approval. After any entry by Tenant or its contractors, all of Tenant's Lease
obligations will be immediately effective except for the obligation to pay base
rent, Taxes and Operating Costs. All construction, materials, services,
licenses, approvals, costs, installations and equipment to or for the Premises
other than Landlord's Work are called "Tenant's Work," and will be performed by
Tenant at Tenant's sole cost and in a good and workmanlike manner and subject to
the rest of the terms of this Lease. Tenant has inspected and accepts the
Premises as is, except for Landlord's Work to be performed. Tenant will not
interfere in any way with Landlord's Work, whether in connection with Tenant's
Work or otherwise. If Landlord's Work is delayed or made more expensive due to:
any act or omission of Tenant or its Affiliates (including, without limitation,
any delay of or failure to complete Tenant's Work, any requested or required
changes to Exhibit "C" agreed to by Landlord, or any failure or delay in
submitting plans, specifications, drawings, requirements, information or
approvals, or changes or inaccuracies in any of the foregoing); or the inclusion
in Exhibit "C" or other Tenant specifications of "long lead" items or services
that cannot reasonably be obtained in sufficient time to be incorporated in
Landlord's Work in the normal course of Landlord's construction schedule (and
Tenant's failure to delete or substitute for those items or services), then
Tenant will be responsible for the delays and additional cost, Landlord's Work
will be deemed substantially completed when it would have been completed but for
the delays (and at minimum any delays will be subtracted from the date of actual
substantial completion in determining when substantial completion will be deemed
to have occurred), and Tenant will pay any additional cost to Landlord as
additional rent within fifteen (15) days after receipt of Landlord's bill.
Within ten (10) days after Landlord's request, Tenant will execute and deliver
to Landlord a certificate confirming the date of substantial completion of
Landlord's Work. Tenant's certificate is for purposes of confirmation only and
will not affect the actual date of substantial completion.
1.2 The rest of this Workletter is attached and is incorporated herein
by this reference.
Page 1 of 1
<PAGE> 41
B.1.0 GENERAL
The Workletter is intended to show the division between the Landlord's Work (the
"Base Building" described below) and Tenant work. Tenant's Work includes any
work not described under the "Base Building" heading below, and any changes,
additions or deletions to Landlord's Work requested by Tenant. All descriptions
of the split between the Landlord's versus the Tenant's responsibilities with
regard to HVAC, electrical, fire suppression, life safety and plumbing are for
the purpose of allocating cost and installation responsibilities. The Landlord
will specify, purchase, install and balance all installations listed under the
Base Building Heading. In order to ensure a coordinated system, the remaining
systems that are to be specified and installed by the Tenant must be approved by
the Landlord, as must any modifications or additions to the base building
systems. Tenant is solely responsible for paying and performing Tenant's Work.
However, Landlord reserves the right to install Tenant's Work (at Tenant's cost)
if it connects to or affects Landlord's Work or any code-related or life-safety
related work.
Tenant may request that Landlord contract for all or part of Tenant's Work. If
Landlord agrees, this work will be deemed to be part of Tenant's Work and not
part of Landlord's Work, and will be done at Tenant's sole cost, risk and
liability and Landlord will have no cost, risk or liability. Landlord will not
be required to advance any funds for this work and at Landlord's request Tenant
will advance, or pay to Landlord within seven days after receipt of bills, all
costs (whether "hard" of "soft" costs) incurred or which may be due in
connection with this work, including without limitation, costs for permits,
design, drawing, architectural, engineering and drafting services, contractors
overhead and profit, labor, materials and ten percent (10%) of hard and soft
costs to Landlord for Landlord's supervision, coordination and involvement.
Tenant will indemnify and hold Landlord harmless from all damages, claims and
liabilities in connection with this work.
-1-
<PAGE> 42
<TABLE>
<S> <C>
LANDLORD/BASE BUILDING TENANT
B.2.0 SITE IMPROVEMENTS
1. Landlord will identify parking
spaces.
Landlord will display Tenant's
name on existing brick and stone
building directory monument.
B.3.0 STRUCTURE Tenant is responsible for any
modifications to the base building
No work required. structural system as required by Tenant
equipment, floor loadings, or such
Tenant design features as
communicating stairs, Tenant shafts, etc.
B.4.0 DEMOLITION
Landlord will prepare the Tenant's Tenant is responsible for any demolition
space for the Landlord's work and for for work unrelated to the Landlord's
normal Tenant fit-up. work or to normal Tenant fit-up.
B.5.0 BUILDING EXTERIOR
No work required. Any provisions for Tenant requirements
such as through-wall ventilation,
exhaust, or other items that will
penetrate or affect the exterior facades
and are not being provided by the
Landlord will be the Tenant's
responsibility but must be approved by
the Landlord.
</TABLE>
-2-
<PAGE> 43
<TABLE>
<S> <C>
LANDLORD/BASE BUILDING TENANT
B.6.0 HVAC
Landlord will provide HVAC system 1. All special Tenant HVAC
designed to meet the following criteria: equipment required for non-typical
Tenant cooling loads such as
- Cooling and ventilation capacity computer rooms, electronic
sufficient to meet accepted design equipment rooms, telephone rooms,
standards for the following: dark rooms, labs, etc.
a. A density of one occupant 2. All special ventilation and exhaust
per 150 gross usable square requirements related to Tenant
feet occupancy uses such as mentioned
in the previous paragraph, such as
b. Total Tenant electrical loads fume hoods, exhaust fans, etc.
of 4 watts per square foot for
lighting and convenience
power.
c. One thermostat control per 3. Any special Tenant related systems
2,500 s.f. of Tenant usable or equipment such as special
floor area. Additional control controls, climate control
zones will be the Tenant's (humidification), etc.
responsibility.
- Comfort Conditions 4. All modifications to the Landlord
provided distribution to
a. Summer - maintain indoor accommodate special Tenant
condition 76F, 56 percent rh requirements not covered by the
at 90(degree)F db/75(degree) outdoors. Landlord's work.
b. Winter - maintain indoor 5. All modifications to the system
temperature of 72(degree)F at 10(degree)F including ducted returns or other
outdoors. upgrades to the system to eliminate
the need for rated data/
communication cable above the
ceiling.
B.7.0 ELECTRICAL
</TABLE>
-3-
<PAGE> 44
<TABLE>
<S> <C>
Landlord will provide sufficient code- All electrical provisions required to fit-up
compliant electrical capacity to the Tenant area other than that provided by
accommodate Tenant's space plan. the Landlord, including all data and
telephone distribution, all special or
dedicated power circuits, and any special
lighting not part of the Landlord's work.
Tenant is also responsible to make
arrangements with the Massachusetts Electric
Company for an electric service contract.
</TABLE>
Electrical Notes
1. Landlord-provided electrical system will be designed sufficiently to
provide for all central equipment and common areas as described
elsewhere in this document and for the following Tenant loads:
- Four watts/square foot total lighting and convenience power.
Any increase in the size of the electrical systems as required
by Tenant loads in excess of the design capacity will be the
Tenant's responsibility.
2. Lighting fixtures and Tenant power within the Tenant's demised premises
will be installed by the Landlord. The scope of this work will be
determined once Tenant has provided said plan for the Landlord's review
and approval.
3. The design intent is for the Tenant related power, telephone and data
distribution to be located in the return air ceiling plenum or
suspended from the underside of the exposed structure above and
distributed to the floor via the column and partition enclosures. All
Tenant designs and installations must conform to the code and must be
reviewed and approved by the Landlord.
-4-
<PAGE> 45
<TABLE>
<S> <C>
LANDLORD/BASE BUILDING TENANT
B.8.0 TELEPHONE
1. Landlord will provide main 1. Tenant is responsible for the. entire
telephone service conduit from telephone system other than that which is
the street into a telephone closet described in the base building column,
located on the first floor and will including a telephone closet located within
provide boards for the location of the Tenant's demised premises for all of the
central distribution equipment. Tenant's central and branch equipment,
distribution panels, wire, and instruments,
etc.
B.9.0 FIRE SUPPRESSION
All central equipment, piping and All modifications to the base building
controls, including standpipe riser, hose sprinkler system as necessary to
valves, annunciator, etc. accommodate Tenant fit-up and/or
ceiling configurations other than that
Sprinkler distribution piping. provided by the Landlord. These
modifications include those required for
Sprinkler heads in building common special areas, computer rooms,
areas including penthouse, MERs, ECs, cafeterias, kitchens, labs, dark rooms,
main lobby, toilet rooms, etc. etc., such as pre-action valves for a dry
pipe system, halon systems, etc.
Sprinkler heads in Tenant area in a
regular grid configuration located by
installing straight vertical drops from
the existing sprinkler tees.
NOTE: Drops will not be centered
in the ceiling tile or
room unless Tenant directs
so at his own cost.
Landlord will coordinate
sprinkler drops to avoid
interference with the
lighting pattern, HVAC
diffusers, and other
ceiling-mounted components
that are being provided by
the Landlord.
</TABLE>
-5-
<PAGE> 46
<TABLE>
<S> <C>
LANDLORD/BASE BUILDING TENANT
B.10.0 LIFE SAFETY SYSTEMS
1. Landlord will provide all code required fire Tenant is responsible for all modifications
alarm systems and their associated risers, to the life-safety systems to accommodate
including the following: special areas or requirements such as
dark rooms, labs, computer rooms, etc.
- Central annunciator, distribution,
and control panels as required for
smoke and fire detection, alarms,
voice communication, etc., including
hook-up to local fire department as
required.
- All conduit, risers, and local
distribution panels as required to
extend the smoke, fire alarm, and
communication network to the
electrical closet on each floor.
- Installation of the smoke and fire
detection, alarm, and voice
communication systems into the
Tenant space as required by the
Tenant Space Plan exhibit to the
lease, subject to review and approval
of the Tenant's requirements once
the Tenant has submitted his space
plan to the Landlord.
B.11.0 PLUMBING
Landlord to provide common toilet rooms, one for Tenant is responsible for installation and
each sex. Each toilet room to be provided with hook-up of all Tenant plumbing fixtures.
number of fixtures as required by Code. Fixture
type to be new building standard porcelain.
Landlord to provide sink at employee kitchen
with provisions for "instant" hot water.
</TABLE>
-6-
<PAGE> 47
<TABLE>
<S> <C>
LANDLORD/BASE BUILDING TENANT
B.12.0 FLOORING
Landlord will provide direct glue-down All special flooring in demised Tenant
carpet (or sheet vinyl or VCT of areas not requiring carpet such as
comparable value) with integral pad over computer floors, special kitchen and
repaired/existing floors in those areas food service flooring, executive carpet
requiring carpeting or floor covering within upgrades, wood flooring, poured floors,
the Tenant's demised premises. The etc.
Landlord allowance for Tenant floor
coverings is $15 per square yard including
taxes and installation. The allowance
applies to all demised areas.
Landlord will furnish and install vinyl or
rubber base for all partitions and columns.
Base is in addition to the above mentioned
floor covering allowance.
B.13.0 CEILINGS
Landlord will provide building standard Tenant is responsible for any
ceilings for the areas requiring ceilings modifications to the Landlord-installed
within the Tenant's demised space in a ceiling pattern as required to
regular grid "open-plan" configuration. accommodate special spaces, etc.
Tenant is to layout his partitions
accordingly. Ceilings to be as high as
feasible (minimum 8') throughout, except
for soffited areas required to accommodate
ductwork and/or utilities.
Landlord will provide 15/16" standard face
suspension system with regular edge tiles
throughout the Tenant space. Building
standard tiles to be Armstrong Second
Look.
Landlord will leave all areas above the
ceiling open to the underside of the
structure above.
Landlord will construct bulkheads as
required to conceal distribution ductwork.
</TABLE>
-7-
<PAGE> 48
<TABLE>
<S> <C>
LANDLORD/BASE BUILDING TENANT
B.14.0 WALLS AND PARTITIONS
Core walls on single Tenant floors will be All partitions within demised Tenant
taped, spackled, and prime painted. areas other than those provided by the
Tenant demising walls and interior Landlord under the Landlord's base
surface of exterior walls will be taped, building obligation. Tenant will also
spackled, and painted with one prime be responsible for all acoustical
coat and one finish coat. treatments within or above the
partitions provided by the Landlord.
Landlord will install all non-moveable
ceiling height partitions within the
Tenant's space as required by the Tenant
Space Plan.
B.15.0 DOORS
Landlord to furnish and install all main Tenant to furnish and install all
building entries and exit doors and interior door frames and hardware
building perimeter, all core areas doors within the demised Tenant area other
including stairway exit doors, and doors than those provided by the Landlord
to mechanical areas. as mentioned in the base building
provisions. Tenant doors, frames, and
hardware to be the same specification
as those provided by the Landlord
unless otherwise approved by the
Landlord.
Landlord to furnish and install 3'-0' x 7'-0'
high red oak veneer solid core wood
doors (with hardware Satin Chrome
Plated [US26D] finish) within the Tenant's
demised premises, as required by the
Tenant Space Plan, subject to submittal
and approval of Tenant's space plan by
the Landlord.
B.16.0 SPECIALTIES
Landlord to furnish and install core area Tenant is responsible for all Tenant
signage for all floors. specific identification signs, directories,
etc.
</TABLE>
-8-
<PAGE> 49
<TABLE>
<CAPTION>
B.17.0 SPECIAL LANDLORD
CONSTRUCTION
<S> <C>
1. Landlord will provide (one) 1. Tenant to provide and install
transparent finished hardwood special lighting fixtures.
framed 2-leaf suite entrance door.
2. Landlord will provide 4' W x 4' H 2. Tenant to provide and install
glass sidelights at 31 locations. decorative gypsum board
bulkheads, soffits and facias.
3. Landlord will provide built-in 3. Tenant to provide and install all
casework for kitchen area. built in casework, counter work,
and millwork.
4. Landlord will provide building 4. Tenant to provide and install all
standard vertical blinds for all laboratory equipment, fixtures,
exterior windows within the worksurfaces, etc.
Tenant's demised premises.
5. Tenant to provide and install
Tenant specific security system.
6. Subject to Landlord approval as
to design, Tenant may install
their name and logo on the wall
immediately adjacent and
perpendicular to their entrance
door.
</TABLE>
-8-
<PAGE> 50
EXHIBIT "D"
BASE RENT
<TABLE>
<CAPTION>
Annual Base Rent
Per Square Foot of
Agreed Rentable Area in
Lease Year the Premises
---------- ------------
<S> <C>
1-5 $11.85*
</TABLE>
*Subject to abatement per Section 5(b) of the Lease.
-1-
<PAGE> 51
EXHIBIT "E"
RULES AND REGULATIONS
1. Fire exits and stairways are for emergency use only, and they shall
not be used for any other purposes. Tenant shall not encumber or obstruct, or
permit the encumbrance or obstruction of or store or place any materials on any
of the sidewalks, plazas, entrance, corridors, elevators, fire exits or
stairways of the Project. The Landlord reserves the right to control and operate
the public portions of the Project and the public facilities, as well a
facilities furnished for the common use of the tenants, and access thereto, in
such matter as it deems best.
2. The cost of repairing any damage to the public portions of the
Project or the public facilities or to any facilities used in common with other
tenants caused by Tenant or its Affiliates shall be paid by Tenant.
3. Any person whose presence in the Project at any time shall, in the
judgment of the Landlord, be prejudicial to the safety, character, reputation
and interests of the Project or its tenants may be denied access to the Project
or may be ejected therefrom. In case of invasion, riot, public excitement or
other commotion the Landlord may prevent all access to the Project or the
Building during the continuance of the same, by closing the doors or otherwise,
for the safety of the tenants and protection of property. The Landlord shall in
no way be liable to any tenant for damages or loss arising from the admission,
exclusion or ejection of any person to or from Tenant's premises or the Project
under the provisions of this rule.
4. No awnings or other projections over or around the windows shall be
installed by Tenant and only such window blinds as are permitted by the Landlord
shall be used in Tenant's premises.
5. Hand trucks shall not be used in any space, or in the public halls
of the Building in the delivery or receipt of merchandise, except those equipped
with rubber tires and side guards. Tenant shall repair all damage to floors both
in the Premises and the Common Area caused by its use of material-handling
equipment and, if requested by Landlord, Tenant shall install at its expense
suitable floor covering to protect the floors and shall remove such floor
covering (and repair any damage caused by the removal) at its expense at the
expiration or earlier termination of this Lease. All air compressors, electric
motors and other machinery and equipment shall be shock-mounted so as not to
transmit vibrations.
6. All entrance doors in Tenant's premises shall be kept locked when
Tenant's premises are not in use. Entrance doors shall not be left open at any
time. All windows in Tenant's premises shall be kept closed at all times and all
blinds therein above the ground floor shall be lowered when and as reasonably
required
-1-
<PAGE> 52
because of the position of the sun, during the operation of the air conditioning
system to cool or ventilate the tenant's premises.
7. Nothing shall be done or permitted in Tenant's premises which would
impair or interfere with any of the Systems or Equipment or the proper and
economic servicing of the Building or the Premises, or the use or enjoyment by
any other tenant of any other premises, nor shall there be installed by Tenant
any Systems or Equipment or other equipment of any kind which, in Landlord's
judgment, could result in such impairment or interference. If necessary in
Landlord's judgment, Landlord may install, relocate, remove, use, maintain,
repair and replace Systems and Equipment within or serving the Tenant's premises
or other parts of the Project, and perform other work and alterations within the
Tenant's premises. No dangerous, inflammable, combustible or explosive object or
material shall be brought into the Building by Tenant or with the permission of
Tenant.
8. Whenever Tenant shall submit to Landlord any plan, agreement or
other document for Landlord's consent or approval, such tenant agrees to pay
Landlord as additional rent, on demand, a processing fee in a sum equal to the
fees of any architect, contractor, engineer and attorney employed by Landlord to
review said plan, agreement or document. Within fifteen (15) days after
Landlord's request from time to time, Tenant shall deliver to Landlord Tenant's
financial statements, including a balance sheet, income statements and bank
references.
9. No acids, vapors hazardous or other materials shall be discharged or
permitted to be discharged into the waste lines, ducts, vents or flues which may
damage them or any other portions of the Building or the Project. The water and
wash closets and other plumbing fixtures in or serving any tenant's premises
shall not be used for any purpose other than the purpose for which they were
designed or constructed, and no sweepings, rubbish, rags, acids or other foreign
substances shall be deposited therein. All damage resulting from any misuse of
the fixtures shall be borne by the tenant who, or whose servants, employees,
agents, visitors or licensees, shall have caused the same.
10. No signs, advertisements, notice or other lettering shall be
exhibited, inscribed, painted or affixed by Tenant on any part of the outside or
inside the premises or the Building without the prior written consent of
Landlord. The Tenant shall cause the exterior of any permitted sign to be kept
clean, properly maintained and in good order and repair throughout the term of
its lease. In the event of the violation of the foregoing by Tenant, Landlord
may remove the same without any liability, and may charge the expense incurred
by such removal to Tenant. Landlord shall have the right to prohibit any
advertising by Tenant which impairs the reputation of the Building or the
Project, and upon, written notice from Landlord, Tenant shall refrain from or
discontinue such advertising.
-2-
<PAGE> 53
11. Tenant's employees shall not loiter around the hallways, stairways,
elevators, front, roof or any other part of the Building used in common by the
occupants thereof.
12. If the premises become infested with vermin, Tenant, at its sole
cost and expense, shall cause its premises to be exterminated, from time to
time, to the satisfaction of Landlord, and shall employ such exterminators
therefor as shall be approved by Landlord.
13. All movers used by Tenant shall be appropriately licensed and shall
maintain adequate insurance coverage (proof of such coverage shall be delivered
to Landlord prior to movers providing service in and throughout the Building).
Tenant shall protect the premises and the rest of the Building from damage or
soiling by Tenant's movers and contractors and shall pay for extra cleaning or
replacement or repairs by reason of Tenant's failure to do so.
14. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purposes.
-3-
<PAGE> 54
EXHIBIT "F"
BANKRUPTCY PROVISIONS
This Article is incorporated into the Lease as Article 23:
23. BANKRUPTCY OR INSOLVENCY.
23.1 Tenant's Interest Not Transferable. Neither Tenant's interest in
this Lease nor any estate hereby created in Tenant nor any interest herein or
therein will pass to any trustee or receiver or assignee for the benefit of
creditors or otherwise by operation of law except as may specifically be
provided pursuant to the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code").
23.2 Default and Termination. If:
(a) Tenant or Tenant's Guarantor, if any, or its executors,
administrators, or assigns, will generally not pay its debts as they become due
or will admit in writing its inability to pay its debts, or will make a general
assignment for the benefit of creditors; or
(b) Tenant or Tenant's Guarantor, if any, will commence any
case, proceeding or other action seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property; or
(c) Tenant or Tenant's Guarantor, if any, will take any
corporate, partnership or other action to authorize or in furtherance of any of
the actions set forth above in subsection (a) or (b); or
(d) Any case, proceeding or other action against Tenant or
Tenant's Guarantor, if any, will be commenced seeking to have an order for
relief entered against it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and such case,
proceeding or other action: results in the entry of an order for relief against
it which is not fully stayed within seven (7) business days after the entry
thereof; or remains undismissed for a period of forty-five (45) days, then it
will be a default hereunder and this Lease and all rights of Tenant hereunder
will automatically cease and terminate as if the date of such event were the
original
-1-
<PAGE> 55
expiration date of this Lease and Tenant will vacate and surrender the Premises
but will remain liable as herein provided.
23.3 Rights and Obligations Under the Bankruptcy Code.
(a) Upon the filing of a petition by or against Tenant under
the Bankruptcy Code, Tenant, as debtor and as debtor in possession, and any
trustee who may be appointed agree as follows: (i) to perform all obligations of
Tenant under this Lease, including, but not limited to, the covenants regarding
the operations and uses of the Premises until such time as this Lease is either
rejected or assumed by order of the United States Bankruptcy Court; (ii) to pay
monthly in advance on the first day of each month as reasonable compensation for
use and occupancy of the Premises an amount equal to all base rent and other
rent otherwise due pursuant to this Lease; (iii) to reject or assume this Lease
within sixty (60) days of the filing of a petition under any Chapter of the
Bankruptcy Code or under any Law relating to bankruptcy, insolvency,
reorganization or relief of debtors (any such rejection being deemed an
automatic termination of this Lease); (iv) to give Landlord at least thirty (30)
days prior written notice of any proceeding relating to any assumption of this
Lease; (v) to give at least thirty (30) days prior written notice of any
abandonment of the Premises (any such abandonment being deemed a rejection and
automatic termination of this Lease); (vi) to do all other things of benefit to
Landlord otherwise required under the Bankruptcy Code or under any Law relating
to bankruptcy, insolvency, reorganization or relief of debtors; (vii) to be
deemed to have rejected this Lease in the event of the failure to comply with
any of the above; and (viii) to have consented to the entry of an order by an
appropriate United States Bankruptcy Court providing all of the above, waiving
notice and hearing of the entry of same.
(b) No default under this Lease by Tenant, either prior to or
subsequent to the filing of such petition, will be deemed to have been waived
unless expressly done so in writing by Landlord.
(c) Included within and in addition to any other conditions or
obligations imposed upon Tenant or its successor in the event of assumption
and/or assignment are the following: (i) the cure of any monetary defaults and
the reimbursement of pecuniary loss by the time of the entry of the order
approving such assumption and/or assignment (pecuniary loss will include,
without limitation, any attorneys' fees and costs and expert witness fees
incurred by Landlord in protecting its rights under this Lease, including
representation of Landlord in any proceeding commenced under the Bankruptcy Code
or under any Law relating to bankruptcy, insolvency, reorganization or relief of
debtor); (ii) the deposit of an additional sum equal to three (3) months' base
rent; (iii) the use of the Premises only as set forth in this Lease; (iv) the
reorganized debtor or assignee of such debtor in possession or of Tenant's
trustee demonstrates in writing that it has sufficient background including, but
not limited to, substantial experience in operating businesses in the manner
-2-
<PAGE> 56
contemplated in this Lease and meet all other reasonable criteria of Landlord as
did Tenant upon execution of this Lease; (v) meet all other criteria of 11
U.S.C. Section 365(b)(3); and (v) the prior written consent of any mortgagee to
which this Lease has been assigned as collateral security; and (vi) the Premises
at all times remains a single unit and no Alterations or physical changes of any
kind may be made unless in compliance with the applicable provisions of this
Lease.
(d) Any person or entity to whom this Lease is assigned
pursuant to the provisions of the Bankruptcy Code will be deemed without further
act or deed to have assumed all of the obligations arising under this Lease on
or after the date of such assignment. Any such assignee will upon demand execute
and deliver to Landlord an instrument confirming such assumption.
23.4 Construction. The terms of this Article will be in addition to,
but not exclusive of, any rights or remedies of Landlord in Article 22 and
elsewhere in this Lease or otherwise available at law or in equity, and will not
be deemed to limit Landlord, except as may be required by law.
-3-
<PAGE> 57
AMENDMENT TO #1 LEASE
1 PARTIES.
This Amendment, dated as of April 30, 1996, is between Andover Mills
Realty Limited Partnership ("Landlord") and Cascade Systems, Inc. ("Tenant").
2 RECITALS.
2.1 Landlord and Tenant have entered into a Lease, dated as of
February 27, 1996 (the "Lease"), with respect to space at Brickstone Square in
Andover, Massachusetts. Unless otherwise defined, terms used in this Amendment
have the same meanings as those used in the Lease.
2.2 The parties wish to add additional space as part of the
Premises leased by Tenant under the Lease and to change the Security Deposit to
cash instead of a letter of credit. To accomplish these and other matters, for
Ten and No/100 Dollars ($10.00) and other good and valuable consideration, the
receipt and sufficiency of which is acknowledged, the parties agree and the
Lease is amended as follows, notwithstanding anything to the contrary:
3. AMENDMENTS.
3.1 Exhibit "B" attached to the Lease is deleted and of no force and
effect, and Exhibit "B" attached hereto and incorporated herein by this
reference is substituted in its place. The Premises are on the first floor of
Building 300 and will be as shown in Exhibit "B" attached hereto. The Premises
have an agreed retable area of 20,030 square feet. A portion of the Premises is
designated on Exhibit "B" attached hereto as the "Initial Storage Space."
3.2 In Section 1.1(f) of the Lease, Tenant's Percentage is changed
to 2.13%.
3.3 Tenant has delivered and Landlord is willing to accept a
$120,000 cash deposit as the Security Deposit, in lieu of the $120,000 Letter
of Credit originally called for in the Lease. Therefore, Section 24.17 of the
Lease is deleted and Section 24.17 set forth below is substituted in its place.
"24.17 SECURITIES DEPOSIT.
(a) Tenant has deposited the $120,000 Security Deposit with
Landlord as security for the performance of Tenant's obligations. If Tenant
fails to perform its Lease obligations as required, Landlord may, but will not
be obligated to, apply all or any part of the Security Deposit for the payment
of any amounts due or any other Liabilities which Landlord may incur. If any
part of the Security Deposit is so applied, Tenant will, within five (5) days
after written demand, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its previous amount. Landlord need not keep the
Security Deposit separate from its general funds. If Tenant complies with all of
the provisions of this Lease, the unused portion of the Security Deposit will be
returned to Tenant or its assignee after the end of this Lease and the surrender
of possession of the Premises to Landlord in the condition required.
(b) Until and unless the Security Deposit is drawn upon,
starting on the first day of the forth month after the end of the second Lease
Year, and every three months thereafter, upon Tenant's written request in each
instance, Landlord shall refund $10,000 of the Security Deposit to Tenant."
<PAGE> 58
4. NO OTHER CHANGES.
The Lease is in full force and effect, and except as otherwise set
forth above, the Lease remains unchanged.
IN WITNESS WHEREOF, intending to be legally bound, the parties have
executed this Amendment under seal as of the date first set forth above.
ANDOVER MILLS REALTY LIMITED PARTNERSHIP
WITNESS: By: Niuna-Andover, Inc., general partner
/s/ Carolyn Grover By: /s/ Martin Spagat
- ------------------------------ --------------------------------
Name Printed: Martin Spagat, Vice President
Carolyn Grover Authorized Signatory
WITNESS: CASCADE SYSTEMS, INC.
By: /s/ Janet Dougherty
- ------------------------------ ------------------------------------
Name Printed: Name: Janet Dougherty
Title: Vice President, Finance
Authorized Signatory
-2-
<PAGE> 59
EXHIBIT "B"
-----------
PREMISES
BUILDING 300
FIRST FLOOR
[PICTURE]
EXHIBIT "B"
-----------
PREMISES
<PAGE> 1
EXHIBIT 10.8
RIGHTS AGREEMENT
This Rights Agreement (the "Agreement") is entered into as July 25,
1994 by and among Cascade Systems International, Inc., a Delaware corporation
(the "Company"), the undersigned holders of the Series A Preferred Stock (the
"Series A Shares") of the Company (the "Series A Holders") and the individuals
named in Schedule 1 attached to this Agreement (the "Founders").
RECITAL
The Company, the Series A Holders and the Founders now desire to set
forth the registration rights applicable to the Common Stock owned by the
Founders and the Series A Shares and rights of first refusal among the parties.
AGREEMENT
In consideration of the foregoing and of the mutual promises and
covenants contained herein, the Parties agree as follows:
1. Registration Rights.
1.1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Conversion Stock" means the Common Stock issued or
issuable upon conversion of the Series A Shares.
(c) "Holder" means any person or persons to whom Registrable
Securities were originally issued or qualifying transferees under Section 1.11
hereof who hold Registrable Securities.
(d) "Initiating Holders" shall mean any Holder or Holders of
at least fifty percent (50%) of the Registrable Securities (excluding
Registrable Securities owned by the Founders).
(e) "Registrable Securities" means (i) the Conversion Stock;
and (ii) stock issued in respect of the stock referred to in (i) as a result of
a stock split, stock dividend, recapitalization or the like, which have not been
sold to the public. Except for subsections 1.2, 1.4, 1.5 and 1.10, Registrable
Securities shall also mean shares of Common Stock owned by the Founders.
<PAGE> 2
(f) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
(g) "Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with Sections 1.2,
1.3 and 1.4 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company) and the reasonable fees and disbursements
of one counsel for all Holders in the event of each registration provided for in
Sections 1.2, 1.3 and 1.4 hereof.
(h) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(i) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth above, all reasonable fees
and disbursements of counsel for the selling Holders.
1.2. Requested Registration.
(a) Request for Registration. If the Company receives from
Initiating Holders a written request that the Company effect a registration
covering either (i) not less than 40% of the Registrable Securities, or (ii)
Registrable Securities having an anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $5,000,000, the Company
will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within twenty (20) days after
-2-
<PAGE> 3
receipt of such written notice from the Company; provided, however, that the
Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 1.2:
(A) Before the earlier of July 1,1997 or 180 days
after the closing of its initial public offering of its Common Stock;
(B) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(C) After the Company has effected two such
registrations pursuant to this Section 1.2(a), and such registrations have been
declared or ordered effective; and
(D) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.2 shall be deferred for a period not to
exceed sixty (60) days from the date of receipt of written request from the
Initiating Holders, provided that the Company may not use this right more than
once in any twelve month period.
Subject to the foregoing clauses (A) through (D), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
Section 1.2 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.2(a)(i). In such event, the right of any Holder to participate in such
registration shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.2, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 1.2, if the managing
-3-
<PAGE> 4
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all participating Holders and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all Holders thereof in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If the underwriter
has not limited the number of Registrable Securities to be underwritten, the
Company may include securities for its own account (or for the account of other
shareholders) in such registration if the underwriter so agrees and if the
number of Registrable Securities that would otherwise have been included in such
registration and underwriting will not thereby be limited.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders.
1.3. Company Registration.
(a) Notice of Registration. If, at any time prior to the fifth
anniversary of the closing date of the Company's initial public offering of its
Common Stock in a underwritten public offering pursuant to a registration
statement on Form S-1 (or a successor form) under the Securities Act, the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a transaction under Rule 145 under the Securities Act, or
(iii) a registration effected pursuant to Sections 1.2 or 1.4 hereof, the
Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within twenty (20) days after receipt of such written notice
from the Company, by any Holder; provided that the Holder making such request
would have been unable to sell all of its or his Registrable Securities pursuant
to Rule 144 under the Securities Act in the four-week period immediately
preceding the date of such written notice.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to
-4-
<PAGE> 5
Section 1.3 shall be conditioned upon such Holder's participation in such
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company, but subject to the reasonable
approval of Holders holding more than a majority of the Registerable Securities
to be included in such registration. Notwithstanding any other provision of this
Section 1.3, if the managing underwriter determines that marketing factors
require limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities to be included in such
registration. The Company shall so advise all Holders and the number of shares
of securities that may be included in the registration and underwriting (other
than in behalf of the Company) shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders; provided, however, in no event shall the amount
of Registrable Securities of the Holders included in the offering be reduced
below twenty percent (20%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities in which case the Holders may be excluded entirely if the
underwriters make the determination described above. No securities of the
Company held by parties other than the Holders or the Company shall be included
in any registration and underwriting to which this Section applies if the number
of Registrable Securities that would otherwise have been included in such
registration and underwriting will thereby be limited. If any Holder disapproves
of the terms of any such underwriting, he may elect to withdraw therefrom by
written notice to the Company and the managing underwriter.
1.4. Registration on Form S-3.
(a) If any Holder or Holders holding in the aggregate not less
than ten percent (10%) of the then outstanding Registrable Securities request
that the Company file a registration statement on Form S-3 (or any successor
form to Form S-3) for a public offering of shares of the Registrable Securities
the reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $500,000, and the Company
is a registrant entitled to use Form S-3 to register the Registrable Securities
for such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than one (1) registration pursuant to this
Section 1.4 in any six (6) month period. The substantive provisions of Section
1.2(b) shall be applicable to each registration initiated under this Section
1.4.
-5-
<PAGE> 6
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.4:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) within one hundred eighty (180) days of the
effective date of any registration referred to in Sections 1.2 and 1.3 above
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective; or
(iii) if the Company shall furnish to such Holder a
certificate signed by the President of the Company stating that in good faith
judgment of the Board of Directors it would be seriously detrimental to the
Company or its shareholders for registration statements to be filed in the near
future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed sixty (60)
days from the receipt of the request to file such registration by such Holder,
provided that the Company may not use this right more than once in any twelve
month period.
1.5. Limitations on Subsequent Registration Rights. From and after the
date hereof, without the approval of the holders of a majority of the
Registrable Securities the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such new registration rights,
including standoff obligations, are subordinate to the registration rights
granted to Series A Holders hereunder.
1.6. Expenses of Registration. All Registration Expenses incurred in
connection with all registrations pursuant to Sections 1.2 and 1.3 shall be
borne by the Company. All Registration Expenses incurred in connection with all
registrations pursuant to Sections 1.4 shall be borne by the stockholders
participating in that registration pro rata, on the basis of number of shares so
registered. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.
1.7. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense the Company
will:
-6-
<PAGE> 7
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed;
(b) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities.
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders, such
request to be received within twenty (20) days following the initial filing of
the registration statement with the Commission, provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to
do business where it is not so qualified or to file a general consent to service
of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being
-7-
<PAGE> 8
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.8. Indemnification.
(a) To the fullest extent permitted by law, the Company will
indemnify each Holder, each of its officers and directors and partners, and each
person controlling such person within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Section 1, and each underwriter for such
Holder, if any, and each person who controls any such underwriter within the
meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable to any such person in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged untrue
statement or omission), made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder, controlling person or underwriter specifically for use therein or the
preparation thereby.
-8-
<PAGE> 9
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or 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, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
specifically for use therein or the preparation thereby. Notwithstanding the
foregoing, the liability of each Holder under this subSection (b) shall be
limited to an amount equal to the aggregate proceeds received by such Holder
from the sale of Registrable Securities in such registration.
(c) Each party entitled to indemnification under this Section
1.8 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. After notice from the indemnifying party of its election to
assume the defense thereof, the indemnifying party will not be liable to the
indemnified party pursuant to this Section 1.8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
-9-
<PAGE> 10
other than the reasonable costs of investigation. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
1.9. Information by Holder. The Holders of securities included in any
registration shall furnish to the Company such information regarding such
Holders, the Registrable Securities held by them and the distribution proposed
by such Holders as the Company may request in writing and as shall be required
in connection with any registration, qualification or compliance referred to in
this Section 1.
1.10. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934 (the
"Exchange Act").
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) So long as a Holder owns any Registrable Securities to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information filed by the Company with the Commission or
publicly disclosed by the Company as a Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Holder to sell any
such securities without registration.
1.11. Transfer of Registration Rights. The rights to cause the Company
to register securities granted to Holders under this Agreement may be assigned
to a
-10-
<PAGE> 11
transferee or assignee in connection with any transfer or assignment of
Registrable Securities by a Holder provided that: (i) such assignment or
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such assignee or transferee agrees to be bound by the terms and
conditions of this Agreement, and (iii) either (A) such assignee or transferee
acquires at least 100,000 shares of Registrable Securities (appropriately
adjusted for stock splits, combinations, dividends, distributions and
recapitalizations) not sold to the public, or (B) such assignee or transferee is
a partner, shareholder, subsidiary, affiliate, family member, family trust or
the estate of the Holder.
1.12. Standoff Agreement. Each Party hereby agrees that in connection
with the Company's public offering of any of the Company's securities (except
pursuant to a registration on Form S-3) that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, a
Holder shall not sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred eighty (180) days) from the effective date of such
registration as may be requested by the underwriters; provided, that the
officers, directors of the Company who own stock of the Company and any
stockholder holding more than two percent (2%) of the outstanding voting
securities of the Company also agree to such restrictions.
2. Right of First Refusal Upon Issuance of Securities by the Company.
2.1. Right of First Refusal. The Company hereby grants to each Founder
who remains an employee of the Company or any of its subsidiaries at the time
rights under this Section 2 would otherwise accrue to such Founder and to each
Series A Holder (the "Rights Holders") the right of first refusal to purchase,
pro rata, in order to maintain the Rights Holder's percentage ownership interest
in the Company, all or any part of New Securities (as defined below) which the
Company may, from time to time, propose to sell and issue.
2.2. "Equity Securities" shall mean any securities having voting rights
in the election of the Board of Directors not contingent upon default, or any
securities evidencing an ownership interest in the Company, or any securities
convertible into or exercisable for any shares of the foregoing, or any
securities issuable pursuant to any agreement or commitment to issue any of the
foregoing.
2.3. Except as set forth below, "New Securities" shall mean any Equity
Securities, whether now authorized or not, and rights, options or warrants to
purchase said Equity Securities. Notwithstanding the foregoing, "New Securities"
does not include (i) Common Stock issued to the Founders or employees, officers,
consultants or directors of the Company pursuant to sales or options granted at
any
-11-
<PAGE> 12
time after the effective date of this Agreement up to a total of 513,670 shares
(as adjusted for stock splits, combinations, dividends, distributions or
recapitalizations); (ii) securities offered to the public generally pursuant to
a registration statement under the Securities Act; (iii) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets or other reorganization whereby the
Company or its shareholders own not less than fifty-one (51%) percent of the
voting power of the surviving or successor corporation; (iv) the Conversion
Stock; (v) warrant or warrants for the purchase of shares of capital stock of
the Company (and stock issued upon exercise of such warrant or warrants) which
have been unanimously approved by the Board of Directors of the Company and
issued in connection with an equipment lease, equipment financing or bank line
financing; or (vi) stock issued in connection with any stock split, stock
dividend or recapitalization by the Company.
2.4. In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Rights Holder written notice of its intention,
describing the type of New Securities, and the price and terms upon which the
Company proposes to issue the same. Each Rights Holder shall have fifteen (15)
days from the date of receipt of any such notice (the "Rights Notice Date") to
agree to purchase up to its respective pro rata share of such New Securities for
the price and upon the applicable terms specified in the notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased. Each Rights Holder's pro rata share of the New Securities shall
be a fraction calculated by dividing (i) the number of shares of Common Stock
issued and issuable upon exercise, conversion or exchange of all outstanding
Equity Securities held by the Rights Holder as of the Rights Notice Date by (ii)
the total number of shares of Common Stock issued and issuable upon exercise,
conversion or exchange of all outstanding Equity Securities held by all Rights
Holders as of the Rights Notice Date.
2.5. If, within the fifteen (15) day period after the Rights Notice
Date, a Rights Holder does not notify the Company that it desires to purchase
all or a portion of the New Securities offered to the Rights Holder, then the
Company shall offer, pursuant to written notice delivered promptly and not later
than the twenty-fifth (25th) day after the Rights Notice Date, any such New
Securities not so acquired, at the same price and upon the same terms and
conditions, to those Rights Holders who have elected to purchase New Securities
during the fifteen (15) day period (the "Participating Purchasers"). Each of
these Participating Purchasers shall have until thirty-five (35) days after the
Rights Notice Date to notify the Company in writing that it elects to purchase
some or all of its pro rata share of the New Securities so offered. Each
Participating Purchaser's pro rata share of such New Securities shall be a
fraction calculated by dividing (i) the number of shares of Common Stock issued
and issuable upon exercise, conversion or exchange of all outstanding Equity
Securities held by the Participating Purchaser as of the Rights Notice Date by
(ii) the total number of shares of Common Stock issued and issuable
-12-
<PAGE> 13
upon exercise, conversion or exchange of all outstanding Equity Securities held
by all Participating Purchasers as of the Rights Notice Date.
2.6. If the Rights Holders do not notify the Company within thirty-five
(35) days after the Rights Notice Date that they will purchase all of the New
Securities, the Company shall have ninety (90) days from the Rights Notice Date
to sell or enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within sixty (60) days from the date
of said agreement) to sell the New Securities not elected to be purchased by
Rights Holders at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company's notice. In the
event the Company has not sold the New Securities within said ninety (90) day
period (or sold and issued New Securities in accordance with the foregoing
within sixty (60) days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities, without first offering such
securities in the manner provided above.
2.7. The right of first refusal granted under this Agreement shall
expire on the effective date of the Company's initial public offering pursuant
to an effective registration statement under the Securities Act.
2.8. The right of first refusal hereunder may be assigned to a
transferee or assignee in connection with any transfer or assignment of the
Series A Shares or the Conversion Stock by a Rights Holder provided that: (i)
such assignment or transfer may otherwise be effected in accordance with
applicable securities laws, (ii) such assignee or transferee agrees to be bound
by the terms and conditions of this Agreement, and (iii) either (A) such
assignee or transferee acquires at least 100,000 shares of Registrable
Securities (appropriately adjusted for stock splits, combinations, dividends,
distributions and recapitalizations) not sold to the public, or (B) such
assignee or transferee is a partner, subsidiary, affiliate, family member,
family trust or the estate of the Rights Holder.
3. Right of First Refusal. Before any Equity Securities of the Company
registered in the name of Series A Holder or a Founder may be sold or
transferred (including transfer by operation of law) other than to a partner,
subsidiary, affiliate, family member, family trust or the estate of the Series A
Holder or Founder, which transferees shall agree, as a condition of the
transfer, to be bound by the provisions of this Section 3, such shares shall
first be offered to the Company and to the other Series A Holders and Founders
in the following manner:
3.1. Notice. That Series A Holder or Founder ("Selling Party") shall
first deliver a written notice ("Notice") to the Company and the other Series A
Holders and Founders stating (i) the Selling Party desires to sell or transfer
such Equity Securities, (ii) the number of Equity Securities proposed to be sold
or transferred, and (iii) the price and other terms of the proposed sale or
transfer.
-13-
<PAGE> 14
3.2. Company Right. Within ten (10) days after receipt of the Notice,
the Company may elect (by notifying the Selling Party in writing) to purchase
all or any part of the Equity Securities to which the Notice refers, on the same
terms and conditions specified in the Notice.
3.3. Series A Holder and Founder Right. In the event the Company does
not elect to purchase all of the Equity Securities to which the Notice refers
within the ten (10) day period, then the Selling Party shall immediately notify
each Series A Holder and Founder (other than the Selling Party) of this fact and
each such Series A Holder and Founder may elect (by notifying the Selling Party
in writing) within twenty (20) days after receipt of the Notice to purchase its
pro rata share (or any part thereof) of all such Equity Securities not purchased
by the Company on the same terms and conditions specified in the Notice. Each
Series A Holder's and Founder's pro rata share of these Equity Securities shall
be a fraction calculated by dividing (i) the number of shares of Common Stock
issued and issuable upon exercise, conversion or exchange of all outstanding
Equity Securities held by the Series A Holder or Founder as of the date of
delivery of the Notice by (ii) the total number of shares of Common Stock issued
and issuable upon exercise, conversion or exchange of all outstanding Equity
Securities held by the Series A Holders and the Founders (other than the Selling
Party) as of that date.
3.4. Over-allotment. If, within twenty (20) days after receipt of the
Notice, a Series A Holder or Founder does not notify the Company that it desires
to purchase its pro-rata share (or any part thereof) of the Equity Securities
offered to the Series A Holder or Founder, those Series A Holders and Founders
who have elected to purchase Equity Securities from the Selling Party during the
twenty (20) day period (the "Over-allotment Purchasers") may elect to purchase
their pro-rata share (or any part thereof) of those Equity Securities not so
purchased. The Selling Party shall provide written notice not later than
twenty-five (25) days after receipt of the Notice of the number of shares of
Equity Securities of the Selling Party available for purchase pursuant to this
over-allotment right. Each of these Over-allotment Purchasers shall have until
thirty-five (35) days after receipt of the Notice to notify the Selling Party in
writing that it elects to purchase some or all of its pro rata share of the
Equity Securities so offered. Each Over-allotment Purchaser's pro rata share of
the Equity Securities shall be a fraction calculated by dividing (i) the number
of shares of Common Stock issued and issuable upon exercise, conversion or
exchange of all outstanding Equity Securities held by the Over-allotment
Purchaser as of the date of the Notice by (ii) the total number of shares of
Common Stock issued and issuable upon exercise, conversion or exchange of all
outstanding Equity Securities held by all Over-allotment Purchasers as of the
date of the Notice.
3.5. Company Purchase. In the event the Company elects to acquire
Equity Securities pursuant to Section 3, the Company and the Selling Party shall
complete
-14-
<PAGE> 15
the sale and purchase of such Equity Securities shares within thirty (30) days
after the Company receives the Notice.
3.6. Series A Holder and Founder Purchases. In the event the Series A
Holders and the Founders elect to acquire Equity Securities pursuant to Section
3, the Series A Holders and Founders and the Selling Party shall complete the
sale and purchase of such Equity Securities within fifty (50) days after the
Company receives the Notice.
3.7. Selling Party Right. If all of the Equity Securities to which the
Notice refers are not elected to be purchased by the Company or the Series A
Holders and the Founders, the Selling Party may sell such remaining shares at
the price and on the terms specified in the Notice, provided that (i) such sale
or transfer is consummated within ninety (90) days of the date of the Notice,
and (ii) that prior to the transfer, the transferee of such Equity Securities
agrees in writing (in a form satisfactory to the Company) that such transferee
shall receive and hold such securities subject to the provisions of this Section
3.
3.8. Termination. The rights and obligations of the Company, the Series
A Holders and the Founders under this Section 3 shall terminate upon the earlier
to occur of (i) the closing of the Company's first public offering registered
under the Act, or (ii) upon shareholder approval of any merger or consolidation
of the Company with any other corporation in which more than 50% of the voting
control of the Company is transferred to a party or parties not affiliated with
the Company or any shareholder of the Company, provided that, if such merger or
consolidation is not consummated, the rights and obligations of this Section 3
shall be deemed restored and reinstated to full force and effect.
4. Miscellaneous
4.1. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Delaware.
4.2. Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Preferred
Shareholder and the closing of the transactions contemplated hereby.
4.3. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
4.4. Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof, and no party shall be liable or bound to any other party in any
manner by
-15-
<PAGE> 16
any warranties, representations or covenants except as specifically set forth
herein. With the written consent of the record or beneficial Holders of at least
two-thirds (2/3) of the Registrable Securities (excluding Registrable Securities
held by the Founders), the obligations of the Company and the rights of the
Holders of the Registrable Securities under this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely), and with the same
consent the Company, when authorized by resolution of its Board of Directors,
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement; provided, however, that no such modification, amendment or
waiver shall reduce the aforesaid percentage of Registrable Securities without
the consent of all of the Holders of the Registrable Securities, and, provided
further, that none of the rights of the Founders under this Agreement may be
waived or modified without the written consent of the record or beneficial
Holders of at least two-thirds (2/3) of the Registrable Securities held by the
Founders and qualifying transferees (pursuant to Section 1.11 hereof) of the
Founders. Upon the effectuation of each such waiver, consent, agreement of
amendment or modification, the Company shall promptly give written notice
thereof to the record holders of the Registrable Securities who have not
previously consented thereto in writing. This Agreement or any provision hereof
may be changed, waived, discharged of terminated only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent provided in this Section 4.4.
4.5. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to any Holder, at such Holder's address as set forth in the
Company's records, or at such other address as such Holder shall have furnished
to the Company in writing, or (b) if to the Company, at One Corporate Drive,
Andover, MA 01810 (c/o Cascade Systems, Inc.), or at such other address as the
Company shall have furnished to the Holder in writing.
4.6. Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any holder of any
Shares, upon any breach or default of the Company under this Agreement, shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this agreement, must be in writing and shall be
effective only to the extent specifically set
-16-
<PAGE> 17
forth in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
4.7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
4.8. Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable the remainder of this Agreement and application of such provision
to persons or circumstances shall be interpreted so as best to reasonably effect
the intent of the parties hereto, the parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
This Rights Agreement is hereby executed as of the date first above
written.
COMPANY:
CASCADE SYSTEMS INTERNATIONAL, INC.
By: /s/ Malcolm P. McGrory
-------------------------------
Its: Vice President
-------------------------------
HOLDERS:
ADOBE VENTURES L.P.
By: Its General Partner
H&Q Adobe Ventures Management L.P.
By: Its General Partner
H&Q Adobe Ventures Management Corporation
By: /s/ Jackie Berterretche
-------------------------------
Title: Attorney-in-Fact
---------------------------
-17-
<PAGE> 18
JARROLD & SONS LTD.
By: /s/ Peter Jarrold
-------------------------------
Titled: Chairman
--------------------------
-18-
<PAGE> 19
CASCADE SYSTEMS INTERNATIONAL, INC.
RIGHTS AGREEMENT
Counterpart Signature Agreement
FOUNDERS:
Richard Patterson, Paul Baker, Ann Baker, David Green, Ian Smith, Shirley
Farrow, William Smith, Philip Williams, Ian Castleton, Glyn Burton, Simon
Crowfoot, Caralyn Harvey, Andrew Melville, Sean Barnes, Philip Cook, Karl
Vickers, Andrew Hale, Valerie Hale, Penelope Hawes, Nicholas Barbar, John Cole,
Nicholas Beadman, Guy Bushnell, Julie Goodwin, Adam Lelean and Nigel Lubbock.
By: /s/ Richard Patterson, /s/ Richard Patterson 7-25-94
---------------------------------------------- -------
Richard Patterson, their attorney in fact Date
Andrew Zimmon, Wayne Sadlowski, Tim Bosworth, Malcolm McGrory, Paul Breeden,
Scott Ducharme, Bruce McDowell, Thomas Hall, Phil Rugile, Brian Gorman, John
Spurell and David Green.
By: /s/ Malcolm P. McGrory, /s/ Malcom P. McGrory 7-25-94
---------------------------------------------- -------
Malcolm McGrory, their attorney in fact Date
-19-
<PAGE> 20
SCHEDULE 1
FOUNDERS
David Green, Paul Baker, Richard Patterson, Ann Baker, David Green, Ian Smith,
Shirley Farrow, William Smith, Philip Williams, Ian Castleton, Glyn Burton,
Simon Crowfoot, Caralyn Harvey, Andrew Melville, Sean Barnes, Philip Cook, Karl
Vickers, Andrew Hale, Valerie Hale, Penelope Hawes, Nicholas Barber, John Cole,
Nicholas Beadman, Guy Bushnell, Julie Goodwin, Adam Lelean, Nigel Lubbock,
Andrew Zimmon, Wayne Sadlowski, Tim Bosworth, Malcolm McGregory, Paul Breeden,
Scott Ducharme, Bruce McDowell, Thomas Hall, Phil Rugile, Brian Gorman, Jom
Spurell
-20-
<PAGE> 21
AMENDMENT NO. 1
TO
RIGHTS AGREEMENT
This Amendment No. 1 to the Rights Agreement (the "Amendment") is
entered into as of March 28, 1996 by and among Cascade Systems International,
Inc., a Delaware corporation (the "Company"), the undersigned holders of the
Series A Preferred Stock (the "Series A Shares") of the Company (the "Series A
Holders"), the undersigned holders of the Series B Preferred Stock (the "Series
B Shares") of the Company (the "Series B Holders") and the individuals named in
Schedule 1 attached to this Agreement (the "Founders").
RECITALS
WHEREAS, the Company, the Series A Holders and the Founders are parties
to that certain Rights Agreement (the "Rights Agreement") dated as of July 25,
1994, pursuant to which the Company granted to the Series A Holders and the
Founders certain registration rights applicable to the Common Stock and the
Series A Shares and the parties agreed to certain rights of first refusal, all
as set forth in the Rights Agreement;
WHEREAS, the Company and the Series B Holders have entered into a
Series B Preferred Stock Purchase Agreement (the "Purchase Agreement") of even
date herewith pursuant to which the Company has agreed to issue and sell to the
Series B Holders, and the Series B Holders have agreed to purchase from the
Company, an aggregate of 400,000 shares of the Company's Series B Preferred
Stock, par value $.001 per share, on the terms and conditions set forth therein;
and
WHEREAS, the execution and delivery of this Amendment is a condition to
the closing of the transactions contemplated under the Purchase Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
1. Amendment to Section 1.1. Section 1.1(b) of the Rights Agreement is
hereby amended in its entirety to read as follows:
"(b) "Conversion Stock" means the Common Stock issued or issuable
upon conversion of the Series A Shares or the Series B Shares."
2. Amendment to Section 2.1. Section 2.1 of the Rights Agreement is
hereby amended to include the Series B Holders in the definition of "Rights
Holders" therein, for all purposes.
<PAGE> 22
3. Amendment to Section 2.3. Section 2.3 of the Rights Agreement is
hereby amended to change the number 513,670 therein to 1,215,720.
4. Amendment to Section 2.8. Section 2.8 of the Rights Agreement is
hereby amended to insert the words ", Series B Shares" after the words "Series A
Shares" therein.
5. Amendment to Section 3. Section 3 of the Rights Agreement is hereby
amended to subject the Series B Holders to the same rights of first refusal that
are applicable to the Series A Holders.
6. Treatment of Series A Shares and Series B Shares. Notwithstanding
anything to the contrary contained herein or in the Rights Agreement, for all
purposes of the Rights Agreement, the Series B Holders and the Series B Shares
shall be entitled to the same rights and subject to the same obligations as the
Series A Holders and the Series A Shares.
7. Miscellaneous
7.1 Governing Law. This Amendment shall be governed in all
respects by the laws of the State of Delaware.
7.2 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.3 Remaining Agreement. Except as amended hereby, the Rights
Agreement shall remain in full force and effect in all respects.
7.4 Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
This Amendment No. 1 to the Rights Agreement is hereby executed as of
the date first above written.
CASCADE SYSTEMS INTERNATIONAL, INC.
By: /s/ Malcolm P. McGrory
----------------------------
Title: President
----------------------------
-2-
<PAGE> 23
SERIES A HOLDERS:
ADOBE VENTURES L.P.
By: Its General Partner
H&Q Adobe Ventures Management L.P.
By: Its General Partner
H&Q Adobe Ventures Management Corporation
By: /s/ Jackie Berterretche
----------------------------
Title: Attorney-in-Fact
----------------------------
JARROLD & SONS LTD.
By: /s/ Peter Jarrold
----------------------------
Title: Chairman
----------------------------
SERIES B HOLDERS:
ADOBE VENTURES L.P.
By: Its General Partner
H&Q Adobe Ventures Management L.P.
By: Its General Partner
H&Q Adobe Ventures Management Corporation
By: /s/ Jackie Berterretche
----------------------------
Title: Attorney-in-Fact
----------------------------
FOUNDERS:
/s/ Timothy a. Bosworth
----------------------------
TIM BOSWORTH
-3-
<PAGE> 24
/s/ Paul Breeden
- -------------------------
PAUL BREEDEN
/s/ Brian Gorman
- -------------------------
BRIAN GORMAN
/s/ David Green
- -------------------------
DAVID GREEN
/s/ Malcom P. McGrory
- -------------------------
MALCOLM MCGRORY
/s/ Wayne Sadlowski
- -------------------------
WAYNE SADLOWSKI
/s/ Andrew Zimmon
- -------------------------
ANDREW ZIMMON
/s/ Bruce McDowell
- -------------------------
BRUCE MCDOWELL
/s/ James Spurrell
- -------------------------
JAMES SPURRELL
/s/ Thomas J. Hall
- -------------------------
THOMAS HALL
/s/ Ian Castleton
- -------------------------
IAN CASTLETON
/s/ Richard Patterson
- -------------------------
RICHARD PATTERSON
/s/ Sean Barnes
- -------------------------
SEAN BARNES
/s/ Shirley Farrow
- -------------------------
SHIRLEY FARROW
/s/ Philip Cook
- -------------------------
PHILIP COOK
/s/ Carolyn Harvey
- -------------------------
CAROLYN HARVEY
-4-
<PAGE> 25
AMENDMENT NO. 2
DATED AS OF MAY 16, 1997
TO THE RIGHTS AGREEMENT
This Amendment No. 2 (the "Amendment") to that certain Rights Agreement
(the "Rights Agreement") dated as of July 25, 1994 and as amended by Amendment
No. 1 thereto dated as of March 28, 1996, by and among Cascade Systems
Incorporated, a Delaware corporation (formerly Cascade Systems International,
Inc., the "Company"), the undersigned holders of the Series A Preferred Stock,
par value $.001 per share (the "Series A Shares") of the Company (the "Series A
Holders"), the undersigned holders of the Series B Preferred Stock, par value
$.001 per share (the "Series B Shares") of the Company (the "Series B Holders")
and the individuals named in Schedule 1 attached to the Rights Agreement (the
"Founders"), is made as of May 16, 1997. All capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to such terms in the
Rights Agreement.
RECITALS
WHEREAS, Section 2 of the Rights Agreement provides to each Founder who
remains an employee of the Company or any of its subsidiaries and to each Series
A Holder and Series B Holder a right of first refusal with respect to the
issuance by the Company of certain securities as set forth therein; and
WHEREAS, Section 2.3 of the Rights Agreement excludes from such right
of first refusal the issuance by the Company of certain shares of Common Stock
to the Founders or employees, officers, consultants or directors of the Company
pursuant to sales or options; and
WHEREAS, the parties hereto wish to amend the Rights Agreement to
exclude from the right of first refusal the issuance of any and all shares of
Common Stock, or options exercisable therefor, to the Founders or employees,
officers, consultants or directors of the Company.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
agree as follows:
1. Amendment to Section 2.3. Clause (i) of the second sentence of
Section 2.3 of the Rights Agreement is hereby amended in its entirety to read as
follows:
"(i) Common Stock, or options exercisable therefor, issued or
granted to the Founders or employees, officers, consultants or
directors of the Company at any time after the effective date of this
Agreement;".
-1-
<PAGE> 26
2. Miscellaneous
2.1 Governing Law. This Amendment shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
2.2 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
2.3 Remaining Agreement. Except as amended hereby, the Rights
Agreement shall remain in full force and effect in all respects.
2.4 Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, this Amendment No. 2 to the Rights Agreement is
hereby executed as of the date first above written pursuant to Section 4.4 of
the Rights Agreement by the Company, the Holders of at least two-thirds of the
Registrable Securities (excluding Registrable Securities held by the Founders)
and the Holders of at least two-thirds of the Registrable Securities held by the
Founders and qualifying transferees of the Founders.
CASCADE SYSTEMS INCORPORATED
By: /s/ Malcolm P. McGrory
-------------------------
Name: Malcolm McGrory
Title: President
SERIES A HOLDERS:
ADOBE VENTURES L.P.
By: Its General Partner
H&Q Adobe Ventures Management L.P.
By: Its General Partner
H&Q Adobe Ventures Management Corporation
By: /s/ Standish O'Grady
-------------------------
Name: Standish O'Grady
Title:
-2-
<PAGE> 27
JARROLD & SONS LTD.
By: /s/ Peter Jarrold
---------------------------
Name: Peter Jarrold
Title: Chairman
SERIES B HOLDER:
ADOBE VENTURES L.P.
By: Its General Partner
H&Q Adobe Ventures Management L.P.
By: Its General Partner
H&Q Adobe Ventures Management Corporation
By: /s/ Standish O'Grady
---------------------------
Name: Standish O'Grady
Title:
FOUNDERS:
/s/ Ann Baker
----------------------------------
ANN BAKER
/s/ Paul Baker (As Guardian)
----------------------------------
EDMUND THOMAS BAKER
/s/ Paul Baker (As Guardian)
----------------------------------
EMMELYN ROSE BAKER
/s/ Paul Baker (As Guardian)
----------------------------------
HAROLD CHARLES DAVID BAKER
/s/ Paul Baker
----------------------------------
AUL BAKER
-3-
<PAGE> 28
/s/ Paul Baker /s/ Ann Baker
----------------------------------------------
PAUL AND ANN BAKER, AS TRUSTEES
----------------------------------------------
NICHOLAS BARBER
----------------------------------------------
SEAN BARNES
----------------------------------------------
DORIS LILLIAN BARROW
----------------------------------------------
NICHOLAS BEADMAN
----------------------------------------------
MARIA BOSWORTH
-----------------------------------------------
PAUL BOSWORTH
/s/ Timothy A. Bosworth
-----------------------------------------------
TIM BOSWORTH
-----------------------------------------------
PAUL BREEDEN
/s/ Glyn Burton
-----------------------------------------------
GLYN BURTON
-----------------------------------------------
GUY BUSHNELL
/s/ Ian Castleton
-----------------------------------------------
IAN CASTLETON
------------------------------------------------
JUDITH CASTLETON
as guardian, /s/ Ian Castleton
------------------------------------------------
IAN CASTLETON, JUDITH CASTLETON
AND JOHN HARVEY, AS TRUSTEES
-4-
<PAGE> 29
/s/ Shirley Farrow
-------------------------------------------------
SHIRLEY FARROW AND
CATHERINE CHENEY, AS TRUSTEES
/s/ John Cole
-------------------------------------------------
JOHN COLE
/s/ Philip Cook
-------------------------------------------------
PHILIP COOK
-------------------------------------------------
SIMON CROWFOOT
-------------------------------------------------
MICHAEL DEPALO
-------------------------------------------------
CHARLES DICKINSON
-------------------------------------------------
DONNA DICKINSON
-------------------------------------------------
ELIZABETH DICKINSON
-------------------------------------------------
FRANCES DICKINSON
-------------------------------------------------
PHYLLIS DUCHARME
-------------------------------------------------
ROBERT DUCHARME
/s/ Scott Ducharme
-------------------------------------------------
SCOTT DUCHARME
/s/ Shirley Farrow (as Guardian)
-------------------------------------------------
CLAIRE FARROW
/s/ Shirley Farrow
-------------------------------------------------
SHIRLEY FARROW
-5-
<PAGE> 30
-------------------------------------------------
SARAH GATES
/s/ Julie Goodwin
-------------------------------------------------
JULIE GOODWIN
/s/ Brian Gorman
-------------------------------------------------
BRIAN GORMAN
As Guardian, /s/ Brian Gorman
-------------------------------------------------
CHRISTINE GORMAN
As Guardian, /s/ Brian Gorman
-------------------------------------------------
DANIEL GORMAN
As Guardian, /s/ Brian Gorman
-------------------------------------------------
JAMES GORMAN
/s/ David Green
-------------------------------------------------
DAVID GREEN
-------------------------------------------------
MARIA GUGLIOTTI
/s/ A. J. Hale
-------------------------------------------------
ANDREW HALE
--------------------------------------------------
VALERIE HALE
/s/ Thomas J. Hall
-------------------------------------------------
THOMAS HALL
/s/ Caralyn Harvey
-------------------------------------------------
CARALYN HARVEY
/s/ Caralyn Harvey as guardian
-------------------------------------------------
JOHN NORTON DAVID HARVEY
/s/ Caralyn Harvey as guardian
-------------------------------------------------
CARALYN HARVEY AND JOHN NORTON
DAVID HARVEY, AS TRUSTEES
-6-
<PAGE> 31
--------------------------------------------------
PENELOPE HAWES
/s/ Adam LeLean
-------------------------------------------------
ADAM LELEAN
--------------------------------------------------
DOROTHY LOURIE
--------------------------------------------------
ANNA LUBBOCK
--------------------------------------------------
JUDITH ELIZABETH LUBBOCK
--------------------------------------------------
NIGEL LUBBOCK
--------------------------------------------------
OLIVE ROSE LUBBOCK
--------------------------------------------------
THOMAS OLIVER LUBBOCK
--------------------------------------------------
BRUCE MCDOWELL
--------------------------------------------------
JILLIAN ANN MCDOWELL
as guardian, /s/ Malcolm P. McGrory
-------------------------------------------------
ANDREW MCGRORY
as guardian, /s/ Malcolm P. McGrory
-------------------------------------------------
CAMERON MCGRORY
as guardian, /s/ Malcolm P. McGrory
-------------------------------------------------
HOLLY MCGRORY
as guardian, /s/ Malcolm P. McGrory
-------------------------------------------------
KRISTEN MCGRORY
-7-
<PAGE> 32
/s/ Malcolm P. McGrory
-------------------------------------------------
MALCOLM MCGRORY
/s/ Andrew Melville
-------------------------------------------------
ANDREW MELVILLE
-------------------------------------------------
THOMAS MOONEY
-------------------------------------------------
ALEXANDER PATTERSON
-------------------------------------------------
CHARLES PATTERSON
-------------------------------------------------
LINDA PATTERSON
-------------------------------------------------
RICHARD PATTERSON
-------------------------------------------------
THOMAS PATTERSON
--------------------------------------------------
EMMA PHILIP
--------------------------------------------------
PHIL RUGILE
--------------------------------------------------
EUGENE SADLOWSKI
/s/ Wayne Sadlowski
--------------------------------------------------
WAYNE SADLOWSKI
/s/ Ian Smith
--------------------------------------------------
IAN SMITH
--------------------------------------------------
WILLIAM SMITH
-8-
<PAGE> 33
/s/ James W. Spurrell, Jr.
--------------------------------------------------
JAMES SPURRELL
/s/ Karl Vickers
--------------------------------------------------
KARL VICKERS
-------------------------------------------------
KATHERINE ELIZABETH WILLIAMS
--------------------------------------------------
PHILIP WILLIAMS
/s/ Andrew Zimmon
--------------------------------------------------
ANDREW ZIMMON
-9-
<PAGE> 1
Exhibit 10.9
------------
- --------------------------------------------------------------------------------
LOAN AGREEMENT BANKBOSTON, N.A.
- -------------- ----------------
- --------------------------------------------------------------------------------
Date: August 8, 1997
--------------
THIS AGREEMENT is made between BankBoston, N.A. (hereinafter, the
"Lender"), with offices at 100 Federal Street, Boston, Massachusetts, and
Cascade Systems Incorporated (hereinafter, the "Borrower"), a Delaware
corporation with its principal executive offices at 300 Brickstone Square,
Andover, Massachusetts 01810, in consideration of the mutual covenants contained
herein and benefits to be derived herefrom. All capitalized terms shall have the
meaning ascribed to them in EXHIBIT 6-12 hereto.
W I T N E S S E T H:
- - - - - - - - - -
ARTICLE I - THE REVOLVING CREDIT.
1-1. ESTABLISHMENT OF REVOLVING CREDIT. (a) The Lender hereby
establishes a working capital line of credit (hereinafter, the
"Revolving Credit") in the Borrower's favor pursuant to which the
Lender, subject to, and in accordance with, the within Agreement, shall
make loans and advances and otherwise provide financial accommodations
to and for the account of the Borrower (the "Loan" or "Loans"). The
amount of the Revolving Credit shall be determined by the Lender by
reference to Availability (as defined below). All Loans made by the
Lender under the Revolving Credit are payable as provided herein.
(b) As used herein, the term "Availability" refers at any
time to the lesser of (i) or (ii), below, where:
(i) Is up to the result of the following:
(A) Two Million Dollars and No Cents
($2,000,000.00).
MINUS
(B) The then unpaid principal balance of the
Loan Account.
MINUS
(C) The aggregate amounts then undrawn on all
outstanding Letters of Credit issued or
incurred, or caused to be issued or
incurred, by the Lender for the account
and/or the benefit of the Borrower.
-1-
<PAGE> 2
(ii) Is up to the result of the following:
(A) 80% of the face amount (determined by the
Lender in the Lender's reasonable
discretion) of each of the Borrower's
Acceptable Accounts (as defined below), all
as determined by the Lender in its
reasonable discretion
MINUS
(B) The then unpaid principal balance of the
Loan Account.
MINUS
(c) The aggregate amounts then undrawn on all
outstanding Letters of Credit issued or
incurred, or caused to be issued or
incurred, by the Lender for the account
and/or the benefit of the Borrower.
MINUS
(D) Any other Liability of the Borrower to the
Lender.
Availability shall be based upon Borrowing Base
Certificates furnished as provided in Section 3-4, below.
The proceeds of borrowings under the Revolving Credit
shall be used solely for working capital purposes of the Borrower.
1-2. MASTER LEASE FINANCE AGREEMENT. (a) The Lender and the
Borrower may, subsequent to the execution of the Agreement, enter into a Master
Lease Finance Agreement (the "MLFA"), pursuant to which the Lender shall provide
financial accommodations to and for the account of the Borrower, subject to the
terms and conditions thereof. If the Lender and the Borrower enter into the
MLFA, the MLFA shall be deemed Liabilities, as defined herein, and shall be
subject to the provisions of this Agreement. Any and all requirements and/or
conditions with respect to the MLFA shall only be effective upon the execution
of the MLFA by the Lender and the Borrower.
1-3. PROCEDURES UNDER REVOLVING CREDIT. The Borrower may request
Loans under the Revolving Credit from time to time hereunder, in each instance
in accordance with such procedures set forth herein and otherwise as may from
time to time be reasonably acceptable to the Lender.
1-4. THE MASTER NOTE. The obligation to repay Loans under the
Revolving Credit, with interest as provided herein, shall be evidenced by a
master note (hereinafter, the "Master Note") in the form executed by the
Borrower this date. Neither the original nor a copy of the Master Note shall be
required, however, to establish or prove any Liability. In the event that the
Master Note is ever lost, mutilated, or destroyed, the Borrower shall execute a
replacement thereof and deliver such replacement to the Lender.
-2-
<PAGE> 3
1-5. PAYMENT OF LOAN ACCOUNT. (a) The Borrower may repay all or any
portion of the principal balance of the Loan Account from time to time until the
termination of the Revolving Credit (as to which, see Article 5, below).
(b) The Borrower, without notice or demand from the
Lender, shall pay the Lender that amount, from time to time, which is
necessary so that the principal balance of the Loan Account does not
exceed the applicable Availability.
(c) The Borrower shall repay the then entire unpaid
balance of the Loan Account as provided in Article 5 hereof.
1-6. INTEREST. The unpaid principal balance of the Revolving Credit
shall bear interest, until repaid, at the rate provided in EXHIBIT 1-6
herein. Accrued interest shall be payable (i) monthly in arrears on the
first day of each month and (ii) on the Termination Date (defined
below).
1-7. FACILITY FEE. As compensation for the Lender's maintenance of
sufficient funds available for such purpose, the Lender shall have
earned a Facility Fee (so referred to herein), which fee shall be paid
quarterly, on a calendar year basis, in arrears in an amount equal to
one quarter of one percent (0.25%) of the average unused portion of the
Availability, and the average unused portion of the amounts available
under the Master Lease Finance Agreement, as reasonably determined by
the Lender, for the subject quarter. The Borrower shall not be entitled
to any credit, rebate or repayment of any Facility Fee previously
earned by the Lender pursuant to this Section notwithstanding any
termination of the within Agreement, or suspension or termination of
the Lender's obligation to make Loans hereunder, or loans or advances
under the Master Lease Finance Agreement.
ARTICLE 2 - GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS
To induce the Lender to establish the loan arrangements
contemplated herein and to make loans and advances and to provide financial
accommodations under the Revolving Credit and the MLFA, each of which loans
shall be deemed to have been made in reliance thereupon, the Borrower, in
addition to all other representations, warranties, and covenants made by the
Borrower in any other Loan Document, makes those representations, warranties,
and covenants included in the within Agreement.
2-1. DUE ORGANIZATION - CORPORATE AUTHORIZATION - NO CONFLICTS.
(a) The Borrower presently is and shall hereafter remain in good
standing as a Delaware corporation and is and shall hereafter remain
duly qualified and in good standing in every other State in which, by
reason of the nature or location of the Borrower's assets or operation
of the Borrower's business, failure to so qualify would have a material
adverse affect.
(b) The Borrower has all requisite corporate power and
authority to execute and deliver to the Lender all and singular the
Loan Documents to
-3-
<PAGE> 4
which the Borrower is a party and has and will hereafter retain all
requisite corporate power to perform all and singular the Liabilities.
(c) The Loan Documents have been duly executed and delivered
by Borrower and are the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their
respective terms.
2-2. MAINTAIN ACCOUNTS. To permit the Lender to monitor the
Borrower's financial performance and condition, the Borrower shall maintain the
Borrower's primary depository and operating accounts with the Lender.
2-3. INTELLECTUAL PROPERTY. (a) The Borrower owns and possesses, or
has the right to use all patents, industrial designs, trademarks, trade
names, trade styles, brand names, service marks, logos, copyrights,
trade secrets, know-how, confidential information, and other
intellectual or proprietary property of any third Person necessary for
the Borrower's conduct of the Borrower's business, unless the failure
to so own, possess or have such right to use would not cause a material
adverse affect on the Borrower's business.
(b) The conduct by the Borrower of the Borrower's business
does not infringe on the patents, industrial designs, trademarks, trade
names, trade styles, brand names, service marks, logos, copyrights,
trade secrets, know-how, confidential information, or other
intellectual or proprietary property of any third Person.
(c) All patents, trademarks, copyrights, and other
intellectual property owned or used by the Borrower are listed on
EXHIBIT 2-3.
2-4. INSURANCE POLICIES. (a) EXHIBIT 2-4, annexed hereto, is a
schedule of all insurance policies owned by the Borrower or under which
the Borrower is the named insured. Each of such policies is in full
force and effect. The Borrower is not in material default or violation
of any such policy.
(b) The Borrower shall have and maintain at all times
insurance covering such risks, in such amounts; containing such terms,
in such form, for such periods, and written by such companies as set
forth in Exhibit 2-4. In the event of the failure by the Borrower to
maintain insurance as required herein, the Lender, at its option, may
obtain such insurance, provided, however, the Lender's obtaining of
such insurance shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have maintained such
insurance. The Borrower shall furnish to the Lender certificates or
other evidence satisfactory to the Lender regarding compliance by the
Borrower with the foregoing insurance provisions.
(c) The Borrower shall advise the Lender of each claim in
excess of $250,000.00 in each instance, or individual claims which
aggregate to
-4-
<PAGE> 5
$500,000.00, for any fiscal year, made by the Borrower under any policy
of insurance which covers the Assets.
2-5. LICENSES. EXHIBIT 2-5, annexed hereto, is a schedule of all
material license, distributor, franchise, and similar agreements issued to, or
to which the Borrower is a party. Each of such agreements is in full force and
effect. To the best of the Borrower's knowledge, no party to any such agreement
is in default or violation of any such agreement and the Borrower has not
received any notice or threat of cancellation of any such agreement.
2-6. LITIGATION. There is not presently pending or threatened by or
against the Borrower any suit, action, proceeding, or investigation which, if
determined adversely to the Borrower, would have a material adverse effect upon
the Borrower's financial condition or ability to conduct its business as such
business is presently conducted or is contemplated to be conducted in the
foreseeable future. The Borrower shall promptly notify the Lender of the
commencement of any suit, action, proceeding, or investigation brought against
the Borrower.
2-7. DIVIDENDS OR INVESTMENTS. The Borrower shall not, without the
prior written consent of the Lender (which consent shall not be unreasonably
withheld):
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock (except for redemptions from former and/or
current employees, not to exceed $750,000.00 per fiscal year, provided,
however, that such redemption shall not result in an Event of Default.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other
entity in excess of $500,000.00 in each instance, or $1,000,000.00 in
the aggregate.
(d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity (except that a Subsidiary
may merge with or into the Borrower if the Borrower is the surviving
entity).
(e) Consolidate any of the Borrower's operations with those of
any other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the Borrower
by any third party to any other debts owed by such third party to any
other Person.
2-8. LOANS: SECURITY. (a) The Borrower shall not make any loans or
advances to, nor acquire the Indebtedness of, any Person, other than
-5-
<PAGE> 6
advance payments made to the Borrower's suppliers in the ordinary
course or to the Borrower's employees for travel and related expenses.
(b) The Borrower shall not become indebted to any Person for
borrowed money other than the Lender, except for (i) trade indebtedness
incurred in the ordinary course of business, (ii) as specifically
provided for herein, and (iii) equipment financing in the ordinary
course of business, up to $250,000.00, in the aggregate, each fiscal
year.
(c) The Borrower shall not grant or suffer any Encumbrance on
any assets owned by the Borrower, including, without limitation, any
intellectual property owned by the Borrower, whether or not such
intellectual property is registered, with the exception of (i) liens
granted to the Lender, (ii) liens arising out of taxes which are not
yet due, (iii) other liens arising at law for employment taxes,
workers' compensation or goods or services rendered to the Borrower,
which are not yet due, or (iv) any Encumbrances for up to $100,000.00,
each fiscal year, in the aggregate, which Encumbrances arise out of
disputed claims with respect to which the Borrower is diligently
contesting in good faith, pursuant to appropriate proceedings.
2-9. ADDITIONAL ASSURANCES. The Borrower shall execute and deliver
to the Lender such instruments, documents, and papers, and shall do all such
things from time to time hereafter as the Lender may reasonably request to carry
into effect the provisions and intent of this Agreement and to comply with all
applicable statutes and laws. The Borrower shall execute all such instruments as
may be reasonably required by the Lender with respect to the recordation and/or
perfection of the security interests granted to the Lender.
2-10. ADEQUACY OF DISCLOSURE. (a) All financial statements furnished
to the Lender by the Borrower have been prepared in accordance with GAAP
consistently applied and present fairly the condition of the Borrower at the
date(s) thereof and the results of operations and cash flows for the period(s)
covered. There has been no change in the financial condition, results of
operations, or cash flows of the Borrower since the date(s) of such financial
statements, other than changes in the ordinary course of business, which changes
have not been materially adverse, either singularly or in the aggregate.
(b) No document, instrument, agreement, or paper now or
hereafter given the Lender by or on behalf of the Borrower or any
guarantor of the Liabilities in connection with the Lender's execution
of the within Agreement contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact
necessary in order to make the statements therein not misleading. There
is no fact known to the Borrower which has, or which, in the
foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not
been disclosed in writing to the Lender.
-6-
<PAGE> 7
ARTICLE 3 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/ FINANCIAL COVENANTS.
3-1. MAINTAIN RECORDS. The Borrower shall at all times:
(a) Keep proper books of account, in which full, true, and
accurate entries shall be made of all of the Borrower's transactions,
all in accordance with GAAP applied consistently with prior periods to
fairly reflect the financial condition of the Borrower at the close of,
and its results of operations for, the periods in question.
(b) Retain independent certified public accountants who are
reasonably satisfactory to the Lender and instruct such accountants to
fully cooperate with, and be available to, the Lender to discuss the
Borrower's financial performance, financial condition, operating
results, controls, and such other matters, within the scope of the
retention of such accountants, as such issues may be reasonably raised
by the Lender.
(c) Not change the Borrower's fiscal year.
(d) Not change the Borrower's taxpayer identification number.
3-2. ACCESS TO RECORDS. The Borrower shall accord the Lender and
the Lender's representatives (upon reasonable notice unless there is a
continuing Event of Default hereunder) with access from time to time as the
Lender and such representatives may require to all properties owned by or over
which the Borrower has control. The Lender, and the Lender's representatives,
(during regular business hours, unless there is a continuing Event of Default
hereunder) shall have the right, and the Borrower will permit the Lender and
such representatives from time to time as the Lender and such representatives
may request, to examine, inspect, copy, and make extracts from any and all of
the Borrower's books, records, electronically stored data, papers, and files.
The Borrower shall make all of the Borrower's copying facilities available to
the Lender.
3-3. AUDITS. The Lender, after the occurrence of an Event of
Default, may conduct commercial finance audits of the Borrower's books and
records (in each event, at the Borrower's expense).
3-4. BORROWING BASE CERTIFICATE: ACCOUNTS RECEIVABLE AGING. At such
time or times as the Lender may request, but not less frequently than monthly,
within fifteen days of the close of the subject month, at any time any
Liabilities under the Revolving Credit, the Borrower shall provide the Lender
with a Borrowing Base Certificate (in such form as the Lender may specify from
time to time), which Certificate shall include a Schedule of all Receivables
Collateral which has come into existence since the date of such Schedule then
most recently provided to the Lender, together with an aging of the Borrower's
Accounts.
3-5. MONTHLY REPORTS. Monthly, for each month of the Borrower's
fiscal year (including the last month) in which there are any Liabilities
outstanding under the Revolving Credit, for all or any portion of such month,
within thirty (30) days of the close of the subject month, a balance sheet,
income statement, Borrowing Base Certificate, and Statement of Cash Flow. The
Borrower shall also
-7-
<PAGE> 8
provide the Lender, on a quarterly basis, with copies of all quarterly board of
director reports delivered to the Board of Directors of the Borrower, during the
subject quarter.
3-6. QUARTERLY REPORTS. Within thirty (30) days of the close of
each fiscal quarter (including the last quarter of the Borrower's fiscal year),
the Borrower's financial statement and Compliance Certificate.
3-7. ANNUAL REPORTS. (a) Annually, within ninety (90) days
following the end of the Borrower's fiscal year, the Borrower shall
furnish the Lender with an original signed counterpart of the
Borrower's annual audited financial statement, which statement shall
have been prepared by, and bear the unqualified opinion of, the
Borrower's independent certified public accountants (i.e. said
statement shall be "certified" by such accountants). Such annual
statement shall include, at a minimum (with comparative information for
the then prior fiscal year) a balance sheet, income statement and
statement of cash flow. The Borrower shall also provide the Lender with
a copy of any "management letter" or other letter or report provided to
the Borrower by its certified public accountants.
(b) The Borrower shall also provide the Lender, within thirty
(30) days of the close of the Borrower's fiscal year end, with a
management prepared pro forma balance sheet, income statement and cash
flow statement, broken down by quarter for the following fiscal year.
Such pro forma financial statement shall also be provided to the Lender
within ten (10) days of any board of director approved change in the
information provided therein.
3-8. OFFICERS' CERTIFICATES. The Borrower shall cause the
Borrower's President or Chief Financial Officer to provide a Certificate with
those monthly, and annual statements to be furnished pursuant to this Agreement,
which Certificate shall:
(a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied, and presents fairly the
financial condition of the Borrower at the close of, and the results of
the Borrower's operations and cash flows for, the period(s) covered,
subject, however to usual year end adjustments.
(b) Indicate either that (i) no Event of Default has occurred
or (ii) if such an event has occurred, its nature (in reasonable
detail) and the steps (if any) being taken or contemplated by the
Borrower to be taken on account thereof.
(c) Include calculations concerning the Borrower's compliance
(or failure to comply) at the corresponding date of the subject
statement with each of the financial performance covenants included in
Section 3-10, below.
3-9. ADDITIONAL FINANCIAL INFORMATION. In addition to the
foregoing, the Borrower promptly shall provide the Lender with such other and
additional
-8-
<PAGE> 9
information concerning the Borrower, the Assets, the operation of the Borrower's
business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time reasonably request from the Borrower.
3-10. FINANCIAL PERFORMANCE COVENANTS: COMPLIANCE CERTIFICATE. The
Borrower shall observe and comply with those financial performance covenants set
forth on EXHIBIT 3-10 annexed hereto, which shall be tested on a quarterly basis
(except as provided otherwise in EXHIBIT 3-10). The Borrower shall provide the
Lender with a Compliance Certificate (so referred to herein) indicating the
status of the financial performance requirements, within thirty (30) days of the
close of each quarter. The Compliance Certificate shall be in form of
presentation reasonably acceptable to the Lender. In the event that the Borrower
is not in compliance with any one of the financial covenants set forth in
EXHIBIT 3-10 (a "Covenant Violation"), and provided that there is no
other continuing Event of Default hereunder, and provided that the Borrower is
not Insolvent, the Borrower shall have sixty (60) days from the close of such
quarter to cure said Covenant Violation to the satisfaction of the Lender
provided, however, that a capital contribution which brings the Borrower into
compliance with such financial covenant within said sixty (60) day period shall
be deemed to cure said Covenant Violation. The Lender may, at its discretion,
deny any requested advances or borrowings hereunder until such Covenant
Violations are cured. Notwithstanding the foregoing, the Borrower may only cure
two (2) such violations each fiscal year.
ARTICLE 4 - EVENTS OF DEFAULT.
The occurrence of any event described in this Article 4 respectively
shall constitute an "Event of Default" herein. Upon the occurrence of any Event
of Default described in Section 4-9, any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any Event of Default, or the entry of any order for relief with
respect to the Borrower under the Bankruptcy Code, any and all Liabilities of
the Borrower to the Lender shall become immediately due and payable, at the
option of the Lender and without notice or demand. The occurrence of any Event
of Default shall also constitute, without notice or demand, a default under all
other agreements between the Lender and the Borrower and instruments and papers
given the Lender by the Borrower, whether such agreements, instruments, or
papers now exist or hereafter arise.
4-1. FAILURE TO PAY REVOLVING CREDIT OR MLFA. The failure by the
Borrower to pay any principal and interest when due under the Revolving Credit,
end/or the MLFA.
4-2. FAILURE TO MAKE OTHER PAYMENTS. The failure by the Borrower to pay
when due any other Liability, after the expiration of applicable grace periods,
if any.
4-3. FAILURE TO PERFORM COVENANT OR LIABILITY. The failure by the
Borrower to promptly, punctually, faithfully and timely perform or discharge, or
to comply
-9-
<PAGE> 10
with, any covenant (except as otherwise provided in Section 3-10) to or with the
Lender or any Liability.
4-4. MISREPRESENTATION. The determination by the Lender that any
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete when given (or deemed given).
4-5. ACCELERATION OF OTHER DEBT. The occurrence of any event such
that any Indebtedness in excess of $10,000.00 of the Borrower to any creditor
other than the Lender has been accelerated.
4-6. DEFAULT UNDER OTHER AGREEMENTS. The occurrence of any breach
or default under any agreement between the Lender and the Borrower or instrument
or paper given the Lender by the Borrower, whether such agreement, instrument,
or paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement,
instrument or paper), after the expiration of applicable grace periods, if any.
4-7. CASUALTY LOSS. NON-ORDINARY COURSE SALES. The occurrence of
any (a) uninsured loss, theft, damage, or destruction of or to any material
portion of the Assets, or (b) sale (other than sales in the ordinary course of
business) of any material portion of the Assets.
4-8. JUDGMENT: RESTRAINT OF BUSINESS. (a) The service of process
upon the Lender seeking to attach, by trustee, mesne, or other process,
any material portion of the Borrower's funds on deposit with, or assets
of the Borrower in the possession of, the Lender; however, such default
shall be deemed CURED if dismissed within thirty (30) days.
(b) The entry of any judgment against the Borrower in excess
of $100,000.00 in the aggregate in any fiscal year, which judgment is
not satisfied (if a money judgment), satisfactorily bonded, or appealed
from (with execution or similar process stayed) within thirty (30) days
of its entry.
(c) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in
any material way the conduct by the Borrower of its business in the
ordinary course, which action is not dismissed or satisfactorily bonded
within thirty (30) days.
4-9. BUSINESS FAILURE. Any act by or against the Borrower, or a
material portion of its property or assets, which act constitutes the
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to court action or otherwise, over all, or
any material part of the Borrower's property (however, it shall not be an Event
of Default hereunder until the expiration of sixty (60) days without dismissal
of such action if such action filed against the Borrower was not filed by or at
the direction of the Borrower or any Related Entity, and is being diligently
contested); the granting of any trust mortgage or execution of an assignment for
the benefit of the creditors of the Borrower, or the occurrence of any other
voluntary or
-10-
<PAGE> 11
involuntary liquidation for the Borrower; or the initiation of any other
judicial or non-judicial proceeding or agreement by, against, or including the
Borrower which seeks or intends to accomplish a reorganization or arrangement
with creditors.
4-10. BANKRUPTCY. The failure by the Borrower to generally pay the
debts of the Borrower as they mature; adjudication of bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order with
respect to the Borrower in any proceeding pursuant to The Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by or against the Borrower initiating any matter in which the Borrower
is or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure (however, it shall
not be an Event of Default hereunder until the earlier of (x) the entry of an
order for relief against the Borrower, or (y) the expiration of sixty (60) days
without dismissal of such complaint, application, or petition if such complaint,
application, or petition filed against the Borrower was not filed by or at the
direction of the Borrower or any Related Entity, and is being diligently
contested).
4-11. CHANGE IN CONTROL. A change in the Board of Directors of the
Borrower such that there is a change in forty percent (40.0%) or more of the
directors of the Borrower, for each fiscal year.
ARTICLE 5 - TERM OF AGREEMENT.
- ------------------------------
5-1. The term of the Borrower's ability to request new Loans under
the Credit shall be terminated upon the sooner of (the "Termination Date"):
(a) the entry of any order for relief with respect to the
Borrower under the Bankruptcy Code; or
(b) at the Lender's option, at the occurrence of an Event of
Default; or
(c) June 30, 1998.
5-2. All amounts borrowed or advanced upon the Revolving Credit
shall be repaid as provided in Section 1.5 hereunder.
5-3. The within Agreement shall continue in full force and effect
applicable to all Liabilities arising out of the Revolving Credit and/or the
MLFA until such Liabilities have been paid and/or satisfied in full and the
within Agreement is specifically terminated in writing by a duly authorized
officer of the Lender.
ARTICLE 6 - GENERAL.
- --------------------
6-1. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Borrower and the Borrower's representatives, successors, and assigns and
shall enure to the benefit of the Lender and the Lender's successors and
assigns. In
-11-
<PAGE> 12
the event that the Lender assigns or transfers its rights under this Agreement,
the assignee shall thereupon succeed to and become vested with all rights,
powers, privileges, and duties of the Lender hereunder and the Lender shall
thereupon be discharged and relieved from its duties and obligations hereunder.
6-2. SEVERABILITY. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
6-3. AMENDMENTS: COURSE OF DEALING. This Agreement and the other Loan
Documents incorporate all discussions and negotiations between the Borrower and
the Lender, either express or implied, concerning the matters included herein
and in such other instruments, any custom, usage, or course of dealings to the
contrary notwithstanding. No such discussions, negotiations, custom, usage, or
course of dealings shall limit, modify, or otherwise affect the provisions
thereof. No failure by the Lender to give notice to the Borrower of the
Borrower's having failed to observe and comply with any warranty or covenant
included in any Loan Document shall constitute a waiver of such warranty or
covenant or the amendment of the subject Loan Document.
6-4. LENDER'S COSTS AND EXPENSES. The Borrower shall pay on demand all
Costs of Collection and all reasonable expenses of the Lender in connection with
the preparation, execution, and delivery of this Agreement and of any other Loan
Documents, whether now existing or hereafter arising, and all other reasonable
expenses which may be incurred by the Lender in preparing or amending this
Agreement and all other agreements, instruments, and documents related thereto,
or otherwise incurred with respect to the Liabilities. The Borrower specifically
authorizes the Lender to pay all such fees and expenses and in the Lender's
discretion, and to add such fees and expenses to the Loan Account if not paid by
the Borrower within thirty (30) days of demand.
6-5. COPIES AND FACSIMILES. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Lender may
be reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business).
6-6. MASSACHUSETTS LAW. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
6-7. CONSENT TO JURISDICTION. The Borrower agrees that any legal
action, proceeding, case, or controversy against the Borrower with respect to
any Loan Document maybe brought in the Superior Court of Suffolk County
Massachusetts or in the United States District Court, District of Massachusetts,
sitting in
-12-
<PAGE> 13
Boston, Massachusetts, as the Lender may elect in the Lender's sole discretion.
By execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
6-8. INDEMNIFICATION. The Borrower shall indemnify, defend, and hold
the Lender and any employee, officer, or agent of the Lender (each, an
"Indemnified Person") harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities under this Agreement, or any other Person (as well as from
attorneys' reasonable fees and expenses in connection therewith) on account of
the Lender's relationship with the Borrower under this Agreement or any other
guarantor or endorser of the Liabilities (each of which may be defended,
compromised, settled, or pursued by the Indemnified Person with counsel of the
Lender's selection, but at the expense of the Borrower) other than any claim as
to which a final determination is made in a judicial proceeding (in which the
Lender and any other Indemnified Person has had an opportunity to be heard),
which determination includes a specific finding that the Indemnified Person
seeking indemnification had acted in a grossly negligent manner or with willful
misconduct or in actual bad faith. The within indemnification shall survive
payment of the Liabilities and/or any termination, release, or discharge
executed by the Lender in favor of the Borrower.
6-9. AGREEMENT CONTROLLING. The Loan Documents shall be construed and
interpreted in a harmonious manner, provided, however, in the event of any
inconsistency between the provisions of the within Agreement and any other Loan
Document, the provisions of the within Agreement shall govern and control.
6-10. RIGHT OF SET-OFF. Any and all deposits or other sums at any time
credited by or due to the undersigned from the Lender and any cash, securities,
instruments or other property of the undersigned in the possession of the
Lender, whether for safekeeping or otherwise (regardless of the reason the
Lender or the Participant had received the same) shall at all times constitute
security for all Liabilities and for any and all obligations of the undersigned
to the Lender, and maybe applied or set off against the Liabilities and against
the obligations of the undersigned to the Lender including, without limitation,
those arising hereunder, at any time after such are then due, whether or not
other collateral is then available to the Lender.
6-11. WAIVERS. (a) The Borrower (and all guarantors, endorsers, and
sureties of the Liabilities) make each of the waivers included in Subsection
(b), below, knowingly, voluntarily, and intentionally, and understands that the
Lender, in entering into the financial arrangements contemplated hereby and in
providing loans and other financial accommodations to or for the account of the
Borrower as provided herein, whether now or in the future, is relying on such
waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
-13-
<PAGE> 14
(i) Except as otherwise specifically required hereby, notice
of non-payment, demand, presentment, protest and all forms of demand
and notice, both with respect to the Liabilities.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the
Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH
CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH
THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR
CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP ARISING
OUT OF THIS AGREEMENT AMONGST OR BETWEEN THE BORROWER OR ANY OTHER
PERSON AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A
JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
6-12. Definitions. All capitalized terms herein shall have the
meaning attributed thereto in EXHIBIT 6-12 herein.
("Borrower")
CASCADE SYSTEMS INCORPORATED
By: /s/ Timothy Cunningham
----------------------------------------
Print Name: Timothy Cunningham
--------------------------------
Title: CFO, Treasurer
-------------------------------------
("Lender")
BANKBOSTON, N.A.
By: /s/ Stephen C. Buzzell
----------------------------------------
Print Name: Stephen C. Buzzell
--------------------------------
Title: Vice President
-------------------------------------
-14-
<PAGE> 15
EXHIBITS
--------
The following Exhibits to this Loan Agreement are respectively
described in the Section indicated below. Those schedules for which no
information has been inserted or provided shall be deemed to read "None."
Exhibit 1-6 - Interest Rates sec.1-6
Exhibit 2-3 - Trade Names sec.2-3
Exhibit 2-4 - Insurance Policies sec.2-4
Exhibit 2-5 - Licenses sec.2-5
Exhibit 3-10 - Financial Covenants sec.3-10
Exhibit 6-12 - Definitions sec.6-12
-15-
<PAGE> 16
EXHIBIT 1-6
Libor and Domestic Rate
This EXHIBIT 1-6 provides for certain of the substantive terms and
provisions regarding, among other things, the interest rate, interest repayment,
and selection and conversion of optional interest rates for the Revolving Credit
established pursuant to the Loan Agreement to which this document is attached as
an Exhibit (the "Loan Agreement"). The terms and provisions of this Exhibit 1-6
are specifically incorporated by reference into the Loan Agreement.
1. The following terms as used in this EXHIBIT 1-6 and the Loan Agreement
shall have the meanings set forth below:
BASE RATE. The higher of (a) the annual rate of interest announced from
time to time by the Lender at its head office in Boston, Massachusetts as its
"base rate" or (b) one half of one percent (1/2%) above the overnight federal
funds effective rate as published by the Board of Governors of the Federal
Reserve System, as in effect from time to time.
BUSINESS DAY. Any day on which the Lender is open for the transaction
of banking business in Boston, Massachusetts and, in case of Libor Rate Loans,
also a day which is a Libor Business Day.
CONVERSION REQUEST. A notice given by the Borrower to the Lender of (i)
its initial selection of an interest rate option for an Advance in accordance
with Paragraph 5, herein, or (ii) its election to convert or continue an
interest rate option for a Loan in accordance with Paragraph 6, herein.
CONVERT. CONVERSION AND CONVERTED. The conversion of a Loan from one
Type to a Loan of another Type.
DOMSESTIC RATE. For any Interest Period with respect to each Domestic
Rate Loan, interest shall be floating at the per annum rate equal to the Base
Rate. The Domestic Rate shall be adjusted automatically on any change
in the Base Rate, such that any change in the Domestic Rate resulting therefrom
shall become effective as of the opening of business on the day on which such
change in the Base Rate became effective.
DOMESTIC RATE LOAN. All or any portion of any Advance or any Loan which
bears interest at the Domestic Rate.
LIBOR BASE RATE. For any Interest Period with respect to a Libor Rate
Loan, the interest rate per annum (rounded upwards to the next highest 1/16 of
1%) determined by the Lender pursuant to the following formula:
Libor Base Rate = Libor Bid Rate
--------------------------------
1.00 - Eurocurrency Reserve Rate
EUROCURRENCY RESERVE RATE. For any day with respect to a Libor Rate
Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto
-16-
<PAGE> 17
would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor or similar regulations
relating to such reserve requirements) against "Eurocurrency Liabilities" (as
that term is used in Regulation D), if such liabilities were outstanding. The
Eurocurrency Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurocurrency Reserve Rate.
LIBOR BID RATE. For any Interest Period with respect to a Libor Rate
Loan, the annual rate of interest determined by the Lender on the second
Business Day prior to the first day of such Interest Period to be the rate at
which deposits in U.S. dollars are offered to the Lender by prime banks in
whatever Libor interbank market maybe selected by the Lender in its sole
discretion, acting in good faith, at the time of determination and in accordance
with the usual practice in such market for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount equal
(as nearly as may be) to the principal amount of such Libor Rate Loan.
LIBOR BUSINESS DAY. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other Libor interbank market as may be selected by the Lender in its sole
discretion acting in good faith.
LIBOR RATE. For any Interest Period with respect to a Libor Loan, an
interest rate per annum equal at all times during such Interest Period to the
sum of (i) the Libor Base Rate plus (ii) two and one half percent (2.50%).
LIBOR RATE LOAN. All or any portion of an Advance or the Loan bearing
interest calculated by reference to the Libor Rate.
INTEREST PAYMENT DATE. As to any Loan, the first day of each calendar
month commencing with the calendar month following the calendar month which
includes the date of the Advance of such Loan.
INTEREST PERIOD. With respect to each Loan, (a) initially, the period
commencing on the date of the Advance of such Loan and ending on the last day of
one of the periods set forth below (i) for any Domestic Rate Loan, the last day
of the calendar month; and (ii) as selected by the Borrower in a Conversion
Request, for any Libor Rate Loan, 30, 60, or 90 days; and (b) thereafter, each
period commencing on the last day of the next preceding Interest Period
applicable to such Loan and ending on the last day of one of the periods set
forth above, as selected by the Borrower in a Conversion Request; provided that
all of the foregoing provisions relating to Interest Periods are subject to the
following:
(A) if any Interest Period with respect to a Libor Rate Loan
would otherwise end on a day that is not a Libor Business Day, that
Interest Period shall be extended to the next succeeding Libor Business
Day unless the result of such extension would be to carry such Interest
Period into another calendar month, in which event such Interest Period
shall end on the immediately preceding Libor Business Day;
-17-
<PAGE> 18
(B) if any Interest Period with respect to a Domestic
Rate Loan would end on a day that is not a Business Day, that Interest
Period shall end on the next succeeding Business Day;
(C) if the Borrower shall fail to give notice as provided
in Paragraph 6, herein, the Borrower shall be deemed to have requested
a conversion of the affected Libor Rate Loan to a Domestic Rate Loan on
the last day of the then current Interest Period with respect thereto;
(D) any Interest Period relating to any Libor Rate Loan
that begins on the last Libor Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last Libor
Business Day of a calendar month; and
(E) any Interest Period relating to any Libor Rate Loan
that would otherwise extend beyond the Termination Date shall end on
the Termination Date.
TYPE OF LOAN. A Domestic Rate Loan or a Libor Loan, as the case may be.
2. Any and all terms which are defined in the Loan Agreement shall when
used herein have the meaning set forth in the Loan Agreement, unless otherwise
defined herein.
3. Each Loan shall bear interest as follows:
a. For each Interest Period:
i. To the extent that all or any portion of the Loan is
a Domestic Rate Loan, such portion shall bear
interest during such Interest Period at the floating
rate equal to the Domestic Rate.
ii. To the extent that all or any portion of the Loan is
a Libor Rate Loan, such portion shall bear interest
during such Interest Period at the Libor Rate
determined for such Interest Period.
4. The Borrower promises to pay interest on the Loan in arrears on each
Interest Payment Date applicable to such Interest Period.
5. The Borrower agrees that each request submitted to the Lender
requesting an Advance shall be accompanied by a written notice of Borrower (the
"Conversion Request") specifying (i) the requested Type of Loan comprising
such Advance, (ii) in the case of an Advance comprised of any Libor Rate Loan,
the initial Interest Period; (iii) the amount of each Type of Loan; PROVIDED,
HOWEVER, that each Libor Rate Loan hereunder shall be at least $1,000,000.00,
and in increments of $500,000.00; and (iv) the aggregate Domestic Rate Loans at
any time shall be at least $100,000.00. A Conversion Request with respect to a
Libor Rate Loan shall be irrevocable and binding on Borrower. If no Conversion
Request is given by
-18-
<PAGE> 19
Borrower to the Lender with respect to any request for an Advance, the Borrower
shall be deemed to have selected a Domestic Rate Loan.
6. Upon notice given by Borrower to the Lender not later than 12:00 noon
(Boston time) (1) in the case of Conversions into Domestic Rate Loans, on the
date of the proposed Conversion, and (2) in the case of Conversions into Libor
Rate Loans on the third Business Day prior to the date of the proposed
Conversion, the Borrower may Convert, on any Business Day, Loans of one Type
made to the Borrower into Loans of another Type, PROVIDED, HOWEVER, that (a) any
Conversion of Libor Rate Loans may be made only on the last day of the
respective Interest Period for such Loans, (b) any Loan Converted to a Libor
Rate Loan shall be in an amount of $500,000.00 or integral multiple thereof, and
(c) no Advance may be Converted to a Libor Rate Loan when any Default or Event
of Default has occurred and is continuing. Each such Conversion Request shall be
by telephone, telecopy, telex or cable, in each case confirmed immediately in
writing in the manner specified for notices herein, and shall, within the
restrictions specified above, specify (i) the date of such Conversion, (ii) the
Loans to be Converted, and (iii) if such Conversion is to a Libor Rate Loan, the
duration of the initial Interest Period for such Loans. Each Conversion Request
with respect to Libor Rate Loans shall be irrevocable and binding on the
Borrower.
7. If after giving a Conversion Request, the Borrower fails to borrow or
Convert any Libor Rate Loan, the Borrower shall indemnify the Lender against any
loss or reasonable expense incurred by the Lender as a result of such failure
including, without limitation, any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Lender to
fund or maintain an Advance to be made by the Lender and the compensation as
provided for in Paragraph 12, herein.
8. Any Loans of any Type may be continued as such upon the expiration of
an Interest Period with respect thereto by compliance by the Borrower with the
notice provisions contained in Paragraph 6, above; PROVIDED that no Libor Rate
Loan maybe continued as such when any Default or Event of Default has occurred
and is continuing, but shall be automatically converted to a Domestic Rate Loan
on the last day of the first Interest Period relating thereto ending during the
continuance of any Default or Event of Default of which the officers of the
Lender active upon the Borrower's account have actual knowledge.
9. In the event that the Borrower does not notify the Lender of its
election under Paragraph 6, herein, in a timely manner with respect to any Loan
upon the expiration of the applicable Interest Period, such Loan shall be
automatically converted to a Domestic Rate Loan at the and of the applicable
Interest Period.
10. Notwithstanding anything to the contrary contained herein, in no event
may the Borrower select more than three (3) Interest Periods to be in effect at
any one time for any Libor Loan.
11. Each determination of an interest rate by the Lender pursuant hereto
shall be conclusive and binding upon the Borrower in the absence of manifest
error.
-19-
<PAGE> 20
12. The Borrower agrees to indemnify the Lender and to hold the Lender
harmless from and against any loss, reasonable cost or expense (including loss
of anticipated profits) that the Lender may sustain or incur as a consequence of
(a) default by the Borrower in payment of the principal amount of or any
interest on any Libor Rate Loans as and when due and payable, including any such
loss or expense arising from interest or fees payable by the Lender to lenders
of funds obtained by it in order to maintain its Libor Rate Loans, (b) default
by the Borrower in making a borrowing or conversion after the Borrower has given
(or is deemed to have given) a Conversion Request, or (c) the making of any
payment of any Libor Rate Loan or the making of any conversion of any such Loan
to a Domestic Rate Loan on a day that is not the last day of the applicable
Interest Period with respect thereto, whether due to voluntary prepayment,
payment realized from the Assets or any Guarantor after the occurrence of an
Event of Default, or otherwise, including interest or fees payable by the Lender
to lenders of funds obtained by it in order to maintain any such Loans. Such
loss shall include, without limitation, an amount calculated as follows:
a. First, the Lender shall determine the amount by which (i) the total
amount of interest which would have otherwise accrued hereunder on each
installment of principal so paid or not borrowed, during the period
beginning on the date of such payment or failure to borrow and ending
on the date such installment would have been due (the "Reemployment
Period"), exceeds (ii) the total amount of interest which would accrue,
during the Reemployment Period, on any readily marketable bond or other
obligation of the United States of America designated by the Lender in
its sole discretion in good faith at or about the time of such payment,
such bond or other obligation of the United States of America to be in
an amount equal (as nearly as may be) to the amount of principal so
paid or not borrowed and to have a maturity comparable to the
Reemployment Period, and the interest to accrue thereon to take account
of amortization of any discount from par or accretion of premium above
par at which the same is selling at the time of designation. Each sum
amount is hereafter referred to as an "Installment Amount".
b. Second, each Installment Amount shall be treated as payable as of
the date on which the related principal installment would have been
payable by the Borrower had such principal installment not been prepaid
or not borrowed.
c. Third, the amount to be paid on each such date shall be the present
value of the Installment Amount determined by discounting the amount
thereof from the date on which such Installment Amount is to be treated
as payable, at the same annual interest rate as that payable upon the
bond or other obligation of the United States of America designated as
aforesaid by the Lender.
13. In the event, prior to the commencement of any Interest Period relating
to any Libor Rate Loan, the Lender shall determine that adequate and reasonable
methods do not exist for ascertaining the Libor Base Rate that would otherwise
determine the rate of interest to be applicable to any Libor Rate Loan during
any Interest Period, the Lender shall forthwith give notice of such
determination
-20-
<PAGE> 21
(which shall be conclusive and binding on the Borrower, absent manifest error)
to the Borrower. In such event (a) any Conversion Request with respect to Libor
Rate Loans shall be automatically withdrawn and shall be deemed a request for
Domestic Rate Loans, (b) each Libor Rate Loan will automatically, on the last
day of the then current Interest Period thereof, become a Domestic Rate Loan,
and (c) the obligations of the Lender to make Libor Rate Loans shall be
suspended until the Lender determines that the circumstances giving rise to such
suspension no longer exist, whereupon the Lender shall so notify the Borrower,
and the Borrower's ability to request Libor Rate Loans shall be reinstated.
14. Notwithstanding any other provisions herein, if any present or future
law, regulation, treaty or directive or in the interpretation or application
thereof shall make it unlawful for the Lender to make or maintain Libor Rate
Loans, the Lender shall forthwith give notice of such circumstances to the
Borrower and thereupon (a) the commitment of the Lender to make Libor Rate Loans
or convert Loans of another type to Libor Rate Loans shall forthwith be
suspended and (b) the Libor Rate Loans then outstanding shall be converted
automatically to Domestic Rate Loans on the last day of each Interest Period
applicable to such Libor Rate Loans or within such earlier period as maybe
required by law. The Borrower hereby agrees promptly to pay the Lender, upon
demand, any additional amounts reasonably necessary to compensate the Lender for
any reasonable costs incurred by the Lender in making any conversion in
accordance with this section, including any interest or fees payable by the
Lender to lenders of funds obtained by it in order to make or maintain its Libor
Rate Loans hereunder and any amount payable as provided in Paragraph 12, herein.
15. The Borrower shall have the right at any time to prepay the Note on or
before the Termination Date, as a whole, or in part, subject to the following
limitations:
a. For any Domestic Rate Loan, without premium or penalty, provided
that any amount prepaid shall be accompanied by accrued interest on the
principal repaid to the date of payment;
b. For any Libor Rate Loan, upon not less than three (3) Business
Days' prior written notice to the Lender, provided that if such
prepayment is on any day other than the last day of the Interest Period
relating thereto, such amount prepaid shall be accompanied by any
additional amounts reasonably necessary to compensate the Lender for
any reasonable costs incurred by the Lender in accordance with
Paragraph 12, herein, including any interest or fees payable by the
Lender to lenders of funds obtained by it in order to make or maintain
its Libor Rate Loans hereunder and (3) any amount prepaid shall be
accompanied by accrued interest on the principal repaid to the date of
payment.
c. In the event that at the time of any such prepayment Loans are
outstanding of more than one Type, the amount prepaid shall be applied
first to any Domestic Rate Loan prior to application to any Libor Rate
Loans.
-21-
<PAGE> 22
d. Any premium due hereunder upon such prepayment shall be due and
payable upon any prepayment whatsoever, whether voluntary or
involuntary, to the extent permitted by law, and after acceleration of
the unpaid principal balance of the Loan after the occurrence of an
Event of Default.
16. All computations of interest on the Loans and of other fees to the
extent applicable shall be based on a 360-day year and paid for the actual
number of days elapsed. Except as otherwise provided in the definition of the
term "Interest Period" with respect to Libor Rate Loans, whenever a payment
hereunder or under any of the other Loan Documents becomes due on a day that is
not a Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension.
-22-
<PAGE> 23
EXHIBIT 2-3
TRADE NAMES
MEDIASPHERE Registered Trademark Reg. No. 1,992,055
Reg. Date 08/06/96
CASCADE SYSTEMS Registered Service Mark Reg. No. 1,947,353
Reg. Date 1/9/96
SITEWINDER Application for Trademark Appt. No. 75/308120
Filing Date 06/13/97
<PAGE> 24
EXHIBIT 2-4
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACORD. CERTIFICATE OF LIABILITY INSURANCE OP-ID-SC DATE (MM/DD/YY)
CASCA-2 07/16/97
--------------------------------------------------------------------
C J McCarthy Ins Agency, Inc. THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND
229 Andover Street CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES
Wilmington MA 01887 NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES
BELOW.
--------------------------------------------------------------------
COMPANIES AFFORDING COVERAGE
--------------------------------------------------------------------
Phone No. 508-657-5100 Fax No. 508-658-9185 COMPANY A Chubb Group of Ins. Co.
- ---------------------------------------------------------------------------------------------------------------------------------
INSURED COMPANY B Hartford Insurance Group
--------------------------------------------------------------------
Cascada Systems, Inc. COMPANY C
300 Erickstone Square --------------------------------------------------------------------
Andower MA 01819 COMPANY D
- ---------------------------------------------------------------------------------------------------------------------------------
COVERAGES:
THIS IS CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD
INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS
CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS,
EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. UNITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
- ---------------------------------------------------------------------------------------------------------------------------------
CO TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE POLICY EXPIRATION LIMITS
LTR DATE (MM/DD/YY) DATE (MM/DD/YY)
- ---------------------------------------------------------------------------------------------------------------------------------
GENERAL LIABILITY GENERAL AGGREGATE $2,000,000
A [X] COMMERCIAL GENERAL LIABILITY 3536-13-49 TIG 06/15/97 06/15/98 -------------------------------------
[ ][ ] CLAIMS MADE [X] OCCUR PRODUCTS-COMP/OP AGG $2,000,000
[ ] OWNER'S & CONTRACTOR'S PROT -------------------------------------
[ ]_____________________________ PERSONAL & AOV INJURY $1,000,000
[ ] -------------------------------------
EACH OCCURRENCE $1,000,000
-------------------------------------
FIRE DAMAGE (Any one fire) $ 25,000
-------------------------------------
MED EXP (Any one person) $ 10,000
- ---------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE LIABILITY COMBINED SINGLE LIMIT $1,000,000
[ ] ANY AUTO 3536-13-49 TIG 06/05/97 06/05/98 -------------------------------------
[ ] ALL OWNED AUTOS BODILY INJURY $
[ ] SCHEDULED AUTOS (Per person)
[X] HIRED AUTOS -------------------------------------
[X] NON-OWNED AUTOS BODILY INJURY $
[ ]____________________________ (Per accident)
[ ] -------------------------------------
PROPERTY DAMAGE $
- ---------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY- EA ACCIDENT $
[ ] ANY AUTO -------------------------------------
[ ]____________________________ OTHER THAN AUTO ONLY:
[ ] -------------------------------------
EACH ACCIDENT $
-------------------------------------
AGGREGATE $
- ---------------------------------------------------------------------------------------------------------------------------------
EXCESS LIABILITY EACH OCCURRENCE $4,000,000
A [X] UMBRELLA FORM 79736116 06/15/97 06/15/98 -------------------------------------
[ ] OTHER THAN UMBRELLA FORM AGGREGATE $4,000,000
-------------------------------------
Retained $ 10,000
- ---------------------------------------------------------------------------------------------------------------------------------
WORKERS COMPENSATION AND [ ] WC STATU- [X] OTHER
EMPLOYERS' LIABILITY TORY LIMITS
-------------------------------------
B THE PROPRIETORY [X] INCL 08 WE BY5411 11/17/97 11/17/98 EL EACH ACCIDENT $ 500,000
PARTNERS/EXECUTIVE -------------------------------------
OFFICERS ARE: [ ] EXCL EL DISEASE-POLICY LIMIT $ 500,000
-------------------------------------
EL DISEASE- EA EMPLOYEE $ 500,000
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER
A Property 3536-13-49TIG 06/15/97 06/15/98 Blkt Prop $1,100,000
Special Form Blk EDP 250,000
- ---------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
- ---------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
Bank-04 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL
30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT
Bank Boston BUT FAILURE TO MAIL SUCH NOTICE WILL [?] NO OBLIGATION OR LIABILITY
100 Federal Street OF ANY KIND UPON THE [?] REPRESENTATIVES.
Boston MA 02110 --------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE /s/ [illegible]
</TABLE>
<PAGE> 25
EXHIBIT 2-5
<TABLE>
<CAPTION>
LIST OF MATERIAL CONTRACTS
Cascade Systems Incorporated "CSI"
Cascade Systems Limited "CSL"
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PARTIES TYPE OF AGREEMENT AGREEMENT DATE
- -------------------------------------------------------------------------------------------------------------------------------
1. CSL and Sybase Limited VAR Remarketer Agreement - Term of 3 year and 9 months. January 9, 1996
- -------------------------------------------------------------------------------------------------------------------------------
2. CSL and K-Par Systems Ltd. OEM Agreement - Three year term May 26, 1995
- -------------------------------------------------------------------------------------------------------------------------------
3. CSL and Mantix Systems Limited License to use "Cascade" name and logo within UK -- April 14, 1994
21 Year term
- -------------------------------------------------------------------------------------------------------------------------------
4. CSL and Footprints International License and Distribution Agreement -- 5 Year term March 18, 1994
Limited (Cambridge CD
Publishing)
- -------------------------------------------------------------------------------------------------------------------------------
5. CSL, CSI and and Footprints Deed of Assignment April 28, 1994
International Limited
(Cambridge CD Publishing)
- -------------------------------------------------------------------------------------------------------------------------------
6. CSL, CSI and Cambridge CD License and Distribution Agreement listed as items 9 February 2, 1996
Publishing (Muscat) and 10 have been ammended and redrafted.
- -------------------------------------------------------------------------------------------------------------------------------
7. CSI and Helios Software GmbH OEM License - Three year initial period with 1 years notice October 1, 1993
or automatic renewal for 3 additional years. This license was
originally with CSL and transferred to CSI March 11, 1996.
- -------------------------------------------------------------------------------------------------------------------------------
8. CSL, CSI and Midsystem Distributor Agreement -- Production Tracking and Management. August 13, 1993
Technology Limited Two year initial period with automatic renewal. Ninety days
written notice. Addendum dated October 4, 1993
- -------------------------------------------------------------------------------------------------------------------------------
9. CSL, CSI and Midsystem First Addendum to source code license concerning escrow and January 17, 1995
Technology Limited Linotype Hell royalties.
- -------------------------------------------------------------------------------------------------------------------------------
10. CSL, CSI and Midsystem Second Addendum to source code license. February 1, 1996
Technology Limited
- -------------------------------------------------------------------------------------------------------------------------------
11. CSI and Sun Microsystems Value Added Reseller
Computer Corporation April 1, 1993
- -------------------------------------------------------------------------------------------------------------------------------
12. CSI and Sybase Inc. Value Added Remarketer Agreement September 30, 1994
- -------------------------------------------------------------------------------------------------------------------------------
13. CSI and Adobe Systems Inc. CPSI Technology Licensing Agreement May 27, 1993
- -------------------------------------------------------------------------------------------------------------------------------
14. CSI and Adobe Systems Inc. License to replicate Acrobat software. This license was November 22, 1993
originally with CSL and transferred to CSI September 1, 1994.
- -------------------------------------------------------------------------------------------------------------------------------
15. CSI and Andover Mills Realty Lease for office space -- Five year term June 1, 1996
Limited Partnership
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
EXHIBIT 3-10
FINANCIAL COVENANTS
1. LEVERAGE RATIO. The ratio of the Borrower's Debt (as defined herein)
minus deferred revenue, to the Borrower's Tangible Net Worth (as
defined herein) shall not at any time be greater than 2.0 to 1.0.
2. QUICK RATIO. The Borrower shall not permit the ratio computed by
dividing (A) Liquid Assets (as defined herein), by (B) the Borrower's
Current Liabilities (as defined herein) less deferred revenue, to be
less than 1.25 to 1.0.
3. PROFIT/LOSSES. The Borrower shall be profitable on an annual (fiscal
year) basis. The Borrower shall not: (a) have a quarterly loss, after
taxes, of greater than ten percent (10.0%) of the Borrower's Tangible
Net Worth, or (b) have two consecutive quarterly losses, after taxes.
4. CASH FLOW COVERAGE. The Borrower shall not permit the ratio computed by
the Borrower's EBIT (as defined herein), plus amortization, plus
depreciation, minus capital expenditures, minus cash taxes (all
measured on a historical rolling four quarter basis), divided by the
current portion of long term debt, plus the current portion of Capital
Leases, to be less than 1.50 to 1.0, each as defined by GAAP.
-23-
<PAGE> 27
EXHIBIT 6-12
DEFINITIONS
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"ACCEPTABLE ACCOUNTS": (a) Such of the Borrower's Accounts and Accounts
Receivable (as defined below) as arise in the ordinary course
of the Borrower's business for goods sold and/or services
rendered by the Borrower, which Accounts and Accounts
Receivable have been determined by the Lender to be
satisfactory and have been earned by performance and are owed
to the Borrower by such of the Borrower's trade customers as
the Lender determines to be satisfactory, in the Lender's sole
discretion in each instance.
(b) The following is a partial listing of those types of
accounts or accounts receivable which are not Acceptable Accounts:
(i) Any which is more than 90 days past invoice
date as shown on the agings of the Borrower's accounts receivable
furnished the Lender from time to time (each of which agings shall be
prepared in accordance with generally accepted auditing standards).
(ii) Any which, when aggregated with all of the
accounts of that Account Debtor, exceeds 33% of the then aggregate of
Acceptable Accounts.
(iii) Any which arises out of the sale by the
Borrower of goods consigned or delivered to the Borrower or to the
Account Debtor on sale or return terms (whether or not compliance has
been made with Section 2-326 of the Uniform Commercial Code).
(iv) Any which arises out of any sale made on a
basis other than upon terms usual to the business of the Borrower.
(v) Any which arises out of any sale made on a
"bill and hold," dating, a pre-billed basis, or delayed shipping basis.
(vi) Any which is owed by any governmental
entity, or any Account Debtor whose principal place of business is not
within the continental United States or the District of Columbia.
(vii) Any which is owed by any Related Entity.
(viii) Any as to which (and only to the extent
that) the Account Debtor holds or is entitled to any claim,
counterclaim, set off, or chargeback.
(ix) Any which is evidenced by a promissory note.
-24-
<PAGE> 28
(x) Any which is due and payable to the Borrower
in more than thirty (30) days from invoice.
(xi) Any which is owed by any person employed by,
or a salesperson of, the Borrower.
"ACCOUNTS" AND "ACCOUNTS RECEIVABLE" include, without limitation, "accounts" as
defined in the UCC, and also all: accounts, accounts receivable, credit
card receivables, notes, drafts, acceptances, and other forms of
obligations and receivables and rights to payment for credit extended
and for goods sold or leased, or services rendered, whether or not yet
earned by performance; all "contract rights" as formerly defined in the
UCC; all Inventory which gave rise thereto, and all rights associated
with such Inventory, including the right of stoppage in transit; all
reclaimed, returned, rejected or repossessed Inventory (if any) the
sale of which gave rise to any Account.
"ACCOUNT DEBTOR": has the meaning given that term in the UCC.
"AFFILIATE": means, with respect to any two Persons, a relationship in which (a)
one holds, directly or indirectly, not less than Twenty Five Percent
(25%) of the capital stock, beneficial interests, partnership
interests, or other equity interests of the other; or (b) one has,
directly or indirectly, Control of the other; or (c) not less than
Twenty Five Percent (25%) of their respective ownership is directly or
indirectly held by the same third Person.
"AVAILABILITY": is defined in Section 1-1.
"ASSETS": is defined as any and all assets (including, without limitation, real
estate, personal property and intangible property) owned by the
Borrower, now or in the future.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BORROWER": is defined in the Preamble.
"BUSINESS DAY": any day other than (a) a Saturday, Sunday; (b) a day on which
the Lender is not open to the general public to conduct business; or
(c) a day on which banks in Boston, Massachusetts generally are not
open to the general public for the purpose of conducting commercial
banking business.
"CAPITAL LEASE": any lease which may be capitalized in accordance with GAAP.
"CHATTEL PAPER": has the meaning given that term in the UCC.
"COMPLIANCE CERTIFICATE": is defined in Section 3-10.
-25-
<PAGE> 29
"CONTRACT RIGHTS": includes, without limitation, "contract rights" as now or
formerly defined in the UCC and also any right to payment under a
contract not yet earned by performance and not evidenced by an
instrument or Chattel Paper.
"CONTROL": Person(s) shall be deemed to Control another Person if such Person(s)
directly or indirectly possess the power to direct or cause the
direction of the management and policies of such other person, whether
through ownership of voting securities, by contract, or otherwise.
"COSTS OF COLLECTION" includes, without limitation, all attorneys' reasonable
fees and reasonable out-of-pocket expenses incurred by the Lender's
attorneys, and all reasonable costs incurred by the Lender in the
administration of the Liabilities and/or the Loan Documents, including,
without limitation, reasonable costs and expenses associated with
travel on behalf of the Lender, which costs and expenses are directly
related to or in respect of the Lender's: administration and management
of the Liabilities; negotiation, documentation, and amendment of any
Loan Document; or efforts to collect the Liabilities, and/or the
Lender's rights and remedies and/or any of the Lender's rights and
remedies against or in respect of any guarantor or other person liable
in respect of the Liabilities (whether or not suit is instituted in
connection with such efforts). The Costs of Collection are Liabilities,
end at the Lender's option, commencing thirty (30) days after demand
for payment thereof, may bear interest at the highest post-default rate
which the Lender may charge the Borrower hereunder as if such had been
lent, advanced, and credited by the Lender to, or for the benefit of,
the Borrower.
"COVENANT VIOLATION": is defined in Section 3-10.
"CURRENT LIABILITIES": the total of all indebtedness of the Borrower which
properly maybe classified as current liabilities in accordance with
GAAP.
"DEBT": the aggregate amount of indebtedness of the Borrower Which may be
classified as "liabilities" in accordance with GAAP.
"DOCUMENTS": has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": has the meaning given that term in the UCC.
"EBIT": is defined as the Borrower's earnings before interest and taxes.
"ENCUMBRANCE": each of the following:
(a) security interest, mortgage, pledge, hypothecation, lien,
attachment, or charge of any kind (including any agreement to give any
of the foregoing); conditional sale or other title
-26-
<PAGE> 30
retention agreement; sale of accounts receivable or chattel paper; or
other arrangement pursuant to which any Person is entitled to any
preference or priority with respect to the property or assets of
another Person or the income or profits of such other Person or which
constitutes an interest in property to secure an obligation; each of
the foregoing whether consensual or non-consensual and whether arising
by way of agreement, operation of law, legal process or otherwise.
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"EQUIPMENT" includes, without limitation, "equipment" as defined in the UCC, and
also all motor vehicles, rolling stock, machinery, office equipment,
plant equipment, tools, dies, molds, store fixtures, furniture, and
other goods, property, and assets which are used and/or were purchased
for use in the operation or furtherance of the Borrower's business, and
any and all accessions, additions thereto, and substitutions therefor.
"ERISA": the Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": any Person which is under common control with the Borrower
within the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which would be treated as a single employer
under Section 414 of the Internal Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": is defined in Article 4.
"FACILITY FEE": is defined in Section 1-7.
"FIXTURES": has the meaning given that term in the UCC.
"GAAP" OR "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES": principles which are
consistent with those promulgated or adopted by the Financial
Accounting Standards Board and its predecessors (or successors) in
effect and applicable to that accounting period in respect of which
reference to GAAP or Generally Accepted Accounting Principles is being
made.
"GENERAL INTANGIBLES" includes, without limitation, "general intangibles" as
defined in the UCC; and also all: rights to payment for credit
extended; deposits; amounts due to the Borrower; credit memoranda in
favor of the Borrower; warranty claims; tax refunds and abatements;
insurance refunds and premium rebates; all means and vehicles of
investment or hedging, including, without limitation, options,
warrants, and futures contracts; records; customer lists; telephone
numbers; goodwill; causes of action; judgments; payments under any
settlement or other agreement; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of
-27-
<PAGE> 31
admission; licenses; franchises; license agreements, including all
rights of the Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any
governmental authority; patents, patent applications, patents pending,
and other intellectual property; developmental ideas and concepts;
proprietary processes; blueprints, drawings, designs, diagrams, plans,
reports, and charts; catalogs; manuals; technical data; computer
software programs (including the source and object codes therefor),
computer records, computer software, rights of access to computer
record service bureaus, service bureau computer contracts, and computer
data; tapes, disks, semi-conductors chips and printouts; trade secrets
rights, copyrights, mask work rights and interests, and derivative
works and interests; user, technical reference, and other manuals and
materials; trade names, trademarks, service marks, and all good will
relating thereto; applications for registration of the foregoing; and
all other general intangible property of the Borrower in the nature of
intellectual property; proposals; cost estimates, and reproductions on
paper, or otherwise, of any and all concepts or ideas, and any matter
related to, or connected with, the design, development, manufacture,
sale, marketing, leasing, or use of any or all property produced, sold,
or leased, by the Borrower or credit extended or services performed, by
the Borrower, whether intended for an individual customer or the
general business of the Borrower, or used or useful in connection with
research by the Borrower.
"GOODS": has the meaning given that term in the UCC.
"INDEBTEDNESS": all indebtedness and obligations of or assumed by any Person:
(i) in respect of money borrowed (including any indebtedness which is
non-recourse to the credit of such Person but which is secured by an
Encumbrance on any asset of such Person) or evidenced by a promissory
note, bond, debenture or other written obligation to pay money; (ii)
for the payment, deferred for more than Thirty (30) days, of the
purchase price of goods or services (other than currant trade
liabilities of such Person incurred in the ordinary course of business
and payable in accordance with customary practices); (iii) in
connection with any Letters of Credit or acceptance transaction
(including, without limitation, the face amount of all letters of
credit and acceptances issued for the account of such Person or
reimbursement on account of which such Person would be obligated); (iv)
in connection with the sale or discount of accounts receivable or
chattel paper of the Borrower; (v) on account of deposits or advances;
and (vi) as lessee under Capital Leases. "Indebtedness" of any Person
shall also include: (x) Indebtedness of others secured by an
Encumbrance on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; (y) Any guaranty, endorsement,
suretyship or other undertaking pursuant to which that Person may be
liable on account of any obligation of any third party; and (z) the
Indebtedness of a partnership or joint venture in which such Person is
a general partner or joint venturer.
-28-
<PAGE> 32
"INDEMNIFIED PERSON": is defined in Section 6-8.
"INSOLVENT": is where the Borrower's Debt is greater than the Borrower's
Tangible Net Worth.
"INSTRUMENTS": has the meaning given that term in the UCC.
"INVENTORY" includes, without limitation, "inventory" as defined in the UCC and
also all: packaging, advertising, and shipping materials related to any
of the foregoing, and all names or marks affixed or to be affixed
thereto for identifying or selling the same; Goods held for sale or
lease or furnished or to be furnished under a contract or contracts of
sale or service by the Borrower, or used or consumed or to be used or
consumed in the Borrower's business; Goods of said description in
transit: returned, repossessed and rejected Goods of said description;
and all documents (whether or not negotiable) which represent any of
the foregoing.
"LEASE": any lease or other agreement, no matter how styled or structured,
pursuant to which the Borrower is entitled to the use or occupancy of
any space.
"LENDER": is defined in Preamble.
"LETTERS OF CREDIT": any letters of credit procured by the Lender for the
account of the Borrower.
"LIABILITIES" includes, without limitation, all and each of the following,
whether now existing or hereafter arising:
(a) Any and all direct and indirect liabilities, debts, and
obligations of the Borrower to the Lender, each of every kind, nature,
and description.
(b) Each obligation to repay any loan, advance, indebtedness,
note, obligation, overdraft, or amount now or hereafter owing by the
Borrower to the Lender (including all future advances whether or not
made pursuant to a commitment by the Lender}, whether or not any of
such are liquidated, unliquidated, primary, secondary, secured,
unsecured, direct, Indirect, absolute, contingent, or of any other
type, nature, or description, or by reason of any cause of action which
the Lender may hold against the Borrower.
(c) All notes and other obligations of the Borrower now or
hereafter assigned to or held by the Lender, each of every kind,
nature, and description.
(d) All interest, fees, and charges and other amounts which
maybe charged by the Lender to the Borrower and/or which may be due
from the Borrower to the Lender from time to time.
-29-
<PAGE> 33
(e) All costs and expenses incurred or paid by the Lender in
respect of any agreement between the Borrower and the Lender or
instrument furnished by the Borrower to the Lender (including, without
limitation, Costs of Collection, attorneys' reasonable fees, and all
court and reasonable litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with the
Lender and any and all obligations of the Borrower to act or to refrain
from acting in accordance with any agreement between the Borrower and
the Lender or instrument furnished by the Borrower to the Lender.
"LIQUID ASSETS": is defined as the Borrower's (i) cash and currency on hand and
on deposit, demand deposits and checks held, plus (ii) short term,
highly liquid investments made that are readily convertible to known
amounts of cash, plus (iii) marketable securities, plus (iv) Acceptable
Accounts.
"LOAN": is defined in Section 1-1.
"LOAN ACCOUNT": is defined as the outstanding Liabilities, at any time,
arising out of the Revolving Credit.
"LOAN DOCUMENTS": the within Agreement, each instrument and document executed
and/or delivered to the Lender in connection with the arrangements
contemplated hereby, including, without limitation, the MLFA, if
executed, as each may be amended from time to time.
"MASTER NOTE": is defined in Section 1-4.
"MLFA": is defined in Section 1-2.
"NET INCOME": is defined as the sum of gross cash receipts, less all operating
costs (not including debt service costs, depreciation, or rent paid).
"NET WORTH": is defined as the difference between (i) the aggregate amount of
the Borrower's assets; and (ii) the aggregate amount of all
liabilities of the Borrower, each of which (assets, and liabilities)
each as determined in accordance with GAAP.
"OFFICER'S CERTIFICATE": is defined in Section 3-8.
"PERSON": any natural person, and any corporation, trust, partnership, joint
venture, or other enterprise or entity.
"PROCEEDS": shall mean "Proceeds" as defined in the UCC (defined below).
"RECEIPTS": all cash, cash equivalents, checks, and credit card slips and
receipts as arise out of the sale of the Assets.
-30-
<PAGE> 34
"RELATED ENTITY": refers to (a) any Affiliate; and (b) any corporation, trust,
partnership, joint venture, or other enterprise which: is a parent,
brother-sister, subsidiary, or affiliate, of the Borrower; could have
such enterprise's tax returns or financial statements consolidated with
the Borrower's; could be a member of the same controlled group of
corporations (within the meaning of Section 1563(a) (1), (2) and (3) of
the Internal Revenue Code of 1986, as amended from time to time) of
which the Borrower is a member; Controls or is Controlled by the
Borrower or any Affiliate of the Borrower.
"REQUIREMENT OF LAW": as to any Person: (a) (i) all statutes, rules,
regulations, orders, or other requirements having the force of law and
(ii) all court orders and injunctions, arbitrator's decisions, and/or
similar rulings, in each instance ((i) and (ii)) of or by any federal,
state, municipal, and other governmental authority, or court, tribunal,
panel, or other body which has or claims jurisdiction over such Person,
or any property of such Person, or of any other Person for whose
conduct such Person would be responsible; (b) that Person's charter,
certificate of incorporation, articles of organization, and/or other
organizational documents, as applicable; and (c) that Person's by-laws
and/or other instruments which deal with corporate or similar
governance, as applicable.
"REVOLVING CREDIT": is defined in Section 1-1.
"SECURITIES": has the meaning given that term in the UCC.
"STATED AMOUNT: the maximum amount for which any Letters of Credit may be
honored.
"SUBORDINATED DEBT": all Indebtedness of the Borrower to any Person other than
the Lender, which Indebtedness is specifically subordinated to the
Liabilities, and which Indebtedness is approved by the Lender in
writing.
"TANGIBLE NET WORTH": is defined as Net Worth (as defined herein), less all
General Intangibles (as defined herein).
"UCC": the Uniform Commercial Code as presently in effect in Massachusetts
(Mass. Gen. Laws, Ch. 106).
-31-
<PAGE> 35
Exhibit B
---------
MASTER NOTE BANKBOSTON, N.A.
- --------------------------------------------------------------------------------
Boston, Massachusetts Date: August 8, 1997
FOR VALUE RECEIVED, the undersigned, Cascade Systems Incorporated, a
Delaware corporation with its principal executive offices at 300 Brickstone
Square, Andover, Massachusetts, promises to pay to the order of BankBoston, N.A,
a national banking association with an office at 100 Federal Street, Boston,
Massachusetts, (hereinafter, with any subsequent holder, the "Lender") at an
office of the Lender, the principal balance of loans and advances made by the
Lender to the Borrower pursuant to a certain Loan Agreement of even date (as
such may be amended hereafter), with interest at the rate and payable in the
manner stated therein.
The Lender's books and records concerning the Lender's loans and
advances to the Borrower, the accural of interest thereon, and the repayment of
such loans and advances, shall be prima facie evidence of Borrower's
indebtedness to the Lender hereunder. The within Note shall not be necessary
to establish the indebtedness of the Borrower to the Lender on account of such
loans advances.
No delay or omission by the Lender in exercising or enforcing any of
the Lender's powers, rights, privileges, remedies, or discretions hereunder
shall operate as a waiver thereof on that occasion nor on any occasion.
No waiver of any default hereunder shall operate as a waiver of any other
default hereunder, nor as a continuing waiver.
The Borrower will pay on demand all attorneys' reasonable fees and
reasonable out-of-pocket expenses incurred by the Lender in the administration
of all Liabilities and obligations of Lender, including, without limitation,
reasonable costs and expenses associated with travel on behalf of the Lender.
The Borrower will also pay on demand, without limitation, all attorneys'
reasonable fees, out-of-pocket expenses incurred by the Lender's attorneys and
all reasonable costs incurred by the Lender, including, without limitation,
reasonable costs and expenses associated with travel on behalf of the Lender,
which costs and expenses are directly related to the protection or enforcement
of any of the Lender's rights against the Borrower.
The Borrower waives presentment, demand, notice, and protest, and also
waives any delay on the part of the holder hereof.
This Note shall be binding upon the Borrower and upon its successors,
assigns, and representatives and shall inure to the benefit of the Lender and
its successors, endorsees, and assigns.
No person obligated on account of this Note may seek contribution from
any other person also obligated unless and until all liabilities,
-1-
<PAGE> 36
obligations and indebtedness to the Lender of the person from whom contribution
is sought have been satisfied in full.
The Borrower authorizes the Lender to complete this Note if delivered
incomplete in any respect.
This Note is delivered to the Lender at one of its offices in
Massachusetts, shall be governed by the laws of The Commonwealth of
Massachusetts, and shall take effect as a sealed instrument. The Borrower
submits to the jurisdiction of the courts of The Commonwealth of Massachusetts
for all purposes with respect to this Note, any collateral given to secure its
liabilities, obligations and indebtedness to the Lender under the Loan
Agreement.
The undersigned makes the following waiver knowingly, voluntarily, and
intentionally, and understands that the Lender, in the establishment and
maintenance of the Lender's relationship with the Borrower contemplated by the
within Note, is relying thereon. THE UNDERSIGNED, TO THE EXTENT ENTITLED
THERETO, WAIVES ANY RIGHT OF THE UNDERSIGNED OR OF ANY GUARANTOR OR ENDORSER OF
THE UNDERSIGNED OR OF ANY OTHER PERSON LIABLE TO THE Lender ON ACCOUNT OF OR IN
RESPECT TO THE LIABILITIES UNDER THE LOAN AGREEMENT, TO A TRIAL BY JURY IN ANY
CASE OR CONTROVERSY IN WHICH THE Lender IS OR BECOMES A PARTY (WHETHER SUCH CASE
OR CONTROVERSY IS INITIATED BY OR AGAINST THE Lender OR IN WHICH THE Lender IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN
RESPECT TO, ANY RELATIONSHIP AMONGST OR BETWEEN THE UNDERSIGNED, ANY SUCH
PERSON, AND THE Lender.
The Borroweries read all of the terms and conditions of this Note and
acknowledges receipt of an exact copy of it.
WITNESS CASCADE SYSTEMS INCORPORTED
Signed in my Presence
/s/ Jamie Class By: /s/ Timothy M. Cunningham
- -------------------------------- -------------------------------
Print Name: Jamie Class Name: Timothy M. Cunningham
-------------------- -----------------------------
Title: VP Finance & CFO & Treasurer
----------------------------
-2-
<PAGE> 1
EXHIBIT 11.0
CASCADE SYSTEMS, INC.
COMPUTATION OF PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1996 June 30, 1997
----------------- -----------------
<S><C><C>
Weighted average shares of Series A
Convertible Preferred Stock outstanding,
assuming conversion to Common Stock....................... 1,700,000 1,700,000
Weighted average shares of Series B
Convertible Preferred Stock outstanding,
assuming conversion to Common Stock(1).................... 304,658 400,000
Weighted average shares of Common Stock
outstanding............................................... 2,832,069 2,964,130
Net shares issuable upon exercise of stock
options granted prior to September 16, 1996............... 588,825 419,652
Net shares issuable upon exercise of stock
options granted subsequent to September 15, 1996(2)....... 582,613 582,613
--------- ---------
6,008,165 6,066,395
========= =========
</TABLE>
- --------------
(1) All outstanding shares of Series A and Series B Convertible Preferred Stock
are assumed to have been converted into shares of Common Stock at the time
of issuance.
(2) Stock options granted during the twelve month period immediately prior to
the filing of the proposed initial public offering have been included as
outstanding for all periods presented using the treasury-stock method and
an assumed public offering price.
<PAGE> 1
[COOPERS & LYBRAND LETTERHEAD]
EXHIBIT 16
September 16, 1997
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 20549
Gentlemen:
We have read the statements made by Cascade Systems, Inc. (copy attached),
which we understand will be filed with the Commission, pursuant to the
Company's Registration Statement on Form S-1 with respect to its initial public
offering of common shares. We agree with the statements concerning our Firm in
such Registration Statement on Form S-1.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
KKF/PSH
Attachments as stated
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE> 2
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
In 1995, the Company dismissed Coopers & Lybrand L.L.P. and engaged
Arthur Andersen LLP, as its independent public accountants. The decision was
made by the Company's Board of Directors, upon the recommendation of
management, and was not due to any disagreement with the former accountants.
During the fiscal year ended December 31, 1994 and the subsequent interim
period immediately preceding the date of this change, the Company had no
disagreements with the former accountants on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreement if not resolved to the satisfaction of the former
accountants would have caused Coopers & Lybrand L.L.P. to make reference
thereto in their report on the Company's financial statements; and the reports
of the former accountants on the Company's financial statements for 1994 did
not contain any adverse opinion, disclaimer of opinion or qualification or
modification as to uncertainty, audit scope or accounting principles.
<PAGE> 1
Exhibit 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
<S> <C>
Subsidiary Jurisdiction of Incorporation
---------- -----------------------------
Cascade Systems Limited England
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
Registration Statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 2,071 3,103
<SECURITIES> 0 0
<RECEIVABLES> 3,568 2,540
<ALLOWANCES> 273 182
<INVENTORY> 181 605
<CURRENT-ASSETS> 5,888 6,638
<PP&E> 1,694 1,478
<DEPRECIATION> 925 707
<TOTAL-ASSETS> 6,933 7,699
<CURRENT-LIABILITIES> 4,628 5,624
<BONDS> 0 0
0 0
3,700 3,700
<COMMON> 3 3
<OTHER-SE> (1,398) (1,628)
<TOTAL-LIABILITY-AND-EQUITY> 6,933 7,699
<SALES> 9,359 18,511
<TOTAL-REVENUES> 9,359 18,511
<CGS> 4,128 9,843
<TOTAL-COSTS> 4,128 9,843
<OTHER-EXPENSES> 5,059 8,664
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1 5
<INCOME-PRETAX> 278 113
<INCOME-TAX> 47 20
<INCOME-CONTINUING> 231 93
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 231 93
<EPS-PRIMARY> 0.04 0.02
<EPS-DILUTED> 0.04 0.02
</TABLE>
