SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported) April 18, 1997
NESTOR, INC.
(Exact name of registrant as specified in charter)
Delaware 0-12-965 13-3163744
(State of other jurisdiction (Commission IRS employer
of incorporation) file number) identification no.
One Richmond Square, Providence, Rhode Island 02906
(Address of principal executive offices)
Registrant's telephone number, including area code: 401-331-9640
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events
1) On April 18, 1997, the Corporation entered into an
Amendment to the Prism Non-Exclusive License Agreement,
by and between the Corporation and Applied
Communications, Inc. ("ACI") allowing ACI expanded rights
to distribute the Corporation's PRISM product line and to
share in enhanced future royalty income. An initial non-
refundable royalty of $2,000,000 was paid to the
Corporation.
EXHIBITS
The following exhibit is filed herewith:
Exhibit No. Description
10.35 Amendment to Prism Non-Exclusive License
Agreement dated as of April 18, 1997 between
Nestor, Inc. and Applied Communications,
Inc.*
* Portions of the exhibit omitted pursuant to a request for
confidential treatment.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated: April 30, 1997 NESTOR, INC.
(Registrant)
By:/s/ Nigel P. Hebborn
Chief Financial Officer
AMENDMENT TO PRISM NON-EXCLUSIVE LICENSE AGREEMENT
This amendment dated April 18, 1997 ("the Amendment"),
constitutes a modification in writing, subscribed to by each
Party, of a certain PRISM NON-EXCLUSIVE LICENSE AGREEMENT dated
September 19, 1996 between Nestor, Inc. and Applied
Communications, Inc. ("the Agreement"), as provided in paragraph
X I of the Agreement. Unless otherwise specified herein, all
terms used in the Amendment shall have the same meanings as they
have in the Agreement.
The following modifications are hereby made to the Agreement:
Paragraph I.A.5 of the Agreement is amended to delete the words
"make and" and the word "Related".
Paragraph I.A.6.(1) of the Agreement is amended to read "Licensee
shall not deliver to any Intermediary any part of the Nestor
Software in source code, except as provided in Paragraph I.E."
Paragraph I.A.6.(iii) of the Agreement is amended to read "except
as provided in paragraphs I.A.5. and I.E., no Unrelated
Intermediary (as hereinafter defined) shall take physical
possession of any copy,".
Paragraph I.B. of the Agreement is amended to add to the end of
the first paragraph ", except as provided in Paragraph I.E."
Paragraph I of the Agreement is amended by adding a new paragraph
I E, as follows:
"E. Licensee has annexed hereto a complete list of its
Intermediaries, with full particulars of their
locations and addresses. Licensee may disclose to any
such Intermediary who is a sublicensee under this
Agreement the source code described in paragraph I A 1,
but only for the purpose of translation into foreign
languages as permitted by paragraph I A 1 (ii), and
provided that such Intermediary is bound by the terms
of its sublicense to adhere to the all applicable
provisions of this Agreement including, but not limited
to, paragraph VII of this Agreement. Licensee shall
guarantee to Nestor the performance by each such
Intermediary of all such obligations, and Licensee
further indemnifies and holds harmless Nestor against
any all claims, losses, costs (including reasonable
attorneys' fees) and direct or indirect damages arising
from the use or disclosure by such Intermediary of the
source code disclosed to it by Licensee. The foregoing
shall only be deemed to permit Intermediaries to make
copies of the Nestor Software for internal use for the
limited purposes described in this paragraph I.E. In no
event shall any Unrelated Intermediary have the right
to deliver, disseminate, or otherwise transfer any part
of the Nestor Software to any third party."
The first Paragraph of section IV.A. of the Agreement is amended
in its entirety to read:
A. "Provided Licensee has promptly upon learning of a claim
or action (but in any event with sufficient notice not to
cause Nestor's loss of its right to defend) notified Nestor
in writing of any claim or action in which it is alleged
that the Nestor Software infringes (i) a United States
issued patent, trade secret, or copyright, or (ii) a foreign
patent or copyright and Licensee, at no cost to Nestor
(except for reasonable out-of-pocket expenses), fully
cooperates with Nestor in such settlement or defense, then
Nestor shall take sole control of the settlement of such
claim and the defense of any litigation resulting solely
therefrom and shall be responsible for the costs of such
defense and will indemnify and hold Licensee harmless from
the cost of any settlement or judgment resulting solely
therefrom."
The second Paragraph of section IV.A. of the Agreement is amended
to delete the phrase "(whether or not Nestor assumes control of
the defense or settlement thereof)".
Paragraph V.B. of the Agreement is amended to read as follows:
"B. Nestor warrants that no claim has been made by any
third party that the Nestor Software infringes any
United States issued patent, trade secret, or copyright
of any such third party. Nestor warrants that it knows
of no claim by any third party that the Nestor Software
infringes any foreign patent, copyright or trade secret
of such third party. Nestor warrants that, for a
period of ninety (90) days after each installation, (a)
PRISM as defined in the Schedule, shall substantially
conform to the document titled, Prism Functional
Description, which is annexed hereto solely for the
purpose of listing such functions, (b) any other
portion of the Nestor Software developed by Nestor
shall substantially conform to the functional
description of such software agreed to by the parties;
provided, however, that such warranty shall be voided
in its entirety if Licensee shall have made any
functional modification to the Nestor Software or shall
have installed the Nestor Software in a manner not in
accordance with an installation guide to be mutually
agreed upon by the Parties."
Paragraph VIII A of the Agreement is amended in its entirety to
read:
"A. During the term of this Agreement, and provided
that Licensee is then and always has been in full
compliance with all of the terms and conditions of this
Agreement (except for breaches which have been fully
and timely cured), Nestor shall provide to Licensee
such services related to the use and installation of
the Nestor Software as are described in the Nestor
document titled PRISM Software and Client Support
(excluding the Installation Program described therein),
a specimen of which is attached to this Agreement.
Nestor will use reasonable commercial efforts to
furnish such maintenance support. If Licensee deems the
aforementioned level of support, or Nestor's support
staffing, to be inadequate, Licensee may request that
Nestor secure and maintain additional support staff,
all at Licensee's expense, and Nestor will use its best
efforts to do so. Such request by Licensee shall entail
a commitment by Licensee to reimburse Nestor for all
costs and expenses related to securing and maintaining
such additional staff for a period of not less than two
years. Such commitment, if made, shall survive any
termination or expiration of this Agreement for the
balance of the commitment."
Paragraph IX of the Agreement is amended to insert the following
after the third sentence thereof:
"Notwithstanding the foregoing, Licensee shall be
permitted to deliver to any Sublicensee such source
code delivered out of escrow as shall be necessary to
permit such Sublicensee to maintain the Subject
Products, namely, (i) source code to the analytical
workflow model known as the PRISM Analysis/Review
System and (ii) source code to the user and data
input/output interfaces that link to the PRISM Scoring
System in order to update or to modify existing scoring
models or to create new scoring models. It is
understood and agreed that such source code shall only
be delivered to Sublicensees who are bound by terms of
their sublicenses that are substantially similar to the
provisions of paragraph VII of this Agreement. Licensee
indemnifies and holds harmless Nestor against any all
claims, losses, costs (including reasonable attorneys'
fees) and direct or indirect damages arising from the
use or disclosure by such Intermediary of the source
code disclosed to it by Licensee. Licensee's right to
obtain source code shall constitute Licensee's
exclusive remedy and Nestor's exclusive liability for
the failure of Nestor or any successor to Nestor to
provide the technical support contemplated by this
Agreement."
The Schedule to the Agreement is amended in its entirety to read
as follows:
SCHEDULE
Nestor Software:
"Nestor Software" shall mean Master Copies of PRISMT, adapted to
function in conjunction with those products marketed by Licensee
and known as Base24 and Trans24 or in conjunction with any
environment for which Nestor generally offers PRISM. PRISM
currently consists of a credit-card fraud-scoring model ("PRISM
Scoring System") and an analytical workflow model ("PRISM
Analysis/Review System"). The Prism Scoring System runs in batch
mode on Tandem NSK computers and under the UNIX and MVS operating
systems, and will accept standardized inputs defined by a
document titled Base24 PRISM Data Interface dated as of August
15, 1996. The PRISM Analysis/Review System runs on personal
computers under Windows NT. As used in this Agreement, the
Master Copy adapted to function in conjunction with Base24 on a
Tandem computer is sometimes referred to as the "Base24 Master
Copy"; the Master Copy adapted to function with Trans24 under
UNIX or MVS is sometimes referred to as the "Trans24 Master
Copy"; and the Master Copy adapted to function in a fault-
tolerant mode with Trans24 under UNIX is sometimes referred to as
the "Trans24 Fault-tolerant Master Copy". The Trans24 Fault-
tolerant Master Copy contains calls to object-code modules of a
database management system known as "Kala", which modules
Licensee will obtain directly from their owner and will deliver
to those sublicensees requiring fault-tolerant Subject Products.
It is understood that the Nestor Software shall include any
bankruptcy-prediction model and any other financial-risk-
assessment model that is (i) developed by Nestor during the term
of this Agreement, (ii) generally offered by Nestor to third
parties, (iii) applicable within the Field of Use, as hereinafter
defined, and (iv) may be legally delivered by Nestor. Unless such
model has been developed at the request of Licensee, Nestor shall
not be reimbursed by Licensee for any development cost but only
for the cost of using reasonable commercial efforts to adapt or
modify such model to function under Base24 or Trans24.
Notwithstanding the foregoing, it is understood that Nestor will
use reasonable commercial efforts, at Licensee's expense, to
extend the scope of the Nestor Software to include any or all of
(i) a debit-card fraud-scoring model, (ii) a retail-merchant and
private-label fraud-scoring model, (iii) a third-party-processor
fraud-detection model, and (iv) a "Trans24 Interface", which will
be an interface between the PRISM Scoring System and Licensee's
Trans24 product running under the UNIX or MVS operating systems.
The Trans24 Interface will be developed by Nestor in accordance
with specifications to be mutually agreed between the Parties,
and will accept authorization data and master-file data from a
"Neural Network Interface" to be developed by Licensee, which
Neural Network Interface will convert authorization data
generated by a Trans24 system to a format acceptable by PRISM.
The Trans24 Interface and the Neural Network Interface, when
developed, shall, together with their counterparts in the
interface between PRISM and Licensee's Base24 product, be deemed
to be included within the meaning of the term "Nestor Software"
for the purpose of determining the Royalty Base. Neither party
may deliver any such interface product in its entirety except for
use in conjunction with PRISM and Base24 or Trans24 by (a)
Intermediaries of Licensee approved in advance by Nestor or (b)
end-users. If Licensee delivers the interface to a customer to
whom it has or will sublicense the Nestor Software, all amounts
received for such interface will be deemed part of the Earned
Royalty Base. Subject to the foregoing, neither Party will owe
the other Party any amount or be entitled to any credit, for
authorized deliveries of such interface products.
Notwithstanding the foregoing, either Party may use for any
purpose the portion of the interface that such party developed
without any obligation to account to the other Party, provided
that such use does not result in any use or disclosure of the
other Party's confidential information or other intellectual
property. All other extensions of the Nestor Software, including
without limitation the extensions described in (i), (ii) and
(iii) of this paragraph, shall be and remain the property of
Nestor.
Prior to the first commercial use of any version of the Neural
Network Interface, Licensee shall deliver to Nestor a source-code
copy of such version, together with all related documentation.
The portion of the Nestor Software which is to be delivered in
source code is the (i) Application Program Interface and Visual
Basic code needed to integrate PRISM within Base24, and (ii) the
PRISM Analysis Review System. All of the remainder of the Nestor
Software is to be delivered in object code.
Licensee or each sublicensee shall be required to obtain licensed
copies of third-party software specified in the System
Requirements document annexed to this Agreement including,
without thereby limiting, Windows NT, Atlas GIS and, for UNIX-
based systems, Kala database-management software for use with
Trans24 Fault-tolerant Subject Products.
Subject Products:
"Subject Products" shall mean (a) computer software and hardware
consisting of the products marketed by Licensee known as Base24
(Tandem NSK operating system) and Trans24 (UNIX or MVS) systems,
(i) with which Licensee shall have integrated, at the time of
installation, the object-code portions of the Nestor Software or
(ii) if previously installed, to which the object-code portions
of the Nestor Software are added pursuant to this Agreement, (b)
any other product or service of Licensee into which the Nestor
Software is integrated or with which the Nestor Software is sold,
and (c), if Licensee licenses the Nestor Software standing alone
and not substantially at the same time as any other product or
service, the Nestor Software.
Field-of-Use:
The term "Field-of-Use" shall mean credit- and debit-card fraud
detection and other forms of financial-risk assessment, by
commercial banks, retail merchant organizations, and only those
entities identified as "Approved Processing Entities" that
provide such services to retail merchants or commercial banks.
Approved Processing Entities:
Licensee has furnished to Nestor a copy of its customer list,
which is attached to this Agreement, on which Nestor has
indicated processors who are not approved. All other customers
of Licensee on such list who may be processors are Approved
Processing Entities and are included in the Field-of-Use. The
name of any customer or prospective customer of Licensee who is a
processor and is not so approved must be submitted to Nestor for
such approval and inclusion, at Nestor's sole discretion, in the
Field-of-Use.
Royalties:
Initial Royalty:
Licensee shall pay to Nestor, upon the execution of this
Amendment, a non-refundable Initial Royalty in the amount of
$2,000,000, which Initial Royalty shall not be credited against
any other amount owed or to be owed by Licensee to Nestor
pursuant to the Agreement.
Earned Royalties:
Licensee shall pay to Nestor the greater of (i) the Minimum
Earned Royalties or (ii) the product of the applicable Royalty
Rate times the Royalty Base, all of which are set forth below in
this Schedule.
Earned Royalty Base:
The following revenues received from sublicenses, whether by
Licensee or Related Intermediaries, directly or indirectly in
connection with the installation, delivery and use of Subject
Products shall constitute the Royalty Base: all fees of any
nature whatsoever arising from a Sublicense of the Nestor
Software, including without limitation (i) initial license fees
(including license fees charged by Licensee for the Nestor
Software and for software that interfaces the Nestor Software
with the remainder of any Subject Product, and installation fees
to the extent that such fees exceed Licensee's normal charges for
engineering services), (ii) maintenance fees, and (iii) use fees.
If any portion of such revenue is withheld for income-tax
purposes, the Earned Royalty Base will be include the gross
amount of revenues without regard to such withholding.
Any amount paid to Nestor by Licensee or any sublicensee for
engineering or consulting services, including without thereby
limiting amounts paid to Nestor for installation, modeling, or
modification of the Nestor Software, shall be excluded from the
Royalty Base.
Earned Royalty Rate:
The Royalty Rate to be applied in the calculation of any Earned
Royalty shall be [SEEKING CONFIDENTIAL TREATMENT] of the Earned
Royalty Base.
Minimum Earned Royalties:
In no event shall Earned Royalties payable by Licensee to Nestor
with respect to any Sublicense be less than the following:
Minimum Earned
Royalty Base Royalty
Initial license fee for sublicensee having [SEEKING
fewer than [SEEKING CONFIDENTIAL CONFIDENTIAL
TREATMENT]total accounts TREATMENT]
Initial license fee for sublicensee having [SEEKING
more than [SEEKING CONFIDENTIAL CONFIDENTIAL
TREATMENT]and up to [SEEKING CONFIDENTIAL TREATMENT]
TREATMENT]total accounts
Initial license fee for sublicensee having [SEEKING
more than [SEEKING CONFIDENTIAL TREATMENT] CONFIDENTIAL
total accounts TREATMENT]
Use fees [SEEKING
CONFIDENTIAL
TREATMENT]
For the purposes of calculating Minimum Earned Royalties, the
term "active account" shall mean any cardholder account of
sublicensee (or, in the case of a sublicensed processor, that is
processed by sublicensee) that had a positive balance or at least
one transaction (whether a charge or a payment) or posting or
authorization during the twelve (12) months preceding (i) the
execution of the relevant Sublicense in the case of initial
license fees, and (ii) each anniversary of the term of the
Sublicense in the case of use fees.
Quota
Notwithstanding the foregoing, commencing on the first day of the
sixth year following execution of this Amendment, Licensee shall
pay to Nestor during each Year of this Agreement aggregate
royalties of not less than [SEEKING CONFIDENTIAL TREATMENT]. If
Earned Royalties payable during any Year of this Agreement shall
aggregate less than [SEEKING CONFIDENTIAL TREATMENT], Licensee
may elect to pay the difference between such Earned Royalties and
[SEEKING CONFIDENTIAL TREATMENT]. If Licensee elects not to pay
such difference to Nestor when due, Nestor may at its option
terminate the License and this Agreement forthwith.
Credits
Earned Royalties paid by Licensee to Nestor during any Year of
this Agreement shall be credited toward the Quota for such Year
of this Agreement.
Exceptions to Earned Royalty Rates:
Any copy of the Nestor Software that is (i) installed at an
office of Licensee or any of its subsidiaries solely for the
purpose of demonstrating the Nestor Software, (ii) not used as a
production system, and (iii) does not entail any charge to third
parties for its use, shall not be subject to the Minimum Earned
Royalty set forth above.
Engineering and Modeling Fees:
Licensee shall pay to Nestor fees for model development and other
engineering in accordance with the following fee schedule:
for model development, [SEEKING CONFIDENTIAL TREATMENT] per
person-day; and
for other engineering or consulting, [SEEKING CONFIDENTIAL
TREATMENT] per person-day.
If Licensee requests that Nestor develop any new model, the
foregoing modeling fees shall apply:
Model Fee
Bank credit-card fraud model for use by sublicensee [SEEKING
with fewer than [SEEKING CONFIDENTIAL TREATMENT] CONFIDENTIAL
total accounts TREATMENT]
Bank credit-card fraud model for use by sublicensee [SEEKING
with more than [SEEKING CONFIDENTIAL TREATMENT] and CONFIDENTIAL
fewer than [SEEKING CONFIDENTIAL TREATMENT] total TREATMENT]
accounts
Bank credit-card fraud model for use by sublicensee to be
with more than [SEEKING CONFIDENTIAL TREATMENT] negotiated
total accounts
Bank debit-card fraud model or retail-merchant [SEEKING
fraud model for sublicensee with fewer than CONFIDENTIAL
[SEEKING CONFIDENTIAL TREATMENT] total accounts TREATMENT]
Bank debit-card fraud model or retail-merchant
fraud model for sublicensee with [SEEKING to be
CONFIDENTIAL TREATMENT] or more total accounts negotiated
Payment Terms:
Earned Royalties related to Initial License Fees and installation
of the Nestor Software shall be paid no later than the earliest
of (i) (30) days of receipt of the related Earned Royalty Base by
Licensee or any Intermediary, (ii) sixty (60) days from
acceptance by the relevant sublicensee of the Subject Product, or
(iii) 120 days from the date of execution of the relevant
Sublicense, except for the first two Sublicenses entered into by
Licensee, for which the applicable period in this clause (iii)
shall be 150 days. Earned Royalties relating to Use Fees shall
be payable the earliest of (i) thirty (30) days from receipt by
Licensee or any Intermediary, (ii) thirty (30) days from the date
on which payment of such use fee by the relevant sublicensee
shall be due, or (iii) sixty (60) days after the commencement of
the period to which such use fees apply.
Cost-of-Living Adjustments:
All royalties, engineering and modeling fees, any other amount
payable by Licensee to Nestor, and any other amount expressed in
this Agreement as a dollar rate or absolute dollar amount shall
be adjusted during each Year of this Agreement beginning with the
first anniversary date of the execution of this Agreement in
proportion to increases in the Consumer Price Index from year to
year during the term of this Agreement. For any Year of this
Agreement in which the Consumer Price Index has increased over
the preceding Year of this Agreement, such increase shall be
calculated by multiplying each such dollar rate or absolute
amount then in effect by the most recently published Consumer
Price Index as at such anniversary date and dividing the
resulting product by the Consumer Price Index as at the preceding
anniversary date of execution of this Agreement or, in the case
of the first anniversary of the execution of this Agreement,
dividing the resulting product by the Consumer Price Index as at
the date of execution of this Agreement.
For purposes of Paragraph VI. of the Agreement, the commencement
of the initial term of the Agreement will be the date of this
Amendment.
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST SET FORTH ABOVE:
APPLIED COMMUNICATIONS,INC. NESTOR, INC.
By: /s/David Stokes By: /s/ Nigel P. Hebborn
Title: General Counsel & Title: Chief Financial Officer
Secretary
