SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 0-13124
COVER-ALL TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-2698053
(State(I.R.S. Employer Identification No.)ion or organization)
07410 18-01 Pollitt Drive, Fair Lawn, New Jersey
(Zip Code) (Address of principal executive office)
(201)794-4800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
NASDAQ SmallCap Market
Common Stock, par value $.01 per share Philadelphia Stock Exchange
Securities registered pursuant to Section (g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 27, 1998 was $45,970,000.
Number of shares outstanding at March 27, 1998:
16,907,522 shares of Common Stock, par value $.01 per share.
The definitive Proxy Statement for the Annual Meeting of Stockholders to be held
June 18, 1998, to be filed with the Commission not later than 120 days after the
close of the Registrant's fiscal year, has been incorporated by reference in
whole or in part for Part III, Items 10, 11, 12 and 13, of the December 31, 1997
Form 10-K.
<PAGE>
Item 1. Business
General
Cover-All Technologies Inc. (the "Company"), a Delaware corporation formed
in 1971, is a provider of state-of-the-art software products for the property
casualty insurance industry through its wholly-owned subsidiary, COVER-ALL
Systems, Inc. ("COVER-ALL").
Historically, the Company (formerly Warner Insurance Services, Inc.) also
provided services to the automobile insurance industry including underwriting,
policy maintenance and claims adjustment which was carried out by its Insurance
Services Division ("ISD"). However, in March 1996, the ISD business was
transferred to a subsidiary of The Robert Plan Corporation, in connection with
the settlement of two lawsuits between the Company and The Robert Plan
Corporation and the release of the Company from its obligations under long-term
processing contracts with the customers of ISD, and therefore the activities of
the ISD are reflected as discontinued operations as more fully described in Note
2 to the Consolidated Financial Statements.
During March 1997, the Company announced several major changes as part of
its overall strategy. Mr. Brian Magowan was named Chairman of the Board and
Chief Executive Officer and Mr. Mark Johnston was named Chief Financial Officer.
Four of the existing Board members resigned and two additional Board members,
Messrs. Earl Gallegos and Ian Meredith, were added. Further, the Company raised
$3 million of financing through the sale of 12 1/2% Convertible Debentures
("Debentures"), due March 2002. The Debentures are convertible into shares of
Common Stock at $1.25 per share and carry certain restrictive covenants. See
Note 12 to the Consolidated Financial Statements.
Overview
COVER-ALL offers standard as well as customized software application
products together with implementation support services to the property/casualty
insurance industry. The Company derives revenue from Software Contract Licenses
to new and existing customers and from continuing Maintenance Fees for servicing
the product. The Company also provides Professional Consulting Services to
customize the software for specific uses.
In December 1989, the Company purchased, through its wholly-owned
subsidiary, the assets related to the exclusive proprietary rights to a PC-based
software application for policy rating and issuance for property/casualty
insurance companies. This acquired software has been enhanced and is the
Company's "Classic" product line which is one of two current product lines.
The Classic product line is a self-contained rating, issuance and
transaction management application system utilized in the property/casualty
insurance industry. This software was developed using the Microfocus COBOL
language, and the Company has upgraded this product line for use in the Windows
95 operating system. The Company believes that this software product provides
cost-effectiveness and flexibility for self-contained Local Area Network ("LAN")
systems. The Classic product is in use in over 50 property/casualty insurance
companies. Total Classic revenues were $6,593,000 for the year ended December
31, 1997 as compared to $3,655,000 and $2,752,000 for the years ended December
31, 1996 and 1995, respectively.
Since 1993, COVER-ALL has been developing its second product line entitled
the Total Administrative Solution ("TAS 2000") and, as of December 31, 1997,
COVER-ALL completed several modules. TAS 2000 comprises an architecture and a
suite of application development tools for property/casualty insurers designed
to enable a client-driven re-engineering of an insurer's business processes. TAS
2000 applications run on commodity priced open computer systems and use
state-of-the-art client/server software technology provided by Oracle
Corporation. Total TAS 2000 revenues were $1,345,000 for the year ended December
31, 1997, $1,814,000 for the year ended December 31, 1996, and $1,367,000 for
the year ended December 31, 1995.
Regarding its software products held for sale, the Company's TAS product
line already conforms to "Year 2000" as of December 31, 1997. In 1997, the
Classic product line was modified to support the "Year 2000."
2
<PAGE>
Product Description
CLASSIC PRODUCT LINE
The Classic product line is a set of LAN based PC software packages
designed to automate the rating and issuance tasks in the property and casualty
insurance industry. Functionality includes rating and issuance for new business,
mid-term changes, cancellations, reinstatements and renewals. Multiple recipient
copies of all relevant documentation for each of these transactions, including
quote summaries, declaration pages and mandatory and optional manuscript forms,
are printed by the system's print engine. This product life cycle functionality
is supported for property and casualty lines of business in a user friendly
system.
The Company believes that the Classic product line brings to the customer
many useful functions, features and capabilities. Some are line of business
specific and some are line of business independent. These include:
o Clear and comprehensive data collection
o On-line system level, screen level, and field level help
o On-line ISO Commercial Lines Manual Tables and Footnotes
o Easy and direct system navigation
o Standard Bureau coverages and rates support
o Company customized coverages and rates support
o Fully automated recipient driven issuance of declaration pages,
worksheets, ID card, etc.
o Help Desk assistance
o Remote diagnostic and fix capabilities
The Classic products were originally brought to the marketplace in the mid
1980's and subsequently have been enhanced to provide greater functionality and
to better utilize newer technology. The Classic product line is based upon
several specific proprietary design features.
In 1997, the Classic product line was modified to support the "Year 2000."
Further, COVER-ALL has upgraded the Classic product line for use in the Windows
95 operating system. This enhancement increases user friendliness and provides
customers with an easier integration of peripheral support applications (e.g.,
imaging, work flow management, etc.).
TAS 2000 PRODUCT LINE
The TAS 2000 product line was developed to be used for client/server Wide
Area Network ("WAN") applications in the property/casualty industry. COVER-ALL
created the TAS 2000 product line to better position itself to penetrate the
larger customer market segment. The client/server architectural concept allows
companies to take advantage of the power of distributed processing. The TAS 2000
product line currently includes the following application modules:
o Client Management
o End User Tools
o Agency Profile Management
o Product Developer
o Policy Administration
TAS 2000 has Windows compliant GUI to enhance its user friendliness. TAS
2000 can be used on many different client/server hardware platforms and offers
capability to process the voluminous transactions that are common to large scale
insurance operations. TAS 2000 is an architecture of open LAN and WAN based
modules possessing varying elements of interdependence.
The changing of the century is an issue which has never been faced in the
computer industry and poses a massive problem for automation systems previously
designed and currently being used. Companies must modify their systems to
accommodate a four-digit year in order to properly affect the calculations and
sorting routines which provide the core of their data processing accuracy.
Although seemingly minor, this change requires finding, analyzing, implementing
and testing tens of thousands of isolated incidents within millions of lines of
source code. The cost for the industry can
3
<PAGE>
reach into the billions of dollars to affect proper change. The TAS 2000 product
line from its inception accommodates the advent of the new century. All of a
customer's "date affected" programs must be fully tested for interoperatibility,
as must any programs which transfer date sensitive data, to a customer's system,
whether by Electronic Data Interchange ("EDI") or other means. Any such program,
which has not been correctly changed to address the millennium issue, has the
potential to corrupt the customer's database and cause a system failure.
COVER-ALL intends to continue to enhance both of its product lines based
on customer needs and changes in technology. COVER-ALL is also committed to
maintaining a quality support service program for its customers.
Competitive Products
The Company believes that its products offer customers certain advantages
not available from COVER-ALL's competitors. The Classic product line has
significant functionality and can accommodate specific customer requirements
while retaining a single source integrated core system, thus making the system
cost effective. TAS 2000's architecture is distinguished from competitive
offerings by the integrated use of Oracle's relational database and the Designer
2000 and Developer 2000 tool sets. The underlying database and language used for
the TAS 2000 products are the Oracle Relational Database Management System and
the Oracle Cooperative Development Environment products. These products provide
an integrated application environment. Through Oracle's tools, these new
products take advantage of the power of Oracle Version 7 on over 90 different
server platforms. This software allows processing to be centralized, dedicated
to specific server(s) or clients or distributed across the network. TAS 2000
product line was developed with an emphasis on quality from the conceptual
design stage using Oracle CASE tools through to the physical coding and testing
phases.
The Classic product line competes primarily with three competitors who are
also actively selling LAN based policy rating and issuance software used by
property/casualty insurance companies. TAS 2000 competes primarily with two
other systems suppliers.
Marketing
The Company maintains a sales staff at its principal executive offices in
Fair Lawn, New Jersey. The Company also utilizes distributors and outside
consultants to market its products. The Company also participates in and
displays its software products at trade shows organized by industry trade
groups.
Research and Development
COVER-ALL's business is characterized by rapid technological change. The
Company's success will depend, in part, on its ability to keep its products
current based on new technologies. Accordingly, the Company must maintain
ongoing research and development programs to continually add value to its suite
of products, as well as any possible expansion of its product lines. Due to the
Company's financial position, it did not incur research and development expenses
in 1997. The Company believes that research and development expenditures will
constitute a significant percentage of revenues in the coming year as a result
of new contracts.
Research and development expenses for COVER-ALL were $-0-, $1,846,000 and
$1,933,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Backlog
Backlog is not applicable to the business of the Company.
4
<PAGE>
Major Customers
The Classic product line is in use in over fifty property/casualty
insurance companies while the TAS 2000 product line is currently in use in two
property/casualty insurance companies. The Company's revenues from major
customers (more than 10 percent of total revenues) for the years ended December
31, 1997, 1996 and 1995 as a percentage of total revenue were as follows:
Customer Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1997 1996 1995
---- ---- ----
Inspire Insurance Solutions 20%
Sun Alliance Management Services 27% 16%
Glatfelter Insurance Group 13%
Millers Insurance Group 13%
New Jersey State Medical Underwriters 18%
Secura, Inc. 11%
In 1997, 1996 and 1995 export sales were made to a U.K. customer of
approximately $500,000, $1,465,000 and $640,000, respectively.
Employees
The Company had approximately 40 employees during 1997. None of the
Company's employees are represented by a labor union, and the Company has not
experienced any work stoppages. The Company believes that relations with its
employees are good.
Discontinued Operations
Insurance Services Division
ISD revenues decreased substantially in 1994 and 1995 because of lower
fees attributable to the reduced number of policies and claims being handled on
contracts that were winding down or were completed. As a result, ISD suffered
losses and operated under considerable uncertainty as a result of pending
lawsuits with certain affiliates of The Robert Plan Corporation. In March 1996,
the Company entered into a series of agreements which provided for the transfer
and discontinuance of its ISD operations and the issuance of the Company's
Common Stock and Warrants to certain customers of the ISD business in exchange
for the release of the Company from its obligations to provide insurance
services to ISD customers and to The Robert Plan Corporation in exchange for the
settlement and dismissal of two lawsuits with The Robert Plan Corporation.
Effective March 1, 1996 the Company discontinued providing insurance processing
services to the automobile insurance industry and reflected those activities as
discontinued operations in its Financial Statements. See Note 2 to the
Consolidated Financial Statements.
As part of the restructuring transactions (the "Restructuring"), the
Company transferred certain assets, employees, contracts and leased premises
relating to its ISD business to a subsidiary of The Robert Plan Corporation,
which replaced the Company as the provider of insurance services to the ISD
customers. In exchange for settling the lawsuits, releasing the Company's
obligations to provide insurance services under its contracts and executing
mutual releases, the Company issued to certain of the ISD customers and certain
parties to the litigation: (a) a total of 3,256,201 shares of the Company's
Common Stock, (b) five-year Warrants to purchase up to an additional aggregate
of 1,553,125 shares of the Company's Common Stock at $2.00 per share and (c)
cash of $2.5 million. The Company had the option, exercisable for a period of
six months, to (i) purchase 50% of the aforementioned 3,256,201 shares at a cash
price equal to the greater of $3.00 or 50% of the then market price of a share
of the Company's Common Stock and (ii) acquire 50% of the 1,553,125 Warrants at
a cash price equal to $1.00 per Warrant. On March 31, 1996, the Company assigned
its aforementioned repurchase option applicable to the Company's Common Stock
and Warrants to Software Investments Limited ("SIL"). SIL subsequently exercised
all of the options to purchase the Company's Common Stock and Warrants as
discussed in Note 9 to the Consolidated Financial Statements. As a result of the
issuance of shares described in Note 9, the antidilution provisions of
5
<PAGE>
the Warrants required an adjustment of shares to 1,725,694 from 1,553,125 and a
price adjustment to $1.80 from $2.00 per share. As a result of the issuance of
the 12 1/2% Convertible Debentures discussed in Note 12 to the Consolidated
Financial Statements, the Warrants were adjusted to the number of shares
purchasable and the exercise price.
Item 2. Properties
The Company's headquarters is located in Fair Lawn, New Jersey where it
occupies approximately 36,000 square feet under a lease which expires in 2000 at
a current annual rental expense of approximately $400,000.
In addition, the Company also leased a facility with approximately 22,000
square feet in Somerset, New Jersey. This lease was to expire in 2002 but was
terminated in December 1996 at a cost of $371,000. This facility was previously
used by ISD and the Company did not anticipate utilizing this facility in the
near future.
Pursuant to the Restructuring entered into in March 1996 (See
Discontinued Operations) the Company's lease for its former principal
headquarters has been transferred to The Robert Plan Corporation.
The Company believes that its headquarters is well maintained and
adequate to meet its needs in the foreseeable future.
Item 3. Legal Proceedings
The Company is not currently named as a defendant in any lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
through the solicitation of proxies or otherwise during the fourth quarter ended
December 31, 1997.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since May 23, 1996, the Company's Common Stock had been traded on The
Nasdaq SmallCap Market tier of The Nasdaq Stock Market, initially under the
symbol "WISI". As of July 1, 1996, the symbol for the Company's Common Stock on
The Nasdaq SmallCap Market tier of The Nasdaq Stock Market was changed to
"COVR." As of August 2, 1996, the Company's Common Stock has also been trading
on the Philadelphia Stock Exchange under the symbol "CVA."
From March 8, 1996 to March 14, 1996, the Company's Common Stock was
traded on the Over the Counter market and from March 15, 1996, to May 22, 1996
was quoted on the NASD OTC Bulletin Board under the symbol "WISI." Prior to
March 4, 1996, the Company's Common Stock was traded on the New York Stock
Exchange under the symbol "WCP." The quotations below reflect the high and low
closing sale prices since January 1, 1995 on the principal trading market on
which the Common Stock traded during such period.
High Low
CALENDAR 1997:
1st Quarter $2.375 $1.000
2nd Quarter 2.000 1.125
3rd Quarter 2.875 1.438
4th Quarter 4.875 2.625
6
<PAGE>
CALENDAR 1996:
1st Quarter $5.000 $1.625
2nd Quarter 7.375 3.375
3rd Quarter 6.250 1.500
4th Quarter 2.375 0.875
CALENDAR 1995:
1st Quarter $3.000 $1.500
2nd Quarter 1.750 0.875
3rd Quarter 2.250 1.250
4th Quarter 1.625 1.000
As of March 27, 1998, there were approximately 750 holders of record of
the Company's Common Stock. This number does not include beneficial owners who
may hold their shares in street name. The closing sale price for the Company's
Common Stock on March 27, 1998 was $4.125, as reported by the Nasdaq SmallCap
Market.
The Company does not currently anticipate paying any dividends.
Item 6. Selected Financial Data
The following selected financial data of the Company are derived from the
consolidated financial statements. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included herein.
<TABLE>
(Dollar amounts in thousands except per share data)
Two Months
Ended Year Ended
Years Ended December 31, December 31, October 31,
1997 1996 1995 1994 1993 1993
---- ---- ---- ---- ---- ----
Statements of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenues: $7,938 $5,469 $4,119 $1,927 $ 224 $ 1,740
Loss from continuing operations(1 (2,640) (5,608) (3,544) (7,466) (781) (1,943)
(Loss) income from discontinued operations less
applicable income taxes/(benefit) of $-0-, $-0-,
$-0-, ($924), $670 and $3,633, respectively -- -- (7,108) (6,754) 1,158 5,653
Loss on disposal of discontinued operations,
no tax benefit provided -- (393) (750) -- -- --
Net (loss) income (2,640) (6,001) (11,402) (14,220) 377 3,710
Loss per share from continuing operations (.16) (.38) (.41) (.84) (.09) (.21)
Net (loss) income per share(2) (.16) (.40) (1.33) (1.60) .04 .40
Cash dividends per share $ -- $ -- $ -- $ .02 $ .01 $ .03
Balance Sheet Data:
Working capital (deficiency) $1,647 $(1,293) $(8,717)$ 3,110 $12,475 $12,843
Total assets 8,484 8,243 8,369 18,795 22,748 22,443
Short-Term Debt -- -- -- 2,000 -- --
Stockholders' equity (deficit) 2,847 4,911 (6,013) 5,376 20,574 20,541
</TABLE>
(1) Includes a $1,165 ($.14 per share) and $3,373 ($.25 per share net of tax)
special charge in 1995 and 1994, respectively.
(2) Revenues of the discontinued operations (ISD) were $-0-, $-0-, $20,228,
$32,893, $8,589 and $68,515, respectively, for each of the periods above.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act) are subject to the occurrence of
certain contingencies which may not occur in the time frames anticipated or
otherwise, and, as a result, could cause actual results to differ materially
from such statements. These contingencies include the successful completion of
continuing developmental efforts under existing software contracts within
anticipated time frames or otherwise, the successful negotiation, execution and
implementation of anticipated new software contracts, the successful utilization
of additional personnel in the marketing and technical areas, the continuing
favorable responses to the Company's products from existing and potential new
7
<PAGE>
customers, and the Company's ability to complete development and sell and
license its products at prices which result in sufficient revenues to realize
profits.
Results of Operations
Discontinued Operations
During the years 1994 and 1995, the Company derived most of its revenues
from providing full service automobile insurance services (policy processing,
policy administration and claims administration) through its ISD business. The
Company has also provided state-of-the-art computer products for the property
casualty insurance industry through its wholly-owned subsidiary, COVER-ALL.
ISD revenues in 1994 and 1995 primarily consisted of policy administration
and claims servicing fees from customers such as Atlantic/Pacific Employers
Insurance Company and to a lesser extent, Clarendon National Insurance Company
("Clarendon"), for servicing policies in the New Jersey voluntary and assigned
risk markets. The contract with Atlantic/Pacific Employers Insurance Company
reached its peak level of activity in 1994 and policy volumes declined sharply
in 1995. During 1995 and 1996, Atlantic/Pacific Employers Insurance Company
planned to non-renew all of their auto insurance policies in New Jersey in
accordance with the accelerated withdrawal order entered into with the New
Jersey Department of Insurance in August 1994. In addition, the MTF program had
been phasing out since 1994 and, as of March 1, 1996, the Company's contracted
activity for the MTF ended.
Revenues earned under the contract with Clarendon involved full service
policy administration and claims services for approximately 18 percent of the
assigned risk drivers in New Jersey. This activity started in 1993 with the
commencement of the New Jersey Personal Automobile Insurance Plan ("PAIP")
following the end of New Jersey's direct insurance program provided by its MTF.
The Company's service for Clarendon was performed under New Jersey's Limited
Assignment Distribution Program ("LAD") which required that servicing carriers
such as the Company bear some of the underlying insurance risk of the policies
being handled. For this reason, the Company formed a wholly-owned insurance
subsidiary, Alerion, and effective January 1, 1994, Alerion reinsured a portion
of Clarendon's insurance risk under the PAIP program.
By the end of 1994, the Company decided that risk taking, even as a
reinsurer, was not an attractive business strategy, particularly because of the
substantial capital required by its insurance subsidiary relative to other
Company capital commitments. The Company and Clarendon agreed, therefore, to end
the reinsurance arrangement in the fourth quarter of 1994 and "commute" all
reinsurance interests and liabilities back to the inception of the agreement,
thus eliminating all reinsurance activity of Alerion. This had the effect of
reducing revenues by $6.1 million and operating income by $.5 million in the
fourth quarter of 1994. Since the Company was no longer willing to share in the
underlying insurance risk of PAIP policies, it could not, by law, continue to
provide policy administration and claims servicing to Clarendon under the LAD
program after 1994.
Most of the Company's insurance services contracts included a variable fee
structure based on the loss ratios of the underlying insurance policies which
could increase or decrease fee revenues. The Company obtained periodic
independent actuarial evaluations of the loss ratios for these programs and
adjusted the amount of its revenue when required. Subsequent to December 31,
1994, the Company obtained independent actuarial projections of loss adjustment
expenses expected to be incurred in 1995 and beyond with respect to the
Company's contractual obligations under its insurance services contracts. As a
result of this review, the Company determined that its deferred contract
revenues at the end of 1994 should be increased by $4.1 million to adequately
cover contract costs and profit margins in 1995 and beyond. This change in
accounting estimate was recorded in the fourth quarter of 1994 as a reduction of
insurance services revenue.
In the fourth quarter of 1994, ISD wrote off $2.3 million of unamortized
capitalized software development costs previously incurred to develop a version
of the COVER-ALL system for use in-house to process policies and claims.
8
<PAGE>
As a result of the developments discussed above, ISD was suffering losses
and, in addition, was operating under considerable uncertainty because of the
pendency of lawsuits with certain affiliates of The Robert Plan Corporation, a
customer and subcontractor for the Company. In March 1996, the Company entered
into a series of agreements resulting in the settlement and dismissal of the
lawsuits and the release of the Company from continuing obligations under
contracts for the provision of insurance services to ISD customers. See Note 2
to the Consolidated Financial Statements for a discussion of the various
financial elements of those agreements. In essence, the Company no longer offers
full service automobile insurance services, and its ISD operations have been
transferred to a subsidiary of The Robert Plan Corporation which has replaced
the Company as a service provider to such customers.
These agreements have resulted in a net loss for 1996 and 1995 of $392,872
and $749,758, respectively. The additional net loss for 1996 relates to
additional loss adjustment expenses (mostly legal fees), pertaining to the
discontinued operations, in excess of the amount accrued in 1995. The 1995 net
loss includes a provision for estimated ISD losses in 1996 prior to the March 1,
1996 effective date of the Restructuring.
Accordingly, the Company's Consolidated Financial Statements have been
restated for all periods to reflect ISD operations as "discontinued operations."
Continuing Operations
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Total revenues were $7,938,000 for the year ended December 31, 1997 as
compared to $5,469,000 for the year ended December 31, 1996, an increase of 45%.
License fees were $3,940,000 for the year ended December 31, 1997 compared to
$1,044,000 in the same period in 1996 due to the sale of additional contracts in
1997. For the year ended December 31, 1997, maintenance revenues were $2,722,000
compared to $2,252,000 in the same period of the prior year due to an increased
customer base. Professional services revenue contributed $1,276,000 for the year
ended December 31, 1997 compared to $2,172,000 for the year 1996. The decrease
was due to approximately $1,000,000 less TAS 2000 fees for custom enhancements
in 1997 compared to 1996. A new TAS 2000 contract was signed in the fourth
quarter of 1997 and work on custom enhancements was started in December of 1997.
Cost of revenues increased to $5,426,000 for the year ended December 31,
1997 as compared to $4,586,000 for 1996. Increases in capitalized software and
license fees amortization accounted for the bulk of the increase.
Research and development expenses in 1997 were $-0- compared to $1,846,000
for the year ended December 31, 1996 due to the Company's restructuring and the
decision to focus the Company's resources on selling TAS 2000 modules. In the
future, the Company plans to dedicate resources to its ongoing research and
development efforts since its success depends on its ability to keep products
current based on new technologies.
Sales and marketing expenses increased to $1,900,000 in 1997 compared to
$1,125,000 as of December 31, 1996 due mostly to increased sales force and
associated benefit costs. The Company allocated additional resources to its
sales and marketing group to work on proposals for new contracts.
General and administrative expenses decreased to $2,989,000 in 1997 from
$3,627,000 for the year ended December 31, 1996 due to the Company's ongoing
efforts to reduce overhead costs.
A loss from discontinued operations of $392,872 was recorded in the year
ended December 31, 1996 as a result of additional loss adjustment expenses in
excess of the amount anticipated at December 31, 1995.
9
<PAGE>
COVER-ALL has commenced marketing efforts in the United Kingdom. A contract
for the TAS 2000 product was announced on March 25, 1998 with Cornhill Insurance
PLC, a wholly-owned subsidiary of Allianz (one of the largest insurance
companies in the world). This licensing and services agreement valued at
$4,500,000 encompasses Cover-All's new Total Administrative System (TAS 2000)
modules including Policy Administration, Client Management, Agency Management,
Billing Cash & Commissions, Statistical Reporting and Pyramid Services' Claims
Administration.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Total revenues were $5,469,000 for the year ended December 31, 1996 as
compared to $4,119,000 for the year ended December 31, 1995, an increase of 33%.
License fees were $1,045,000 for the year ended December 31, 1996 compared to
$1,422,000 in the same period in 1995 due to the sale of one additional contract
in 1995. For the year ended December 31, 1996, maintenance revenues were
$2,252,000 compared to $1,174,000 in the same period of the prior year due to an
increased customer base and renegotiations of all contracts resulting in higher
fees from customers. Professional services revenue contributed $2,172,000 for
the year ended December 31, 1996 compared to $1,523,000 for the year 1995 as a
result of new contracts signed and customers requesting additional modifications
to existing systems.
Cost of sales increased to $4,586,000 for the year ended December 31, 1996
as compared to $1,330,000 for 1995. Significant increases in capitalized
software and license fees amortization, and salary and benefit costs relating to
dedication of resources to maintenance and professional services, accounted for
the bulk of the increase. In addition, the Company wrote off approximately
$500,000 of unamortized capitalized software costs representing certain modules
of the TAS 2000 product line not expected to be completed in the near future due
to reprioritizing of marketing and development efforts.
Research and development expenses in 1996 decreased slightly to $1,846,000
compared to $1,933,000 for the year ended December 31, 1995 due to personnel
reductions in the Engineering Department and the decision to focus the Company's
engineering resources on completing several TAS 2000 modules for the
marketplace. In the future, the Company will continue to dedicate significant
resources to its ongoing research and development efforts since its success
depends on its ability to keep products current based on new technologies.
Sales and marketing expenses increased to $1,125,000 in 1996 compared to
$465,000 as of December 31, 1995 due mostly to increased sales force and
associated benefit costs. The Company allocated additional resources to its
sales and marketing group to work on a proposal for a major contract.
General and administrative expenses increased approximately 31% to
$3,627,000 in 1996 from $2,760,000 for the year ended December 31, 1995 due to
costs incurred in connection with the procurement of the SIL and CARE contracts
and additional staffing. In addition, the Company terminated the lease at the
Somerset facility for a cost of $371,408 since the anticipated utilization of
this facility to house a significant number of new employees to work on a joint
venture project with a new customer did not occur.
A loss from discontinued operations of $392,872 was recorded in the year
ended December 31, 1996 as a result of additional loss adjustment expenses in
excess of the amount anticipated at December 31, 1995.
Liquidity and Capital Resources
At December 31, 1997, the Company had working capital of $1,647,000 compared
to a working capital deficit of $1,293,000 in 1996. The improvement in working
capital was primarily due to the Company's receiving $3,000,000 from the sale of
12 1/2% convertible debentures to an institutional investor.
On March 31, 1997, the Company sold $3,000,000 of 12 1/2% Convertible
Debentures due March 2002 (the "Debentures") to an institutional investor. The
Debentures were sold at face value, pay interest quarterly and are convertible,
in whole or in part, into shares of Common Stock of the
10
<PAGE>
Company at $1.25 per share, subject to adjustment. The Debentures contain
certain covenants which restrict the Company's ability to incur indebtedness,
grant liens, pay dividends or other defined restricted payments and make
investments and acquisitions. The Company cannot redeem the Debentures for two
years and thereafter may only call the Debentures if the closing price of the
Company's Common Stock for the twenty business days preceding the redemption
date exceeds $1.50. The net proceeds from this financing will be used for
working capital purposes.
In 1996, the Company was granted by Care Corporation Limited ("Care") the
exclusive license for the Care software systems for use in the workers'
compensation claims administration markets in Canada, Mexico and Central and
South America. The Care software is an integrated suite of computer applications
for the administration of claims processing of workers' compensation. The
product has been successfully deployed in Australia and the United States in
Third Party Administration ("TPA") and self insured environments, including city
and state government operations as well as with major private corporations. In
the fourth quarter of 1997, the Company made a strategic decision to allocate
its future resources to its TAS and Classic product lines rather than the
product line obtained via the Care Software License. In this regard, on March
31, 1998, the Company negotiated a buy back by Care of the Care Software
License, while acquiring worldwide reseller rights (excluding Australia, New
Zealand, and the United States).
In consideration for the buy back of the Care Software License by Care, the
Company received $500,000 on March 31, 1998, and a $4,500,000 non-interest
bearing note, payable in semi-annual installments of $500,000 which, when
discounted, results in a principal amount of the note of $3,893,054. The
discounted note is collateralized by unencumbered Cover-All stock owned by Care.
The number of shares required as collateral will vary, such that the market
value of the shares held as collateral must equal 150% of the outstanding
balance. The number of shares required as collateral will be adjusted at each
payment date based on the market price of the Company's shares and the balance
outstanding on the date. Based on the market price of the Company's stock on
March 30, 1998, approximately 1,700,000 shares were pledged as collateral.
Based on the above, and due to the related party nature of the Care Software
License buy back agreement, the Company will record the $1,143,054 difference
between the carrying value of the Care Software License of $3,250,000 at
December 31, 1997, and the discounted $4,393,054 buy back agreement to capital
in excess of par value in the first quarter of 1998.
In March 1996, the Company received $3,022,391 from the sale of Common Stock
and Warrants and another $1,553,124 in May 1996 from the sale of additional
Common Stock pursuant to a series of transactions with Software Investments
Limited and Care Corporation Limited that are described in Note 9 to the
Consolidated Financial Statements.
At December 31, 1997, the Company had approximately $3,000,000, $14,000,000
and $7,000,000 of operating tax loss carryforwards expiring in 2012, 2011, and
2010, respectively.
The Company believes that the proceeds from the sale of the Debentures, its
current cash balances, the Care buy back, and anticipated cash flows from
continuing operations will be sufficient to meet normal operating needs for the
continuing COVER-ALL business in 1998.
New Authoritative Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ["FASB"] issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
In June 1997, the FASB has issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim
11
<PAGE>
financial reports issued to shareholders. SFAS No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997.
Financial statement disclosures for prior periods are required to be restated.
The Company is in the process of evaluating the disclosure requirements. The
adoption of SFAS No. 131 will have no impact on the Company's consolidated
results of operations; financial position or cash flows.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants, after clearance by the FASB,
issued Statement of Position (SOP) 97-2, Software Revenue Recognition. This SOP
supersedes SOP 91-1 of the same name and provides the most recent guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 is effective for transactions entered into in
fiscal years beginning after December 15, 1997.
SOP 97-2 requires that in arrangements to deliver software or a software
system that does not require significant production, modification, or
customization, revenue should be recognized when there is persuasive evidence
that an arrangement does in fact exist; delivery has occurred; the fee is fixed
or determinable; and collectibility is probable. If the software or software
system selling contract arrangement, either alone or together with other
products or services, requires significant production, modification or
customization construction type/production type contract accounting should be
used for the entire arrangement. Such accounting would recognize revenues and
costs on a contract arrangement as it progresses toward completion, rather than
deferred recognition of these items until persuasive evidence of delivery has
occurred. In software or software system selling arrangements that consist of
multiple elements (that is, additional software products, upgrades/enhancements,
rights to exchange or return software, postcontract customer support, or
services), and contract accounting does not apply, the fee must be allocated to
the various elements based on vendor-specific objective evidence of fair values.
In general, if sufficient vendor-specific objective evidence of fair values does
not exist, all revenue from the arrangement should be deferred until such
sufficient evidence exists, or until all elements have been delivered. The
principle difference between SOP 97-2 and its predecessor SOP 91-1 is in the
accounting for multiple-element arrangements based on vendor-specific objective
evidence of fair values.
Cover-All generally does not sell its products, Classic and TAS, under
multiple-element arrangements. Classic and TAS are standard "off the shelf"
application program packages, and while these packages may be tailored to meet
customer requirements, the core package is the standard product sold. Management
does not believe that SOP 97-2 will materially affect the way the Company
recognizes revenue.
There is a proposed SOP dated February 11, 1998, which would defer for one
year the provision of SOP 97-2 with respect to what constitutes vendor-specific
objective evidence of fair value for multiple-element arrangements in which a
software element is sold only in combination with postcontract customer support
or other service elements. For those multiple-element arrangements,
determination of the portion of the sales price allocable to the software
element may be based on a reasonable method.
Year 2000 Readiness
The Company is aware of the issues associated with the programing code in
existing computer systems as the millennium (Year 2000) approaches. The "Year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to
"00." The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The "Year 2000" problem creates risk for the Company from
unforeseen problems in its own computer systems and from third parties with whom
the Company deals on financial transactions. Such failures of the Company and/or
third parties' computer systems could have a material impact on the Company's
ability to conduct its business, and especially to process and account for the
transfer of funds electronically.
The Company presently believes that, with modification to existing software
and converting to new software, which it has done by purchasing a "Year 2000"
ready managerial and financial reporting system (total cost estimated to be
approximately $32,000), the "Year 2000" problem will
12
<PAGE>
not pose significant operational problems for the company's computer systems.
However, if such modifications and conversions are not completed timely, the
"Year 2000" problem may have a material impact on the operations of the Company.
Regarding its software products held for sale, the Company's TAS product
line already conforms to the "Year 2000" as of December 31, 1997. In 1997, the
Classic product was modified to support the "Year 2000."
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in Item 14(a)(1) and
(2) are included in this report beginning on page 20.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
At a meeting held on August 4, 1997, the Board of Directors of the Company
approved the engagement of Moore Stephens, P.C. as its independent auditors for
the fiscal year ending December 31, 1997, to replace Ernst & Young, LLP, who
were dismissed as auditors of the Company effective August 4, 1997. The
dismissal of Ernst & Young, LLP, was not the result of any disagreements or
disputes between the Company and Ernst & Young, LLP. A detailed discussion of
the change is included in the Company's Form 8-K filed August 11, 1997.
13
<PAGE>
PART III
The information called for by Part III (Items 10, 11, 12 and 13) of this
Report is hereby incorporated by reference from the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A under the Securities Act of
1934 in connection with the election of directors at the 1998 Annual Meeting of
Stockholders of the Company, which definitive Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the Company's fiscal year ended December 31, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following are filed as a part of this report.
(1) Financial Statements
Page
Report of Independent Auditors 20
Report of Predecessor Independent Auditors 21
Consolidated Balance Sheets - December 31, 1997 and 1996 22
Consolidated Statements of Operations - Years ended December 31, 1997,
1996 and 1995 24
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 1997, 1996 and 1995 25
Consolidated Statements of Cash Flows - Years ended December 31, 1997,
1996 and 1995 26
Notes to Consolidated Financial Statements 28
(2) Financial Statement Schedule
II - Valuation and qualifying accounts 43
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedules, or
because the information required is included in the financial statements and
notes thereto.
(3) Exhibits
Exhibit No. Description
2 Certificate of Merger of the Company Computer Systems, Inc. (a
New York corporation) into the Registrant, filed on June 11, 1985
[incorporated by reference to Exhibit 2 to the Registrant's Annual
Report on Form 10-K (Commission File No. 0-13124) filed on January
29, 1986].
3(a) Certificate of Incorporation of the Registrant filed on April 22,
1985 [incorporated by reference to Exhibit 3(a) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0-13124) filed on
January 29, 1986].
3(b) Certificate of Amendment of Certificate of Incorporation of the
Registrant filed on May 6, 1987 [incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1
(Commission File No. 33-17533) filed on September 29, 1987].
14
<PAGE>
3(c) Certificate of Amendment of Certificate of Incorporation of the
Registrant filed on March 26, 1990 [incorporated by reference to
Exhibit 3(d) to the Registrant's Quarterly Report on Form 10-Q
(Commission File No. 0-13124) filed on June 14, 1990].
3(d) Certificate of Amendment of Certificate of Incorporation of the
Registrant filed on March 18, 1992 [incorporated by reference to
Exhibit 1 to the Registrant's Current Report on Form 8-K (Commission
File No. 0-13124) filed on March 30, 1992].
3(e) Certificate of Amendment of Certificate of Incorporation of the
Registrant [incorporated by reference to Exhibit 3(e) to the
Registrant's Amendment No. 1 to Registration Statement on Form S-3
(Commission File No. 0-13124) filed on July 10, 1996].
3(f) Bylaws of the Registrant, as amended [incorporated by reference to
Exhibit 3(g) to the Registrant's Amendment No. 1 to Registration
Statement on Form S-3 (Commission file No. 0-13124) filed on July 10,
1996].
4 Form of Common Stock Certificate of the Registrant [incorporated by
reference to Exhibit 4(a) to the Registrant's Annual Report on Form
10-K (Commission File No. 0- 13124) filed on January 29, 1986].
10(a) Partnership Agreement, dated December 7, 1978, by and among the
Registrant, James R. Poole, Ira M. Cantor and Stanley A. Rothenberg
[incorporated by reference to Exhibit 10(a) to the Registrant's
Registration Statement on Form S-18 (Commission File No. 2-88695-NY)
filed on December 30, 1983].
10(b) Employment Agreement, dated as of August 1, 1990, between the
Registrant and Bradley J. Hughes [incorporated by reference to
Exhibit 10(h) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on January 24, 1991].
10(c) Employment Agreement, dated as of July 11, 1990, between the
Registrant and Theodore I. Botter [incorporated by reference to
Exhibit 10(j) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on January 24, 1991].
10(e)(1) Employment Agreement, dated as of November 1, 1992, between the
Registrant and Harvey Krieger [incorporated by reference to Exhibit
10(h) to the Registrant's Annual Report on Form 10-K (Commission File
No. 0-13124) filed on January 28, 1993].
10(e)(2) Amendment to Employment Agreement, dated June 7, 1995, between the
Registrant and Harvey Krieger.
10(e)(3) Consulting Agreement, dated as of June 1, 1996, between the
Registrant and Harvey Krieger [incorporated by reference to Exhibit
10(e)(3) to the Registrant's Registration Statement on Form S-3
(Commission File No. 0-1324) filed on June 17, 1996].
10(f)(1) Employment Agreement, dated as of March 22, 1994, among COVER-ALL
Systems, Inc., Michael G. Repoli and the Registrant [incorporated by
reference to Exhibit 10(f)(1) to the Registrant's Annual Report on
Form 10-K (Commission File No. 0- 13124) filed on April 17, 1995].
10(f)(2) Amendment to Employment Agreement, dated August 10, 1994, among
COVER-ALL Systems, Inc., Michael G. Repoli and the Registrant
[incorporated by reference to Exhibit 10(f)(2) to the Registrant's
Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 17, 1995].
10(f)(3) Amendment to Employment Agreement, dated January 11, 1995, among
COVER-ALL Systems, Inc., Michael G. Repoli and the Registrant
[incorporated by reference to
15
<PAGE>
Exhibit 10(f)(3) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on April 17, 1995].
10(g) Employment Agreement, dated as of January 24, 1996, among COVER-ALL
Systems, Inc., the Registrant and Peter C. Lynch [incorporated by
reference to Exhibit 10(g) to the Registrant's Annual Report on Form
10-K (Commission File No. 0-13124) filed on April 11, 1996].
10(h) Warner Insurance Services, Inc. Tax Saver 401(k) Salary Reduction
Plan adopted May 31, 1985 and restated as of August 11, 1992
[incorporated by reference to Exhibit 10(k) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0-13124) filed on
January 28, 1993].
10(i) Incentive Stock Option Plan adopted by the Board of Directors of the
Registrant on February 22, 1982, and approved by the stockholders in
February 1983 as amended on December 16, 1983 and March 31, 1988
[incorporated by reference to Exhibit 10(b) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0-13124) filed on
January 24, 1989].
10(j) Stock Option Agreement, dated March 22, 1990, between the Registrant
and Harvey Krieger [incorporated by reference to Exhibit 10(q) to the
Registrant's Annual Report on Form 10-K (Commission File No. 0-13124)
filed on January 24, 1991].
10(k) Stock Option Agreement, dated August 15, 1990, between the Registrant
and Bradley J. Hughes [incorporated by reference to Exhibit 10(t) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(l) Stock Option Agreement, dated August 15, 1990, between the Registrant
and Theodore I. Botter [incorporated by reference to Exhibit 10(u) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(m)(1) The 1991 Key Employee Stock Option Plan, adopted by the Board of
Directors of the Registrant on June 18, 1991, as amended on September
6, 1991 and November 19, 1991 and approved by stockholders on March
18, 1992 [incorporated by reference to Exhibit 4(a) to the
Registrant's Registration Statement on Form S-8 (Commission File No.
33-44270) filed on November 26, 1991].
10(m)(2) Form of Incentive Stock Option Agreement under the 1991 Key Employee
Stock Plan [incorporated by reference to Exhibit 4(b) to the
Registrant's Registration Statement on Form S-8 (Commission File No.
33-44270) filed on November 26, 1991].
10(m)(3) Form of Non-Qualified Stock Option Agreement under the 1991 Key
Employee Stock Option Plan [incorporated by reference to Exhibit 4(c)
to the Registrant's Registration Statement on Form S-8 (Commission
File No. 33-44270) filed on November 26, 1991].
10(m)(4) Form of Stock Option Agreement under the 1991 Key Employee Stock
Option Plan dated as of June 21, 1991, between the Registrant and
each of Theodore I. Botter, Thomas F. Rocchio, and Harvey Krieger
[incorporated by reference to Exhibit 4(d) to the Registrant's
Registration Statement on Form S-8 (Commission File No. 33-44270)
filed on November 26, 1991].
10(m)(5) Stock Option Agreement, dated as of November 20, 1992, between the
Registrant and Bradley J. Hughes [incorporated by reference to
Exhibit 10(x)(vi) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on January 28, 1993].
10(n)(1) 1994 Stock Option Plan for Independent Directors adopted by the Board
of Directors of the Registrant on November 10, 1994 [incorporated by
reference to Exhibit 10(n)(1) to the Registrant's Annual Report on
Form 10-K (Commission File No. 0-13124) filed on April 17, 1995].
16
<PAGE>
10(n)(2) Form of Stock Option Agreement under the 1994 Stock Option Plan for
Independent Directors [incorporated by reference to Exhibit 10(n)(2)
to the Registrant's Annual Report on Form 10-K (Commission File No.
O-13124) filed on April 17, 1995].
10(o)(1) The 1995 Employee Stock Option Plan, adopted by the Board of
Directors of the Registrant on March 22, 1995 [incorporated by
reference to Exhibit 10(o)(1) to the Registrant's Annual Report on
Form 10-K (Commission File No. O-13124) filed on April 17, 1995].
10(o)(2) Form of Incentive Stock Option Agreement under the 1995 Employee
Stock Option Plan [incorporated by reference to Exhibit 10(o)(2) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 17, 1995].
10(o)(3) Form of Non-Qualified Stock Option Agreement under the 1995 Employee
Stock Option Plan [incorporated by reference to Exhibit 10(o)(3) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 17, 1995].
10(o)(4) The 1995 Employee Stock Option Plan, as amended on April 29, 1997 by
the stockholders of the Registrant.
10(p)(1) Indenture of Lease, dated as of July 1, 1994, between Fair Lawn
Industrial Park, Inc. and the Registrant for premises located at
17-01 Pollitt Drive, Fair Lawn, New Jersey [incorporated by reference
to Exhibit 10(p)(1) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on April 17, 1995].
10(p)(2) Termination Agreement, dated as of June 30, 1994, among Fair Lawn
Industrial Park, Inc., Symtron Systems, Inc., and the Registrant
[incorporated by reference to Exhibit 10(p)(2) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0- 13124) filed on
April 17, 1995].
10(q) Lease Agreement, dated as of March 2, 1990, between the Registrant
and Polevoy Associates for premises located at 18-01 Pollitt Drive,
Fair Lawn, New Jersey [incorporated by reference to Exhibit 10(z) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(r) Lease Agreement, dated as of December 11, 1991, between the
Registrant and Aetna Life Insurance Company for premises located at
125 Belmont Drive, Somerset, New Jersey [incorporated by reference to
Exhibit 10(ee) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on January 24, 1992].
10(s) Rights Agreement, dated November 17, 1989, between the Registrant and
First Fidelity Bank, N.A., as Rights Agent [incorporated by reference
to Exhibit 1 to the Registrant's Registration Statement on Form 8-A
(Commission File No. 13-2698053) filed on October 20, 1989].
10(t)(i) Severance Agreement, dated as of November 28, 1989, between the
Registrant and Harvey Krieger [incorporated by reference to Exhibit 1
to the Registrant's Form 8-K (Commission File No. 0-13124) filed on
December 6, 1989].
10(t)(ii) Severance Agreement, dated August 15, 1990, between the Registrant
and Bradley J. Hughes [incorporated by reference to Exhibit 10(o)(i)
to the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(t)(iii) Severance Agreement, dated August 15, 1990, between the Registrant
and Theodore I. Botter [incorporated by reference to Exhibit 10(t)(i)
to the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(u)(i) Restructuring Agreement, dated as of March 1, 1996, by and among the
Registrant, Atlantic Employers Insurance Company, Pacific Employers
Insurance Company, Electric Insurance Company, The Robert Plan
Corporation, Material Damage Adjustment Corporation, Lion Insurance
Company, and National Consumer Insurance Company [incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K (Commission
File No. 0-13124) filed on March 7, 1996].
17
<PAGE>
10(u)(ii) Form of Warrant issued by the Registrant pursuant to the
Restructuring Agreement listed as Exhibit 10(u)(i) above
[incorporated by reference to Exhibit 10.2 to the Registrant's Form
8-K (Commission File No. 0-13124) filed on March 7, 1996].
10(u)(iii) Asset Purchase Agreement, dated as of March 1, 1996, by and among the
Registrant, MDA Services, Inc. and The Robert Plan Corporation
[incorporated by reference to Exhibit 10.3 to the Registrant's Form
8-K (Commission File No. 0-13124) filed on March 7, 1996].
10(v)(i) Stock Purchase Agreement, dated as of March 31, 1996, by and among
the Registrant, Software Investments Limited and Care Corporation
Limited [incorporated by reference to Exhibit 10.1 to the
Registrant's Form 8-K (Commission File No. 0-13124) filed on April 8,
1996].
10(v)(ii) Repurchase Rights Assignment, dated as of March 31, 1996, between the
Registrant and Software Investments Limited [incorporated by
reference to Exhibit 10.2 to the Registrant's Form 8-K (Commission
File No. 0-13124) filed on April 8, 1996].
10(v)(iii) Warrant, dated as of March 31, 1996, issued by the Registrant to
Software Investments Limited [incorporated by reference to Exhibit
10.3 to the Registrant's Form 8-K (Commission File No. 0-13124) filed
on April 8, 1996].
10(v)(iv) Exclusive Software License Agreement, dated as of March 31, 1996, by
and among the Registrant, Care Corporation Limited and COVER-ALL
Systems, Inc. [incorporated by reference to Exhibit 10.4 to the
Registrant's Form 8-K (Commission File No. 0- 13124) filed on April
8, 1996].
10(w) Settlement Agreement dated April 1, 1996 between the Registrant and
Clarendon National Insurance Company [incorporated by reference to
Exhibit 10.5 to the Registrant's Form 8-K (Commission File No.
0-13124) filed on April 8, 1996].
10(x) Employment Agreement, dated as of April 1, 1996, between the
Registrant and Raul F. Calvo.
10(y) General Release and Termination of Lease Agreement, dated as of
December 4, 1996, between the Registrant and Somerset Realty
Associates, L.L.C.
10(z)(i) Convertible Note Purchase Agreement, dated as March 14, 1997, between
the Registrant, Software Investments Limited, Atlantic Employers
Insurance Company and Roger D. Bensen [incorporated by reference to
Registrant's Current Report on Form 8-K (Commission File No. 0-13124)
filed on March 24, 1997.
*10(z)(ii) Form of 12 1/2% Convertible Note issued by Registrant pursuant to the
Convertible Note Purchase Agreement listed as Exhibit 10(z)(i) above.
*10(aa)(i) Debenture Purchase Agreement, dated as of March 31, 1997, between the
Registrant and Sirrom Capital Corporation.
*10(aa)(ii)12 1/2% Convertible Debenture Due March 31, 2002, issued by
Registrant to Sirrom Capital Corporation.
*10(aa)(iiiAmendment to Stock Purchase Agreement, dated as of March 14, 1997,
among the Registrant, Software Investments Limited and Care
Corporation Limited.
*10(aa)(iv)Amendment to Exclusive Software License Agreement, dated as of March
14, 1997, among the Registrant, Care Corporation Limited and, for
certain purposes, Cover-All Systems, Inc.
18
<PAGE>
10(bb)(i) Exclusive Software License Repurchase Agreement, dated March 31,
1998, by and among the Registrant, COVER-ALL Systems, Inc., Care
Corporation Limited and Software Investments Limited.
10(bb)(ii) Secured Promissory Note, dated March 31, 1998, by and between the
Registrant, as Holder, and Care Corporation Limited, as Payor.
10(bb)(iii)Pledge Agreement, dated March 31, 1998, by and between the
Registrant, as Secured Party, and Care Corporation Limited, as
Pledgor.
10(bb)(iv) Reseller Agreement, dated March 31, 1998, by and between Cover-All
Systems, Inc. and Care Corporation Limited.
10(bb)(v) Reseller Agreement, dated March 31, 1998, by and between Cover-All
Systems, Inc. and Care Corporation Limited.
21 Subsidiaries of the Registrant [incorporated by reference to Exhibit
21 to the Registrant's Annual Report on Form 10-K (Commission File
No. 0-13124) filed on April 11, 1996].
*23A Consent of Ernst & Young LLP.
*23B Consent of Moore Stephens, P.C.
*27 Financial Data Schedule.
------------------------------
* Filed herewith
(b) Reports on Form 8-K
The Company filed a Form 8-K on January 7, 1997 under Item 5 to
reflect the resignation of Harvey Krieger as a director of the Company effective
as of December 31, 1996. The Company filed a Form 8-K on March 24, 1997 under
Item 5 to reflect the announcement of the closing of a $750,000 bridge
financing, the appointment of a new Chief Executive Officer, the election of two
new directors and the amendment of the terms of certain software licensing and
related agreements. The Company also filed a Form 8-K on April 14, 1997 under
Item 5 to reflect the closing of $3 million of permanent financing through the
sale of its 12 1/2% Convertible Debentures, due March 31, 2002 to Tandem
Capital, Inc. and the resignation of four directors and the appointment of one
new director.
The Company filed a Form 8-K on August 11, 1997 under Item 4 to
reflect the engagement of Moore Stephens, P.C. as the Company's auditors to
replace Ernst & Young, LLP effective August 4, 1997 and under Item 5 to reflect
the events of the annual meeting of stockholders.
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholder and the Board of Directors of
Cover-All Technologies Inc.
We have audited the accompanying consolidated balance sheet of
Cover-All Technologies Inc. and its subsidiaries as of December 31, 1997, and
the related consolidated statements of operations, changes in stockholders'
equity [deficit], and cash flows for the year then ended. Our audit also
included the financial statement schedule listed in Item 14(a) of this Form 10-K
for the year ended December 31, 1997. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our audit
provides 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 Cover-All Technologies Inc. and its subsidiaries as of December 31,
1997, and the consolidated results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein for the year ended December 31, 1997.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 31, 1998
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Cover-All Technologies Inc.
We have audited the accompanying consolidated balance sheet of Cover-All
Technologies Inc. and its subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years ended December 31, 1996 and 1995. Our
audits also included the financial statement schedule for the years ended
December 31, 1996 and 1995 listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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
Cover-All Technologies Inc. at December 31, 1996 and the consolidated results of
their operations and their cash flows for the years ended December 31, 1996 and
1995 in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Hackensack, New Jersey
April 11, 1997
17
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
December 31,
1 9 9 7 1 9 9 6
Assets:
Current Assets:
<S> <C> <C>
Cash and Cash Equivalents $2,908,167 $ 446,672
Accounts Receivable [Less Allowance for Doubtful Accounts
of $185,610 and $43,870] 1,234,706 1,585,398
Prepaid Expenses 140,783 7,161
---------- -----------
Total Current Assets 4,283,656 2,039,231
---------- -----------
Property and Equipment - At Cost:
Furniture, Fixtures and Equipment 2,625,678 3,072,706
Less: Accumulated Depreciation (2,397,704) (2,662,713)
---------- -----------
Property and Equipment - Net 227,974 409,993
---------- -----------
Software License Held for Sale at December 31, 1997
[Less Accumulated Amortization of $1,750,000 and $750,000]3,250,000 4,250,000
--------- -----------
Capitalized Software [Less Accumulated Amortization of $1,820,857
and $1,005,964] 663,057 1,477,950
Other Assets 59,335 66,181
---------- -----------
Total Assets $8,484,022 $ 8,243,355
========== ===========
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
18
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
December 31,
1 9 9 7 1 9 9 6
Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C> <C>
Accounts Payable $ 571,309 $ 536,172
Accrued Liabilities 1,618,676 1,614,612
Unearned Revenue 447,133 1,181,575
---------- -----------
Total Current Liabilities 2,637,118 3,332,359
---------- -----------
Convertible Debentures 3,000,000 --
---------- -----------
Total Liabilities 5,637,118 3,332,359
---------- -----------
Commitments and Contingencies -- --
Stockholders' Equity:
Common Stock, $.01 Par Value, Authorized 30,000,000
Shares, Issued 16,791,122 and 17,351,883 Shares,
1997 and 1996, respectively 167,911 173,519
Capital In Excess of Par Value 25,273,031 27,258,352
Accumulated Deficit (22,594,038) (19,953,668)
Treasury Stock - At Cost - 633,986 Shares -- (2,567,207)
---------- -----------
Total Stockholders' Equity 2,846,904 4,910,996
---------- -----------
Total Liabilities and Stockholders' Equity $8,484,022 $ 8,243,355
========== ===========
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
19
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
<TABLE>
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Revenues:
<S> <C> <C> <C>
Licenses $3,940,000 $ 1,044,460 $ 1,421,866
Maintenance 2,722,000 2,252,378 1,174,150
Professional Services 1,275,573 2,171,834 1,522,738
---------- ----------- -----------
Total Revenues 7,937,573 5,468,672 4,118,754
---------- ----------- -----------
Costs and Expenses:
Cost of Revenues 5,426,000 4,585,727 1,329,693
Research and Development -- 1,846,410 1,932,920
Sales and Marketing 1,900,000 1,124,884 465,045
General and Administrative 2,988,919 3,627,351 2,760,298
Special Charges -- -- 1,165,000
---------- ----------- -----------
Total Costs and Expenses 10,314,919 11,184,372 7,652,956
---------- ----------- -----------
Operating Loss (2,377,346) (5,715,700) (3,534,202)
---------- ----------- -----------
Interest Expense [Income]:
Interest Expense 300,593 1,924 15,220
Interest Income (37,569) (109,302) (5,332)
---------- ----------- -----------
Interest Expense [Income] 263,024 (107,378) 9,888
---------- ----------- -----------
Loss from Continuing Operations (2,640,370) (5,608,322) (3,544,090)
Loss from Discontinued Operations, Without Tax
Benefit -- -- (7,107,987)
Loss on Disposal of Discontinued Operations,
Without Tax Benefit -- (392,872) (749,758)
---------- ----------- -----------
Net Loss $(2,640,370) $(6,001,194)$(11,401,835)
=========== =========== ============
Loss Per Common Share from Continuing
Operations $ (0.16) $ (0.38)$ (0.41)
========== =========== ===========
Net Loss Per Common Share $ (0.16) $ (0.40)$ (1.33)
========== =========== ===========
Weighted Average Number of Common Shares
Outstanding 16,794,000 14,866,000 8,559,000
========== =========== ===========
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
20
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [DEFICIT]
- ------------------------------------------------------------------------------
<TABLE>
Retained Total
Capital Earnings Stockholders'
in Excess [Accumulated Treasury Equity
Common Stock of Par Value Deficit] Stock [Deficit]
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 91,873 $10,401,994 $(2,550,639) $(2,567,207) $ 5,376,021
Sale of 7,567 Shares of Common
Stock under Employee Stock
Purchase Plan 76 12,259 -- -- 12,335
Net Loss -- -- (11,401,835) -- (11,401,835)
-------- ----------- ----------- ---------- -----------
Balance at December 31, 1995 91,949 10,414,253 (13,952,474) (2,567,207) (6,013,479)
Sale of 125,187 Shares of Common
Stock under Stock Option Plans 1,252 370,562 -- -- 371,814
Issuance of 3,256,201 Shares of
Common Stock under the
Restructuring Agreement 32,562 6,479,840 -- -- 6,512,402
Issuance of Five-year Warrants to
Purchase up to an Aggregate of
1,725,694 Shares of Common
Stock under the Restructuring
Agreement -- 465,938 -- -- 465,938
Sale of 1,412,758 Shares of Common
Stock to Software Investments
Limited ["SIL"] 14,128 2,811,388 -- -- 2,825,516
Sale of Five Year Warrants to
Purchase an Aggregate of 196,875
Shares of Common Stock to SIL -- 196,875 -- -- 196,875
Issuance of 2,500,000 Shares of
Common Stock to Care
Corporation Limited 25,000 4,975,000 -- -- 5,000,000
Exercise of Five-year Warrants to
Purchase 862,847 Shares of
Common Stock 8,628 1,544,496 -- -- 1,553,124
Net Loss -- -- (6,001,194) -- (6,001,194)
-------- ----------- ----------- ---------- -----------
Balance at December 31, 1996 173,519 27,258,352 (19,953,668) (2,567,207) 4,910,996
Exercise of 73,225 Stock Options 732 140,233 -- -- 140,965
Retirement of 633,986 Shares of
Treasury Shares (6,340) (2,560,867) -- 2,567,207 --
Compensation Expense for Stock
Options Issued Below Fair Value -- 435,313 -- -- 435,313
Net Loss -- -- (2,640,370) -- (2,640,370)
-------- ----------- ----------- ---------- -----------
Balance at December 31, 1997 $167,911 $25,273,031 $(22,594,038) $ -- $ 2,846,904
======== =========== ============= ========== ===========
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
21
</TABLE>
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Loss from Continuing Operations $(2,640,370) $(5,608,322) $(3,544,090)
Adjustments to Reconcile Net Loss to Net Cash
Provided from [Used for] Operating Activities:
Depreciation 182,374 341,798 365,129
Amortization of Capitalized Software and Software
License 1,814,893 2,101,576 489,227
Provision for Uncollectible Accounts 172,190 43,870 --
Noncash Compensation Expense on Granting
of Stock Options 435,313 -- --
Loss on Disposal of Securities -- -- 86,223
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 178,502 134,622 (1,374,169)
Income Taxes Receivable -- 2,300,000 (163,972)
Deferred Income Taxes -- (20,000) 2,800,000
Prepaid Expenses (133,622) (1,806) (2,646)
Other Assets 6,846 420,545 (3,776)
Increase [Decrease] in:
Accounts Payable 116,429 (418,888) 161,561
Accrued Liabilities (77,228) (2,449,304) 3,123,208
Unearned Revenue (734,442) 546,011 513,447
---------- ----------- -----------
Net Cash [Used For] Provided from Continuing
Operating Activities - Forward (679,115) (2,609,898) 2,450,142
---------- ----------- -----------
Loss from Discontinued Operations -- -- (7,107,987)
Loss on Disposal of Discontinued Operations -- (392,872) (749,758)
Decrease [Increase] in Net Assets of Discontinued
Operations -- (1,670,028) (82,238)
---------- ----------- -----------
Net Cash Used For Discontinued Activities -
Forward -- (2,062,900) (7,939,983)
---------- ----------- -----------
Cash Flows from Investing Activities:
Proceeds from Sale of Fixed Maturity Investments -- -- 3,786,277
Proceeds from Sale of Equipment 3,640 -- --
Capital Expenditures (3,995) (85,860) (139,818)
Capitalized Software Expenditures -- (1,318,744) (1,000,009)
---------- ----------- -----------
Net Cash [Used For] Provided from Investing
Activities - Forward $ (355) $(1,404,604) $ 2,646,450
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
22
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Net Cash [Used For] Provided from Continuing
<S> <C> <C> <C>
Operating Activities - Forwarded $ (679,115) $(2,609,898) $ 2,450,142
---------- ----------- -----------
Net Cash Used For Discontinued Activities -
Forwarded -- (2,062,900) (7,939,983)
---------- ----------- -----------
Net Cash [Used For] Provided from Investing
Activities - Forwarded (355) (1,404,604) 2,646,450
---------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from Bridge Financing 750,000 -- --
Payments on Bridge Financing (750,000) -- --
Proceeds from Convertible Debentures 3,000,000 -- --
Payments on Credit Lines -- -- (2,000,000)
Net Proceeds from Issuance of Common Stock -- 4,947,329 12,335
Proceeds from Exercise of Stock Options 140,965 -- --
---------- ----------- -----------
Net Cash Provided from [Used For] Financing
Activities 3,140,965 4,947,329 (1,987,665)
---------- ----------- -----------
Change in Cash and Cash Equivalents 2,461,495 (1,130,073) (4,831,056)
Cash and Cash Equivalents - Beginning of Years 446,672 1,576,745 6,407,801
---------- ----------- -----------
Cash and Cash Equivalents - End of Years $2,908,167 $ 446,672 $ 1,576,745
========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 206,843 $ 1,924 $ 15,220
Income Taxes [Received] $ -- $(2,375,000) $(2,600,000)
</TABLE>
Supplemental Disclosures of Noncash Investing and Financing Activities:
Financing:
In 1996, the Company in connection with the discontinuance of ISD issued
Common Stock and Warrants for $6,978,340 as a result of the restructuring
agreement [See Note 2].
In 1997, the Company retired 633,986 shares of its Common Stock previously
held in the treasury.
Investing:
In 1996, the Company acquired a software license valued at $5,000,000 from
Care by issuing 2,500,000 of its Common Stock crediting Common Stock for $25,000
and capital in excess of par value for $4,975,000 [See Note 9].
In 1997, the Company retired property and equipment having a net book value
of $447,383.
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
23
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies
Description of Business - COVER-ALL Technologies Inc. [formerly Warner Insurance
Services, Inc.], through its wholly-owned subsidiary, COVER-ALL Systems, Inc.
["COVER-ALL"], licenses and maintains its software products to the
property/casualty insurance industry throughout the United States, Puerto Rico
and the United Kingdom. COVER-ALL also provides professional consulting services
to its customers interested in customizing their software.
Insurance Company - In late 1993, the Company obtained approval from the New
Jersey Department of Insurance to form Alerion Insurance Company of New Jersey
["Alerion"]. Alerion entered into a reinsurance agreement with Clarendon
National Insurance Company ["Clarendon"] to assume a portion of Clarendon's risk
in the New Jersey Assigned Risk Program. The subsidiary was initially
capitalized with $10 million. During the fourth quarter of 1994, the Company
decided to discontinue assuming any underlying insurance risk. This was
accomplished by Alerion commuting all its rights and obligations under the
reinsurance contract back to Clarendon and paying to Clarendon all amounts
received in excess of payments made since the inception of the reinsurance
contract in January 1994. In 1996, Alerion surrendered its Certificate of
Authority to transact insurance business in New Jersey.
Principles of Consolidation - The consolidated financial statements are prepared
on the basis of generally accepted accounting principles and include the
accounts of Cover-All Technologies Inc. and its wholly-owned subsidiary [the
"Company"]. All material intercompany balances and transactions have been
eliminated.
Use of Estimates - Preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition - Revenue from the sale of software licenses is
recognized when modules are provided to and accepted by the customer. Revenue
from software maintenance contracts is recognized ratably over the life of the
contract. Revenue from professional consulting services is recognized when the
service is provided.
Cash and Cash Equivalents - The Company considers all highly liquid investments,
with a maturity of three months or less when purchased, to be cash equivalents.
Concentrations of Credit Risk - Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash and
cash equivalents and trade accounts receivable.
The Company places its cash and cash equivalents with high credit quality
institutions to limit its credit exposure. The Company believes no significant
concentration of credit risk exists with respect to these investments.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the wide variety of customers, principally major insurance
companies, who are dispersed across many geographic regions. Three major
customers accounted for approximately 53% of the Company's trade accounts
receivable portfolio. The Company performs ongoing credit evaluations of its
customers but does not require collateral. The Company maintains allowances for
potential credit losses.
Impairment - Long-lived assets of the Company are reviewed at least annually as
to whether their carrying value has become impaired pursuant to Statement of
Financial Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No 121
requires long-lived assets, if impaired, to be remeasured at fair value,
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Management also reevaluates the periods of
amortization of long-lived assets to determine whether events and circumstances
warrant revised estimates of useful lives.
24
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- ------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Property and Equipment - Furniture, fixtures and equipment are carried at cost.
Depreciation is recorded on the straight-line method over three to ten years,
which approximates the estimated useful lives of the assets.
Routine maintenance and repair costs are charged to expense as incurred and
renewals and improvements that extend the useful life of the assets are
capitalized. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts and any resulting gain
or loss is reported as income or expense.
Capitalized Software and Related License - Qualifying software development costs
are capitalized and amortized over a three-year period. There were no software
development costs capitalized during 1997. During the fourth quarter of 1996,
the Company wrote off approximately $500,000 of unamortized software development
costs representing certain modules of the TAS 2000 product line not expected to
be completed in the near future due to reprioritizing of marketing and
development efforts. This write off is reflected in cost of revenues in 1996.
As more fully described in Note 9, in March of 1996, the Company acquired a
software license [the "Care Software License"] by issuing 2,500,000 shares of
its common stock and began amortizing such license over a five-year period. In
the fourth quarter of 1997, the Company made a strategic decision to allocate
its future resources to its TAS and Classic product lines rather than the
product line obtained via the Care Software License. In this regard, on March
31, 1998, the Company negotiated the Care Software License back to the original
seller of the license. The Company also acquired the worldwide reseller rights
(excluding Australia, New Zealand, and the United States).
Advertising Expense - It is the Company's policy to expense advertising costs as
incurred. Advertising expense in 1997, 1996 and 1995 was $56,361, $128,803 and
$73,495, respectively.
Research and Development - No research and development costs were incurred for
the year ended December 31, 1997. For the years ended December 31, 1996 and
1995, $1,846,410 and $1,932,920, respectively, was expensed for research and
development of new software products. These expenses are in addition to software
development costs in 1996 and 1995 which are capitalized and then amortized over
their expected useful lives. See capitalized software and related license above.
Income Taxes - Pursuant to SFAS No. 109, "Accounting for Income Taxes," income
tax expense [or benefit] for the year is the sum of deferred tax expense [or
benefit] and income taxes currently payable [or refundable]. Deferred tax
expense [or benefit] is the change during the year in a company's deferred tax
liabilities and assets. Deferred tax liabilities and assets are determined based
on differences between financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Net Loss Per Share - The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ["SFAS"] No. 128, Earnings per
Share, which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended December 31, 1997, have been calculated in
accordance with SFAS No. 128. Prior periods loss per share data have been
recalculated and it was determined that no adjustment was necessary.
25
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- ------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
Net Loss Per Share [Continued] - SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15, Earnings per Share, and replaces its primary earnings per
share with a new basic earnings per share representing the amount of earnings
for the period available to each share of common stock outstanding during the
reporting period. Basic earnings [loss] per share is computed by dividing income
[loss] available to common stockholders by the weighted average number of common
shares outstanding during the period. SFAS No. 128 also requires a dual
presentation of basic and diluted earnings per share on the face of the
statement of operations for all companies with complex capital structures.
Diluted earnings per share reflects the amount of earnings for the period
available to each share of common stock outstanding during the reporting period,
while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on per share amounts (i.e., increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants. The Company's options and warrants were not included in the
computation of loss per share because to do so would have been antidilutive for
the periods presented, however, such options and warrants could potentially
dilute basic earnings per share in the future.
The dilutive effect of convertible debt is reflected in dilutive earnings per
share by the application of the if-converted method. Convertible debt will have
a dilutive effect only when the amount of interest (net of tax) on a per share
basis is less than basic earnings per share. The Company's convertible debt does
not affect the loss per share calculation because it would be antidilutive for
the year ended December 31, 1997, however, such convertible debt could
potentially dilute basic earnings per share in the future.
Stock-Based Compensation - The Company follows Accounting Principles Board
Opinion No. 25. "Accounting for Stock Issued to Employees" ["APB No. 25"] with
regard to the accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized only when the exercise price of options is
below the market price of the underlying stock on the date of grant. The Company
applies the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" to non-employee stock-based compensation and the pro forma
disclosure provisions of SFAS No. 123 to employee stock-based compensation.
Presentation - Certain items have been reclassified from the prior year to
conform with the current year's presentation.
[2] Discontinued Operations
Insurance Services Division ["ISD"] revenues decreased substantially in 1994 and
1995 because of lower fees attributable to the reduced number of policies and
claims being handled on contracts that were winding down or were completed. As a
result, ISD had been suffering losses and operating under considerable
uncertainty as a result of the pendency of lawsuits with certain affiliates of
The Robert Plan Corporation ["The Robert Plan Corporation"] as described in Note
4. In March 1996, the Company entered into a series of agreements which provided
for the transfer and discontinuance of its ISD operations and the issuance of
the Company's Common Stock and Warrants to certain customers of the ISD business
in exchange for the release of the Company from its obligations to provide
insurance services to ISD customers and to The Robert Plan Corporation in
exchange for the settlement and dismissal of lawsuits with The Robert Plan
Corporation. Effective March 1, 1996 the Company has discontinued providing
insurance processing services to the automobile insurance industry and has
reflected those activities as discontinued operations in its Financial
Statements.
26
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- ------------------------------------------------------------------------------
[2] Discontinued Operations [Continued]
As part of the restructuring transactions [the "Restructuring"], the Company
transferred certain assets, employees, contracts and leased premises relating to
its ISD business to a subsidiary of The Robert Plan Corporation, which has
replaced the Company as the provider of insurance services to the ISD customers.
In exchange for settling the lawsuits, releasing the Company's obligations to
provide insurance services under its contracts and executing the mutual
releases, the Company issued to certain of the ISD customers and certain parties
to the litigation: (a) a total of 3,256,201 shares of the Company's Common
Stock, (b) five-year Warrants to purchase up to an additional aggregate of
1,553,125 shares of the Company's Common Stock at $2.00 per share and (c) cash
of $2.5 million. The holders of these securities can request the Company to
register these securities with such registration costs to be paid by the
Company. The Company had the option, exercisable for a period of six months
[from March 1, 1996], to (i) purchase 50% of the aforementioned 3,256,201 shares
at a cash price equal to the greater of $3.00 or 50% of the then market price of
a share of the Company's Common Stock and (ii) acquire 50% of the 1,553,125
Warrants at a cash price equal to $1.00 per Warrant. On March 31, 1996, the
Company assigned its aforementioned repurchase option applicable to the
Company's Common Stock and Warrants to Software Investment Limited ["SIL"],
which SIL subsequently exercised, as discussed in Note 9. As a result of the
issuance of shares described in Note 9, the antidilution provisions of the
Warrants required an adjustment of shares to 1,725,694 from 1,553,125 and a
price adjustment to $1.80 from $2.00 per share.
The discontinuance of ISD resulted in a loss on disposal of discontinued
operations of $392,872 in 1996 and $749,758 in 1995.
The Consolidated Statement of Operations for 1995 has been restated to report
the net results of the ISD operations as loss from discontinued operations. The
results of ISD are summarized as follows:
Year ended
December 31, 1995
Net Revenues $ 20,228,212
============
Loss from Operations Before Income Taxes $ (7,107,987)
Income Taxes/[Benefit] --
------------
Loss from Discontinued Operations $ (7,107,987)
============
[3] Special Charges
In December 1994, management instituted a plan to down-size the COVER-ALL
organization and reduce the rate of product development to a level consistent
with the reduced level of customer installations planned for 1995. Costs of
$1,165,000 were incurred and written off in the first quarter of 1995 for
executive and other severance costs as well as additional software development
costs and have been reflected as special charges in the 1995 Statement of
Operations.
[4] Litigation
In March 1994, Material Damage Adjustment Corporation ["MDA"], a subsidiary of
The Robert Plan Corporation and a subcontractor for the Company performing
claims processing work, instituted an action in the Superior Court of New Jersey
seeking injunctive relief requiring that the Company turn over to MDA in excess
of $1 million that the Company had withheld from certain claims fees allegedly
owed to MDA. This action arose out of the Company's servicing contract with the
Market Transition Facility of New Jersey ["MTF"]. The Company had withheld the
funds as a set off to cover unpaid invoices for data processing services
rendered by the Company for MDA. MDA also added a claim for approximately $2.5
million of surcharge fees paid to the Company by the MTF. The MTF was brought
into the case to resolve disputes between MTF and MDA over refunds of claims
fees paid on claims later closed without payment. The Company vigorously
contested MDA's claims and asserted counterclaims against MDA to establish the
Company's entitlement to the disputed sums.
27
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- ------------------------------------------------------------------------------
[4] Litigation [Continued]
In May 1994, the Company filed an action in the Superior Court of New Jersey
against Lion Insurance Company, National Consumer Insurance Corporation, and The
Robert Plan Corporation seeking payment of unsatisfied invoices under an April
1991 agreement totaling approximately $2.7 million. Under the agreement, the
Company agreed to provide data processing services for a three-year term in
support of Lion Insurance Company's "depopulation pool" automobile insurance
business in New Jersey. Lion Insurance Company is a subsidiary of The Robert
Plan Corporation whose affiliate, National Consumer Insurance Corporation, has
taken over the "depopulation pool" business. The Robert Plan Corporation
guaranteed Lion's performance and payment.
On March 1, 1996, the two lawsuits described above were settled as part of the
overall settlement with certain of the Company's insurance services customers.
The settlement and restructuring transactions are described in Note 2.
On February 2, 1995, Sol M. Seltzer commenced an action in the Supreme Court of
New York against Mr. Krieger, the then Chairman of the Board and former
President of the Company, and each of the other then members of the Board of
Directors. The plaintiff, Sol M. Seltzer, who purported to sue derivatively on
behalf of the Company and COVER-ALL, sought among other things, compensatory
damages in an amount to be determined at trial and punitive damages in an
aggregate amount of $12 million. Sol M. Seltzer was a vice president of the
Company and a director of COVER-ALL until he resigned from such positions in
late 1994. The plaintiff alleged, among other things, breach of fiduciary duty,
waste and mismanagement, as well as alleged wrongful acts by the Board and the
former President, including among other things, self-dealing and misuse of
corporate funds by the former President. The Company, and the other defendants,
contested Mr. Seltzer's claims and on July 23, 1996 won a motion to dismiss the
case. Mr. Seltzer filed a Notice of Appeal; however, the Notice of Appeal
initially was rejected for defects of form. Subsequently, Mr. Seltzer was
granted leave to file a corrected Notice of Appeal and did so on or about
November 26, 1996. However, Mr. Seltzer's time to "perfect" his appeal ran out
on or about August 26, 1997. Accordingly, the appeal is dismissible for failure
to prosecute and the Company considers this matter resolved.
On February 6, 1995, the Company commenced an action in the Superior Court of
New Jersey against Sol M. Seltzer, a former vice president of the Company and a
director of COVER-ALL, alleging fraud, mismanagement, negligence,
misrepresentation, and breach of fiduciary duty with respect to the development
and implementation of COVER-ALL's TAS 2000 software product. The Company claimed
compensatory and punitive damages in an amount to be determined at trial. The
case was largely inactive pending the motion to dismiss Seltzer's New York
action. After the dismissal of the New York case brought by Seltzer, the Company
voluntarily dismissed the New Jersey case without prejudice.
The Company is not currently named as a defendent in any lawsuit.
28
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- ------------------------------------------------------------------------------
[5] Commitments, Contingencies and Other
Operating Leases - The Company leases office space in Fair Lawn, NJ, where it
occupies approximately 36,000 square feet, under a lease which expires in 2000.
The lease includes escalation clauses for increased real estate taxes, insurance
and maintenance expenses. The lease provides for a renewal period of five years.
Rent expense for COVER-ALL office space was $311,240, $334,170 and $174,710, for
the years ended December 31, 1997, 1996 and 1995, respectively.
The Company's future minimum rental commitments under its noncancellable
operating lease in effect at December 31, 1997 follows: years ending December
31, 1998 -- $400,000; 1999 -- $400,000; 2000 -- $170,000; thereafter -- NONE.
Employment Contracts - The Company has employment contracts with certain of its
executives with various dates of expiration through the year ending December 31,
1998. Certain of the contracts are automatically renewable from year to year.
The aggregate annual commitment for future salaries at December 31, 1997 was
approximately $650,000.
Related Party Transactions - A director of the Company in 1995 and 1996 and for
part of 1997 is a partner in a law firm with which the Company incurred legal
expenses of approximately $290,000, $600,000 and $360,000, in 1997, 1996 and
1995, respectively. An attorney associated with the Chairman provides legal
services to the Company. The Company incurred approximately $82,000 in legal
costs with this attorney in 1997.
Letter of Credit - At December 31, 1994, the Company had an outstanding letter
of credit for $1,000,000 with First Fidelity Bank, N.A., NJ, which guaranteed a
performance bond issued in connection with the Company's contract with the
JUA/MTF, an ISD customer. In February 1995, this letter of credit was replaced
by a $1,000,000 letter of credit issued by Chase Manhattan Bank N.A. which was
collateralized by $1,000,000 that was placed in a restricted account. The letter
of credit expired in February 1996 and the $1,000,000 of cash collateral was
returned to the Company.
Major Customers - The Company had a portion of its revenues from one customer in
1997 and three customers in 1996 and 1995 as follows:
Y e a r s e n d e d
D e c e m b e r 31,
Customer 1 9 9 7 1 9 9 6 1 9 9 5
-------- ------- ------- -------
Inspire Insurance Solutions 20% -- --
Sun Alliance Management Services -- 27% 16%
Glatfelter Insurance Group -- 13% --
Millers Insurance Group -- 13% --
New Jersey State Medical Underwriters -- -- 18%
Secura, Inc. -- -- 11%
In 1997, 1996 and 1995 export sales were made to a U.K. customer of
approximately $500,000, $1,465,000 and $640,000, respectively.
Credit Lines - At December 31, 1994, the Company had outstanding $2 million in
short-term borrowings against its $4 million secured credit line with a bank. In
1995 the Company repaid the $2 million and the credit line was withdrawn.
29
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
- ------------------------------------------------------------------------------
[6] Income Taxes
An analysis of the components of the income tax provision is as follows:
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Current:
Federal $ -- $ -- $(2,800,000)
State -- -- --
-------- --------- ----------
Totals -- -- (2,800,000)
-------- --------- ----------
Deferred:
Federal -- -- 2,800,000
State -- -- --
-------- --------- ----------
Totals -- -- 2,800,000
-------- --------- ----------
Totals $ -- $ -- $ --
------ ======== ========= ==========
The income tax provision [benefit] for continuing operations differs from the
amount computed by applying the statutory federal income tax rate as follows:
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Computed Federal Statutory Tax [Benefit] $(900,000)$(1,781,000)$(1,204,991)
Valuation Allowance to Reduce Deferred Tax
Asset 900,000 1,781,000 1,204,991
-------- ---------- -----------
Actual Provision [Benefit] $ -- $ -- $ --
-------------------------- ========= ========== ===========
The components of the net deferred tax asset and liability were as follows:
D e c e m b e r 31,
--------------------------
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Deferred Tax Assets - Current:
Deferred Revenue $ -- $ -- $1,185,000
Reserve for Contract Adjustments -- -- 2,075,000
Bad Debts 74,000 18,000 186,000
Reserve for Loss on Disposal 185,000 414,000 300,000
Other - Net 13,000 36,000 31,000
Valuation Allowance (272,000) (468,000) (3,777,000)
--------- ---------- ----------
Current Deferred Tax Asset $ -- $ -- $ --
-------------------------- ========= ========== ==========
Deferred Tax Asset [Liability] - Long-Term:
Net Operating Loss Carryforward $9,500,000 $8,421,000 $2,790,000
Capitalized Software (265,000) (590,000) (600,000)
Depreciation and Amortization 91,000 200,000 200,000
Valuation Allowance (9,326,000)(8,031,000) (2,410,000)
---------- ---------- ----------
Long-Term Deferred Tax Liability $ -- $ -- $ (20,000)
-------------------------------- ========= ========== ==========
The net change during 1997 in the total valuation allowance is $1,099,000.
30
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
- ------------------------------------------------------------------------------
[6] Income Taxes [Continued]
At December 31, 1997, the Company had approximately $3,000,000, $14,000,000 and
$7,000,000 of operating tax loss carryforwards expiring in 2012, 2011, and 2010,
respectively. The Tax Reform Act of 1986 enacted a complex set of rules which
limit a company's ability to utilize net operating loss carryforwards and tax
credit carryforwards in periods following an ownership change. These rules
define an ownership change as a greater than 50 percent point change in stock
ownership within a defined testing period which is generally a three-year
period. As a result of stock issued relative to the Restructuring and other
stock which may be issued related to the Debentures [see Note 12] the Company
may experience an ownership change and consequently the Company's utilization of
its net operating losses could be significantly limited.
[7] Stock Option and Stock Purchase Plans
In March 1995, the Company adopted the 1995 Employee Stock Option Plan,
which was ammended in April 1997. Options for the purchase of up to 2,000,000
shares may be granted by the Board of Directors to employees of the Company at
an exercise price determined by the Board of Directors on the date of grant.
Options may be granted as incentive or non-qualified stock options with a term
of not more than ten years. At December 31, 1997, 1996 and 1995, 341,775,
210,175 and 482,325 shares, respectively, were available for grant.
On November 15, 1994 the Company adopted the 1994 Stock Option Plan for
Independent Directors. Options for the purchase of up to 300,000 shares may be
granted to directors of the Company who are not employees ["non-employee
director"]. Each non-employee director who is serving on "Date of Grant" shall
automatically be granted an option to purchase 10,000 shares of Common Stock at
the fair market value of Common Stock on the date the option is granted. Dates
of Grant are November 15, 1994, 1999, 2004, and 2009 for non-employee directors
serving on November 15, 1994. For individuals who become non-employee directors
after November 15, 1994, such directors' Dates of Grant will be the date such
individual becomes a director and the fifth, tenth and fifteenth anniversaries
of such date. Options are exercisable in full 6 months after the applicable date
of grant and expire 5 years after the date of grant. At December 31, 1997, 1996
and 1995, 240,000, 240,000 and 260,000 shares, respectively, were available for
grant.
In October 1994, the Company adopted the 1994 Non-Qualified Stock Option Plan
for Consultants. Options for the purchase of up to 200,000 shares may be granted
by the Board of Directors to any individual who has entered into a written
consulting contract with the Company. The non-qualified stock options will have
a 5 year term from date of grant and will be exercisable at a price and time as
determined by the Board of Directors on the date of grant. At December 31, 1997,
1996 and 1995, 105,000, 105,000 and 105,000 shares, respectively, were available
for grant.
In June 1991, the Company adopted the Key Employee Stock Option Plan [the "KESO
Plan"]. Options for the purchase of up to 721,875 shares may be granted by the
Board of Directors to key employees of the Company at an exercise price
determined by the type of option granted. Options may be granted as incentive or
non-qualified stock options with a term of not more than ten years from the date
of grant. At December 31, 1997, 1996 and 1995, 319,938, 279,938 and 229,938
shares, respectively, were available for grant.
31
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
- ------------------------------------------------------------------------------
[7] Stock Option and Stock Purchase Plans [Continued]
A summary of the changes in outstanding Common Stock options for all outstanding
plans is as follows:
Weighted-Average
Remaining Weighted-Average
Shares Per Share Contractual Life Exercise Price
Balance, December 31, 1994 453,350 $2.63 - 10.00 2.9 years $ 4.17
Granted 462,225 1.13 - 3.75 2.1 years 1.80
Canceled (225,608) 3.13 - 10.00 3.87
Balance, December 31, 1995 689,967 1.13 - 10.00 2.3 years $ 2.66
Granted 337,250 2.00 - 5.25 2.9 years 3.20
Exercised (125,187) 1.75 - 3.53 2.97
Canceled (233,205) 1.75 - 10.00 3.75
Balance, December 31, 1996 668,825 1.13 - 5.25 2.6 years $ 2.49
Granted 1,410,000 1.25 - 3.81 3.9 years 1.48
Exercised (73,225) 1.75 - 2.00 1.93
Canceled (186,600) 1.38 - 5.25 2.08
Balance, December 31 1997 1,819,000 1.13 - 5.00 3.4 years $ 1.70
The options granted during 1997 are distributed as follows, relative to the
difference between the exercise price and the stock price at grant date:
Number Weighted-AverageWeighted-Average
Granted Exercise Price Fair Value
Exercise Price Above Stock Price 100,000 $ 2.00 $ .74
Exercise Price at Stock Price 215,000 1.72 1.10
Exercise Price Below Stock Price 1,095,000 1.38 1.38
----------- --------- -------
Totals 1,410,000 $ 1.48 $ 1.29
------ =========== ========= =======
Exercisable options at December 31, 1997, 1996 and 1995 were as follows:
Number of Weighted-Average
December 31, Exercisable Options Exercise Price
1997 1,582,334 $ 1.69
1996 351,909 $ 2.29
1995 302,675 $ 1.69
32
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
- ------------------------------------------------------------------------------
[7] Stock Option and Stock Purchase Plans [Continued]
The following table summarizes information about stock options at December 31,
1997:
<TABLE>
Exercisable
Outstanding Stock Options Stock Options
Weighted-Average
Range of Remaining Weighted-Average Weighted-Average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
$1.13 - $1.25 1,000,000 3.9 Years $ 1.24 800,000 $ 1.23
$1.38 - $1.94 260,150 3.2 Years $ 1.61 255,150 $ 1.61
$2.00 - $2.25 448,850 2.8 Years $ 2.02 448,850 $ 2.02
$3.81 - $5.00 110,000 2.6 Years $ 4.76 78,334 $ 4.81
--------- ------------------------ --------- -------
1,819,000 3.4 Years $ 1.70 1,582,334 $ 1.69
========= ========= ======= ========= =======
</TABLE>
In 1985, the Board of Directors authorized, and the stockholders approved, the
adoption of an Employee Stock Purchase Plan [the "Purchase Plan"]. An aggregate
of 344,531 shares of the Company's Common Stock could be issued under the
Purchase Plan. As of December 31, 1995, 207,681 shares were issued under the
Purchase Plan which was terminated in March 1995.
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, for stock options issued
to employees in accounting for its stock option plans. The exercise price of
certain options issued during 1997 was below the market price at the date of
grant. Accordingly, compensation expense of $435,313 was recorded in 1997. The
exercise price for all stock options issued during 1996 and 1995 was equal to
the market price of the Company's stock at the date of grant. Accordingly, no
compensation expense has been recognized for the Company's stock-based
compensation plans for fiscal years 1996 and 1995.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. The weighted average
fair value of stock options granted to employees used in determining pro forma
amounts is estimated at $1.29, $1.95 and $.94 during 1997, 1996 and 1995,
respectively.
Pro forma information regarding net loss and net loss per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method prescribed under SFAS No. 123, Accounting for Stock Based
Compensation. The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model for the pro forma amounts with the
following weighted average assumptions:
D e c e m b e r 3 1,
------------------------------------
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Risk-Free Interest Rate 6.70% 6.29% 6.74%
Expected Life 3.8 Years 3.3 Years 3.6 Years
Expected Volatility 88% 89% 70%
Expected Dividends None None None
33
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
- ------------------------------------------------------------------------------
[7] Stock Option and Stock Purchase Plans [Continued]
The pro forma amounts are indicated below [in thousands, except per share
amounts]:
<TABLE>
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
Net Loss as Reported $ 2,640 $ (6,001) $ (11,402)
Pro Forma Net Loss $ 3,787 $ (6,166) $ (11,660)
Loss Per Share as Reported $ (.16)$ (.40) $ (1.33)
Pro Forma Loss Per Share $ (.23)$ (.41) $ (1.36)
</TABLE>
[8] Common Stock
On November 17, 1989, the Company adopted a Stockholder Rights Plan and declared
a dividend distribution of one Right for each outstanding share of Common Stock.
Under certain conditions, each Right shall initially entitle the registered
holder thereof to purchase one-fifth of one share of Common Stock at a purchase
price of $10.00, subject to adjustment. The Rights will be exercisable only if
(i) a person or group has acquired, or obtained the right to acquire 15% or more
of the outstanding shares of Common Stock (other than a person that acquires the
stock directly from the Company in a transaction that the Company's independent
Directors determine to be in the best interests of the Company and its
stockholders] or (ii) following the commencement of a tender offer or exchange
offer for 15% or more of the then outstanding shares of Common Stock. Each Right
will entitle its holder to receive, upon exercise, Common Stock (or, in certain
circumstances, cash, property, or other securities of the Company] having a
value equal to two times the purchase price of the Right under certain
circumstances, including the acquisition of 20% of the outstanding Common Stock.
All rights holders, except the acquiror, may purchase a number of shares of
Common Stock equal to $10.00 (subject to adjustment under the terms of the
Rights Plan] divided by 50% of the market price of the Company's Common Stock on
the date which is ten days after a public announcement by the Company that a
person or group has acquired, or obtained the right to acquire, 15% or more of
the outstanding shares of Common Stock. In the event that the Company is
acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation, the rights holders may purchase the
acquiror's shares at the similar discount.
The Company may redeem the Rights at $.01 each until ten days following the date
on which a person or group of affiliated persons has acquired, or obtained the
right to acquire, the beneficial ownership of 15% or more of the outstanding
shares of Common Stock. The Rights will expire on December 4, 1999 unless
earlier redeemed by the Company.
[9] Sale of Stock and Warrants, and Purchase and Sale of Care Software License
On March 31, 1996, the Company entered into a series of transactions with
Software Investments Limited ["SIL"] and Care Corporation Limited ["Care"]
whereby the Company:
[A] sold to SIL for total proceeds of $3,022,391: (i) 1,412,758 shares of the
Company's Common Stock for $2.00 per share and (ii) five-year warrants to
purchase an aggregate of 196,875 shares of the Company's Common Stock
exercisable at $2.00 per share for $1.00 per warrant ($196,875). As a result of
the issuance of the 12 1/2% Convertible Debentures discussed in Note 12, the
warrants required an adjustment of shares to 206,152 and a price adjustment to
$1.91 per share. As of December 31, 1997, no warrants had been exercised.
34
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
- ------------------------------------------------------------------------------
[9] Sale of Stock and Warrants, and Purchase and Sale of Care Software License
[Continued]
[B] assigned to SIL the rights it retained in the Restructuring [see Note 2]
to repurchase within six months 1,628,100 shares of the Company's Common Stock
for the greater of $3.00 per share or 50 percent of the then market price of the
Company's Common Stock and its rights to purchase from the warrant holders for
$1.00 per share five-year warrants to acquire 776,562 shares of the Company's
Common Stock at $2.00 per share. As a result of the issuance of the above
mentioned shares, the antidilution provisions of the Warrants required an
adjustment from 776,562 shares at $2.00 per share to 862,847 shares at $1.80 per
share. As a result of the issuance of the 12 1/2% Convertible Debentures
discussed in Note 12, the Warrants may require a further adjustment to the
number of shares purchasable and the exercise price.
On May 1, 1996, SIL acquired 1,628,100 shares of the Company's Common Stock at
$3.00 per share, and at $1.00 per Warrant, 862,847 Warrants to acquire 862,847
shares of the Company's Common Stock at $1.80 per share. SIL exercised these
Warrants on May 6, 1996, resulting in the Company receiving $1,553,124 in
additional equity.
In addition, on March 31, 1996, the Company was granted by Care the exclusive
license for the Care software systems for use in the workers' compensation
claims administration markets in Canada, Mexico and Central and South America.
In exchange for this license, the Company issued to Care 2,500,000 shares of the
Company's Common Stock using the $2.00 per share price in [A] above to value the
license as $5,000,000 at March 31, 1996. The license agreement was revised on
March 14, 1997, and the Company engaged Care as its exclusive sales agent for a
monthly fee of $10,000 against commissions of 20%. Depending upon the level of
revenue reached, or not reached, under the license agreement, the Company has
the right to repurchase all or portions of the shares issued to Care at $.01 per
share.
In the fourth quarter of 1997, the Company made a strategic decision to allocate
its future resources to its TAS and Classic product lines rather than the
product line obtained via the Care Software License. In this regard, on March
31, 1998, the Company negotiated a buy back by Care of the Care Software
License.
For the buy back of Care Software License by Care, the Company received
$500,000 on March 31, 1998, and a $4,500,000 non-interest bearing note, payable
in semi-annual installments of $500,000 which, when discounted, results in a
principal amount of the note of $3,893,054. The discounted note is
collateralized by unencumbered Cover-All stock owned by Care. The number of
shares required as collateral will vary, such that the market value of the
shares held as collateral must equal 150% of the outstanding balance. The number
of shares required as collateral will be adjusted at each payment date based on
the market price of the Company's shares and the balance outstanding on the
date. Based on the market price of the Company's stock on March 30, 1998,
approximately 1,700,000 shares were pledged as collateral. Upon receipt of the
first $500,000 payment under the agreement on March 31, 1998, the Company lifted
the aforementioned $.01 per share stock repurchase restriction on the 2,500,000
shares. The Company also acquired worldwide reseller rights (excluding
Australia, New Zealand, and the United States.
In separate but related agreements, Care agreed to grant to the Company certain
non-exclusive re-seller rights to the Care software, and the Company agreed to
grant to Care certain non-exclusive re-seller rights to the Classic and TAS
software.
Based on the above, and due to the related party nature of the Care Software
License buy back agreement, the Company will record the $1,143,054 difference
between the carrying value of the Care Software License and the discounted
$4,393,054 buy back agreement to capital in excess of par value in the first
quarter of 1998.
35
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
- ------------------------------------------------------------------------------
[10] Quarterly Financial Data [Unaudited]
Summarized quarterly financial data is as follows:
[Dollar amounts in thousands except per share data]
<TABLE>
Quarter
First Second Third Fourth
Year ended December 31, 1997:
<S> <C> <C> <C> <C>
Revenues $ 883 $ 1,338 $ 2,058 $ 3,658
(Loss)/Income from Continuing
Operations(1) (1,586) (1,010) (240) 196
Loss on Disposal of Discontinued
Operations -- -- -- --
Net (Loss)/Income (1,586) (1,010) (240) 196
(Loss)/Income Per Common Share
from Continuing Operations (0.09) (0.06) (0.01) 0.01
Net (Loss)/Income Per Common Share (0.09) (0.06) (0.01) 0.01
Income Per Common Share from Continuing
Operations Assuming Dilution -- -- -- 0.01
Net Income Per Common Stock Assuming
Dilution -- -- -- 0.01
Year ended December 31, 1996:
Revenues $ 1,120 $ 1,897 $ 1,052 $ 1,400
Loss from Continuing Operations(1) (798) (1,280) (2,046) (1,484)
Loss on Disposal of Discontinued
Operations -- -- (393) --
Net Loss (798) (1,280) (2,439) (1,484)
Loss Per Common Share from Continuing
Operations (0.07) (0.08) (0.12) (0.10)
Net Loss Per Common Share (0.07) (0.08) (0.15) (0.10)
Year Ended December 31, 1995:
Revenues $ 1,054 $ 925 $ 1,136 $ 1,004
Loss from Continuing Operations(1) (2,158) (280) (388) (718)
Loss from Discontinued Operations (1,330) (3,103) (1,128) (1,547)
Loss on Disposal of Discontinued
Operations -- -- -- (750)
Net Loss (3,488) (3,383) (1,516) (3,015)
Loss Per Common Share from Continuing
Operations (0.25) (0.03) (0.05) (0.08)
Net Loss Per Common Share (0.41) (0.40) (0.18) (0.34)
(1)The first quarter of 1995 was adversely affected by the special charges as
described in Note 3.
</TABLE>
36
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
- ------------------------------------------------------------------------------
[11] Supplemental Data
Accrued liabilities consist of the following:
Years ended
December 31,
1 9 9 7 1 9 9 6
------- -------
Accrued Payroll, Benefits, Temporary Help, Consulting
and Severance $ 358,447 $ 371,186
Accrued Expenses of the Discontinued Operations Not
Assumed by The Robert Plan Corporation 461,506 1,036,736
Accrued Software Costs 312,764 --
Accrued Interest Costs 93,750 --
Accrued Professional Fees 150,000 --
Other 242,209 206,690
---------- -----------
Totals $1,618,676 $ 1,614,612
------ ========== ===========
[12] Convertible Debentures
On March 14, 1997, the Company obtained $750,000 in bridge financing through the
sale of 12 1/2% Convertible Notes to three major stockholders. The principal and
accrued interest on the bridge financing was repaid in full on March 31, 1997
out of the proceeds from the permanent financing discussed below.
On March 31, 1997, the Company sold $3,000,000 of 12 1/2% Convertible Debentures
due March 2002 [the "Debentures"] to an institutional investor. The Debentures
were sold at face value, pay interest quarterly and are convertible, in whole or
in part, into shares of Common Stock of the Company at $1.25 per share, subject
to adjustment. Neither the debentures nor the shares of Common Stock issuable
upon any conversion of such debentures have been registered under the Securities
Act of 1933 or any applicable state securities law. The Debentures contain
certain covenants which restrict the Company's ability to incur indebtedness,
grant liens, pay dividends or other defined restricted payments and make
investments and acquisitions. The Company cannot redeem the Debentures for two
years and thereafter may only call the Debentures if the closing price of the
Company's Common Stock for the twenty business days preceding the redemption
date exceeds $1.50. The net proceeds from this permanent financing were used to
repay the bridge financing and the remainder is being used for working capital
purposes.
[13] 401(k) Plan
After completing a year of service and working 1,000 hours, employees age 21 and
over are eligible to participate in the Company's Tax Saver 401(k) Salary
Reduction Plan. Employees can save 1% to 15% of pay on a pre-tax basis to a
current annual maximum of $9,500. The Company matches $.50 for each $1.00 of the
first 5% of pay employees elect to defer. Expenses associated with this plan in
1997, 1996 and 1995 were approximately $47,900, $21,100 and $18,400,
respectively.
[14] Fair Value of Financial Instruments
In assessing the fair value of its cash and cash equivalents, trade receivables
and trade payables management concluded that the carrying amount of these
financial instruments approximates fair value because of their short maturities.
Management estimates that the carrying amount of its convertible debentures,
based on current rates and terms at which the Company could borrow funds, is
approximately $3,050,000.
37
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #15
- ------------------------------------------------------------------------------
[15] New Authoritative Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ["FASB"] issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company is in the
process of determining its preferred format. The adoption of SFAS No. 130 will
have no impact on the Company's consolidated results of operations, financial
position or cash flows.
In June 1997, the FASB has issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. Financial
statement disclosures for prior periods are required to be restated. The Company
is in the process of evaluating the disclosure requirements. The adoption of
SFAS No. 131 will have no impact on the Company's consolidated results of
operations; financial position or cash flows.
In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, after clearance by the FASB, issued
Statement of Position (SOP) 97-2, Software Revenue Recognition. This SOP
supersedes SOP 91-1 of the same name and provides the most recent guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 is effective for transactions entered into in
fiscal years beginning after December 15, 1997.
SOP 97-2 requires that in arrangements to deliver software or a software system
that does not require significant production, modification, or customization,
revenue should be recognized when there is persuasive evidence that an
arrangement does in fact exist; delivery has occurred; the fee is fixed or
determinable; and collectibility is probable. If the software or software system
selling contract arrangement, either alone or together with other products or
services, requires significant production, modification or customization
construction type/production type contract accounting should be used for the
entire arrangement. Such accounting would recognize revenues and costs on a
contract arrangement as it progresses toward completion, rather than deferred
recognition of these items until persuasive evidence of delivery has occurred.
In software or software system selling arrangements that consist of multiple
elements (that is, additional software products, upgrades/enhancements, rights
to exchange or return software, postcontract customer support, or services), and
contract accounting does not apply, the fee must be allocated to the various
elements based on vendor-specific objective evidence of fair values. In general,
if sufficient vendor-specific objective evidence of fair values does not exist,
all revenue from the arrangement should be deferred until such sufficient
evidence exists, or until all elements have been delivered. The principle
difference between SOP 97-2 and its predecessor SOP 91-1 is in the accounting
for multiple-element arrangements based on vendor-specific objective evidence of
fair values.
Cover-All generally does not sell its products, Classic and TAS, under
multiple-element arrangements. Classic and TAS are standard "off the shelf"
application program packages, and while these packages may be tailored to meet
customer requirements, the core package is the standard product sold. Management
does not believe that SOP 97-2 will materially affect the way the Company
recognizes revenue.
There is a proposed SOP dated February 11, 1998, which would defer for one year
the provision of SOP 97-2 with respect to what constitutes vendor-specific
objective evidence of fair value for multiple-element arrangements in which a
software element is sold only in combination with postcontract customer support
or other service elements. For those multiple-element arrangements,
determination of the portion of the sales price allocable to the software
element may be based on a reasonable method.
. . . . . . . . . .
38
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- ------------------------------------------------------------------------------
<TABLE>
Balance at
Beginning Balance at
of Period Additions Deductions(1) End of Period
Accumulated amortization of
capitalized software and software
license:
<S> <C> <C> <C> <C>
Year Ended December 31, 1997 $1,755,964 $1,814,893 $ -- $ 3,570,857
Year Ended December 31, 1996 $ 489,227 $2,101,576 $ 834,839 $ 1,755,964
Year Ended December 31, 1995 $ -- $ 489,227 $ -- $ 489,227
(1) Represents primarily a write-off of $506,000 of capitalized software
costs in 1996.
</TABLE>
<TABLE>
Allowance for Doubtful Accounts:
<S> <C> <C> <C> <C>
Year Ended December 31, 1997 43,870 $ 172,190 $ 30,450 $ 185,610
Year Ended December 31, 1996 -- $ 43,870 $ -- $ 43,870
Year Ended December 31, 1995 -- $ -- $ -- $ --
</TABLE>
39
<PAGE>
Exhibit No. Description
2 Certificate of Merger of the Company Computer Systems, Inc.
(a New York corporation) into the Registrant, filed on June 11, 1985
[incorporated by reference to Exhibit 2 to the Registrant's Annual
Report on Form 10-K (Commission File No. 0-13124) filed on January
29, 1986].
3(a) Certificate of Incorporation of the Registrant filed on April 22,
1985 [incorporated by reference to Exhibit 3(a) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0-13124) filed on
January 29, 1986].
3(b) Certificate of Amendment of Certificate of Incorporation of the
Registrant filed on May 6, 1987 [incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1
(Commission File No. 33-17533) filed on September 29, 1987].
3(c) Certificate of Amendment of Certificate of Incorporation of the
Registrant filed on March 26, 1990 [incorporated by reference to
Exhibit 3(d) to the Registrant's Quarterly Report on Form 10-Q
(Commission File No. 0-13124) filed on June 14, 1990].
3(d) Certificate of Amendment of Certificate of Incorporation of the
Registrant filed on March 18, 1992 [incorporated by reference to
Exhibit 1 to the Registrant's Current Report on Form 8-K (Commission
File No. 0-13124) filed on March 30, 1992].
3(e) Certificate of Amendment of Certificate of Incorporation of the
Registrant [incorporated by reference to Exhibit 3(e) to the
Registrant's Amendment No. 1 to Registration Statement on Form S-3
(Commission File No. 0-13124) filed on July 10, 1996].
3(f) Bylaws of the Registrant, as amended [incorporated by reference to
Exhibit 3(g) to the Registrant's Amendment No. 1 to Registration
Statement on Form S-3 (Commission file No. 0-13124) filed on July 10,
1996].
4 Form of Common Stock Certificate of the Registrant [incorporated by
reference to Exhibit 4(a) to the Registrant's Annual Report on Form
10-K (Commission File No. 0-13124) filed on January 29, 1986].
10(a) Partnership Agreement, dated December 7, 1978, by and among the
Registrant, James R. Poole, Ira M. Cantor and Stanley A. Rothenberg
[incorporated by reference to Exhibit 10(a) to the Registrant's
Registration Statement on Form S-18 (Commission File No. 2- 88695-NY)
filed on December 30, 1983].
10(b) Employment Agreement, dated as of August 1, 1990, between the
Registrant and Bradley J. Hughes [incorporated by reference to
Exhibit 10(h) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on January 24, 1991].
10(c) Employment Agreement, dated as of July 11, 1990, between the
Registrant and Theodore I. Botter [incorporated by reference to
Exhibit 10(j) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on January 24, 1991].
10(e)(1) Employment Agreement, dated as of November 1, 1992, between the
Registrant and Harvey Krieger [incorporated by reference to Exhibit
10(h) to the Registrant's Annual Report on Form 10-K (Commission File
No. 0-13124) filed on January 28, 1993].
10(e)(2) Amendment to Employment Agreement, dated June 7, 1995, between the
Registrant and Harvey Krieger.
40
<PAGE>
10(e)(3) Consulting Agreement, dated as of June 1, 1996, between the
Registrant and Harvey Krieger [incorporated by reference to Exhibit
10(e)(3) to the Registrant's Registration Statement on Form S-3
(Commission File No. 0-1324) filed on June 17, 1996].
10(f)(1) Employment Agreement, dated as of March 22, 1994, among COVER-ALL
Systems, Inc., Michael G. Repoli and the Registrant [incorporated by
reference to Exhibit 10(f)(1) to the Registrant's Annual Report on
Form 10-K (Commission File No. 0-13124) filed on April 17, 1995].
10(f)(2) Amendment to Employment Agreement, dated August 10, 1994, among
COVER-ALL Systems, Inc., Michael G. Repoli and the Registrant
[incorporated by reference to Exhibit 10(f)(2) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0-13124) filed on
April 17, 1995].
10(f)(3) Amendment to Employment Agreement, dated January 11, 1995, among
COVER-ALL Systems, Inc., Michael G. Repoli and the Registrant
[incorporated by reference to Exhibit 10(f)(3) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0-13124) filed on
April 17, 1995].
10(g) Employment Agreement, dated as of January 24, 1996, among COVER-ALL
Systems, Inc., the Registrant and Peter C. Lynch [incorporated by
reference to Exhibit 10(g) to the Registrant's Annual Report on Form
10-K (Commission File No. 0-13124) filed on April 11, 1996].
10(h) Warner Insurance Services, Inc. Tax Saver 401(k) Salary Reduction
Plan adopted May 31, 1985 and restated as of August 11, 1992
[incorporated by reference to Exhibit 10(k) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0-13124) filed on
January 28, 1993].
10(i) Incentive Stock Option Plan adopted by the Board of Directors of the
Registrant on February 22, 1982, and approved by the stockholders in
February 1983 as amended on December 16, 1983 and March 31, 1988
[incorporated by reference to Exhibit 10(b) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0-13124) filed on
January 24, 1989].
10(j) Stock Option Agreement, dated March 22, 1990, between the Registrant
and Harvey Krieger [incorporated by reference to Exhibit 10(q) to the
Registrant's Annual Report on Form 10-K (Commission File No. 0-13124)
filed on January 24, 1991].
10(k) Stock Option Agreement, dated August 15, 1990, between the Registrant
and Bradley J. Hughes [incorporated by reference to Exhibit 10(t) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(l) Stock Option Agreement, dated August 15, 1990, between the Registrant
and Theodore I. Botter [incorporated by reference to Exhibit 10(u) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(m)(1) The 1991 Key Employee Stock Option Plan, adopted by the Board of
Directors of the Registrant on June 18, 1991, as amended on September
6, 1991 and November 19, 1991 and approved by stockholders on March
18, 1992 [incorporated by reference to Exhibit 4(a) to the
Registrant's Registration Statement on Form S-8 (Commission File No.
33-44270) filed on November 26, 1991].
10(m)(2) Form of Incentive Stock Option Agreement under the 1991 Key Employee
Stock Plan [incorporated by reference to Exhibit 4(b) to the
Registrant's Registration Statement on Form S-8 (Commission File No.
33-44270) filed on November 26, 1991].
41
<PAGE>
10(m)(3) Form of Non-Qualified Stock Option Agreement under the 1991 Key
Employee Stock Option Plan [incorporated by reference to Exhibit 4(c)
to the Registrant's Registration Statement on Form S-8 (Commission
File No. 33-44270) filed on November 26, 1991].
10(m)(4) Form of Stock Option Agreement under the 1991 Key Employee Stock
Option Plan dated as of June 21, 1991, between the Registrant and
each of Theodore I. Botter, Thomas F. Rocchio, and Harvey Krieger
[incorporated by reference to Exhibit 4(d) to the Registrant's
Registration Statement on Form S-8 (Commission File No. 33-44270)
filed on November 26, 1991].
10(m)(5) Stock Option Agreement, dated as of November 20, 1992, between the
Registrant and Bradley J. Hughes [incorporated by reference to
Exhibit 10(x)(vi) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on January 28, 1993].
10(n)(1) 1994 Stock Option Plan for Independent Directors adopted by the Board
of Directors of the Registrant on November 10, 1994 [incorporated by
reference to Exhibit 10(n)(1) to the Registrant's Annual Report on
Form 10-K (Commission File No. 0-13124) filed on April 17, 1995].
10(n)(2) Form of Stock Option Agreement under the 1994 Stock Option Plan for
Independent Directors [incorporated by reference to Exhibit 10(n)(2)
to the Registrant's Annual Report on Form 10-K (Commission File No.
O-13124) filed on April 17, 1995].
10(o)(1) The 1995 Employee Stock Option Plan, adopted by the Board of
Directors of the Registrant on March 22, 1995 [incorporated by
reference to Exhibit 10(o)(1) to the Registrant's Annual Report on
Form 10-K (Commission File No. O-13124) filed on April 17, 1995].
10(o)(2) Form of Incentive Stock Option Agreement under the 1995 Employee
Stock Option Plan [incorporated by reference to Exhibit 10(o)(2) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 17, 1995].
10(o)(3) Form of Non-Qualified Stock Option Agreement under the 1995 Employee
Stock Option Plan [incorporated by reference to Exhibit 10(o)(3) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 17, 1995].
10(o)(4) The 1995 Employee Stock Option Plan, as amended on April 29, 1997 by
the stockholders of the Registrant.
10(p)(1) Indenture of Lease, dated as of July 1, 1994, between Fair Lawn
Industrial Park, Inc. and the Registrant for premises located at
17-01 Pollitt Drive, Fair Lawn, New Jersey [incorporated by reference
to Exhibit 10(p)(1) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on April 17, 1995].
10(p)(2) Termination Agreement, dated as of June 30, 1994, among Fair Lawn
Industrial Park, Inc., Symtron Systems, Inc., and the Registrant
[incorporated by reference to Exhibit 10(p)(2) to the Registrant's
Annual Report on Form 10-K (Commission File No. 0-13124) filed on
April 17, 1995].
10(q) Lease Agreement, dated as of March 2, 1990, between the Registrant
and Polevoy Associates for premises located at 18-01 Pollitt Drive,
Fair Lawn, New Jersey [incorporated by reference to Exhibit 10(z) to
the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(r) Lease Agreement, dated as of December 11, 1991, between the
Registrant and Aetna Life Insurance Company for premises located at
125 Belmont Drive, Somerset, New Jersey [incorporated by reference to
Exhibit 10(ee) to the Registrant's Annual Report on Form 10- K
(Commission File No. 0-13124) filed on January 24, 1992].
10(s) Rights Agreement, dated November 17, 1989, between the Registrant and
First Fidelity Bank, N.A., as Rights Agent [incorporated by reference
to Exhibit 1 to the Registrant's
42
<PAGE>
Registration Statement on Form 8-A (Commission File No. 13-2698053)
filed on October 20, 1989].
10(t)(i) Severance Agreement, dated as of November 28, 1989, between the
Registrant and Harvey Krieger [incorporated by reference to Exhibit 1
to the Registrant's Form 8-K (Commission File No. 0-13124) filed on
December 6, 1989].
10(t)(ii) Severance Agreement, dated August 15, 1990, between the Registrant
and Bradley J. Hughes [incorporated by reference to Exhibit 10(o)(i)
to the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(t)(iii) Severance Agreement, dated August 15, 1990, between the Registrant
and Theodore I. Botter [incorporated by reference to Exhibit 10(t)(i)
to the Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1991].
10(u)(i) Restructuring Agreement, dated as of March 1, 1996, by and among the
Registrant, Atlantic Employers Insurance Company, Pacific Employers
Insurance Company, Electric Insurance Company, The Robert Plan
Corporation, Material Damage Adjustment Corporation, Lion Insurance
Company, and National Consumer Insurance Company [incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K (Commission
File No. 0-13124) filed
on March 7, 1996].
10(u)(ii) Form of Warrant issued by the Registrant pursuant to the
Restructuring Agreement listed as Exhibit 10(u)(i) above
[incorporated by reference to Exhibit 10.2 to the Registrant's Form
8-K (Commission File No. 0-13124) filed on March 7, 1996].
10(u)(iii) Asset Purchase Agreement, dated as of March 1, 1996, by and among the
Registrant, MDA Services, Inc. and The Robert Plan Corporation
[incorporated by reference to Exhibit 10.3 to the Registrant's Form
8-K (Commission File No. 0-13124) filed on March 7, 1996].
10(v)(i) Stock Purchase Agreement, dated as of March 31, 1996, by and among
the Registrant, Software Investments Limited and Care Corporation
Limited [incorporated by reference to Exhibit 10.1 to the
Registrant's Form 8-K (Commission File No. 0-13124) filed on April 8,
1996].
10(v)(ii) Repurchase Rights Assignment, dated as of March 31, 1996, between the
Registrant and Software Investments Limited [incorporated by
reference to Exhibit 10.2 to the Registrant's Form 8-K (Commission
File No. 0-13124) filed on April 8, 1996].
10(v)(iii) Warrant, dated as of March 31, 1996, issued by the Registrant to
Software Investments Limited [incorporated by reference to Exhibit
10.3 to the Registrant's Form 8-K (Commission File No. 0-13124) filed
on April 8, 1996].
10(v)(iv) Exclusive Software License Agreement, dated as of March 31, 1996, by
and among the Registrant, Care Corporation Limited and COVER-ALL
Systems, Inc. [incorporated by reference to Exhibit 10.4 to the
Registrant's Form 8-K (Commission File No. 0-13124) filed on April 8,
1996].
10(w) Settlement Agreement dated April 1, 1996 between the Registrant and
Clarendon National Insurance Company [incorporated by reference to
Exhibit 10.5 to the Registrant's Form 8-K (Commission File No.
0-13124) filed on April 8, 1996].
*10(x) Employment Agreement, dated as of April 1, 1996, between the
Registrant and Raul F. Calvo.
*10(y) General Release and Termination of Lease Agreement, dated as of
December 4, 1996, between the Registrant and Somerset Realty
Associates, L.L.C.
43
<PAGE>
10(z)(i) Convertible Note Purchase Agreement, dated as March 14, 1997, between
the Registrant, Software Investments Limited, Atlantic Employers
Insurance Company and Roger D. Bensen [incorporated by reference to
Registrant's Current Report on Form 8-K (Commission File No. 0-13124)
filed on March 24, 1997.
*10(z)(ii) Form of 12 1/2% Convertible Note issued by Registrant pursuant to the
Convertible Note Purchase Agreement listed as Exhibit 10(z)(i) above.
*10(aa)(i) Debenture Purchase Agreement, dated as of March 31, 1997, between the
Registrant and Sirrom Capital Corporation.
*10(aa)(ii)12 1/2% Convertible Debenture Due March 31, 2002, issued by
Registrant to Sirrom Capital Corporation.
*10(aa)(iiiAmendment to Stock Purchase Agreement, dated as of March 14, 1997,
among the Registrant, Software Investments Limited and Care
Corporation Limited.
*10(aa)(iv)Amendment to Exclusive Software License Agreement, dated as of March
14, 1997, among the Registrant, Care Corporation Limited and, for
certain purposes, Cover-All Systems, Inc.
10(bb)(i) Exclusive Software License Repurchase Agreement, dated March 31,
1998, by and among the Registrant, COVER-ALL Systems, Inc., Care
Corporation Limited and Software Investments Limited.
10(bb)(ii) Secured Promissory Note, dated March 31, 1998, by and between the
Registrant, as Holder, and Care Corporation Limited, as Payor.
10(bb)(iii)Pledge Agreement, dated March 31, 1998, by and between the
Registrant, as Secured Party, and Care Corporation Limited, as
Pledgor.
10(bb)(iv) Reseller Agreement, dated March 31, 1998, by and between Cover-All
Systems, Inc. and Care Corporation Limited.
10(bb)(v) Reseller Agreement, dated March 31, 1998, by and between Cover-All
Systems, Inc. and Care Corporation Limited.
21 Subsidiaries of the Registrant [incorporated by reference to Exhibit
21 to the Registrant's Annual Report on Form 10-K (Commission File
No. 0-13124) filed on April 11, 1996].
*23 Consent of Ernst & Young LLP.
*27 Financial Data Schedule.
------------------------------
* Filed herewith
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COVER-ALL TECHNOLOGIES INC.
Date: March 31, 1998 By: /s/ Brian Magowan
---------------------------------
Brian Magowan
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signatures Title Date
/s/ Brian Magowan
- ---------------------------
Brian Magowan Chairman of the Board of Directors March 31, 1998
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ John R. Nobel Chief Financial Officer March 31, 1998
- ---------------------------
John R. Nobel
/s/ Earl Gallegos
- ---------------------------
Earl Gallegos Director March 31, 1998
/s/ Ian Meredith
- ---------------------------
Ian Meredith Director March 31, 1998
/s/ James R. Stallard
- ---------------------------
James R. Stallard Director March 31, 1998
/s/ Mark D. Johnston
- ---------------------------
Mark D. Johnston Director March 31, 1998
/s/ Steven Hough
- ---------------------------
Steven Hough Director March 31, 1998
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COVER-ALL TECHNOLOGIES INC.
Date: March 31, 1998 By:______________________________
Brian Magowan
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signatures Title Date
Brian Magowan Chairman of the Board of Directors March 31, 1998
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer March 31, 1998
John R. Nobel
Earl Gallegos Director March 31, 1998
Ian Meredith Director March 31, 1998
James R. Stallard Director March 31, 1998
Mark D. Johnston Director March 31, 1998
Steven Hough Director March 31, 1998
45
COVER-ALL TECHNOLOGIES INC.
1995 Employee Stock Option Plan,
as amended on April 29, 1997
INTRODUCTION
Cover-All Technologies Inc., a Delaware corporation (formerly
Warner Insurance Services, Inc., hereinafter referred to as the "Corporation"),
hereby establishes an incentive compensation plan to be known as the "Cover-All
Technologies Inc. 1995 Employee Stock Option Plan" (hereinafter referred to as
the "Plan"), as set forth in this document. The Plan permits the grant of
Non-Qualified Stock Options and Incentive Stock Options.
The Plan shall become effective on March 22, 1995. However, it
shall be rendered null and void and have no effect, and all Options granted
hereunder shall be canceled, if the Plan is not approved by a majority vote of
the Corporation's stockholders within twelve (12) months of such date. [The Plan
was approved by a majority vote of the Corporation's stockholders on June 15,
1995.]
The purpose of the Plan is to promote the success and enhance
the value of the Corporation by linking the personal interests of Participants
to those of the Corporation's stockholders, customers and employees, by
providing Participants with an incentive for outstanding performance. The Plan
is further intended to provide flexibility to the Corporation in its ability to
motivate, and retain the services of, participants upon whose judgment, interest
and special effort the successful conduct of its operations is largely
dependent.
-1-
<PAGE>
DEFINITIONS
For purposes of this Plan, the following terms shall be
defined as follows unless the context clearly indicates otherwise:
(a) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder.
(b) "Committee" shall mean the full Board of Directors of the
Corporation.
(c) "Common Stock" shall mean the common stock, par value
$0.01 per share, of the Corporation.
(d) "Corporation" shall mean Cover-All Technologies Inc., a
Delaware corporation.
(e) "Disability" shall have the same meaning as the term
permanent and total disability under Section 22(e)(3) of the Code.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder.
(g) "Fair Market Value" of the Corporation's Common Stock on a
Trading Day shall mean the last reported sale price for Common Stock or, in case
no such reported sale takes place on such Trading Day, the average of the
closing bid and asked prices for the Common Stock for such Trading Day, in
either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or if the Common Stock is not listed or
admitted to trading on any national securities exchange, but is traded in the
over-the-counter market, the closing sale price of the Common Stock or, if no
sale is publicly reported, the average of the closing bid and asked quotations
for the Common Stock, as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or any comparable system or, if
the Common Stock is not listed on NASDAQ or a comparable system, the closing
sale price of the Common Stock or, if no sale is publicly reported, the average
of the closing bid and asked prices, as furnished by two members of the National
Association of Securities Dealers, Inc. who make a market in the Common Stock
selected from time to time by the Corporation for that purpose. In addition, for
purposes of this definition, a "Trading Day" shall mean, if the Common Stock is
listed on any national securities exchange, a business day during which such
exchange was open for trading and at least one trade of Common Stock was
effected on such exchange on such business day, or, if the Common Stock is not
listed on any national securities exchange but is traded in the over-the-counter
market, a business day during which the over-the-counter market was open for
trading and at least one "eligible dealer" quoted both a bid and asked price for
the
-2-
<PAGE>
Common Stock. An "eligible dealer" for any day shall include any broker-dealer
who quoted both a bid and asked price for such day, but shall not include any
broker-dealer who quoted only a bid or only an asked price for such day. In the
event the Corporation's Common Stock is not publicly traded, the Fair Market
Value of such Common Stock shall be determined by the Committee in good faith.
(h) "Good Cause" shall mean (i) a Participant's willful or
gross misconduct or willful or gross negligence in the performance of his duties
for the Corporation or for any Parent or Subsidiary after prior written notice
of such misconduct or negligence and the continuance thereof for a period of 30
days after receipt by such Participant of such notice, (ii) a Participant's
intentional or habitual neglect of his duties for the Corporation or for any
Parent or Subsidiary after prior written notice of such neglect, or (iii) a
Participant's theft or misappropriation of funds of the Corporation or of any
Parent or Subsidiary or commission of a felony.
(i) "Incentive Stock Option" shall mean a stock option
satisfying the requirements for tax-favored treatment under Section 422 of the
Code.
(j) "Non-Qualified Option" shall mean a stock option which
does not satisfy the requirements for tax-favored treatment under Section 422 of
the Code.
(k) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option granted pursuant to the provisions of Section V
hereof.
(l) "Optionee" shall mean a Participant who is granted an
Option under the terms of this Plan.
(m) "Parent" shall mean a parent corporation of the
Corporation within the meaning of Section 424(e) of the Code.
(n) "Participant" shall mean any employee or other individual
(including a Director Participant) participating under the Plan.
(o) "Plan Award" shall mean an Option granted pursuant
to the terms of this Plan.
(p) "Section 16" shall mean Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.
(q) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
-3-
<PAGE>
(r) "Subsidiary" shall mean a subsidiary corporation of the
Corporation within the meaning of Section 424(f) of the Co
SECTION I
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee may establish from time to time such
regulations, provisions, proceedings and conditions of awards which, in its
opinion, may be advisable in the administration of the Plan. A majority of the
Committee shall constitute a quorum, and, subject to the provisions of Section
IV of the Plan, the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by a majority of the
Committee, shall be the acts of the Committee. This Plan is intended to be a
bifurcated plan.
SECTION II
SHARES AVAILABLE
Subject to the adjustments provided in Section X of the Plan,
the aggregate number of shares of the Common Stock which may be granted for all
purposes under the Plan shall be two million (2,000,000) shares. [Increased from
600,000 shares to 2,000,000 shares.] Shares of Common Stock underlying awards of
Options shall be counted against the limitation set forth in the immediately
preceding sentence and may be reused (e.g., in the event that an Option to any
individual expires, is terminated unexercised, or is forfeited as to any shares
covered thereby). Incentive and Non-Qualified Stock Options under the Plan may
be fulfilled in accordance with the terms of the Plan with either authorized and
unissued shares of the Common Stock, issued shares of such Common Stock held in
the Corporation's treasury or shares of Common Stock acquired on the open
market.
SECTION III
ELIGIBILITY
Eligible participants in the Plan shall include present and
future (i) common law employees who are regularly employed on a salaried basis,
(ii) non-employee directors, and (iii) consultants of the Corporation, or of any
Parent or Subsidiary.
SECTION IV
AUTHORITY OF COMMITTEE
The Plan shall be administered by, or under the direction of,
the Committee, which shall administer the Plan so as to comply at all times with
the Exchange Act, to the extent such compliance is required, and, subject to the
Code, shall otherwise have plenary authority to interpret the Plan and to make
all determinations specified in or permitted by the Plan or deemed
-4-
<PAGE>
necessary or desirable for its administration or for the conduct of the
Committee's business. Subject to the provisions of Section X hereof, all
interpretations and determinations of the Committee may be made on an individual
or group basis and shall be final, conclusive, and binding on all interested
parties. Subject to the express provisions of the Plan, the Committee shall have
authority, in its discretion, to determine the persons to whom Plan Awards shall
be granted, the times when such Plan Awards shall be granted, the number of Plan
Awards, the purchase price or exercise price of each Plan Award, the period(s)
during which such Plan Award shall be exercisable (whether in whole or in part),
the restrictions to be applicable to Plan Awards and the other terms and
provisions thereof (which need not be identical). In addition, the authority of
the Committee (which may be exercised in its sole discretion) shall include
without limitation the following:
(a) Financing. The arrangement of temporary financing for an
Optionee by registered broker-dealers, under the rules and regulations of the
Federal Reserve Board, for the purpose of assisting the Optionee in the exercise
of an Option, such authority to include the payment by the Corporation of the
commissions of the broker-dealer;
(b) Procedures for Exercise of Option. The establishment of
procedures for an Optionee (i) to exercise an Option by payment of cash or any
other property acceptable to the Committee, (ii) to have withheld from the total
number of shares of Common Stock to be acquired upon the exercise of an Option
that number of shares having a Fair Market Value, which, together with such cash
as shall be paid in respect of fractional shares, shall equal the option
exercise price of the total number of shares to be acquired, (iii) to exercise
all or a portion of an Option by delivering that number of shares of Common
Stock already owned by him having a Fair Market Value which shall equal the
Option exercise price for the portion exercised and, in cases where a Option is
not exercised in its entirety, to permit the Optionee to deliver the shares of
Common Stock thus acquired by him in payment of shares of Common Stock to be
received pursuant to the exercise of additional portions of such Option, the
effect of which shall be that an Optionee can in sequence utilize such newly
acquired shares of Common Stock in payment of the exercise price of the entire
option, together with such cash as shall be paid in respect of fractional shares
and (iv) to engage in any form of "cashless" exercise.
(c) Withholding. The establishment of a procedure whereby a
number of shares of Common Stock or other securities may be withheld from the
total number of shares of Common Stock or other securities to be issued upon
exercise of an Option or for the tender of shares of Common Stock owned by the
Participant to meet the obligation of withholding for taxes incurred by the
Optionee upon such exercise.
(d) Types of Plan Awards. The Committee may grant awards in
the form of one or more of Incentive Stock Options and Non-Qualified Stock
Options.
-5-
<PAGE>
SECTION V
STOCK OPTIONS
The Committee shall have the authority, in its discretion, to
grant Incentive Stock Options or to grant Non-Qualified Stock Options or to
grant both types of Options. No Option shall be granted for a term of more than
ten (10) years. Notwithstanding anything contained herein to the contrary, an
Incentive Stock Option may be granted only to common law employees of the
Corporation or of any Parent or Subsidiary now existing or hereafter formed or
acquired, and not to any director or officer who is not also such a common law
employee. The terms and conditions of the Options shall be determined from time
to time by the Committee; provided, however, that the Options granted under the
Plan shall be subject to the following:
(a) Exercise Price. The Committee shall establish the exercise
price at the time any Option is granted at such amount as the Committee shall
determine; provided, however, that the exercise price for each share of Common
Stock purchasable under any Incentive Stock Option granted hereunder shall be
such amount as the Committee shall, in its best judgment, determine to be not
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock at the date the Option is granted; and provided, further, that in
the case of an Incentive Stock Option granted to a person who, at the time such
Incentive Stock Option is granted, owns shares of stock of the Corporation or of
any Parent or Subsidiary which possess more than ten percent (10%) of the total
combined voting power of all classes of shares of stock of the Corporation or of
any Parent or Subsidiary, the exercise price for each share of Common Stock
shall be such amount as the Committee, in its best judgment, shall determine to
be not less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock at the date the Option is granted. The exercise price will
be subject to adjustment in accordance with the provisions of Section VI of the
Plan.
(b) Payment of Exercise Price. The price per share of Common
Stock with respect to each Option shall be payable at the time the Option is
exercised. Such price shall be payable in cash or, upon the discretion of the
Committee, pursuant to any of the methods set forth in Sections IV(a) or (b)
hereof. Shares of Common Stock delivered to the Corporation in payment of the
exercise price shall be valued at the Fair Market Value of the Common Stock on
the date preceding the date of the exercise of the Option.
(c) Exercisability of Options. Each Option shall be
exercisable in whole or in installments, and at such time(s), and subject to the
fulfillment of any conditions on exercisability as may be determined by the
Committee at the time of the grant of such Options. The right to purchase shares
of Common Stock shall be cumulative so that when the right to purchase any
shares of Common Stock has accrued such shares of Common Stock or any part
thereof may be purchased at any time thereafter until the expiration or
termination of the Option.
-6-
<PAGE>
(d) Expiration of Options. No Option by its terms shall be
exercisable after the expiration of ten (10) years from the date of grant of the
Option; provided, however, in the case of an Incentive Stock Option granted to a
person who, at the time such Option is granted, owns shares of stock of the
Corporation or of any Parent or Subsidiary possessing more than ten percent
(10%) of the total combined voting power of all classes of shares of stock of
the Corporation or of any Parent or Subsidiary, such Option shall not be
exercisable after the expiration of five (5) years from the date such Option is
granted.
(e) Exercise Upon Death of Optionee. Subject to the provisions
of Section V(h) hereof, in the event of the death of the Optionee prior to his
termination of employment with the Corporation or with any Parent or Subsidiary,
or within three (3) months of the date of such termination (other than for Good
Cause), his estate (or other beneficiary, if so designated in writing by the
Participant) shall have the right, within one (1) year after the date of death
(but in no case after the expiration date of the Option(s)), to exercise his
Option(s) with respect to all or any part of the shares of Common Stock as to
which the deceased Optionee had not exercised his Option at the time of his
death, but only to the extent such Option or Options were exercisable on the
date of his death (or, if provided in an Option Agreement with respect to a
particular Optionee, at the date of exercise determined as if the Optionee died
on such date).
(f) Exercise Upon Disability of Optionee. Subject to the
provisions of Section and V(h) hereof, if the employment by the Corporation or
by any Parent or Subsidiary of an Optionee is terminated because of Disability,
he shall have the right, within one (1) year after the date of such termination
(but in no case after the expiration of the Option), to exercise his Option(s)
with respect to all or any part of the shares of Common Stock as to which he had
not exercised his Option at the time of such termination, but only to the extent
such Option or Options were exercisable on the date of his termination of
employment.
(g) Exercise Upon Optionee's Termination of Employment. With
respect to Incentive Stock Options, if the employment of an Optionee by the
Corporation or by any Parent or Subsidiary is terminated for any reason
(including, but not limited to, Good Cause) other than those specified in
Sections V(e) and (f) above, then the Optionee shall, at the time of such
termination of employment, forfeit his rights to exercise all of such Option(s).
With respect to any Non-Qualified Stock Options, if the Optionee's employment or
other relationship with the Corporation or any Parent or Subsidiary is
terminated for any reason other than for death or disability (as governed by
Sections V(e) and (f) above), then, except as otherwise expressly provided in an
agreement covering an option granted to an Optionee, the Optionee's right to
exercise such Option shall also terminate on the date on which such Optionee's
employment or other relationship terminated. In each case an option shall only
be exercisable to the extent it was exercisable on the date of termination. In
all cases, however, if the termination of the Optionee's employment or other
relationship with the Corporation or any Parent or Subsidiary is determined by
the Committee to have been for Good Cause, then the Option and all rights
thereunder shall terminate on the date of termination of employment or such
other relationship.
-7-
<PAGE>
(h) Maximum Amount of Incentive Stock Options. Each Plan Award
under which Incentive Stock Options are granted shall provide that to the extent
the aggregate of the (i) Fair Market Value of the shares of Common Stock
(determined as of the time of the grant of the Option) subject to such Incentive
Stock Option and (ii) the fair market values (determined as of the date(s) of
grant of the options) of all other shares of Common Stock subject to incentive
stock options granted to an Optionee by the Corporation or any Parent or
Subsidiary, which are exercisable for the first time by any individual during
any calendar year, exceed(s) one hundred thousand dollars ($100,000), such
excess shares of Common Stock shall not be deemed to be purchased pursuant to
Incentive Stock Options. The terms of the immediately preceding sentence shall
be applied by taking options into account in the order in which they are
granted.
SECTION VI
ADJUSTMENT OF SHARES
In the event there is any change in the Common Stock of the
Corporation by reason of any reorganization, recapitalization, stock split,
stock dividend or otherwise, there shall be substituted for or added to each
share of Common Stock theretofore appropriated or thereafter subject, or which
may become subject, to any Option the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchanged, or to which each such
share be entitled, as the case may be, and the per share price thereof also
shall be appropriately adjusted. Notwithstanding the foregoing, (i) each such
adjustment with respect to an Incentive Stock Option shall comply with the rules
of Section 424(a) of the Code and (ii) in no event shall any adjustment be made
which would render any Incentive Stock Option granted hereunder to be other than
an incentive stock option for purposes of Section 422 of the Code.
SECTION VII
MISCELLANEOUS PROVISIONS
(a) Administrative Procedures. The Committee may establish any
procedures determined by it to be appropriate in discharging its
responsibilities under the Plan. Subject to the provisions of Section X hereof,
all actions and decisions of the Committee shall be final.
(b) Assignment or Transfer. No grant or award of any Incentive
Stock Option or any other "derivative security" (as defined by Rule 16a-l(c)
promulgated under the Exchange Act) made under the Plan or any rights or
interests therein shall be assignable or transferable by a Participant except by
will or the laws of descent and distribution or pursuant to a qualified domestic
relations order. During the lifetime of a Participant Options granted hereunder
shall be exercisable only by the Participant.
(c) Investment Representation. In the case of Plan Awards paid
in shares of Common Stock or other securities, the Committee may require, as a
condition of receiving such
-8-
<PAGE>
securities, that the Participant furnish to the Corporation such written
representations and information as the Committee deems appropriate to permit the
Corporation, in light of the existence or nonexistence of an effective
registration statement under the Securities Act to deliver such securities in
compliance with the provisions of the Securities Act.
(d) Withholding Taxes. The Corporation shall have the right to
deduct from all cash payments hereunder any federal, state, local or foreign
taxes required by law to be withheld with respect to such payments. In the case
of the issuance or distribution of Common Stock or other securities hereunder,
the Corporation, as a condition of such issuance or distribution, may require
the payment (through withholding from the Participant's salary, reduction of the
number of shares of Common Stock or other securities to be issued, or otherwise)
of any such taxes. Subject to the Rules promulgated under Section 16 of the
Exchange Act (to the extent applicable), and to the consent of the Committee,
the Participant, may satisfy the withholding obligations by paying to the
Corporation a cash amount equal to the amount required to be withheld or by
tendering to the Corporation a number of shares of Common Stock having a value
equivalent to such cash amount, or by use of any available procedure as
described under Section IV(c) hereof.
(e) Costs and Expenses. The costs and expenses of
administering the Plan shall be borne by the Corporation and shall not be
charged against any award nor to any employee receiving a Plan Award.
(f) Funding of Plan. The Plan shall be unfunded. The
Corporation shall not be required to segregate any of its assets to assure the
payment of any Plan Award under the Plan. Neither the Participants nor any other
persons shall have any interest in any fund or in any specific asset or assets
of the Corporation or any other entity by reason of any Plan Award, except to
the extent expressly provided hereunder. The interests of each Participant and
former Participant hereunder is unsecured and shall be subject to the general
creditors of the Corporation.
(g) Other Incentive Plans. The adoption of the Plan does not
preclude the adoption by appropriate means of any other incentive plan for
employees.
(h) Plurals and Gender. Where appearing in the Plan, masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
(i) Headings. The headings and sub-headings in this Plan are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
(j) Severability. In case any provision of this Plan shall be
held illegal or void, such illegality or invalidity shall not affect the
remaining provisions of this Plan, but shall be fully
-9-
<PAGE>
severable, and the Plan shall be construed and enforced as if said illegal or
invalid provisions had never been inserted herein.
(k) Payments Due Missing Persons. The Corporation shall make a
reasonable effort to locate all persons entitled to benefits under the Plan;
however, notwithstanding any provisions of this Plan to the contrary, if, after
a period of one (1) year from the date such benefit shall be due, any such
persons entitled to benefits have not been located, their rights under the Plan
shall stand suspended. Before this provision becomes operative, the Corporation
shall send a certified letter to all such persons at their last known address
advising them that their rights under the Plan shall be suspended. Subject to
all applicable state laws, any such suspended amounts shall be held by the
Corporation for a period of one (1) additional year and thereafter such amounts
shall be forfeited and thereafter remain the property of the Corporation.
(l) Liability and Indemnification. (i) Neither the Corporation
nor any Parent or Subsidiary shall be responsible in any way for any action or
omission of the Committee, or any other fiduciaries in the performance of their
duties and obligations as set forth in this Plan. Furthermore, neither the
Corporation nor any Parent or Subsidiary shall be responsible for any act or
omission of any of their agents, or with respect to reliance upon advice of
their counsel provided that the Corporation and/or the appropriate Parent or
Subsidiary relied in good faith upon the action of such agent or the advice of
such counsel.
(ii) Except for their own gross negligence or willful
misconduct regarding the performance of the dates specifically assigned
to them under or their willful breach of the terms of, this Plan, the
Corporation, each Parent and Subsidiary and the Committee shall be held
harmless by the Participants, former Participants, beneficiaries and
their representatives against liability or losses occurring by reason
of any act or omission. Neither the Corporation, any Parent or
Subsidiary, the Committee, nor any agents, employees, officers,
directors or shareholders of any of them, nor any other person shall
have any liability or responsibility with respect to this Plan, except
as expressly provided herein.
(m) Incapacity. If the Committee shall receive evidence
satisfactory to it that a person entitled to receive payment of any Plan Award
is, at the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such Plan Award and to give a valid release
thereof, and that another person or an institution is then maintaining or has
custody of such person and that no guardian, committee or other representative
of the estate of such person shall have been duly appointed, the Committee may
make payment of such Plan Award otherwise payable to such person to such other
person or institution, including a custodian under a Uniform Gifts to Minors
Act, or corresponding legislation (who shall be an adult, a guardian of the
minor or a trust company), and the release of such other person or institution
shall be a valid and complete discharge for the payment of such Plan Award.
-10-
<PAGE>
(n) Cooperation of Parties. All parties to this Plan and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Plan or any of its provisions.
(o) Governing Law. All questions pertaining to the validity,
construction and administration of the Plan shall be determined in accordance
with the laws of the State of New York.
(p) Nonguarantee of Employment or Other Relationships. Nothing
contained in this Plan shall be construed as a contract of employment between
the Corporation (or any Parent or Subsidiary), and any employee or Participant,
as a right of any employee or Participant to be continued in the employment of
or other relationship with the Corporation (or any Parent or Subsidiary), or as
a limitation on the right of the Corporation or any Parent or Subsidiary to
discharge any of its employees, consultants or directors with or without cause.
(q) Notices. Each notice relating to this Plan shall be in
writing and delivered in person or by certified mail to the proper address. All
notices to the Corporation or the Committee shall be addressed to it at 18-01
Pollitt Drive, Fair Lawn, New Jersey 07410, Attn: Secretary. All notices to
Participants, former Participants, beneficiaries or other persons acting for or
on behalf of such persons shall be addressed to such person at the last address
for such person maintained in the Committee's records.
(r) Written Agreements. Each Plan Award shall be evidenced by
a signed written agreement between the Corporation and the Participant
containing the terms and conditions of the award.
SECTION VIII
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Corporation shall have the right
to amend, suspend or terminate the Plan at any time, provided that no amendment
shall be made which shall increase the total number of shares of the Common
Stock of the Corporation which may be issued and sold pursuant to Options reduce
the minimum exercise price in the case of an Incentive Stock Option, or modify
the provisions of the Plan relating to eligibility with respect to Incentive
Stock Options unless such amendment is made by or with the approval of the
stockholders (such approval being granted within 12 months of the effective date
of such amendment). The Board of Directors of the Corporation shall be
authorized to amend the Plan and the Options granted thereunder (i) to maintain
qualification as "incentive stock options" within the meaning of Section 422 of
the Code, if applicable or (ii) to comply with Rule 16b-3 (or any successor
rule) promulgated under the Exchange Act. Except as otherwise provided herein,
no amendment, suspension or termination of the Plan shall alter or impair any
Plan Awards previously granted under the Plan, without the consent of the holder
thereof.
-11-
<PAGE>
SECTION IX
TERM OF PLAN
The Plan shall remain in effect until March 21, 2005, unless
sooner terminated by such Board of Directors. No Plan Awards may be granted
under the Plan subsequent to the termination of the Plan.
SECTION X
CLAIMS PROCEDURES
(a) Denial. If any Participant, former Participant or
beneficiary is denied any vested benefit to which he is, or reasonably believes
he is, entitled under this Plan, either in total or in an amount less than the
full vested benefit to which he would normally be entitled, the Committee shall
advise such person in writing the specific reasons for the denial. The Committee
shall also furnish such person at the time with a written notice containing (i)
a specific reference to pertinent Plan provisions, (ii) a description of any
additional material or information necessary for such person to perfect his
claim, if possible, and an explanation of why such material or information is
needed and (iii) an explanation of the Plan's claim review procedure.
(b) Written Request for Review. Within 60 days of receipt of
the information stated in subsection (a) above, such person shall, if he desires
further review, file a written request for reconsideration with the Committee.
(c) Review of Document. So long as such person's request for
review is pending (including the 60 day period in subsection (b) above), such
person or his duly authorized representative may review pertinent Plan documents
and may submit issues and comments in writing to the Committee.
(d) Committee's Final and Binding Decision. A final and
binding decision shall be made by the Committee within 60 days of the filing by
such person of this request for reconsideration; provided, however, that if the
Committee, in its discretion, feels that a hearing with such person or his
representative is necessary or desirable, this period shall be extended for an
additional 60 days.
(e) Transmittal of Decision. The Committee's decision shall be
conveyed to such person in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by such person, the
specific references to the pertinent Plan provisions on which the decision is
based.
(f) Limitation on Claims. Notwithstanding any provisions of
this Plan to the contrary, no Participant (nor the estate or other beneficiary
of a Participant) shall be entitled to assert a claim against the Corporation
(or against any Parent or Subsidiary) more than three years
-12-
<PAGE>
after the date the Participant (or his estate or other beneficiary) initially is
entitled to receive benefits hereunder.
-13-
<PAGE>
COVER-ALL TECHNOLOGIES INC.
1995 EMPLOYEE STOCK OPTION PLAN,
AS AMENDED
---------------
Effective as of March 22, 1995
-14-
EXCLUSIVE SOFTWARE LICENSE REPURCHASE AGREEMENT
Exclusive Software License Repurchase Agreement, dated March 31,
1998 (the "Repurchase Agreement"), by and among SOFTWARE INVESTMENTS LIMITED, a
British Virgin Islands company ("SIL"), CARE CORPORATION LIMITED, a British
Virgin Islands company ("CCL") (both SIL and CCL having principal offices at
Abbott Building, P.O. Box 3186, Main Street, Road Town, Tortola, British Virgin
Islands), COVER-ALL TECHNOLOGIES INC., a Delaware corporation having principal
offices at 18-01 Pollitt Drive, Fair Lawn, New Jersey 07410 ("CTI"), and
COVER-ALL SYSTEMS, INC., a Delaware corporation and wholly owned subsidiary of
CTI ("CASI").
W I T N E S S E T H:
WHEREAS, CCL is the exclusive worldwide owner, except in the
Commonwealth of Australia, the Dominion of New Zealand, and the United States of
America, of all rights in certain computer software and related documentation
pertaining to the administration of worker's compensation (hereinafter referred
to as the "CARE Software");
WHEREAS, on March 31, 1996, pursuant to the terms of that certain
Exclusive Software License Agreement, as amended by an Amendment to Exclusive
Software License Agreement dated March 14, 1997 (collectively, the "Original
Agreement"), by and among CCL, CTI (formerly known as Warner Insurance Services,
Inc.) and, for limited purposes of joining in certain sections of the Original
Agreement, CASI ("CASI" and both CTI and CASI together may be referred to herein
as "CTI"), CCL granted to CTI, among other things, an exclusive, fully paid up,
perpetual license for the CARE Software in Canada, Mexico, Central America and
South America, while retaining all rights outside Canada, Mexico, Central
America and South America;
WHEREAS, on March 31, 1996, pursuant to the terms of that certain
Stock Purchase Agreement, as amended by an Amendment to Stock Purchase Agreement
dated March 14, 1997 (collectively, the "Stock Purchase Agreement"), by and
among CCL, CTI and SIL, in consideration for CCL's transferring the CARE
Software rights under the Original Agreement, CTI issued to CCL 2,500,000 shares
of CTI's common stock, $.01 par value per share (the "License Shares"), and, as
further provided by the Stock Purchase Agreement, CTI was granted the right to
repurchase the License Shares if certain conditions were satisfied pursuant to
the Stock Purchase Agreement; and
WHEREAS, CCL desires to repurchase from CTI all of the rights in the
CARE Software granted to CTI pursuant to the terms of the Original Agreement
(the "CARE Software Rights") in consideration for the repurchase price of
$5,000,000 and other consideration, all as set forth herein.
03/31/98/JOD/12006/001/AGREE/262889.4
<PAGE>
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and agreements contained herein and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Repurchase of CARE Software Rights. CCL hereby repurchases from
CTI (the "Repurchase") the CARE Software Rights for the consideration and on the
terms hereinafter described.
2. Grant of Nonexclusive Reseller Rights. CTI shall grant CCL the
nonexclusive right to resell in all territories outside of the United States (i)
CTI's product line (the "TAS 2000 Software") consisting of the suite of computer
applications for property/casualty and health care insurers designed to enable a
client-driven re-engineering of the insurer's business process and (ii) CTI's
Classic product line ("Classic") consisting of a set of LAN based PC software
packages designed to automate the rating and issuance tasks in the property and
casualty insurance industry (such rights to the TAS 2000 Software and Classic
are collectively referred to as the "TAS License"), in the form of Nonexclusive
Reseller Rights Agreement annexed hereto as Exhibit A (the "TAS Reseller
Agreement").
3. Consideration of Repurchase. In consideration of the Repurchase,
CCL shall pay to CTI the amount of $5,000,000 as follows: (1) $500,000 in
immediately available funds, payable on the date hereof, receipt of which is
hereby acknowledged by CTI; and (2) $4,500,000 to be paid in equal semi-annual
installments of $500,000, beginning on September 30, 1998 and on each March 31
and September 30 thereafter, unless payment is otherwise accelerated, until paid
in full, all as evidenced by a note on the terms and in the form annexed hereto
as Exhibit B (the "Note"), the repayment of which shall be secured by the pledge
of certain shares of common stock, $.01 par value per share, of CTI owned by CCL
pursuant to the terms of a pledge agreement in the form annexed hereto as
Exhibit C (the "Pledge Agreement").
4. Consideration of Grant of TAS License. In consideration of the
grant of the TAS License, CCL shall grant to CTI the nonexclusive right to
resell the CARE Software, pursuant to the terms and in the form of Nonexclusive
Reseller Rights Agreement annexed hereto as Exhibit D (the "CARE Reseller
Agreement").
5. Removal of Stock Restriction, Cancellation of Bonus Warrants and
Release of Parties. As further consideration for the transactions contemplated
by this Repurchase Agreement, the parties hereto agree that, as of the date
hereof:
(i) CTI's right to purchase the License Shares pursuant to
Section 5 of the Stock Purchase Agreement is hereby terminated;
(ii) CCL's right to receive the Bonus Warrants granted under
Section 5(k) of the Stock Purchase Agreement is hereby terminated;
(iii) all provisions of the Original Agreement are hereby
terminated and released and each of CCL, CTI and CASI hereby remise and release
each other from any claims or liabilities arising thereunder; and
(iv) each of CTI, SIL and CCL each agree that Sections 4, 5
and 6 of the Stock Purchase Agreement are hereby terminated and shall have no
further force and effect and that each of the parties hereby remises and
releases the other parties thereto from any claims or liabilities arising under
any such Sections. Except as amended aforesaid, the Stock Purchase Agreement
shall continue in full force and effect. The parties hereby expressly
acknowledge that the License Shares remain subject to those registration rights
as provided for in Section 9.2 of the Stock Purchase Agreement. CTI shall use
its best efforts to register the License Shares pursuant to such Section 9.2 as
soon as practicable after the date hereof.
6. Deliveries. Contemporaneous with the execution of this Repurchase
Agreement, the parties hereby acknowledge receipt of the following in connection
with the consummation of the transactions contemplated herein:
a. the Note, fully executed by CCL as Payor;
b. payment by CCL to CTI, by wire transfer, in the amount
of $500,000;
c. the Pledge Agreement, fully executed by CCL, as Pledgor,
and CTI, as Secured Party, and, pursuant to the Pledge Agreement, delivery by
CCL to CTI of (i) the stock certificates evidencing the Pledged Shares (as
defined in the Pledge Agreement) and (ii) stock powers relating to the Pledged
Shares executed in blank;
d. the CARE Reseller Agreement, executed by CCL and CTI; and
e. the TAS Reseller Agreement, executed by CCL and CTI.
7. Miscellaneous.
7.1 Entire Agreement. This Repurchase Agreement, the CARE Reseller
Agreement, the TAS Reseller Agreement, the Note and the Pledge Agreement,
together with all attachments thereto and made a part thereof, contain the
entire agreement among CTI, CASI, SIL and CCL with respect to the matters set
forth herein and supersede all prior agreements and understandings among them as
to the subject matter hereof. No party shall be bound by nor shall be deemed to
have made any representations, warranties or covenants except those contained
herein.
7.2 Benefits; Assignments. All of the terms and provisions of this
Repurchase Agreement, the CARE Reseller Agreement, the TAS Reseller Agreement,
the Note and the Pledge Agreement shall bind and inure to the benefit of CTI,
CASI, SIL and CCL and their respective successors and assigns.
7.3 Notices. Any notice, request, consent, instruction or other
document to be given hereunder shall be in writing and shall be deemed to be
duly given if personally delivered with receipt acknowledged, if mailed by
registered or certified mail, first class, postage prepaid, if delivered by a
nationally recognized overnight courier service or if transmitted by facsimile
machine (with a confirmation copy to be sent by first class mail) addressed as
follows:
If to CTI or CASI:
COVER-ALL TECHNOLOGIES INC.
18-01 Pollitt Drive
Fair Lawn, New Jersey 07410
Attention: Chief Executive Officer
with a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attention: Leonard Gubar, Esq.
or to such other address or such other person(s) as CTI or CASI may designate by
written notice to the other parties hereto; and
if to SIL or CCL:
Software Investments Limited
Care Corporation Limited
c/o Moore Stephens
P.O. Box 236
1st Island House
Peter Street
St. Helier, Jersey JE4 8SG
Channel Islands
Attention: Mr. Stephen Milsom
with a copy to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: Alan J. Perkins, Esq.
or to such other address or such other person(s) as CCL may designate by written
notice to the other parties hereto.
7.4 Governing Law. This Repurchase Agreement shall be governed by
and construed under and enforced in accordance with the laws of the State of New
York.
7.5 Severability. If any provision of this Repurchase Agreement
shall be held invalid or unenforceable, such invalidity or unenforceability
shall attach only to such provision and shall not in any manner affect or render
invalid or unenforceable any other severable provision of this Repurchase
Agreement, and this Repurchase Agreement shall be carried out as if any such
invalid or unenforceable provision were not contained herein.
7.6 Modification, Waivers, Etc. Neither this Repurchase Agreement
nor any provision hereof may be changed, waived, discharged or terminated orally
but only by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
7.7 Headings. All section and subsection headings herein are for the
convenience of the reader and shall not be relied upon in construing this
Repurchase Agreement.
7.8 Further Assurances. At any time and from time to time, upon the
reasonable request of any party hereto, the requested party shall execute,
deliver and acknowledge, or cause to be executed, delivered and acknowledged,
such further documents and instruments and do such other acts and things as the
requesting party may reasonably request in order to fully effect the purposes of
this Repurchase Agreement and the transactions contemplated hereby.
7.9 Agent for Service of Process. (a) Each of SIL and CCL hereby
irrevocably appoints Gardere & Wynne, L.L.P. as its agent for receipt of service
of process from CTI or CASI or any of their successors or assigns in accordance
with Section 7.10 hereof in respect of any matter relating to or in connection
with this Repurchase Agreement and the transactions contemplated hereby
including, but not limited to, all matters of construction, validity and
performance of this Repurchase Agreement. Each of SIL and CCL hereby agrees that
service upon it shall be effective if made by notice to Gardere & Wynne, L.L.P.
pursuant to Section 7.3 hereof.
(b) Each of CTI and CASI hereby irrevocably appoints Reid &
Priest LLP as its agent for receipt of service of process from SIL or CCL or any
of their successors or
assigns in accordance with Section 7.10 hereof in respect of any matter relating
to or in connection with this Repurchase Agreement and the transactions
contemplated hereby including, but not limited to, all matters of construction,
validity and performance of this Repurchase Agreement. Each of CTI and CASI
hereby agrees that service upon it shall be effective if made by notice to Reid
& Priest LLP pursuant to Section 7.3 hereof.
7.10 Consent to Jurisdiction. Any suit, action or proceeding against
any party hereto with respect to this Repurchase Agreement, including all
matters of construction, validity and performance hereof, or any judgment
entered in any court in respect hereof may be brought in the Supreme Court of
the State of New York, County of New York, or in the United States District
Court for the Southern District of New York and each party hereto hereby submits
to the nonexclusive jurisdiction of such courts for the purpose of any such
suit, action, proceeding or judgment. Nothing herein shall in any way be deemed
to limit the ability of any party hereto to serve any writs, process or
summonses in any other manner permitted by applicable law or to obtain
jurisdiction over the other.
7.11 Counterparts. This Repurchase Agreement may be signed in any
number of counterparts, each of which shall be deemed an original and together
shall constitute one and the same instrument.
- 2 -
03/31/98/DVW/12006/001/AGREE/.1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Repurchase
Agreement on the date above first written.
SOFTWARE INVESTMENTS LIMITED
By:___________________________________
Name: Mark Johnston
Title: Director
CARE CORPORATION LIMITED
By:___________________________________
Name: Mark Johnston
Title: Director
COVER-ALL TECHNOLOGIES INC.
By:___________________________________
Name: Brian Magowan
Title: Chief Executive Officer
COVER-ALL SYSTEMS, INC.
By:___________________________________
Name: Brian Magowan
Title: Chief Executive Officer
- 3 -
03/31/98/DVW/12006/001/AGREE/.1
SECURED PROMISSORY NOTE
New York, New York
4,500,000 March 31, 1998
FOR VALUE RECEIVED, the undersigned, CARE CORPORATION LIMITED,
a company incorporated in the British Virgin Islands having principal offices at
Abbott Building, P.O. Box 3186, Main Street, Road Town, Tortola, British Virgin
Islands ("Payor"), hereby unconditionally promises to pay to COVER-ALL
TECHNOLOGIES INC., a Delaware corporation having principal offices at 18-01
Pollitt Drive, Fair Lawn, New Jersey 07410 ("Holder"), in lawful money of the
United States of America and in immediately available funds, in accordance with
the terms hereof, the principal amount of FOUR MILLION FIVE HUNDRED THOUSAND
DOLLARS ($4,500,000). Principal shall be paid in equal semi-annual installments
of $500,000 unless accelerated pursuant to the terms hereof (the "Semi-Annual
Payment(s)"). The first Semi-Annual Payment shall be due and payable on
September 30, 1998 and Semi-Annual Payments shall continue thereafter on each
March 31 and September 30 until paid in full, absent an acceleration. All
payments hereunder shall be made by wire transfer to such account as Holder may,
from time to time, designate. If Holder fails to designate such account, payment
shall be made at the address of Holder set forth herein.
The last semi-annual installment payable on this Note shall be in an
amount sufficient to pay in full the entire unpaid principal of this Note. All
obligations of Payor to make payments hereunder are absolute and unconditional
and all payments of principal or any other sum due under this Note shall be made
without set-off, deduction or counterclaim.
This Note is being issued and delivered by Payor to Holder in
connection with the consummation of the transactions contemplated by that
certain Repurchase Agreement of even date herewith (the "Repurchase Agreement")
between Payor and Holder. Pursuant to the terms of a Pledge Agreement of even
date herewith between Payor and Holder (the "Pledge Agreement"), repayment of
this Note is secured by the pledge of, initially, 1,687,500 shares of
Cover-All Technologies Inc. common stock, $.01 par value per share (subject to
reduction or increase from time to time as provided in Section 3 of the Pledge
Agreement) owned by Payor (the "Pledged Shares"), and all dividends, cash,
instruments and other property or securities or proceeds from time to time
received, receivable or otherwise distributed or distributable in respect of or
in exchange for any or all of such Pledged Shares, whether issued by the issuer
of the Pledged Shares or otherwise, whether in connection with any tender offer,
exchange offer, merger, recapitalization, reorganization or otherwise (the
"Collateral"). Holder shall be entitled to all of the benefits set forth in the
Pledge Agreement.
This Note may be prepaid, in whole or in part, at any time by Payor
without premium or penalty.
If any one or more of the following events (hereinafter referred to
as "Events of Default") shall have occurred and be continuing: (a) if payment of
the principal amount of, and/or any other amount due under, this Note (whether
scheduled, by acceleration or otherwise)
03/31/98/JOD/12006/001/PROMNOTE/262818.3
1
<PAGE>
is not paid when due; (b) if Payor shall (i) admit in writing its inability to
pay its debts as they become due; (ii) file a petition in bankruptcy or for
reorganization or for the adoption of an arrangement under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy, or
an answer or other pleading admitting or failing to deny the material
allegations of such a petition or seeking, consenting to or acquiescing in the
relief therein provided; (iii) make a general assignment for the benefit of its
creditors; (iv) consent to the appointment of a receiver, trustee, custodian or
other similar official for all or any substantial part of its property or to the
filing of a petition against it under said bankruptcy law; (v) be adjudicated a
bankrupt; (vi) have entered against it a court order appointing a receiver,
trustee, custodian or other similar official for all or any substantial part of
its property, or approving a filing in good faith of a petition filed against it
under said bankruptcy law (in both cases without its consent), which court order
or filing is not vacated or dismissed within 60 days from its being entered or
filed; (vii) allow the assumption of custody or sequestration by a court of
competent jurisdiction of all or any substantially part of its property; or
(viii) permit an attachment to be made on any substantial part of its property
or assets; or (c) if an Event of Default (as such term is defined in the Pledge
Agreement) shall have occurred under the Pledge Agreement, as specified in
Section 9 thereof, and such default shall not have been cured or waived within
ten days after notice thereof by Holder to Payor;
then, and in each and every such case, Holder may declare the then outstanding
principal amount or any other amount due under this Note to be immediately due
and payable and thereupon, such amounts shall become so due and payable without
presentation, protest or further demand or notice of any kind, all of which are
hereby expressly waived, and Holder shall be entitled to receive, to the extent
lawful, interest at the rate equal to the rate of interest publicly announced
from time to time by Citibank, N.A. as its prime rate plus 5% until paid in full
on the entire accelerated unpaid amount from the date of acceleration through
the date of collection, together with reasonable attorneys' fees and expenses
for the collection of such amounts. Holder may also proceed to enforce payment
of all obligations of Payor and exercise any or all of the rights and remedies
with respect to the security afforded to Holder by the Uniform Commercial Code
in effect from time to time in the State of New York (or as in effect from time
to time in any and all other applicable jurisdictions), or otherwise.
No course of dealing between Payor and Holder or any delay on the
part of Holder in exercising any rights hereunder shall operate as a waiver of
any rights of Holder, except to the extent expressly waived in writing by
Holder. No delay or omission by Holder to exercise any right hereunder shall
impair any such right or operate as a waiver thereof or of default hereunder nor
shall any single or partial exercise thereof preclude any other or future
exercise thereof, or the exercise of any other right. The remedies provided
herein are cumulative and are not exclusive of any remedies provided by law or
in equity. Payor hereby waives, demand, notice of presentment, protest, notice
of dishonor and protest, rights of extension and any defense by reason of
extension of time, estoppel or other indulgences granted by Holder.
Anything in this Note, the Repurchase Agreement, the Pledge
Agreement or any other document to the contrary notwithstanding, Holder agrees
to look solely and only to the Collateral for the payment, performance and
observance of all of the obligations under this Note, and Holder, for itself and
its successors and assigns, hereby expressly waives any rights to enforce
03/31/98/JOD/12006/001/PROMNOTE/262818.3
2
<PAGE>
payment or performance by Payor, its subsidiaries or shareholders, or its or
their shareholders, directors, officers, agents, employees or partners, or to
recover damages for any breach of warranty, covenant or agreement of Payor
hereunder or thereunder, other than to proceed against the Collateral in the
event of any such Event of Default hereunder.
Any notice, presentation or demand to or upon Payor in respect of
this Note may be given or made in writing and shall be deemed to be duly given
if delivered personally, by registered or certified mail, postage prepaid, or by
a nationally recognized overnight courier service to the address set forth above
or, if any other address shall at any time be designated for this purpose by
Payor in writing to Holder, to such other address.
The provisions of this Note shall be construed and interpreted, and
all rights and obligations hereunder determined, in accordance with the laws of
the State of New York, excluding rules relating to conflicts of law.
Any suit, action or proceeding against any party hereto with respect
to this Note, including all matters of construction, validity and performance
hereof, or any judgment entered in any court in respect hereof may be brought in
the Supreme Court of the State of New York, County of New York, or in the United
States District Court for the Southern District of New York and each party
thereto hereby submits to the nonexclusive jurisdiction of such courts for the
purpose of any such suit, action, proceeding or judgment. Nothing herein shall
in any way be deemed to limit the ability of any party hereto to serve any
writs, process or summonses in any other manner permitted by applicable law or
to obtain jurisdiction over the other.
Payor hereby irrevocably appoints Gardere & Wynne, L.L.P. as its
agent for receipt of service of process from Holder or any of its successors or
assigns in respect of any matter relating to or in connection with this Note and
the transactions contemplated hereby including, but not limited to, all matters
of construction, validity and performance of this Note. Payor hereby agrees that
service upon it shall be effective if made by notice to Gardere & Wynne, L.L.P.,
1601 Elm Street, Suite 3000, Dallas, Texas 75201, Attention Alan J. Perkins,
Esq.
If any term or provision of this Note shall be held invalid, illegal
or unenforceable, the validity of all other terms and provisions hereof shall in
no way be affected thereby.
No modification or waiver of any of the provisions of this Note
shall be effective unless in writing and signed by Holder, and then only to the
extent set forth in said writing, nor shall any such modification or waiver be
applicable except in the specific instance for which it is given.
03/31/98/JOD/12006/001/PROMNOTE/262818.3
3
<PAGE>
IN WITNESS WHEREOF, Payor has duly executed this Note on the day and
year first above written.
CARE CORPORATION LIMITED
By:
Mark Johnston Name:
Director Title:
03/31/98/JOD/12006/001/PROMNOTE/262818.3
4
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of March 31, 1998, by and between CARE
CORPORATION LIMITED, a company incorporated in the British Virgin Islands having
principal offices at Abbott Building, P.O. Box 3186, Main Street, Road Town,
Tortola, British Virgin Islands ("Pledgor"), and COVER-ALL TECHNOLOGIES INC., a
Delaware corporation having principal offices at 18-01 Pollitt Drive, Fair Lawn,
New Jersey 07410 ("Secured Party").
W I T N E S S E T H:
WHEREAS, on March 31, 1996, pursuant to the terms of an Exclusive
Software License Agreement, as amended, by and between Pledgor and Secured
Party, Pledgor granted to Secured Party, among other things, an exclusive
license to use Pledgor's software in certain licensed territories (the "CARE
Software");
WHEREAS, Pledgor, concurrently herewith, is repurchasing from
Secured Party, among other things, all of its rights in the CARE Software,
pursuant to the terms and conditions of that certain Repurchase Agreement (the
"Repurchase Agreement") of even date herewith between Pledgor and Secured Party
(the "Repurchase");
WHEREAS, a portion of the purchase price payable by Pledgor to
Secured Party for the CARE Software in the Repurchase is evidenced by a
promissory note of Pledgor in the principal amount of $4.5 million of even date
herewith between Pledgor and Secured Party (the "Note"), a copy of which is
annexed hereto as Exhibit A; and
WHEREAS, Secured Party requires, and Pledgor is willing, as a
condition to the consummation of the transactions contemplated by the Repurchase
Agreement, to pledge to Secured Party the Pledged Shares (as defined below) as
security for the payment and performance by Pledgor of all of the obligations of
Pledgor under the Note (the "Secured Obligations") by executing and delivering
this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and
covenants herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. DEFINITIONS
"Agreement" shall mean this Pledge Agreement, including all
amendments, modifications and supplements and any exhibits and schedules to any
of the foregoing, and shall refer to this Agreement as the same may be in effect
at the time such reference becomes operative.
"Event of Default" shall have the meaning assigned to such term in
the Note, and shall include the occurrence or existence of any of the following
events or conditions (regardless
<PAGE>
of the reason therefor), which event or condition is not cured or waived within
30 days after notice by Secured Party to Pledgor: (a) the failure or neglect of
Pledgor to observe or perform any covenant, agreement or obligation under this
Agreement; or (b) if any representation or warranty made under this Agreement by
Pledgor shall be breached or shall be untrue or incorrect in any material
respect as of the date when made or deemed made.
"Market Price" shall mean, as of any day, the closing sale price of
the shares of Common Stock (as defined herein) on such day on the New York Stock
Exchange or the American Stock Exchange (or if the Common Stock shall not then
be listed on either such exchange, the closing sale price on the principal
(determined by the highest volume averaged for a period of twenty consecutive
business days prior to the day as to which "Market Price" is being determined)
national securities exchange (as defined in the Securities Exchange Act of 1934,
as amended) on which the Common Stock may then be listed) or, if there shall
have been no sales on such exchange or exchanges on such day, the closing sales
price of the Common Stock on such day on the NASDAQ National Market System or,
if the Common Stock is not included in the NASDAQ National Market System, the
closing sales price of the Common Stock on such day on the NASDAQ SmallCap
Market or, if the Common Stock shall not be so listed, the average of the bid
and asked prices at the end of the day in the over-the-counter market as
reported by NASDAQ or, if the Common Stock is not included on NASDAQ, as
reported by the National Quotation Bureau, Inc. or any successor organization.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether Federal, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).
"Pledged Collateral" shall have the meaning assigned to such term in
Section 2 hereof.
"Pledged Shares" shall mean, initially, 1,687,500 shares of
Cover-All Technologies Inc. common stock, $.01 par value per share ("Common
Stock") owned by Pledgor (subject to reduction as provided in Section 3 hereof),
and all dividends, cash, instruments and other property or securities or
proceeds from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of such Pledged
Shares, whether issued by the issuer of the Pledged Shares or otherwise, whether
in connection with any tender offer, exchange offer, merger, recapitalization,
reorganization or otherwise.
"Termination Date" shall have the meaning assigned to such term in
Section 11 hereof.
"Uniform Commercial Code" shall mean the Uniform Commercial Code of
the State of New York, as in effect from time to time.
<PAGE>
Except as otherwise specifically provided in this Agreement, the
singular of any term shall include the plural, and vice versa, the use of any
term shall be equally applicable to any gender, "or" shall not be exclusive, and
"including" shall not be limiting or exclusive, and any reference to a "Section"
shall refer to the relevant Section of this Agreement.
2. PLEDGE AND GRANT OF SECURITY INTEREST. Pledgor hereby pledges to Secured
Party, and grants to Secured Party a continuing security interest in, all of
Pledgor's right, title and interest in and to (and in all of Pledgor's rights to
acquire any and all right, title and interest in and to) the Pledged Shares,
whether now owned or hereafter acquired in any manner, or whether from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of such Pledged Shares (collectively, the "Pledged Collateral").
3. PARTIAL RELEASE OF PLEDGED SHARES. Notwithstanding Section 2 hereof,
concurrently with the receipt by Secured Party of principal payments under the
Note, Secured Party shall release the lien created by this Agreement with
respect to, and return to Pledgor, certificates representing such number of
Pledged Shares (the "Released Shares") as is equal to the difference (the
"Difference") of (a) the total number of Pledged Shares held immediately prior
to the principal payment being made less (b) the product of (i) a fraction, the
numerator of which shall be the total principal balance outstanding under the
Note immediately following, and after giving effect to, the principal payment in
question and the denominator of which shall be the Market Price per share of the
Common Stock on the date upon which the principal payment is made, multiplied by
(ii) 1.5. All Released Shares hereafter shall no longer constitute Pledged
Shares or Pledged Collateral for purposes of this Agreement, provided, however,
that if the Difference calculated pursuant to this Section 3 results in a
negative number, then Pledgor must deliver and pledge to Secured Party an
additional amount of Common Stock to Secured Party (or, if Pledgor cannot
fulfill such requirement with Common Stock, another form of additional
collateral which is acceptable to the Secured Party in its sole discretion), in
order to satisfy the requirement of this Agreement to maintain at all times
during the term of this Agreement Pledged Collateral with a value determined in
accordance with this Agreement of at least 1.5 times the the unpaid principal
balance under the Note.
4. SECURITY FOR OBLIGATIONS.
This Agreement and the Pledged Collateral secures the prompt payment
and performance when due of each and every one of and all amounts that
constitute part of the Secured Obligations of Pledgor.
5. DELIVERY OF PLEDGED COLLATERAL.
Concurrently with the execution of this Agreement, all certificates
representing or evidencing the Pledged Shares shall be delivered to and held by
or on behalf of the Secured Party pursuant hereto and shall be accompanied by
duly executed instruments of transfer or assignment
<PAGE>
in blank, all in form and substance satisfactory to the Secured Party. Pledgor
shall receive all certificates, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Pledged Shares in trust for the Secured Party
and shall immediately upon receipt deliver to the Secured Party such
certificates, cash, instruments and other property and proceeds, together with
any necessary endorsement. All dividends and all other distributions in respect
of any of the Pledged Shares, whenever paid or made, shall be delivered to the
Secured Party to hold as Pledged Collateral and shall, to the extent received by
Pledgor, be received in trust for the benefit of the Secured Party, be
segregated from the other property or funds of Pledgor, and be forthwith
delivered to the Secured Party as Pledged Collateral in the same form as so
received (with any necessary endorsement). The Secured Party shall have the
right, at any time after the occurrence of an Event of Default, in its
discretion and without notice to Pledgor, to transfer to or to register in the
name of the Secured Party or any of its nominees any or all of the Pledged
Shares. In addition, the Secured Party shall have the right at any time to
exchange certificates or instruments representing or evidencing the Pledged
Shares for certificates or instruments of smaller or larger denominations.
6. REPRESENTATIONS AND WARRANTIES.
Pledgor represents and warrants to Secured Party as follows:
6.1 Ownership. Except for the 2,500,000 shares of Common Stock of
Cover-All Technologies Inc. previously issued to Pledgor pursuant to the terms
of a Stock Purchase Agreement, dated March 31, 1996, by and among the parties
hereto and other parties, which shares have been subject to a right of
repurchase which is concurrently being terminated pursuant to the terms of the
Repurchase Agreement, Pledgor is the sole owner of the Pledged Collateral, free
and clear of any lien, claim, encumbrance, pledge or restriction of any kind,
nature or description whatsoever, except for the lien created by this Agreement.
6.2 Authorization. Pledgor has the full corporate right, power and
authority to pledge, assign, transfer, deliver, deposit and set over the Pledged
Collateral to Secured Party as provided herein.
6.3 No Consent or Notice. Except as set forth in Section 6.1, no
consent, approval, authorization or other order of any Person and no consent,
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required to be made or obtained by
Pledgor either (a) for the grant by Pledgor of the security interest granted
hereby, for the pledge by Pledgor of the Pledged Collateral pursuant hereto or
for the execution, delivery or performance of this Agreement by Pledgor, (b) for
the perfection or maintenance of the pledge and security interest granted hereby
(including the first priority nature of such pledge and security interest) or
(c) for the exercise by Secured Party of its rights provided
<PAGE>
for in this Agreement or the remedies in respect of the Pledged Collateral
pursuant to this Agreement.
6.4 Valid Lien. The pledge of, grant of a security interest in, and
delivery of the Pledged Collateral by Pledgor pursuant to this Agreement will
create a valid first priority lien on, and a first priority perfected security
interest in, the Pledged Collateral and the proceeds thereof of Pledgor,
securing the payment in full of the Secured Obligations of Pledgor.
6.5 Binding Obligation. This Agreement has been duly executed and
delivered by Pledgor and constitutes the legal, valid and binding obligation of
Pledgor, enforceable in accordance with its terms.
6.6 Pledgor Address. The principal business address of Pledgor is as set
forth in the preamble to this Agreement.
The representations and warranties set forth in this Section 6 shall
survive the execution and delivery of this Agreement.
7. COVENANTS.
Pledgor covenants and agrees that as of the date hereof and until
the Termination Date:
7.1 Transfer and Other Liens. Unless Secured Party gives its prior
written consent, Pledgor will not (a) sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to, any of
the Pledged Collateral, or (b) create or suffer to exist any lien or grant a
security interest in or upon or with respect to, or encumber any of its rights
in or to, any of the Pledged Collateral, except for the pledge and security
interest created by this Agreement.
7.2 Further Assurances; Creation and Preservation of Lien. Pledgor
will, at its expense, promptly execute, acknowledge and deliver all such
instruments and take all such action as Secured Party, from time to time, may
reasonably request in order to ensure to Secured Party the benefits of the liens
in and to the Pledged Collateral intended to be created by this Agreement and to
protect any pledge or security interest granted or purported to be granted
hereby or to enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to the Pledged Collateral.
7.3 Title. Pledgor has and will defend the title to the Pledged
Collateral and the liens of Secured Party thereon against the claim of any
Person and will maintain and preserve such liens until such liens are realized
in accordance with the terms hereof or until the Termination Date.
<PAGE>
7.4 Legends. Each certificate evidencing the Pledged Collateral
states and shall state that it is subject to this Agreement. Such legend shall
be removed from any Released Shares.
8. PLEDGOR'S RIGHTS.
Until the occurrence of an Event of Default under this Agreement or
the Note, Pledgor shall be entitled, pursuant to this Agreement, to exercise all
voting and other rights pertaining to the Pledged Shares. After the occurrence
of any such Event of Default, Secured Party or its nominee shall have the sole
right to vote any and all of the Pledged Shares and give consents, waivers and
ratifications in respect thereof, and Pledgor shall deliver to Secured Party or
its nominee such proxies and other documents as Secured Party may request to
further effectuate the foregoing.
9. DEFAULTS AND REMEDIES.
9.1 Defaults and Remedies. Upon the occurrence of an Event of
Default and during the continuance of such Event of Default, upon at least ten
days notice but without any other notice or demand, Secured Party (through an
agent) is hereby authorized and empowered to transfer and register in its name
or in the name of its nominee the whole or any part of the Pledged Collateral,
to exercise the voting rights with respect thereto, and to collect and receive
all dividends and other distributions made thereon; and, to sell in one or more
sales after at least ten days notice of the time and place of any public sale or
of the time after which a private sale is to take place (which notice Pledgor
agrees is commercially reasonable), but without any previous notice or
advertisement, the whole or any part of the Pledged Collateral and otherwise to
act with respect to the Pledged Collateral as though Secured Party were the
outright owner thereof, Pledgor hereby irrevocably constituting and appointing
Secured Party as the proxy and attorney-in-fact of Pledgor, with full power of
substitution to do so; provided, however, Secured Party shall not have any duty
to exercise any such right or to preserve the same and shall not be liable for
any failure to do so or for any delay in doing so. Secured Party shall exercise
reasonable care in preserving the certificates representing the Pledged
Collateral, but Secured Party shall have no obligation to preserve the value of
the Pledged Collateral. Subject to the limitations previously set forth in this
Section 9.1, any sale of the Pledged Collateral shall be made at a public or
private sale at the place named in the notice of sale, either for cash or upon
credit or for future delivery at such price as Secured Party may deem fair, and
Secured Party or Pledgor may be the purchaser of the whole or any part of the
Pledged Collateral so sold, and hold the same thereafter in its or its own right
free from any claim of Pledgor or any right of redemption. Each sale shall be
made to the highest bidder, but Secured Party reserves the right to reject any
and all bids at such sale which, in its discretion, it shall deem inadequate.
Demands of performance, notices of sale, advertisements and the presence of
property at sale are hereby waived, and any sale hereunder may be conducted by
an auctioneer or any officer or agent of Secured Party.
<PAGE>
9.2 Sale of Collateral. If, at the original time or times appointed
for the sale of the whole or any part of the Pledged Collateral, the highest bid
shall be inadequate to discharge in full all the Secured Obligations if there be
but one sale, or if the Pledged Collateral be offered for sale in lots, if at
any of such sales the highest bid for the lot offered for sale would indicate to
Secured Party, in its discretion, the unlikelihood of the proceeds of the sales
of the whole of the Pledged Collateral being sufficient to discharge all of the
Secured Obligations, Secured Party may, on one or more occasions and in its
discretion, postpone any of said sales by public announcement at the time of
sale or the time of previous postponement of sale, and no other notice of such
postponement or postponements of sale need be given, any other notice being
hereby waived.
9.3 Proceeds. In the event of any sales hereunder, Secured Party
shall, after deducting all costs and expenses of every kind (including
reasonable attorneys' fees and disbursements) for care, safekeeping, collection,
sale, delivery or otherwise, apply the residue of the proceeds of the sales to
the payment or reduction, either in whole or in part, of the Secured Obligations
in accordance with Section 10 and the agreements and instruments governing and
evidencing such Secured Obligations, returning the surplus, if any, to Pledgor.
9.4 Pledgor Waivers. Pledgor agrees that following the occurrence
and during the continuance of an Event of Default, it will not at any time
plead, claim or take the benefit of any appraisal, valuation, stay, extension,
moratorium or redemption law now or hereafter in force in order to prevent or
delay the enforcement of this Agreement, or the absolute sale of the whole or
any part of the Pledged Collateral or the possession thereof by any purchaser at
any sale hereunder, and Pledgor waives the benefit of all such laws to the
extent it lawfully may do so.
9.5 Non-Interference. Pledgor agrees that it will not interfere with
any right, power or remedy of Secured Party provided for in this Agreement or
now or hereafter existing at law or in equity or by statute or otherwise, or the
exercise or beginning of the exercise by Secured Party of any one or more of
such rights, powers or remedies. No failure or delay on the part of Secured
Party to exercise any such right, power or remedy, and no notice or demand which
may be given to or made upon Pledgor by Secured Party with respect thereto,
shall operate as a waiver thereof, or limit or impair Secured Party's right to
take any action or to exercise any right, power or remedy hereunder, without
notice or demand, or prejudice its rights against Pledgor in any respect.
9.6 Unencumbered Shares. Secured Party agrees, notwithstanding any
provision to the contrary set forth herein, that in connection with any sale,
transfer or other disposition by it of the Pledged Collateral in accordance with
this Section 9, Secured Party shall first remove its lien against such Pledged
Collateral so that the transferee of such Pledged Collateral will acquire, in
accordance with this Section 9, such Pledged Collateral free and clear of all
liens, encumbrances and other restrictions or title defects.
<PAGE>
10. APPLICATION OF PROCEEDS.
Any cash held by Secured Party as Pledged Collateral and all cash
proceeds received by Secured Party in respect of any sale of, liquidation of or
other realization upon all or any part of the Pledged Collateral shall be
applied by Secured Party as follows:
(a) First, to the payment of the costs and expenses of such sale,
including reasonable fees and expenses of Secured Party's agents and
counsel, and all expenses, liabilities and advances made or incurred by
Secured Party in connection therewith;
(b) Next, to the payment of that portion of the Secured Obligations
consisting of accrued and unpaid interest and fees;
(c) Next, to the payment of that portion of the Secured Obligations
consisting of the unpaid remaining principal amounts; and
(d) Finally, to the payment to Pledgor, or its successors or
assigns, or to whomsoever may be lawfully entitled to receive the same or
as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.
11. TERMINATION.
Following the complete payment and satisfaction of all Secured
Obligations of Pledgor to Secured Party under this Agreement and the Note (the
"Termination Date"), this Agreement shall terminate and Pledgor shall be
entitled to the return of, and Secured Party, upon such complete payment and
satisfaction of all Secured Obligations, shall return, all Pledged Collateral at
the time subject to this Agreement which may be in Secured Party's custody
hereunder and all instruments of assignment executed in connection therewith to
Pledgor or to whomsoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction shall direct, free and clear of the liens
granted hereunder, and all of Pledgor's liabilities hereunder shall at such time
terminate.
12. INDEMNIFICATION.
Pledgor agrees to indemnify and hold Secured Party harmless from and
against any and all taxes, liabilities, claims and damages, including reasonable
attorneys' fees and disbursements, and other expenses incurred or arising by
reason of the taking or the failure to take action by Secured Party, in good
faith, in respect of any transaction effected under this Agreement or in
connection with the lien provided for herein, including any taxes payable in
connection with the delivery of any of the Pledged Collateral as provided
herein. The liabilities of Pledgor under this Section shall survive the
termination of this Agreement.
<PAGE>
13. LIEN ABSOLUTE.
All rights of Secured Party hereunder, and all obligations of
Pledgor hereunder, shall be absolute and unconditional and shall remain in full
force and effect without regard to, and shall not be impaired or affected by, or
deemed to be satisfied by, nor shall Pledgor or any Pledged Collateral be
exonerated, discharged or released by, any of the following events:
(a) Secured Party's exercise or enforcement of or failure or delay
in exercising or enforcing any legal proceedings to collect the Secured
Obligations or any power, right or remedy with respect to the Secured
Obligations, the Pledged Collateral or any other collateral held by
Secured Party, including any action or inaction of Secured Party to
perfect, protect or enforce any security interest in the Pledged
Collateral or any other collateral, any impairment or suspension of the
Pledged Collateral or any other collateral, Secured Party's compromise,
exchange, release, settlement, amendment or waiver with or of any other
Person, or the Pledged Collateral or any other collateral, or any change
in the time, manner or place of payment of, or in any other term of, all
or any part of the Secured Obligations, or any other amendment,
impairment, renunciation, cancellation, surrender, suspension or waiver of
the Note or any other agreement or instrument governing or evidencing any
of the Secured Obligations;
(b) Any insolvency, bankruptcy, reorganization, arrangement,
adjustment, composition or assignment for the benefit of creditors of
Secured Party or Pledgor, appointment of a receiver or trustee for all or
any part of Secured Party's or Pledgor's assets or liquidation, winding up
or dissolution of the Pledgor;
(c) Any invalidity, voidability, unenforceability or irregularity,
or future change to or amendment of, in whole or in part, the Secured
Obligations, the Note, this Agreement or any other agreements, documents
or instruments evidencing any Secured Obligations;
(d) Any merger, acquisition, consolidation or change in structure of
Pledgor, or any sale, lease, transfer or other disposition of any or all
of the assets of Pledgor;
(e) Any assignment, endorsement or other transfer, in whole or in
part, of Secured Party's interest in the Secured Obligations, the Pledged
Collateral or any other collateral;
(f) Any claim, defense, counterclaim or set-off, other than that of
prior performance, that Pledgor may have or assert, including, but not
limited to, any defense of incapacity, disability or lack of corporate or
other authority to execute any documents relating to the Secured
Obligations, the Pledged Collateral or any other collateral;
<PAGE>
(g) Secured Party's vote, claim, distribution, election, acceptance,
action or inaction in any bankruptcy or reorganization case related to the
Pledged Collateral or the Secured Obligations; or
(h) Any cancellation, renunciation or surrender of any pledge or any
other debt instrument evidencing the Secured Obligations.
14. REINSTATEMENT.
This Agreement shall remain in full force and effect and continue to
be effective if at any time payment and performance of the Secured Obligations
of Pledgor, or any part thereof, is, pursuant to applicable law, avoided,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee of the Secured Obligations, whether as a "voidable preference,"
"fraudulent conveyance" or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
avoided, rescinded, reduced, restored or returned, the Secured Obligations, as
the case may be, shall be reinstated and deemed reduced only by such amount paid
and not so avoided, rescinded, reduced, restored or returned.
15. MISCELLANEOUS.
15.1 Reimbursement. Pledgor agrees to reimburse Secured Party
promptly for all expenses, including reasonable counsel fees, reasonably
incurred by Secured Party in connection with the administration and enforcement
of this Agreement.
15.2 Limitations on Liability. Secured Party shall not be liable for
any action lawfully taken or omitted to be taken by Secured Party hereunder or
in connection herewith, except for his own gross negligence or willful
misconduct.
15.3 Binding Agreement. This Agreement shall be binding upon Pledgor
and its administrators, legal representatives and permitted successors and
assigns, and shall inure to the benefit of, and be enforceable by, Secured Party
and its administrators, legal representatives, successors and assigns.
15.4 Entire Agreement; Amendments. This Agreement, together with the
Note: (a) constitutes the entire agreement between the parties with respect to
the subject matter hereof; and (b) may not be amended or modified except by a
writing signed by Pledgor and Secured Party.
15.5 Severability. If any provision of this Agreement shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render invalid or
unenforceable any other severable provision of this
<PAGE>
Agreement, and this Agreement shall be carried out as if any such invalid or
unenforceable provision were not contained herein.
15.6 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to be duly
given if personally delivered with receipt acknowledged, if mailed by registered
or certified mail, first class, postage prepaid, if delivered by a nationally
recognized overnight courier service or if transmitted by facsimile machine
addressed as follows:
(i) if to Secured Party:
COVER-ALL TECHNOLOGIES INC.
18-01 Pollitt Drive
Fair Lawn, New Jersey 07410
Attention: Chief Executive Officer
with a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attention: Leonard Gubar, Esq.
or to such other address or such other person(s) as Secured Party may
designate by written notice to Pledgor; and
(ii) if to Pledgor:
Care Corporation Limited
c/o Moore Stephens
P.O. Box 236
1st Island House
Peter Street
St. Helier, Jersey JE4 8SG
Channel Islands
Attention: Mr. Stephen Milsom
with a copy to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
<PAGE>
Attention: Alan J. Perkins, Esq.
or to such other address or such other person(s) as Pledgor may designate by
written notice to Secured Party.
15.7 Agent for Service of Process. (a) Pledgor hereby irrevocably
appoints Gardere & Wynne, L.L.P. as its agent for receipt of service of process
from Secured Party or any of its successors or assigns in accordance with
Section 15.8 hereof in respect of any matter relating to or in connection with
this Agreement and the transactions contemplated hereby including, but not
limited to, all matters of construction, validity and performance of this
Agreement. Pledgor hereby agrees that service upon it shall be effective if made
by notice to Gardere & Wynne, L.L.P., pursuant to Section 15.6 hereof.
(b) Secured Party hereby irrevocably appoints Reid & Priest
LLP as its agent for receipt of service of process from Pledgor or any of its
successors or assigns in accordance with Section 15.8 hereof in respect of any
matter relating to or in connection with this Agreement and the transactions
contemplated hereby including, but not limited to, all matters of construction,
validity and performance of this Agreement. Secured Party hereby agrees that
service upon it shall be effective if made by notice to Reid & Priest LLP
pursuant to Section 15.6 hereof.
15.8 Consent to Jurisdiction. Any suit, action or proceeding against
any party hereto with respect to this Agreement, including all matters of
construction, validity and performance hereof, or any judgment entered in any
court in respect hereof may be brought in the Supreme Court of the State of New
York, County of New York, or in the United States District Court for the
Southern District of New York and each party thereto hereby submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action, proceeding or judgment. Nothing herein shall in any way be deemed to
limit the ability of any party hereto to serve any writs, process or summonses
in any other manner permitted by applicable law or to obtain jurisdiction over
the other.
15.9 Section Titles. The Section titles contained in this Agreement
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
15.10 Governing Law. This Agreement is being executed and delivered
by the parties hereto in the State of New York and shall be construed in
accordance with, and governed by, the internal laws of the State of New York,
without giving effect to the conflicts of laws principles thereto.
<PAGE>
15.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.
CARE CORPORATION LIMITED
By:________________________________________
Name: Mark Johnston
Title: Director
COVER-ALL TECHNOLOGIES INC.
By:________________________________________
Name: Brian Magowan
Title: Chief Executive Officer
RESELLER AGREEMENT
THIS AGREEMENT is made this 31st day of March, 1998 by and between Cover-All
Systems, Inc. ("CSI"), with offices at 18-01 Pollitt Drive, Fair Lawn, New
Jersey 07410 and Care Corporation Limited ("the Company"), with offices at
Abbott Building, P.O. Box 3186, Main Street, Road Town, Tortola, British Virgin
Islands.
WHEREAS,
1. CSI develops and markets software products (including associated user and
technical documentation) which are the property of and proprietary to CSI
(the "CSI Software Products") together with CSI furnished technical and
software support services ("CSI Services"). The CSI Software Products and CSI
Services are hereinafter sometimes referred to collectively as the "CSI
Product(s)";
2. The Company has, among other things, extensive knowledge and expertise in the
marketing, sale and support of software products and services with particular
focus on the financial services and insurance industry market sectors and
desires to be appointed and authorized to resell CSI Products;
3. CSI has agreed to appoint the Company as a reseller of CSI Products and the
Company has agreed to accept such appointment subject to and in accordance
with the terms and conditions hereinafter appearing.
ACCORDINGLY IT IS HEREBY AGREED AS FOLLOWS:
1. Scope of this Agreement
Subject to the terms and conditions of this Agreement, including the Exhibits
referenced herein and the terms of CSI reseller price and policy bulletins
("Reseller Bulletins") as issued by CSI from time to time, CSI agrees to sell,
and the Company agrees to purchase, CSI Products for resale by the Company, to
end user customers of the Company, during the term of this Agreement.
2. Appointment as Authorized Reseller
(a)CSI appoints the Company as an authorized reseller ("Reseller") of the CSI
Products more particularly identified and described in Exhibit A hereto,
as the same may be amended from time to time pursuant to the provisions of
Section 2(e) below. The Company agrees to market CSI Products only to
commercial end user customers within the market categories and
geographical territory more particularly described and set forth in
Exhibit B hereto.
(b)"Reseller" as used in this Agreement means an entity which, in the normal
course of its business, markets and sells the products and/or services of
a third party through a direct sales force to end user customers of the
Reseller.
(c)As an authorized Reseller, the Company agrees to comply with all
instructions and directives, relating to authorized Resellers as contained
in Reseller Bulletins issued by CSI.
(d)This appointment is non-exclusive and will not prevent CSI from appointing
other resellers of any kind or from directly marketing the CSI Products to
end user customers and/or from supplying CSI Products for resale to other
resellers. The Company will not market or deliver CSI Products to those
companies (if any) listed in Exhibit C to this Agreement unless the
Company receives express authorization from CSI which is documented by
means of a written amendment to this Agreement executed on behalf of each
of the parties hereto.
-1-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
3. Orders, Delivery and Acceptance
(a)All orders (including but not limited to orders placed using the Company's
standard form of purchase order) issued by the Company hereunder shall be
in writing, shall refer to this Agreement and to the applicable "End User
Agreement" (as such term is defined in Section 9 below) and shall be
forwarded to CSI at the address set forth above. Such orders shall
identify the type and quantity of CSI Products to be furnished by CSI to
the Company and specify the requested delivery date for CSI Software
Products and the time frame for the performance of CSI Services. Any
additional terms and conditions contained in or endorsed on any such order
or any other document accompanying or referenced by such order are of no
effect, and CSI hereby gives notice of objection to such additional terms.
Orders will bind CSI only when acknowledged and accepted by written
confirmation from CSI. CSI shall issue written acceptance or rejection of
an order no later than ten (10) days from the receipt of any order form.
(b)For orders canceled, rescheduled or otherwise changed by the Company, CSI
may impose a reasonable cancellation, rescheduling, or change fee.
(c)Delivery of CSI Software Products which have been released for general
commercial distribution will be made no later than thirty (30) days from
the date of acceptance of the Company's order by CSI. The delivery date
applicable to CSI Software Products which have not been released for
general commercial distribution will be mutually agreed upon in writing by
CSI and the Company prior to acceptance of the applicable order by CSI.
The dates for the furnishing of CSI Services will be mutually agreed upon
in writing by CSI and the Company prior to acceptance of the applicable
order by CSI. With the Company's prior approval, CSI may make partial
deliveries against any of the Company's orders, which deliveries will be
invoiced and paid for in accordance with the terms of this Agreement
notwithstanding the requirement to make subsequent deliveries against the
same order.
(d)CSI will ship CSI Software Products in accordance with its standard
practices. CSI will deliver CSI Software Products and furnish CSI Services
to the location(s) specified in the Company's order. Risk of loss and
damage to CSI Software Products will pass to the Company upon delivery to
the location specified in the applicable order. CSI Software Products will
be deemed accepted if the Company does not give CSI written notice of
rejection within 30 days after the date of shipment by CSI.
(e)CSI may delete any CSI Product from Exhibit A of this Agreement at any
time upon ninety (90) days prior written notice to the Company. CSI may
add products and/or services to Exhibit A of this Agreement at any time
upon written notice to the Company. CSI makes no commitment to offer any
CSI Products to the Company other than such products and services as are
specified in Exhibit A hereto.
4. Reports and Records
The Company will submit to CSI, if requested by CSI, financial reports and
other financial data as may be reasonably requested by CSI, and will
retain for two years its accounts, agreements and other business records
relating to sales of the CSI Products. The Company will permit CSI, upon
reasonable notice during normal business hours, to examine such reports,
financial data and records for the limited purposes of analyzing the
Company's financial condition and verifying its compliance with the terms
of this Agreement.
5. Prices and Discounts
(a)Prices for CSI Products will be the CSI commercial list price in effect on
the date CSI accepts the Company's order, less the applicable reseller
discount as specified in CSI's then current applicable "Reseller
Bulletin(s)." CSI may revise its list prices, Reseller discounts, or both
at any time upon written notice to Company. If the Company's actual price
after discount for a CSI Product is increased by any such a revision or
revisions, then CSI shall give the Company at least ninety (90) days prior
written notice of such revision or revisions with
-2-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
respect to the CSI Product(s) affected by any such revision(s), in every
other case CSI shall give the Company not less than ten (10) days written
notice of any change to CSI's list price for any of the CSI Products
and/or Reseller Discounts. The Company will be notified of list price and
discount revisions by means of Reseller Bulletins issued by CSI.
[i] Price decreases will apply to orders shipped after the effective date
of the applicable price decrease.
[ii]Any price increase will apply to orders received after the effective
date of the applicable price increase and to all orders received
before its effective date but scheduled for delivery more than one
hundred twenty (120) days after such effective date.
[iiiPrices do not include, and the Company is responsible for, any sales,
withholding, use, value added, property and similar taxes levied on
CSI Products furnished pursuant to this Agreement and/or other items
furnished to the Company by CSI, exclusive of any and all taxes based
upon the net income of CSI. Prices for CSI Services do not include the
expense of travel, lodging and subsistence incurred in connection with
the performance of such services. Such expenses will be billed to and
payable by the Company in accordance with CSI's then current travel
policy. Any and all travel time to and from a CSI facility (to the
Company's facility or a Company end user facility) which is incurred
in connection with the provision of CSI Services will be billed to and
payable by the Company at the hourly fee rate of the applicable CSI
personnel engaged in performing such services.
6. Payment Terms
(a)Invoices will be issued by CSI on or after the date of shipment of CSI
Software Products. Invoices in respect of CSI Services will be rendered
annually in advance for standard software maintenance services and monthly
in arrears for other CSI Services. Payment terms are net thirty (30) days
from the date of invoice. Charges for change, rescheduling or cancellation
fees, and for other items or services will be invoiced as incurred. CSI
reserves the right to change payment terms at any time, upon not less than
ten (10) days prior written notice to the Company, if in CSI's reasonable
opinion the Company's financial condition or payment record so warrant.
(b)CSI may impose a late payment charge equal to the lesser of (i) 1 1/2% per
month of the outstanding amount due, or (ii) the maximum rate allowed by
law. If the Company becomes delinquent in the payment of any amount due,
CSI may suspend performance under this Agreement, without prejudice to any
and all other remedies available to CSI (for nonpayment) under this
Agreement or at law or in equity.
7. Obligations of Company
(a)The Company will actively promote and market the CSI Products in
accordance with the Company's then current and approved Marketing and
Business Plan.
(b)On an ongoing basis the Company will (i) maintain a qualified sales and
technical staff of appropriate size, experienced in the sale,
implementation and support of client/server software applications, and
knowledgeable in the CSI Products and related items; (ii) provide end user
customers with technical support and training in the use of the CSI
Software Products, and (iii) provide adequate and attractive facilities
for the display and demonstration of CSI Software Products.
(c)Immediately upon receipt thereof, the Company will notify CSI of any legal
or other notices which may affect CSI or its licensors and will promptly
respond to any complaints regarding CSI Products made by the Company's end
user customers and will timely notify CSI of any such complaint which is
not promptly resolved by the Company.
(d)The Company will market CSI Products only pursuant to the terms of this
Agreement.
-3-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
8. Obligations of CSI
(a)CSI will make available, to a reasonable number of the Company's sales and
technical staff, training and related materials with respect to the
design, implementation and use of CSI Software Products. Availability and
details of such training (including charges, if any) will be as specified
in CSI's then current applicable Reseller Bulletin.
(b)CSI will provide the Company, at no charge, with (i) a reasonable quantity
of brochures and sales promotion material with respect to the CSI
Products. Upon written request from the Company, CSI will furnish
additional copies of such materials at CSI's then current charges.
(c)CSI will provide the Company with periodic marketing communications and
updates in respect of the CSI Products.
(d)CSI will provide the Company with object code demonstration versions of
CSI Software Products in order to facilitate the demonstration of such
products by the Company to end user customers and prospects of the
Company.
(e)CSI will, as mutually agreed upon with the Company, and on a case by case
basis, provide pre-sales support to the Company when such support is
required in connection with the conclusion of a sale of CSI Products to an
end user customer or prospect of the Company.
(f)CSI will provide the Company with reasonable access to CSI product
demonstration capabilities at CSI's facility in Fair Lawn, New Jersey or
at such other CSI facility as is designated by CSI to the Company.
9. Warranties and Disclaimers
(a)CSI warrants that each CSI Software Product furnished to the Company
pursuant to this Agreement will perform (in its unaltered format) in
accordance with the functional specifications for such CSI Software
Product as documented in the application description manual ("ADM") for
each such CSI Software Product when executed and operated by the
designated computer equipment and software configuration more particularly
described and set forth in Exhibit D hereto. CSI will deliver the
applicable ADM for each software product ordered hereunder together with
delivery of each such CSI Software Product. The duration of this warranty
is ninety (90) days from the date of first delivery of each CSI Software
Product by, or on behalf of, the Company to its original end user
customer. CSI's obligation under this warranty shall be to replace any CSI
Software Product which is defective due to damaged or defective software
storage media and/or to correct any errors in a CSI Software Product which
are causing such product not to substantially conform to the functional
specifications set forth in the applicable ADM.
(b)EXCEPT AS PROVIDED IN SECTION 12 (INFRINGEMENT INDEMNIFICATION) AND
SECTION 9(a) ABOVE, CSI MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, REGARDING THE CSI PRODUCTS. BY WAY OF EXAMPLE BUT NOT OF
LIMITATION, CSI MAKES NO REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO ANY OR ALL OF THE
CSI PRODUCTS.
(c)The warranty set forth in 9(a) above does not apply to any CSI Software
Product which (i) has been altered, except by or under the direction of
CSI; (ii) has not been handled, installed, maintained or operated in
accordance with CSI instructions; or (iii) has been damaged by accident,
misuse, negligence or external factors.
10.End User Customer Agreements
(a)CSI will provide the Company with end user customer agreement forms (the
"End User Agreement") with respect to the licensing and provision of CSI
Products.
-4-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
(b)The Company will make its end user customers aware of the terms and
conditions of the End User Agreement during the course of the sales cycle
to each such end user customer. The Company will obtain three (3) copies
of a signed End User Agreement from each end user customer prior to
submission of an order for CSI Products. The Company will promptly forward
all three (3) copies of each signed End User Agreement (duly executed by
each of the Company and the end user customer) to CSI. Upon acceptance of
the order relating to any such End User Agreement, CSI will execute all
three (3) originals of the End User Agreement and return two (2) fully
executed originals to the Company. The Company will return one (1) fully
executed original to the end user customer and retain the other fully
executed original in the Company's files for a period of not less than
seven (7) years.
(c)The Company's obligations under this Section 10 will survive the
expiration or termination of this Agreement.
11.Limitation of Liability and Indemnification
(a)THE COMPANY'S SOLE AND EXCLUSIVE REMEDIES FOR DIRECT DAMAGES FROM ANY
CAUSE RELATING TO OR ARISING OUT OF THIS AGREEMENT WHETHER BASED ON
NEGLIGENCE, BREACH OF CONTRACT, WARRANTY OR OTHER LEGAL THEORY, WILL BE
THOSE PROVIDED IN THIS AGREEMENT. EXCEPT FOR CLAIMS ARISING OUT OF CSI
OBLIGATIONS UNDER SECTION 12, CSI'S LIABILITY FOR ANY AND ALL CLAIMS
(ARISING OUT OF OR RELATING TO THIS AGREEMENT) WHETHER BASED ON
NEGLIGENCE, BREACH OF CONTRACT, WARRANTY OR OTHER LEGAL THEORY, SHALL NOT
EXCEED THE ACTUAL AMOUNT PAID BY THE COMPANY FOR THE SPECIFIC PRODUCT(S),
SERVICE(S), OR OTHER ITEM(S), GIVING RISE TO THE CLAIM.
(b)IN NO EVENT WILL CSI BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF USE, LOSS OF
GOODWILL OR OTHER DIMINUTION IN THE VALUE OF THE COMPANY"S BUSINESS,
REVENUES, PROFITS OR SAVINGS, EVEN IF CSI KNEW OR SHOULD HAVE KNOWN OF THE
POSSIBILITY OF SUCH DAMAGES.
(c)Except for the remedies provided to the Company in this Agreement, the
Company will indemnify and hold CSI harmless against any claims, costs,
damages and liabilities arising out of or in any way connected with (i)
any breach of this Agreement by Company, its employees or agents and (ii)
any claim by end user customers or other third parties with respect to
Company's products or other non-CSI products provided, recommended or
referred by the Company or recommended, referred or introduced to the
Company as provided in (d) below. Such indemnification will include all
reasonable legal fees and other costs incurred by CSI in defending any
such claims. Termination of this Agreement will not affect the Company's
indemnification obligations pursuant to this Section 11(c).
(d)CSI may direct the Company to third parties having products which may be
of interest to the Company for marketing or use in conjunction with CSI
Products. Notwithstanding any CSI recommendation, referral or
introduction, the Company will independently investigate and test third
party products and will have sole responsibility for determining
suitability for marketing or use of third party products. CSI has no
liability with respect to claims relating to or arising from the
marketing, sale or use of such third party products.
(e)CSI shall have no liability with respect to any claim of the Company or a
third party on account of, resulting from, or arising out of the use of
any software product furnished to the Company by CSI (pursuant to this
agreement) and which software product is provided to CSI by a third party
licensor (including software derived from such third party licensor's
software). Licensors of software to CSI shall have no obligation to
furnish any assistance, information or documentation with respect to any
such software product.
-5-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
12.Infringement Indemnification
(a)CSI, at its own expense, will defend and indemnify the Company against any
claim that CSI Software Products (to include the intellectual property of
any third party which is comprised in any of the CSI Software Products)
furnished under this Agreement infringe a United States patent or
copyright or are subject to any claim of misappropriation of trade secrets
protected under United States law, provided the Company (i) gives CSI
prompt written notice of any such claim (of which the Company has actual
notice, whether direct or indirect) in the manner prescribed by Section 17
of this Agreement, (ii) permits CSI to defend or settle the claim, and
(iii) provides all reasonable assistance to CSI in defending or settling
such claim.
(b)As to any CSI Software Product which is or, in the opinion of CSI, may
become subject to a claim of infringement or misappropriation, CSI may
elect to (i) obtain the right of continued remarketing and use of such CSI
Software Product for the Company or (ii) replace or modify such CSI
Software Product to avoid such claim. If neither alternative is, in the
opinion of CSI, available on commercially reasonable terms, then the
Company, at the request of CSI, will discontinue remarketing of the
affected CSI Software.
(c)CSI will not defend or indemnify the Company if any claim of infringement
or misappropriation (i) results from modification or alteration of any CSI
Software Product by the Company or any third party, or (ii) results from
use of any CSI Software Product in combination with any non-CSI product.
(d)This Section 12 states the entire liability of CSI and the Company's sole
and exclusive remedies for patent or copyright infringement and trade
secret misappropriation.
(e)The provisions of this Section 12 shall survive the expiration or
termination of this Agreement.
13.License Rights With Respect to CSI Software Products
(a)Title to all CSI Software Products supplied to the Company by CSI under
this Agreement will remain with CSI or its licensors, and the Company will
acquire no rights whatsoever to any CSI Software Product except as
expressly granted and set forth in this Section 13.
(b)Subject always to the Company's compliance with all of the provisions of
this Section 13 CSI hereby grants to the Company a personal,
non-transferable and non-exclusive right to: (i) distribute the CSI
Software Products only to end user customers of the Company which have
entered into an executed End User Agreement as provided for by Section 10
hereof, (ii) use for demonstration purposes such object code versions of
CSI Software Products as may bc provided to the Company by CSI in order to
effect the purposes of this Agreement, (iii) install CSI Software Products
on the Company's end user customer computer equipment subject to such end
user customer having entered into an End User Agreement which has been
executed by such customer and CSI, and (iv) use CSI Software Products
furnished to an end user customer of the Company (subject to such end user
customer having entered into an End User Agreement which has been executed
by such customer and CSI) for the purpose of providing such end user
customer with implementation, training and/or technical support services.
(c)The Company shall not delete or alter any proprietary rights or similar
notices appearing on CSI Software Products.
(d)The Company acknowledges that the CSI Software Products (and all
intellectual property relating to or comprised in the CSI Software
Products, including but not limited to any or all of the program code,
system architecture or design of the CSI Software Products) are valuable
proprietary trade secrets of CSI and that the Company shall maintain the
CSI Software Products in the strictest confidence in accordance with the
stipulations of this Agreement.
-6-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
(e)The Company agrees (except as is expressly authorized by this Agreement)
not to use, provide, or otherwise disclose, or make available to any
person or entity, in whole or in part, any CSI Software Product except as
authorized by and subject to the terms of this Agreement. The Company
agrees not to reverse engineer, decompile or disassemble any CSI Software
Product, or any part or portion thereof, or to create or to attempt to
create a derivative work based upon the CSI Software Products or any of
them or any part or portion thereof, including but not limited to the
system design and architecture of the CSI Software Products.
(f)The Company agrees to apply the same standard of care it applies to
protect its own confidential and proprietary information to protect the
CSI Software Products. The Company shall advise all of Company's employees
having a need to use the CSI Software Products on the Company's behalf,
for the purposes contemplated by this Agreement, of the proprietary and
confidential nature of the CSI Software Products and all of the Company's
obligations hereunder with respect to the use and safeguarding of the CSI
Software Products. Each such employee shall be obligated to protect the
CSI Software Products from unauthorized disclosure (as required by the
terms of this Agreement) pursuant to an appropriate written and executed
non-disclosure agreement.
14.Trademarks and Trade Names; Advertising
(a)As an authorized Reseller, the Company shall have the right to use the
legend "Authorized Reseller of Cover-All Systems Software Products and
Services" in signs, advertising, correspondence, proposals or other
materials, provided that such legend appears in type smaller and less
prominent than the Company's own name or mark.
(b)CSI will provide the Company with formats for use by the Company in
advertising and promoting the CSI Products. In using the formats, the
Company will comply with all related instructions provided by CSI. In
addition, CSI will provide the Company with written guidelines to assist
the Company in developing other advertising and promotional programs and
materials for the CSI Products. All materials relating to advertising,
promotion or any other form of publicity with respect to the CSI Products
must be submitted by the Company to CSI and approved in writing by CSI
(except as to price and terms of sale the Company intends to offer) prior
to the use of any such materials by the Company.
(c)No right or license is granted by CSI to the Company to use CSI trademarks
or trade names except as they appear on the CSI Products marketed by the
Company or as authorized by CSI in connection with the advertising or
promoting of such products. The Company will not affix any CSI trademarks,
logos or trade names to any of the Company's products and will not disturb
any legend, notice, label, plate, designation of any CSI trademark, logo
or trade name or serial numbers on CSI Products.
(d)The Company will not include CSI trademarks or trade names in any name
under which the Company does business.
15.Protection of Confidential & Proprietary Information
(a)For the purposes of this Agreement, "Information" means any information
(including but not limited to technical, financial and business
information) which is confidential and/or proprietary to CSI or the
Company and which information is marked or designated "proprietary",
"restricted", "confidential" or with a similar notice or designation.
(b)Each party agrees that any Information that is furnished or made available
or otherwise disclosed to the other party pursuant to this Agreement shall
remain the property of the disclosing party.
(c)Each party further acknowledges that any and all Information, disclosed
hereunder, is valuable proprietary and confidential information of the
disclosing party.
-7-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
(d)If Information is designated as confidential by an oral statement, the
disclosing party shall confirm such disclosure in writing to the receiving
party no later than ten (10) days after the oral disclosure and such
written confirmation shall state the date and place of the disclosure, the
individuals to whom the Information was disclosed and the nature of the
Information.
(e)The parties agree that all Information shall be used solely in connection
with effecting the purposes of this Agreement, shall be kept strictly
confidential, and shall be treated by the receiving party and by any
person authorized pursuant to the terms of this Agreement, to have access
thereto, as being valuable confidential and proprietary information of the
disclosing party.
(f)The receiving party shall not, without the prior written consent of the
disclosing party hereto, disclose, provide or otherwise make available
Information to any person or entity other than those of its employees who
have a need to know such Information in order for the receiving party to
carry out its obligations or exercise its rights hereunder. The receiving
party shall require its employees who have access to Information to be
made aware of its confidential and/or proprietary nature and of the
applicable requirements relative to maintaining the confidence of such
Information. The receiving party shall enforce these provisions for the
benefit of the disclosing party. The receiving party shall protect the
disclosing party's Information from unauthorized use or disclosure using
the same standard of care which it uses to protect its own proprietary
and/or confidential information. The obligations of the parties pursuant
to this Section 15 shall survive the termination or cancellation of this
Agreement with respect to each item of Information until the Information
comes into the public domain through no fault of the receiving party or
its employees.
(g)This section 15 will not be construed to grant to the Company, or to CSI,
any license or other rights in Information, except (with respect to the
Company only) as is expressly set forth in this Section 15.
(h)Upon termination of this Agreement, the receiving party will either. (i)
promptly destroy (and certify such instruction by written letter of
confirmation to the disclosing party) or (ii) return to the disclosing
party all copies of Information in the Company's possession.
16.Term and Termination
(a)This Agreement will begin on the Effective Date specified on the first
page of this Agreement and continue in effect unless and until terminated
as provided below.
(b)Either CSI or the Company may terminate this Agreement without cause at
any time upon six (6) months prior written notice.
(c)Except as provided in Sections 16(d) and 16(e), if either party is in
breach of any term of this Agreement, which breach (if capable of cure)
remains uncured after the expiration of thirty (30) days from the date of
written notice of such breach (given by the non breaching party to the
other party) then this Agreement may be terminated forthwith by written
notice to the breaching party.
(d)CSI may terminate this Agreement at any time upon not less than ten (10)
days prior written notice to the Company if the Company breaches any of
its obligations under Sections 9, 12, 13 or 14 hereof and which breach. if
capable of cure, remains uncured at the end of the aforesaid ten (10) day
notice period.
(e)If the Company fails to meet the terms of payment as provided for by
Section 5 of this Agreement, CSI will have the right at any time, after
the expiration of ten (10) days from the date of written notice to the
Company demanding the payment of any sum which is outstanding, to
terminate this Agreement forthwith by giving written notice of such
termination to the Company.
-8-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
(f)Orders outstanding on the effective date of termination will be subject to
acceptance or rejection at the sole discretion of CSI, and if accepted all
performance by the parties shall be effected as if this Agreement remained
in full force and effect. Payment terms for any order(s) accepted pursuant
to this Section 16(f) will be as specified by CSI to the Company.
(g)Upon the effective date of termination (i) the Company will pay CSI for
all CSI Products furnished hereunder (irrespective of the dale of
delivery) and any all other amounts then owed by the Company to CSI and
(ii) the Company will discontinue use of its designation as an authorized
Reseller of CSI.
17.Other Provisions
(a)The relationship of CSI and the Company under this Agreement is that of
independent contractors and neither is authorized to act as the agent of
the other. This Agreement does not create nor is it intended to create any
joint venture, franchise or other form of business relationship between
the parties hereto. The Company will make no representations with respect
to CSI Products other than as set forth in CSI supplied documentation or
other materials.
(b)Any failure or delay by either CSI or the Company in exercising any right
or remedy, available to either CSI or the Company under this Agreement or
at law or in equity, will not constitute a waiver of any such right or
remedy. The waiver of any single act of default will not waive subsequent
defaults of the same or different kind.
(c)The Company shall comply with all applicable laws and regulations of the
United States, including, but not limited to those relating to the export
of commodities, technical data, and direct products of such technical
data. The Company shall obtain written consent or authorization, if
required, of the Office of Export Administration of the U.S. Department of
Commerce prior to exporting or reexporting Products.
(d)Neither this Agreement nor any right or obligation hereunder may be
assigned by the Company. Any such assignment or attempted assignment shall
be void. A change in control or ownership of the Company (or its parent or
any affiliated companies) or sale of all or substantially all of the
capital stock of the Company will be deemed an assignment. Notwithstanding
the foregoing, the Company may assign its rights and obligations hereunder
to a subsidiary or affiliate of the Company upon prior written notice to
CSI.
(e)All notices required by this Agreement to be given to the Company will be
sent by certified or registered mail to its address on the first page of
this Agreement. All notices required by this Agreement to be given to CSI
will be sent by certified or registered mail addressed to:
Cover-All Systems, Inc.
18-01 Pollitt Drive
Fair Lawn, New Jersey 07410
Attention: President
(f)If any provision or any part of a provision of this Agreement shall be
held to be invalid or unenforceable such invalidity or unenforceability
shall not invalidate or render unenforceable the entire Agreement, but
rather the entire provision or the Agreement shall be construed as if not
containing the particular invalid or unenforceable provision or
provisions, and the rights and obligations of the parties shall be
construed and enforced accordingly.
(g)No provisions of this Agreement shall be deemed waived, amended or
modified by either party, unless such waiver, amendment or modification is
in writing and signed by a duly authorized representative of each of the
parties hereto.
-9-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
(h)Notwithstanding anything in this Contract to the contrary, neither party
shall be held responsible for any delay or failure in performance
hereunder caused by fires, strikes, embargoes, governmental requirements,
civil or military authorities, Act of God or by public enemy, act or
omission of common or private carriers or other causes beyond such party's
reasonable control and without such party's fault or negligence (each such
event being called a "Contingency"). Each party shall promptly notify the
other party in writing of any Contingency which occurs during the term of
this Agreement and which Contingency impairs such party's ability to
perform its obligations pursuant to this Agreement.
(i)The Company will not engage in any deceptive, misleading, unethical or
improper practices which may reflect adversely on CSI or the CSI Products.
(j)This Agreement set forth the entire agreement and understanding between
the parties as to the subject matter hereof and supersedes all prior
understandings, agreements, proposals or discussion between them, and
neither of the parties shall be bounded by any conditions, definitions,
warranties, understandings or representations with respect to such subject
matter other than as expressly provided herein, or as duly set forth on or
subsequent to the effective date hereof in writing and signed by a duly
authorized representative of each of the parties.
-10-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
by its duly authorized representatives, the day, month and year first before
written.
Cover-All Systems, Inc. The Company
By: By:
Name: Brian Magowan Name: Mark Johnston
Title: Chief Executive Officer Title: Director
-11-
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
EXHIBIT A
DESCRIPTION OF CSI SOFTWARE PRODUCTS AND CSI
SERVICES WHICH ARE SUBJECT TO THIS RESELLER
AGREEMENT
TAS 2000 Software
Classic produce line
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
EXHIBIT B
DESCRIPTION OF MARKET CATEGORIES AND
GEOGRAPHICAL TERRITORY
CSI MAY UPON THIRTY DAYS PRIOR NOTICE EXCLUDE FROM THE PURVIEW OF THIS
AGREEMENT ANY TERRITORIES OR COUNTRIES TO ENABLE IT TO GRANT EXCLUSIVE OR
LIMITED EXCLUSIVE RIGHTS IN SUCH TERRITORIES OR COUNTRIES.
THE GEOGRAPHIC TERRITORY EXPRESSLY EXCLUDES THE UNITED STATES OF AMERICA.
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
EXHIBIT C
LISTING OF COMPANIES TO WHICH THE COMPANY
WILL NOT MARKET OR RESELL CSI PRODUCTS
[If there is no restriction state "None."]
03/31/98/JOD/12006/001/AGREE/263000.2
<PAGE>
EXHIBIT D
DESIGNATED EQUIPMENT AND SOFTWARE
CONFIGURATION IS FOR THE EXECUTION OF CSI
SOFTWARE PRODUCTS
03/31/98/JOD/12006/001/AGREE/263000.2
RESELLER AGREEMENT
THIS AGREEMENT is made this 31st day of March, 1998 by and between Care
Corporation Limited ("CCL"), with offices at Abbott Building, P.O. Box 3186,
Main Street, Road Town, Tortola, British Virgin Islands and Cover-All Systems,
Inc. (the "Company"), with offices at 18-01 Pollitt Drive, Fair Lawn, New Jersey
07410.
WHEREAS,
1. CCL develops and markets software products (including associated user and
technical documentation) which are the property of and proprietary to CCL
(the "CCL Software Products") together with CCL furnished technical and
software support services ("CCL Services"). The CCL Software Products and CCL
Services are hereinafter sometimes referred to collectively as the "CCL
Product(s)";
2. The Company has, among other things, extensive knowledge and expertise in the
marketing, sale and support of software products and services with particular
focus on the financial services and insurance industry market sectors and
desires to be appointed and authorized to resell CCL Products;
3. CCL has agreed to appoint the Company as a reseller of CCL Products and the
Company has agreed to accept such appointment subject to and in accordance
with the terms and conditions hereinafter appearing.
ACCORDINGLY IT IS HEREBY AGREED AS FOLLOWS:
1. Scope of this Agreement
Subject to the terms and conditions of this Agreement, including the Exhibits
referenced herein and the terms of CCL reseller price and policy bulletins
("Reseller Bulletins") as issued by CCL from time to time, CCL agrees to sell,
and the Company agrees to purchase, CCL Products for resale by the Company, to
end user customers of the Company, during the term of this Agreement.
2. Appointment as Authorized Reseller
(a)CCL appoints the Company as an authorized reseller ("Reseller") of the CCL
Products more particularly identified and described in Exhibit A hereto,
as the same may be amended from time to time pursuant to the provisions of
Section 2(e) below. The Company agrees to market CCL Products only to
commercial end user customers within the market categories and
geographical territory more particularly described and set forth in
Exhibit B hereto.
(b)"Reseller" as used in this Agreement means an entity which, in the normal
course of its business, markets and sells the products and/or services of
a third party through a direct sales force to end user customers of the
Reseller.
(c)As an authorized Reseller, the Company agrees to comply with all
instructions and directives, relating to authorized Resellers as contained
in Reseller Bulletins issued by CCL.
(d)This appointment is non-exclusive and will not prevent CCL from appointing
other resellers of any kind or from directly marketing the CCL Products to
end user customers and/or from supplying CCL Products for resale to other
resellers. The Company will not market or deliver CCL Products to those
companies (if any) listed in Exhibit C to this Agreement unless the
Company receives express authorization from CCL which is documented by
means of a written amendment to this Agreement executed on behalf of each
of the parties hereto.
-1-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
3. Orders, Delivery and Acceptance
(a)All orders (including but not limited to orders placed using the Company's
standard form of purchase order) issued by the Company hereunder shall be
in writing, shall refer to this Agreement and to the applicable "End User
Agreement" (as such term is defined in Section 9 below) and shall be
forwarded to CCL at the address set forth above. Such orders shall
identify the type and quantity of CCL Products to be furnished by CCL to
the Company and specify the requested delivery date for CCL Software
Products and the time frame for the performance of CCL Services. Any
additional terms and conditions contained in or endorsed on any such order
or any other document accompanying or referenced by such order are of no
effect, and CCL hereby gives notice of objection to such additional terms.
Orders will bind CCL only when acknowledged and accepted by written
confirmation from CCL. CCL shall issue written acceptance or rejection of
an order no later than ten (10) days from the receipt of any order form.
(b)For orders canceled, rescheduled or otherwise changed by the Company, CCL
may impose a reasonable cancellation, rescheduling, or change fee.
(c)Delivery of CCL Software Products which have been released for general
commercial distribution will be made no later than thirty (30) days from
the date of acceptance of the Company's order by CCL. The delivery date
applicable to CCL Software Products which have not been released for
general commercial distribution will be mutually agreed upon in writing by
CCL and the Company prior to acceptance of the applicable order by CCL.
The dates for the furnishing of CCL Services will be mutually agreed upon
in writing by CCL and the Company prior to acceptance of the applicable
order by CCL. With the Company's prior approval, CCL may make partial
deliveries against any of the Company's orders, which deliveries will be
invoiced and paid for in accordance with the terms of this Agreement
notwithstanding the requirement to make subsequent deliveries against the
same order.
(d)CCL will ship CCL Software Products in accordance with its standard
practices. CCL will deliver CCL Software Products and furnish CCL Services
to the location(s) specified in the Company's order. Risk of loss and
damage to CCL Software Products will pass to the Company upon delivery to
the location specified in the applicable order. CCL Software Products will
be deemed accepted if the Company does not give CCL written notice of
rejection within 30 days after the date of shipment by CCL.
(e)CCL may delete any CCL Product from Exhibit A of this Agreement at any
time upon ninety (90) days prior written notice to the Company. CCL may
add products and/or services to Exhibit A of this Agreement at any time
upon written notice to the Company. CCL makes no commitment to offer any
CCL Products to the Company other than such products and services as are
specified in Exhibit A hereto.
4. Reports and Records
The Company will submit to CCL, if requested by CCL, financial reports and
other financial data as may be reasonably requested by CCL, and will
retain for two years its accounts, agreements and other business records
relating to sales of the CCL Products. The Company will permit CCL, upon
reasonable notice during normal business hours, to examine such reports,
financial data and records for the limited purposes of analyzing the
Company's financial condition and verifying its compliance with the terms
of this Agreement.
5. Prices and Discounts
(a)Prices for CCL Products will be the CCL commercial list price in effect on
the date CCL accepts the Company's order, less the applicable reseller
discount as specified in CCL's then current applicable "Reseller
Bulletin(s)." CCL may revise its list prices, Reseller discounts, or both
at any time upon written notice to Company. If the Company's actual price
after discount for a CCL Product is increased by any such a revision or
revisions, then CCL shall give the Company at least ninety (90) days prior
written notice of such revision or revisions with
-2-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
respect to the CCL Product(s) affected by any such revision(s), in every
other case CCL shall give the Company not less than ten (10) days written
notice of any change to CCL's list price for any of the CCL Products
and/or Reseller Discounts. The Company will be notified of list price and
discount revisions by means of Reseller Bulletins issued by CCL.
[i] Price decreases will apply to orders shipped after the effective date
of the applicable price decrease.
[ii]Any price increase will apply to orders received after the effective
date of the applicable price increase and to all orders received
before its effective date but scheduled for delivery more than one
hundred twenty (120) days after such effective date.
[iiiPrices do not include, and the Company is responsible for, any sales,
withholding, use, value added, property and similar taxes levied on
CCL Products furnished pursuant to this Agreement and/or other items
furnished to the Company by CCL, exclusive of any and all taxes based
upon the net income of CCL. Prices for CCL Services do not include the
expense of travel, lodging and subsistence incurred in connection with
the performance of such services. Such expenses will be billed to and
payable by the Company in accordance with CCL's then current travel
policy. Any and all travel time to and from a CCL facility (to the
Company's facility or a Company end user facility) which is incurred
in connection with the provision of CCL Services will be billed to and
payable by the Company at the hourly fee rate of the applicable CCL
personnel engaged in performing such services.
6. Payment Terms
(a)Invoices will be issued by CCL on or after the date of shipment of CCL
Software Products. Invoices in respect of CCL Services will be rendered
annually in advance for standard software maintenance services and monthly
in arrears for other CCL Services. Payment terms are net thirty (30) days
from the date of invoice. Charges for change, rescheduling or cancellation
fees, and for other items or services will be invoiced as incurred. CCL
reserves the right to change payment terms at any time, upon not less than
ten (10) days prior written notice to the Company, if in CCL's reasonable
opinion the Company's financial condition or payment record so warrant.
(b)CCL may impose a late payment charge equal to the lesser of (i) 1 1/2% per
month of the outstanding amount due, or (ii) the maximum rate allowed by
law. If the Company becomes delinquent in the payment of any amount due,
CCL may suspend performance under this Agreement, without prejudice to any
and all other remedies available to CCL (for nonpayment) under this
Agreement or at law or in equity.
7. Obligations of Company
(a)The Company will actively promote and market the CCL Products in
accordance with the Company's then current and approved Marketing and
Business Plan.
(b)On an ongoing basis the Company will (i) maintain a qualified sales and
technical staff of appropriate size, experienced in the sale,
implementation and support of client/server software applications, and
knowledgeable in the CCL Products and related items; (ii) provide end user
customers with technical support and training in the use of the CCL
Software Products, and (iii) provide adequate and attractive facilities
for the display and demonstration of CCL Software Products.
(c)Immediately upon receipt thereof, the Company will notify CCL of any legal
or other notices which may affect CCL or its licensors and will promptly
respond to any complaints regarding CCL Products made by the Company's end
user customers and will timely notify CCL of any such complaint which is
not promptly resolved by the Company.
(d)The Company will market CCL Products only pursuant to the terms of this
Agreement.
-3-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
8. Obligations of CCL
(a)CCL will make available, to a reasonable number of the Company's sales and
technical staff, training and related materials with respect to the
design, implementation and use of CCL Software Products. Availability and
details of such training (including charges, if any) will be as specified
in CCL's then current applicable Reseller Bulletin.
(b)CCL will provide the Company, at no charge, with (i) a reasonable quantity
of brochures and sales promotion material with respect to the CCL
Products. Upon written request from the Company, CCL will furnish
additional copies of such materials at CCL's then current charges.
(c)CCL will provide the Company with periodic marketing communications and
updates in respect of the CCL Products.
(d)CCL will provide the Company with object code demonstration versions of
CCL Software Products in order to facilitate the demonstration of such
products by the Company to end user customers and prospects of the
Company.
(e)CCL will, as mutually agreed upon with the Company, and on a case by case
basis, provide pre-sales support to the Company when such support is
required in connection with the conclusion of a sale of CCL Products to an
end user customer or prospect of the Company.
(f)CCL will provide the Company with reasonable access to CCL product
demonstration capabilities at the facility of International Insurance
Technologies, Inc. ("IIT"), CCL's wholly owned subsidiary, in Tampa,
Florida, or at such other CCL or IIT facility as is designated by CCL to
the Company.
9. Warranties and Disclaimers
(a)CCL warrants that each CCL Software Product furnished to the Company
pursuant to this Agreement will perform (in its unaltered format) in
accordance with the functional specifications for such CCL Software
Product as documented in the application description manual ("ADM") for
each such CCL Software Product when executed and operated by the
designated computer equipment and software configuration more particularly
described and set forth in Exhibit D hereto. CCL will deliver the
applicable ADM for each software product ordered hereunder together with
delivery of each such CCL Software Product. The duration of this warranty
is ninety (90) days from the date of first delivery of each CCL Software
Product by, or on behalf of, the Company to its original end user
customer. CCL's obligation under this warranty shall be to replace any CCL
Software Product which is defective due to damaged or defective software
storage media and/or to correct any errors in a CCL Software Product which
are causing such product not to substantially conform to the functional
specifications set forth in the applicable ADM.
(b)EXCEPT AS PROVIDED IN SECTION 12 (INFRINGEMENT INDEMNIFICATION) AND
SECTION 9(a) ABOVE, CCL MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, REGARDING THE CCL PRODUCTS. BY WAY OF EXAMPLE BUT NOT OF
LIMITATION, CCL MAKES NO REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO ANY OR ALL OF THE
CCL PRODUCTS.
(c)The warranty set forth in 9(a) above does not apply to any CCL Software
Product which (i) has been altered, except by or under the direction of
CCL; (ii) has not been handled, installed, maintained or operated in
accordance with CCL instructions; or (iii) has been damaged by accident,
misuse, negligence or external factors.
-4-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
10.End User Customer Agreements
(a)CCL will provide the Company with end user customer agreement forms (the
"End User Agreement") with respect to the licensing and provision of CCL
Products.
(b)The Company will make its end user customers aware of the terms and
conditions of the End User Agreement during the course of the sales cycle
to each such end user customer. The Company will obtain three (3) copies
of a signed End User Agreement from each end user customer prior to
submission of an order for CCL Products. The Company will promptly forward
all three (3) copies of each signed End User Agreement (duly executed by
each of the Company and the end user customer) to CCL. Upon acceptance of
the order relating to any such End User Agreement, CCL will execute all
three (3) originals of the End User Agreement and return two (2) fully
executed originals to the Company. The Company will return one (1) fully
executed original to the end user customer and retain the other fully
executed original in the Company's files for a period of not less than
seven (7) years.
(c)The Company's obligations under this Section 10 will survive the
expiration or termination of this Agreement.
11.Limitation of Liability and Indemnification
(a)THE COMPANY'S SOLE AND EXCLUSIVE REMEDIES FOR DIRECT DAMAGES FROM ANY
CAUSE RELATING TO OR ARISING OUT OF THIS AGREEMENT WHETHER BASED ON
NEGLIGENCE, BREACH OF CONTRACT, WARRANTY OR OTHER LEGAL THEORY, WILL BE
THOSE PROVIDED IN THIS AGREEMENT. EXCEPT FOR CLAIMS ARISING OUT OF CCL
OBLIGATIONS UNDER SECTION 12, CCL'S LIABILITY FOR ANY AND ALL CLAIMS
(ARISING OUT OF OR RELATING TO THIS AGREEMENT) WHETHER BASED ON
NEGLIGENCE, BREACH OF CONTRACT, WARRANTY OR OTHER LEGAL THEORY, SHALL NOT
EXCEED THE ACTUAL AMOUNT PAID BY THE COMPANY FOR THE SPECIFIC PRODUCT(S),
SERVICE(S), OR OTHER ITEM(S), GIVING RISE TO THE CLAIM.
(b)IN NO EVENT WILL CCL BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF USE, LOSS OF
GOODWILL OR OTHER DIMINUTION IN THE VALUE OF THE COMPANY"S BUSINESS,
REVENUES, PROFITS OR SAVINGS, EVEN IF CCL KNEW OR SHOULD HAVE KNOWN OF THE
POSSIBILITY OF SUCH DAMAGES.
(c)Except for the remedies provided to the Company in this Agreement, the
Company will indemnify and hold CCL harmless against any claims, costs,
damages and liabilities arising out of or in any way connected with (i)
any breach of this Agreement by Company, its employees or agents and (ii)
any claim by end user customers or other third parties with respect to
Company's products or other non-CCL products provided, recommended or
referred by the Company or recommended, referred or introduced to the
Company as provided in (d) below. Such indemnification will include all
reasonable legal fees and other costs incurred by CCL in defending any
such claims. Termination of this Agreement will not affect the Company's
indemnification obligations pursuant to this Section 11(c).
(d)CCL may direct the Company to third parties having products which may be
of interest to the Company for marketing or use in conjunction with CCL
Products. Notwithstanding any CCL recommendation, referral or
introduction, the Company will independently investigate and test third
party products and will have sole responsibility for determining
suitability for marketing or use of third party products. CCL has no
liability with respect to claims relating to or arising from the
marketing, sale or use of such third party products.
(e)CCL shall have no liability with respect to any claim of the Company or a
third party on account of, resulting from, or arising out of the use of
any software product furnished to the Company by CCL (pursuant to this
-5-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
agreement) and which software product is provided to CCL by a third party
licensor (including software derived from such third party licensor's
software). Licensors of software to CCL shall have no obligation to
furnish any assistance, information or documentation with respect to any
such software product.
12.Infringement Indemnification
(a)CCL, at its own expense, will defend and indemnify the Company against any
claim that CCL Software Products (to include the intellectual property of
any third party which is comprised in any of the CCL Software Products)
furnished under this Agreement infringe a United States patent or
copyright or are subject to any claim of misappropriation of trade secrets
protected under United States law, provided the Company (i) gives CCL
prompt written notice of any such claim (of which the Company has actual
notice, whether direct or indirect) in the manner prescribed by Section 17
of this Agreement, (ii) permits CCL to defend or settle the claim, and
(iii) provides all reasonable assistance to CCL in defending or settling
such claim.
(b)As to any CCL Software Product which is or, in the opinion of CCL, may
become subject to a claim of infringement or misappropriation, CCL may
elect to (i) obtain the right of continued remarketing and use of such CCL
Software Product for the Company or (ii) replace or modify such CCL
Software Product to avoid such claim. If neither alternative is, in the
opinion of CCL, available on commercially reasonable terms, then the
Company, at the request of CCL, will discontinue remarketing of the
affected CCL Software.
(c)CCL will not defend or indemnify the Company if any claim of infringement
or misappropriation (i) results from modification or alteration of any CCL
Software Product by the Company or any third party, or (ii) results from
use of any CCL Software Product in combination with any non-CCL product.
(d)This Section 12 states the entire liability of CCL and the Company's sole
and exclusive remedies for patent or copyright infringement and trade
secret misappropriation.
(e)The provisions of this Section 12 shall survive the expiration or
termination of this Agreement.
13.License Rights With Respect to CCL Software Products
(a)Title to all CCL Software Products supplied to the Company by CCL under
this Agreement will remain with CCL or its licensors, and the Company will
acquire no rights whatsoever to any CCL Software Product except as
expressly granted and set forth in this Section 13.
(b)Subject always to the Company's compliance with all of the provisions of
this Section 13 CCL hereby grants to the Company a personal,
non-transferable and non-exclusive right to: (i) distribute the CCL
Software Products only to end user customers of the Company which have
entered into an executed End User Agreement as provided for by Section 10
hereof, (ii) use for demonstration purposes such object code versions of
CCL Software Products as may bc provided to the Company by CCL in order to
effect the purposes of this Agreement, (iii) install CCL Software Products
on the Company's end user customer computer equipment subject to such end
user customer having entered into an End User Agreement which has been
executed by such customer and CCL, and (iv) use CCL Software Products
furnished to an end user customer of the Company (subject to such end user
customer having entered into an End User Agreement which has been executed
by such customer and CCL) for the purpose of providing such end user
customer with implementation, training and/or technical support services.
(c)The Company shall not delete or alter any proprietary rights or similar
notices appearing on CCL Software Products.
(d)The Company acknowledges that the CCL Software Products (and all
intellectual property relating to or comprised in the CCL Software
Products, including but not limited to any or all of the program code,
system
-6-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
architecture or design of the CCL Software Products) are valuable
proprietary trade secrets of CCL and that the Company shall maintain the
CCL Software Products in the strictest confidence in accordance with the
stipulations of this Agreement.
(e)The Company agrees (except as is expressly authorized by this Agreement)
not to use, provide, or otherwise disclose, or make available to any
person or entity, in whole or in part, any CCL Software Product except as
authorized by and subject to the terms of this Agreement. The Company
agrees not to reverse engineer, decompile or disassemble any CCL Software
Product, or any part or portion thereof, or to create or to attempt to
create a derivative work based upon the CCL Software Products or any of
them or any part or portion thereof, including but not limited to the
system design and architecture of the CCL Software Products.
(f)The Company agrees to apply the same standard of care it applies to
protect its own confidential and proprietary information to protect the
CCL Software Products. The Company shall advise all of Company's employees
having a need to use the CCL Software Products on the Company's behalf,
for the purposes contemplated by this Agreement, of the proprietary and
confidential nature of the CCL Software Products and all of the Company's
obligations hereunder with respect to the use and safeguarding of the CCL
Software Products. Each such employee shall be obligated to protect the
CCL Software Products from unauthorized disclosure (as required by the
terms of this Agreement) pursuant to an appropriate written and executed
non-disclosure agreement.
14.Trademarks and Trade Names; Advertising
(a)As an authorized Reseller, the Company shall have the right to use the
legend "Authorized Reseller of Care Corporation Software Products and
Services" in signs, advertising, correspondence, proposals or other
materials, provided that such legend appears in type smaller and less
prominent than the Company's own name or mark.
(b)CCL will provide the Company with formats for use by the Company in
advertising and promoting the CCL Products. In using the formats, the
Company will comply with all related instructions provided by CCL. In
addition, CCL will provide the Company with written guidelines to assist
the Company in developing other advertising and promotional programs and
materials for the CCL Products. All materials relating to advertising,
promotion or any other form of publicity with respect to the CCL Products
must be submitted by the Company to CCL and approved in writing by CCL
(except as to price and terms of sale the Company intends to offer) prior
to the use of any such materials by the Company.
(c)No right or license is granted by CCL to the Company to use CCL trademarks
or trade names except as they appear on the CCL Products marketed by the
Company or as authorized by CCL in connection with the advertising or
promoting of such products. The Company will not affix any CCL trademarks,
logos or trade names to any of the Company's products and will not disturb
any legend, notice, label, plate, designation of any CCL trademark, logo
or trade name or serial numbers on CCL Products.
(d)The Company will not include CCL trademarks or trade names in any name
under which the Company does business.
15.Protection of Confidential & Proprietary Information
(a)For the purposes of this Agreement, "Information" means any information
(including but not limited to technical, financial and business
information) which is confidential and/or proprietary to CCL or the
Company and which information is marked or designated "proprietary",
"restricted", "confidential" or with a similar notice or designation.
-7-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
(b)Each party agrees that any Information that is furnished or made available
or otherwise disclosed to the other party pursuant to this Agreement shall
remain the property of the disclosing party.
(c)Each party further acknowledges that any and all Information, disclosed
hereunder, is valuable proprietary and confidential information of the
disclosing party.
(d)If Information is designated as confidential by an oral statement, the
disclosing party shall confirm such disclosure in writing to the receiving
party no later than ten (10) days after the oral disclosure and such
written confirmation shall state the date and place of the disclosure, the
individuals to whom the Information was disclosed and the nature of the
Information.
(e)The parties agree that all Information shall be used solely in connection
with effecting the purposes of this Agreement, shall be kept strictly
confidential, and shall be treated by the receiving party and by any
person authorized pursuant to the terms of this Agreement, to have access
thereto, as being valuable confidential and proprietary information of the
disclosing party.
(f)The receiving party shall not, without the prior written consent of the
disclosing party hereto, disclose, provide or otherwise make available
Information to any person or entity other than those of its employees who
have a need to know such Information in order for the receiving party to
carry out its obligations or exercise its rights hereunder. The receiving
party shall require its employees who have access to Information to be
made aware of its confidential and/or proprietary nature and of the
applicable requirements relative to maintaining the confidence of such
Information. The receiving party shall enforce these provisions for the
benefit of the disclosing party. The receiving party shall protect the
disclosing party's Information from unauthorized use or disclosure using
the same standard of care which it uses to protect its own proprietary
and/or confidential information. The obligations of the parties pursuant
to this Section 15 shall survive the termination or cancellation of this
Agreement with respect to each item of Information until the Information
comes into the public domain through no fault of the receiving party or
its employees.
(g)This section 15 will not be construed to grant to the Company, or to CCL,
any license or other rights in Information, except (with respect to the
Company only) as is expressly set forth in this Section 15.
(h)Upon termination of this Agreement, the receiving party will either. (i)
promptly destroy (and certify such instruction by written letter of
confirmation to the disclosing party) or (ii) return to the disclosing
party all copies of Information in the Company's possession.
16.Term and Termination
(a)This Agreement will begin on the Effective Date specified on the first
page of this Agreement and continue in effect unless and until terminated
as provided below.
(b)Either CCL or the Company may terminate this Agreement without cause at
any time upon six (6) months prior written notice.
(c)Except as provided in Sections 16(d) and 16(e), if either party is in
breach of any term of this Agreement, which breach (if capable of cure)
remains uncured after the expiration of thirty (30) days from the date of
written notice of such breach (given by the non breaching party to the
other party) then this Agreement may be terminated forthwith by written
notice to the breaching party.
(d)CCL may terminate this Agreement at any time upon not less than ten (10)
days prior written notice to the Company if the Company breaches any of
its obligations under Sections 9, 12, 13 or 14 hereof and which breach. if
capable of cure, remains uncured at the end of the aforesaid ten (10) day
notice period.
-8-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
(e)If the Company fails to meet the terms of payment as provided for by
Section 5 of this Agreement, CCL will have the right at any time, after
the expiration of ten (10) days from the date of written notice to the
Company demanding the payment of any sum which is outstanding, to
terminate this Agreement forthwith by giving written notice of such
termination to the Company.
(f)Orders outstanding on the effective date of termination will be subject to
acceptance or rejection at the sole discretion of CCL, and if accepted all
performance by the parties shall be effected as if this Agreement remained
in full force and effect. Payment terms for any order(s) accepted pursuant
to this Section 16(f) will be as specified by CCL to the Company.
(g)Upon the effective date of termination (i) the Company will pay CCL for
all CCL Products furnished hereunder (irrespective of the dale of
delivery) and any all other amounts then owed by the Company to CCL and
(ii) the Company will discontinue use of its designation as an authorized
Reseller of CCL.
17.Other Provisions
(a)The relationship of CCL and the Company under this Agreement is that of
independent contractors and neither is authorized to act as the agent of
the other. This Agreement does not create nor is it intended to create any
joint venture, franchise or other form of business relationship between
the parties hereto. The Company will make no representations with respect
to CCL Products other than as set forth in CCL supplied documentation or
other materials.
(b)Any failure or delay by either CCL or the Company in exercising any right
or remedy, available to either CCL or the Company under this Agreement or
at law or in equity, will not constitute a waiver of any such right or
remedy. The waiver of any single act of default will not waive subsequent
defaults of the same or different kind.
(c)The Company shall comply with all applicable laws and regulations of the
United States, including, but not limited to those relating to the export
of commodities, technical data, and direct products of such technical
data. The Company shall obtain written consent or authorization, if
required, of the Office of Export Administration of the U.S. Department of
Commerce prior to exporting or reexporting Products.
(d)Neither this Agreement nor any right or obligation hereunder may be
assigned by the Company. Any such assignment or attempted assignment shall
be void. A change in control or ownership of the Company (or its parent or
any affiliated companies) or sale of all or substantially all of the
capital stock of the Company will be deemed an assignment. Notwithstanding
the foregoing, the Company may assign its rights and obligations hereunder
to a subsidiary or affiliate of the Company upon prior written notice to
CCL.
(e)All notices required by this Agreement to be given to the Company will be
sent by certified or registered mail to its address on the first page of
this Agreement. All notices required by this Agreement to be given to CCL
will be sent by certified or registered mail addressed to:
Abbott Building
P.O. Box 3186
Main Street
Road Town, Tortola, British Virgin Islands
Attention: President
(f)If any provision or any part of a provision of this Agreement shall be
held to be invalid or unenforceable such invalidity or unenforceability
shall not invalidate or render unenforceable the entire Agreement, but
rather the entire provision or the Agreement shall be construed as if not
containing the particular invalid or unenforceable provision or
provisions, and the rights and obligations of the parties shall be
construed and enforced accordingly.
-9-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
(g)No provisions of this Agreement shall be deemed waived, amended or
modified by either party, unless such waiver, amendment or modification is
in writing and signed by a duly authorized representative of each of the
parties hereto.
(h)Notwithstanding anything in this Contract to the contrary, neither party
shall be held responsible for any delay or failure in performance
hereunder caused by fires, strikes, embargoes, governmental requirements,
civil or military authorities, Act of God or by public enemy, act or
omission of common or private carriers or other causes beyond such party's
reasonable control and without such party's fault or negligence (each such
event being called a "Contingency"). Each party shall promptly notify the
other party in writing of any Contingency which occurs during the term of
this Agreement and which Contingency impairs such party's ability to
perform its obligations pursuant to this Agreement.
(i)The Company will not engage in any deceptive, misleading, unethical or
improper practices which may reflect adversely on CCL or the CCL Products.
(j)This Agreement set forth the entire agreement and understanding between
the parties as to the subject matter hereof and supersedes all prior
understandings, agreements, proposals or discussion between them, and
neither of the parties shall be bounded by any conditions, definitions,
warranties, understandings or representations with respect to such subject
matter other than as expressly provided herein, or as duly set forth on or
subsequent to the effective date hereof in writing and signed by a duly
authorized representative of each of the parties.
-10-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
by its duly authorized representatives, the day, month and year first before
written.
Care Corporation Limited The Company
By: By:
Name: Mark Johnston Name: Brian Magowan
Title: Director Title: Chief Executive Officer
-11-
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
EXHIBIT A
DESCRIPTION OF CCL SOFTWARE PRODUCTS AND CCL
SERVICES WHICH ARE SUBJECT TO THIS RESELLER
AGREEMENT
CARE Software
The CARE Software is described in the following documents, which are
incorporated herein by reference for all purposes:
1. Volume 1, CARE Systems User's Guide: System Operations, for release
5.5.1 released on February 28, 1996.
2. Volume 2, CARE Systems User's Guide: Reports, Forms, & Correspondence,
for release 5.5.1 released on February 28, 1996.
3. Volume 3, CARE Systems User's Guide: System Setup & Maintenance, for
release 5.5.1 released on February 28, 1996.
4. Volume 4, CARE Systems User's Guide: United States Edits, for release
5.5.1 released on February 28, 1996.
5. All such updates, revisions, amendments, modifications, and/or
supplements to the foregoing.
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
EXHIBIT B
DESCRIPTION OF MARKET CATEGORIES AND
GEOGRAPHICAL TERRITORY
THE GEOGRAPHIC TERRITORY EXPRESSLY EXCLUDES THE COMMONWEALTH OF AUSTRALIA,
THE DOMINION OF NEW ZEALAND, AND THE UNITED STATES OF AMERICA.
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
EXHIBIT C
LISTING OF COMPANIES TO WHICH THE COMPANY
WILL NOT MARKET OR RESELL CCL PRODUCTS
None.
03/31/98/JOD/12006/001/AGREE/263170.2
<PAGE>
EXHIBIT D
DESIGNATED EQUIPMENT AND SOFTWARE
CONFIGURATION IS FOR THE EXECUTION OF CCL
SOFTWARE PRODUCTS
To be provided within 15 days from the date herof.
03/31/98/JOD/12006/001/AGREE/263170.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Amendment No. 1 to
the Registration Statement (Form S-3 No. 333-6131) and related Prospectus of
Cover-All Technologies Inc. for the registration of 6,591,528 shares of its
common stock of our report dated March 31, 1998, with respect to the 1997
consolidated financial statements and schedule of Cover-All Technologies Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1997.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-18243) pertaining to the 1982 Incentive
Stock Option Plan and in the Registration Statement (Form S-8 No. 33-44270)
pertaining to the 1991 Key Employee Stock Option Plan, the 1988 Non-Employee
Director Stock Option Plan and certain Non-Qualified Stock Option Contracts, and
in the related Prospectuses of Cover-All Technologies Inc. of our report dated
March 31, 1998, with respect to the 1997 consolidated financial statements and
schedule of Cover-All Technologies Inc. included in its Annual Report (Form
10-K) for the year ended December 31, 1997.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 31, 1998
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Amendment No. 1 to
the Registration Statement (Form S-3 No. 333-6131) and related Prospectus of
Cover-All Technologies Inc. for the registration of 6,591,528 shares of its
common stock of our report dated April 11, 1997, with respect to the 1996 and
1995 consolidated financial statements and schedule of Cover-All Technologies
Inc. included in this Annual Report (Form 10-K) for the year ended December 31,
1997.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-18243) pertaining to the 1982 Incentive
Stock Option Plan and in the Registration Statement (Form S-8 No. 33-44270)
pertaining to the 1991 Key Employee Stock Option Plan, the 1988 Non-Employee
Director Stock Option Plan and certain Non-Qualified Stock Option Contracts, and
in the related Prospectuses of Cover-All Technologies Inc. of our report dated
April 11, 1997, with respect to the 1996 and 1995 consolidated financial
statements and schedule of Cover-All Technologies Inc. included in this Annual
Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Hackensack, New Jersey
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial data extracted from the
consolidated balance sheet and the consolidated statement of operations and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 2,908,167
<SECURITIES> 0
<RECEIVABLES> 1,234,706
<ALLOWANCES> 185,610
<INVENTORY> 0
<CURRENT-ASSETS> 4,283,656
<PP&E> 2,625,678
<DEPRECIATION> 2,397,704
<TOTAL-ASSETS> 8,484,022
<CURRENT-LIABILITIES> 2,637,118
<BONDS> 0
0
0
<COMMON> 167,911
<OTHER-SE> 2,678,993
<TOTAL-LIABILITY-AND-EQUITY> 8,484,022
<SALES> 7,937,573
<TOTAL-REVENUES> 7,937,573
<CGS> 5,426,000
<TOTAL-COSTS> 4,888,919
<OTHER-EXPENSES> (37,569)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 300,593
<INCOME-PRETAX> (2,640,370)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,640,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,640,370)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
