<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1997
REGISTRATION NO. 333-22923
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INFORMATION MANAGEMENT ASSOCIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
CONNECTICUT 7372 06-1289928
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
----------------
ONE CORPORATE DRIVE, SUITE 414
SHELTON, CONNECTICUT 06484
(203) 925-6800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ALBERT R. SUBBLOIE, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER INFORMATION MANAGEMENT ASSOCIATES, INC.
ONE CORPORATE DRIVE, SUITE 414 SHELTON, CONNECTICUT 06484 (203) 925-6800 (203)
925-1170 (FACSIMILE)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
THOMAS L. FAIRFIELD, ESQ. KEITH F. HIGGINS, ESQ.
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. ROPES & GRAY
GOODWIN SQUARE, 225 ASYLUM STREET ONE INTERNATIONAL PLACE
HARTFORD, CONNECTICUT 06103 BOSTON, MASSACHUSETTS 02110
(860) 293-3500 (617) 951-7000
(860) 293-3555 (FACSIMILE) (617) 951-7050 (FACSIMILE)
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
MAY 28, 1997
4,500,000 Shares
[LOGO OF IMA APPEARS HERE]
Common Stock
--------
Of the 4,500,000 shares of Common Stock offered hereby, 2,625,000 shares are
being sold by Information Management Associates, Inc. (the "Company") and
1,875,000 shares are being sold by certain selling shareholders (the "Selling
Shareholders"). The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders. See "Principal and Selling
Shareholders." Prior to this offering, there has been no public market for the
Common Stock. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "IMAA." It is currently estimated that the
initial public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
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Total(3)........................ $ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
to be $1,000,000.
(3) Certain Selling Shareholders have granted the Underwriters a 30-day option
to purchase up to 675,000 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Selling Shareholders
will be $ , $ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
them, and subject to their right to reject orders in whole or in part. It is
expected that delivery of certificates for such shares of Common Stock will be
made at the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on
or about , 1997.
Alex. Brown & Sons
INCORPORATED
Robertson, Stephens & Company
SoundView Financial Group, Inc.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[DIAGRAM/FLOWCHART OF INFORMATION MANAGEMENT ASSOCIATES, INC.'S
MARKETPLACE,APPLICATIONS AND TECHNOLOGY TO BE INSERTED]
------------
As used in this Prospectus, the term the "Company" refers to Information
Management Associates, Inc. and its wholly-owned subsidiary, Information
Management Associates Limited, unless the context otherwise requires. EDGE(R)
and TeleBusiness(R) are registered trademarks of the Company. This Prospectus
also includes tradenames, trademarks and registered trademarks of companies
other than the Company.
The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by its independent auditors, and with quarterly reports for the
first three quarters of each fiscal year containing unaudited summary
financial information.
------------
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock,
including over-allotment, stabilizing and short-covering transactions and the
imposition of penalty bids. For a description of these activities, see
"Underwriting."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus. Prospective investors should
consider carefully the information discussed under "Risk Factors."
THE COMPANY
The Company develops, markets and supports customer interaction software
designed to increase the productivity and revenue-generating capabilities of
mid-size to large-scale telephone call centers. The Company's EDGE TeleBusiness
software ("EDGE") is a suite of applications and tools that enable businesses
to automate telebusiness activities (telemarketing, telesales, account
management, customer service and customer support) on an enterprise-wide basis.
The Company complements its EDGE products by offering its clients professional
consulting, technical support and maintenance services. EDGE has been licensed
to over 175 customers in a range of industries, including teleservices
outsourcing, telecommunications and financial services. Customers include APAC
Teleservices, Inc., AT&T Corp., Belgacom, S.A., Bose Corporation, ING Bank,
N.V., SITEL Corporation, Sprint PCS, United Parcel Service General Services Co.
and Wells Fargo Bank, N.A.
Businesses are increasingly using telephony-based customer interaction, from
initial marketing and sales activities to post-sales service and support, as a
key competitive component to increase sales, reduce costs, enhance customer
service, distinguish products and services and receive and process valuable
customer information. Telebusiness activities are generally conducted through
call centers that are typically designed and equipped with special
telecommunications and computer hardware and software. Businesses are seeking
call center customer interaction solutions which are based on an open
client/server architecture, provide broad functionality, can be deployed and
updated rapidly throughout the organization, are scalable to meet the needs of
growing businesses, and seamlessly integrate and leverage telephony technology.
Additionally, the Company believes that call center customer interaction
solutions will be required to support and incorporate emerging customer
interaction channels and computing platforms such as the Internet and
corporate-based intranets as such technologies become more commercially
significant. In a May 1996 research report, the Aberdeen Group, Inc., an
independent market research firm, projected that the market for sales and
customer support software will grow at an average annual compounded rate of
approximately 40%, from $400 million in 1995 to $1.7 billion in 1999.
The Company's objective is to become the global leader in providing flexible,
technologically advanced, feature-rich customer interaction software and
services to mid-size and large-scale call centers. To achieve this objective,
the Company is pursuing the following strategies: targeting specific industries
by utilizing its knowledge of the business processes and requirements of those
industries; extending its call center technology leadership by continuing its
product development efforts; broadening its international distribution network
including its indirect distribution channels and direct sales force; increasing
revenues generated from its existing client relationships; leveraging strategic
relationships with leading systems integration and technology companies; and
embracing Internet technology to expand the scope of its customer interaction
solutions.
The Company's EDGE products are designed to provide superior functionality,
flexibility, integration, scalability and speed of deployment. Based upon an
open systems software architecture, EDGE supports multiple hardware platforms,
operating environments, database management systems, network topologies,
desktop standards, and legacy system and computer-telephony middleware. The
Company's products provide call center agents with real-time data and guidance
needed to manage increasingly complex
3
<PAGE>
processes for selling products and servicing customers. For example, EDGE
offers scripting to support order-taking, cross-selling and up-selling, enables
agents to track and resolve customer service problems and facilitates the
collection of valuable customer information that can be disseminated on an
enterprise-wide basis. The Company's professional consulting, technical support
and maintenance services include application development, systems integration,
systems and database design and construction and software training. The Company
believes that these services significantly differentiate the Company from its
competitors and complement its EDGE products to provide a total solution for
mid-size and large-scale call centers.
The Company markets its software and services in the United States through a
direct sales organization. The Company also works closely with strategic
consulting and systems integration companies such as Deloitte & Touche LLP,
Ernst & Young LLP, International Business Machines Corporation ("IBM"), A.T.
Kearney, Inc. ("A.T. Kearney"), a subsidiary of Electronic Data Systems Corp.
("EDS"), and dbINTELLECT Technologies ("dbINTELLECT"), a division of EDS, to
increase market awareness and acceptance of the Company's products. The Company
markets its software internationally in Europe, the Pacific Rim, Canada, Mexico
and Latin America through remarketing and distribution relationships which it
supplements with a direct sales force in certain regions.
Until September 1996, the Company developed, marketed and supported a
telemarketing and telesales automation software application called Telemar
which runs on the IBM AS/400 platform. Due to the substantial growth in EDGE
software license fees and client/server open system software market
opportunities, the Company elected to focus exclusively on its EDGE products
and sold Telemar and certain related assets and liabilities on September 1,
1996. Currently, substantially all of the Company's revenues are attributable
to the licensing of EDGE products and the provision of professional consulting,
technical support and maintenance services relating to EDGE. The Company
currently expects that the licensing of EDGE products and the provision of such
related services will account for substantially all of the Company's revenues
for the foreseeable future.
The Company was incorporated in Connecticut in 1990. The Company's principal
executive office is located at One Corporate Drive, Suite 414, Shelton,
Connecticut 06484, and its telephone number is (203) 925-6800.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............... 2,625,000 shares
Common Stock offered by the Selling Shareholders.. 1,875,000 shares
Common Stock to be outstanding after the offering. 8,900,538 shares (1)
Use of proceeds................................... For repayment of
indebtedness, working
capital and other general
corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............ IMAA
</TABLE>
- --------
(1) Based upon the number of shares of Common Stock outstanding as of March 31,
1997. The number of shares outstanding excludes (i) 1,502,485 shares of
Common Stock issuable upon the exercise of outstanding stock options at a
weighted average exercise price of $5.01 per share and (ii) 6,750 shares of
Common Stock issuable upon the exercise of outstanding warrants at an
exercise price of $4.89 per share. See "Management--Stock Option Plans" and
Note 9 of Notes to Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (1):
Revenues:
EDGE revenues:
License fees.......... $2,125 $ 5,550 $ 4,703 $ 8,368 $12,180 $ 2,449 $ 3,802
Services and mainte-
nance................ 752 2,209 7,872 10,342 11,643 2,612 3,654
------ ------- ------- ------- ------- --------- ---------
Total EDGE revenues.. 2,877 7,759 12,575 18,710 23,823 5,061 7,456
------ ------- ------- ------- ------- --------- ---------
Telemar revenues:
License fees.......... 3,636 1,916 2,690 2,457 842 480 --
Services and mainte-
nance................ 2,652 3,276 3,087 2,642 1,612 548 --
------ ------- ------- ------- ------- --------- ---------
Total Telemar reve-
nues................ 6,288 5,192 5,777 5,099 2,454 1,028 --
------ ------- ------- ------- ------- --------- ---------
Total revenues...... 9,165 12,951 18,352 23,809 26,277 6,089 7,456
Operating income
(loss)................ (58) (2,462) (3,034) (2,586) 62 (348) 161
Net loss............... (293) (2,955) (4,083) (3,786) (1,047) (629) (186)
Pro forma net loss per
share (2)............. $ (0.17) $ (0.11) $ (0.03)
Pro forma shares used
in net loss per share
calculation (2)....... 6,007 5,898 6,548
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,541 $23,568
Working capital....................................... 83 26,747
Total assets.......................................... 19,414 39,708
Short-term debt....................................... 5,567 249
Long-term debt........................................ 2,607 315
Senior redeemable convertible preferred stock......... 9,622 --
Redeemable common stock warrants...................... 2,865 --
Total shareholders' equity (deficit).................. (11,385) 29,325
</TABLE>
- --------
(1) On September 1, 1996, the Company sold Telemar and certain related assets
and liabilities. As a result, the Summary Consolidated Financial
Information does not include any Telemar revenues or expenses after this
date.
(2) Computed as described in Note 2 of Notes to Consolidated Financial
Statements.
(3) Adjusted to give effect to the receipt and application of the estimated net
proceeds of this offering based on an assumed initial public offering price
of $12.00 per share. See "Use of Proceeds."
------------
Except as otherwise indicated, all information contained in this Prospectus
(i) has been adjusted to give effect to a 2.25-for-1 split of the Common Stock,
no par value (the "Common Stock"), to be effected prior to the closing of this
offering; (ii) reflects the conversion of all outstanding shares of the
Company's Series A and Series B Senior Convertible Preferred Stock
(collectively, the "Convertible Preferred Stock") into an aggregate of
1,532,161 shares of Common Stock upon the closing of this offering; (iii)
reflects the filing of an Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") upon the closing of this offering to
eliminate the Convertible Preferred Stock; (iv) reflects the issuance of 34,690
shares of Common Stock pursuant to the exercise of stock options upon the
closing of this offering; (v) reflects the issuance of 415,308 shares of Common
Stock pursuant to a cashless exercise of warrants upon the closing of this
offering; and (vi) assumes no exercise of the Underwriters' over-allotment
option. See "Description of Capital Stock" and Notes 7, 8 and 9 of Notes to
Consolidated Financial Statements.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors in evaluating
the Company and its business before purchasing the shares of Common Stock
offered by this Prospectus. This Prospectus contains forward-looking
statements and the Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of numerous
factors, including those set forth in the following risk factors, and
elsewhere in this Prospectus.
History of Operating Losses; Uncertainty of Future Operating Results. The
Company has incurred significant net operating losses in each of 1992, 1993,
1994 and 1995 and had an accumulated deficit of $17.1 million as of March 31,
1997. The Company's operating history makes the prediction of future operating
results difficult or impossible. Accordingly, although the Company has
recently experienced revenue growth, such growth should not be considered
indicative of future revenue growth, if any, or of future operating results.
There can be no assurance that any of the Company's business strategies will
be successful or that the Company will be able to achieve or sustain
profitability on a quarterly or annual basis in the future. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Fluctuations in Quarterly Performance. The Company's quarterly operating
results have varied significantly in the past and may vary significantly in
the future depending upon a number of factors, many of which are beyond the
Company's control. These factors include, among others, the ability of the
Company to develop, introduce and market new and enhanced versions of its
products on a timely basis; the demand for the Company's products; the lengthy
sales cycle for full implementation of its products; the size, timing and
contractual terms of significant orders; the timing and significance of
product enhancements and new product announcements by the Company or its
competitors; changes in the Company's business strategies; budgeting cycles of
its potential customers; customer order deferrals in anticipation of
enhancements or new products; changes in the mix of products and services
sold; changes in the amount of revenue attributable to domestic and
international sales; changes in foreign currency exchange rates; the level of
product and price competition; the cancellations or non-renewals of licenses
or maintenance agreements; investments to develop marketing and distribution
channels; or changes in the level of operating expenses. The Company is
dependent upon obtaining orders in any given quarter for delivery in that
quarter in order to achieve its quarterly revenue objectives. The timing of
revenue recognition can be affected by many factors, including the timing of
contract execution and delivery, post-delivery obligations and customer
acceptance. See "--Lengthy Sales and Implementation Cycles; Post-Delivery
Obligations." A significant portion of the Company's revenues in any quarter
are typically derived from non-recurring, large license fees received from a
relatively small number of customers. Although particular customers may vary
from quarter to quarter, the Company expects that sales to a limited number of
customers will continue to account for a significant percentage of its revenue
in any quarter for the foreseeable future. Therefore, the loss, deferral or
cancellation of a contract, or a failure of a customer to honor its
contractual obligations (and for which the Company's reserves and allowances
may be inadequate), could have a significant impact on the Company's operating
results in a particular quarter. Conversely, to the extent that significant
sales occur earlier than expected, operating results for subsequent quarters
may be adversely affected. In addition, the Company's business has experienced
and is expected to continue to experience seasonality, with stronger demand
during the quarters ending in June and December than during the quarters
ending in March and September, and a substantial portion of orders being
received in the last month or weeks of any given quarter.
Due to the foregoing factors, quarterly revenues and operating results are
not predictable with any significant degree of accuracy. The Company's expense
levels are based in significant part on the Company's expectations as to
future revenues and are therefore relatively fixed for the short term. If
revenue levels are below expectations, the Company's business, operating
results, and financial condition
6
<PAGE>
are likely to be materially adversely affected. As a result, the Company
believes that period-to-period comparisons of its results of operations are
not necessarily meaningful and should not be relied upon as indications of
future performance. There can be no assurance that the Company will be able to
achieve or sustain profitability on a quarterly or annual basis in the future.
Due to all of the foregoing factors, it is likely that in some future quarter
the Company's total revenues or operating results will be below the
expectations of public market analysts and investors. In such event, or in the
event that adverse conditions prevail or are perceived to prevail generally or
with respect to the Company's business, the price of the Common Stock would
likely be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Selected Quarterly
Operating Results."
Product Concentration. Substantially all of the Company's revenues are
attributable to the licensing of EDGE and the provision of professional
consulting, technical support and maintenance services relating to EDGE. The
Company currently expects that the licensing of EDGE products and the
provision of such related services will account for significantly all of its
revenues for the foreseeable future. As a result, factors adversely affecting
the pricing of or demand for EDGE products and services, such as competition
or technological changes, could have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
future financial performance will depend, in significant part, on the
continued market acceptance of its EDGE products and the successful
development, introduction and client acceptance of new and enhanced versions
of EDGE products. There can be no assurance that the Company will continue to
be successful in developing and marketing EDGE. See "--Competition," "--
Dependence on Proprietary Technology" and "Business--Products and Services,"
"Business--Sales and Marketing," "Business--Product Development" and
"Business--Competition."
Lengthy Sales and Implementation Cycles; Post-Delivery Obligations. The
licensing and implementation of the Company's products generally involves a
significant commitment of resources by customers and often requires the
Company to provide a significant level of education to prospective customers
regarding the use of the Company's products. As a result, the Company's sales
process is often subject to delays associated with lengthy customer approval
processes that typically accompany significant capital expenditures. For these
and other reasons, the sales cycle associated with the license of the
Company's products is often lengthy and may be subject to a number of
significant delays over which the Company has little or no control. In
addition, the time required to implement the Company's products can vary
significantly with the needs of its customers and generally extends for
several months or, for larger, more complex implementations, multiple
quarters.
Depending on the contract terms and conditions, licensing fees are
recognized upon delivery of the product if no customer acceptance conditions
or significant post-delivery obligations remain and collection of the
resulting receivable is probable. However, if post-delivery obligations exist,
or if the product is subject to customer acceptance, revenue will be deferred
until no significant Company obligations exist or acceptance has occurred.
When the Company has provided consulting services to implement certain larger
projects, in the past some customers have failed to honor their contractual
obligations by delaying payments of a portion of license fees until
implementation was complete and in some cases have disputed the consulting
fees charged for implementation. There can be no assurance that the Company
will not experience delays, cancellations or disputes regarding payment in the
future, which could have a material adverse effect on the Company's business,
operating results and financial condition and cause its quarterly operating
results to vary significantly in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Sales and Marketing."
Dependence on Proprietary Technology. The Company's success and ability to
compete is dependent in part upon proprietary technology. The Company relies
primarily on a combination of copyright and trademark laws, trade secrets,
nondisclosure agreements and technical measures to protect its proprietary
rights. The Company typically enters into confidentiality or license
agreements with its
7
<PAGE>
employees, distributors, clients and potential clients, and limits access to
and distribution of its software, documentation and other proprietary
information. There can be no assurance that these steps will be adequate to
deter misappropriation or independent third-party development of its
technology or to prevent an unauthorized third party from obtaining or using
information that the Company regards as proprietary. In addition, the laws of
some foreign countries do not protect or enforce proprietary rights to the
same extent as do the laws of the United States. Policing unauthorized use of
the Company's products is difficult and, while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
technology. Although the Company believes that its products and technology do
not infringe on any existing proprietary rights of others, the use of patents
to protect software has increased, and there can be no assurance that third
parties will not assert infringement claims in the future or, if infringement
claims are asserted, that such claims will be resolved in the Company's favor.
The Company expects that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in
the Company's industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on
terms favorable to the Company or at all, which could have a material adverse
effect on the Company's business, operating results and financial condition.
Any infringement claims resolved against the Company could have a material
adverse effect upon the Company's business, operating results and financial
condition. In addition, litigation may be necessary in the future to protect
the Company's trade secrets or other intellectual property rights, or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Intellectual Property and
Other Proprietary Rights."
The Company has entered into agreements with a small number of its customers
requiring the Company to place its source code in escrow. These escrow
agreements typically provide that customers have a limited, non-exclusive
right to use such code in the event that there is a bankruptcy proceeding by
or against the Company, if the Company ceases to do business or if the Company
fails to meet its support obligations. The escrow agreements, and any that the
Company may enter into in the future, may increase the possibility of
misappropriation by third parties. In addition, the Company utilizes a third-
party contractor for selected product development projects which may also
increase the possibility of misappropriation by third parties.
Dependence on Indirect Marketing and Distribution Channels; Potential
Conflicts. The Company maintains co-marketing relationships with consulting
and systems integration companies to expand the visibility of its products in
the United States and internationally and distributes its products outside the
United States through remarketers and distributors. Such co-marketers,
remarketers and distributors are not under the direct control of the Company
and install and support the product lines of a number of companies. In
addition, the co-marketers, remarketers and distributors are not subject to
any minimum purchase requirements and can discontinue marketing the Company's
products at any time without cause. The consulting and systems integration
companies may also sell or co-market potentially competitive products.
Accordingly, the Company must compete for the focus and sales efforts of these
third party entities. Additionally, selling through indirect channels may
limit the Company's contacts with its customers, potentially hindering its
ability to accurately forecast sales and revenue, evaluate customer
satisfaction and recognize emerging customer requirements. There can be no
assurance that co-marketers, remarketers and distributors will continue to
distribute or recommend the Company's products or do so successfully, or that
the Company will succeed in increasing the use of these indirect channels
profitably. There can also be no assurance that one or more of these companies
will not begin to market products in competition with the Company. The
termination of one or more of these relationships or the failure of
8
<PAGE>
the Company to establish additional relationships could adversely affect the
Company's business, operating results and financial condition. See "Business--
Sales and Marketing."
The Company's strategy of marketing its products directly to end-users and
indirectly through remarketers and distributors may result in distribution
channel conflicts. The Company's direct sales efforts may compete with those
of its indirect channels and, to the extent different resellers target the
same customers, resellers may also come into conflict with each other.
Although the Company has attempted to manage its distribution channels in a
manner to avoid potential conflicts, there can be no assurance that
distribution channel conflicts will not materially adversely affect its
relationships with existing remarketers and distributors or adversely affect
its ability to attract new remarketers and distributors. See "Business--Sales
and Marketing."
Need to Expand Marketing and Distribution Channels. The Company sells its
products both through its direct sales organization and through remarketers
and distributors. Part of the Company's strategy is to increase its use of
remarketers and distributors to sell its products internationally and to
expand its existing co-marketing relationships and establish new relationships
with other consulting and systems integration companies. The Company is also
seeking to expand its existing international direct sales force in order to
take advantage of international growth opportunities. The Company's ability to
achieve revenue growth in the future will depend on its success in recruiting
and training sufficient direct sales personnel and attracting and retaining
qualified remarketers and distributors. The Company has at times experienced
and continues to experience difficulty in recruiting qualified personnel, and
there can be no assurance that the Company will be able to expand successfully
its direct sales force or other remarketing and distribution channels or that
any such expansion will result in an increase in revenues. Any failure by the
Company to expand its direct sales force or other remarketing and distribution
channels could materially and adversely affect the Company's business,
operating results and financial condition. See "--Management of Growth," "--
Dependence on Key Personnel," "Business--Strategy" and "Business--Sales and
Marketing."
Emerging Markets for Call Center Customer Interaction Software; Dependence
on Increased Use of Products by Existing Customers. The market for call center
customer interaction software is relatively new and is characterized by
ongoing technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The Company's future financial performance will depend in large part on
continued growth in the number of organizations adopting call center customer
interaction software products on an enterprise-wide basis and on the number of
applications and software components developed for such use. There can be no
assurance that the call center customer interaction software market will
continue to grow. If this market fails to grow, or grows more slowly than the
Company currently anticipates, the Company's business, operating results and
financial condition could be materially and adversely affected.
In addition, certain of the Company's larger customers have licensed the
Company's software on an incremental basis and there can be no assurance that
the Company's customers will expand their use of the Company's software on an
enterprise-wide basis or license new or enhanced software products introduced
by the Company. The failure of the Company's software to perform according to
customer expectations or otherwise to be deployed on an enterprise-wide basis
could have a material adverse effect on the ability of the Company to increase
revenues from existing customers. See "Business--Industry Background" and
"Business--Strategy."
Rapid Technological Change. The call center customer interaction software
market is characterized by rapid technological change, frequent introductions
of new products, changes in customer demands and evolving industry standards,
any of which can render existing products obsolete and unmarketable. As a
result, the Company's position in its existing markets or other markets that
it may enter could diminish rapidly by product advancements. The life cycles
of the Company's products are difficult to estimate. The
9
<PAGE>
Company's product development and testing efforts are expected to require,
from time to time, substantial investments by the Company and there can be no
assurance that it will have sufficient resources to make the necessary
investments. The Company's customers have adopted a wide variety of hardware,
software, database and networking platforms, and as a result, to gain broad
market acceptance, the Company must continue to support and maintain its
products on a variety of such platforms. The Company's future success will
depend on its ability to address the increasingly sophisticated needs of its
customers by supporting existing and emerging hardware, software, database and
networking platforms and by developing and introducing enhancements to its
existing products and new products on a timely basis that keep pace with
technological developments, changing customer requirements and evolving
industry standards. The success of the Company's products may also depend, in
part, on its ability to introduce products which are compatible with the
Internet, and on the broad acceptance of the Internet as a viable customer
interaction channel. There can be no assurance that the Internet will become a
viable customer interaction channel or that the demand for Internet-related
products and services will increase in the future. In addition, there can be
no assurance that the Company will be successful in developing and marketing
enhancements to its products that respond to technological developments,
changing customer requirements or evolving industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and sale of such enhancements, or that
such enhancements will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. If release dates of any
future product enhancements or new products are delayed or if these products
or enhancements fail to achieve market acceptance when released, the Company's
business, operating results or financial condition could be materially and
adversely affected. In addition, the introduction or announcement of new
product offerings or enhancements by the Company, the Company's competitors or
major hardware, systems or software vendors may cause customers to defer or
forego licenses of the Company's products, which could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company's ability to remain competitive and respond to technological
change is also dependent upon the products of other software vendors,
including certain system software vendors, such as Microsoft Corporation, and
relational database software vendors. In the event that the products of such
vendors have design defects or are unexpectedly delayed in their introduction,
the Company's business, operating results and financial condition could be
materially adversely affected.
Management of Growth. The Company is currently experiencing a period of
rapid growth that could place a significant strain on its management and other
resources. The Company's senior management has not had experience in managing
publicly traded companies. The Company anticipates that continued growth, if
any, will require it to recruit, hire, train and retain a substantial number
of new and highly skilled product development, managerial, finance, sales and
marketing and support personnel. Competition for such personnel is intense and
the Company expects that such competition will continue for the foreseeable
future. There can be no assurance that the Company will be successful at
hiring or retaining such personnel. The Company's ability to compete
effectively and to manage future growth, if any, will depend on its ability to
continue to implement and improve operational, financial and management
information systems on a timely basis and to expand, train, motivate and
manage its work force. There can be no assurance that the Company's personnel,
systems, procedures and controls will be adequate to support the Company's
operations. If the Company's management is unable to manage growth
effectively, the quality of the Company's products and its business, operating
results and financial condition could be materially adversely affected. See
"--Need to Expand Marketing and Distribution Channels," "--Dependence on Key
Personnel" and "Business--Employees."
Competition. The market for telemarketing, telesales and customer service
software is intensely competitive, rapidly evolving and highly sensitive to
new product introductions or enhancements and marketing efforts by industry
participants. The Company competes with a large number of competitors ranging
from internal information systems departments to packaged software application
vendors. The
10
<PAGE>
Company believes that as the United States and international software markets
continue to grow, a number of new vendors will enter the market and existing
competitors and new market entrants will attempt to develop applications
targeting additional markets. Competitors have established and may in the
future establish cooperative relationships or alliances which may increase
their ability to provide superior software solutions or services. In addition,
consolidation within the call center customer interaction software industry
could create new or stronger competitors.
Increased competition resulting from new entrants, consolidation of the call
center customer interaction software industry, cooperative relationships or
alliances could result in price reductions, reduced operating income or loss
of market share, any of which could materially adversely affect the Company's
business, operating results or financial condition. Many of the Company's
current and potential competitors have significantly greater financial,
technical, marketing, service, support and other resources, generate higher
revenues and have greater name recognition than the Company. There can be no
assurance that the Company's current or potential competitors will not develop
products comparable or superior to those developed by it or adapt more quickly
than the Company to new technologies, evolving industry trends or changing
client requirements. There can be no assurance that the Company will be able
to compete effectively against current or future competitors or that
competitive pressures faced by the Company would not materially and adversely
affect its business, operating results or financial condition. See "Business--
Competition."
Dependence on Key Personnel. The Company's business involves the
development, marketing and installation of technologically complex software
products and the delivery of professional services and is labor intensive. The
Company's success will depend in large part upon its ability to attract,
retain and motivate highly skilled employees. There is significant competition
for employees with the skills required to perform the services needed by the
Company in order to operate its business successfully. If the Company is
unable to hire and retain sufficient numbers of highly skilled employees, the
Company's business, operating results and financial condition could be
materially and adversely affected. In addition, the loss of Albert R.
Subbloie, Jr., the President and Chief Executive Officer, or Gary R. Martino,
Chairman of the Board and Chief Financial Officer, or some of the Company's
other key personnel could have a material adverse effect on the Company's
business, operating results or financial condition, including its ability to
attract employees and secure and complete engagements. The Company maintains
key-man life insurance policies with respect to certain of its executive
officers, including Mr. Subbloie and Mr. Martino. See "Business--Employees."
Risk of Product Defects. Software products frequently contain errors,
especially when first introduced or when new versions are released. Although
the Company conducts extensive product testing during product development, the
Company has at times been forced to delay commercial release of software until
problems were corrected and, in some cases, has provided enhancements to
correct errors in released software. The Company could, in the future, lose
revenues as a result of software errors or defects. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in software or releases after commencement of
commercial shipments, resulting in loss or delay of revenue, delay in market
acceptance, diversion of development resources, damage to the Company's
reputation, or increased service and warranty costs, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "--Product Liability."
Risks Associated with International Operations. International operations
accounted for approximately 28%, 38% and 26% of total revenues for 1994, 1995
and 1996, respectively. The Company intends to expand its international sales
activity, which will require significant management attention and financial
resources and will require the Company to establish additional foreign
operations and hire additional personnel. As of March 31, 1997 the Company
employed 23 employees who are based in Europe. The Company has an office
located in London, England. There can be no assurance that the Company will be
able to maintain or increase international market demand for its products and,
to the
11
<PAGE>
extent the Company is unable to do so, its business, operating results or
financial condition could be materially adversely affected. The Company's
international sales are currently denominated in U.S. dollars with respect to
sales outside of the United Kingdom and Europe, and generally in pounds
sterling with respect to sales in the United Kingdom and Europe. An increase
in the value of the U.S. dollar or pound sterling relative to other currencies
could make the Company's products more expensive and, therefore, potentially
less competitive in foreign markets. Currently, the Company does not employ
currency hedging strategies to reduce this risk. In addition, the Company's
international business may be subject to a variety of other risks, including
potentially longer payment cycles and difficulties in collecting international
accounts receivable, difficulties in enforcement of contractual obligations
and intellectual property rights, potentially adverse tax consequences,
increased costs associated with maintaining international marketing efforts,
costs of localizing products for foreign markets, tariffs, duties and other
trade barriers, adverse changes in regulatory requirements, possible
recessionary economies outside of the United States and political and economic
instability. There can be no assurance that such factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on its business, operating results or financial condition. See
"--Dependence on Indirect Marketing and Distribution Channels; Potential
Conflicts," "--Need to Expand Marketing and Distribution Channels,"
"Business--Employees" and "Business--Facilities."
Dependence on Licensed Technology. The Company licenses, and expects to
license in the future, technology from other companies for use in and with its
products. The inability of the Company to license these products or other
necessary products for use in or with its products could have a material
adverse effect on the Company's business, operating results or financial
condition. In addition, the effective implementation of the Company's products
may depend in the future upon the successful operation of licensed products as
an integrated part of, or in conjunction with, the Company's products. Any
undetected errors in such licensed products could impair the functionality of
the Company's products or otherwise delay or prevent the implementation of an
installation or the introduction of new products, and injure the Company's
reputation, which could have a material adverse effect on its business,
operating results or financial condition. See "--Risk of Product Defects."
Increased Use of Third-Party Development Tools. The Company's EDGE products
include application development tools which are used to build and modify
applications. If third-party application development tools become more widely
used as a result of technological advances or customer requirements, the
Company could be required to make greater use of third-party tools in the
future, and to enter into license arrangements with such third parties, which
could result in higher royalty payments, a loss of product differentiation and
delays. Such effects or the inability of the Company to enter into
commercially reasonable licenses could have a material adverse effect on the
Company's business, operating results or financial condition. See "--Rapid
Technological Change" and "Business--Products and Services."
Dependence on Growth of Client/Server Computing Environment. The Company
markets its products to customers that have committed or are committing their
call center systems to client/server computing environments, or are converting
legacy systems, in part or in whole, to a client/server computing environment.
The Company's success will depend on further growth in the number of
organizations adopting client/server computing environments. There can be no
assurance that the client/server computing trends anticipated by the Company
will occur or that the Company will be able to respond effectively to the
evolving requirements of this market. If the client/server market fails to
grow, or grows at a rate slower than experienced in the past, the Company's
business, operating results or financial condition could be materially
adversely affected. See "--Rapid Technological Change" and "--Product
Development."
Industry Concentration. A substantial portion of the Company's revenues
historically have been derived from customers in the teleservices outsourcing,
telecommunications and financial services industries. The Company's strategy
is to further develop its knowledge of the business processes and
12
<PAGE>
requirements of other industries in order to establish additional market
opportunities, but there can be no assurance that the Company will be
successful in doing so. The failure of the Company to increase its customers
among a broader base of varied industries, or a downturn in one or more of the
teleservices outsourcing, telecommunications or financial services industries
could have a material adverse effect on the Company's business, operating
results or financial condition. See "Business--Strategy."
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the
limitation of liability provisions contained in the Company's license
agreements may not be enforceable under the laws of certain jurisdictions. The
risk of product liability claims is inherent in the sale and support of
products, and there can be no assurance that the Company will not be subject
to such claims in the future. A successful product liability claim brought
against the Company could have a material adverse effect on the Company's
business, operating results and financial condition. See "--Risk of Product
Defects."
Regulatory Environment. Certain uses of outbound call processing systems are
regulated by federal, state and foreign law. Although the Company's systems
can be programmed to operate in compliance with these laws through the use of
appropriate calling lists and calling campaign time parameters, compliance
with these laws may limit the potential use of the Company's products. In
addition, there can be no assurance that future legislation further
restricting telephone solicitation practices, if enacted, would not adversely
affect the Company. See "Business--Regulatory Environment."
Control by Directors and Officers. Based upon the number of shares
outstanding as of March 31, 1997, upon completion of this offering the
Company's officers and directors, and their affiliates, will beneficially own
approximately 45.5% of the Company's outstanding Common Stock. These
shareholders, if acting together, may have the ability to elect the Company's
directors and to determine the outcome of corporate actions requiring
shareholder approval, irrespective of how other shareholders of the Company
may vote. This concentration of ownership may have the effect of delaying or
preventing a change in control of the Company. See "Management" and "Principal
and Selling Shareholders."
Discretion as to Use of Proceeds. The primary purposes of this offering are
to create a public market for the Company's Common Stock, to facilitate future
access to public markets and to obtain additional working capital. As of the
date of this Prospectus, the Company has no specific plans to use the net
proceeds from this offering other than for working capital and general
corporate purposes, including the repayment of bank debt. Accordingly, the
Company's management will retain broad discretion as to the allocation of the
net proceeds from this offering. See "Use of Proceeds."
No Public Market. Prior to this offering, there has been no public market
for the Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after this offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price will be determined by negotiations
among the Company, the Selling Shareholders and the representatives of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The trading price
of the Common Stock could be subject to significant fluctuations in response
to quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, and other events or factors. In
addition, investors should be aware that market prices for securities of
companies similar to the Company are highly volatile and such volatility is
sometimes unrelated to the operating performance of such companies. These
fluctuations, as well as general economic, market and political conditions,
may materially and adversely affect the market price of the Common Stock. See
"--Fluctuations in Quarterly Performance."
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of Common Stock in the public market after this offering could
adversely affect the prevailing market price of the Common
13
<PAGE>
Stock. In addition to the 4,500,000 shares of Common Stock offered hereby, as
of the date of this Prospectus (the "Effective Date"), based upon shares
outstanding as of March 31, 1997, there will be approximately 4,400,538 shares
of Common Stock outstanding. Approximately 57,744 shares of Common Stock,
which are not subject to lock-up agreements with representatives of the
Underwriters ("Lock-up Agreements"), will be eligible for sale beginning 90
days following the Effective Date subject to certain resale restrictions
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). In addition, beginning 90 days after the Effective Date,
approximately 318,373 shares of Common Stock will be available for sale
without restriction in reliance on Rule 144(k) under the Securities Act upon
the expiration of 90-day Lock-up Agreements. Beginning 180 days after the
Effective Date, approximately 3,992,021 shares of Common Stock will be
available for sale upon the expiration of 180-day Lock-up Agreements, of which
approximately 3,540,604 shares will be subject to certain resale restrictions
pursuant to Rule 144 and approximately 451,417 shares will be available for
sale without restriction pursuant to Rule 144(k). As of the Effective Date,
based on the number of options outstanding at March 31, 1997, 899,297 shares
of Common Stock will be issuable pursuant to vested options under the
Company's option plans, of which approximately 850,150 shares will be subject
to 180-day Lock-up Agreements. Shortly after the Effective Date, the Company
intends to file one or more registration statements on Form S-8 to register
under the Securities Act shares issuable under the Company's option plans,
upon which filing such shares will generally be available for sale in the
public market, subject to Rule 144 limitations and Lock-up Agreements, to the
extent applicable. In addition, holders of 2,576,226 shares of Common Stock
will have certain rights to registration of their shares under the Securities
Act. See "Shares Eligible for Future Sale."
Antitakeover Provisions. The Company's Certificate of Incorporation requires
that any action required or permitted to be taken by shareholders of the
Company must be effected at a duly called annual or special meeting of
shareholders and may not be effected by consent in writing except by unanimous
written consent, and requires advance notice by a shareholder of any matter
which such shareholder desires to present at any annual or special meeting of
shareholders. Special meetings of shareholders may be called only by the
Chairman of the Board or by the Secretary of the Company at the request of the
Board or upon the written demand of the holders of 35% of the voting stock
entitled to vote at such special meeting. The Certificate of Incorporation
provides for a classified Board of Directors, and members of the Board of
Directors may be removed only for cause upon the affirmative vote of holders
of at least two-thirds of the shares of capital stock of the Company entitled
to vote. In addition, shares of preferred stock ("Preferred Stock") may be
issued in the future without further shareholder approval and upon such terms
and conditions, and having such rights, privileges and preferences, as the
Board of Directors may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of any
holders of Preferred Stock that may be issued in the future. The Company has
no present plans to issue any shares of Preferred Stock. These provisions, and
other provisions of the Certificate of Incorporation, may have the effect of
deterring hostile takeovers or delaying or preventing changes in control or
management of the Company, including transactions in which shareholders might
otherwise receive a premium for their shares over then current market prices.
In addition, these provisions may limit the ability of shareholders to approve
transactions that they may deem to be in their best interests. See
"Description of Capital Stock--Certain Provisions of the Certificate of
Incorporation, Bylaws and Connecticut Law; Antitakeover Effects."
Dilution. Purchasers of shares of Common Stock in this offering will suffer
an immediate and substantial dilution in the net tangible book value of the
Common Stock from the initial public offering price. See "Dilution."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,625,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$28.3 million, assuming an initial public offering price of $12.00 per share
and after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company. The Company will not receive any of
the net proceeds from the sale of Common Stock by the Selling Shareholders.
See "Principal and Selling Shareholders."
The principal purposes of this offering are to increase the Company's equity
capital, to create a public market for the Common Stock and to facilitate
future access by the Company to public equity markets. The Company intends to
use approximately $7.7 million of the net proceeds of the offering to repay in
full the outstanding indebtedness under the Loan and Security Agreement dated
October 26, 1995, as amended (the "Loan and Security Agreement"), between the
Company and People's Bank (the "Bank"). The Loan and Security Agreement
provides for a $6.0 million line of credit (the "Line of Credit") and a $2.5
million Term Note (the "Term Note"). The Line of Credit expires on February 1,
1998 and bears interest at a floating rate which was 9.25% per annum at March
31, 1997. The Term Note is payable in monthly principal installments through
October 2002. The Term Note bears interest at 11.0% payable on a current basis
and accrues additional interest based upon a formula which approximates 9.0%.
The outstanding principal balances of the Term Note and the Line of Credit,
together with accrued interest thereon, are required to be paid in full upon
consummation of the offering. The Company, however, will be permitted to
continue to borrow amounts under the Line of Credit through February 1, 1998.
In addition, the Company intends to use $250,000 of the net proceeds of the
offering to repay in full a note bearing an interest rate of 12.0% payable to
Wand/IMA Investments, L.P., dated December 21, 1990, as amended (the "Wand
Note").
The Company expects to use the remaining net proceeds from the offering for
working capital and other general corporate purposes. A portion of the net
proceeds may also be used for the acquisition of businesses, products and
technologies that are complementary to those of the Company. While the Company
engages from time to time in discussions with respect to potential
acquisitions, the Company has no plans, commitments or agreements with respect
to any such acquisitions as of the date of this Prospectus. The Company has
not as yet identified specific uses for such proceeds and will have discretion
over their use and investment. Pending such uses, the Company intends to
invest the net proceeds from this offering in short-term, investment grade,
interest-bearing instruments. See "Risk Factors--Discretion as to Use of
Proceeds."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support
its growth strategy and does not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account
various factors, including the Company's financial condition, operating
results, current and anticipated cash needs and plans for expansion. The
Company is currently prohibited by the terms of the Loan and Security
Agreement from paying any cash dividends without the prior written consent of
the Bank.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997 (i) on an actual basis, (ii) on a pro forma basis giving effect to
the conversion of all outstanding shares of Convertible Preferred Stock into
1,532,161 shares of Common Stock, the issuance of 415,308 shares pursuant to
the cashless exercise of outstanding Common Stock purchase warrants, the
issuance of 34,690 shares of Common Stock pursuant to the exercise of stock
options, and the filing of an amendment to the Certificate of Incorporation to
eliminate the Convertible Preferred Stock and (iii) on a pro forma as adjusted
basis giving effect to the issuance and sale by the Company of 2,625,000
shares of Common Stock offered hereby at an assumed public offering price of
$12.00 per share and the receipt and application of the net proceeds
therefrom, after deducting estimated underwriting discounts and commissions
and offering expenses. See "Use of Proceeds." This table should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Bank line of credit........................... $ 4,860 $ 4,860 $ --
Term note payable to bank..................... 208 208 --
Subordinated note payable to shareholder...... 250 250 --
Capital lease obligations..................... 249 249 249
-------- -------- --------
Total......................................... $ 5,567 $ 5,567 $ 249
======== ======== ========
Term note payable to bank, net of current
portion....................................... $ 2,292 $ 2,292 $ --
Capital lease obligations, net of current
portion....................................... 315 315 315
Series A senior redeemable convertible
preferred stock, no par value (liquidation
value of $5,272,000), 4,500 shares issued and
outstanding (actual); no shares authorized,
issued or outstanding (pro forma and pro forma
as adjusted).................................. 5,248 -- --
Series B senior redeemable convertible
preferred stock, no par value (liquidation
value of $4,496,000), 4,350 shares issued and
outstanding (actual); no shares authorized,
issued or outstanding (pro forma and pro forma
as adjusted).................................. 4,374 -- --
Redeemable common stock warrants............... 2,865 -- --
Shareholders' equity (1):
Preferred stock, undesignated, no par value,
500,000 shares authorized, no shares issued or
outstanding (actual, pro forma and pro forma
as adjusted).................................. -- -- --
Common Stock: no par value, 20,000,000 shares
authorized, 4,293,379 shares issued and
outstanding (actual); 20,000,000 shares
authorized (pro forma and pro forma as
adjusted); 6,275,538 shares issued and
outstanding (pro forma); 8,900,538 shares
issued and outstanding (pro forma as
adjusted)..................................... 5,798 18,213 46,508
Cumulative translation adjustment.............. (114) (114) (114)
Accumulated deficit............................ (17,069) (17,069) (17,069)
-------- -------- --------
Total shareholders' equity (deficit).......... (11,385) 1,030 29,325
-------- -------- --------
Total capitalization......................... $ 3,709 $ 3,637 $ 29,640
======== ======== ========
</TABLE>
- --------
(1) Based upon the number of shares of Common Stock outstanding as of March
31, 1997. The number of shares outstanding excludes (i) 1,502,485 shares
of Common Stock issuable upon the exercise of outstanding stock options at
a weighted average exercise price of $5.01 per share and (ii) 6,750 shares
of Common Stock issuable upon the exercise of outstanding warrants at an
exercise price of $4.89 per share. See "Management--Stock Option Plans,"
"Description of Capital Stock" and Note 9 of Notes to Consolidated
Financial Statements.
16
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value per share of Common Stock.
At March 31, 1997, the pro forma net tangible book value of the Company was
approximately $1.0 million, or $0.16 per share of Common Stock. Pro forma net
tangible book value per share is equal to the Company's total tangible assets
less total liabilities, divided by the number of shares of Common Stock
outstanding, after giving effect upon closing of this offering to (i) the
conversion of the Convertible Preferred Stock into 1,532,161 shares of Common
Stock, (ii) the issuance of 415,308 shares of Common Stock pursuant to the
cashless exercise of outstanding Common Stock purchase warrants and (iii) the
exercise of stock options for 34,690 shares of Common Stock by certain Selling
Shareholders. After giving effect to the sale by the Company of shares of
Common Stock offered hereby (at an assumed initial public offering price of
$12.00 per share) and the receipt and application of the net proceeds
therefrom, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, the pro forma net tangible
book value of the Company at March 31, 1997 would have been approximately
$29.3 million, or $3.29 per share. This represents an immediate increase in
pro forma net tangible book value of $3.13 per share to existing shareholders
and an immediate dilution of $8.71 per share to new investors purchasing
shares of Common Stock in this offering. The following table illustrates the
per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $12.00
Pro forma net tangible book value per share as of March 31, 1997. $0.16
Increase per share attributable to new investors................. 3.13
-----
Pro forma net tangible book value per share after the offering.... 3.29
------
Dilution per share to new investors............................... $ 8.71
======
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1997,
the differences between existing shareholders and new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average consideration paid per share
by the existing shareholders and by the new investors in this offering (at an
assumed initial public offering price of $12.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).... 6,275,538 70.5% $14,479,758 31.5% $ 2.31
New investors............... 2,625,000 29.5 31,500,000 68.5 $12.00
--------- ----- ----------- -----
Totals.................... 8,900,538 100.0% $45,979,758 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales of shares by the Selling Shareholders in the offering will reduce
the number of shares held by existing shareholders to 4,400,538 or 49.4%
(3,725,538 shares or 41.9% if the Underwriters' over-allotment option is
exercised in full) of the total number of shares of Common Stock
outstanding after the offering and will increase the number of shares held
by new investors to 4,500,000 or 50.6% (5,175,000 shares or 58.1% if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares of Common Stock outstanding after the offering. The
foregoing computations assume no exercise of outstanding stock options at
or after March 31, 1997, except options for 34,690 shares of Common Stock
to be exercised by certain Selling Shareholders. Based upon the number of
shares of Common Stock outstanding as of March 31, 1997; the number of
shares outstanding excludes (i) 1,502,485 shares of Common Stock issuable
upon the exercise of outstanding stock options at a weighted average
exercise price of $5.01 per share and (ii) 6,750 shares of Common Stock
issuable upon the exercise of outstanding warrants at an exercise price of
$4.89 per share. See "Capitalization," "Management--Stock Option Plans,"
"Description of Capital Stock" and Note 9 of Notes to Consolidated
Financial Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1995
and 1996, and for each of the years in the three-year period ended December
31, 1996 are derived from financial statements which have been audited by
Arthur Andersen LLP, independent public accountants, which appear elsewhere in
this Prospectus. The selected financial data as of December 31, 1992, 1993 and
1994 and for the years ended December 31, 1992 and 1993 are derived from
audited financial statements not included in this Prospectus. The selected
financial data as of March 31, 1997 and for the three months ended March 31,
1996 and 1997 have been derived from unaudited financial statements of the
Company which have been prepared on the same basis as the audited financial
statements and which, in the opinion of management, include all adjustments
necessary for a fair presentation of such data. The results of operations for
the three months ended March 31, 1997 are not necessarily indicative of the
results for the full year. This selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------ ---------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees:
EDGE product line..... $2,125 $ 5,550 $ 4,703 $ 8,368 $12,180 $2,449 $ 3,802
Telemar product line.. 3,636 1,916 2,690 2,457 842 480 --
------ ------- ------- ------- ------- ------ -------
Total license fees... 5,761 7,466 7,393 10,825 13,022 2,929 3,802
------ ------- ------- ------- ------- ------ -------
Services and mainte-
nance:
EDGE product line..... 752 2,209 7,872 10,342 11,643 2,612 3,654
Telemar product line.. 2,652 3,276 3,087 2,642 1,612 548 --
------ ------- ------- ------- ------- ------ -------
Total services and
maintenance......... 3,404 5,485 10,959 12,984 13,255 3,160 3,654
------ ------- ------- ------- ------- ------ -------
Total revenues...... 9,165 12,951 18,352 23,809 26,277 6,089 7,456
------ ------- ------- ------- ------- ------ -------
Cost of revenues:
License fees........... 60 165 462 700 709 166 71
Services and mainte-
nance................. 1,434 2,108 6,268 8,225 7,191 1,822 1,952
------ ------- ------- ------- ------- ------ -------
Total cost of reve-
nues................. 1,494 2,273 6,730 8,925 7,900 1,988 2,023
------ ------- ------- ------- ------- ------ -------
Gross profit........... 7,671 10,678 11,622 14,884 18,377 4,101 5,433
------ ------- ------- ------- ------- ------ -------
Operating expenses:
Sales and marketing.... 2,604 3,694 5,857 6,844 8,055 1,872 2,648
Product development.... 2,553 4,356 6,106 6,802 6,382 1,553 1,532
General and adminis-
trative............... 1,994 2,862 2,693 3,824 3,878 1,024 1,092
Amortization of ac-
quired software....... 578 -- -- -- -- -- --
Write-off of acquired
software.............. -- 2,228 -- -- -- -- --
------ ------- ------- ------- ------- ------ -------
Total operating ex-
penses............... 7,729 13,140 14,656 17,470 18,315 4,449 5,272
------ ------- ------- ------- ------- ------ -------
Operating income
(loss)................ (58) (2,462) (3,034) (2,586) 62 (348) 161
Other income (expense). (223) (381) (917) (1,100) (1,079) (281) (257)
------ ------- ------- ------- ------- ------ -------
Loss before provision
for income taxes...... (281) (2,843) (3,951) (3,686) (1,017) (629) (96)
Provision for income
taxes................. 12 112 132 100 30 -- 90
------ ------- ------- ------- ------- ------ -------
Net loss............... $ (293) $(2,955) $(4,083) $(3,786) $(1,047) $ (629) $ (186)
====== ======= ======= ======= ======= ====== =======
Pro forma net loss per
share (1)............. $ (0.17) $(0.11) $ (0.03)
======= ====== =======
Pro forma shares used
in net loss per share
calculation (1)....... 6,007 5,898 6,548
======= ====== =======
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------ ---------
1992 1993 1994 1995 1996 1997
------ ------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents................. $ 234 $ 1,395 $ 446 $ 1,543 $ 3,073 $ 2,541
Working capital (defi-
cit).................. 276 63 (3,619) (1,233) 1,210 83
Total assets........... 7,795 9,613 12,150 12,519 17,281 19,414
Short-term debt........ 1,174 2,962 5,499 3,871 5,444 5,567
Long-term debt......... 2,139 1,926 1,423 3,042 2,803 2,607
Senior redeemable con-
vertible preferred
stock................. -- -- -- 4,751 9,431 9,622
Redeemable common stock
warrants.............. 1,058 1,058 1,517 2,480 2,865 2,865
Total shareholders' eq-
uity (deficit)........ 1,285 (871) (4,200) (9,295) (10,906) (11,385)
</TABLE>
- --------
(1) Computed as described in Note 2 of Notes to Consolidated Financial
Statements.
18
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The pro forma consolidated statement of operations that follows is presented
to give effect to the sale of the Telemar product line on September 1, 1996,
as if the sale occurred on January 1, 1996. The pro forma information, which
reflects the elimination of identifiable revenues and expenses attributable to
the Telemar product line, does not purport to be indicative of the actual
results that would have been achieved had the sale taken place on January 1,
1996 or the results which may be achieved in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------
ACTUAL ADJUSTMENT PRO FORMA
------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees:
EDGE product line.......................... $12,180 $ -- $12,180
Telemar product line....................... 842 (842)(1) --
------- -------
Total license fees....................... 13,022 12,180
------- -------
Services and maintenance:
EDGE product line.......................... 11,643 11,643
Telemar product line....................... 1,612 (1,612)(2) --
------- -------
Total services and maintenance........... 13,255 11,643
------- -------
Total revenues......................... 26,277 23,823
------- -------
Cost of revenues:
License fees................................. 709 (93)(3) 616
Services and maintenance..................... 7,191 (520)(4) 6,671
------- -------
Total cost of revenues...................... 7,900 7,287
------- -------
Gross profit.................................. 18,377 16,536
------- -------
Operating expenses:
Sales and marketing.......................... 8,055 (823)(5) 7,232
Product development.......................... 6,382 (1,070)(6) 5,312
General and administrative................... 3,878 (244)(7) 3,634
------- -------
Total operating expenses.................... 18,315 16,178
------- -------
Operating income.............................. 62 358
Other income (expense)........................ (1,079) (92)(8) (1,171)
------- -------
Loss before provision for income taxes........ (1,017) (813)
Provision for income taxes.................... 30 30
------- -------
Net loss...................................... $(1,047) $ (843)
======= =======
</TABLE>
- --------
(1) Represents the elimination of Telemar license fees.
(2) Represents the elimination of Telemar services and maintenance revenues.
(3) Represents the elimination of payroll, taxes and benefits of $66,000
related to employees dedicated to Telemar, as well as the elimination of
$27,000 of direct license costs.
(4) Represents the elimination of payroll, taxes and benefits of $455,000
related to employees dedicated to Telemar, as well as $20,000 of outside
consulting costs and $45,000 of other direct costs related to Telemar.
(5) Represents the elimination of payroll, taxes and benefits of $466,000
related to employees dedicated to Telemar, as well as $295,000 of related
travel costs, $49,000 of advertising and promotional costs and $13,000 of
other direct costs related to Telemar.
(6) Represents the elimination of payroll, taxes and benefits of $1,002,000
related to employees dedicated to Telemar, as well as $68,000 of direct
costs used in the research and development efforts related to Telemar.
(7) Represents the elimination of $28,000 of legal costs, $69,000 of equipment
depreciation expense, $60,000 of provision for doubtful accounts and
$87,000 of other direct costs related to Telemar.
(8) Represents the elimination of the gain on sale of Telemar.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. The following discussion contains forward-looking statements and
the Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors," "Business" and elsewhere in this
Prospectus.
OVERVIEW
The Company develops, markets and supports customer interaction software
designed to increase the productivity and revenue-generating capabilities of
mid-size and large-scale telephone call centers. The Company currently derives
substantially all of its revenues from licensing its EDGE suite of products
and providing services related to the implementation, deployment and
maintenance of EDGE. The Company's predecessor, Information Management
Associates (the "Partnership"), was founded in 1984 as a partnership, with a
focus on information systems consulting and software development and released
its first software product, called Telemar, a telemarketing application for
IBM mid-range computers, at the end of 1985. The Partnership transferred
substantially all of its software assets to the Company in connection with the
Company's formation in 1990. In 1991 the Company acquired the EDGE software
and related assets from Coffman Systems, Inc. and made available its first
client/server open system product offering in the fourth quarter of that year.
Since the acquisition of EDGE, the Company has engaged in significant product
development efforts related to the EDGE architecture and product features. The
Company's EDGE software license fees increased from approximately $4.7 million
in 1994 to $8.4 million in 1995 and to $12.2 million in 1996, which
represented year-over-year growth of 77.9% from 1994 to 1995 and 45.6% from
1995 to 1996. The Company's EDGE software license fees also increased from
$2.4 million in the first quarter of 1996 to $3.8 million in the first quarter
of 1997 which represented year-over-year growth for such period of 55.2%. Due
to the substantial growth in EDGE software license fees and client/server open
system software market opportunities, the Company elected to focus exclusively
on its EDGE products and, in September 1996, sold Telemar and certain related
assets and liabilities to Telemar Software International LLC ("TSI"). The
Company maintains its principal office in Shelton, Connecticut and branch
offices in Irvine, California, Lisle, Illinois, Annapolis, Maryland and
Roswell, Georgia. The Company's subsidiary, Information Management Associates
Limited, maintains an office in London, England.
The Company realized operating losses in 1994 and 1995 which resulted
primarily from the Company's significant investments in product development
and increased services costs. The Company spent $6.1 million, $6.8 million and
$6.4 million on product development, representing 33.3%, 28.6% and 24.3% of
total revenues, in 1994, 1995 and 1996, respectively, primarily to enhance and
develop new components to the EDGE product line to support the complex
requirements of mid-size and large-scale call centers. The Company believes
that these investments have enhanced the competitiveness of its software
products and intends to continue to engage in substantial product development
activities for the foreseeable future. The Company expects that product
development expenses will increase, in absolute dollars, over time, although
the Company currently anticipates that such expenditures will remain the same
or decrease as a percentage of total revenues in the next two years. As a
result of investments in product development, growth in the client/server open
system software market and the sale of Telemar, the Company earned a small
operating profit in 1996 and in the first quarter of 1997.
The Company's revenue is derived from two sources: software license fees for
the use of the Company's software products, and services and maintenance fees
for implementation, consulting, support and training related to the Company's
software products. For all periods presented herein, the Company has
recognized license fee revenues in accordance with Statement of Position 91-1
entitled "Software
20
<PAGE>
Revenue Recognition" issued by the American Institute of Certified Public
Accountants. License fee revenues consist of revenues from initial licenses
for the Company's software products and license upgrades to existing customers
for additional users or modules. The Company recognizes initial license fee
revenues upon licensing and delivery of the software, if the software is not
subject to customer acceptance or post-delivery obligations. If the license is
subject to customer acceptance or post-delivery obligations, the license fee
revenues are deferred until customer acceptance has occurred or the post-
delivery obligations have been met.
The second component of the Company's revenues derives from professional
services associated with the implementation and deployment of the Company's
software products and maintenance fees for ongoing customer support. The
Company's professional consulting, technical support and maintenance services
include application development, systems integration, systems and database
design and construction and software training. The Company recognizes revenue
from professional services as such services are performed. Annual maintenance
fees are charged as a percentage of the license fee, and are recognized
ratably over the term of the maintenance agreement, which is usually twelve
months. The maintenance agreements are renewable at the discretion of the
customer and subject to change annually.
The Company markets its products in the United States through a direct sales
organization. The Company markets its products outside the United States in
Europe, the Pacific Rim, Canada, Mexico and Latin America through remarketing
and distribution relationships which it supplements with a direct sales force
in certain regions. The Company established sales and support operations in
the United Kingdom in 1990 to broaden its European distribution capabilities.
In 1996, United States and international revenues were approximately 74% and
26% of total revenues, respectively. See "Risk Factors--Risks Associated with
International Operations" and Note 15 of Notes to Consolidated Financial
Statements.
Although the Company has experienced significant growth in revenues during
the past three years, the Company does not believe prior growth is necessarily
indicative of future operating results. In addition, the Company expects
increased competition and intends to continue to invest in its business. The
Company believes that its existing working capital, operating activities and
business strategies will provide sufficient cash to fund its operations
through December 31, 1997. There can be no assurance that the Company will be
profitable on a quarterly or annual basis. Future operating results will
depend on many factors, including demand for the Company's products, the level
of product competition, competitor pricing, the size and timing of significant
orders, changes in pricing policies by the Company or its competitors, the
ability of the Company to develop, introduce and market new products on a
timely basis and changes in levels of operating expenses. See "Risk Factors--
History of Operating Losses; Uncertainty of Future Operating Results," "Risk
Factors--Rapid Technological Change" and "Risk Factors--Competition."
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues for certain
items in the Company's consolidated statement of operations data for the years
ended December 31, 1994, 1995 and 1996 and the three months ended March 31,
1996 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees:
EDGE product line......... 25.6% 35.2% 46.4% 40.2% 51.0%
Telemar product line...... 14.7 10.3 3.2 7.9 --
------- ------- ------- --------- ---------
Total license fees...... 40.3 45.5 49.6 48.1 51.0
------- ------- ------- --------- ---------
Services and maintenance:
EDGE product line......... 42.9 43.4 44.3 42.9 49.0
Telemar product line...... 16.8 11.1 6.1 9.0 --
------- ------- ------- --------- ---------
Total services and main-
tenance................ 59.7 54.5 50.4 51.9 49.0
------- ------- ------- --------- ---------
Total revenues........ 100.0 100.0 100.0 100.0 100.0
------- ------- ------- --------- ---------
Cost of revenues:
License fees................ 2.5 2.9 2.7 2.7 1.0
Services and maintenance.... 34.2 34.5 27.4 29.9 26.2
------- ------- ------- --------- ---------
Total cost of revenues.... 36.7 37.4 30.1 32.6 27.2
------- ------- ------- --------- ---------
Gross profit................. 63.3 62.6 69.9 67.4 72.8
------- ------- ------- --------- ---------
Operating expenses:
Sales and marketing......... 31.9 28.7 30.7 30.7 35.5
Product development......... 33.3 28.6 24.3 25.6 20.6
General and administrative.. 14.7 16.1 14.8 16.8 14.6
------- ------- ------- --------- ---------
Total operating expenses.. 79.9 73.4 69.8 73.1 70.7
------- ------- ------- --------- ---------
Operating income (loss)...... (16.6) (10.8) 0.1 (5.7) 2.1
Other income (expense)....... (5.0) (4.6) (4.1) (4.6) (3.4)
------- ------- ------- --------- ---------
Loss before provision for in-
come taxes.................. (21.6) (15.4) (4.0) (10.3) (1.3)
Provision for income taxes... 0.7 0.4 -- -- 1.2
------- ------- ------- --------- ---------
Net loss..................... (22.3)% (15.8)% (4.0)% (10.3)% (2.5)%
======= ======= ======= ========= =========
</TABLE>
The following table sets forth for each component of revenue, the cost of
such revenue expressed as a percentage of such revenue for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cost of license fees.... 6.2% 6.5% 5.4% 5.7% 1.9%
Cost of services and
maintenance ........... 57.2 63.3 54.3 57.7 53.4
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Revenues
Total revenues increased 22.5% from $6.1 million in the first quarter of
1996 to $7.5 million in the first quarter of 1997.
22
<PAGE>
License Fees. Total license fees increased 29.8% from $2.9 million, or 48.1%
of total revenues, in the first quarter of 1996 to $3.8 million, or 51.0% of
total revenues, in the first quarter of 1997. EDGE license fees increased
55.2% from $2.4 million in the first quarter of 1996 to $3.8 million in the
first quarter of 1997. The increase in EDGE license fees was primarily
attributable to increased market awareness and acceptance of the EDGE
products, increased productivity resulting from focusing solely on the EDGE
product line, and expansion of the Company's sales and marketing organization.
Telemar license fees decreased from $500,000 in the first quarter of 1996 to
$0 in the first quarter of 1997 due to the sale of the Telemar product line in
September 1996.
Services and Maintenance. Services and maintenance revenues increased 15.6%
from $3.2 million, or 51.9% of total revenues, in the first quarter of 1996 to
$3.7 million, or 49.0% of total revenues, in the first quarter of 1997. EDGE
services and maintenance revenues increased 39.9% from $2.6 million in the
first quarter of 1996 to $3.7 million in the first quarter of 1997. The
increase in EDGE services and maintenance revenues was primarily attributable
to the significant increase in EDGE software licenses in the fourth quarter of
1996 and the first quarter of 1997. Telemar services and maintenance revenues
decreased from $500,000 in the first quarter of 1996 to $0 in the first
quarter of 1997 due to the sale of the Telemar product line in September 1996.
Cost of Revenues
Cost of revenues increased 1.8% from $1.99 million in the first quarter of
1996 to $2.02 million in the first quarter of 1997.
Cost of License Fees. Cost of license fees is comprised of the costs of
media packaging, documentation, third party software and software production
personnel. Cost of license fees decreased 57.2% from $166,000, or 5.7% of
total license fees, in the first quarter of 1996 to $71,000, or 1.9% of total
license fees, in the first quarter of 1997. The higher cost of license fees in
1996 was attributable to the cost of other vendors' products resold by the
Company in connection with the Telemar product line.
Cost of Services and Maintenance. The cost of services and maintenance
consists of salaries, wages, benefits and other costs related to installation,
implementation, training, and maintenance support of the Company's software
products. The cost of services and maintenance increased 7.1% from $1.8
million, or 57.7% of services and maintenance revenues, in the first quarter
of 1996 to $2.0 million, or 53.4% of services and maintenance revenues, in the
first quarter of 1997. The improvement in services and maintenance margin was
primarily due to higher productivity from the Company's client services
organization.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
commissions, salaries, bonuses and other related expenses for sales and
marketing personnel, as well as marketing, advertising and promotional
expenses. Sales and marketing expenses increased 41.5% from $1.9 million, or
30.7% of total revenues, in the first quarter of 1996 to $2.6 million, or
35.5% of total revenues, in the first quarter of 1997. This increase was
primarily attributable to the hiring of additional sales and marketing
personnel, increased print advertisements for participation in trade shows,
travel expenses and other sales and marketing expenses. Sales and marketing
expenses are expected to continue to increase in connection with continued
expansion of the sales and marketing staff during the remainder of 1997.
Product Development. Product development expenses consist primarily of
salaries, bonuses, other related personnel expenses and consulting fees, as
well as the cost of facilities and equipment. Costs related to product
development are expensed as incurred. Product development expenses decreased
1.4% from $1.6 million, or 25.6% of total revenues, in the first quarter of
1996 to $1.5 million, or 20.6% of total revenues, in the first quarter of
1997. The reduction of product development expenses was attributable to the
sale of the Telemar product line in September 1996, after which no Telemar
product development expenses were incurred.
23
<PAGE>
General and Administrative. General and administrative expenses represent
the costs of executive, finance and administrative support personnel, the
portion of occupancy expenses allocable to administration, unallocated
corporate expenses such as fees for legal and auditing services and bad debt
expense. The Company's general and administrative expenses increased 6.6% from
$1.0 million, or 16.8% of total revenues, in the first quarter of 1996 to $1.1
million, or 14.6% of total revenues, in the first quarter of 1997. The 6.6%
increase in general and administrative expenses was primarily attributable to
an increase in personnel costs incurred in connection with additions to the
Company's accounting and legal staff to support higher business volume.
Other Income (Expense)
Interest Expense. Interest expense consists of interest on debt and
equipment financing less interest earned on cash, notes receivable from
officers and the promissory note entered into in connection with the sale of
Telemar. Net interest expense decreased 8.5% from $281,000 in the first
quarter of 1996 to $257,000 in the first quarter of 1997. The reduction in net
interest expense was primarily due to higher interest income of $38,000 netted
against an increase in interest expense of $17,000.
Provision for Income Taxes. Provision for income taxes consists of foreign
and state income and withholding taxes. The increase in provision for income
taxes is primarily attributable to an increase in international withholding
taxes. At March 31, 1997, the Company had approximately $8.5 million of
U.S. Federal net operating loss carryforwards and approximately $2.0 million
of state net operating loss carryforwards, which can be used, subject to
certain limitations, to offset future taxable income. The U.S. Federal net
operating loss carryforwards expire through 2011 and the state net operating
loss carryforwards expire through 2001. The Company believes the sale of
Common Stock by the Company and the Selling Shareholders in this offering may
cause an annual limitation on the use of its net operating loss carryforwards
pursuant to the "change in control" provisions of Section 382 of the Internal
Revenue Code. However, the Company does not anticipate that the limitation
will materially impact its utilization of its net operating loss carryforwards
in the near term.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues
Total revenues increased 10.4% from $23.8 million in 1995 to $26.3 million
in 1996.
License Fees. Total license fees increased 20.3% from $10.8 million, or
45.5% of total revenues, in 1995 to $13.0 million, or 49.6% of total revenues,
in 1996. EDGE license fees increased 45.6% from $8.4 million in 1995 to $12.2
million in 1996. The increase in EDGE license fees was primarily attributable
to an increase in the average size of customer licenses, increased market
awareness and acceptance of the EDGE products, and increased productivity
resulting from expansion of the Company's sales and marketing organization.
Telemar license fees decreased 65.7% from $2.5 million in 1995 to $842,000 in
1996. The decrease in Telemar license fees was due to a decrease in demand for
Telemar software and the sale of the Telemar product line in September 1996.
Services and Maintenance. Services and maintenance revenues increased 2.1%
from $13.0 million, or 54.5% of total revenues, in 1995 to $13.3 million, or
50.4% of total revenues, in 1996. EDGE services and maintenance revenues
increased 12.6% from $10.3 million in 1995 to $11.6 million in 1996. The
increase in EDGE services and maintenance revenue of $1.3 million was
primarily attributable to the significant increase in EDGE software licenses,
all of which involved a consulting services component, offset in part by the
substantial completion of several service projects in 1995. Telemar services
and maintenance revenues decreased 39.0% from $2.6 million in 1995 to $1.6
million in 1996. The decrease
24
<PAGE>
in Telemar services and maintenance revenue was due to decreased demand for
Telemar software and the sale of the Telemar product line on September 1,
1996.
Cost of Revenues
Cost of revenues decreased 11.5% from $8.9 million in 1995 to $7.9 million
in 1996.
Cost of License Fees. Cost of license fees increased 1.3% from $700,000, or
6.5% of total license fees, in 1995 to $709,000, or 5.4% of total license
fees, in 1996.
Cost of Services and Maintenance. The cost of services and maintenance
decreased 12.6% from $8.2 million, or 63.3% of services and maintenance
revenues, in 1995 to $7.2 million, or 54.3% of services and maintenance
revenues, in 1996. The improvement in services and maintenance margin was
primarily due to a reduction in the cost of subcontractors used to supplement
the Company's internal client services organization from $2.5 million in 1995
to $500,000 in 1996, offset in part by an increase in personnel costs of $1.1
million from 1995 to 1996. In 1995, approximately $650,000 of the $2.5 million
of subcontractor costs was attributable to third party subcontractor fees for
services provided in connection with a customer installation pursuant to the
terms of a fixed price services contract entered into in December 1993 for
which no corresponding revenue was realized. Since 1993 the Company has not
entered into any large fixed price contracts.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 17.7% from $6.8
million, or 28.7% of total revenues, in 1995 to $8.1 million, or 30.7% of
total revenues, in 1996. This increase was primarily attributable to the
hiring of additional sales and marketing personnel as well as increased print
advertising, participation in trade shows, travel expenses and other sales and
marketing expenses. Sales and marketing expenses are expected to continue to
increase in connection with the planned expansion of the sales and marketing
staff.
Product Development. Product development expenses decreased 6.2% from $6.8
million, or 28.6% of total revenues, in 1995 to $6.4 million, or 24.3% of
total revenues, in 1996. The reduction of product development expenses in
absolute dollars was primarily attributable to the sale of the Telemar product
line on September 1, 1996, after which no Telemar product development expenses
were incurred. The absolute dollar amount of product development expenses
related to EDGE increased from $5.1 million in 1995 to $5.3 million in 1996,
although the amount of such investment as a percentage of EDGE revenues
declined slightly.
General and Administrative. The Company's general and administrative
expenses increased from $3.8 million, or 16.1% of revenues, in 1995 to $3.9
million, or 14.8% of revenues, in 1996. The relatively consistent expense
levels from 1995 to 1996 reflect primarily an increase in personnel costs
offset by a decrease in the provision for doubtful accounts.
Other Income (Expense)
Interest Expense. Interest expense increased 53.3% from $764,000 in 1995 to
$1,171,000 in 1996 primarily as a result of the accrual of interest on the
Term Note of $391,000 and interest paid on monies borrowed from certain
executive officers of $110,000 offset by a reduction in the principal amounts
outstanding under capital leases and subordinated indebtedness.
Other Items. The Company incurred expenses of $113,000 in 1995 in connection
with losses relating to the disposal of certain office equipment and the sale
of an office building in Trumbull, Connecticut, which had been leased by the
Company and with respect to which the Company had guaranteed the repayment of
a mortgage loan. See "Certain Transactions." In 1996, the Company realized
25
<PAGE>
a gain of $92,000 in connection with the sale of Telemar and certain related
assets and liabilities to TSI. In connection with the sale of Telemar, the
Company received a promissory note from TSI in the principal amount of
$650,000 (the "TSI Note") payable in five equal annual installments commencing
October 1997 and which bears interest at 8.0% per annum. The Company has fully
reserved for the TSI Note because collectibility, based on the start-up nature
of TSI operations, was not ascertainable at the time of sale. The Company will
recognize gain in an amount equal to payments on the TSI Note as such
payments, if any, are received. The Company incurred a one-time expense of
$223,000 in 1995 in connection with its early termination of an office lease
in Fountain Valley, California because space available at the premises no
longer met the Company's needs.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues
Total revenues increased 29.7% from $18.4 million in 1994 to $23.8 million
in 1995.
License Fees. Total license fees increased 46.4% from $7.4 million, or 40.3%
of total revenues, in 1994 to $10.8 million, or 45.5% of total revenues, in
1995. EDGE license fees increased 77.9% from $4.7 million in 1994 to $8.4
million in 1995. The increase in EDGE license fees was primarily attributable
to an increase in the average size of customer licenses, increased market
awareness and acceptance of the EDGE products, and increased productivity
resulting from expansion of the Company's sales and marketing organization.
Telemar license fees decreased 8.7% from $2.7 million in 1994 to $2.5 million
in 1995.
Services and Maintenance. Services and maintenance revenues increased 18.5%
from $11.0 million, or 59.7% of total revenues, in 1994 to $13.0 million, or
54.5% of total revenues, in 1995. EDGE services and maintenance revenues
increased 31.4% from $7.9 million in 1994 to $10.3 million in 1995 due to the
continuation of several large projects involving significant service
components contracted for in 1994 together with the addition of new services
and maintenance contracts. Telemar services and maintenance revenues decreased
14.4% from $3.1 million in 1994 to $2.6 million in 1995. The decrease in
Telemar services and maintenance revenues was primarily attributable to
decreased licensing of Telemar software products.
Cost of Revenues
Cost of revenues increased 32.6% from $6.7 million in 1994 to $8.9 million
in 1995.
Cost of License Fees. Cost of license fees increased 51.5% from $462,000, or
6.2% of total license fees, in 1994 to $700,000, or 6.5% of total license
fees, in 1995.
Cost of Services and Maintenance. The cost of services and maintenance
increased 31.2% from $6.3 million, or 57.2% of services and maintenance
revenues, in 1994 to $8.2 million, or 63.3% of services and maintenance
revenues, in 1995. The increase in cost of services and maintenance in 1995
was due to significant use of subcontractors to assist with several large
projects involving significant customer service components as well as the
hiring of additional services personnel to meet increased service demands
associated with large software licenses requiring extensive consulting and
systems integration services. In 1995, the Company incurred costs of
approximately $650,000 for third party subcontractor fees for services
provided in connection with a customer installation pursuant to the terms of a
fixed price services contract entered into in December 1993 without realizing
any corresponding revenue.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased 16.9% from $5.9
million, or 31.9% of total revenues, in 1994 to $6.8 million, or 28.7% of
total revenues, in 1995. This increase was primarily attributable to the
hiring of additional sales and marketing personnel.
26
<PAGE>
Product Development. Product development expenses increased 11.4% from $6.1
million, or 33.3% of total revenues, in 1994 to $6.8 million, or 28.6% of
total revenues, in 1995. The increase in product development expenses was
primarily attributable to an increase in product development personnel hired
in connection with the Company's efforts to enable its products to support the
complex requirements of mid-size and large-scale call centers.
General and Administrative. The Company's general and administrative
expenses increased 42.0% from $2.7 million, or 14.7% of total revenues, in
1994 to $3.8 million, or 16.1% of total revenues, in 1995. The increase in
general and administrative expenses in 1995 was primarily attributable to an
increase in rental payments of $250,000, an increase of $260,000 in expenses
for outside legal and auditing services utilized to support the growth of the
Company, and an increase of $389,000 in the provision for doubtful accounts.
Other Income (Expense)
Interest Expense. Interest expense increased 23.4% from $619,000 in 1994 to
$764,000 in 1995. This increase in interest expense is attributable to
increased borrowings under the Line of Credit and borrowing under the Term
Note.
Other Items. The Company incurred losses associated with the disposal of
property and equipment of $298,000 in 1994 and $113,000 in 1995. The entire
amount of such loss in 1994 and $78,000 of such loss in 1995 was attributable
to the sale of an office building in Trumbull, Connecticut which had been
leased by the Company and with respect to which the Company had guaranteed the
repayment of a mortgage loan. See "Certain Transactions." The balance of the
expense incurred in 1995 was related to the disposal of equipment. The Company
incurred a one-time expense of $223,000 in 1995 in connection with its early
termination of an office lease in Fountain Valley, California because space
available at the premises no longer met the Company's needs.
27
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table presents certain unaudited quarterly financial
information for the nine quarters ended March 31, 1997. In the opinion of the
Company's management, this information has been prepared on the same basis as
the Consolidated Financial Statements appearing elsewhere in this Prospectus
and includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial results set forth herein. Results of
operations for any previous quarters are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
1995 1995 1995 1995 1996 1996 1996 1996 1997
------- ------- -------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees:
EDGE product line...... $ 902 $2,134 $2,350 $2,982 $2,449 $2,937 $2,409 $4,385 $3,802
Telemar product line... 572 749 419 717 480 321 42 -- --
------- ------ ------ ------ ------ ------ ------ ------ ------
Total license fees.... 1,474 2,883 2,769 3,699 2,929 3,258 2,451 4,385 3,802
------- ------ ------ ------ ------ ------ ------ ------ ------
Services and
maintenance:
EDGE product line...... 1,671 2,560 3,009 3,102 2,612 2,813 2,970 3,248 3,654
Telemar product line... 784 748 532 578 548 624 439 -- --
------- ------ ------ ------ ------ ------ ------ ------ ------
Total services and
maintenance.......... 2,455 3,308 3,541 3,680 3,160 3,437 3,409 3,248 3,654
------- ------ ------ ------ ------ ------ ------ ------ ------
Total revenues....... 3,929 6,191 6,310 7,379 6,089 6,695 5,860 7,633 7,456
------- ------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
License fees........... 148 173 292 87 166 186 289 68 71
Services and
maintenance........... 1,720 1,992 2,187 2,326 1,822 1,811 1,842 1,716 1,952
------- ------ ------ ------ ------ ------ ------ ------ ------
Total cost of
revenues.............. 1,868 2,165 2,479 2,413 1,988 1,997 2,131 1,784 2,023
------- ------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 2,061 4,026 3,831 4,966 4,101 4,698 3,729 5,849 5,433
------- ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing.... 1,540 1,661 1,455 2,188 1,872 1,964 1,793 2,426 2,648
Product development.... 1,642 1,526 1,851 1,783 1,553 1,741 1,471 1,617 1,532
General and
administrative........ 807 1,017 1,030 970 1,024 961 1,008 885 1,092
------- ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 3,989 4,204 4,336 4,941 4,449 4,666 4,272 4,928 5,272
------- ------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. (1,928) (178) (505) 25 (348) 32 (543) 921 161
Other income (expense). (231) (497) (174) (198) (281) (301) (164) (333) (257)
------- ------ ------ ------ ------ ------ ------ ------ ------
Loss before provision
for income taxes...... (2,159) (675) (679) (173) (629) (269) (707) 588 (96)
Provision for income
taxes................. 25 25 25 25 -- 30 -- -- 90
------- ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $(2,184) $ (700) $ (704) $ (198) $ (629) $ (299) $ (707) $ 588 $ (186)
======= ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
1995 1995 1995 1995 1996 1996 1996 1996 1997
------- ------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL
REVENUES:
Revenues:
License fees
EDGE product line...... 23.0% 34.5% 37.3% 40.4% 40.2% 43.9% 41.1% 57.4% 51.0 %
Telemar product line... 14.5 12.1 6.6 9.7 7.9 4.8 0.7 -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
Total license fees.... 37.5 46.6 43.9 50.1 48.1 48.7 41.8 57.4 51.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Services and mainte-
nance:
EDGE product line...... 42.5 41.4 47.7 42.1 42.9 42.0 50.7 42.6 49.0
Telemar product line... 20.0 12.0 8.4 7.8 9.0 9.3 7.5 -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
Total services and
maintenance.......... 62.5 53.4 56.1 49.9 51.9 51.3 58.2 42.6 49.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
License fees........... 3.8 2.8 4.6 1.2 2.7 2.8 4.9 0.9 1.0
Services and mainte-
nance................. 43.7 32.2 34.7 31.5 29.9 27.0 31.5 22.5 26.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Total cost of reve-
nues................. 47.5 35.0 39.3 32.7 32.6 29.8 36.4 23.4 27.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 52.5 65.0 60.7 67.3 67.4 70.2 63.6 76.6 72.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing.... 39.2 26.8 23.1 29.7 30.7 29.3 30.6 31.8 35.5
Product development.... 41.8 24.6 29.3 24.2 25.6 26.0 25.1 21.2 20.6
General and
administrative........ 20.6 16.5 16.3 13.1 16.8 14.4 17.2 11.5 14.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 101.6 67.9 68.7 67.0 73.1 69.7 72.9 64.5 70.7
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income
(loss)................. (49.1) (2.9) (8.0) 0.3 (5.7) 0.5 (9.3) 12.1 2.1
Other income (expense).. (5.8) (8.0) (2.8) (2.7) (4.6) (4.5) (2.8) (4.4) (3.4)
----- ----- ----- ----- ----- ----- ----- ----- -----
Loss before provision
for income taxes....... (54.9) (10.9) (10.8) (2.4) (10.3) (4.0) (12.1) 7.7 (1.3)
Provision for income
taxes.................. 0.7 0.4 0.4 0.3 -- 0.5 -- -- 1.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (55.6)% (11.3)% (11.2)% (2.7)% (10.3)% (4.5)% (12.1)% 7.7% (2.5)%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The following table sets forth, for each component of revenue, the cost of
such revenue expressed as a percentage of such revenue for the periods
indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
1995 1995 1995 1995 1996 1996 1996 1996 1997
------- ------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of license fees.... 10.0% 6.0% 10.5% 2.4% 5.7% 5.7% 11.8% 1.6% 1.9%
Cost of services and
maintenance............ 70.1 60.2 61.8 63.2 57.7 52.7 54.0 52.8 53.4
</TABLE>
The Company's quarterly operating results have varied significantly in the
past and may vary significantly in the future, depending on factors such as
the ability of the Company to develop, introduce and market new and enhanced
versions of the Company's products on a timely basis, the size, timing and
contractual terms of significant orders, the level of price and product
competition, demand for the Company's products and changes in pricing policies
by the Company or its competitors. In addition, the Company's quarterly
operating results are dependent on factors such as budgeting cycles of its
potential customers, customer order deferrals in anticipation of enhancements
or new products, the cancellation or non-renewal of licenses or maintenance
agreements, product life cycles, changes in Company strategy, investments to
develop sales distribution channels, seasonal trends, changes in the level of
operating expenses and general domestic and international economic and
political conditions, among others.
29
<PAGE>
The Company's business has experienced and is expected to experience
significant seasonality, in part due to customer buying patterns. In recent
years, the Company has generally had stronger demand for its products during
the quarters ending in June and December and weaker demand in the quarters
ending in March and September. The Company has generally recorded 50% to 70%
of its total quarterly revenues in the third month of a quarter, with a
concentration of the revenues in the last half of the third month. The Company
has also experienced a seasonal trend in its revenues whereby its fiscal
fourth quarter revenues represented a disproportionate part of the Company's
annual revenues.
The Company's EDGE license fees increased for the first quarter of 1997
compared to the first quarter of 1996 and for each of the four quarters of
1996 from the comparable periods in 1995, with the highest increase in the
first quarter of 1996 and the lowest increase in the third quarter. In the
first quarter of 1997 EDGE license fees increased by 55.2% from the first
quarter of 1996. In addition, EDGE license fees for the first quarter of 1996
increased by 171.5% from the first quarter of 1995, resulting primarily from a
license to a significant customer; however, total revenue from such customer
represented less than 10% of 1996 revenues. The increase of 2.5% in the third
quarter of 1996 compared to 1995 reflected the timing of certain orders which
were delayed to the fourth quarter of 1996 and a significant international
license in the third quarter of 1995.
EDGE services and maintenance revenues increased for the first quarter of
1997 compared to the first quarter of 1996, and for each of the quarters of
1996 from the comparable periods in 1995, except for the third quarter of
1996, which decreased slightly from the third quarter of 1995, primarily as a
result of a significant service engagement during the third quarter of 1995.
Sales and marketing expenses increased for the first quarter of 1997
compared to the first quarter of 1996, and in each quarter of 1996 over the
comparable periods in 1995, reflecting expansion of the Company's sales and
marketing organization. The lower sales and marketing expenses in the third
quarter of each of 1995 and 1996 reflect lower commissions associated with
lower license fees and services and maintenance revenues for such periods.
Product development expenses were lower in each quarter of 1996 than in the
comparable periods in 1995 except for the second quarter, and were also lower
for the first quarter of 1997 compared to the first quarter of 1996. The lower
costs in the third and fourth quarters of 1996 and first quarter of 1997 were
primarily attributable to the sale of Telemar on September 1, 1996. The
expenses in the second quarter of 1996 included fees paid to independent
contractors retained to assist the Company's internal staff with specific
development projects.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and met its capital expenditure
requirements primarily from proceeds of private sales of its Convertible
Preferred Stock and Common Stock and from funds obtained from a credit
facility with a commercial bank. Through March 31, 1997, the Company has
raised approximately $14.5 million from the sale of its Convertible Preferred
Stock, warrants and Common Stock. The Company's credit facility consists of a
$6.0 million Line of Credit and a $2.5 million Term Note. Borrowings under the
Line of Credit are limited to 75% of qualified accounts receivable, as defined
in the Loan and Security Agreement. The Line of Credit had an outstanding
balance of approximately $4.9 million at March 31, 1997. Advances under the
Line of Credit bear interest at a variable rate equal to the prime rate plus
1.0%. The Line of Credit terminates on February 1, 1998. Upon the closing of
this offering, the Company is required to repay the outstanding principal
balance of and accrued interest on the Line of Credit and the Term Note. The
Company, however, will be permitted to continue to borrow amounts under the
Line of Credit through February 1, 1998. The Term Note is payable in equal
monthly installments of $41,667, commencing November 1, 1997 through October
2002 and bears interest at 11.0%, payable on a current basis, and accrues
additional interest based upon a formula which approximates 9.0%. As of March
31, 1997, the balance of accrued interest was $319,000. This additional
interest is payable at the earlier of November 1, 1998 or the full repayment
of the Term Note.
30
<PAGE>
During 1996, the Company was in violation of the financial covenants in the
Loan and Security Agreement relating to tangible net worth and capital
expenditures, as well as certain other non-financial covenants, all of which
violations were waived by the Bank through December 31, 1996. In addition to
such waivers, the Company and the Bank have amended the Loan and Security
Agreement to amend or eliminate certain covenants and to extend the maturity
date of the Line of Credit to February 1, 1998. The Company is currently in
compliance with the covenants in the Loan and Security Agreement and does not
believe that the covenants in the Loan and Security Agreement, as amended,
will have a material effect on the Company's operations, growth or liquidity
in the foreseeable future.
At March 31, 1997, the Company had approximately $2.5 million in cash and
approximately $12.4 million in accounts receivable. For the three years ended
December 31, 1994, 1995 and 1996, net cash used in operations totaled
approximately $3.3 million, $1.9 million and $3.3 million, respectively, while
net cash of $201,000 was provided by operations for the three months ended
March 31, 1997. The 1994, 1995 and 1996 cash used was primarily attributable
to net losses of $4.1 million, $3.8 million and, $1.0 million, respectively,
offset by depreciation, amortization and other non-cash charges of $1.1
million, $1.1 million and $1.1 million, respectively. In addition, changes in
operating assets and liabilities used $333,000 and $3.3 million of cash in
1994 and 1996, respectively, and provided $824,000 of cash in 1995. The
fluctuations in operating assets and liabilities were due primarily to the
timing of operating activities, including the timing of orders, collections of
accounts receivable and the payment of accounts payable. Cash provided by
operations was $201,000 for the first quarter of 1997 as a result of a net
loss of $186,000, offset by depreciation, amortization and other non-cash
charges of $345,000 and cash provided by changes in operating assets and
liabilities of $42,000.
For the past three fiscal years and the first quarter of the current fiscal
year, the Company's primary investing activities consisted of purchases of
computer and office equipment to support the Company's expanding employee
base. The Company used approximately $1.0 million in each of fiscal 1994, 1995
and 1996, and $556,000 in the first quarter of 1997 to purchase computer and
office equipment. During 1994 and 1995, the Company financed $851,000 and
$113,000, respectively, of computer and office equipment acquisitions through
capital leases and, in 1996, the Company entered into a sale/leaseback
transaction with respect to certain computer equipment which was reflected as
a debt obligation of $509,000. The Company currently has no significant
capital spending or purchase commitments other than existing commitments under
certain capital leases, but expects to continue to engage in capital spending
in the ordinary course of business.
In 1994, 1995 and 1996, net cash provided by financing activities was
approximately $3.4 million, $3.3 million and $5.8 million, respectively. Cash
from financing activities was primarily attributable to approximately $1.1
million, $4.5 million and $4.5 million, respectively, of net cash proceeds
from the sale of the Company's Common Stock and Convertible Preferred Stock in
1994, 1995 and 1996, respectively, and $1.2 million and $1.3 million,
respectively, of net proceeds from long-term indebtedness and short-term bank
borrowings in 1994 and 1996. See "Certain Transactions."
The Company anticipates that proceeds from this offering together with
existing sources of working capital will be sufficient to meet the Company's
projected working capital and other cash requirements for the next eighteen
months. The Company's future operating and capital requirements will depend on
numerous factors, including the Company's internal research and development
programs, the level of resources the Company devotes to marketing and sales
capabilities, advances in technology and the successful development and
introduction of new products. In order to meet these requirements, the Company
may need to sell additional equity or debt securities or obtain additional
credit facilities. There can be no assurance that any necessary additional
financing will be available to the Company on commercially reasonable terms,
or at all. In addition, there are no present undertakings, commitments or
agreements with respect to any acquisitions of businesses, products or
technologies. The Company, from time to time, does however evaluate potential
acquisitions of other businesses, products and technologies
31
<PAGE>
that are complementary to those of the Company, and may in the future require
additional equity or debt financings to consummate such acquisitions.
Effect of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which establishes new standards for computing and
presenting earnings per share. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997 and earlier
application is not permitted. The Company has not quantified the effect of
adopting the new standard.
32
<PAGE>
BUSINESS
THE COMPANY
The Company develops, markets and supports customer interaction software
designed to increase the productivity and revenue-generating capabilities of
mid-size to large-scale telephone call centers. The EDGE TeleBusiness software
is a suite of applications and tools that enable businesses to automate
telebusiness activities (telemarketing, telesales, account management,
customer service and customer support) on an enterprise-wide basis. The
Company complements its EDGE products by offering its clients professional
consulting, technical support and maintenance services. EDGE has been licensed
to over 175 customers in a range of industries, including teleservices
outsourcing, telecommunications and financial services. Customers include APAC
Teleservices, Inc., AT&T Corp., Belgacom, S.A., Bose Corporation, ING Bank,
N.V., SITEL Corporation, Sprint PCS, United Parcel Service General Services
Co. and Wells Fargo Bank, N.A. See "Risk Factors--Product Concentration."
The Company's EDGE products are designed to provide superior functionality,
flexibility, integration, scalability and speed of deployment. Based upon an
open systems software architecture, EDGE supports multiple hardware platforms,
operating environments, database management systems, network topologies,
desktop standards, and legacy system and computer-telephony middleware.
Additionally, the Company has developed and is currently testing software
which will enable EDGE to support the Internet and corporate-based intranets.
The Company's products provide call center agents with real-time data and
guidance needed to manage increasingly complex processes for selling products
and servicing customers. For example, EDGE offers scripting to support order-
taking, cross-selling and up-selling, enables agents to track and resolve
customer service problems and facilitates the collection of valuable customer
information that can be disseminated on an enterprise-wide basis. The
Company's professional consulting, technical support and maintenance services
include application development, systems integration, systems and database
design and construction and software training. The Company believes that these
services significantly differentiate the Company from its competitors and
complement its EDGE products to provide a total solution for mid-size and
large-scale call centers.
Until September 1996, the Company developed, marketed and supported a
telemarketing and telesales automation software application called Telemar
which runs on the IBM AS/400 platform. Over the last five years, the Company
has increasingly focused on its EDGE products. Due to the substantial growth
in EDGE software license fees and client/server open system software market
opportunities, the Company elected to focus exclusively on its EDGE products
and sold Telemar and certain related assets and liabilities on September 1,
1996. Currently, substantially all of the Company's revenues are attributable
to the licensing of EDGE products and the provision of professional
consulting, technical support and maintenance services relating to EDGE. The
Company currently expects that the licensing of EDGE products and the
provision of such related services will account for substantially all of the
Company's revenues for the foreseeable future.
INDUSTRY BACKGROUND
Competitive pressures have intensified across many industries as a result of
increased global competition, deregulation, rapid technological change and
higher customer expectations. Businesses are expanding their use of telephony-
based customer interaction, from initial sales and marketing activities to
post-sales service and support, as a key component of their competitive
efforts to increase sales, reduce costs, enhance customer service, distinguish
their products and services and receive and process valuable customer
information. Effective customer interaction can increase revenue, build
customer loyalty and improve customer acquisition and retention while reducing
costs.
In recent years, telephony-based customer interaction has become a strategic
business weapon driven by decreased telecommunications costs associated with
deregulation, the proliferation of toll-free 800 numbers and the introduction
of new computing and telecommunications technologies, all of which have
enabled businesses to develop an efficient and interactive communications
medium with its existing and prospective customers. In a May 1996 research
report, the Aberdeen Group, Inc., an independent market
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research firm, projected that the market for sales and customer support
software will grow at an average annual compounded rate of approximately 40%,
from $400 million in 1995 to $1.7 billion in 1999.
High-volume, telephony-based customer interaction activities are conducted
through call centers that are typically designed and equipped with special
telecommunications and computer hardware and software. Common examples of call
centers are the customer service or sales centers for outbound and inbound
telemarketing, telesales, account management, customer service and support.
Call centers can range in size from tens to thousands of sales or service
agents. The Company defines small, mid-size and large-scale call centers based
upon the number of agents dedicated to telephony-based activities in the call
center. Small call centers typically have up to 50 agents, while mid-size call
centers have from 50 to 250 agents and large-scale centers over 250 agents.
Initial applications of technology for call centers were primarily
telephony-based and included such devices as high capacity telephone switches,
predictive dialers, automatic call distributors and interactive voice response
units. These technologies offered point solutions addressing only certain
functions of call center management and the customer interaction process. As
call centers progressed, organizations implemented solutions based on software
used with legacy systems in an effort to improve the effectiveness and
efficiency of call centers and customer interaction processes. These solutions
were typically internally developed and mainframe-based and as such, were
generally inflexible, expensive to maintain and difficult to deploy throughout
a decentralized organization. Moreover, these systems did not fully integrate
and leverage improvements in telephony technology, resulting in technology
infrastructures that could not provide comprehensive customer interaction and
call center management throughout the organization and across business
processes.
Enterprises are seeking to exploit emerging technologies to improve the
effectiveness and efficiency of their telebusiness operations. Distributed
client/server computing environments have become increasingly commonplace,
built upon a foundation of relational database platforms, object-oriented
technology and wide deployment of network solutions. Customer interaction
software solutions today must leverage emerging technology and offer the
functionality necessary to support the broad spectrum of call center and
customer interaction functions and integrate these functions with other
business processes in the organization. Additionally, businesses are seeking
customer interaction solutions which can be deployed and updated rapidly
throughout the organization, are scalable to meet the needs of growing
businesses, and seamlessly integrate and leverage telephony technology. Call
center customer interaction solutions will also need to support and
incorporate emerging customer interaction channels and computing platforms,
such as the Internet and corporate-based intranets.
THE IMA SOLUTION
The EDGE suite of software applications and tools, coupled with the
Company's comprehensive service offerings, represent a total solution designed
to enable businesses to increase their productivity and revenue-generating
capabilities by improving the effectiveness of their interaction with
customers through telephone call centers.
The IMA solution incorporates five design tenets: functionality,
flexibility, integration, scalability and speed of deployment.
Functionality. Customer calls are often three to five minute events which,
when handled effectively, can have a dramatic impact on a business's ability
to acquire and retain customers. The Company's products are designed to enable
the user to more effectively manage the telephone conversation with the
customer before, during and after the call by automating numerous call center
activities, providing real-time access to customer information, and providing
features such as intelligent scripting, contact management, time management,
work flow management, voice/data management and other conversation management
aids. In addition, EDGE provides comprehensive call center reporting tools
which enable managers and supervisors to efficiently and effectively manage
call center agents and marketing campaigns.
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Flexibility. EDGE includes an integrated development environment that
enables a business to rapidly develop or change applications relating to
specific sales, marketing or service activities without disrupting live
operations. EDGE allows a call center manager to tailor scripts, screen
displays and workflow processes. The ability to change applications allows
clients to adapt call center operations quickly in response to changing
business needs such as new product sales or marketing campaigns, special
customer service programs or crisis management events.
Integration. EDGE is designed to integrate seamlessly with other
technologies to improve call center productivity. With its component-based
open architecture, EDGE can be integrated with a wide variety of computer and
telephony-based technologies and products, including telephony devices (voice
response units, predictive dialers, automatic call distributors and private
branch exchange technology), relational databases, legacy systems, other
third-party desktop applications and facsimile technology.
Scalability. The Company's products are scalable from small single-site
departmental networks to multi-site global implementations without
significantly increasing the risk of system degradation. EDGE has been
deployed in client configurations consisting of more than 1,000 users handling
over 1,000,000 calls per month.
Speed of Deployment. The EDGE integrated development environment allows
businesses to rapidly develop and deploy call center customer interaction
software solutions on an enterprise-wide basis. The ability to swiftly develop
and deploy applications enables the Company's clients to implement sales,
marketing and service programs quickly in response to changes in the business
environment.
STRATEGY
The Company's objective is to become the global leader in providing
flexible, technologically advanced, feature-rich customer interaction software
and services to mid-size and large-scale call centers. To achieve this
objective, the Company is pursuing the following strategies:
Target Specific Industries
The Company has established particular expertise in the teleservices
outsourcing, telecommunications and financial services industries, and has
developed client relationships in several other industries which it believes
in time will become specific areas of focus. The Company believes that it can
utilize its knowledge of the business processes and requirements of selected
industries to focus its marketing efforts, improve its services and increase
the speed and productivity of its research and development efforts targeted at
these industries.
Extend Call Center Technology Leadership
The Company provides technologically advanced customer interaction software
products that are designed to meet and exceed the complex and changing
requirements of mid-size and large-scale call centers. The Company believes
EDGE's integrated development environment and its ability to integrate
extensive computer-telephony capabilities and access legacy systems have been
and will continue to be important differentiators of its products. The Company
continues to develop integration capabilities for third-party technologies
utilized in call centers including relational databases, computer-telephony
technology and Internet and corporate-based intranet links. The Company is
also focusing its development efforts on building ready-to-use templates for
specific business functions.
Broaden International Distribution
The Company will seek to expand its existing international distribution
network, including its indirect distribution channels and direct sales force,
in order to take advantage of international growth
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opportunities. Since 1990, the Company has been offering its products in key
international markets and has gained valuable experience with respect to
engaging in business overseas. In support of its overseas business commitment,
EDGE has been translated into Japanese and permits users to work in a number
of other foreign languages. The Company has licensed EDGE to over 90
international customers in 20 countries and in 1996 international revenues
comprised approximately 26% of total revenues.
Expand Existing Customer Relationships
The Company's products are licensed to over 175 customers worldwide. The
Company's strategy is to increase revenues generated from this existing base
of customers by licensing its products to additional users, developing new and
enhanced products specifically tailored to customer requirements, and
providing additional consulting and support services. The Company believes
that its customer relationships provide key insights into market trends and
customer needs that help the Company more effectively shape its product and
service offerings and development efforts.
Leverage Strategic Business and Technology Relationships
The Company's strategy is to increase market acceptance of its software by
working with large systems integration firms and technology companies to
broaden market awareness and visibility of the Company's products and
services, and to maintain its product integration capabilities with related
and complementary technology. The Company has established relationships with
several leading consulting and systems integration firms, including Deloitte &
Touche LLP, Ernst & Young LLP, IBM, A.T. Kearney and dbINTELLECT, and hardware
and software companies, including Hewlett-Packard Company, NCR Corporation,
Oracle and Microsoft. While the scope of these relationships vary, such
relationships provide the Company with lead generation and co-marketing
support and the ability to facilitate its technology integration efforts.
Leverage Internet Technology
The Company has developed and is currently testing products to enable its
clients to expand customer interaction activities to the Internet and
corporate-based intranets. The Company believes that the Internet is rapidly
evolving as a new communication medium that can be integrated with a call
center. The Company expects that EDGE will enable customers to purchase
products, complete service requests and conduct other customer interactions
over the Internet without assistance from a live agent, or complement an
interaction on the World Wide Web with a live conversation with a call center
agent for assistance with sales or service questions. In addition, the Company
is incorporating Internet/intranet technology into its products so that
clients may utilize corporate-based intranets and industry standard browsers
as an alternative computing platform for customer interaction software
applications.
PRODUCTS AND SERVICES
The EDGE suite of products is based on a distributed, multi-tier
client/server open architecture which allows for the distinct separation of
presentation, application and database layers. This architecture provides the
system performance and scalability that is critical for mid-size and large-
scale call centers and permits hardware, relational database and operating
system independence to preserve and leverage existing information technology
investments. EDGE currently supports Windows 3.X, Windows 95, Windows NT
workstation clients and a wide variety of Unix platforms. The Company expects
to provide server support for Windows NT and database support for Microsoft
SQL Server during the second half of 1997.
List prices for the Company's EDGE products range from $1,600 to $5,700 per
user and are based upon the client's desired configuration and number of
users.
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EDGE COMPONENT ARCHITECTURE
The EDGE Component Architecture is comprised of a Business Application
Framework based on an integrated development environment and is augmented by
an external technology layer designed to provide seamless integration with
third-party products. The following diagram illustrates the EDGE Component
Architecture:
Business Application Framework
Integrated Development Environment
External Technology Layer
[CHART APPEARS HERE]
BUSINESS APPLICATION FRAMEWORK
EDGE business applications are constructed by linking together component
objects in a building block approach to enable the user to perform functions
required in a call center ranging from simple individual tasks to complex
business processes. EDGE component objects include Call Center Objects,
Customer Interaction Software Objects and Industry Objects. The following
diagram illustrates the EDGE Business Application Framework:
Industry Object Layer
Customer Interaction Software Object Layer
Call Center Object Layer
[CHART APPEARS HERE]
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Call Center Objects. Call Center Objects perform discrete functions that are
used by a call center agent at many different points before, during and after
a customer conversation. Call center managers and supervisors also utilize
Call Center Objects to help manage call center operations and personnel. More
than 75 ready-to-use Call Center Objects are available with the EDGE product,
the most common of which are:
. Intelligent Scripting--Provides dynamic screen presentation and
navigational routing based on defined business rules, historical customer
data and other input derived from the customer conversation.
. Queue Management--Provides for administration, prioritization, security
and processing of user and system workflow activities such as calling
campaigns, call backs, appointments, to-do's, incidents, personal
schedules and tasks.
. Telephony Functions--Allows control of all telephone-related functions
and interfaces such as automatic call distributors, voice response units
and predictive dialers through the application.
. Call List Processing--Provides importing, manipulation, sorting,
selecting and loading of calls into prioritized lists, which can be
managed by user, group, time of day and quota levels.
. Call Center Reporting--Provides ongoing operational results for
management analysis of call center activity in a variety of categories,
including by agent, group, department, campaign, list and time period.
. Customer Management--Allows for user-defined searching, selection and
modification of customer and company information, including system and
user-defined data.
Customer Interaction Software Objects. Customer Interaction Software Objects
contain a higher level of functionality than Call Center Objects and assist in
the performance of more complex customer interaction processes. At present,
these objects are developed by the client or by the Company's client services
organization by combining Call Center Objects to create customer-specific
applications using the EDGE integrated development environment. The Company is
currently developing packaged versions of commonly used Customer Interaction
Software Objects, which it plans to release in the second half of 1997.
Customer Interaction Software Objects that may be developed as part of an EDGE
installation include:
. Account Management--Supports call center agents during free-form
conversations with customers. Critical customer information such as
contacts, corporate hierarchy and profiles is combined with corporate
information such as product, lead source and objection handling and is
displayed in a timely manner.
. Lead Management--Provides closed-loop lead tracking for users to manage
leads and prospects through a sales qualification process by providing
list import and segmentation facilities, lead profiling and scoring,
results tracking and management reporting.
. Telesales--Provides graphical, interactive telephone sales and order
capture utilizing intelligent prompts for objection handling, cross-
selling, up-selling, product and service information, campaign based
pricing and order and inventory file integration.
. Customer Support/Case Processing--Allows a user to track and resolve
customer inquiries or cases in single call or multiple step resolution
environments, providing closed looped case management with fast path
entry, problem determination and resolution support, predefined workflows
by type and category, escalation with proactive alerts and on-line status
reports.
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. Campaign Management--Allows a user to create, manage and analyze sales
process protocols containing workflow assignments, simultaneous call
lists, date parameters, escalations, control groups, inbound call
recognition and lead source tracking.
. Opportunity Management--Allows a user to manage multiple sales
engagements at the same time by providing detailed opportunity
definition, forecasting data, team selling, corresponding relationships,
history and workflow management.
Industry Objects. Industry Objects are applications that combine Call Center
Objects and Customer Interaction Software Objects to perform complex,
typically enterprise-wide business processes according to the requirements of
the particular industry in which the business operates. The Company has
historically utilized its consulting services and support organization to
provide individual customers with Industry Objects, but expects to package
Industry Objects in the future as discrete product offerings for the Company's
targeted industries.
INTEGRATED DEVELOPMENT ENVIRONMENT
The EDGE integrated graphical development environment is used to tailor EDGE
applications to meet a client's specific needs. The primary components
supported within the integrated development environment include:
Client/Server Development. The Company's EDGE TeleBusiness Workstation (ETW)
provides a client/server graphical development tool for accessing and
integrating business application framework objects and external technologies
into end user applications.
Desktop Integration. The desktop integration component provides integration
capabilities between EDGE applications and third-party software applications
running on the desktop. The Company's Graphical EDGE Operations (GEO) product
allows EDGE to support Windows on the desktop. The Company has developed and
is currently testing a product to support Internet browsers.
Workflow Management. The workflow management component allows a user to
develop elaborate workflow routing within the call center and enables
creation, prioritization, processing and tracking of multiple customer
interaction activities coordinated on a "just in time" basis between the
client, its call center and its customer. The workflow management component
integrates agent and task scheduling with a variety of inbound and outbound
customer touch points.
Legacy System Access. The legacy system access component is a suite of
development tools which allows a user to access and update legacy system
information. Legacy system information or other data may be viewed or updated
from the same graphical presentation as local call center operations and
management data.
Telephony. The telephony component is a series of development tools which
permit a client to quickly establish a telephony interface to a particular
private branch exchange, predictive dialer or voice response unit, providing,
for example, the capability to capture automatic number identification/direct
number identification services and route the call and relevant data to a
particular agent, or to transfer voice/data from one agent to another.
Business Rules. The business rules component utilizes an intuitive graphical
user interface which allows rapid integration of client business processes and
practices into an application. This component enables a client to define the
critical processes and tasks for qualifying, selling and servicing the
client's customers. These rules become the basis of a client's customer
interaction process. Business rules embody specific procedures and policies
for handling each customer event in a manner consistent with the best business
practices established by each client.
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EXTERNAL TECHNOLOGY LAYER
The EDGE external technology layer consists of components that are designed
to enable clients to link to a variety of external technologies on a real-time
basis. The following diagram illustrates the EDGE External Technology Layer
components:
External Technology Layer
[CHART APPEARS HERE]
Desktop Links. The EDGE client component links to other desktop applications
through support of dynamic data exchange (DDE), dynamic library links (DLL)
and object linking and embedding (OLE). The Company is developing support
capability for Microsoft's Active X which it expects to be commercially
available in the second half of 1997.
Relational Database. EDGE supports Oracle, Informix and Sybase relational
databases. Existing corporate data stored in these relational databases may be
accessed and updated along with the setup and definition of new databases for
management of call center data. As part of its Windows NT support strategy,
the Company is developing support capability for Microsoft SQL Server which it
expects it to be commercially available in the second half of 1997.
Legacy Gateway. EDGE supports a variety of legacy system links and data
access options, including 3270 Access, HLLAPI, LU 6.2, UNIX InterProcess
Communication (IPC) and TCP/IP Sockets. The Company is developing support
capability for IBM's MQ Series messaging middleware which it expects to be
commercially available in the second half of 1997.
Computer Telephony Integration. EDGE supports a variety of commonly used
telephony technology, including private branch exchanges, predictive dialers,
voice response units and telephony-middleware. Functionality provided through
these telephony links include automatic number identification, direct number
identification services, screen notification, voice/data transfer and
conference, outbound preview dial, automated agent logon/logoff, agent
available/unavailable, call hold, retrieve, answer and disconnect and host-
based routing.
Internet Technology. The Company has developed and is currently testing
products that support the most commonly used Internet and corporate-based
intranets through Microsoft's Internet Explorer browser, Netscape's Navigator
browser and Javascript as well as integration to Microsoft's Active X. These
products are expected to be commercially available in the second half of 1997.
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CLIENT SERVICES
The Company believes that its client services are a significant
differentiating factor in its target markets and are an important component of
EDGE deployments. The Company provides consulting and maintenance and
technical support services to its customers, including custom application
development, systems integration, systems design and construction, database
design, installation, skills training, custom documentation, client help desk
and software training. The Company has developed a comprehensive and standard
methodology to provide continuity through a project from the initial sale to
implementation of its applications. The Company's client services organization
helps to develop and maintain long-term customer relationships by applying
specialized knowledge of industry needs, business processes and technology to
help design and provide the customer with a highly functional and flexible
solution. The Company's client service department works with strategic
consulting and systems integration companies to identify and provide services
for large-scale service projects. The Company principally relies on
distributors and remarketers to provide consulting and client support services
to its international customers. As of March 31, 1997, the Company employed 83
employees in its client services organization. Services and maintenance
revenues as a percentage of total revenues were 59.7%, 54.5%, 50.4% and 49.0%
in 1994, 1995, 1996 and for the three months ended March 31, 1997,
respectively. The Company provides the following services:
Consulting Services. The Company provides a comprehensive range of
professional services for its customers including project management, business
consulting, application development, implementation and integration of the
Company's products with the customer's existing systems. In addition, the
Company offers training programs to meet the specific needs of its customers.
The Company maintains a large consulting services staff with extensive
experience in the implementation and deployment of complex customer
interaction solutions. The demand for the Company's consulting services has
increased as the Company's product offerings have been accepted for large-
scale installations. Consulting services fees are determined on a time and
expense basis and training fees are generally charged on a per class or per
student basis.
Maintenance and Technical Support Services. The Company's maintenance and
technical support services staff provides clients with telephone and on-line
support of the Company's products. These support services include access to
technical support via the Company's telephone help-desk, customer support Web
site and e-mail. The Company offers several product support plans, including a
7 day/24 hour plan, which are generally offered for an annual fee based upon a
percentage of the license fee. The Company also provides its customers with
software upgrades, account management services, technical bulletins, status
reports and ongoing communication regarding new features and products under
development.
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PAGE>
CUSTOMERS AND APPLICATIONS
As of March 31, 1997, the EDGE suite of products had been licensed to over
175 customers with more than 25,000 total users. In 1996, no customer
accounted for more than 10% of the Company's total revenues. However, Zurich
Insurance Company accounted for approximately 23.7% of the Company's total
revenues for 1995 and Pacific Gas and Electric Company accounted for 14.4% of
total revenues for 1994. The following is a representative list of the
Company's customers. Each customer listed below has provided revenues in
excess of $100,000 from license fees, services or maintenance.
<TABLE>
<CAPTION>
TELESERVICES OUTSOURCING FINANCIAL SERVICES TECHNOLOGY
- ------------------------ ------------------ ----------
<S> <C> <C>
APAC Teleservices, Inc. American Express Company Cabletron Systems, Inc.
Direct Marketing American Maturity Life Hewlett-Packard Company
Services, Inc. Insurance Company Nippon Motorola Ltd.
ICT Group, Inc. Bank of New Zealand
ITI Marketing Services, Commonwealth Bank of
Inc. Australia UTILITIES
Neodata Services, Inc. ING Bank, N.V. ---------
Service Data Corporation JCB Co., Ltd. British Gas plc
SITEL Corporation The Bank of Tokyo Pacific Gas and
Service Network Mitsubishi Electric Company
Telephony B.V. The Mutual Life
Telespectrum Worldwide, Assurance Company of HEALTH CARE
Inc. Canada -----------
NationsBank
TELECOMMUNICATIONS Trans Financial, Inc. FHP, Inc.
- ------------------- TSB Bank plc Kaiser Foundation
AT&T Corp. United Overseas Bank Health Plan, Inc.
Belgacom, S.A. Ltd. Merck-Medco Managed
British Wells Fargo Bank, N.A. Care, L.L.C.
Telecommunications plc Zurich Insurance Company The Prudential
Cincinnati Bell Insurance Company of
Telephone Company CONSUMER GOODS America
New Zealand Telecom --------------
P.T.T. Telecom B.V. OTHER
Sprint PCS Bose Corporation -----
TeleNor Direkte AS Philip Morris, Inc.
SecurityLink from Securicor Distribution
Ameritech United Parcel Service
General Services Co.
</TABLE>
EDGE applications have been selected by businesses in a variety of
industries for domestic and global implementation. The following are
representative examples of EDGE deployments by several of the Company's
clients:
SITEL Corporation
Situation: SITEL Corporation ("SITEL") is one of the largest independent
teleservices outsourcing companies in the United States. SITEL creates,
manages and conducts large-scale, telephone-based direct sales and customer
service programs on an outsourced basis for large corporations using both
outbound and inbound call processing. After completing the implementation of
specialized predictive dialing and private branch exchange technology, SITEL
required comprehensive customer interaction software technology that was
flexible, allowed for rapid application deployment of multiple campaigns,
could be integrated with existing predictive dialers and automatic call
distributors, and was scalable for a range of hundreds to thousands of call
center agents.
Solution: SITEL has licensed EDGE for over 900 users at seven different call
centers. SITEL is currently opening two new call centers and has licensed 400
additional users. EDGE's flexibility and functionality enabled SITEL to
rapidly add new customer applications, integrate with installed predictive and
automatic call distributor technology, and scale across multiple locations.
The Company's EDGE solution has been expanded from an initial license for
approximately 200 call center agents in 1993 to its current license for more
than 1,300 agents. SITEL has primarily used EDGE in its telecommunications
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division for outbound calling, and is presently executing customer winback,
retention and loyalty campaigns for major telecommunications providers to
aggressively seek additional market share.
Bose Corporation
Situation: Bose Corporation ("Bose") is a leading manufacturer of innovative
stereo systems, automotive audio equipment and home stereo speakers. Bose
identified a need for an automated customer interaction system to promote the
rapid growth in sales of Bose Wave Radios through direct telesales. Bose
telesales agents processed inbound prospect and customer calls from extensive
print, radio, direct mail and television advertising, and conducted outbound
calls to prospects who have been sent information about Bose products. Bose
desired a complete automated system to support every phase of its telephony-
based marketing, sales and customer support programs.
Solution: The Bose project commenced in early July 1995 with an absolute
requirement to have the call center operational by October 1, 1995. The
Company worked with Bose to develop a scripted inbound sales guide and to
provide real-time access to marketing campaign information to facilitate order
capture, literature fulfillment, customer service and re-call management. The
EDGE solution provided computer-telephony links for automatic number
identification to facilitate presentation of customer data and directed number
identification services to present the appropriate campaign to the agent based
upon the advertisement or promotion to which the customer was responding. The
EDGE product also provided Bose agents with access to extensive product
information as part of a total sales, marketing and service solution.
Sprint PCS
Situation: The emergence of wireless technology has presented an alternative
method of communication using mobile technology, including mobile telephones,
pagers, and remote computing and fax. Sprint Spectrum L.P., which markets its
services as Sprint PCS, was formed in 1996 as a joint venture among
subsidiaries of each of Sprint Corporation, Tele-Communications, Inc., Comcast
Corporation and Cox Communications, Inc., in an effort to capitalize on the
personal communications services market. Sprint PCS's sales strategy consisted
of multiple sales channels, including retail stores, a field sales force, and
direct inside sales through a call center. Sprint PCS also required a common
customer database for all sales and marketing activities to facilitate
consistent customer communications. The launch of these services was a large
and complex undertaking with many interdependencies between nationwide
marketing programs and internal management information systems. Sprint PCS
utilized a variety of outside consultants and vendors including Ernst & Young
and Electronic Data Systems Corp. to assist in the evaluation, selection and
implementation of these systems.
Solution: The EDGE product constituted one of the main architectural
components for the customer information repository built using an Oracle
database for inside and outside application components. The EDGE
implementation was developed and deployed in under three months by the
Company's client services staff who worked with Ernst & Young, the overall
systems integrator. The EDGE suite of products was integrated with an Aspect
automatic call distributor for computer telephony and third-party software for
sales force automation. Additionally, EDGE was integrated to an external
mainframe system to improve eligibility verification and enrollment processes
for Sprint PCS. The Company's on-time delivery allowed Sprint PCS to perform
its integration testing with the other call center business applications and
begin its marketing programs on schedule.
Pacific Gas and Electric Company
Situation: At the end of 1993 the Pacific Gas and Electric Company ("PG&E"),
one of the largest utilities in the United States, saw the need to develop a
plan for a world-class customer service operation to address competition
resulting from deregulation. PG&E's plan called for a company-wide
reorganization to consolidate customer service from 31 offices into four call
centers with over 800 agents and 18 district offices with more than 200
agents. The new call centers, along with PG&E's district offices, were
intended
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to enable PG&E to improve the effectiveness and efficiency of its customer
service to its approximately eight million residential and business customers
while reducing costs. To support its customer service plan, PG&E required
leading edge, scalable call center and customer service software which could
be rapidly deployed to meet aggressive reorganization timetables.
Solution: PG&E chose EDGE to be integrated with PG&E's telephony and legacy
systems. Since mid-1994, EDGE has acted as a front-end interface to PG&E's
legacy customer information system, enabling customer service agents during a
customer call to easily access information stored on the mainframe while
maintaining call center data on local servers. Based upon automatic number
identification, local area information is presented to PG&E agents
automatically via a screen notification. As the agents process calls, EDGE
allows for scripting, queues and other information to be presented in an easy
conversational flow. Due to the critical nature of providing continuous
utility services during natural disasters, the Company created and implemented
backup and recovery strategies for PG&E designed to detect database failure
and to automatically and transparently write to a mirror Oracle database.
SALES AND MARKETING
The Company markets its software and services in the United States through a
direct sales organization. The Company's sales representatives are focused by
industry expertise and geographical location. To support its sales efforts,
the Company conducts marketing programs including advertising, telemarketing,
direct mail, seminars, public relations and trade shows. As of March 31, 1997,
the Company's sales and marketing organization covering the United States
consisted of 46 employees.
The Company's direct sales force employs a consultative sales process,
working closely with prospective customers to understand and define their
needs and to determine how those needs are best addressed by the Company's
product offerings as well as complementary technology and services offered by
strategic systems integration and technology companies. In addition to
pursuing sales opportunities with new customers, the Company works closely
with its existing customer base to gain knowledge of their industries, and
focuses on selling new and enhanced products specifically tailored to such
existing customers' requirements, as well as licensing its products to
additional users within a customer. Because customer interaction software
applications are highly visible within an organization, the Company's sales
efforts are generally directed to the senior management of a customer.
The Company also works closely with strategic consulting and systems
integration companies such as Deloitte & Touche LLP, Ernst & Young LLP, IBM,
A.T. Kearney and dbINTELLECT to increase market awareness and acceptance of
the Company's products. The Company has worked jointly with each of these
companies by providing software and services as part of a total customer
software and systems project in which the consulting or systems integration
company also provides services, software or hardware and may be responsible
for the overall coordination of the project. In addition, the Company has
engaged in co-marketing efforts with IBM and dbINTELLECT. These relationships
have led to the Company's introduction into strategic accounts, increased
account penetration and reduced sales cycle length. A key part of the
Company's strategy is to expand and enhance its existing relationships with
leading consulting and systems integration companies to capture additional
market share.
The Company markets its software internationally in Europe, the Pacific Rim,
Canada, Mexico and Latin America through remarketing and distribution
relationships which it supplements with a direct sales force in certain
regions. The Company's principal remarketers and distributors include
Datapoint (U.K.) Limited (Europe), TeleDynamics BV (Holland), NCR Corporation
(France, Canada, Turkey and Southeast Asia), Kawasaki Steel Systems R&D
Corporation (Japan), Locus Corporation (Korea), TKM Communications, Inc.
(Canada), Telebusiness New Zealand Limited (New Zealand and Australia), and
Communicacoes, Processamento e Mecanismos de Automacao Ltda. (Brazil). As of
March 31, 1997, the Company had a direct sales force consisting of eight sales
and marketing professionals covering Europe from its London, England office,
and three sales professionals focused on Mexico and Latin America. The Company
is seeking to expand its existing international distribution network including
its indirect distribution channels and direct sales force in order to take
advantage of international growth opportunities.
44
<PAGE>
PRODUCT DEVELOPMENT
The Company believes that to maintain its competitive advantage it must
enhance existing applications, introduce new products and features into the
market on a regular basis to keep pace with technological advances, meet
changing customer requirements and respond to competitors' products. To meet
these goals, the Company has invested in developing a comprehensive product
development process to define and evaluate rigorous requirements for product
functionality and quality. The Company's research and development engineers
work closely with its marketing and support personnel and its customers to
design enhancements and new products to assure that product evolution reflects
developments in the marketplace and trends in client requirements.
The Company intends to continue its product research and development efforts
in order to meet the complex and changing requirements of mid-size and large-
scale call centers. Specifically, the Company is planning releases of EDGE
during 1997 to support Microsoft NT 4.0 and SQL Server release 6.5, IBM's MQ
Series messaging middleware and Microsoft Active X, and to integrate case-
based reasoning technology. In the area of computer-telephony integration, the
Company is adding support for Novell TSAPI and Aspect Application Bridge
telephony middleware and enhanced blended agent and software-based dialing
functionality. In addition, the Company has developed and is currently testing
products with Internet and corporate-based intranet capabilities, which will
enable call centers to integrate with sites on the World Wide Web and allow
applications to be deployed over an intranet with a browser user interface.
These new releases will support multiple integrated channels of customer
interaction including voice, interactive voice response, e-mail and the World
Wide Web.
The Company is making long-term investments to enhance the componentization
and object orientation of EDGE's underlying architecture. The Company is
utilizing emerging industry standards such as Microsoft COM/DCOM, CORBA
compliant object technology, Java language and supporting Java technology. The
Company believes that these investments will provide a number of important
benefits including the ability to migrate easily to new components in the
future in a "plug and play" mode, to shield business objects and customer
applications from the underlying technology infrastructure, and to seamlessly
integrate with other business applications that adhere to the same standards.
As of March 31, 1997, the Company's product development staff consisted of
51 employees. In addition, the Company augments its internal research and
development organization with the services of an outside consulting firm. The
Company's total expenses for product development for the years ended
December 31, 1994, 1995 and 1996 were $6.1 million, $6.8 million and $6.4
million, respectively, and represented 33.3%, 28.6% and 24.3% of total
revenues in these periods, respectively. The Company's total expenses for
product development for the three months ended March 31, 1997 were $1.5
million and represented 20.6% of total revenues for such period. The Company
expects that it will continue to commit substantial resources to product
development in the future.
COMPETITION
The market for telemarketing, telesales and customer service software is
intensely competitive, rapidly evolving and highly sensitive to new product
introductions or enhancements and marketing efforts by industry participants.
The Company competes with a large number of competitors ranging from internal
information systems departments to packaged software application vendors. The
Company believes that as the United States and international software markets
continue to grow, a number of new vendors will enter the market and existing
competitors and new market entrants will attempt to develop applications
targeting additional markets.
Management believes that it competes in most of its markets with the
internal information systems departments of potential customers who desire to
develop their own customer interaction software rather than acquire software
from a third-party vendor such as the Company. The Company believes that the
principal software companies with which it competes are Versatility Inc. for
telesales and telemarketing automation software, and The Vantive Corporation,
Clarify Inc. and Scopus Technology, Inc. for
45
<PAGE>
teleservices automation software. The Company also competes on occasion with
systems integration firms. Among the Company's current and potential
competitors are also a number of large hardware and software companies that
may develop or acquire products that compete with the Company's products.
Competitors have established and may in the future establish cooperative
relationships or alliances which may increase their ability to provide
superior software solutions or services. In addition, consolidation within the
call center customer interaction software industry could create new or
stronger competitors. Increased competition resulting from new entrants, call
center customer interaction software industry consolidation, cooperative
relationships or alliances could result in price reductions, reduced operating
income or loss of market share, any of which could materially adversely affect
the Company's business, operating results or financial condition. Many of the
Company's current and potential competitors have significantly greater
financial, technical, marketing, service, support and other resources,
generate higher revenues and have greater name recognition than the Company.
There can be no assurance that the Company's current or potential competitors
will not develop products comparable or superior to those developed by it or
adapt more quickly than the Company to new technologies, evolving industry
trends or changing client requirements. There can be no assurance that the
Company will be able to compete effectively against current or future
competitors or that competitive pressures faced by the Company would not
materially and adversely affect its business, operating results or financial
condition.
The Company believes that the principal competitive factors in its industry
include product performance and functionality, flexibility, ease of use,
adherence to open standards, scalability, ability to integrate external data
sources, speed of deployment, client service, customer support and price.
Although the Company believes that it currently competes favorably with
respect to such factors, there can be no assurance that it will be able to
maintain its competitive position against current and potential competitors,
especially those with greater financial, technical, marketing, service,
support and other resources than the Company, or that competitive pressures
will not materially and adversely affect the Company's business, operating
results and financial condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, nondisclosure agreements and technical measures to
protect its proprietary rights. The Company typically enters into
confidentiality or license agreements with its employees, distributors,
clients and potential clients, and limits access to and distribution of its
software, documentation and other proprietary information. There can be no
assurance that these steps will be adequate to deter misappropriation or
independent third-party development of its technology or to prevent an
unauthorized third party from obtaining or using information that the Company
regards as proprietary. In addition, the laws of some foreign countries do not
protect or enforce proprietary rights to the same extent as do the laws of the
United States. Policing unauthorized use of the Company's products is
difficult and, while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be
a persistent problem. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology. Although the
Company believes that its products and technology do not infringe on any
existing proprietary rights of others, the use of patents to protect software
has increased, and there can be no assurance that third parties will not
assert infringement claims in the future or, if infringement claims are
asserted, that such claims will be resolved in the Company's favor. The
Company expects that software product developers will increasingly be subject
to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on
terms favorable to the Company or at all, which could have a material adverse
effect on the Company's business, operating results and financial condition.
Any infringement claims resolved against the Company could have a
46
<PAGE>
material adverse effect upon the Company's business, operating results and
financial condition. In addition, litigation may be necessary in the future to
protect the Company's trade secrets or other intellectual property rights, or
to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company has entered into agreements with a small number of its customers
requiring the Company to place its source code in escrow. These escrow
agreements typically provide that customers have a limited, non-exclusive
right to use such code in the event that there is a bankruptcy proceeding by
or against the Company, if the Company ceases to do business or if the Company
fails to meet its support obligations. The escrow agreements, and any that the
Company may enter into in the future, may increase the possibility of
misappropriation by third parties. In addition, the Company utilizes a third-
party contractor for selected product development projects which may also
increase the possibility of misappropriation by third parties.
REGULATORY ENVIRONMENT
Certain uses of outbound call processing systems are regulated by federal,
state and foreign law. The Federal Telephone Consumer Protection Act required
the Federal Communications Commission to create regulations protecting
residential telephone subscribers from unwanted telephone solicitations.
Certain states have enacted similar laws limiting access to telephone
subscribers who object to receiving solicitations. Although compliance with
these laws may limit the potential use of the Company's products, the
Company's products can be programmed to operate in compliance with these laws
through the use of appropriate calling lists and calling campaign time
parameters. There can be no assurance, however, that future legislation
further restricting telephone solicitation practices, if enacted, would not
materially adversely affect the Company.
EMPLOYEES
As of March 31, 1997, the Company employed 221 employees, consisting of 51
employees in research and development, 57 employees in sales and marketing, 62
employees in consulting services, 21 employees in client support services and
30 employees in finance and administration. Of these, 23 are located in Europe
and the remainder are located in the United States. None of these employees is
covered by any collective bargaining agreements. The Company believes that its
relationship with its employees is good.
FACILITIES
The Company leases its corporate headquarters in Shelton, Connecticut, which
consists of approximately 25,000 square feet of office space. The lease for
the Shelton, Connecticut office has a term ending on March 31, 2004. In
addition, the Company maintains an office in Irvine, California with a lease
for approximately 22,000 square feet of office space. The lease for the
Irvine, California office has a term ending on January 19, 2001. In support of
its direct sales and service and support operations, the Company leases
offices in three other locations in the United States, as well as an office in
London, England. These offices comprise between 1,200 and 6,000 square feet
each and have lease terms ending between December 31, 1997 and April 30, 2001.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation in the normal
course of business relating to claims arising out of its operations. The
Company is not currently involved in any litigation which, in management's
opinion, would have a material adverse effect on its business, operating
results or financial condition.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their ages and their
respective positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Albert R. Subbloie, Jr........... 37 President, Chief Executive Officer and
Director
Gary R. Martino.................. 37 Chairman of the Board, Chief Financial
Officer,
Treasurer, Assistant Secretary and
Director
Andrei Poludnewycz............... 37 Executive Vice President--Technology,
Secretary and Director
James S. Aufdemberge............. 44 Senior Vice President--Sales and
Marketing
Paul G. Frederick................ 37 Senior Vice President--Client Services
James E. Anderson................ 51 Vice President--International
Operations
David G. Caldeira................ 40 Vice President--Products Division
Michael P. McGroarty............. 36 Vice President and General Counsel,
Assistant Secretary
Paul J. Schmidt.................. 37 Vice President--Applied Technologies
and Director
David J. Callard (1)(2).......... 58 Director
Thomas F. Hill (1)............... 51 Director
Donald P. Miller (2)............. 65 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Each officer serves at the discretion of the Board of Directors. Each
director holds office until his successor is duly elected and qualified or
until his resignation or removal. There are no family relationships among any
of the directors or executive officers of the Company.
Following this Offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
Board will consist of three Class I Directors (Messrs. Schmidt, Miller and
Hill), two Class II Directors (Messrs. Poludnewycz and Subbloie) and two Class
III Directors (Messrs. Callard and Martino). At each annual meeting of
shareholders, a class of directors will be elected for a three-year term to
succeed the directors or director of the same class whose terms are then
expiring. The terms of the Class I Directors, Class II Directors and Class III
Directors expire upon the election and qualification of successor directors at
the annual meeting of shareholders held during the calendar years 1998, 1999
and 2000, respectively.
Mr. Subbloie has been the President, Chief Executive Officer and a Director
of the Company since its incorporation in 1990. Prior to incorporation of the
Company, Mr. Subbloie was a founding partner of the Partnership with Messrs.
Martino and Poludnewycz, which engaged in the business of consulting and
development of computer software. From 1982 to 1984, Mr. Subbloie was employed
with the consulting division of Arthur Andersen & Co., a professional
accounting firm ("Arthur Andersen"), and specialized in distribution and
manufacturing consulting.
Mr. Martino has been a Director and officer of the Company since its
incorporation in 1990. In his capacity as a director, he has served as the
Chairman of the Board of Directors since the Company's incorporation in 1990.
In his capacity as an officer, he has served as Treasurer, Chief Financial
Officer and Assistant Secretary. Prior to incorporation of the Company, Mr.
Martino was also a founder of the
48
<PAGE>
Partnership with Messrs. Subbloie and Poludnewycz. From 1982 to 1984, Mr.
Martino was employed with the consulting division of Arthur Andersen and
specialized in financial application consulting.
Mr. Poludnewycz has been an officer and a Director of the Company since its
incorporation in 1990. Mr. Poludnewycz has served as Secretary of the Company
since its incorporation in 1990. From 1992 to 1994, he served as Executive
Vice President--Products Division and subsequently served as Executive Vice
President--Technology. Prior to incorporation of the Company, Mr. Poludnewycz
was a founding partner of the Partnership with Messrs. Subbloie and Martino.
From 1982 to 1984, Mr. Poludnewycz was employed with the consulting division
of Arthur Andersen and specialized in developing computer applications for the
mid-range hardware platforms of IBM.
Mr. Aufdemberge served as Vice President--Sales of the Company from 1994
through 1995 and has served as Senior Vice President--Sales and Marketing
since 1996. Prior to joining the Company in 1994, Mr. Aufdemberge was employed
for ten years with Dun & Bradstreet Software, Inc. ("Dun & Bradstreet"), a
financial, human resources and manufacturing applications software company.
Mr. Aufdemberge's primary responsibilities with Dun & Bradstreet were sales
and support services.
Mr. Frederick has served as Senior Vice President--Client Services of the
Company since 1995. Prior to joining the Company, he was employed from 1991 to
1995, most recently as associate partner, with a division of Andersen
Consulting LLP ("Andersen Consulting") which specialized in large scale
systems integration. Mr. Frederick's primary responsibilities with Andersen
Consulting included project and practice management.
Mr. Anderson served as Vice President--Business Development of the Company
from 1994 to 1995 and has since served as Vice President--International
Operations. From 1970 to 1994, Mr. Anderson was employed by IBM as a software
product planning manager, a branch sales manager and the Worldwide Market
Development Manager for IBM's CallPath product.
Mr. Caldeira has been employed with the Company in several capacities since
its incorporation in 1990. He served as Vice President--Sales from 1990 to
1992 and as Vice President--Business Development from 1992 to 1994. He has
served in his present position of Vice President--Products Division since
1994. Mr. Caldeira joined the Partnership in 1989 as a Regional Sales Manager
and was formerly employed as a Senior Manager with the consulting division of
Arthur Andersen where he specialized in systems for mid-size companies.
Mr. McGroarty joined the Company in 1996 as Vice President and General
Counsel, and also serves as an Assistant Secretary. From 1990 to 1996, Mr.
McGroarty was an attorney with the law firm of Fulbright & Jaworski L.L.P.
Mr. Schmidt has served as an officer and Director of the Company since its
incorporation in 1990. From 1990 to 1994, he served as Vice President--Client
Services and has since served as Vice President--Applied Technologies. From
1985 to 1990, Mr. Schmidt was employed as a Vice President at the Partnership
and specialized in client services. From 1982 to 1985, Mr. Schmidt worked for
Andersen Consulting and specialized in financial, distribution and
manufacturing consulting.
Mr. Callard has served as a Director of the Company since March 1992. He has
served as President of Wand Partners Inc. ("WPI") since 1991. WPI and its
affiliates are principally engaged in the business of direct private equity
investments. Mr. Callard serves on the Company's Board of Directors pursuant
to a letter agreement, as amended, between WPI and the Company, which permits
WPI to designate two members of the Company's Board of Directors. The letter
agreement will terminate upon completion of this offering. See "Certain
Transactions." Prior to joining WPI, Mr. Callard was a Managing Director in
mergers and acquisitions with the investment banking firm of Alex. Brown &
Sons Incorporated. Mr. Callard has also served as a director since 1974 of
Waverly, Inc., a medical publisher, and as a director since 1992 of Chartwell
Re Corp., a property and casualty reinsurer.
49
<PAGE>
Mr. Hill has served as a Director of the Company since March 1991. He has
served as a director of WPI since 1990 and his present principal occupation is
as President of Thomas F. Hill, Inc., a management consulting company. Since
1994, he has also served as a director of Nestor, Inc., a company which
develops neural network pattern recognition technology. Mr. Hill serves on the
Company's Board of Directors pursuant to a letter agreement, as amended,
between WPI and the Company which permits WPI to designate two members of the
Company's Board of Directors. The letter agreement will terminate upon
completion of this offering. See "Certain Transactions."
Mr. Miller has served as a Director of the Company since March 1991. From
1970 to 1986 Mr. Miller was President and Chief Executive Officer of Posi-Seal
International, Inc., a manufacturer of industrial valves. He is presently
retired. Mr. Miller has served as a director of the following companies since
the dates indicated: Raytech Corp., a manufacturing holding company, since
1986; Saab Financial Receivable Corp., an automotive finance company and
wholly-owned subsidiary of Saab-Scania Corp., since 1991; and Smart Games
Interactive, Inc., a manufacturer of interactive consumer electronic systems,
since 1993.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee, in conjunction with the entire Board of Directors,
makes recommendations concerning salaries and incentive compensation for
employees of and consultants to the Company. It is comprised of Messrs.
Callard and Hill. The Audit Committee, in conjunction with the entire Board of
Directors, reviews the results and scope of the audit and other services
provided by the Company's independent public accountant. It is comprised of
Messrs. Callard and Miller.
DIRECTOR COMPENSATION
The Company reimburses each member of the Board of Directors for expenses
incurred in connection with attending Board and committee meetings. Mr. Miller
receives $2,500 for attendance at each meeting of the Board, unless his
attendance is via telephone. Mr. Hill receives a fixed fee of $10,000 per
year. Directors who are employees of the Company are not entitled to receive
compensation in their capacities as directors. For the fiscal year ended
December 31, 1996, non-employee directors received the following compensation:
(i) Thomas F. Hill--$20,000 ($10,000 for fiscal year 1995 and $10,000 for
fiscal year 1996) and (ii) Donald P. Miller--$7,500.
Pursuant to the Company's 1996 Non-Employee Directors Stock Option Plan,
each non-employee director receives a one-time grant of a stock option to
purchase 16,875 shares of Common Stock of the Company, subject to certain
adjustments, at the fair market value thereof on the date of grant. Each such
stock option is fully exercisable on the date that is six months following the
date of grant and expires ten years after the date of grant.
Pursuant to the 1996 Non-Employee Directors Stock Option Plan, Messrs.
Callard, Hill and Miller each received options to purchase 16,875 shares of
Common Stock at an exercise price of $7.11 on March 14, 1996.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth certain information
relating to compensation earned by the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers of the
Company whose total salary and bonus exceeded $100,000 (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company for the fiscal year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION(1)
-------------------- ----------------
SHARES OF COMMON
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#)(2) COMPENSATION ($)
--------------------------- ---------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
Albert R. Subbloie, Jr. ................... 225,000 18,750 123,750 25,104(3)
President and Chief Executive Officer
Gary R. Martino............................ 225,000 18,750 123,750 22,399(3)
Chairman of the Board, Chief Financial
Officer, Treasurer and Assistant Secretary
Andrei Poludnewycz......................... 174,600 -- 22,500 11,569(3)
Executive Vice President--Technology and
Secretary
Paul G. Frederick.......................... 179,375 19,047 -- 899(4)
Senior Vice President--Client Services
James S. Aufdemberge....................... 152,500 74,645 -- 995(5)
Senior Vice President--Sales and Marketing
</TABLE>
- --------
(1) The Company did not make any restricted stock awards or long term
incentive plan payouts in the fiscal year ended December 31, 1996.
(2) The Company did not grant any stock appreciation rights ("SARs") in the
fiscal year ended December 31, 1996. The number of shares presented
reflects a 2.25-for-1 split of the Common Stock to be effected prior to
the closing of this offering.
(3) Amount includes term life insurance premiums paid in the amounts of
$3,524, $2,464 and $2,562 for Messrs. Subbloie, Martino and Poludnewycz,
respectively, and the benefit derived from the interest-free loans made by
the Company to such officers in the amounts of $21,580, $19,935, and
$9,007, respectively. The benefit derived from the interest-free loans was
calculated by taking the December 31, 1996 prime rate of 8.25% and
applying it to the January 1, 1996 through December 31, 1996 month-end
balances. See "Certain Transactions."
(4) Amount includes Company contributions or payments of (i) $667 to Mr.
Frederick's 401(k) plan and (ii) $232 of term life insurance premiums.
(5) Amount includes Company contributions or payments of (i) $763 to Mr.
Aufdemberge's 401(k) plan and (ii) $232 of term life insurance premiums.
51
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options to the Named
Executive Officers during the fiscal year ended December 31, 1996. No SARs
were granted during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------
VALUE AT ASSUMED
SHARES OF % OF TOTAL ANNUAL RATES OF STOCK
COMMON STOCK OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED(3) FISCAL YEAR(4) PER SHARE(3) DATE 5% 10%
---- ------------- -------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Albert R. Subbloie, Jr.. 56,250 11.2% $7.11 3/14/06(5) $ 251,600 $ 637,500
67,500 13.4 8.00 7/11/06(6) 339,600 860,600
Gary R. Martino......... 56,250 11.2 7.11 3/14/06(5) 251,600 637,500
67,500 13.4 8.00 7/11/06(6) 339,600 860,600
Andrei Poludnewycz...... 22,500 4.5 8.00 7/11/06(6) 113,200 286,900
</TABLE>
- --------
(1) All options were granted at fair market value on the date of the grant as
determined by the Board of Directors of the Company.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and Common Stock holdings are dependent on the
timing of such exercise and the future performance of the Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by
the individuals.
(3) The number of shares presented reflects a 2.25-for-1 split of the Common
Stock to be effected prior to the closing of this offering.
(4) Based on options to purchase an aggregate of 502,875 shares of Common
Stock granted to all employees of the Company in fiscal 1996.
(5) All 56,250 options became exercisable on March 14, 1996.
(6) The dates of exercisability for the options are as follows: (i) 25% on
July 11, 1997; (ii) 25% on July 11, 1998; (iii) 25% on July 11, 1999; and
(iv) 25% on July 11, 2000.
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers as
of December 31, 1996. No stock options were exercised by any of the Named
Executive Officers during fiscal year 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF VALUE OF UNEXERCISED
COMMON STOCK UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT FISCAL YEAR-
AT FISCAL YEAR-END (#)(1) END ($)(1)(2)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Albert R. Subbloie, Jr...... 131,287 67,500 233,450 --
Gary R. Martino............. 131,287 67,500 233,450 --
Andrei Poludnewycz.......... 37,518 22,500 116,725 --
Paul G. Frederick........... 18,750 37,498 36,667 73,333
James S. Aufdemberge........ 42,187 42,187 131,250 131,250
</TABLE>
- --------
(1) The numbers of shares and values of options presented reflects a 2.25-for-
1 split of the Common Stock to be effected prior to the closing of this
offering.
(2) Calculated on the basis of the difference between the fair market value of
the underlying securities at fiscal year end, as determined by the
Company's Board of Directors, and the exercise price of the option.
52
<PAGE>
STOCK OPTION PLANS
1991 Amended and Restated Stock Option Plan. The Company's 1991 Amended and
Restated Stock Option Plan (the "1991 Plan") provides for the grant of options
to purchase a maximum of 900,000 shares of Common Stock. As of March 31, 1997,
6,007 shares had been issued pursuant to the exercise of options granted under
the 1991 Plan, options for 840,224 shares were outstanding. The scheduled
termination date for the 1991 Plan is October 29, 2001; however, the
termination of the 1991 Plan will not affect any options previously granted
thereunder. The 1991 Plan provides for grants to employees of either or both
incentive stock options and nonqualified stock options. On March 14, 1996 the
Board of Directors resolved that no further options may be granted or issued
under the 1991 Plan.
The 1991 Plan is currently administered by the Board of Directors, which is
authorized to delegate its administrative duties to a committee. Subject to
the provisions of the 1991 Plan, the Board of Directors has the authority to
select the employees to whom options are granted and determine the terms of
each option.
1996 Non-Employee Directors Stock Option Plan. The Company's 1996 Non-
Employee Directors Stock Option Plan (the "1996 Non-Employee Directors Plan")
provides for the grant of options to purchase a maximum of 135,000 shares of
Common Stock. As of March 31, 1997, no shares had been issued under the 1996
Non-Employee Directors Plan, options for 50,625 shares were outstanding and
84,375 shares remained available for future issuance under the 1996 Non-
Employee Directors Plan. All options granted under the 1996 Non-Employee
Directors Plan must be granted by March 14, 2006, the scheduled termination
date of the 1996 Non-Employee Directors Plan; however, the termination of the
1996 Non-Employee Directors Plan will not affect any options previously
granted thereunder. The 1996 Non-Employee Directors Plan provides for grants
to non-employee directors of the Company ("Non-Employee Directors") of
nonqualified stock options.
The 1996 Non-Employee Directors Plan is administered by the Board of
Directors which is authorized to delegate its administrative duties to a
committee. Each Non-Employee Director receives at the first Board of Directors
meeting attended, a one-time grant of an option to purchase 16,875 shares of
Common Stock at an exercise price equal to the fair market value of the shares
on the grant date. Each option becomes fully exercisable on the date that is
six months following the grant date. All options expire ten years after the
grant date; however, the Board of Directors may limit the exercise period if
deemed necessary to comply with applicable law.
1996 Employee and Consultant Stock Option Plan. The Company's 1996 Employee
and Consultant Stock Option Plan (the "1996 Employee and Consultant Plan")
provides for the grant of options to purchase a maximum of 900,000 shares of
Common Stock. As of March 31, 1997, no shares had been issued under the 1996
Employee and Consultant Plan, options for 646,326 shares were outstanding and
253,674 shares remained available for future issuance. All options granted
under the 1996 Employee and Consultant Plan must be granted by March 14, 2006,
the scheduled termination date of the 1996 Employee and Consultant Plan,
however, the termination of the 1996 Employee and Consultant Plan will not
affect any options previously granted thereunder. The 1996 Employee and
Consultant Plan provides for grants to employees of the Company and certain of
its affiliates of either or both incentive stock options and nonqualified
stock options and grants of nonqualified stock options only to non-employee
consultants to the Company and certain of its affiliates.
The 1996 Employee and Consultant Plan is administered by the Board of
Directors which is authorized to delegate its administrative duties to a
committee. Subject to the provisions of the 1996 Employee and Consultant Plan,
the Board of Directors has the authority to select the employees and
consultants to whom options are granted and determine the terms of each
option.
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<PAGE>
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") is designed to allow eligible employees of the Company
and designated subsidiaries to purchase shares of Common Stock, on January 1
of each year, through accumulated payroll deductions under the Purchase Plan.
A reserve of 450,000 shares of Common Stock has been established for this
purpose.
Payroll deductions may not exceed 10% of the annual salary or wages paid by
the Company to the employee, including contributions to his 401(k) but
excluding any bonus, fee, overtime, severance or credits. The purchase price
per share will be an amount equal to eighty-five percent (85%) of (i) the fair
market value of a share of the Common Stock on the offering date or (ii) the
fair market value of a share of Common Stock on the exercise date. Employees
may end their participation in the offering at any time during the offering
period, and participation ends automatically on termination of employment with
the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
eliminate to the fullest extent permissible under Connecticut law the
liability of its directors to the Company or its shareholders for monetary
damages. Such limitation of liability does not affect the availability of
equitable remedies such as injunctive relief or rescission. In addition, the
Company's Certificate of Incorporation and Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Connecticut law.
There is no currently pending litigation or proceeding involving a director,
officer, employee or other agent of the Company in which indemnification would
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company was comprised of Messrs. Callard
and Hill for the fiscal year ended December 31, 1996. Messrs. Subbloie,
Martino, Poludnewycz and Schmidt also participated in the deliberations of the
Board of Directors concerning executive officer compensation. Messrs. Callard
and Hill are affiliated with the Wand Group (as defined below) which have
engaged in certain financing and consulting transactions with the Company
during fiscal years 1994, 1995 and 1996. Messrs. Subbloie, Martino,
Poludnewycz and Schmidt also engaged in certain transactions with the Company
during fiscal years 1994, 1995 and 1996. See "Certain Transactions."
CERTAIN TRANSACTIONS
The Company entered into an agreement with Wand Partners L.P. ("Wand
Partners"), dated as of January 2, 1995 (the "Monitoring Agreement") pursuant
to which Wand Partners provides consulting services to the Company for a fee
of $40,000 per year payable in equal quarterly installments. The Monitoring
Agreement will terminate upon the completion of this offering. David J.
Callard is the President and a director of WPI and Wand (IMA) Inc. and Thomas
F. Hill is a director of WPI. WPI is a general partner of Wand/IMA
Investments, L.P. ("Wand-I") and Wand/IMA Investments II L.P. ("Wand-II").
Wand (IMA) Inc. is a general partner of Wand-II and Wand/IMA Investments III
L.P. ("Wand-III"). Messrs. Callard and Hill are directors of the Company.
During 1994, 1995 and 1996, the Company paid financial advisory and consulting
fees in the aggregate amount of $50,000, $50,000 and $40,000, respectively, to
WPI and its affiliates. In addition, the Company paid a fee of $100,000 to
Wand (IMA) Inc. in 1996 in connection with an equity financing transaction.
Wand-I, Wand-II, Wand-III, WPI, Wand (IMA) Inc. and Bruce W. Schnitzer are
sometimes referred to herein collectively as the "Wand Group."
54
<PAGE>
The Company sold the Wand Note to Wand-I on December 21, 1990 and amended
the Wand Note on October 29, 1991. The Company used the proceeds of the Wand
Note for working capital purposes. The Wand Note is subordinated and
unsecured, and has an outstanding principal amount of $250,000 due and payable
on December 21, 1997. Interest on the Wand Note is payable quarterly on each
March 21, June 21, September 21 and December 21, until maturity at the rate of
12.0% per annum. During 1994, 1995 and 1996, the Company made principal
payments on the Wand Note in the amount of $0, $250,000 and $500,000,
respectively.
In connection with the issuance of the Wand Note, a letter agreement, dated
December 21, 1990, as amended (the "Letter Agreement"), was entered into by
the Company, Wand-I, WPI, and certain shareholders of the Company, including
Albert R. Subbloie, Jr., Gary R. Martino, Andrei Poludnewycz and Paul J.
Schmidt, each of whom is a director, executive officer and shareholder of the
Company. The Letter Agreement provides, among other things, that the Wand
Group shall have the right to designate up to two members to the Board of
Directors of the Company until such time as there has been an Initial Public
Offering (as defined therein). Currently Messrs. Callard and Hill are such
designees. The Letter Agreement also provided for the payment of certain
financial advisory fees, which provisions were superseded by the Monitoring
Agreement. The Letter Agreement also grants to Wand-I a right of first refusal
to purchase securities issued by the Company below a certain price and certain
take-along rights. The Letter Agreement was amended on June 1, 1994 to change
certain provisions relating to take-along rights, to delete certain
individuals as parties to the Letter Agreement and to make certain other
definitional changes set forth therein. The Letter Agreement will terminate
upon completion of this offering.
On June 1, 1994, Messrs. Martino, Subbloie, Schmidt and Poludnewycz sold an
aggregate of 265,000 shares of Common Stock to Mercury Asset Management plc,
acting as agent for certain of its discretionarily managed accounts, for an
aggregate purchase price of $1,060,002. The Company was a party to the stock
purchase agreement relating to the foregoing transaction pursuant to which the
Company granted certain registration rights to the purchasers. The Company did
not receive any tangible consideration in connection with this transaction.
On June 1, 1994, Messrs. Martino, Subbloie, Schmidt and Poludnewycz sold an
aggregate of 66,249 shares of the Common Stock to Mr. Callard, Bruce W.
Schnitzer and Malcolm P. Appelbaum for an aggregate purchase price of
$264,996. Mr. Schnitzer is the majority shareholder and a director and officer
of WPI and Wand (IMA) Inc., and may be deemed to beneficially own the shares
of Common Stock held by the Wand Group. The Company granted registration
rights to the purchasers in connection with the transaction. The Company also
entered into certain amendments to the registration rights provisions of
outstanding Common Stock purchase warrants, the Letter Agreement and
registration rights provisions of certain other agreements between the Company
and Wand-I, Mr. Hill and WPI.
On November 16, 1994, the Company issued 250,000 shares of Common Stock to
Wand-I at a price of $4.00 per share. In connection with such financing, the
Company entered into certain amendments to outstanding Common Stock purchase
warrants held by Wand-I, Mr. Hill and WPI.
On March 31, 1995, the Company issued to Wand-I and Wand-II, 3,750 and 750
shares of Series A Senior Convertible Preferred Stock, no par value ("Series A
Preferred Stock"), respectively, for an aggregate consideration of $4,500,000.
The Series A Preferred Stock has a stated value of $1,000 per share and is
presently convertible into 920,433 shares of Common Stock at a conversion
price of $4.89 per share.
On May 2, 1995, the Partnership, whose general partners are Messrs. Martino,
Subbloie and Poludnewycz, sold an office building which had been formerly
leased by the Company to an unrelated third party. In connection with such
sale, the Partnership utilized the proceeds from the sale to repay a
55
<PAGE>
portion of the outstanding commercial mortgage loan secured by the facility.
The amount of the sale price was less than the outstanding balance of the
mortgage loan and the Partnership reissued a promissory note to the Bank in an
amount equal to the remaining balance of $475,000, bearing interest at a
floating rate equal to the Bank's prime rate plus one and one-half percent
(1.5%) (the "Restated Partnership Note"). The Restated Partnership Note was
payable in equal monthly installments of $15,833 commencing June 1, 1995 and
ending November 1, 1997. In connection with such sale and refinancing, the
Company's lease with respect to the facility was terminated and the Company
entered into a lease termination agreement with the Partnership pursuant to
which the Company agreed to make payments in an amount equal to the debt
service on the Restated Partnership Note. The amount of net rent, operating
expenses and other costs paid by the Company to, or on behalf of, the
Partnership during fiscal years 1994 and 1995 was $223,000 and $208,600,
respectively. The previously existing mortgage loan had been guaranteed by the
Company, and the Company confirmed its guaranty of the Restated Partnership
Note in connection with the sale of the office building.
On October 26, 1995, the Company entered into the Loan and Security
Agreement with the Bank pursuant to which the Bank provided the Line of Credit
in the maximum amount of $6.0 million and the Term Loan in the amount of $2.5
million. The Company used a portion of the proceeds from the bank financing to
prepay all of its obligations under the lease termination agreement and the
Partnership repaid in full the Restated Partnership Note. Messrs. Subbloie,
Martino and Poludnewycz guaranteed the payment of all of the indebtedness
under the Loan and Security Agreement and agreed to subordinate the payment of
any debt payable to such officers to the debt owed to the Bank.
On November 1, 1996, the Company issued 3,996 and 354 shares of its Series B
Senior Convertible Preferred Stock, no par value ("Series B Preferred Stock"),
to Wand-II and Wand-III, respectively, for an aggregate consideration of
$4,350,000. The Series B Preferred Stock has a stated value of $1,000 per
share and is presently convertible into 611,728 shares of Common Stock at a
conversion price of $7.11 per share.
As of January 1, 1994, the Company had borrowed $50,000 from Mr. Subbloie.
During 1994, the Company borrowed $481,500, $387,500 and $273,000 from Messrs.
Subbloie, Martino and Poludnewycz, respectively, and repaid $437,000, $377,500
and $273,000 to such individuals, respectively, resulting in outstanding
balances of $94,500, $10,000 and $0 as of December 31, 1994 for such
individuals, respectively. During 1995, the Company borrowed $421,500,
$119,200 and $273,000 from Messrs. Subbloie, Martino and Poludnewycz, and
repaid $356,500, $114,000 and $170,000 to such individuals, respectively,
resulting in outstanding balances of $159,500, $15,200 and $103,000 as of
December 31, 1995 for such individuals, respectively. During 1996, the Company
repaid the outstanding balances of the loans ($159,500, $15,200 and $103,000
to Messrs. Subbloie, Martino and Poludnewycz, respectively). The loans were
unsecured, subordinated and due on demand, and were used by the Company for
working capital purposes. During 1996, interest was charged on the 1994, 1995
and 1996 net borrowings under the loans at an effective interest rate of 9.5%
and all interest due for years 1994, 1995 and 1996 was paid by the Company in
1996.
As of January 1, 1994, Messrs. Subbloie, Martino and Poludnewycz had
received interest-free unsecured personal loans from the Company aggregating
approximately $127,300, $105,600 and $21,700, respectively. During 1994, 1995
and 1996 the Company made additional interest-free unsecured personal loans to
each of Messrs. Subbloie, Martino and Poludnewycz in the respective amounts of
$64,900, $17,700 and $28,800 for Mr. Subbloie; $68,300, $14,000 and $34,700
for Mr. Martino; and $41,300, $4,800 and $41,300 for Mr. Poludnewycz. No
amounts were repaid on the loans during 1994, 1995 or 1996 by any of Messrs.
Subbloie, Martino or Poludnewycz, and as a result the amounts outstanding at
December 31 of each such year were $192,200, $209,900 and $238,700 for Mr.
Subbloie; $173,900, $187,900 and $222,600 for Mr. Martino; and $63,000,
$67,800 and $109,100 for Mr. Poludnewycz, which amounts were the greatest
principal amounts outstanding at any time during such years for such officers.
Messrs.
56
<PAGE>
Subbloie, Martino and Poludnewycz executed promissory notes effective as of
December 31, 1996 equal to the outstanding balance of their aggregate loans,
which were $238,700, $222,600 and $109,100, respectively (collectively, the
"1996 Loans"). The 1996 Loans bear interest at 8.25% per annum, are unsecured
and provide for the payment of all principal and accrued interest thereon on
the earlier to occur of an initial public offering or June 1, 1999. The 1996
Loans represented advances made by the Company which were used by Messrs.
Subbloie, Martino and Poludnewycz for personal expenses unrelated to the
business of the Company.
On February 28, 1997, the Company made unsecured personal loans of $57,000,
$58,500 and $34,000 to each of Messrs. Subbloie, Martino and Poludnewycz,
respectively (collectively, the "1997 Loans"). The 1997 Loans bear interest at
8.25% per annum and provide for the payment of all principal and accrued
interest thereon on the earlier of June 1, 1999 or an initial public offering
of Common Stock of the Company. The aggregate outstanding amount of the 1996
Loans and 1997 Loans for each of Messrs. Subbloie, Martino and Poludnewycz is
$295,700, $281,100 and $143,100, respectively. The principal amount and
accrued interest of the 1996 Loans and 1997 Loans will be repaid in full by
such officers upon the completion of this offering. The 1997 Loans represented
advances made by the Company which were used by Messrs. Subbloie, Martino and
Poludnewycz for personal expenses unrelated to the business of the Company.
57
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997 and as adjusted
to reflect the sale of the shares offered hereby (i) by each person or entity
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) by each director of the Company, (iii) by each of
the Named Executive Officers, (iv) by all directors and executive officers of
the Company as a group, and (v) by other Selling Shareholders. Unless
otherwise indicated below, to the knowledge of the Company, each person or
entity listed below maintains a mailing address c/o Information Management
Associates, Inc., One Corporate Drive, Suite 414, Shelton, Connecticut 06484
and has sole voting and investment power over the shares of Common Stock shown
as beneficially owned, except to the extent authority is shared by spouses
under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED
TO OFFERING(1) AFTER OFFERING(1)(2)
----------------------- NUMBER OF -----------------------
NAME AND ADDRESS OF SHARES
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------- ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Wand Group (3).......... 3,516,913 56.0% 1,604,985 1,911,928 21.5%
630 Fifth Avenue,
Suite 2435
New York, NY 10111
Albert R. Subbloie, Jr.
(4).................... 682,726 10.7 60,000 622,726 6.9
Gary R. Martino (5)..... 680,476 10.6 60,000 620,476 6.9
Andrei Poludnewycz (6).. 455,304 7.2 39,375 415,929 4.7
James S. Aufdemberge
(7).................... 50,230 * 6,000 44,230 *
Paul G. Frederick (8)... 18,750 * 3,000 15,750 *
James E. Anderson (9)... 3,750 * 565 3,185 *
David G. Caldeira (10).. 48,825 * 2,625 46,200 *
Michael P. McGroarty
(11)................... 7,500 * 1,125 6,375 *
Paul J. Schmidt (12).... 200,508 3.2 15,000 185,508 2.1
David J. Callard (13)... 48,750 * 4,140 44,610 *
c/o Wand Partners Inc.
630 Fifth Avenue,
Suite 2435
New York, NY 10111
Thomas F. Hill (14)..... 68,661 1.1 6,000 62,661 *
Donald P. Miller (15)... 16,875 * 2,500 14,375 *
Directors and Executive
Officers as a Group
(12 persons) (16)...... 2,282,355 33.8 200,330 2,082,025 22.2
Mercury Asset Management
plc (17)............... 265,000 4.2 22,500 242,500 2.7
James H. Coffman, Jr.
(18)................... 209,902 3.3 17,000 192,902 2.1
Michael Herlehy (19).... 67,974 1.1 7,500 60,474 *
Joseph Niciforo (20).... 67,974 1.1 7,500 60,474 *
Joseph R. LeMay, Jr.
(21)................... 67,140 1.1 3,750 63,390 *
Thomas Pedersen (22).... 28,867 * 3,185 25,682 *
William and Marylee
Trousdale (23)......... 16,992 * 1,875 15,117 *
Floyd Donahue (24)...... 16,992 * 1,875 15,117 *
Charles Heller (25)..... 8,496 * 750 7,746 *
Craig Lund (26)......... 5,782 * 1,875 3,907 *
Robert Geissman (27).... 5,782 * 1,875 3,907 *
</TABLE>
- --------
*Less than 1%
58
<PAGE>
- -------
(1) The number of shares beneficially owned by each shareholder is determined
under rules promulgated by the SEC, and the information is not
necessarily indicative of beneficial ownership for any other purpose.
Under SEC rules, beneficial ownership includes any shares as to which an
individual or entity has sole or shared voting power or investment power
and also any shares which an individual or entity has the right to
acquire within 60 days after March 31, 1997 through the exercise of any
stock option, warrant or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named
shareholder is a direct or indirect beneficial owner of such shares.
Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with his or
her spouse) with respect to all shares of capital stock listed as owned
by such person or entity.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Includes (i) 2,678,546 shares held by Wand/IMA Investments, L.P. ("Wand-
I"), 1,539,949 of which are offered hereby; (ii) 203,187 shares held by
Wand/IMA Investments II L.P. ("Wand-II"), 17,270 of which are offered
hereby; (iii) 561,946 shares held by Wand/IMA Investments III L.P.
("Wand-III"), 47,766 of which are offered hereby; (iv) 41,361 shares
issuable upon the cashless exercise of an outstanding warrant held by
Wand Partners Inc. ("WPI"); and (v) 31,873 shares held by Bruce W.
Schnitzer. Mr. Schnitzer is the majority shareholder and a director of
WPI and Wand (IMA) Inc. and owns limited partnership interests in Wand-I
and Wand-III. WPI is a general partner of Wand-I and Wand II, and Wand
(IMA) Inc. is a general partner of Wand-II and Wand-III. Mr. Schnitzer
may be deemed to beneficially own all shares held by such entities. Wand-
I, Wand-II and Wand-III have agreed to sell 82,838, 35,560 and 98,337
shares, respectively, pursuant to the Underwriter's over-allotment
option.
(4) Includes 131,287 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. Subbloie has agreed to sell 60,000 shares
pursuant to the Underwriters' over-allotment option.
(5) Includes 131,287 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. Martino has agreed to sell 60,000 shares
pursuant to the Underwriters' over-allotment option.
(6) Includes 37,518 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. Poludnewycz has agreed to sell 39,375
shares pursuant to the Underwriters' over-allotment option.
(7) Includes 50,230 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. Aufdemberge has agreed to sell 9,000
shares pursuant to the Underwriters' over-allotment option.
(8) Includes 18,750 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. Frederick has agreed to sell 5,625 shares
pursuant to the Underwriters' over-allotment option.
(9) Includes 3,750 shares issuable pursuant to stock options which are
exercisable within 60 days.
(10) Includes 48,825 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. Caldeira has agreed to sell 4,875 shares
pursuant to the Underwriters' over-allotment option.
(11) Includes 7,500 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. McGroarty has agreed to sell 2,625 shares
pursuant to the Underwriters' over-allotment option.
(12) Includes 12,798 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. Schmidt has agreed to sell 18,750 shares
pursuant to the Underwriters' over-allotment option.
(13) Includes 16,875 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. Callard is a minority shareholder and a
director of WPI and Wand (IMA) Inc. WPI is a general partner of Wand-I
and Wand-II, and Wand (IMA) Inc. is a general partner of Wand-II and
Wand-III. Mr. Callard owns limited partnership interests in Wand-I and
Wand-III. Mr. Callard disclaims beneficial ownership of any shares of
Common Stock except for those held by him directly. Mr. Callard has
agreed to sell 4,140 shares pursuant to the Underwriters' over-allotment
option.
(14) Includes 51,786 shares issuable upon the cashless exercise of an
outstanding warrant and an option to purchase 16,875 shares which is
exercisable within 60 days. Mr. Hill is a director of WPI which is a
general partner of Wand-I and Wand-II. Mr. Hill disclaims beneficial
ownership of any shares except for those held by him directly. Mr. Hill
has agreed to sell 6,000 shares pursuant to the Underwriters' over-
allotment option.
(15) Includes 16,875 shares issuable pursuant to stock options which are
exercisable within 60 days.
(16) Includes options to purchase an aggregate of 492,570 shares held by
directors and executive officers which are exercisable within 60 days.
(17) Mercury Asset Management plc has agreed to sell 22,500 shares pursuant to
the Underwriters' over-allotment option.
(18) Includes 149,557 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. Coffman has agreed to sell 145,379 shares
pursuant to the Underwriters' over-allotment option. Mr. Coffman is a
former employee of the Company.
(19) Mr. Herlehy has agreed to sell 15,000 shares pursuant to the
Underwriters' over-allotment option.
(20) Mr. Niciforo has agreed to sell 15,000 shares pursuant to the
Underwriters' over-allotment option.
(21) Includes 13,500 shares issuable pursuant to stock options which are
exercisable within 60 days. Mr. LeMay has agreed to sell 7,500 shares
pursuant to the Underwriters' over-allotment option. Mr. LeMay was
formerly the Vice President of the Enterprise Application Division for
the Company.
(22) Mr. Pedersen has agreed to sell 25,682 shares pursuant to the
Underwriters' over-allotment option.
(23) Mr. and Mrs. Trousdale have agreed to sell 3,750 shares pursuant to the
Underwriters' over-allotment option.
(24) Dr. Donahue has agreed to sell 3,750 shares pursuant to the Underwriters'
over-allotment option.
(25) Mr. Heller has agreed to sell 1,500 shares pursuant to the Underwriters'
over-allotment option.
(26) Mr. Lund has agreed to sell 3,907 shares pursuant to the Underwriters'
over-allotment option.
(27) Mr. Geissman has agreed to sell 3,907 shares pursuant to the
Underwriters' over-allotment option. Mr. Geissman is an employee of the
Company.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After giving effect to the amendment and restatement of the Company's
Certificate of Incorporation, to be effected upon the closing of this
offering, the authorized capital stock of the Company will consist of
20,000,000 shares of Common Stock, no par value per share, and 500,000 shares
of undesignated Preferred Stock, no par value per share. As of March 31, 1997
(after giving effect to the conversion of all outstanding shares of
Convertible Preferred Stock into Common Stock and the exercise of all common
stock purchase warrants held by WPI and its affiliates and the exercise of
options for 34,690 shares of Common Stock), there were outstanding (i)
6,275,538 shares of Common Stock held by shareholders of record, (ii) stock
options for the purchase of a total of 1,502,485 shares of Common Stock, and
(iii) stock purchase warrants exercisable for a total of 6,750 shares of
Common Stock.
The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Certificate of Incorporation and Bylaws, and of certain
provisions of the Connecticut Business Corporation Act (the "CBCA"), is not
intended to be complete and is qualified by reference to the provisions of
applicable law and to the Certificate of Incorporation and Bylaws included as
exhibits to the Registration Statement of which this Prospectus is a part. See
"Additional Information."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters properly submitted to a vote of shareholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of Common Stock are entitled to
receive ratably such distributions, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any preferential
distribution rights of outstanding Preferred Stock. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities and subject to any prior claims.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. Certain holders of Common Stock
have the right, in certain circumstances, to require the Company to effect the
registration of their shares of Common Stock pursuant to the Securities Act.
See "Shares Eligible for Future Sale."
PREFERRED STOCK
Under the terms of the Certificate of Incorporation, the Board of Directors
is authorized, subject to any limitations prescribed by law, without
shareholder approval, to issue shares of Preferred Stock in one or more
series. Each such series of Preferred Stock issued may rank senior to the
Common Stock with respect to the payment of any distributions or amounts upon
liquidation, dissolution or winding up of the Company. In addition, it shall
have such preferences, limitations and relative rights, including voting
rights, distribution rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the Board of Directors,
without any further vote or action by the shareholders.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of the outstanding
voting stock of the Company. The Company has no present plans to issue any
shares of Preferred Stock.
60
<PAGE>
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND CONNECTICUT
LAW; ANTITAKEOVER EFFECTS
Certificate of Incorporation and Bylaws. The Certificate of Incorporation
provides for the division of the Board of Directors into three classes as
nearly equal in size as possible with staggered three-year terms. See
"Management." In addition, the Certificate of Incorporation provides that
subject to the rights of holders of any class or series of Preferred Stock
then outstanding, directors may be removed only for cause at a meeting of
shareholders called expressly for that purpose at which a quorum is present by
the affirmative vote of the holders of two-thirds of the shares of the Company
entitled to vote in the election of directors generally. The classification of
the Board of Directors and the limitations on the removal of directors could
have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from acquiring, control of the Company.
The Certificate of Incorporation provides that an amendment of the
Certificate of Incorporation will require the approval of the Board of
Directors and an affirmative vote of a majority of the shares entitled to vote
on the amendment, if shareholder approval is required by the CBCA. The CBCA
provides generally that bylaws may be amended by a majority vote of the board
of directors or the shareholders. The Certificate of Incorporation provides,
however, that any Bylaws adopted by the shareholders of the Company or
required by the CBCA to be adopted by the shareholders may only be made,
altered or repealed by the vote of a majority of the shareholders.
The Bylaws provide that any action required or permitted to be taken by the
shareholders of the Company at an annual meeting or special meeting of
shareholders may only be taken if it is properly brought before such meeting.
The Bylaws further provide that special meetings of the shareholders may only
be called by the Chairman of the Board of Directors or by the Secretary of the
Company at the written request or by resolution adopted by a majority of the
Board of Directors or upon the written demand of the holders of 35% of the
voting stock entitled to vote at such special meeting. Under the Bylaws, in
order for any matter to be considered "properly brought" before a meeting, a
shareholder must comply with certain requirements regarding advance notice to
the Company. The foregoing provisions could have the effect of delaying until
the next shareholders' meeting shareholder actions which are favored by the
holders of a majority of the outstanding voting securities of the Company.
The Certificate of Incorporation also contains certain provisions permitted
under the CBCA relating to the personal liability of directors. The provisions
limit a director's liability for monetary damages for a breach of fiduciary
duty to the amount of compensation received by the director for serving the
Company during the year of the violation, except in certain circumstances
involving (i) a knowing and culpable violation of law, (ii) receipt of an
improper personal economic gain by the director or an associate, (iii) a lack
of good faith and a conscious disregard for the duty of the director to the
Company under circumstances in which the director is aware that his conduct or
omission created an unjustifiable risk of serious injury to the Company, (iv)
a sustained and unexcused pattern of inattention that amount to an abdication
of the director's duty to the Company and (v) a director voting in favor of
certain types of distributions by the Company in violation of law or the
Certificate of Incorporation. Further, the Certificate of Incorporation
contains provisions to indemnify the Company's directors and officers to the
fullest extent permitted by the CBCA. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
Connecticut Antitakeover Statute. The Company is subject to the provisions
of Section 33-844 of the CBCA (the "Antitakeover Law"). The Antitakeover Law
prohibits a Connecticut corporation from engaging in a "business combination"
with an "interested shareholder" for a period of five years after the date of
the transaction in which the person became an interested shareholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes generally, mergers, asset sales, certain types of stock
issuances, and other transactions resulting in a disproportionate financial
benefit to the interested shareholder. Subject to certain exceptions, an
"interested shareholder" is a person who owns, or within five years did own,
10% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based upon the number of shares
outstanding at March 31, 1997, there will be 8,900,538 shares of Common Stock
outstanding (exclusive of 899,297 shares covered by vested options outstanding
at March 31, 1997). Of these shares, the 4,500,000 shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"), may not be resold except pursuant to an effective registration
statement of the Company, or an applicable exemption from registration,
including an exemption under Rule 144.
SALES OF RESTRICTED SHARES
The remaining 4,400,538 shares of Common Stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, 57,744 shares of
Common Stock will be eligible for sale beginning 90 days following the
Effective Date subject to certain resale restrictions pursuant to Rule 144
under the Securities Act. In addition, beginning 90 days after the Effective
Date, approximately 318,373 shares of Common Stock will be available for sale
without restriction in reliance on Rule 144(k) under the Securities Act upon
the expiration of 90-day Lock-up Agreements. Beginning 180 days after the
Effective Date, approximately 3,992,021 shares of Common Stock will be
available for sale upon the expiration of 180-day Lock-up Agreements, of which
approximately 3,540,604 shares will be subject to certain resale restrictions
pursuant to Rule 144 and approximately 451,417 shares will be available for
sale without restriction pursuant to Rule 144(k).
In general, under Rule 144 (as amended effective as of April 29, 1997),
beginning 90 days after the Effective Date, a person, including an Affiliate,
who has beneficially owned restricted securities for at least one year is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately 89,005 shares immediately after this offering) or (ii)
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale is filed, provided that
certain requirements concerning availability of public information, manner of
sale and notice of sale are satisfied. In addition, under Rule 144(k), a
person who is not an Affiliate and has not been an Affiliate for at least
three months prior to the sale and who has beneficially owned restricted
securities for at least two years is entitled to sell such shares immediately
without compliance with the foregoing requirements of Rule 144. In meeting the
one- and two-year holding periods described above, a holder of restricted
securities can include the holding periods of a prior owner who was not an
Affiliate. The one- and two-year holding periods do not begin to run until the
full purchase price or other consideration is paid by the person acquiring the
restricted securities from the issuer or an Affiliate.
LOCK-UP AGREEMENTS
The executive officers, directors and certain employees of the Company, and
certain shareholders, who in the aggregate will hold approximately 3,992,021
shares of Common Stock have agreed that for a period of 180 days following the
Effective Date, and certain other shareholders who will hold approximately
350,773 shares of Common Stock have agreed that for a period of 90 days
following the Effective Date, they will not offer, pledge, sell, contract to
sell, grant any option to purchase, purchase any option to sell, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock,
any options, rights or warrants to purchase any shares of Common Stock
(including any stock appreciation, right, or similar right with an exercise or
conversion privilege at a price related to or derived from the market price of
the Common Stock) or any securities convertible into or exchangeable for
shares of Common Stock owned directly by them or with respect to which they
have the power of disposition, or engage in any hedging transactions with
respect to the Common Stock that may have an impact on the market price of the
Common Stock without the prior written consent of the Representatives.
62
<PAGE>
OPTIONS
As of the Effective Date, based on the number of options outstanding at
March 31, 1997, approximately 899,297 shares of Common Stock will be issuable
pursuant to vested options under the Company's 1991 Plan, 1996 Employee and
Consultant Plan and 1996 Non-Employee Directors Plan, of which approximately
850,150 shares will be subject to 180-day Lock-up Agreements. Shortly after
the Effective Date, the Company intends to file one or more registration
statements on Form S-8 to register under the Securities Act shares issuable
under such plans, upon which such shares will generally be eligible for sale
in the public market without restriction, subject to Rule 144 limitations
applicable to Affiliates and Lock-up Agreements, to the extent applicable.
REGISTRATION RIGHTS
Certain persons and entities (the "Rightsholders"), including certain
members of the Wand Group, Mercury Asset Management plc and certain individual
holders are entitled to certain rights under the Securities Act with respect
to the registration of a total of 2,576,226 shares of Common Stock (the
"Registrable Shares") pursuant to the terms of various stock purchase
agreements and warrant agreements (collectively, the "Registration Rights
Agreements"). The Registration Rights Agreements generally provide that, in
the event the Company proposes to register any of its securities under the
Securities Act, the Rightsholders shall be entitled to include Registrable
Shares in such registration, subject to the right of the managing underwriter
of any underwritten offering to limit for marketing reasons the number of
Registrable Shares included in such registration.
Certain members of the Wand Group have the right at any time and from time
to time to require the Company to prepare and file registration statements
under the Securities Act with respect to a total of 1,925,841 shares of Common
Stock held by them; provided, however, that the Company need effect no more
than three such demand registrations.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of the Common Stock
in the public market, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to the Underwriters
named below, and the Underwriters, for whom Alex. Brown & Sons Incorporated,
Robertson, Stephens & Company LLC and SoundView Financial Group, Inc. are
acting as representatives (the "Representatives"), have severally agreed to
purchase from the Company and the Selling Shareholders the following
respective number of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the front
cover of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated.......................................
Robertson, Stephens & Company LLC.....................................
SoundView Financial Group, Inc. ......................................
---------
Total............................................................... 4,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, and that the Underwriters are
committed to purchase all of the shares of Common Stock offered hereby (other
than those covered by the over-allotment option described below), if any such
shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock in part directly to the public at the initial public offering price set
forth on the cover page of this Prospectus and in part to certain securities
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain brokers and dealers. After the shares of
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
Certain Selling Shareholders have granted the Underwriters an option,
exercisable for 30 days after the date of the Prospectus, to purchase up to an
aggregate of 675,000 additional shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on
the cover page of this Prospectus, solely to cover over-allotments, if any. To
the extent such option is exercised, the Underwriters will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares that the number of shares to be purchased by each
Underwriter shown in the foregoing table bears to the 4,500,000 shares of
Common Stock offered hereby.
64
<PAGE>
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Company has agreed that for a period of 180 days after the Effective
Date it will not issue, sell or otherwise dispose of, directly or indirectly,
any shares of Common Stock or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivatives of
Common Stock without the prior written consent of the Representatives, except
that the Company may issue shares upon the exercise of options outstanding on
the Effective Date issued pursuant to its 1991 Plan, 1996 Non-Employee
Directors Plan and 1996 Employee and Consultant Plan and grant options and
offer to sell shares of Common Stock to its employees and directors pursuant
to such plans, provided that the Company will not grant any options which will
become exercisable within 180 days after the Effective Date.
The executive officers, directors and certain employees of the Company, and
certain shareholders, who in the aggregate will hold approximately 3,992,021
shares of Common Stock have agreed that for a period of 180 days following the
Effective Date, and certain other shareholders who will hold approximately
350,773 shares of Common Stock have agreed that for a period of 90 days
following the Effective Date, they will not offer, pledge, sell, contract to
sell, grant any option to purchase, purchase any option to sell, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock,
any options, rights or warrants to purchase any shares of Common Stock
(including any stock appreciation, right, or similar right with an exercise or
conversion privilege at a price related to or derived from the market price of
the Common Stock) or any securities convertible into or exchangeable for
shares of Common Stock owned directly by them or with respect to which they
have the power of disposition, or engage in any hedging transactions with
respect to the Common Stock that may have an impact on the market price of the
Common Stock without the prior written consent of the Representatives.
During and after the offering, the Underwriters may purchase and sell Common
Stock in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. The Underwriters also may impose
penalty bids, whereby selling concessions allowed to syndicate members or
other broker-dealers in respect of the Common Stock sold in the offering for
their account may be reclaimed by the syndicate if such securities are
repurchased by the syndicate in stabilizing or short-covering transactions.
These activities may stabilize, maintain or otherwise affect the market price
of Common Stock, which may be higher than the price that might otherwise
prevail in the open market. These transactions may be effected on the Nasdaq
National Market or otherwise and these activities, if commenced, may be
discontinued at any time.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined by negotiation among the Company, representatives of the Selling
Shareholders and the Representatives. Among the factors expected to be
considered in such negotiations are the prevailing market conditions, the
results of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies that the Company,
the Selling Shareholders and the Representatives believe to be comparable to
the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by LeBoeuf, Lamb, Greene & MacRae, L.L.P.,
Hartford, Connecticut. Certain legal matters will be passed upon for the
Underwriters by Ropes & Gray, Boston, Massachusetts.
65
<PAGE>
EXPERTS
The audited consolidated financial statements and schedule included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits, schedules and supplements thereto) on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits thereto may be inspected and copied at prescribed rates at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
66
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and March
31, 1997 (unaudited) ................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996 and for the Three Month Period ended March 31, 1996
and 1997 (unaudited) ................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and for the Three Month Period ended March 31, 1996
and 1997 (unaudited).................................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the Period
from January 1, 1994 through December 31, 1996 and for the Three Month
Period ended March 31, 1997 (unaudited)................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Information Management Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Information
Management Associates, Inc. (a Connecticut corporation) and subsidiary as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Information Management Associates, Inc. and subsidiary as of December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Hartford, Connecticut March 6, 1997 (except with respect to the matter
discussed in Note 4 as to which the date is March 17, 1997)
F-2
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
(UNAUDITED)
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, DECEMBER 31, EQUITY
1995 1996 ACTUAL (NOTE 2)
------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
ASSETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Current assets:
Cash and cash equivalents.. $ 1,543 $ 3,073 $ 2,541
Accounts receivable, net
of allowance for doubtful
accounts of
$425 in 1995, $482 in
1996 and $508 at March
31, 1997.................. 7,801 10,473 12,403
Other current assets....... 392 232 340
-------- -------- --------
Total current assets..... 9,736 13,778 15,284
Equipment, net.............. 2,263 2,222 2,435
Notes receivable from
officers................... 194 572 721
Other assets, net........... 326 709 974
-------- -------- --------
$ 12,519 $ 17,281 $19,414
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Bank line of credit........ $ 3,000 $ 4,860 $ 4,860
Current maturities of term
note payable to bank...... -- 83 208
Current maturities of
obligations under capital
leases.................... 371 251 249
Current maturities of
subordinated note payable
to shareholder............ 500 250 250
Accounts payable........... 2,788 2,308 2,607
Accrued sales tax payable.. 220 823 960
Accrued compensation....... 1,057 1,166 1,095
Accrued liabilities........ 769 1,122 1,030
Deferred revenues.......... 2,264 1,705 3,942
-------- -------- --------
Total current
liabilities............. 10,969 12,568 15,201
-------- -------- --------
Term note payable to bank,
less current maturities
included above............. 2,500 2,417 2,292
-------- -------- --------
Subordinated note payable to
shareholder, less current
maturities included above.. 246 -- --
-------- -------- --------
Obligations under capital
lease, less current
maturities included above.. 296 386 315
-------- -------- --------
Other long term liabilities. 572 520 504
-------- -------- --------
Commitments and
Contingencies (Notes 7, 8
and 12)
Series A senior redeemable
convertible preferred
stock, $1,000 stated value;
4,500 shares authorized,
issued and outstanding
(liquidation value of
$4,775, $5,169 and $5,272
at December 31, 1995 and
1996 and March 31, 1997)... 4,751 5,145 5,248
Series B senior redeemable
convertible preferred
stock, $1,000 stated value;
4,350 shares authorized,
issued and outstanding in
1996 (liquidation value of
$4,408 and $4,496 at
December 31, 1996 and March
31, 1997).................. -- 4,286 4,374
-------- -------- --------
Total preferred stock.... 4,751 9,431 9,622
-------- -------- --------
Redeemable common stock
warrants................... 2,480 2,865 2,865
-------- -------- --------
Shareholders' equity
(deficit):
Preferred stock,
undesignated, no par value,
500,000 shares authorized,
no shares issued and
outstanding pro forma...... $ --
Common stock, no par value;
4,255,197, 4,293,379 and
4,293,379 shares
outstanding at December 31,
1995 and 1996, and March
31, 1997, 6,275,538 shares
pro forma.................. 5,554 5,795 5,798 18,213
Cumulative translation
adjustment................. (41) (9) (114) (114)
Accumulated deficit......... (14,808) (16,692) (17,069) (17,069)
-------- -------- -------- --------
Total shareholders'
equity (deficit)........ (9,295) (10,906) (11,385) 1,030
-------- -------- -------- --------
$ 12,519 $ 17,281 $ 19,414 $ 19,342
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- --------------------
1994 1995 1996 1996 1997
------- ------- --------- --------- ---------
(IN THOUSANDS, EXCEPT
SHARE
AND PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.............. $ 7,393 $10,825 $ 13,022 $ 2,929 $ 3,802
Services and maintenance.. 10,959 12,984 13,255 3,160 3,654
------- ------- --------- --------- ---------
Total revenues.......... 18,352 23,809 26,277 6,089 7,456
------- ------- --------- --------- ---------
Cost of revenues:
Cost of license fees...... 462 700 709 166 71
Cost of services and
maintenance.............. 6,268 8,225 7,191 1,822 1,952
------- ------- --------- --------- ---------
Total cost of revenues.. 6,730 8,925 7,900 1,988 2,023
------- ------- --------- --------- ---------
Gross profit................ 11,622 14,884 18,377 4,101 5,433
------- ------- --------- --------- ---------
Operating expenses:
Sales and marketing....... 5,857 6,844 8,055 1,872 2,648
Product development....... 6,106 6,802 6,382 1,553 1,532
General and administra-
tive..................... 2,693 3,824 3,878 1,024 1,092
------- ------- --------- --------- ---------
Total operating ex-
penses................. 14,656 17,470 18,315 4,449 5,272
------- ------- --------- --------- ---------
Operating income (loss)..... (3,034) (2,586) 62 (348) 161
------- ------- --------- --------- ---------
Other income (expense):
Interest expense.......... (619) (764) (1,171) (281) (257)
Loss on disposal of prop-
erty and equipment....... (298) (113) -- -- --
Gain on sale of product
line..................... -- -- 92 -- --
Termination of operating
lease.................... -- (223) -- -- --
------- ------- --------- --------- ---------
Total other income
(expense).............. (917) (1,100) (1,079) (281) (257)
------- ------- --------- --------- ---------
Loss before provision for
income taxes............... (3,951) (3,686) (1,017) (629) (96)
Provision for income taxes.. 132 100 30 -- 90
------- ------- --------- --------- ---------
Net loss.................... $(4,083) $(3,786) $ (1,047) $ (629) $ (186)
======= ======= ========= ========= =========
Pro forma net loss per share
(Note 2)................... $ (.17) $ (.11) $ (.03)
========= ========= =========
Pro forma shares used in net
loss per share
calculation (Note 2)....... 6,007,213 5,898,322 6,548,232
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activi-
ties:
Net loss.......................... $(4,083) $(3,786) $(1,047) $ (629) $ (186)
Adjustments to Reconcile Net Loss
to Net Cash Provided By (Used In)
Operations:
Depreciation and amortization..... 816 948 1,155 198 342
Loss on disposal of property and
equipment........................ 298 113 -- -- --
Gain on sale of product line...... -- -- (92) -- --
Amortization of restricted stock
awards........................... 10 10 10 3 3
Changes in Operating Assets and
Liabilities
Accounts receivable............... (2,315) 399 (3,001) (604) (1,930)
Other current assets.............. (129) (236) 143 (115) (108)
Notes receivable from officers.... (71) 76 (378) (235) (149)
Other assets...................... (63) (182) (502) (129) (265)
Accounts payable.................. 1,400 (288) (480) (539) 299
Accrued sales tax................. 61 145 603 268 137
Accrued compensation.............. (68) 537 109 (59) (71)
Accrued liabilities............... (275) 123 370 406 (92)
Other long term liabilities....... 213 260 (52) (71) (16)
Deferred revenues................. 914 (10) (128) 907 2,237
------- ------- ------- ------ -------
Net Cash Provided By (Used In)
Operations..................... (3,292) (1,891) (3,290) (599) 201
------- ------- ------- ------ -------
Cash Flows from Investing Activi-
ties:
Acquisition of equipment.......... (1,047) (951) (1,001) (134) (556)
Proceeds from sale of building.... -- 677 -- -- --
------- ------- ------- ------ -------
Net Cash Used in Investing Ac-
tivities....................... (1,047) (274) (1,001) (134) (556)
------- ------- ------- ------ -------
Cash Flows from Financing Activi-
ties:
Net proceeds from sale of common
stock............................ 1,164 -- 231 -- --
Net proceeds from sale of pre-
ferred stock..................... -- 4,475 4,228 -- --
Proceeds from bank term loan...... -- 2,500 -- 250 --
Proceeds from (repayment of) ad-
vances from shareholders......... 1,008 (1,008) -- -- --
Net proceeds from (repayment of)
bank line of credit.............. 1,555 (1,000) 1,860 -- --
Repayment of obligations under
capital leases................... (375) (1,376) (539) 343 (72)
Proceeds from sale leaseback...... -- -- 509 -- --
Repayment of subordinated note
payable to shareholder........... -- (250) (500) (250) --
------- ------- ------- ------ -------
Net Cash Provided By (Used In)
Financing Activities........... 3,352 3,341 5,789 343 (72)
------- ------- ------- ------ -------
Effect of Exchange Rate Changes.... 38 (79) 32 (46) (105)
------- ------- ------- ------ -------
Net Increase (Decrease) in Cash and
Cash Equivalents.................. (949) 1,097 1,530 (436) (532)
Cash and Cash Equivalents, begin-
ning of period.................... 1,395 446 1,543 1,543 3,073
------- ------- ------- ------ -------
Cash and Cash Equivalents, end of
period............................ $ 446 $ 1,543 $ 3,073 $1,107 $ 2,541
======= ======= ======= ====== =======
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period for
interest......................... $ 469 $ 714 $ 877 $ 162 $ 225
Cash paid during the period for
income taxes..................... 30 -- 16 -- 90
Supplemental Disclosure of Noncash
Activities:
Accretion of Series A preferred
stock in lieu of dividends....... $ -- $ 275 $ 394 $ 96 $ 103
Accretion of Series B preferred
stock in lieu of dividends....... -- -- 58 -- 88
Increase in fair market value of
redeemable common stock
warrants......................... 458 965 385 385 --
Equipment acquired pursuant to
capital lease obligation......... 851 113 -- 631 --
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
----------------- TRANSLATION ACCUMULATED
SHARES AMOUNT ADJUSTMENT DEFICIT TOTAL
---------- ------ ----------- ----------- --------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994... 3,958,947 $4,370 $ -- $ (5,241) $ (871)
Sale of common stock, net
of issuance costs of $21. 296,250 1,164 -- -- 1,164
Amortization of restricted
stock awards............. -- 10 -- -- 10
Change in fair market
value of redeemable com-
mon stock warrants....... -- -- -- (458) (458)
Equity adjustment from
foreign currency transla-
tion..................... -- -- 38 -- 38
Net loss.................. -- -- -- (4,083) (4,083)
---------- ------ ----- -------- --------
Balance, December 31, 1994. 4,255,197 5,544 38 (9,782) (4,200)
Amortization of restricted
stock awards............. -- 10 -- -- 10
Change in fair market
value of redeemable com-
mon stock warrants....... -- -- -- (965) (965)
Accretion of Series A pre-
ferred stock dividends... -- -- -- (275) (275)
Equity adjustment from
foreign currency transla-
tion..................... -- -- (79) -- (79)
Net loss.................. -- -- -- (3,786) (3,786)
---------- ------ ----- -------- --------
Balance, December 31, 1995. 4,255,197 5,554 (41) (14,808) (9,295)
Sale of common stock...... 32,400 231 -- -- 231
Exercise of common stock
options.................. 5,782 -- -- -- --
Amortization of restricted
stock awards............. -- 10 -- -- 10
Change in fair market
value of redeemable
common stock warrants.... -- -- -- (385) (385)
Accretion of Series A pre-
ferred stock dividends... -- -- -- (394) (394)
Accretion of Series B pre-
ferred stock dividends... -- -- -- (58) (58)
Equity adjustment from
foreign currency transla-
tion..................... -- -- 32 -- 32
Net loss.................. -- -- -- (1,047) (1,047)
---------- ------ ----- -------- --------
Balance, December 31, 1996. 4,293,379 5,795 (9) (16,692) (10,906)
Amortization of restricted
stock awards (unaudited). -- 3 -- -- 3
Accretion of Series A
preferred stock dividends
(unaudited).............. -- -- -- (103) (103)
Accretion of Series B
preferred stock dividends
(unaudited).............. -- -- -- (88) (88)
Equity adjustment from
foreign currency
translation (unaudited).. -- -- (105) -- (105)
Net loss (unaudited)...... -- -- -- (186) (186)
---------- ------ ----- -------- --------
Balance, March 31, 1997
(unaudited)............... $4,293,379 $5,798 $(114) $(17,069) $(11,385)
========== ====== ===== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) NATURE OF OPERATIONS
Information Management Associates, Inc. and subsidiary (the Company) are
primarily engaged in the development, marketing and support of software that
automates customer interaction including telemarketing, telesales, contact
management, sales, marketing and customer service functions of business
organizations in a variety of industries. The Company markets its software
products in North and South America as well as Western Europe, Asia, Australia
and New Zealand.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned foreign
subsidiary, Information Management Associates Limited, which is located in the
United Kingdom. All material intercompany balances and transactions have been
eliminated in consolidation.
Foreign currency transactions. The functional currency of the Company's
subsidiary is the local currency. Accordingly, the Company applies the current
rate method to translate the subsidiary's financial statements into U.S.
dollars. Translation adjustments are included as a separate component of
shareholders' equity (deficit) in the accompanying consolidated financial
statements.
Cash and cash equivalents. The Company considers all highly liquid
investments with original maturities of three months or less to be the
equivalent of cash. As of December 31, 1995 and 1996 and March 31, 1997, the
Company's cash and cash equivalents are deposited with principally one
financial institution.
Equipment. Equipment is recorded at cost and is depreciated or amortized,
using the straight-line method, over their estimated useful life of three to
ten years.
At December 31, 1995 and 1996 and March 31, 1997, property and equipment,
net, consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
MARCH 31,
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Equipment............................................ $1,504 $2,606 $3,738
Furniture and fixtures............................... 1,219 1,499 1,152
Leasehold improvements............................... 425 451 515
Equipment under capital lease........................ 1,338 931 910
------ ------ ------
4,486 5,487 6,315
Less--Accumulated depreciation and amortization...... 2,223 3,265 3,880
------ ------ ------
$2,263 $2,222 $2,435
====== ====== ======
</TABLE>
Expenditures for repairs and maintenance are charged against income as
incurred while renewals and betterments are capitalized.
Software development costs. The Company expenses research and development
costs as incurred. The Company has evaluated the establishment of
technological feasibility of its products in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise
F-7
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Marketed. The Company defines technological feasibility as the completion of a
working model. The Company sells products in a market that is subject to rapid
technological change, new product development and changing customer needs. The
Company has concluded that technological feasibility is not established until
the development stage of the product is nearly complete. The time period
during which costs could be capitalized from the point of reaching
technological feasibility until the time of general product release is very
short and, consequently, the amounts that could be capitalized are not
material to the Company's financial position or results of operations.
Therefore, the Company has charged all such costs to research and development
in the period incurred.
Revenue recognition. The Company generates revenues from licensing the
rights to use its software products directly to end users and indirectly
through sublicense fees from resellers. The Company also generates revenues
from sales of software maintenance contracts, and from consulting and training
services performed for customers who license its products.
Revenues from software license agreements are recognized upon the delivery
of the software to the customer if there are no significant post-delivery
obligations and collection is probable. Service revenues consist of
professional consulting, implementation and training services performed on a
time-and-materials basis under separate service arrangements related to the
implementation of the Company's software products. Revenues from consulting
and training services are recognized as services are performed. The Company
enters into transactions which include both license and service elements. As
such service elements do not include more than minor alteration of the
software, the license fees are recognized upon delivery and the service
revenues are recognized when performed.
Software maintenance fees are recognized ratably over the term of the
maintenance period. If software maintenance fees are provided for in the
license fee or at a discount in a license agreement, a portion of the license
fee equal to the fair market value of these amounts is allocated to software
maintenance revenue based on the value established by independent sales of
such maintenance services to customers.
Cost of license revenues consists primarily of the cost of media on which
the product is delivered and third party software products which are resold by
the Company. Cost of service and maintenance revenues consists primarily of
salaries, benefits, subcontracted consulting costs and allocated overhead
costs related to consulting personnel and the customer support group.
Deferred revenues primarily relate to post-contract customer support which
has been paid by customers prior to the performance of the services.
Income taxes. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". This statement requires the Company to recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement carrying amounts and the tax
basis of the assets and liabilities and the net operating loss carryforwards
available for tax reporting purposes, using applicable tax rates for the years
in which the differences are expected to reverse.
Pro forma net loss per common share. Pro forma net loss per common share
assumes, in connection with the closing of the initial public offering,
numbers of shares issuable upon the conversion of the Series A senior
redeemable convertible preferred stock, the cashless exercise of the
F-8
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
redeemable common stock warrants at an offering price of $12.00 per share and
the exercise of 34,690 options as if such conversion or exercise occurred on
January 1, 1996, and the number of shares issuable upon the conversion of the
Series B senior redeemable convertible preferred stock as if such conversion
occurred upon issuance of such stock on November 1, 1996 (see Notes 7, 8 and
17). In addition, pursuant to the requirements of the Securities and Exchange
Commission, common stock equivalents issued at prices below the anticipated
public offering price during the twelve months immediately preceding the
initial public offering filing date have been included in the calculation of
weighted average number of common shares outstanding (using the treasury stock
method and the anticipated public offering price).
Historical net loss per share is not presented in the accompanying financial
statements as such amounts are not meaningful.
Long-lived assets. In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of"
(SFAS 121). SFAS 121 requires a company to review long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of this
standard did not have a material impact on the Company's results of operations
or financial position.
Concentration of credit risk. Financial instruments which potentially
subject the Company to concentration of credit risk consists principally of
cash and trade receivables. As of December 31, 1995 and 1996 one customer
accounted for 14% and 10%, respectively, of accounts receivable.
Use of estimates in the preparation of financial statements. The preparation
of 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.
Reclassifications. Certain reclassifications have been made to the 1994 and
1995 consolidated financial statements in order for them to be presented in
conformity with the 1996 consolidated financial statements.
Interim Financial Statements. The unaudited financial statements as of March
31, 1997 and for the three months ended March 31, 1996 and 1997 are unaudited
and include all adjustments (consisting of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
results for such interim periods. The results of operations for the three
months ended March 31, 1997 are not necessarily indicative of the results to
be expected for any future period.
Pro forma presentation. As discussed in Note 17, the Company's Series A
convertible preferred stock and Series B convertible preferred stock will be
converted into shares of common stock and the redeemable common stock warrants
will be exercised upon the closing of the Company's initial public offering
contemplated herein. In addition, 34,690 options to purchase common stock are
expected to be exercised in connection with the initial public offering. The
unaudited pro forma shareholders' equity as of March 31, 1997 reflects the
conversion of the Series A and Series B preferred stock into 1,532,161 shares
of common stock, the issuance of 415,308 shares of common stock pursuant to
the cashless exercise of outstanding redeemable common stock warrants and the
exercise of 34,690 options.
F-9
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Recently Issued Accounting Standard. In March 1997, the Financial Accounting
Standards Board issued SFAS No. 128, "Earnings Per Share", which establishes
new standards for computing and presenting earnings per share. SFAS 128 is
effective for financial statements issued for periods ending after December
31, 1997 and earlier adoption is not permitted. The Company has not quantified
the effect of adopting the new standard.
(3) RESTRUCTURING OF OPERATIONS
Effective September 1, 1996, the Company sold its assets related to the
Telemar product line to a third party buyer, Telemar Software International,
LLC (TSI). TSI also assumed certain liabilities of the Company related to the
Telemar product line. As a result of the sale, the Company was relieved of
liabilities in excess of assets sold and, accordingly, recognized a net gain
of approximately $92,000. Concurrent with the sale, certain employees who were
dedicated to the Telemar product line were terminated by the Company and
rehired by TSI.
In connection with the sale, TSI also gave the Company a promissory note in
the principal amount of $650,000, which is payable in five equal annual
installments of $130,000 and bears interest at 8.0%. The Company has fully
reserved for the $650,000 note receivable because collectibility, based on the
start up nature of TSI operations, was not ascertainable at the time of sale.
The note is secured by substantially all of the assets of TSI.
(4) BANK INDEBTEDNESS
In February 1997, the Company entered into an amended Loan and Security
Agreement (the Credit Agreement) with a bank. The Credit Agreement consists of
a $6,000,000 line of credit and a $2,500,000 Term Note Payable (the Term
Note). The Credit Agreement was further amended on March 17, 1997 (the March
1997 Amendment) to extend the maturity date of the line of credit to February
1, 1998.
Line of credit. Borrowings under the line of credit bear interest at prime
(8.25% at December 31, 1996) plus 1.0% and are limited to 75% of qualified
accounts receivable, as defined. At December 31, 1996 and March 31, 1997,
borrowings outstanding under the line of credit were $4,860,000 and additional
borrowings of approximately $1,140,000 were available at March 31, 1997.
Term Note Payable. The Term Note is payable in equal monthly principal
installments of $41,667, commencing November 1, 1997 through October 2002. In
the event of an initial public offering, the balance of the Term Note is due
and payable.
In addition to an 11.0% per annum interest which is payable on a current
basis, the Company is required to accrue additional interest based upon a
formula which approximates 9.0% (the Additional Interest). The Additional
Interest is payable at the earlier of November 1, 1998 or upon full repayment
of the Term Note. The Company is accruing for the Additional Interest and at
December 31, 1995 and 1996 and March 31, 1997 approximately $33,000, $233,000
and $319,000, respectively, is included in accrued liabilities in the
accompanying consolidated balance sheets.
F-10
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) BANK INDEBTEDNESS--(CONTINUED)
Aggregate maturities of the Term Note for each of the succeeding five years
subsequent to December 31, 1996 and thereafter, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ------
<S> <C>
1997............................................................. $ 83
1998............................................................. 500
1999............................................................. 500
2000............................................................. 500
2001............................................................. 500
thereafter....................................................... 417
------
$2,500
======
</TABLE>
Upon the closing of an initial public offering, the Company is required to
repay the outstanding principal balance of, and accrued interest on, the line
of credit and Term Note, provided however that the March 1997 Amendment
provides for subsequent re-borrowings under the line of credit through the
February 1, 1998 maturity date.
The Credit Agreement contains financial and other covenants requiring the
Company to maintain, among other requirements, a minimum level of working
capital and tangible net worth, as defined. As of and during the year ended
December 31, 1996, the Company was in violation of certain covenants for which
it has received a waiver from its bank. In addition, in connection with an
amendment to the Credit Agreement the lender adjusted the financial covenants
for 1997. Borrowings under the Credit Agreement are secured by substantially
all assets of the Company and are personally guaranteed by certain members of
management. The March 1997 Amendment provides for the release of management's
personal guarantees upon the closing of an initial public offering.
(5) OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under capital leases which expire at
varying dates through 2000.
The following is a schedule of future minimum lease payments for capital
leases as of December 31, 1996 and thereafter, (in thousands):
<TABLE>
<S> <C>
1997................................................................ $311
1998................................................................ 274
1999................................................................ 85
2000................................................................ 48
----
718
Less--Amount representing interest.................................. 81
----
Present value of future minimum lease payments...................... 637
Less--Current maturities............................................ 251
----
$386
====
</TABLE>
In February 1996 the Company sold certain equipment and simultaneously
leased back the equipment under a Master Lease Agreement (the Lease
Agreement). The Lease Agreement was accounted for as a financing lease and
accordingly the proceeds from the sale were reflected as a debt obligation
which is being amortized over the term of the lease. In connection with the
Lease Agreement, the Company issued to the lessor warrants to purchase 6,750
shares of common stock at a price of $4.89 per share which was based upon the
sale price of the Company's securities in the last transaction prior to the
time the financing
F-11
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) OBLIGATIONS UNDER CAPITAL LEASES--(CONTINUED)
arrangement was negotiated. In accordance with the terms and conditions of the
capital lease, the Company has a repurchase option whereby the equipment can
be repurchased at fair market value, as defined. As the equipment was sold at
its net book value there was no gain or loss as a result of the Lease
Agreement.
During 1993 and 1994 the Company leased a facility in Trumbull, Connecticut,
from Information Management Associates (the Partnership), a related party
whose partners are the same as certain of the Company's shareholders. This
facility served as the Company's headquarters until April 1994 (see Note 12).
As a result of the mortgage on the facility being guaranteed by both the
partners of the Partnership and the Company, the related lease had been
accounted for as a capital lease. As of December 31, 1994, there was
outstanding mortgage indebtedness on the facility of approximately $976,000.
During 1995, the Partnership sold the facility in Trumbull, Connecticut. The
sale resulted in a loss of $376,000, of which $298,000 and $78,000 was
provided for in the accompanying consolidated statements of operations for the
years ended December 31, 1994 and 1995, respectively. The net proceeds from
the sale, which were received in 1995, were used to reduce the mortgage
indebtedness and the remaining indebtedness of $475,000 was repaid by the
Company during 1995.
(6) SUBORDINATED NOTE PAYABLE TO SHAREHOLDER
The Subordinated Note Payable to Shareholder (the Shareholder Note) was
payable in four annual, equal installments of $250,000, commencing in December
1994 and bears interest at 12.0% per annum. The installments of $250,000 due
in December 1994 and 1995 were paid in 1995 and 1996, respectively. As of
December 31, 1996 and March 31, 1997, the balance of the Shareholder's Note
was $250,000. The outstanding principal balance of the Shareholder Note is
stated net of approximately $4,000 of related unamortized debt discount costs
at December 31, 1995. These costs were being amortized over the life of the
debt.
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation has
authorized 500,000 shares of preferred stock, of which 4,500 shares have been
designated as Series A senior redeemable convertible preferred stock (Series A
preferred) and of which 4,350 shares have been designated as Series B senior
redeemable convertible preferred stock (Series B preferred). In March 1995,
the Company issued the Series A preferred, with a stated value of $1,000, to
certain common shareholders for proceeds of approximately $4,475,000, net of
issuance costs of approximately $25,000. In November 1996, the Company issued
the Series B preferred, with a stated value of $1,000, to certain common
shareholders for proceeds of approximately $4,228,000, net of issuance costs
of approximately $122,000.
Dividends. The Series A preferred and Series B preferred accrue dividends at
a rate of 8% per annum. Through June 30, 1999, the Company can elect to pay
such dividends in additional shares of preferred stock in lieu of cash. As of
December 31, 1995 and 1996 and March 31, 1997, the carrying value of the
Series A preferred included $275,000, $669,000 and $772,000, respectively, of
accrued but unpaid dividends. As of December 31, 1996 and March 31, 1997, the
carrying value of the Series B preferred included $58,000 and $146,000,
respectively, of accrued but unpaid dividends. Provided there are shares of
preferred stock outstanding, the Company shall not declare any dividends on
the Company's common stock.
Conversion. Holders of the Series A preferred and Series B preferred are
entitled to convert such shares into common stock at a rate of $4.89 and $7.11
per share, respectively, with such conversion rate subject to adjustment, as
defined.
F-12
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK--(CONTINUED)
If the holders of the Series A preferred elect to convert such stock and
there has not been either (i) an initial public offering with aggregate
proceeds in excess of $20,000,000, and a per share price less than $8.22
through September 30, 1997 and increasing thereafter, or (ii) a Mandatory
Redemption (see below) in which the appraised value of the common stock, as
defined, is less than $31.11 per share as of March 31, 2003 and $39.11 per
share as of March 31, 2004, then the conversion price shall be based on a
$1,000 stated value and the Company shall have no obligation to pay the holder
any accrued but unpaid dividends.
If the holders of the Series B preferred elect to convert such stock and
there has not been either (i) an initial public offering with aggregate
proceeds in excess of $20,000,000, and a per share price less than $12.89
through March 31, 1998 and increasing thereafter, or (ii) a Mandatory
Redemption (see below) in which the appraised value of the common stock, as
defined, is less than $67.56 per share as of March 31, 2004 and $91.11 per
share as of March 31, 2005, then the conversion price shall be based on a
$1,000 stated value and the Company shall have no obligation to pay the holder
any accrued but unpaid dividends.
Upon the occurrence of an initial public offering with aggregate proceeds in
excess of $20,000,000, and a per share price greater than $8.22 per share
through September 30, 1997 for Series A preferred and a per share price
greater than $12.89 per share through March 31, 1998 for Series B preferred,
and increasing thereafter, the Company can require that the holder convert the
Series A preferred and Series B preferred into common stock at the then
conversion price based on a $1,000 stated value, and the Company shall have no
obligation to pay any previously accrued but unpaid dividends (see Notes 2 and
17).
Redemption. If the Series A preferred is not converted into common stock,
the Company shall redeem 2,250 shares on each of March 31, 2003 and 2004
(Mandatory Redemption), at the $1,000 stated value per share plus all accrued
but unpaid dividends. If the Series B preferred is not converted into common
stock, the Company shall redeem 2,175 shares on each of March 31, 2004 and
2005 (Mandatory Redemption) at the $1,000 stated value per share plus all
accrued but unpaid dividends.
If within 150 days prior to a Mandatory Redemption there has not been an
initial public offering with aggregate proceeds exceeding $20,000,000, then
the holders of the Series A preferred and Series B preferred can require that
the Company obtain a financial valuation, as defined, of the value of the
common stock into which such Series A preferred and Series B preferred would
be convertible.
Liquidation. In the case of a voluntary or involuntary liquidation or
dissolution of the Company, the holders of the Series A preferred and Series B
preferred shall receive a liquidation value of $1,000 per share plus any
accrued but unpaid dividends.
(8) REDEEMABLE COMMON STOCK WARRANTS
During 1990 and 1991, the Company issued redeemable warrants to purchase
433,372 shares of common stock, with exercise prices ranging from $.40 per
share to $1.33 per share, which are exercisable through December 21, 2002. As
of December 31, 1996 and March 31, 1997, these warrants were outstanding.
F-13
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) REDEEMABLE COMMON STOCK WARRANTS--(CONTINUED)
All of the outstanding warrant holders have the right to put the warrants to
the Company after November 1, 1998, in the event that there has not been a
public offering of the Company's common stock. The put option requires that
the Company repurchase the warrants at the fair market value of the Company's
common stock, net of the associated warrant exercise price, at the time the
put option is exercised.
The Company accounted for the initial value of the warrants based on their
fair market values at the time the warrants were originally issued. Subsequent
increases in the fair market value of the warrants, as determined by sales of
the Company's common stock, results in adjustments to the carrying value of
the warrants through direct charges to accumulated deficit. As of December 31,
1995 and 1996 and March 31, 1997, the redeemable common stock warrants were
reflected in the accompanying consolidated financial statements based on the
estimated fair market values of $6.22, $7.11 and $7.11 per share,
respectively.
(9) SHAREHOLDERS' EQUITY
Common stock. The Company's Amended and Restated Certificate of
Incorporation authorizes 20,000,000 shares of common stock (see Note 17).
The Company sold 296,250 shares of common stock in November 1994 at a per
share price of $4.00 for aggregate proceeds of approximately $1,164,000, net
of issuance costs of approximately $21,000.
The Company sold 32,400 shares of common stock in December 1996 at a per
share price of $7.11 for aggregate proceeds of approximately $231,000.
Restricted stock awards. During 1990, the Company granted 160,875 shares of
common stock to certain key employees in consideration of future services to
be performed. The awards require the recipients to be employed or engaged as a
consultant by the Company for seven years in order to retain ownership of the
stock. The related compensation is being recognized ratably over the 7-year
vesting period. During each of 1994, 1995 and 1996, $10,000 of compensation
expense was recognized in connection with these restricted stock awards.
Stock option plans. The Company has stock option plans which provide for the
issuance of both incentive and nonqualified stock options. In March 1996, the
Company adopted both the 1996 Employee and Consultant Stock Option Plan, which
provides for the issuance of up to 900,000 shares of common share for both
incentive and nonqualified stock options, and the 1996 Non-Employee Directors'
Stock Option Plan, which provides for the issuance of up to 135,000 shares of
common stock (collectively, The 1996 Plans). Under the provisions of The 1996
Plans, the exercise price of each option shall not be less than 100% of the
fair market value of a share of common stock at the time of grant, as defined,
and the options may vest immediately or over time. The 1996 Plans shall be
adjusted for future changes in the capitalization of the Company or as
designated by the Board of Directors.
Previous to The 1996 Plans, the Company had established a stock option plan
which provided for the issuance of up to 900,000 shares of common stock for
both incentive and nonqualified stock options. Under the provisions of this
plan, the exercise price of each option was not to be less than 100% of the
fair market value of a share of common stock, as defined, and the options
could vest immediately or over time.
F-14
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(9) SHAREHOLDERS' EQUITY--(CONTINUED)
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS 123 requires the measurement of the fair value
of stock options or warrants to be included in the statement of income or
disclosed in the notes to financial statements. The Company has determined
that it will continue to account for stock-based compensation for employees
under Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under SFAS 123. The Company has computed the pro forma disclosures
required under SFAS 123 for options granted in 1995 and 1996 using the Black-
Scholes option pricing model prescribed by SFAS 123. The weighted average
assumptions used are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -----------
<S> <C> <C>
Risk free interest rate............................... 5.77% 6.15%-6.94%
Expected dividend yield............................... None None
Expected lives........................................ 8 years 8 years
Expected volatility................................... 72% 72%
</TABLE>
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates of awards under these plans
consistent with the method of SFAS 123, the Company's loss applicable to
common shareholders and pro forma loss per common share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Loss applicable to common shareholders:
As reported............................................. (3,786) (1,047)
Pro forma............................................... (3,806) (2,563)
Pro forma loss per common stock:
As reported............................................. -- (.17)
Pro forma............................................... -- (.43)
</TABLE>
Because SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
A summary of the status of the Company's two stock option plans at December
31, 1994, 1995 and 1996 and changes during the years then ended is presented
in the table and narrative below (shares in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---------------- ----------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning 359,464 $ .74 771,754 $2.48 894,606 $2.97
of year................
Granted................. 412,290 4.00 144,751 5.57 502,875 7.51
Exercised............... -- -- -- -- (5,782) .04
Expired................. -- -- (21,899) 3.08 (55,350) 4.61
------- ------- ---------
Outstanding, end of 771,754 2.48 894,606 2.97 1,336,349 4.62
year...................
======= ======= =========
Exercisable, end of 558,306 $1.90 632,572 $2.18 854,282 $3.42
year...................
======= ======= =========
Weighted average fair
value of options grant- $4.40 $5.80
ed.....................
</TABLE>
F-15
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(9) SHAREHOLDERS' EQUITY--(CONTINUED)
Of the 1,336,349 options outstanding at December 31, 1996, 254,833 have a
$.04 exercise price, a weighted average contractual life of 4 years and are
all exercisable. There are also 71,849 options which have exercise prices
between $2.25 and $2.94, a weighted average exercise price of $2.60, a
weighted average contractual life of 5.5 years and are all exercisable. In
addition, there are 513,542 options which have exercise prices between $4.00
and $6.22, a weighted average exercise price of $4.39, a weighted average
contractual life of 7.3 years and 348,725 are exercisable at a weighted
average exercise price of $4.18. Lastly, there are 496,125 options which have
exercise prices between $6.22 and $8.00, a weighted average exercise price of
$7.51, a weighted average contractual life of 9.5 years and 178,875 are
exercisable at a weighted average exercise price of $7.08.
On January 9, 1997, the Company granted 207,576 options under its 1996 Plans
at an exercise price of $7.11 per share. At March 31, 1997, 1,537,175 and
933,987 options were outstanding and exercisable, respectively.
(10) INCOME TAXES
The provision for income taxes for the years ended December 31, 1994, 1995
and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Foreign............................................ $ 120 $ 75 $ --
Federal............................................ -- -- --
State.............................................. 12 25 30
------- ------- -------
$132 $ 100 $ 30
======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial reporting and income
tax purposes. Gross deferred tax assets of $4,168,000, $3,944,000 and
$3,892,000, gross deferred tax liabilities of $9,000, $0 and $0, and a
valuation allowance of $4,159,000, $3,944,000 and $3,892,000 are included in
the deferred tax balance as of December 31, 1995 and 1996, and March 31, 1997
respectively. A valuation allowance has been recorded for the deferred tax
assets as a result of uncertainties regarding the realization of the asset,
including the lack of profitability to date and the variability of operating
results.
The approximate tax effects of temporary differences which give rise to
deferred tax assets and liabilities is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------- ---------
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Current:
Allowance for doubtful accounts.................... $ 153 $ 178 $ 193
Accrued vacation and payroll....................... 14 57 67
Loss on sale of property held for sale............. 40 -- --
Other.............................................. 174 216 279
Valuation allowance................................ (381) (451) (539)
------ ------ -----
$ 0 $ 0 $ 0
====== ====== =====
</TABLE>
F-16
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(10) INCOME TAXES--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- ---------
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Non-current:
Acquired software................................ $ 188 $ -- $ --
Depreciation..................................... (9) 51 56
Deferred compensation............................ 20 23 25
Rental obligations............................... 167 154 150
Other............................................ 39 -- --
Net operating losses............................. 3,373 3,265 3,122
Valuation allowance.............................. (3,778) (3,493) (3,353)
------- ------- -------
$ 0 $ 0 $ 0
======= ======= =======
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Income tax benefit at statutory rate........ (34)% (34)% (34)%
Other....................................... (3) (3) (3)
Net operating loss not benefited............ 37 37 37
------- ------- -------
Effective tax rate.......................... 0% 0% 0%
======= ======= =======
</TABLE>
At December 31, 1996, the Company had approximately $8,900,000 of U.S.
Federal net operating loss carryforwards and approximately $2,000,000 of state
net operating loss carryforwards which can be used, subject to certain
limitations, to offset future taxable income, if any. These U.S. Federal net
operating loss carryforwards expire through 2011 and the State net operating
loss carryforwards expire through 2002. The Company's ability to utilize these
carryforwards may be limited by a change in ownership, as defined by Federal
income tax laws and regulations, which may occur upon completion of the
proposed initial public offering.
(11) RELATED PARTY TRANSACTIONS
Notes Receivable from officers at December 31, 1995 and 1996 and March 31,
1997 consist of net advances to shareholders of $194,000, $572,000 and
$721,000, respectively. These notes will be due and payable at the earlier of
(i) an initial public offering or (ii) June 30, 1999. Commencing January 1,
1997, the notes bear interest at 8.25% per annum.
The Company has entered into agreements with its principal shareholder and
its general partner which provides for the Company to receive financial
advisory services. The agreement called for an annual advisory fee to be paid
to this shareholder. In addition, an annual advisory fee is to be paid to an
affiliate of the shareholder until the earlier to occur of January 2, 1998,
the date of an initial public offering of common stock with gross proceeds to
the Company of at least $10.0 million or the sale by the Company of
substantially all of its stock or assets. Included in the accompanying
consolidated statements of operations is $40,000 of financial advisory fees in
1996 and $50,000 in each of 1994 and 1995. In addition, the Company paid
$100,000 to an affiliate of this shareholder in November 1996 in connection
with the issuance of Series B Preferred Stock (See Note 7).
F-17
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(12) COMMITMENTS AND CONTINGENCIES
Leases. During 1994 the Company entered into an agreement to lease office
space in Shelton, Connecticut, which became the corporate headquarters of the
Company. This lease commenced April 1, 1994, and has a term of 10 years. Under
the terms of this lease, the Company paid only operating expenses until the
sale of its former corporate headquarters (see Note 5). Total aggregate lease
payments of approximately $2,176,000 are being amortized on a straight line
basis over the term of the operating lease, beginning in April 1994.
Accordingly, approximately $218,000 and $38,000 of deferred rent expense was
recorded during 1995 and 1996, respectively, related to this lease and is
included in accrued liabilities and other long term liabilities in the
accompanying consolidated balance sheets.
During 1995, the Company entered into an agreement to lease office space in
Irvine, California, which is used as a sales, service and product development
facility. The lease commenced January 5, 1995, and has a term of 6 years.
Under the terms of the lease, the Company is committed to pay aggregate lease
payments of approximately $2,961,000. In connection with entering into this
lease, the Company terminated the lease for its previous California facility.
As a result of the termination of such lease, the Company incurred a $223,000
lease termination cost which is reflected as other expense in the accompanying
1995 consolidated statement of operations. The termination charge, which is
being paid in monthly installments of approximately $5,000 through October 31,
1998, is included in accrued expenses and other long-term liabilities in the
accompanying 1995 consolidated balance sheet.
The Company leases other property and equipment under a number of operating
leases extending for varying periods of time.
Operating lease rental expense approximated $661,000, $1,054,000 and
$858,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
Minimum future rental commitments under all operating leases for each of the
succeeding five years subsequent to December 31, 1996, and thereafter, are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1997............................................................... $1,237
1998............................................................... 1,131
1999............................................................... 1,070
2000............................................................... 934
2001............................................................... 977
Thereafter......................................................... 915
</TABLE>
Litigation. The Company is a party to litigation arising in the normal
course of business. In the opinion of management, any claims are not expected
to have a material adverse effect on the Company's operations or financial
position.
(13) EMPLOYEE BENEFIT PLAN
The Company has a voluntary 401(k) plan. All full-time employees who have
completed six months of service are eligible to participate in the plan. The
plan provides for matching contributions and an
F-18
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(13) EMPLOYEE BENEFIT PLAN--(CONTINUED)
annual profit sharing contribution made at the discretion of the Company's
Board of Directors. No matching or profit sharing contributions were made to
the plan during 1994. During 1995 and 1996, $12,000 and $33,000 of matching
contributions were made to the Plan by the Company.
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximate fair value due to their short maturities.
Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of its notes payable, bank indebtedness and
capital lease obligations also approximate fair value.
(15) GEOGRAPHIC INFORMATION AND INDUSTRY SEGMENTS
The Company operates in two major geographic areas and a single industry
segment. The United States charges the European segment a 50% royalty on
license fees recognized, which approximates the royalty fee charged to
unaffiliated resellers. In addition, certain direct costs incurred by the
United States segment, primarily related to research and development and
customer support costs, are charged to the European segment. The elimination
in the identifiable assets is for intercompany receivables.
The following tables summarize the Company's activities by geographic area
for 1994, 1995 and 1996 (in thousands).
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATION CONSOLIDATED
------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Revenues......................... $22,762 $4,680 $(1,165) $26,277
======= ====== ======= =======
Income (loss) from operations.... $ 802 $ (740) $ -- $ 62
======= ====== ======= =======
Identifiable assets.............. $17,483 $2,648 $(2,850) $17,281
======= ====== ======= =======
Year Ended December 31, 1995
Revenues......................... $20,093 $4,332 $ (616) $23,809
======= ====== ======= =======
Income (loss) from operations.... $(2,520) $ (66) $ -- $(2,586)
======= ====== ======= =======
Identifiable assets.............. $11,929 $2,710 $(2,120) $12,519
======= ====== ======= =======
Year Ended December 31, 1994
Revenues......................... $14,654 $4,515 $ (817) $18,352
======= ====== ======= =======
Income (loss) from operations.... $(3,007) $ (27) $ -- $(3,034)
======= ====== ======= =======
Identifiable assets.............. $10,460 $3,039 $(1,349) $12,150
======= ====== ======= =======
</TABLE>
F-19
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(15) GEOGRAPHIC INFORMATION AND INDUSTRY SEGMENTS--(CONTINUED)
The following table summarizes the Company's revenues by major worldwide
regions (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
United States.............................. $ 13,192 $ 14,792 $ 19,483
Canada..................................... 39 1,018 546
Mexico and Latin America................... 195 256 277
Europe..................................... 4,515 6,390 4,798
Pacific Rim................................ 411 1,353 1,173
---------- ---------- ----------
$ 18,352 $ 23,809 $ 26,277
========== ========== ==========
</TABLE>
(16) SIGNIFICANT CUSTOMERS
For the years ended December 31, 1994, 1995 and 1996, approximately 14%, 24%
and 8%, respectively, of the Company's revenues resulted from sales to a
single customer.
(17) SUBSEQUENT EVENTS
The Company has filed a Registration Statement with the Securities and
Exchange Commission related to an initial public offering (the Offering)
relating to 2,625,000 shares of the Company's unissued common stock and
1,875,000 shares of common stock being offered by certain selling
shareholders. If the Offering is consummated under the terms presently
anticipated, the Company's Series A preferred and Series B preferred will be
converted into 1,532,161 shares of common stock, 415,308 shares of common
stock will be issued in connection with the cashless exercise of the
redeemable common stock warrants and 34,690 options will be exercised (See
Note 2).
The Company anticipates amending its Certificate of Incorporation in
connection with the Offering to increase the number of authorized shares of
common stock from 5,000,000 to 20,000,000, to give effect to a 2.25-for-1
split of the Company's common stock, to remove the Company's existing series
of preferred stock. The accompanying financial statements have been restated
to reflect this anticipated share split and change in authorized shares.
On March 1, 1997, the Board of Directors approved the adoption of an
employee stock purchase plan designed to allow eligible employees of the
Company to purchase shares of common stock. The Board of Directors has
reserved 450,000 shares of Common Stock to be available under this plan.
F-20
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
The unaudited pro forma consolidated statement of operations that follows is
presented to give effect to the sale of the Telemar product line on September
1, 1996 to a third party buyer, Telemar Software International (TSI), as if
such event occurred on January 1, 1996. The unaudited pro forma information,
which reflects the elimination of identifiable revenues and expenses of the
Telemar product line, does not purport to be indicative of the actual results
that would have been achieved had the sale taken place on January 1, 1996 or
the results which may be achieved in the future.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
License fees:
EDGE product line........................... $12,180 $ -- $12,180
Telemar product line........................ 842 (842)(1) --
------- -------
Total license fees........................ 13,022 12,180
------- -------
Services and maintenance:
EDGE product line........................... 11,643 11,643
Telemar product line........................ 1,612 (1,612)(2) --
------- -------
Total services and maintenance............ 13,255 11,643
------- -------
Total revenues.......................... 26,277 23,823
------- -------
Cost of revenues:
License fees................................ 709 (93)(3) 616
Services and maintenance.................... 7,191 (520)(4) 6,671
------- -------
Total cost of revenues.................... 7,900 7,287
------- -------
Gross profit.................................. 18,377 16,536
------- -------
Operating expenses:
Sales and marketing......................... 8,055 (823)(5) 7,232
Product development......................... 6,382 (1,070)(6) 5,312
General and administrative.................. 3,878 (244)(7) 3,634
------- -------
Total operating expenses.................. 18,315 16,178
------- -------
Operating income.............................. 62 358
Other income (expense)........................ (1,079) (92)(8) (1,171)
------- -------
Loss before provision for income taxes........ (1,017) (813)
Provision for income taxes.................... 30 30
------- -------
Net loss...................................... $(1,047) $ (843)
======= =======
</TABLE>
- --------
(1) Represents the elimination of Telemar license fees.
(2) Represents the elimination of Telemar services and maintenance revenues.
(3) Represents the elimination of payroll, taxes and benefits of $66,000
related to employees dedicated to Telemar, as well as the elimination of
$27,000 of direct license costs.
G-1
<PAGE>
(4) Represents the elimination of payroll, taxes and benefits of $455,000
related to employees dedicated to Telemar, as well as $20,000 of outside
consulting costs and $45,000 of other direct costs related to Telemar.
(5) Represents the elimination of payroll, taxes and benefits of $466,000
related to employees dedicated to Telemar, as well as $295,000 of related
travel costs, $49,000 of advertising and promotional costs and $13,000 of
other direct costs related to Telemar.
(6) Represents the elimination of payroll, taxes and benefits of $1,002,000
related to employees dedicated to Telemar, as well as $68,000 of direct
costs used in the research and development efforts related to Telemar.
(7) Represents the elimination of $28,000 of legal costs, $69,000 of equipment
depreciation expense, $60,000 of provision for doubtful accounts and
$87,000 of other direct costs related to Telemar.
(8) Represents the elimination of the gain on sale of Telemar.
G-2
<PAGE>
INSIDE BACK COVER
[DIAGRAM OF INFORMATION MANAGEMENT ASSOCIATES, INC. PRODUCTS AND SERVICES.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS, ANY OF THE UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION WHICH IT IS UN-
LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Consolidated Financial Data...................................... 18
Pro Forma Consolidated Statement of Operations............................ 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 33
Management................................................................ 48
Certain Transactions...................................................... 54
Principal and Selling Shareholders........................................ 58
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 62
Underwriting.............................................................. 64
Legal Matters............................................................. 65
Experts................................................................... 66
Additional Information.................................................... 66
Index to Consolidated Financial Statements................................ F-1
Pro Forma Consolidated Statement of Operations............................ G-1
</TABLE>
-----------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY RE-
QUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,500,000 Shares
[LOGO OF IMA APPEARS HERE]
Common Stock
-----------
PROSPECTUS
-----------
Alex. Brown & Sons
INCORPORATED
Robertson, Stephens & Company
SoundView Financial Group, Inc.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee................................... $ 20,387.00
NASD filing fee........................................ 7,228.00
Nasdaq National Market listing fee..................... 39,752.00
Transfer agent fees.................................... 3,500.00
Accounting fees and expenses........................... 350,000.00
Legal fees and expenses................................ 350,000.00
Printing and mailing expenses.......................... 100,000.00
Miscellaneous.......................................... 129,133.00
-------------
Total................................................ $1,000,000.00
=============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 33-771 of the Connecticut Business Corporation Act (the "CBCA")
permits a corporation generally to indemnify any individual made a party to a
proceeding because he is or was a director or officer of the corporation
against any liabilities incurred by such person in such proceedings if: (i) he
conducted himself in good faith; and (ii) he reasonably believed (A) in the
case of conduct in his official capacity with the corporation, that his
conduct was in its best interests and (B) in all other cases, that his conduct
was at least not opposed to its best interests; and (iii) in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful; provided, however, a corporation may not indemnify a director or
officer under such section if: (i) in connection with a proceeding by or in
the right of the corporation in which the director was adjudged liable to the
corporation; or (ii) in connection with any other proceeding charging improper
personal benefit to him, whether or not involving action in his official
capacity, in which he was adjudged liable on the basis that personal benefit
was improperly received by him. In addition, Sections 33-772 and 33-776 of the
CBCA provide that, unless limited by its certificate of incorporation, a
corporation shall indemnify each officer and director who is wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which he was a party because he is or was a director or officer of the
corporation against reasonable expenses incurred by him in connection with the
proceeding.
Article VIII of the Certificate of Incorporation and Section 7.2 of the
Bylaws provide that the Company shall indemnify all directors and officers to
the fullest extent permitted by the CBCA.
Section 7.2 of the Bylaws also provides that the Board of Directors may
cause the Company to indemnify an employee or agent to the same extent as an
officer or director.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding the number of
shares of Common Stock, Preferred Stock, and Common Stock purchase warrants
issued and the number of options granted by the Registrant since January 1994.
Further included is the consideration, if any, received by the Registrant for
such shares and options, and information relating to the section of the
Securities Act of 1933, as amended (the "Securities Act"), and rule of the
Securities and Exchange Commission under which exemption from
II-1
<PAGE>
registration was claimed. All awards of options did not involve any sale under
the Securities Act. None of these securities were registered under the
Securities Act. No sale of securities involved the use of an underwriter and
no commissions were paid in connection with the sales of any securities. The
information set forth in this Item 15 reflects the Company's 2.25-for-1 split
in Common Stock to be effected prior to the closing of this offering.
(a)Issuances of Common Stock:
(1) In November 1994, the Company issued to Wand/IMA Investments, L.P.
250,000 shares of Common Stock at $4.00 per share for a total
consideration received of $999,999.
(2) In November 1994, the Company issued to Gregory Collins and Victor Nesi
an aggregate of 46,248 shares of Common Stock at $4.00 per share for a
total consideration received of $184,995.
(3) In August 1996, the Company issued to Craig Lund 5,783 shares of Common
Stock upon the exercise of a stock option with an exercise price of
$0.04 per share. The Company received total consideration of $257.
(4) In December 1996, the Company issued to Gregory Collins and Victor Nesi
32,400 shares of Common Stock at $7.11 per share for a total
consideration received of $230,400.
(b)Issuances of Preferred Stock:
(1) In March 1995, the Company issued to Wand/IMA Investments, L.P. and
Wand/IMA Investments II L.P. a total of 4,500 shares of Series A Senior
Convertible Preferred Stock with a stated value of $1,000 per share for
a total consideration received of $4,500,000.
(2) In November 1996, the Company issued to Wand/IMA Investments II L.P.
and Wand/IMA Investments III L.P. a total of 4,350 shares of Series B
Senior Convertible Preferred Stock with a stated value of $1,000 per
share for a total consideration received of $4,350,000. Wand (IMA) Inc.
received a financial advisory fee of $100,000 in connection with this
transaction.
(c)Issuance of Warrants to Purchase Common Stock:
(1) In February and March of 1996, the Company issued warrants to Howard
Siegel to purchase 6,750 shares of Common Stock with an exercise price
of $4.89 per share in connection with a financing transaction. The
Company received no monetary consideration for the warrants.
(d)Certain Grants and Exercises of Stock Options:
(1) Since January 1, 1994 the Company has issued options under its (i)
Amended and Restated 1991 Stock Option Plan to purchase an aggregate of
513,542 shares of Common Stock at a weighted average exercise price of
$4.39, (ii) the 1996 Employee and Consultant Stock Option Plan to
purchase an aggregate of 653,076 shares of Common Stock at a weighted
average exercise price of $7.41, and (iii) the 1996 Non-Employee
Directors Stock Option Plan to purchase an aggregate of 50,625 shares
of Common Stock at an exercise price of $7.11.
The shares of capital stock and other securities issued in the above
transactions were offered and sold in reliance upon the exemptions from
registration under Section 4(2) of the Securities Act, Regulation D or Rule
701 promulgated under the Securities Act, relative to sales by an issuer not
involving any public offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Registrant, as amended.**
3.2 Amended and Restated Certificate of Incorporation of the Registrant
(to be filed upon closing of this offering).**
3.3 Amended and Restated By-Laws of the Registrant.**
3.4 Amended and Restated By-Laws of the Registrant (to be effective upon
the closing of this offering).**
4.1 Specimen Certificate for shares of Common Stock, no par value, of the
Registrant.**
5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. with respect to the
validity of the securities being offered.**
10.1 Amended and Restated 1991 Stock Option Plan.**
10.2 Original Form of Non-Qualified Stock Option Agreement (Amended and
Restated 1991 Stock Option Plan).**
10.3 Amended Form of Non-Qualified Stock Option Agreement (Amended and
Restated 1991 Stock Option Plan).**
10.4 1996 Employee and Consultant Stock Option Plan.**
10.5 Form of Non-Qualified Stock Option Agreement (1996 Employee and
Consultant Stock Option Plan).**
10.6 1996 Non-Employee Directors Stock Option Plan.**
10.7 Form of Non-Qualified Stock Option Agreement (1996 Non-Employee
Directors Stock Option Plan ).**
10.8 Employee Stock Purchase Plan.**
10.9 Note and Warrant Purchase Agreement between the Company and Wand/IMA
Investments, L.P., dated December 21, 1990.*
10.10 Amendment to Note and Warrant Purchase Agreement between the Company
and Wand/IMA Investments, L.P., dated March 1, 1993.*
10.11 Amendment No. 2 to Note and Warrant Agreement between the Company and
Wand/IMA Investments, L.P., dated June 1, 1994.*
10.12 Common Stock Purchase Warrant No. W-3 issued to Thomas F. Hill, dated
December 21, 1990.*
10.13 Amendment No. 1 to Common Stock Purchase Warrant No. W-3, dated June
1, 1994.*
10.14 Amendment No. 2 to Common Stock Purchase Warrant No. W-3, dated
November 16, 1994.*
10.15 Amendment No. 3 to Common Stock Purchase Warrant No. W-3, dated
September 20, 1996.*
10.16 Stock Purchase Agreement between the Company and Wand/IMA Investments,
L.P., dated September 4, 1991.*
10.17 Amendment No. 1 to Stock Purchase Agreement dated September 4, 1991
between the Company and Wand/IMA Investments, L.P., dated June 1,
1994.*
10.18 Stock Purchase Agreement between the Company and Wand/IMA Investments,
L.P., dated October 29, 1991.*
10.19 Amendment No. 1 to Stock Purchase Agreement dated October 29, 1991
between the Company and Wand/IMA Investments, L.P., dated June 1,
1994.*
10.20 Exchange and Note Modification Agreement between the Company and
Wand/IMA Investments, L.P., dated October 29, 1991.*
10.21 12% Senior Subordinated Note due 1997 for $1,000,000 issued to
Wand/IMA Investments, L.P., dated October 29, 1991.*
10.22 Common Stock Purchase Warrant No. W-4 issued to Wand/IMA Investments,
L.P., dated October 29, 1991.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.23 Amendment No. 1 to Common Stock Purchase Warrant No. W-4, dated June
1, 1994.*
10.24 Amendment No. 2 to Common Stock Purchase Warrant No. W-4, dated
November 16, 1994.*
10.25 Amendment No. 3 to Common Stock Purchase Warrant No. W-4, dated
September 20, 1996.*
10.26 Common Stock Purchase Warrant No. W-5 issued to Wand Partners Inc.,
dated October 29, 1991.*
10.27 Amendment No. 1 to Common Stock Purchase Warrant No. W-5, dated June
1, 1994.*
10.28 Amendment No. 2 to Common Stock Purchase Warrant No. W-5, dated
November 16, 1994.*
10.29 Amendment No. 3 to Common Stock Purchase Warrant No. W-5, dated
September 20, 1996.*
10.30 Stock Purchase Agreement between the Company and certain Purchasers,
dated March 26, 1993.*
10.31 Stock Purchase Agreement between the Company, certain Selling
Shareholders and Mercury Asset Management plc, dated June 1, 1994.*
10.32 Stock Purchase Agreement between the Company, certain Selling
Shareholders and D. Callard, B. Schnitzer and M. Appelbaum as
Purchasers, dated June 1, 1994.*
10.33 Stock Purchase Agreement between the Company, V. Nesi and G. Collins,
dated November 14, 1994.*
10.34 Stock Purchase Agreement between the Company and Wand/IMA Investments,
L.P., dated as of November 16, 1994.*
10.35 Stock Purchase Agreement among the Company, Wand/IMA Investments, L.P.
and Wand/IMA Investments II L.P., dated as of March 31, 1995.*
10.36 Stock Purchase Agreement among the Company, Wand/IMA Investments II
L.P. and Wand/IMA Investments L.P. III, dated October 31, 1996.*
10.37 Stock Purchase Agreement among the Company, V. Nesi and G. Collins,
dated December 18, 1996.*
10.38 Loan and Security Agreement between the Company and People's Bank,
dated October 26, 1995.*
10.39 Promissory Note (Term) for $2.5 million issued to People's Bank, dated
October 26, 1995.*
10.40 Promissory Note (Revolver) for $6.0 million issued to People's Bank,
dated October 26, 1995.*
10.41 Subordination Agreement among the Company, People's Bank and Wand/IMA
Investments, L.P., dated October 26, 1995.*
10.42 Subordination Agreement among the Company, Albert R. Subbloie, Jr.,
Information Management Associates Limited and People's Bank, dated
October 26, 1995.*
10.43 Subordination Agreement among the Company, Gary R. Martino,
Information Management Associates Limited and People's Bank, dated
October 26, 1995.*
10.44 Subordination Agreement among the Company, Andrei Poludnewycz,
Information Management Associates Limited and People's Bank, dated
October 26, 1995.*
10.45 First Amendment to Loan and Security Agreement between the Company and
People's Bank, dated December 31, 1996.*
10.46 Asset Purchase Agreement between the Company and Telemar Software
International LLC, dated as of July 31, 1996.*
10.47 Sublease between the Company and Telemar Software International, LLC,
dated as of September 1, 1996.*
10.48 8% Promissory Note due 2002 from Telemar Software International, LLC
to the Company, dated as of September 1, 1996.*
10.49 Security Agreement between the Company and Telemar Software
International, LLC, dated September 16, 1996.*
10.50 Promissory Note from Albert R. Subbloie, Jr. to the Company, dated
December 31, 1996.*
10.51 Promissory Note from Gary R. Martino to the Company, dated December
31, 1996.*
10.52 Promissory Note from Andrei Poludnewycz to the Company, dated December
31, 1996.*
10.53 Promissory Note from Albert R. Subbloie, Jr. to the Company, dated
February 28, 1997.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.54 Promissory Note from Gary R. Martino to the Company, dated February
28, 1997.*
10.55 Promissory Note from Andrei Poludnewycz to the Company, dated February
28, 1997.*
10.56 Monitoring Agreement between the Company and Wand Partners LP, dated
as of January 2, 1995.*
10.57 Lease Agreement between the Company and Robert D. Scinto, dated as of
October 6, 1993.*
10.58 First Amendment to Lease Agreement between the Company and Robert D.
Scinto, dated January 30, 1996.*
10.59 Full Service Office Lease between the Company and Lakeshore Towers
Limited Partnership Phase I and the Company, dated November 4, 1994.*
10.60 Amendment to Lease between the Company and Lakeshore Towers Limited
Partners, Phase I, dated July 15, 1996.**
10.61 Amendment No. 2 to Loan and Security Agreement between the Company and
People's Bank, dated March 17, 1997.**
10.62 Letter Agreement among the Company, Wand/IMA Investments, L.P. and
certain Shareholders, dated December 21, 1990.*
10.63 Amendment to Letter Agreement among the Company, Wand/IMA Investments,
L.P. and certain Shareholders, dated October 29, 1991.*
10.64 Second Amendment to Letter Agreement among the Company, Wand/IMA
Investments, L.P. and certain Shareholders, dated June 1, 1994.*
10.65 Letter Agreement among the Company, Mercury Asset Management plc and
certain Shareholders, dated as of June 1, 1994.*
10.66 Restricted Stock Award Agreement between the Company and Paul J.
Schmidt, dated December 21, 1990.**
10.67 Restricted Stock Award Agreement between the Company and Joseph R.
LeMay, as amended.**
10.68 Consulting Service Agreement between the Company and Clifton Myers
Enterprise, Inc., dated January 1, 1996.*
10.69 Equipment Lease Agreement between the Company and Tal Financial
Corporation, dated February 1, 1996.*
10.70 Amendment No. 4 to Common Stock Purchase Warrant No. W-3, dated April
29, 1997.**
10.71 Amendment No. 4 to Common Stock Purchase Warrant No. W-4, dated April
29, 1997.**
10.72 Amendment No. 4 to Common Stock Purchase Warrant No. W-5, dated April
29, 1997.**
10.73 Amendment No. 3 to Loan and Security Agreement between the Company and
People's Bank, dated April 16, 1997.**
10.74 Waiver and Consent Agreement, dated November 1, 1996**
11.1 Computation of income per common share.**
21.1 Subsidiaries of the Registrant.*
23.1 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in Exhibit
5.1).**
23.2 Consent of Arthur Andersen LLP.**
23.3 Consent of Aberdeen Group, Inc., dated April 9, 1997.**
24.1 Power of Attorney for Messrs. Albert R. Subbloie, Jr., Gary R.
Martino, Paul J. Schmidt, Andrei Poludnewycz, Donald P. Miller and
David J. Callard.*
24.2 Power of Attorney for Thomas F. Hill.**
27.1 Financial Data Schedule.*
</TABLE>
- --------
*Previously filed.
**Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule No. II--Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Certificate
II-5
<PAGE>
of Incorporation, as amended, and By-Laws, as amended, of the Registrant and
the laws of the State of Connecticut or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matters have been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Hartford, State of Connecticut, on this 27th day of May, 1997.
Information Management Associates,
Inc.
By /s/ Albert R. Subbloie, Jr.
------------------------------------
Albert R. Subbloie, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Albert R. Subbloie, Jr. President, Chief May 27, 1997
- ------------------------------------ Executive Officer
ALBERT R. SUBBLOIE, JR. and Director
(Principal
Executive Officer)
/s/ Gary R. Martino Chairman of the May 27, 1997
- ------------------------------------ Board of
GARY R. MARTINO Directors, Chief
Financial Officer,
Treasurer and
Director
(Principal
Financial and
Accounting Officer)
* Director May 27, 1997
- ------------------------------------
PAUL J. SCHMIDT
* Director May 27, 1997
- ------------------------------------
THOMAS F. HILL
* Director May 27, 1997
- ------------------------------------
ANDREI POLUDNEWYCZ
* Director May 27, 1997
- ------------------------------------
DONALD P. MILLER
* Director May 27, 1997
- ------------------------------------
DAVID J. CALLARD
*By: /s/ Gary R. Martino
-------------------------------
Attorney-in-fact, pursuant to
power of attorneypreviously filed
as part of this Registration
Statement
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of
Information Management Associates, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated balance sheets of Information Management Associates, Inc. and
subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in shareholders' equity (deficit) and cash
flows for the three years then ended included in this registration statement,
and have issued our report thereon dated March 6, 1997, except with respect to
the matter discussed in Note 4 as to which the date was March 17, 1997. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying schedule on page S-2 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. The schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Hartford, Connecticut
March 6, 1997
S-1
<PAGE>
SCHEDULE II
INFORMATION MANAGEMENT ASSOCIATES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGED TO COST BALANCE AT
OF PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
---------- --------------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Ac-
counts
January 1, 1994-December
31, 1994................ 287,574 607,935 (425,529) 469,980
January 1, 1995-December
31, 1995................ 469,980 996,701 (1,041,353) 425,328
January 1, 1996-December
31, 1996................ 425,328 390,224 (333,578) 481,974
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Registrant, as amended.**
3.2 Amended and Restated Certificate of Incorporation of the
Registrant (to be filed upon closing of this offering).**
3.3 Amended and Restated By-Laws of the Registrant.**
3.4 Amended and Restated By-Laws of the Registrant (to be effective
upon the closing of this offering).**
4.1 Specimen Certificate for shares of Common Stock, no par value,
of the Registrant.**
5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. with respect
to the validity of the securities being offered.**
10.1 Amended and Restated 1991 Stock Option Plan.**
10.2 Original Form of Non-Qualified Stock Option Agreement (Amended
and Restated 1991 Stock Option Plan).**
10.3 Amended Form of Non-Qualified Stock Option Agreement (Amended
and Restated 1991 Stock Option Plan).**
10.4 1996 Employee and Consultant Stock Option Plan.**
10.5 Form of Non-Qualified Stock Option Agreement (1996 Employee and
Consultant Stock Option Plan).**
10.6 1996 Non-Employee Directors Stock Option Plan.**
10.7 Form of Non-Qualified Stock Option Agreement (1996 Non-Employee
Directors Stock Option Plan).**
10.8 Employee Stock Purchase Plan.**
10.9 Note and Warrant Purchase Agreement between the Company and
Wand/IMA Investments, L.P., dated December 21, 1990.*
10.10 Amendment to Note and Warrant Purchase Agreement between the
Company and Wand/IMA Investments, L.P., dated March 1, 1993.*
10.11 Amendment No. 2 to Note and Warrant Agreement between the
Company and Wand/IMA Investments, L.P., dated June 1, 1994.*
10.12 Common Stock Purchase Warrant No. W-3 issued to Thomas F. Hill,
dated December 21, 1990.*
10.13 Amendment No. 1 to Common Stock Purchase Warrant No. W-3, dated
June 1, 1994.*
10.14 Amendment No. 2 to Common Stock Purchase Warrant No. W-3, dated
November 16, 1994.*
10.15 Amendment No. 3 to Common Stock Purchase Warrant No. W-3, dated
September 20, 1996.*
10.16 Stock Purchase Agreement between the Company and Wand/IMA
Investments, L.P., dated September 4, 1991.*
10.17 Amendment No. 1 to Stock Purchase Agreement dated September 4,
1991 between the Company and Wand/IMA Investments, L.P., dated
June 1, 1994.*
10.18 Stock Purchase Agreement between the Company and Wand/IMA
Investments, L.P., dated October 29, 1991.*
10.19 Amendment No. 1 to Stock Purchase Agreement dated October 29,
1991 between the Company and Wand/IMA Investments, L.P., dated
June 1, 1994.*
10.20 Exchange and Note Modification Agreement between the Company and
Wand/IMA Investments, L.P., dated October 29, 1991.*
10.21 12% Senior Subordinated Note due 1997 for $1,000,000 issued to
Wand/IMA Investments, L.P., dated October 29, 1991.*
10.22 Common Stock Purchase Warrant No. W-4 issued to Wand/IMA
Investments, L.P., dated October 29, 1991.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.23 Amendment No. 1 to Common Stock Purchase Warrant No. W-4, dated
June 1, 1994.*
10.24 Amendment No. 2 to Common Stock Purchase Warrant No. W-4, dated
November 16, 1994.*
10.25 Amendment No. 3 to Common Stock Purchase Warrant No. W-4, dated
September 20, 1996.*
10.26 Common Stock Purchase Warrant No. W-5 issued to Wand Partners
Inc., dated October 29, 1991.*
10.27 Amendment No. 1 to Common Stock Purchase Warrant No. W-5, dated
June 1, 1994.*
10.28 Amendment No. 2 to Common Stock Purchase Warrant No. W-5, dated
November 16, 1994.*
10.29 Amendment No. 3 to Common Stock Purchase Warrant No. W-5, dated
September 20, 1996.*
10.30 Stock Purchase Agreement between the Company and certain
Purchasers, dated March 26, 1993.*
10.31 Stock Purchase Agreement between the Company, certain Selling
Shareholders and Mercury Asset Management plc, dated June 1,
1994.*
10.32 Stock Purchase Agreement between the Company, certain Selling
Shareholders and D. Callard, B. Schnitzer and M. Appelbaum as
Purchasers, dated June 1, 1994.*
10.33 Stock Purchase Agreement between the Company, V. Nesi and G.
Collins, dated November 14, 1994.*
10.34 Stock Purchase Agreement between the Company and Wand/IMA
Investments, L.P., dated as of November 16, 1994.*
10.35 Stock Purchase Agreement among the Company, Wand/IMA
Investments, L.P. and Wand/IMA Investments II L.P., dated as of
March 31, 1995.*
10.36 Stock Purchase Agreement among the Company, Wand/IMA Investments
II L.P. and Wand/IMA Investments L.P. III, dated October 31,
1996.*
10.37 Stock Purchase Agreement among the Company, V. Nesi and G.
Collins, dated December 18, 1996.*
10.38 Loan and Security Agreement between the Company and People's
Bank, dated October 26, 1995.*
10.39 Promissory Note (Term) for $2.5 million issued to People's Bank,
dated October 26, 1995.*
10.40 Promissory Note (Revolver) for $6.0 million issued to People's
Bank, dated October 26, 1995.*
10.41 Subordination Agreement among the Company, People's Bank and
Wand/IMA Investments, L.P., dated October 26, 1995.*
10.42 Subordination Agreement among the Company, Albert R. Subbloie,
Jr., Information Management Associates Limited and People's
Bank, dated October 26, 1995.*
10.43 Subordination Agreement among the Company, Gary R. Martino,
Information Management Associates Limited and People's Bank,
dated October 26, 1995.*
10.44 Subordination Agreement among the Company, Andrei Poludnewycz,
Information Management Associates Limited and People's Bank,
dated October 26, 1995.*
10.45 First Amendment to Loan and Security Agreement between the
Company and People's Bank, dated December 31, 1996.*
10.46 Asset Purchase Agreement between the Company and Telemar
Software International LLC, dated as of July 31, 1996.*
10.47 Sublease between the Company and Telemar Software International,
LLC, dated as of September 1, 1996.*
10.48 8% Promissory Note due 2002 from Telemar Software International,
LLC to the Company, dated as of September 1, 1996.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.49 Security Agreement between the Company and Telemar Software
International, LLC, dated September 16, 1996.*
10.50 Promissory Note from Albert R. Subbloie, Jr. to the Company,
dated December 31, 1996.*
10.51 Promissory Note from Gary R. Martino to the Company, dated
December 31, 1996.*
10.52 Promissory Note from Andrei Poludnewycz to the Company, dated
December 31, 1996.*
10.53 Promissory Note from Albert R. Subbloie, Jr. to the Company,
dated February 28, 1997.*
10.54 Promissory Note from Gary R. Martino to the Company, dated
February 28, 1997.*
10.55 Promissory Note from Andrei Poludnewycz to the Company, dated
February 28, 1997.*
10.56 Monitoring Agreement between the Company and Wand Partners LP,
dated as of January 2, 1995.*
10.57 Lease Agreement between the Company and Robert D. Scinto, dated
as of October 6, 1993.*
10.58 First Amendment to Lease Agreement between the Company and
Robert D. Scinto, dated January 30, 1996.*
10.59 Full Service Office Lease between the Company and Lakeshore
Towers Limited Partnership Phase I and the Company, dated
November 4, 1994.*
10.60 Amendment to Lease between the Company and Lakeshore Towers
Limited Partners, Phase I, dated July 15, 1996.*
10.61 Amendment No. 2 to Loan and Security Agreement between the
Company and People's Bank, dated March 17, 1997**
10.62 Letter Agreement among the Company, Wand/IMA Investments, L.P.
and certain Shareholders, dated December 21, 1990.*
10.63 Amendment to Letter Agreement among the Company, Wand/IMA
Investments, L.P. and certain Shareholders, dated October 29,
1991.*
10.64 Second Amendment to Letter Agreement among the Company, Wand/IMA
Investments, L.P. and certain Shareholders, dated June 1, 1994.*
10.65 Letter Agreement among the Company, Mercury Asset Management plc
and certain Shareholders, dated as of June 1, 1994.*
10.66 Restricted Stock Award Agreement between the Company and Paul J.
Schmidt, dated December 21, 1990.**
10.67 Restricted Stock Award Agreement between the Company and Joseph
R. LeMay, as amended.**
10.68 Consulting Service Agreement between the Company and Clifton
Myers Enterprise, Inc., dated January 1, 1996.*
10.69 Equipment Lease Agreement between the Company and Tal Financial
Corporation, dated February 1, 1996.*
10.70 Amendment No. 4 to Common Stock Purchase Warrant No. W-3, dated
April 29, 1997**
10.71 Amendment No. 4 to Common Stock Purchase Warrant No. W-4, dated
April 29, 1997**
10.72 Amendment No. 4 to Common Stock Purchase Warrant No. W-5, dated
April 29, 1997**
10.73 Amendment No. 3 to Loan and Security Agreement between the
Company and People's Bank, dated April 16, 1997**
10.74 Waiver and Consent Agreement, dated November 1, 1996.**
11.1 Computation of income per common share.**
21.1 Subsidiaries of the Registrant.*
23.1 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in
Exhibit 5.1).**
23.2 Consent of Arthur Andersen LLP.**
23.3 Consent of Aberdeen Group, Inc., dated April 9, 1997.**
24.1 Power of Attorney for Messrs. Albert R. Subbloie, Jr., Gary R.
Martino, Paul J. Schmidt, Andrei Poludnewycz, Donald P. Miller
and David J. Callard.*
24.2 Power of Attorney for Thomas F. Hill.**
27.1 Financial Data Schedule.*
</TABLE>
- --------
*Previously filed.
**Filed herewith.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------------------
1. The name of the Corporation is Information Management Associates,
Inc.
2. The nature of the business to be transacted, or the purposes to be
promoted or carried out by the Corporation, are as follows:
(a) To engage in and carry on the business of computer and marketing
consultants, research, development, software sales and computer and software
leasing and all other activities pertaining to or about or incident to the
aforesaid including the investment of corporate funds; and
(b) To undertake, carry on and engage in any lawful act or activity
for which Corporations may be formed under the laws of the State of
Connecticut and to carry out the purposes of the Corporation in any state,
territory, district or possession of the United States, or in any foreign
country, to the extent that the same is not forbidden by the law of the
state, territory, district or possession of the United States or by such
foreign country.
3. The designation of each class of shares, the authorized number of
shares of each such class, and the par value (if any) of each share thereof, are
as follows:
The total number of shares of capital stock which the Corporation
shall have authority to issue is 5,500,000 shares, divided into and designated
by classes as follows: 5,000,000 shares of common stock, without par value
("Common Stock"), and 500,000 shares of preferred stock, without par value
("Preferred Stock").
4. The terms, limitations and relative rights and preferences of each
class of shares and series thereof (if any), or an express grant of authority to
the board of directors pursuant to Section 33-341 of the Connecticut Stock
Corporation Act are as follows:
The Board of Directors shall have authority, before their issuance, to
fix and determine the terms, limitations and relative rights or preferences
of the Preferred Stock, or establish series of such shares and fix and
determine the variations as among such series, to the extent this
Certificate of Incorporation has not or does not in the future do so.
DESIGNATIONS, PREFERENCES AND SPECIAL RIGHTS
OF SENIOR CONVERTIBLE PREFERRED STOCK
Designation, Amount and Rank. Eight thousand eight hundred fifty (8,850)
----------------------------
shares of a convertible preferred stock, no par value per share, shall be
designated as "Senior Convertible Preferred Stock" (the "Senior Preferred
Stock"). The Senior
<PAGE>
Preferred Stock shall comprise two series as follows: 4,500 shares of Series A
Senior Preferred Stock ("Series A Senior Preferred Stock") and 4,350 shares of
Series B Senior Preferred Stock ("Series B Senior Preferred Stock"). With
respect to dividend rights, redemption rights, and rights on liquidation,
winding up and dissolution, the Senior Preferred Stock shall rank prior to the
Common Stock and any other class of capital stock or series of preferred stock
hereafter created. The Senior Preferred Stock shall be issued pursuant to the
following additional terms and conditions:
1. Preferred Stock.
---------------
1.1. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following meanings:
1.1.1. "Additional Director" means any director whom holders of
shares of Senior Preferred Stock shall be entitled to elect by virtue of the
provisions of Section 1.4.2 hereof.
1.1.2. "Additional Shares of Common Stock" means all shares
(including treasury shares) of Common Stock issued or sold (or, pursuant to
Sections 1.7.3 or 1.7.4, deemed to be issued) by the Corporation after the date
hereof, whether or not subsequently reacquired or retired by the Corporation
other than (a) the issuance of shares upon conversion of the Senior Preferred
Stock; (b) shares to be issued to directors and employees pursuant to
Corporation sponsored employee benefit and compensation arrangements, but not to
exceed 600,000 shares (subject to equitable adjustment in the event of any
combination, reclassification, stock split, dividend or recapitalization of the
Corporation); (c) shares issued upon exercise of the Warrants; and (d) shares to
be issued pursuant to outstanding stock options covering 115,930 shares of
Common Stock issued to former employees of Coffman Systems, Inc.; and (e) such
additional number of shares, if any, as may become issuable upon the conversion
or exercise of any of the securities referred to in the foregoing clauses (a)
through (d) and by reason of adjustments required pursuant to anti-dilution
provisions applicable to such Senior Preferred Stock as in effect on the date
hereof, but only if and to the extent that such adjustments are required as the
result of the original issuance of such Senior Preferred Stock.
1.1.3. "Business Day" means any day other than a Saturday or a Sunday
or a day on which commercial banking institutions in the City of New York are
authorized by law or other governmental action to be closed. Any reference to
"days" (unless Business Days are specified) shall mean calendar days.
1.1.4. "Closing" means the date of closing of any Triggering Event,
as contemplated by Section 1.6.2 hereof.
-2-
<PAGE>
1.1.5. "Common Stock" means the Corporation's Common Stock, no par
value, such term to include any stock into which such Common Stock shall have
been changed or any stock resulting from any reclassification of such Common
Stock, and all other stock of any class or classes (however designated) of the
Corporation the holders of which have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends and distributions after the payment of dividends and
distributions on any shares entitled to preference.
1.1.6. "Conversion Price" means the Series A Conversion Price or the
Series B Conversion Price, whichever is applicable.
1.1.7. "Series A Conversion Price" means $11.00, subject to
adjustment pursuant to Sections 1.7 and 1.9 hereof.
1.1.8. "Series B Conversion Price" means $16.00, subject to
adjustment pursuant to Sections 1.7 and 1.9 hereof.
1.1.9. "Convertible Securities" means any evidences of indebtedness,
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
1.1.10. "Current Market Price" means on any date specified herein,
the average daily Market Price during the period of the most recent twenty (20)
days, ending on such date, on which the national securities exchanges were open
for trading, except that if no Common Stock is then listed or admitted to
trading on any national securities exchange or quoted in the over-the-counter
market, the Current Market Price shall be the Market Price on such date.
1.1.11. "Dividend Payment Date" means March 31, June 30, September 30
and December 31 of each year, commencing June 30, 1995.
1.1.12. "Dividend Period" means each of the periods commencing
January 1 and ending March 31 of any year, commencing April 1 and ending June 30
of any year, commencing July 1 and ending September 30 of any year and
commencing October 1 and ending December 31 of any year.
1.1.13. "Independent Financial Expert" means a nationally recognized
investment banking firm, ranking in the top twenty (as determined by the
Securities Industries Association, Inc. or a similar securities information data
company) as lead manager for primary common stock offerings in the year prior to
the year in which it is called upon to give independent financial advice to the
Corporation as described herein and that does not (and whose directors,
officers, employees and affiliates do not) have a direct or indirect financial
interest in the Corporation
-3-
<PAGE>
or any of its affiliates, that has not been, since the beginning of the year
prior to the year in which it is called upon to give independent financial
advice to the Corporation as described herein, and at the time it is called upon
to give independent financial advice to the Corporation is not (and none of
whose directors, officers, employees or affiliates is) a promoter, director or
officer of the Corporation or any of its affiliates and that does not provide
any advice or opinions to the Corporation or any of its affiliates except as an
Independent Financial Expert. The Corporation will bear the expense of
compensation of the Independent Financial Expert for services or opinions it may
provide in that capacity.
1.1.14. "Mandatory Redemption Date" means each of the Mandatory
Redemption Dates stated in Section 1.5.1 hereof.
1.1.15. "Market Price" means on any date specified herein, the amount
per share of the Common Stock, equal to (a) the last sale price of such Common
Stock, regular way, on such date or, if no such sale takes place on such date,
the average of the closing bid and asked prices thereof on such date, in each
case as officially reported on the principal national securities exchange on
which such Common Stock is then listed or admitted to trading, or (b) if such
Common Stock is not then listed or admitted to trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last trading price of the Common Stock on such date, or (c) if
there shall have been no trading on such date or if the Common Stock is not so
designated, the average of the closing bid and asked prices of the Common Stock
on such date as shown by the NASD automated quotation system, or (d) if such
Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the higher of (x)
the book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Corporation as of the last day of any month ending within 60 days preceding the
date as of which the determination is to be made or (y) the fair value thereof
determined in good faith by the Board of Directors of the Corporation as of a
date which is within 18 days of the date as of which the determination is to be
made.
1.1.16. "Options" means rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
1.1.17. "Other Securities" means any stock (other than Common Stock)
and other securities of the Corporation or any other Person (corporate or
otherwise) which the holders of
-4-
<PAGE>
Preferred Stock at any time shall be entitled to receive, or shall have
received, upon the conversion of Preferred Stock, in lieu of or in addition to
Common Stock, or which at any time shall be issuable or shall have been issued
in exchange for or in replacement of Common Stock or Other Securities.
1.1.18. "Person" means a corporation, an association, a partnership,
an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
1.1.19. "Preferred Stock" means, collectively, all the outstanding
series of preferred stock of the Corporation.
1.1.20. "Series A Redemption Conversion Event" shall mean a
conversion of shares of Series A Senior Preferred Stock at the election of a
holder after receipt of a mandatory redemption notice pursuant to Section 1.5.4
hereof if no Series A Special Conversion Event has occurred and an Independent
Financial Expert has determined (a) in connection with the March 31, 2003
Mandatory Redemption Date, that the value of the Common Stock as of December 31,
2002 is less than $70 per share or (b) in connection with the March 31, 2004
Mandatory Redemption Date, that the value of the Common Stock as of December 31,
2003 is less than $88 per share. The per share values set forth in this
definition shall be equitably adjusted to take into account any changes in
capitalization of the Corporation after March 31, 1995.
1.1.21. "Series B Redemption Conversion Event" shall mean a
conversion of shares of Series B Senior Preferred Stock at the election of a
holder after receipt of a mandatory redemption notice pursuant to Section 1.5.4
hereof if no Series B Special Conversion Event has occurred and an Independent
Financial Expert has determined (a) in connection with the March 31, 2004
Mandatory Redemption Date, that the value of the Common Stock as of December 31,
2003 is less than $152 per share or (b) in connection with the March 31, 2005
Mandatory Redemption Date, that the value of the Common Stock as of December 31,
2004 is less than $205 per share. The per share values set forth in this
definition shall be equitably adjusted to take into account any changes in
capitalization of the Corporation after October 30, 1996.
1.1.22. "Series B Dividend Conversion Date" shall mean October 31,
1998.
1.1.23. "Restricted Period" shall mean the period beginning on the
date of original issue of any shares of Senior Preferred Stock and ending on the
earlier of (i) the first day of the calendar quarter in which the Corporation
first pays cash dividends on its Common Stock pursuant to Section 1.2.5 hereof
and (ii) June 30, 1999.
-5-
<PAGE>
1.1.24. "Securities Act" means the Securities Act of 1933, as
amended.
1.1.25. "Senior Preferred Stock" means, collectively, the Series A
Senior Preferred Stock, no par value, of the Corporation created pursuant to a
Certificate of Designation filed March 31, 1995 with the Secretary of State of
the State of Connecticut and the Series B Senior Preferred Stock, no par value,
of the Corporation.
1.1.26. "Six-Dividend Default" means any time when the Corporation is
in default in the payment of cash dividends on the Senior Preferred Stock for
any six (6) consecutive Dividend Periods occurring after the date on which the
Restricted Period ends or for any six Dividend Periods within any twelve (12)
consecutive Dividend Periods occurring after such date.
1.1.27. "Series A Special Conversion Event" means the consummation of
a transaction which involves (i)(a) an underwritten public offering pursuant to
an effective registration statement under the Securities Act covering the
offering and sale of shares of Common Stock in which the aggregate proceeds to
the Corporation and any selling shareholders exceed $20 million or (b) the sale
of all or substantially all of the stock or assets of the Corporation or the
merger or consolidation of the Corporation in a transaction in which the
Corporation is not the surviving corporation and (ii) a price (or valuation) per
share for the Common Stock in such transaction that is less than the per share
prices stated in the following table:
<TABLE>
<CAPTION>
Liquidity
Event Completed Per Share Price
--------------- ---------------
------------------------------------------
<S> <C>
Prior to 9/30/96 $16.50
------------------------------------------
10/1/96 through 9/30/97 18.50
------------------------------------------
10/1/97 through 9/30/98 22.50
------------------------------------------
10/1/98 through 9/30/99 28.00
------------------------------------------
10/1/99 through 9/30/00 35.00
------------------------------------------
10/1/00 through 9/30/01 44.00
------------------------------------------
10/1/01 through 9/30/02 55.50
------------------------------------------
10/1/02 through 9/30/03 70.00
------------------------------------------
10/1/03 through 3/31/04 88.00
------------------------------------------
</TABLE>
The per share prices set forth in the preceding table shall be equitably
adjusted to take into account any changes in capitalization of the Corporation
occurring after March 31, 1995.
-6-
<PAGE>
1.1.28. "Series B Special Conversion Event" means the consummation of
a transaction which involves (i) (a) an underwritten public offering pursuant to
an effective registration statement under the Securities Act covering the
offering and sale of shares of Common Stock in which the aggregate proceeds to
the Corporation and any selling shareholders exceed $20 million or (b) the sale
of all or substantially all of the stock or assets of the Corporation or the
merger or consolidation of the Corporation in a transaction in which the
Corporation is not the surviving corporation and (ii) a price (or valuation) per
share for the Common Stock in such transaction that is less than the per share
prices stated in the following table:
<TABLE>
<CAPTION>
Liquidity
Event Completed Per Share Price
--------------- ---------------
------------------------------------------
<S> <C>
Prior to March 31, 1998 $ 29.00
------------------------------------------
4/1/98 through 3/31/99 36.00
------------------------------------------
4/1/99 through 3/31/00 48.00
------------------------------------------
4/1/00 through 3/31/01 66.00
------------------------------------------
4/1/01 through 3/31/02 87.00
------------------------------------------
4/1/02 through 3/31/03 118.00
------------------------------------------
4/1/03 through 3/31/04 152.00
------------------------------------------
4/1/04 through 3/31/05 205.00
------------------------------------------
</TABLE>
The per share prices set forth in the preceding table shall be equitably
adjusted to take into account any changes in capitalization of the Corporation
occurring after October 30, 1996.
1.1.29. "Special Senior Preferred Stock Voting Rights" means the
special voting rights which holders of the Senior Preferred Stock are entitled
to exercise by virtue of the provisions of Section 1.4.2 hereof.
1.1.30. "Stated Value" per share means with respect to the Senior
Preferred Stock, One Thousand Dollars ($1,000) plus all accumulated and unpaid
dividends, if any, added thereto pursuant to Section 1.2.2 and minus all amounts
paid in cash in respect of such previously accumulated and unpaid dividends that
were originally added to such Stated Value pursuant to Section 1.2.2.
1.1.31. "Stated Value Excess Amount" means, with respect to a
particular share of Senior Preferred Stock, the remainder of (i) the Stated
Value of such share plus all Unpaid Dividends thereon minus (ii) one Thousand
Dollars ($1,000).
-7-
<PAGE>
1.1.32. "Series A Triggering Event" means the consummation of a
transaction which involves (i) (a) an underwritten public offering pursuant to
an effective registration statement under the Securities Act covering the
offering and sale of shares of Common Stock in which the aggregate proceeds to
the Corporation and any selling shareholders exceed $20 million or (b) the sale
of all or substantially all of the stock or assets of the Corporation or the
merger or consolidation of the Corporation in a transaction in which the
Corporation is not the surviving corporation and (ii) a price (or valuation) per
share for the Common Stock in such transaction that equals or exceeds the per
share prices stated in the following table:
<TABLE>
<CAPTION>
Liquidity
Event Completed Per Share Price
--------------- ---------------
----------------------------------------------
<S> <C>
Prior to September 30, 1996 $16.50
----------------------------------------------
10/1/96 through 9/30/97 18.50
----------------------------------------------
10/1/97 through 9/30/98 22.50
----------------------------------------------
10/1/98 through 9/30/99 28.00
----------------------------------------------
10/1/1999 through 9/30/2000 35.00
----------------------------------------------
10/1/2000 through 9/30/2001 44.00
----------------------------------------------
10/1/2001 through 9/30/2002 55.50
----------------------------------------------
10/1/2002 through 9/30/2003 70.00
----------------------------------------------
10/1/2003 through 9/30/2004 88.00
----------------------------------------------
</TABLE>
The per share prices set forth in the preceding table shall be equitably
adjusted to take into account any changes in capitalization of the Corporation
occurring after March 31, 1995.
1.1.33. "Series B Triggering Event" means the consummation of a
transaction which involves (i) (a) an underwritten public offering pursuant to
an effective registration statement under the Securities Act covering the
offering and sale of shares of Common Stock in which the aggregate proceeds to
the Corporation and any selling shareholders exceed $20 million or (b) the sale
of all or substantially all of the stock or assets of the Corporation or the
merger or consolidation of the Corporation in a transaction in which the
Corporation is not the surviving corporation and (ii) a price (or valuation) per
share for the Common Stock in such transaction that equals or exceeds the per
share prices stated in the following table:
-8-
<PAGE>
<TABLE>
<CAPTION>
Liquidity
Event Completed Per Share Price
--------------- ---------------
------------------------------------------
<S> <C>
Prior to March 31, 1998 $ 29.00
------------------------------------------
4/1/98 through 3/31/99 36.00
------------------------------------------
4/1/99 through 3/31/00 48.00
------------------------------------------
4/1/00 through 3/31/01 66.00
------------------------------------------
4/1/01 through 3/31/02 87.00
------------------------------------------
4/1/02 through 3/31/03 118.00
------------------------------------------
4/1/03 through 3/31/04 152.00
------------------------------------------
4/1/04 through 3/31/05 205.00
------------------------------------------
</TABLE>
The per share prices set forth in the preceding table shall be equitably
adjusted to take into account any changes in capitalization of the Corporation
occurring after October 30, 1996.
1.1.34. "Twelve-Dividend Default" means any time when the Corporation
is in default in the payment of cash dividends on the Senior Preferred Stock for
any twelve (12) consecutive Dividend Periods occurring after the date on which
the Restricted Period ends or for any twelve Dividend Periods within any twenty-
four (24) consecutive Dividend Periods after such date.
1.1.35. "Unpaid Dividends" means all dividends with respect to the
Senior Preferred Stock which have accrued but which have not been either paid in
cash or added to the Stated Value thereof pursuant to Section 1.2.2.
1.1.36. "Warrants" means those certain Common Stock Purchase Warrants
designated W-3, W-4 and W-5, issued, respectively, to Thomas F. Hill, Wand/IMA
Investments L.P. and Wand Partners Inc. initially providing for the acquisition
of an aggregate of 192,610 shares of Common Stock, and any warrants issued in
substitution or exchange therefor.
1.2. Dividends.
---------
1.2.1. The holder of each issued and outstanding share of Senior
Preferred Stock shall be entitled to receive, out of the funds of the
Corporation legally available for such purpose, when, as and if declared by the
Board of Directors of the Corporation, before any dividend shall be declared,
paid or set aside, or any other distribution shall be declared or made, upon the
Common Stock or any other class or series of stock of the Corporation, dividends
in cash at a dividend rate of eight percent (8.0%) per annum of the Stated Value
per share of Senior
-9-
<PAGE>
Preferred Stock, calculated on a daily basis, for each Dividend Period or
portion thereof during which such Senior Preferred Stock is outstanding.
1.2.2. Notwithstanding anything to the contrary herein provided, in
the event that any portion of the quarterly dividend for a Dividend Period on
the Senior Preferred Stock is not declared and paid in cash on any Dividend
Payment Date, the amount of such accrued dividend which is not so paid shall be
accumulated and shall automatically be added to the Stated Value of such share
on such date; provided, however, that should any accrued dividend added or to be
-----------------
added to Stated Value be taxable, the Corporation must pay at least fifty
percent (50%) of such dividend in cash. Accumulated dividends on shares of
Senior Preferred Stock that have previously been added to the Stated Value
thereof pursuant to the terms hereof may be declared and paid in cash on a pro
rata basis (based upon the respective amounts of dividends accumulated and added
to such Stated Values) on all shares of outstanding Senior Preferred Stock, at
any time, without reference to any regular Dividend Payment Date, to the holders
of Senior Preferred Stock on such date as may be fixed by the Board of Directors
of the Corporation. The Stated Value per share of the Senior Preferred Stock
shall be decreased on a dollar for dollar basis upon payment by the Corporation
of any cash amounts in respect of previously accumulated and unpaid dividends
thereon that have been added to Stated Value. Unpaid dividends shall not bear
interest but, to the extent accumulated and added to the Stated Value, shall
continue to accrue dividends on a daily basis. Accumulated dividends on any
share of Senior Preferred Stock which are added to the Stated Value thereof
pursuant to the terms hereof shall not be deemed to be in arrears for any
purpose whatsoever. Any dividends that have accrued on the Senior Preferred
Stock but have not yet been added to the Stated Value thereof shall constitute
Unpaid Dividends. Notwithstanding anything to the contrary herein provided, no
cash dividends shall be paid with respect to the Common Stock, or any other
class or series of capital stock of the Corporation at any time when there are
Unpaid Dividends with respect to the Senior Preferred Stock.
1.2.3. Dividends payable with respect to the Senior Preferred Stock
shall be calculated on the basis of a 360-day year consisting of twelve (12)
months of thirty (30) days each and shall be payable on each Dividend Payment
Date to the holders of record of the Senior Preferred Stock at the close of
business on the date specified by the Board of Directors of the Corporation;
provided, however, that no such record date shall be more than thirty (30) days
nor less than ten (10) days prior to the respective Dividend Payment Date.
Dividends on shares of Senior Preferred Stock shall accrue from the date of
original issue of such shares of Senior Preferred Stock. Such dividends will
accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends. The date on
-10-
<PAGE>
which the Corporation originally issues any share of Senior Preferred Stock will
be deemed to be its "date of original issue" regardless of the number of times
transfer of such share is made on the stock records maintained by or for the
Corporation.
1.2.4. All dividends paid or added to Stated Value, as the case may
be, with respect to shares of the Senior Preferred Stock shall be paid or added
to Stated Value, as the case may be, ratably with respect to such shares to the
holders entitled thereto.
1.2.5. So long as any shares of the Senior Preferred Stock are
outstanding, the Corporation shall not declare, pay or set apart for payment any
dividend or other distribution on any of the Corporation's Common Stock, or
Preferred Stock (other than the Senior Preferred Stock) or make any payment on
account of, or set apart for payment money for a sinking fund or other similar
fund for the purchase, redemption or other retirement of, any of the Common
Stock, or Preferred Stock (other than the Senior Preferred Stock) or any
warrants, rights, calls or options exercisable for any of the Common Stock or
make any distribution in respect thereof, either directly or indirectly, and
whether in cash, obligations or shares of the Corporation or other property
(other than distributions or dividends in stock to the holders of such stock),
and shall not permit any Person directly or indirectly controlled by the
Corporation to purchase or redeem any of the Common Stock or Preferred Stock
(other than the Senior Preferred Stock) or any warrants, rights, calls or
options exercisable for any of the Common Stock, unless prior to or concurrently
with such declaration, payment, setting apart for payment, purchase or
distribution, as the case may be, all funds then required for the mandatory
redemption of shares of the Senior Preferred Stock pursuant to Section 1.5.1
hereof, shall have been paid or be paid, and all Unpaid Dividends on shares of
the Senior Preferred Stock not paid in cash, shall have been paid in cash or be
paid in cash.
1.3. Rights on Liquidation, Dissolution or Winding-Up
------------------------------------------------
1.3.1. In the event of any liquidation, dissolution or winding-up of
the Corporation (including, without limitation, a liquidation or reorganization
under Chapter 7 or 11 of Title 11 of the United States Code, as amended), the
holders of shares of the Senior Preferred Stock then issued and outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment shall be made to the
holders of Common Stock or of shares of any other class or series of stock of
the Corporation an amount equal to the Stated Value per share, plus an amount
equal to any Unpaid Dividends to and including the date of distribution with
respect to such shares. If, upon any liquidation, dissolution or winding-up of
the Corporation (including, without limitation, a liquidation or reorganization
under Chapter 7 or 11 of Title 11 of the United States Code, as amended), the
assets of
-11-
<PAGE>
the Corporation available for distribution to its stockholders shall be
insufficient (a "Liquidation Insufficiency") to pay the holders of shares of the
Senior Preferred Stock and any other class or series of capital stock the full
amounts to which they shall respectively be entitled, the holders of shares of
the Senior Preferred Stock shall be entitled to receive all the assets of the
Corporation until such holders have received the full amounts to which they are
entitled pursuant to Section Four of the Certificate of Incorporation. If there
is no Liquidation Insufficiency, then the holders of shares of the Senior
Preferred Stock shall be entitled to receive the greater of (a) an amount equal
to the Stated Value per share, plus an amount equal to any Unpaid Dividends to
and including the date of distribution with respect to such shares, or (b) the
amount which would be distributed on the shares of Common Stock into which the
Senior Preferred Stock is convertible at the date of the liquidation,
dissolution or winding up of the Corporation (including, without limitation, a
liquidation or reorganization under Chapter 7 or 11 of Title 11 of the United
States Code, as amended).
1.4. Voting Power.
------------
1.4.1. Except as otherwise expressly provided herein or as required
by law, (i) each holder of Senior Preferred Stock shall be entitled to vote on
all matters as to which stockholders of the Corporation are entitled to vote,
and (ii) each holder of Senior Preferred Stock shall be entitled to cast a
number of votes equal to the greatest number of whole shares of Common Stock
into which such holder's shares of Senior Preferred Stock could be converted,
pursuant to the provisions of Section 1.6 hereof, at the record date for the
determination of stockholders entitled to vote on such matter or, if no such
record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as otherwise expressly provided
herein or as required by law, the holders of shares of Senior Preferred Stock
and Common Stock shall be entitled to vote together as a class with respect to
all matters as to which stockholders of the Corporation are entitled to vote.
1.4.2. In the event that at any time there shall occur a Six-Dividend
Default, then immediately upon the happening of such Six-Dividend Default and
until such Six-Dividend Default and all defaults in the payment of quarterly
dividends on the Senior Preferred Stock subsequent to and occurring while such
Six-Dividend Default exists shall be cured, the number of directors constituting
the Board of Directors of the Corporation shall, without further action, be
increased by two and the holders of Senior Preferred Stock shall have, in
addition to the other voting rights set forth herein, the exclusive right,
voting separately as a class, to elect two directors of the Corporation to fill
such newly created directorship, the remaining directors to be elected by the
class or classes of stock (including the Senior Preferred Stock) entitled to
vote therefor, at each meeting of stockholders held for the purpose of electing
-12-
<PAGE>
directors. In the event that at any time there shall occur a Twelve-Dividend
Default, then immediately on the happening of such Twelve-Dividend Default and
until such Twelve-Dividend Default and all defaults in the payment of quarterly
dividends on the Senior Preferred Stock subsequent to and occurring while such
Twelve-Dividend Default exists shall be cured, then the number of directors
constituting the Board of Directors of the Corporation shall, without further
action, be further increased by four and the holders of Senior Preferred Stock
shall have, in addition to the other voting rights set forth herein, the
exclusive right, voting separately as a class, to elect directors of the
Corporation to fill such newly created directorships, the remaining directors to
be elected by the class or classes of stock (including the Senior Preferred
Stock) entitled to vote therefor, at each meeting of stockholders held for the
purpose of electing directors. During the existence of a Twelve Dividend
Default, a majority of the Directors not elected by the holders of the Senior
Preferred Stock shall have the right to declare and pay dividends on the Senior
Preferred Stock out of funds legally available for the payment of such
dividends. Notwithstanding the foregoing provisions of this Section 1.4.2, upon
payment in full of all quarterly dividends on the Senior Preferred Stock coming
due subsequent to a Twelve-Dividend Default and the dividend which resulted in
the Twelve-Dividend Default, so that no more than eleven consecutive quarterly
dividends on the Senior Preferred Stock remain in default, the Special Senior
Preferred Stock Voting Rights of the holders of Senior Preferred Stock shall be
reduced so that they have the right, voting separately as a class, to elect two
Additional Directors of the Corporation. Notwithstanding the foregoing
provisions of this Section 1.4.2, upon payment in full of (i) all quarterly
dividends on the Senior Preferred Stock coming due subsequent to a Six-Dividend
Default and five of the dividends which resulted in the Six-Dividend Default, or
(ii) upon payment in full of all quarterly dividends on the Senior Preferred
Stock coming due subsequent to a Twelve-Dividend Default and eleven of the
dividends which resulted in a Twelve-Dividend Default, so that, in each case, no
more than one quarterly dividend remains in default, the Special Senior
Preferred Stock Voting Rights shall terminate. Upon any termination of the
aforesaid Special Senior Preferred Stock Voting Rights, the term of office of
each director elected by the holders of the Senior Preferred Stock pursuant to
this Section 1.4.2 then in office shall thereupon terminate and upon such
termination the number of directors constituting the Board of Directors shall,
by resolution of the Board of Directors, be reduced accordingly, subject always
to the subsequent increase of the number of directors from time to time pursuant
to this Section 1.4.2 in the event of the periodic future vesting of the right
of the holders of the Senior Preferred Stock to elect Additional Directors. The
term of office of any director elected by the holders of the Senior Preferred
Stock pursuant to this Section 1.4.2 shall terminate upon the earlier of the
termination of the Special Senior Preferred Stock Voting Rights and the election
of a successor to such director at any meeting of
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<PAGE>
holders of the Senior Preferred Stock for the purpose of electing directors.
1.4.3. Special Senior Voting Rights may be exercised either at a
special meeting of holders of the Senior Preferred Stock, or at any annual or
special meeting of stockholders of the Corporation, or may be exercised by the
written consent of holders of the Senior Preferred Stock pursuant to the
Connecticut Stock Corporation Act or the Connecticut Business Corporation Act.
1.4.4. At any time when Special Senior Preferred Stock Voting Rights
pursuant to Section 1.4.2 above shall have vested in holders of the Senior
Preferred Stock, and if such rights shall have not already been initially
exercised, a proper officer of the Corporation shall, upon the written request
of any holder of record of the Senior Preferred Stock then outstanding,
addressed to the secretary of the Corporation, call a special meeting of holders
of the Senior Preferred Stock for the purpose of electing directors. Such
meeting shall be held at the earliest practicable date upon the notice required
for annual meetings of the stockholders at the place for holding annual meetings
of the stockholders of the Corporation or, if none, at a place designated by the
secretary of the Corporation. If such a meeting shall not be called by the
proper officer of the Corporation within ten (10) days after the personal
service of such written request upon the secretary of the Corporation, or within
ten (10) days after mailing the same within the United States, by first-class
registered mail, addressed to the secretary of the Corporation at the
Corporation's principal office (such mailing to be evidenced by registry receipt
issued by the postal authorities), then the holders of record of ten percent
(10%) of the shares of the Senior Preferred Stock then outstanding may designate
in writing a holder of Senior Preferred Stock to call such meeting at the
expense of the Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of stockholders and
shall be held at the same place as is elsewhere provided in this Section 1.4.4.
Any holder of Senior Preferred Stock shall have access to the stock books of the
Corporation for the purpose of causing a meeting of holders of Senior Preferred
Stock to be called pursuant to the provisions hereof.
1.4.5. Unless a greater percentage shall then be required by law, at
any meeting held for the purpose of electing directors at which the holders of
Senior Preferred Stock shall have the right to elect directors as provided
herein, the presence in person or by proxy of the holders of twenty-five percent
(25%) of the then outstanding shares of Senior Preferred Stock shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class. In the absence of a quorum of the holders of Senior
Preferred Stock entitled to vote for the election of directors, a majority of
the holders present in person or by proxy of such class shall
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<PAGE>
have the power to adjourn the meeting for the election of directors which the
holders of such class are entitled to elect, from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
1.4.6. Unless the vote of the holders of a greater number of shares
of this Senior Preferred Stock shall then be required by law, the consent of the
holders of at least 66-2/3% of all of the shares of this Senior Preferred Stock
at the time outstanding, if any, voting together as a separate class, shall be
necessary for authorizing, effecting or validating any of the following:
(a) the creation, authorization or issue of any shares of any class
or series of stock of the Corporation ranking prior to, or pari passu
with, the shares of this Senior Preferred Stock as to dividends or upon
liquidation or otherwise, or the reclassification of any authorized stock
of the Corporation into any such prior or pari passu shares, or the
creation, authorization or issue of any obligation or security convertible
into or evidencing the right to purchase any such prior or pari passu
shares; and
(b) the amendment, alteration or repeal of any of the provisions of
the Certificate of Incorporation or of any certificate amendatory thereof
or supplemental thereto so as to affect adversely the preferences, rights,
powers or privileges of this Senior Preferred Stock.
1.5. Redemption.
----------
1.5.1. Mandatory Redemption. The Corporation shall redeem shares of
--------------------
Series A Senior Preferred Stock and Series B Senior Preferred Stock in the
amounts and on the Mandatory Redemption Dates set forth in the following tables
at a cash redemption price equal to the Stated Value per share of Senior
Preferred Stock, plus all Unpaid Dividends on each such share up to and
including the date of redemption.
Series A Senior Preferred Stock
-------------------------------
<TABLE>
<CAPTION>
Mandatory Number of Shares of Series A
Redemption Date Senior Preferred Stock
----------------- ----------------------
---------------------------------------------------
<S> <C>
March 31, 2003 2,250
---------------------------------------------------
March 31, 2004 2,250
---------------------------------------------------
</TABLE>
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<PAGE>
Series B Senior Preferred Stock
-------------------------------
<TABLE>
<CAPTION>
Mandatory Number of Shares of Series B
Redemption Date Senior Preferred Stock
----------------- ----------------------
--------------------------------------------------
<S> <C>
March 31, 2004 2,175
--------------------------------------------------
March 31, 2005 2,175
--------------------------------------------------
</TABLE>
Payment shall be applied to the redemption of the shares of Senior Preferred
Stock, pro rata among the holders of all outstanding shares of the Series A
Senior Preferred Stock and Series B Senior Preferred Stock, then subject to
redemption, on the respective Mandatory Redemption Date and shall be paid to
each such holder upon surrender of the certificate or certificates evidencing
such shares to be redeemed to the secretary of the Corporation.
1.5.2. With respect to any redemption of Series A Senior Preferred
Stock or Series B Senior Preferred Stock, each redemption of Series A Senior
Preferred Stock or Series B Senior Preferred Stock, as the case may be, shall be
made so that the number of shares of Series A Senior Preferred Stock or Series B
Senior Preferred Stock, as the case may be, held by each registered holder
thereof shall be that amount which shall bear the same ratio to the total number
of shares of Series A Senior Preferred Stock or Series B Senior Preferred Stock
being so redeemed as the number of shares of Series A Senior Preferred Stock or
Series B Senior Preferred Stock, then held by such holder bears to the aggregate
number of shares of Series A Senior Preferred Stock or Series B Preferred Stock,
as the case may be, then outstanding.
With respect to redemptions occurring after March 31, 2003, no shares
of Series A Senior Preferred Stock shall be redeemed pursuant to this Section
1.5.2 unless concurrently therewith shares of Series B Senior Preferred Stock
are redeemed on a pro rata basis (based on the respective Stated Values plus
Unpaid Dividends of the Series A Senior Preferred Stock and the Series B Senior
Preferred Stock) and no shares of Series B Senior Preferred Stock shall be
redeemed pursuant to this Section 1.5.2 unless concurrently therewith shares of
Series A Senior Preferred Stock are redeemed on a pro rata basis (based on the
respective Stated Values plus Unpaid Dividends of the Series A Senior Preferred
Stock and the Series B Senior Preferred Stock.)
1.5.3. The redemption price for shares of Senior Preferred Stock set
forth in this Section 1.5 shall be subject to equitable adjustment whenever
there shall occur a stock split, combination, reclassification or other similar
event involving the Senior Preferred Stock.
1.5.4. Except as otherwise provided herein, at least forty-five (45)
days before any Redemption Date, a Redemption
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<PAGE>
Notice shall be mailed, postage prepaid, to each holder of record of the Senior
Preferred Stock which is to be redeemed, at its address shown on the records of
the Corporation; provided, however, that the Corporation's failure to give such
Redemption Notice shall in no way affect its obligation to redeem the shares of
Senior Preferred Stock as provided herein. The Redemption Notice shall set
forth:
(i) the number of shares of Senior Preferred Stock held by the holder
which shall be redeemed by the Corporation, and the total number of shares
of Senior Preferred Stock held by all holders of such series to be so
redeemed;
(ii) the Redemption Date and the redemption price;
(iii) that the holder is to surrender to the Corporation, at the place
designated therein, its certificate or certificates representing the shares
of Senior Preferred Stock to be redeemed;
(iv) the Conversion Price then in effect with respect to such shares of
Senior Preferred Stock, pursuant to the provisions of Section 1.6 hereof;
and
(v) that the conversion rights of such shares of Senior Preferred Stock
shall terminate at the close of business on the date prior to the
Redemption Date.
1.5.5. Each holder of shares of Senior Preferred Stock to be redeemed
shall surrender the certificate or certificates representing such shares to the
Corporation at the place designated in the Redemption Notice and thereupon the
applicable redemption price for such shares shall be paid to the order of the
Person whose name appears on such certificate or certificates and each
surrendered certificate shall be cancelled and retired.
1.5.6. From and after the Redemption Date, no shares of Senior
Preferred Stock thereupon subject to redemption shall be entitled to any further
accrual of any dividends pursuant to Section 1.2 hereof or to the conversion
provisions set forth in Section 1.6 hereof; provided, however, that sufficient
funds for payment of the redemption price for the shares of Senior Preferred
Stock to be redeemed are deposited or held and set apart for that purpose at the
place of payment on or prior to the Redemption Date.
1.5.7. If the Redemption notice shall have been mailed as provided
herein, and if on or before the Redemption Date specified in such notice the
consideration necessary for such redemption shall have been set apart so as to
be available therefor, then on and after the close of business on the Redemption
Date the shares of Senior Preferred Stock called for
-17-
<PAGE>
redemption, notwithstanding that any certificate therefor shall not have been
surrendered for cancellation, shall no longer be deemed outstanding, and all
rights with respect to such shares shall forthwith cease and terminate, except
only the right of the holders thereof to receive upon surrender of their
certificates the consideration payable upon redemption thereof. In case fewer
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder thereof.
1.5.8. Except to the extent otherwise required by a change or
amendment to the tax law or the regulations promulgated thereunder that shall
become effective after the date hereof, or the issuance of a published ruling of
the Internal Revenue Service subsequent to the date hereof, the payment by the
Corporation of the redemption price of the Senior Preferred Stock, either as
part of an optional or mandatory redemption, as the case may be, shall be
treated by the Corporation as a distribution in full payment in exchange for the
shares of Senior Preferred Stock so redeemed under Section 302(a) of the
Internal Revenue Code of 1986, as amended.
1.5.9. If (i) no Series A Special Conversion Event or Series A
Triggering Event has occurred prior to the date that is one-hundred-fifty (150)
days before either Series A Mandatory Redemption Date, any holder or holders of
a majority of the outstanding shares of Series A Senior Preferred Stock
("Electing Holders") or if (ii) no Series B Special Conversion Event or Series B
Triggering Event has occurred prior to the date that is one-hundred-fifty (150)
days before either Series B Mandatory Redemption Date, any holder or holders of
a majority of the outstanding shares of Series B Senior Preferred Stock
("Electing Holders") may require the Corporation to retain an Independent
Financial Expert to value the Common Stock into which the Series A Senior
Preferred Stock or Series B Senior Preferred Stock, as the case may be, is
convertible. Such a request shall be made in writing (the "Valuation Notice")
delivered to the Corporation more than one-hundred-twenty (120) days prior to
the relevant Mandatory Redemption Date. The value of the Common Stock into
which the Series A Senior Preferred Stock or Series B Senior Preferred Stock, as
the case may be, is convertible shall be determined by an Independent Financial
Expert (to be selected as provided below in section 1.5.10) as of the end of the
calendar year preceding the relevant Mandatory Redemption Date (the "Valuation
Date") using one or more valuation methods that the Independent Financial Expert
in its professional judgment determines to be most appropriate, taking into
account, the Corporation's lack of liquidity. The Independent Financial Expert
shall deliver, promptly upon completion, to the Corporation and to each of the
holders of Series A Senior Preferred Stock or Series B Senior Preferred Stock,
as the case may be, a report (the "Value Report") stating the method of
valuation considered or used and the value of said Common Stock as of the
Valuation Date and containing a statement as to the
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<PAGE>
nature and scope of the examination or investigation upon which the
determination of value was made.
1.5.10. (a) Within five Business Days of its receipt of the
Valuation Notice, the Corporation shall give written notice to each holder of
Senior Preferred Stock of the Corporation's choice of an Independent Financial
Expert to prepare the Value Report. Within five Business Days after the date of
this notice, holders owning a majority of the shares identified in the Valuation
Notice shall notify the Corporation in writing, (the "Holders' IFE Notice") of
the approval or disapproval of the Corporations initial choice of Independent
Financial Export and, in the event of disapproval, such holders shall propose an
alternative firm as Independent Financial Expert. Within two Business Days after
its receipt of the Holders' IFE Notice, the Corporation shall notify the
Electing Holders of its approval or disapproval of their selection. If the
Corporation does not accept the Independent Financial Expert chosen by the
Electing Holders, then the two Independent Financial Experts previously selected
pursuant to this section shall promptly be requested by the Corporation and the
Electing Holders to jointly select a firm to act as Independent Financial Expert
to prepare the Value Report. Their joint selection, which shall be made within
five Business Days, shall be final and binding upon both the Corporation and the
Electing Holders.
(b) The Corporation shall consult and cooperate with the selected
Independent Financial Expert to facilitate the final delivery of its Value
Report no later than ninety (90) calendar days after the date of the Valuation
Notice. The Value Report shall be final and binding upon both the Corporation
and the Electing Holders.
1.6. Conversion Rights.
-----------------
1.6.1. Each holder of the shares of Senior Preferred Stock shall have
the right, at the election of such holder, exercised at any time and from time
to time, to convert, subject to the terms and provisions hereof, all or any
portion of such shares of Senior Preferred Stock into fully paid and non-
assessable shares of Common Stock of the Corporation or any capital stock or
other securities into which such Common Stock shall have been changed or any
capital stock or other securities resulting from a reclassification thereof.
Such conversion of Senior Preferred Stock to shares of Common Stock shall be
made at the Conversion Price, subject to adjustment from time to time as set
forth herein. Senior Preferred Stock may be converted by the holder thereof
during normal business hours on any Business Day by surrender of the required
number of shares of Senior Preferred Stock, accompanied by written evidence (in
form reasonably satisfactory to the Corporation) of the holder's election to
convert such holder's Senior Preferred Stock or portion thereof, to the
Corporation at its principal executive offices. Payment of the Conversion Price
for the shares of Common Stock specified in such election shall be made by
applying shares of Senior
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<PAGE>
Preferred Stock, valued at $1,000 per share. Upon (i) conversion of Series A
Senior Preferred Stock by a holder in the absence of a Series A Special
Conversion Event or a Series A Redemption Conversion Event, or (ii) conversion
of Series B Senior Preferred Stock prior to the occurrence of the Series B
Dividend Conversion Date by a holder in the absence of a Series B Special
Conversion Event or a Series B Redemption Conversion Event, the Corporation
shall have no obligation to pay the holder any accrued dividend previously added
to the Stated Value or any Unpaid Dividend with respect to such converted
shares. Upon (x) conversion of Series A Senior Preferred Stock by a holder
concurrently with or following the occurrence of a Series A Special Conversion
Event or in connection with a Series A Redemption Conversion Event, or (y)
conversion of Series B Senior Preferred Stock by a holder concurrently with or
following the occurrence of a Series B Special Conversion Event or in connection
with a Series B Redemption Conversion Event, or (z) conversion of Series B
Senior Preferred Stock concurrently with or following the Series B Dividend
Conversion Date and in the absence of a Series B Triggering Event, payment of
the Stated Value Excess Amount, if any, applicable to such converted shares of
Senior Preferred Stock as of the date of the conversion shall be made in cash
without interest.
1.6.2. All or part of the outstanding shares of Series A Senior
Preferred Stock shall, at the option of the Corporation and upon written notice
to the holders thereof given not less than ten (10) days prior to the Closing of
a Series A Triggering Event be converted, by applying shares of Senior Preferred
Stock valued at $1,000 per share as of the date and time of the Closing, into
shares of Common Stock at the Series A Conversion Price automatically and
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent. All or part of the outstanding shares of Series B Senior
Preferred Stock shall, at the option of the Corporation and upon written notice
to the holders thereof given not less than ten (10) days prior to the Closing of
a Series B Triggering Event be converted, by applying shares of Series B Senior
Preferred Stock valued at $1,000 per share as of the date and time of the
Closing, into shares of Common Stock at the Series B Conversion Price
automatically and without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent. Upon conversion of Senior Preferred Stock by
the Corporation in connection with a Triggering Event, the Corporation shall
have no obligation to pay the holder any accrued dividend previously added to
the Stated Value or any Unpaid Dividend with respect to such converted shares.
1.6.3. Upon the conversion of Senior Preferred Stock, the holders of
such Senior Preferred Stock shall surrender the certificates representing such
shares at the office of the Corporation. The Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon
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<PAGE>
such conversion (or to pay any Unpaid Dividends or Stated Value Excess Amounts
in connection with such conversion) unless certificates evidencing such shares
of Senior Preferred Stock being converted are either delivered to the
Corporation or the holder notifies the Corporation that such certificates have
been lost, stolen, or destroyed and delivers to the Corporation an agreement
satisfactory to the Corporation, with a surety satisfactory to the Corporation,
to indemnify the Corporation from any loss incurred by it in connection
therewith.
1.6.4. Each conversion of Senior Preferred Stock shall be deemed to
have been effected immediately prior to the close of business on the Business
Day on which such Senior Preferred Stock shall have been surrendered to the
Corporation as provided herein (except that if such conversion is in connection
with a Triggering Event, then such conversion shall be deemed to have been
effected concurrently with the Closing of such Triggering Event), and such
conversion shall be at the Conversion Price in effect at such time. On each
such day that the conversion of shares of Senior Preferred Stock is deemed
effected, the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are issuable upon such conversion shall
be deemed to have become the holder or holders of record thereof.
1.6.5. As promptly as practical after the conversion of shares of
Senior Preferred Stock, in whole or in part, and in any event within five (5)
Business Days thereafter (unless such conversion is in connection with a
Triggering Event, in which event concurrently with such conversion), the
Corporation at its expense (including the payment by it of any applicable issue,
stamp or other taxes, other than any income taxes and other than any taxes
arising by reason of issuance of shares of Common Stock to any person other than
such holder) will cause to be issued in the name of and delivered to the holder
thereof or as such holder may direct, (i) a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled upon
such conversion plus, in lieu of any fractional shares to which such holder
would otherwise be entitled, cash in an amount equal to the same fraction of the
Current Market Price per share of Common Stock and (ii) the Stated Value Excess
Amount, if any, applicable as of the time of conversion to those shares of
Senior Preferred Stock which are converted concurrently with or following the
occurrence of a Special Conversion Event or Redemption Conversion Event. In
case fewer than all the shares of Senior Preferred Stock represented by any
surrendered certificate are converted into Common Stock, a new certificate
representing the shares of Senior Preferred Stock not converted shall be issued
without cost to the holder thereof.
1.7. Anti-Dilution Adjustments. The number of shares of Common Stock
-------------------------
issuable upon any conversion provided for in Section 1.6 shall be subject to
adjustment, from time to time, in accordance with the following provisions:
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<PAGE>
1.7.1. Issuance of Additional Shares of Common Stock. In case the
---------------------------------------------
Corporation at any time or from time to time after the date hereof shall issue
or sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 1.7.3 or 1.7.4) without
consideration or for a consideration per share less than the greater of the
Current Market Price and the Conversion Price in effect immediately prior to
such issue or sale, then, in each such case, subject to Section 1.7.8, such
Conversion Price shall be reduced, concurrently with such issue or sale, to a
price (calculated to the nearest .001 of a cent) determined by multiplying such
Conversion Price by a fraction
(a) the numerator of which shall be (i) the number of shares of Common
Stock outstanding immediately prior to such issue or sale plus (ii) the
number of shares of Common Stock which the aggregate consideration received
by the Corporation for the total number of such Additional Shares of Common
Stock so issued or sold would purchase at the greater of such Current Market
Price and such Conversion Price, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 1.7.1, (x) immediately after
any Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 1.7.3 or 1.7.4, such Additional Shares shall be deemed to be outstanding
and (y) treasury shares shall not be deemed to be outstanding.
1.7.2. Adjustment of Conversion Price Upon Extraordinary Dividends
-----------------------------------------------------------
and Distributions. In case the Corporation at any time or from time to time
- -----------------
after the date hereof shall declare, order, pay or make a dividend or other
distribution (including, without limitation, any distribution of other or
additional stock or other securities or property or Options by way of dividend
or spinoff, reclassification, recapitalization or similar corporate
rearrangement) on the Common Stock, other than (a) a dividend payable in
Additional Shares of Common Stock or (b) a cash dividend permitted pursuant to
Section 1.2.5 hereof, then, and in each such case, subject to Section 1.7.8, the
Conversion Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class of securities
entitled to receive such dividend or distribution shall be reduced, effective as
of the close of business on such record date, to a price (calculated to the
nearest .001 of a cent) determined by multiplying such Conversion Price by a
fraction
(a) the numerator of which shall be the Current Market Price in effect
on such record date or, if the Common Stock
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<PAGE>
trades on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading, less the amount of such dividend or distribution (as
determined in good faith by the Board of Directors of the Corporation)
applicable to one share of Common Stock,
(b) the denominator of which shall be such Current Market Price,
provided that, in the event that the amount of such dividend as so determined is
equal to or greater than such Current Market Price or in the event that such
fraction is less than one half (1/2), in lieu of the foregoing adjustment,
adequate provision shall be made so that the holders of the Senior Preferred
Stock shall receive, in the same form and at the same time such dividend is
payable to holders of Common Stock, a pro rata share of such dividend based upon
the maximum number of shares of Common Stock at the time issuable to such
holders upon conversion of such Senior Preferred Stock.
1.7.3. Treatment of Options and Convertible Securities. In case the
-----------------------------------------------
Corporation at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options (other than
Options covering shares of Common Stock which would not constitute Additional
Shares of Common Stock if issued upon exercise of such Options) or Convertible
Securities, then and in each such case, the maximum number of Additional Shares
of Common Stock (as set forth in the instrument relating thereto, without regard
to any provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue, sale, grant or assumption or, in case such a record date
shall have been fixed, as of the close of business on such record date (or, if
the Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), provided that such Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 1.7.5) of such shares would be less
than the greater of the Current Market Price and the Conversion Price in effect
on the date of and immediately prior to such issue, sale, grant or assumption or
immediately prior to the close of business on such record date (or, if the
Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), as the case may be, and provided, further,
that in any such case in which Additional Shares of Common Stock are deemed to
be issued
(a) no further adjustment of the Conversion Price shall be made upon
the subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the
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<PAGE>
exercise of such Options or the conversion or exchange of such Convertible
Securities;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the consideration
payable to the Corporation, or decrease in the number of Additional Shares
of Common Stock issuable, upon the exercise, conversion or exchange thereof
(by change of rate or otherwise), the Conversion Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of
the record date, or date prior to the commencement of ex-dividend trading,
as the case may be, with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease becoming effective,
be recomputed to reflect such increase or decrease insofar as it affects
such Options, or the rights of conversion or exchange under such Convertible
Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Corporation and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under
any such Convertible Securities which shall not have been exercised (or
purchase by the Corporation and cancellation or retirement of any such
Convertible Securities the rights of conversion or exchange under which
shall not have been exercised), the Conversion Price computed upon the
original issue, sale, grant or assumption (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading, as
the case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration (or such cancellation or retirement, as
the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange of
such Convertible Securities and the consideration received therefor was
the consideration actually received by the Corporation for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation
upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any,
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<PAGE>
actually issued or sold upon the exercise of such Options were issued
at the time of the issue, sale, grant or assumption of such Options,
and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have then been issued was the
consideration actually received by the Corporation for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation (pursuant to Section 1.7.5) upon the issue or sale of such
Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Conversion Price by an amount in excess of
the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(e) in the case of any such Options which expire by their terms not
more than thirty (30) days after the date of issue, sale, grant or
assumption thereof, no adjustment of the Conversion Price shall be made
until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the manner provided in subdivision (c) above.
1.7.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
------------------------------------------------
Corporation at any time or from time to time after the date hereof shall declare
or pay any dividend on the Common Stock payable in Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the date immediately prior to the day upon which such corporate action
becomes effective.
1.7.5. Computation of Consideration. For the purposes of this
----------------------------
Section 1.7,
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of such
consideration,
(i) insofar as it consists of cash, be computed at the net amount
of cash received by the Corporation;
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<PAGE>
(ii) insofar as it consists of property (including securities)
other than cash, be computed at the fair value thereof at the time of
such issue or sale, as determined in good faith by the Board of
Directors of the Corporation (subject to confirmation by a firm of
independent certified public accountants of recognized national
standing approved by the holders of a majority of the Senior Preferred
Stock); and
(iii) in case Additional Shares of Common Stock are issued or sold
together with other stock or securities or other assets of the
Corporation for a consideration which covers both, be the portion of
such consideration so received, computed as provided in clauses (i)
and (ii) above, allocable to such Additional Shares of Common Stock,
all as determined in good faith by the Board of Directors of the
Corporation (subject to confirmation by a firm of independent
certified public accountants of recognized national standing approved
by the holders of a majority of the Senior Preferred Stock);
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 1.7.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share determined
by dividing
(i) the total amount, if any, received and receivable by the
Corporation as consideration for the issue, sale, grant or assumption
of the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Corporation upon the exercise
in full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, in each
case computing such consideration as provided in the foregoing
subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number to
protect against dilution) issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities; and
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<PAGE>
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 1.7.4, relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration.
1.7.6. Adjustments for Combinations, etc. In case the outstanding
----------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Price
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
1.7.7. Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Corporation
(or any issuer of Other Securities or any other Person referred to in Section
1.8) or to subscription, purchase or other acquisition pursuant to any Options
issued or granted by the Corporation (or any such other issuer or Person) for a
consideration such as to dilute, on a basis consistent with the standards
established in the other provisions of this Section 1.7, the conversion rights
granted to holders of Senior Preferred Stock, then, and in each such case, the
computations, adjustments and readjustments provided for in this Section 1.7
with respect to the Conversion Price shall be made as nearly as possible in the
manner so provided and applied to determine the amount of Other Securities from
time to time receivable upon the conversion of the shares of Senior Preferred
Stock, so as to protect the holders of the Senior Preferred Stock against the
effect of such dilution.
1.7.8. Minimum Adjustment of Conversion Price. If the amount of any
--------------------------------------
adjustment of the Conversion Price required pursuant to this Section 1.7 would
be less than one percent (1%) of the Conversion Price in effect at the time such
adjustment is otherwise so required to be made, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least one percent (1%)
of such Conversion Price. Notwithstanding the foregoing, the Conversion Price
shall be adjusted at the time of, and be effective with respect to, any
conversion or redemption of any shares of Senior Preferred Stock.
1.8. Consolidation, Merger, etc.
---------------------------
1.8.1. Adjustments for Consolidation, Merger, Sale of Assets,
------------------------------------------------------
Reorganization, etc. In case the Corporation after the date hereof (a) shall
- --------------------
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Corporation and the
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<PAGE>
Corporation shall be the continuing or surviving Person but, in connection with
such consolidation or merger, the Common Stock or Other Securities shall be
changed into or exchanged for stock or other securities of any Other Person or
cash or any other property, or (c) shall transfer 50% or more of its Common
Stock, properties or assets to any other Person in a single transaction or a
related series of transactions, or (d) shall effect a capital reorganization or
reclassification of the Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock for which adjustment in the Conversion Price is provided in
subsection 1.7.1 or subsection 1.7.2), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided herein, the holders of shares of Senior
Preferred Stock, upon the conversion thereof at any time after the consummation
of such transaction, shall be entitled to receive (at the aggregate Conversion
Price in effect at the time of such consummation for all Common Stock or Other
Securities issuable upon such exercise immediately prior to such consummation),
in lieu of the Common Stock or Other Securities issuable upon such exercise
prior to such consummation, the highest amount of securities, cash or other
property to which such holder would actually have been entitled as a stockholder
upon such consummation if such holder had exercised the conversion rights
pertaining to the Senior Preferred Stock immediately prior thereto.
1.8.2. Assumption of Obligations. Notwithstanding anything to the
-------------------------
contrary herein provided, the Corporation will not effect any of the
transactions described in subsections (a) through (d) of Section 1.8.1
(excluding any such transaction which constitutes a Triggering Event and in
connection with which the Corporation requires conversion of the Senior
Preferred Stock) unless, prior to the consummation thereof, each Person (other
than the Corporation) which may be required to deliver any stock, securities,
cash or property upon the conversion of shares of Senior Preferred Stock as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the holders of the Senior Preferred Stock (a) the obligations
of the Corporation with respect to the Senior Preferred Stock (and if the
Corporation shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Corporation from, any
continuing obligations of the Corporation with respect to the Senior Preferred
Stock), and (b) the obligation to deliver to such holder such shares of stock,
securities, cash or property as, in accordance with the foregoing provisions of
this Section 1.8, such holder may be entitled to receive, and such Person shall
have similarly delivered to such holders of Senior Preferred Stock an opinion of
counsel for such Person, which counsel shall be reasonably satisfactory to such
holders, stating that the rights and privileges of the Senior Preferred Stock
shall thereafter continue in full force and effect and the terms thereof
(including, without limitation, all of the provisions of this
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<PAGE>
Section 1.8) shall be applicable to the stock, securities, cash or property
which such Person may be required to deliver upon any conversion of shares of
Senior Preferred Stock or the exercise of any rights pursuant hereto.
1.9. Other Dilutive Events. In case any event shall occur as to
---------------------
which the provisions of Section 1.7 or Section 1.8 are not strictly applicable
but the failure to make any adjustment would not fairly protect the conversion
rights pertaining to shares of Senior Preferred Stock in accordance with the
essential intent and principles of such sections, then, in each such case, the
Corporation shall appoint a firm of independent certified public accountants of
recognized national standing (such firm to be subject to the approval of the
holders of a majority of the outstanding Senior Preferred Stock), which shall
give their opinion regarding the adjustment, if any, on a basis consistent with
the essential intent and principles established in Sections 1.7 and 1.8,
necessary to preserve, without dilution, the conversion rights of the Senior
Preferred Stock. Upon receipt of such opinion, the Corporation will promptly
mail a copy thereof to each holder of Senior Preferred Stock and shall make the
adjustments described therein.
1.10. No Dilution or Impairment. The Corporation will not, by
-------------------------
amendment of its certificate of incorporation or by-laws or through any
consolidation, merger, reorganization, transfer of assets, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Senior Preferred Stock, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of shares of Senior Preferred Stock against
dilution or other impairment. Without limiting the generality of the foregoing,
the Corporation (a) will not permit the par value of any shares of stock
receivable upon the conversion of Senior Preferred Stock to exceed the amount
payable therefor upon such exercise, (b) will take all such action as may be
necessary or appropriate in order that the Corporation may validly and legally
issue fully paid and non-assessable shares of stock on the conversion of the
shares of Senior Preferred Stock from time to time outstanding, and (c) will not
take any action if the total number of shares of Common Stock (or Other
Securities) issuable after such proposed action (and assuming the conversion of
all of the outstanding shares of Senior Preferred Stock) would exceed the total
number of shares of Common Stock (or Other Securities) then authorized by the
Corporation's certificate of incorporation and available for the purpose of
issue upon such exercise.
1.11. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the conversion of shares of Senior Preferred Stock, the
Corporation at its expense will promptly compute such adjustment or readjustment
in
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<PAGE>
accordance with the terms hereof and, if requested by the holders of 20% of the
outstanding shares of Senior Preferred Stock, cause independent certified public
accountants of recognized national standing (such firm to be subject to the
approval of the holders of a majority of the outstanding Senior Preferred Stock)
selected by the Corporation to verify such computation and prepare a report
setting forth such adjustment or readjustment and showing in reasonable detail
the method of calculation thereof and the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or to be received by the Corporation for any Additional Shares of Common Stock
issued or sold or deemed to have been issued, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Conversion Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
(if required by Section 1.7) on account thereof. The Corporation will forthwith
mail a copy of each such report to each holder of shares of Senior Preferred
Stock and will, upon the written request at any time of any holder of shares of
Senior Preferred Stock, furnish to such holder a like report setting forth the
Conversion Price at the time in effect and showing in reasonable detail how it
was calculated. The Corporation will also keep copies of all such reports at
its principal office and will cause the same to be available for inspection at
such office during normal business hours by any holder of Senior Preferred Stock
or any prospective purchaser of Senior Preferred Stock designated by the holder
thereof.
1.12. Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation
or any consolidation or merger involving the Corporation and any other
Person or any transfer, in a single transaction or a related series of
transactions, of 50% or more of the assets of the Corporation to any other
Person or any sale or transfer, in a single transaction or a related series
of transactions, by the Corporation of Common Stock amounting to 50% or more
of the then outstanding Common Stock of the Corporation, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Corporation,
the Corporation will mail to each holder of shares of Senior Preferred Stock
a notice specifying (i) the date or expected
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<PAGE>
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place
and the time, if any such time is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange
their shares of Common Stock (or Other Securities) for the securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation
or winding-up. Except for notices relating to mandatory redemption or
mandatory conversion in connection with a Triggering Event, such notices
shall be mailed at least twenty (20) Business Days prior to the date of the
action therein specified.
1.13. Retirement of Converted or Redeemed Shares. No share or shares
------------------------------------------
of Senior Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be re-issued and all such shares shall
be cancelled, retired and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of Senior Preferred Stock accordingly.
5. The minimum amount of stated capital with which the Corporation shall
commence business is one thousand ($1,000.00) dollars.
6. Other provisions:
(a) No shareholder of the Corporation shall, by reason of his holding
shares of the Corporation's stock, have any preemptive or preferential
right to subscribe for, purchase or receive any shares of stock of the
Corporation (or any obligation convertible into shares of stock, or
warrant, option or other instrument entitling the holder to purchase, any
shares of stock of the Corporation) which the Corporation may issue or
sell, whenever authorized, or out of shares of the Corporation acquired by
it after issuance.
(b) The personal liability to the Corporation or its shareholders of a
person who is or was a director of the Corporation for monetary damages
for breach of duty as a director shall be limited to the amount of the
compensation received by the director for serving the Corporation during
the year of the violation if such breach did not (a) involve a knowing and
culpable violation of law by the director, (b) enable the director or an
associate, as defined in subdivision (3) of Section 33-374d of the
Connecticut Stock Corporation Act as in effect on the date hereof and as
it
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<PAGE>
may be amended from time to time, to receive an improper personal economic
gain, (c) show a lack of good faith and a conscious disregard for the duty
of the director to the Corporation under circumstances in which the director
was aware that his conduct or omission created an unjustifiable risk of
serious injury to the Corporation, (d) constitute a sustained and unexcused
pattern of inattention that amounted to an abdication of the director's duty
to the Corporation, or (e) create liability under Section 33-321 of the
Connecticut Stock Corporation Act as in effect on the effective date hereof
and as it may be amended from time to time. The personal liability of a
person who is or was a director to the Corporation or its shareholders for
breach of duty as a director shall further be limited to the full extent
allowed from time to time by Connecticut law. This Article 6, subsection (b)
shall not limit or preclude the liability of a person who is or was a
director for any act or omission occurring prior to the effective date
hereof. Any lawful repeal or modification of this Article 6, subsection (b)
or the adoption of any provision inconsistent herewith by the Board of
Directors and the shareholders of the Corporation shall not, with respect to
a person who is or was a director, adversely affect any limitation of
liability, right or protection of such person existing at or prior to the
effective date of such repeal, modification or adoption of a provision
inconsistent herewith.
(c) The duration of the Corporation shall be unlimited.
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INFORMATION MANAGEMENT ASSOCIATES, INC.,
---------------------------------------
a Connecticut corporation
Article I
The name of the Corporation is Information Management Associates, Inc.
Article II
The registered office of the Corporation in the State of Connecticut
is located at One Commercial Plaza, 280 Trumbull Street, Hartford, CT 06103-
3597. The name of its registered agent at that address is CT Corporation System.
Article III
The purpose of the Corporation is to engage in any one or more lawful
businesses in which a corporation which is organized under the Connecticut
Business Corporation Act, as the same may be amended from time to time, or any
successor act, may engage.
Article IV
The aggregate number of shares which the Corporation shall have
authority to issue is Twenty Million Five Hundred Thousand (20,500,000) shares,
of which Twenty Million (20,000,000) shall be Common Stock, without par value,
and Five Hundred Thousand (500,000) shall be shares of Preferred Stock, without
par value.
Shares of one class or series may be issued as a share dividend in
respect of shares of any other class or series.
No shareholder of the Corporation shall, by reason of his holding
shares of the Corporation, have any preemptive or preferential rights to
subscribe for, purchase or receive any shares of the Corporation (or any
obligation convertible into shares, or warrant, option or other instrument
entitling the holder to purchase any shares of the
<PAGE>
Corporation) which the Corporation may issue or sell, whenever authorized, or
out of the shares of the Corporation acquired by it after issuance.
A. Common Stock
1. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law on all
matters submitted to a vote at any meeting of shareholders.
2. Dividend Rights. Subject to the rights of holders of shares of
---------------
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any funds of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
3. Dissolution Rights. Subject to the rights of holders of shares of
------------------
all classes of stock at the time outstanding having prior rights thereto, the
holders of the Common Stock shall be entitled to receive the net assets of the
Corporation upon dissolution.
B. Preferred Stock.
---------------
1. General. The Preferred Stock may be issued from time to time in
-------
one or more series, as may be determined by the Board of Directors, with such
distinctive designations, preferences, limitations and relative rights as may be
determined by the Board of Directors before the issuance of any shares of such
series within the limits set forth in section 33-665 of the Connecticut Business
Corporation Act. Subject to the requirements of Section 33-666 of the
Connecticut Business Corporation Act, the Board of Directors is expressly
authorized to fix:
a. The annual or other period dividend rate for such series, the
dividend payment dates, the date from which dividends on all shares of such
series issued shall be cumulative, and the extent of participation rights, if
any;
b. The redemption price or prices, if any, for such series and
other terms and conditions on which such series may be retired and redeemed;
c. The obligation, if any, of the Corporation to purchase and
retire or redeem shares as a sinking fund or otherwise, and the terms and
conditions of any such redemption;
d. The designation and maximum number of shares of such series
issuable;
2
<PAGE>
e. The rights to vote, if any, with holders of shares of any
other class or series of stock and any right to vote as a separate voting group,
either generally or as a condition to specified corporate action;
f. The amount payable upon shares in event of involuntary
liquidation;
g. The amount payable upon shares in event of voluntary
liquidation;
h. The rights, if any, of the holders of shares of such series to
convert such shares into shares of other classes or series of stock of the
Corporation and the terms and conditions of any such conversion; and
i. Such other rights as may be specified by the Board of
Directors and not prohibited by law.
All shares of Preferred Stock of any one series shall have
preferences, limitations and relative rights identical with those of other
shares of the same series and, except to the extent otherwise provided in the
description of the series as such may be amended from time to time pursuant to
Section 33-798 of the Connecticut Business Corporation Act, with those of other
series of Preferred Stock. In case dividends on all shares of a particular
series of Preferred Stock for any quarterly dividend period are not paid in
full, all such shares shall participate ratably in any partial payment of
dividends for such period in proportion to the full amounts of dividends for
such period to which they are respectively entitled.
Article V
The business of the Corporation shall be managed under the direction
of the Board of Directors except as otherwise provided by law. The Board of
Directors of the Corporation shall consist of five (5) to fifteen (15) members
as shall be fixed from time to time by, or in the manner provided in, the
Bylaws.
Upon the effective date of this Amended and Restated Certificate of
Incorporation, the total number of Directors shall be divided into three (3)
groups, with each group containing approximately the same percentage of the
total, as near as may be. Directors designated Group I shall serve in the first
instance until the first annual shareholders' meeting following the effective
date of this Amended and Restated Certificate of Incorporation. Directors
designated Group II and Group III shall serve in the first instance until the
second and third shareholders' meetings following the effective date of this
Amended and Restated Certificate of Incorporation, respectively. At each annual
shareholders' meeting following the effective date of
3
<PAGE>
this Amended and Restated Certificate of Incorporation, Directors shall be
elected for a term of three years to succeed those whose terms expire. Except in
the case of resignation or removal, despite the expiration of a Director's term,
he or she shall continue to serve until his or her successor is elected and
qualifies or until there is a decrease in the number of Directors. The group
designations, qualifications, and election of the Board of Directors, and the
method of filling vacancies thereon, shall be as provided herein and in the
Bylaws to the extent not inconsistent herewith.
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, a Director may be removed only for cause at a meeting of
shareholders called expressly for that purpose at which a quorum is present by
the vote of at least two-thirds (2/3) of the votes entitled to be cast by each
voting group entitled to vote in the election of Directors generally.
Article VI
The Board of Directors may make, alter or repeal the Bylaws of the
Corporation, provided, however, that any provision of the Bylaws adopted or
required to be adopted pursuant to the Connecticut Business Corporation Act by
the shareholders of the Corporation may only be made, altered or repealed by the
shareholders of the Corporation.
Article VII
The Directors of the Corporation shall be protected from personal
liability to the fullest extent permitted from time to time under Connecticut
law, including, without limitation, the Connecticut Business Corporation Act as
the same may be amended or supplemented, and, accordingly, unless and until the
relevant provisions of the Connecticut Business Corporation Act are amended or
supplemented to further limit or extend the ability of the Corporation to limit
the personal liability of Directors of the Corporation, the personal liability
of a Director to the Corporation or its shareholders for monetary damages for
breach of duty as a Director shall be limited to the amount of the compensation
received by the Director for serving the Corporation during the year of the
violation if such breach did not (A) involve a knowing and culpable violation of
law by the Director, (B) enable the Director or an Associate, as defined in
Section 33-840 of the Connecticut Business Corporation Act, to receive an
improper personal economic gain, (C) involve a lack of good faith and a
conscious disregard for the duty of the Director to the Corporation under
circumstances in which the Director was aware that his or her conduct or
omission created an unjustifiable risk of serious injury to the Corporation, (D)
constitute a sustained and unexcused pattern of inattention that amounted to an
abdication of the Director's duty to the Corporation, or (E) create liability
under Section 33-757 of the Connecticut Business Corporation Act. The
modification or repeal of this Article VII shall not affect the
4
<PAGE>
restriction hereunder of a Director's personal liability for any act or omission
occurring prior to such modification or repeal.
Article VIII
The Corporation shall indemnify, to the fullest extent permitted by
Sections 33-770 to 33-778 of the Connecticut Business Corporation Act, as the
same may be amended or supplemented, all Directors and officers of the
Corporation from and against any and all of the expenses, liabilities or other
matters referred to in or covered by said sections, and the indemnification
provided for herein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any Bylaw, agreement, vote of
shareholders or disinterested Directors, or otherwise, both as to action in his
or her official capacity while holding such office and to action while serving
at the request of the Corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise; and
such indemnification shall continue as to a person who has ceased to be a
Director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person; provided, however, that the Corporation shall
indemnify any such indemnitee in connection with a proceeding initiated by such
indemnitee only if such proceeding was authorized by the Board of Directors of
the Corporation.
In connection with the indemnification provided by Sections 33-770 to
33-778 of the Connecticut Business Corporation Act and under any Bylaw,
agreement, vote of shareholders or disinterested Directors, or otherwise, the
Corporation shall pay or reimburse the reasonable expenses incurred by a
Director or officer who is a party to a proceeding in advance of final
disposition of the proceeding if the requirements of Section 33-773 of the
Connecticut Business Corporation Act are satisfied with respect to such Director
or officer.
Subject to the requirements of applicable law, in the event and to the
extent of a general or specific action by the Board of Directors, the
Corporation shall also indemnify and advance expenses to an employee or agent of
the Corporation who is not a Director or officer to the same extent as to a
Director or officer.
Nothing in this Article VIII shall be deemed to limit the ability of
the Corporation to indemnify or advance expenses to any person pursuant to
contract, the Bylaws, or a general or specific action of the Board of Directors
consistent with applicable law.
5
<PAGE>
Article IX
The Corporation reserves the right to amend, alter, change or repeal
any provisions contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon shareholders herein are granted subject to this
reservation. This Amended and Restated Certificate of Incorporation may be
amended, altered, changed or repealed by a resolution adopted by the Board of
Directors and, if shareholder approval is required by the Connecticut Business
Corporation Act, the approval at a meeting of the shareholders of the
Corporation by the affirmative vote of a majority of the votes entitled to be
cast by each voting group entitled to vote on the matter, unless a greater vote
is required; provided, however, that any amendment, alteration, change or repeal
of Article V of this Amended and Restated Certificate of Incorporation shall be
approved at such meeting by the affirmative vote of at least two-thirds (2/3) of
the votes entitled to be cast by each voting group entitled to vote on the
matter.
6
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS
OF
INFORMATION MANAGEMENT ASSOCIATES, INC.
ARTICLE I: IDENTIFICATION
--------------------------
Section 1. Name. The name of the Corporation is Information Management
----------------
Associates, Inc.
Section 2. Seal. Upon the seal of the Corporation shall appear the name
----------------
of the Corporation and the state and year of incorporation, and the words
"Corporate Seal."
Section 3. Offices. The principal office of the Corporation shall be
-------------------
located in Trumbull, Connecticut. The Corporation may also have other offices
at such other places, either within or without the State of Connecticut, as the
Board of Directors may determine or as the activities of the Corporation may
require.
ARTICLE II: MEETINGS OF SHAREHOLDERS
-------------------------------------
Section 1. Place of Meetings. Meetings of the shareholders of the
-----------------------------
Corporation shall be held at the principal office of the Corporation, or at such
other place, either within or without the State of Connecticut, as may be fixed
by the Board of Directors and stated in the notice of meeting or in a duly
executed waiver of notice thereof.
<PAGE>
2
Section 2. Annual Meeting. An annual meeting of the shareholders for the
--------------------------
election of directors and the transaction of such other business as may properly
come before the meeting, shall be held each year on such date in the first six
months of the Corporation's fiscal year as shall be designated by the president,
or in the absence of such designation, on the first Tuesday of the seventh month
of the fiscal year, if not a legal holiday, and if a legal holiday, then on the
next succeeding business day, or on such other date as shall be fixed by the
Board of Directors.
Section 3. Special Meetings. Special meetings of the shareholders may be
----------------------------
called by the president or the secretary of the Corporation or by the Board of
Directors, and shall be called by the president at the request in writing of the
holders of not less than one-tenth of the voting power of all shares entitled to
vote at the meeting.
Section 4. Notice. Written notice of each meeting of shareholders,
------------------
stating the place, day and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
not less than seven days nor more than fifty days prior to each meeting, to each
shareholder of record entitled to vote at such meeting by leaving such notice
with him personally or by transmitting such notice with confirmed delivery
(including, by telex, cable or other form of recorded communication,
<PAGE>
3
provided that delivery of such notice in written form is confirmed in a writing)
to his residence or usual place of business, or by depositing such notice in the
mails in a postage prepaid envelope addressed to him at his post office address
as it appears on the corporate records of the Corporation.
Section 5. Waiver of Notice. Notice of any shareholders meeting may be
----------------------------
waived, in writing, by any shareholder, either before or after the time stated
therein and, if any shareholder entitled to vote is present at a shareholders
meeting and does not protest, prior to or at the commencement of the meeting,
the lack of receipt of proper notice to such shareholder shall be deemed to have
been waived by such shareholder.
Section 6. Voting List. For the purpose of determining shareholders
-----------------------
entitled to notice of, or to vote at, any meeting of shareholders or any
adjournment thereof, or shareholders entitled to receive payment of dividends,
or for any other proper purpose, the Board of Directors may set a record date
which shall not be a date earlier than the date on which such action is taken by
the Board of Directors, nor more than seventy, nor less than ten days before the
particular event requiring such determination of shareholders. The corporate
officer responsible for the share transfer books shall make, or cause to be
made, at least five days before each meeting of shareholders, a list or other
record of the shareholders
<PAGE>
4
entitled to vote at such meeting, with the address of, and the number and class
of shares held by each.
Section 7. Quorum and Required Vote. The holders of a majority of the
------------------------------------
stock entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders except as otherwise specifically provided by
the By-Laws, the Certificate of Incorporation or by law. The affirmative vote,
at a meeting of shareholders duly held and at which a quorum is present, of a
majority of the voting power of the shares represented at such meeting which are
entitled to vote on the subject matter shall be the act of the shareholders,
except as is otherwise specifically provided by a By-Law, by the Certificate of
Incorporation or law. The holders of a majority of the voting power of the
shares entitled to vote represented at a meeting may adjourn such meeting from
time to time.
Section 8. Voting. Each holder of voting stock shall be entitled to vote
------------------
in person or by proxy at each meeting, and such holder shall have one vote for
each share of voting stock registered in such holder's name. However, a proxy
shall not be valid after eleven months from its date of execution, unless it
specifies the length of time for which it shall continue in force or limits its
use to a particular meeting not yet held. Except as provided in Section 33-337
of the Stock Corporation Act of the State of Connecticut, no
<PAGE>
5
proxy shall be valid after ten years from its date of execution.
Section 9. Action Without a Meeting. Any action which may be taken at a
------------------------------------
meeting of shareholders may be taken without a meeting, if a consent in writing,
setting forth such action, is signed by all of the persons who would be entitled
to vote upon such action at a meeting, or by their duly authorized attorneys.
ARTICLE III: BOARD OF DIRECTORS
--------------------------------
Section 1. Number. The number of directors who will constitute the entire
------------------
Board of Directors shall be not less than three (3) nor more than seven (7).
The number of directorships at any time shall be that number most recently fixed
by resolution of the Board of Directors or the shareholders or, absent such
action, shall be that number of directors elected at the preceding annual
meeting or substitute annual meeting of shareholders, plus the number elected
since such meeting, if any, to fill a vacancy created by an increase in the size
of the Board; provided, however, that at such times as the Corporation has less
-------- -------
than three shareholders, the number of directors may not be less than the number
of shareholders and at such times as the Corporation has three or more
shareholders, the number of directors must at least be three.
<PAGE>
6
Section 2. Election. Members of the initial Board of Directors as elected
--------------------
at the organization meeting shall hold office until the first annual meeting of
shareholders and until their respective successors shall have been duly elected
and qualified. At each annual meeting of shareholders, directors shall be
elected to hold office until the next succeeding annual meeting and until their
respective successors have been duly elected and qualified.
Section 3. Regular Meetings. Regular meetings of the Board of Directors
----------------------------
may be held with or without notice at such time and place as the Board may from
time to time determine.
Section 4. Special Meetings. Special meetings of the Board may be called
----------------------------
by any director or the president on at least two days' notice to each director,
given either by mail, telex, telegraph, cable or other form of recorded
communication or orally, in person or by telephone. Said notice may be waived by
a written waiver signed by all of the directors who receive no such notice of
meeting. If any director is present at a special meeting and does not protest,
prior to or at the commencement of the meeting the lack of receipt of proper
notice, such notice shall be deemed to have been waived by such director.
Section 5. Quorum. At all meetings of the Board of Directors, a majority
------------------
of directors shall constitute a
<PAGE>
7
quorum for the transaction of business. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors unless a greater number is specially required by the By-Laws, by
the Certificate of Incorporation or by law. A meeting may be adjourned by less
than a quorum if a quorum is not present at the meeting. A director may
participate at a meeting of the Board of Directors by means of a conference
telephone or similar communications equipment, provided such equipment enables
all directors at a meeting to hear one another.
Section 6. Committees of Directors. The Board of Directors, by resolution
-----------------------------------
adopted by a majority of the entire Board of Directors, may designate and
empower two or more directors to constitute an executive committee or other
committee and may appoint and empower or provide for the appointment of one or
more directors as alternate members of any such committee, who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee shall have and may exercise the powers of the Board of Directors in
the management of the business, property and affairs of the Corporation, as
shall be provided in these By-Laws or in any resolution of the Board of
Directors constituting or empowering the committee. All committees shall keep
records of their acts and proceedings and report the same to the Board of
Directors as and when required. Any
<PAGE>
8
director may be removed from a committee with or without cause by the
affirmative vote of a majority of the entire Board of Directors.
Section 7. Action Without a Meeting. If all of the directors or all
------------------------------------
members of a committee of the Board of Directors, as the case may be, severally
or collectively, consent in writing to any action taken or to be taken by the
Corporation, and the number of such directors or members constitutes a quorum
for such action, such action shall constitute valid corporate action as though
it had been authorized at a meeting of the Board of Directors or committee, as
the case may be. The secretary shall file such consents with the minutes of the
meetings of the Board of Directors.
Section 8. Resignation and Removal. Unless otherwise provided in any
-----------------------------------
contract with the Corporation, any director may resign or be removed at any
time. A director who intends to resign shall give written notice to the
president or to the secretary. Removal of a director, with or without cause,
may be effected by the affirmative vote of the holders of a majority of the
stock entitled to vote.
Section 9. Vacancies. Any vacancy occurring on the Board of Directors,
---------------------
including a vacancy resulting from an increase in the number of directors, may
be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board. A director elected
<PAGE>
9
to fill a vacancy shall be elected for the unexpired term of such director's
predecessor and until such director's successor is duly elected and qualified.
Section 10. Compensation of Directors. The directors may be reimbursed
--------------------------------------
for any expenses incurred by them to attend any meeting of the Board of
Directors or of any of its committees. Each director may be paid a stated
salary as director and/or a fixed sum for attendance at each meeting which such
director attends. No payments or reimbursements described herein shall preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV: OFFICERS
---------------------
Section 1. Election. A president, a secretary and when deemed necessary
--------------------
by the Board of Directors, a chairman of the Board, one or more vice presidents,
a treasurer and such other officers and assistant officers as the Board of
Directors may designate, shall be elected by the Board of Directors to hold
office until their respective successors are duly elected and qualified. Any two
or more offices may be held by the same person except the offices of president
and secretary.
Section 2. Chairman of the Board. The chairman of the Board of Directors,
---------------------------------
if one shall be elected, shall
<PAGE>
10
preside at all meetings of the Board of Directors and shall have and perform
such other duties as from time to time may be assigned to such person by the
Board of Directors.
Section 3. President. The president shall have the general powers and
---------------------
duties of supervision and management usually vested in the office of president
of a corporation. In the absence or nonelection of a chairman, the president
shall preside at all meetings of the Board of Directors and shareholders,
discharging the duties incumbent upon a presiding officer. In addition, the
president shall have the direction of all other officers, agents and employees
of the Corporation and shall cause all orders and resolutions of the Board of
Directors to be carried into effect. The president shall also perform such
other duties and exercise such other powers as the By-Laws may provide or the
Board of Directors may assign.
Section 4. Vice President. Vice presidents, when elected, shall have such
--------------------------
powers and perform such duties as the president or the Board of Directors may
from time to time assign and shall perform such other duties as may be
prescribed by these By-Laws. At the request of the president, or in case of the
president's absence or inability to act, the vice president, so appointed, shall
perform the duties of the president and, when so acting, shall have all the
powers
<PAGE>
11
of, and be subject to all the restrictions upon, the president.
Section 5. Secretary. The secretary shall keep true and complete records
---------------------
of the proceedings of the meetings of the shareholders, the Board of Directors
and any committees of directors and shall file any written consents of the
shareholders, the Board of Directors and any committees of directors with such
records. It shall be the duty of the secretary to be custodian of the records
and of the seal of the Corporation. The secretary shall also attend to the
giving of all notices and shall perform such other duties as the By-Laws may
provide or the Board of Directors may assign.
Section 6. Assistant Secretary. If one shall be elected, the assistant
-------------------------------
secretary shall have such powers and perform such duties as the president,
secretary or the Board may from time to time assign and shall perform such other
duties as may be prescribed by these By-Laws. At the request of the secretary,
or in case of the secretary's absence or inability to act, the assistant
secretary shall perform the duties of the secretary and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
secretary.
Section 7. Treasurer. If one shall be elected, the treasurer shall keep
---------------------
correct and complete records of account showing accurately at all times the
financial
<PAGE>
12
condition of the Corporation. The treasurer shall also act as legal custodian of
all moneys, notes, securities, and other valuables that may from time to time
come into the possession of the Corporation, and shall promptly deposit all
funds of the Corporation which the treasurer acquires in the bank account or
other depository account designated by the Board of Directors and shall maintain
such account in the name of the Corporation. Whenever requested by the Board of
Directors, the treasurer shall furnish a statement of the financial condition of
the Corporation and shall perform such other duties as the By-Laws may provide
and the Board of Directors may assign.
Section 8. Assistant Treasurer. If one shall be elected, the assistant
-------------------------------
treasurer shall have such powers and perform such duties as the president,
treasurer or Board may from time to time assign and shall perform such other
duties as may be prescribed by these By-Laws. At the request of the treasurer,
or in case of the treasurer's absence or inability to act, the assistant
treasurer shall perform the duties of the treasurer and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
treasurer.
Section 9. Other Officers. Such other officers as are appointed shall
--------------------------
exercise such duties and have such powers as the Board of Directors may assign.
<PAGE>
13
Section 10. Transfer of Authority. In case of the absence of any officer
----------------------------------
of the Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may transfer the powers or duties of that
officer to any other officer or to any director or employee of the Corporation,
provided that such transfer is approved by a majority of the entire Board of
Directors.
Section 11. Resignation and Removal. Unless otherwise provided in any
------------------------------------
contract with the Corporation, any officer may resign or be removed at any time.
An officer who intends to resign shall give written notice to the Board of
Directors in care of the president or the secretary. Removal of an officer, with
or without cause, may be effected by the Board of Directors.
Section 12. Vacancies. A vacancy occurring in any office may be filled
----------------------
for the unexpired portion of the term of office by the Board of Directors.
ARTICLE V: CAPITAL STOCK
-------------------------
Section 1. Consideration and Payment. The capital stock may be issued for
-------------------------------------
such consideration as may be fixed from time to time by the Board of Directors,
provided, however, that the consideration may not be less than the par value of
any of such stock having a par value. Payment of such consideration may be made,
in whole or in part, in
<PAGE>
14
(a) cash, securities or other property of any description, or any interest
therein, (b) labor or services rendered to or for the benefit of the
Corporation, or (c) shares, securities or other obligations of the Corporation
actually surrendered, cancelled or reduced. No certificate shall be issued for
any shares until such shares are fully paid.
Section 2. Certificates Representing Shares. Each holder of the capital
--------------------------------------------
stock of the Corporation shall be entitled to a certificate signed by the
president or a vice president and the secretary or an assistant secretary or the
treasurer or an assistant treasurer except that such signatures may be facsimile
if such certificate is signed by a transfer agent, transfer clerk acting on
behalf of the Corporation or registrar. Upon each such certificate shall appear
such legend or legends as may be required by law or by any contract or agreement
to which the Corporation is a party. No certificate shall be valid without such
signatures and legends as are required hereby.
Section 3. Lost Certificates. Whenever a person shall request the
-----------------------------
issuance of a certificate of stock to replace a certificate alleged to have been
lost by theft, destruction or otherwise, the Board of Directors shall require
that such person submit to the Corporation an affidavit to the fact of such loss
before the Board shall authorize the requested issuance. Before issuing a new
certificate,
<PAGE>
15
the Board of Directors may also require a bond of indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost.
Section 4. Transfer of Stock. The Corporation or its transfer agent shall
-----------------------------
register a transfer of a stock certificate, issue a new certificate and cancel
the old certificate upon presentation for transfer of a stock certificate duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer if there has been compliance with any applicable tax law
relating to the collection of taxes and after the Corporation or its agent has
discharged any duty to inquire into any adverse claims of which the Corporation
or agent has notice. Notwithstanding the foregoing, no such transfer shall be
effected by the Corporation or its transfer agent if such transfer is prohibited
by law, by the Certificate of Incorporation or a By-Law of the Corporation or by
any contract or agreement to which the Corporation is a party.
ARTICLE VI: DIVIDENDS AND RESERVES
-----------------------------------
Section 1. Dividends. Subject to any limitations or conditions contained
---------------------
in the Certificate of Incorporation, dividends may be declared by a resolution
duly adopted by the Board of Directors and may be paid in cash, property or in
shares of the capital stock of the Corporation.
<PAGE>
16
Section 2. Reserves. Before payment of any dividend, the Board of
--------------------
Directors may set aside out of any funds available for dividends such sum or
sums as the Board, in its absolute discretion, may determine as a reserve or
reserves to meet contingencies, to equalize dividends, to repair or maintain
property or to serve other purposes conducive to the interests of the
Corporation.
ARTICLE VII: OTHER CORPORATE ACTION
------------------------------------
Section 1. All checks, drafts, notes, bonds, bills of exchange, and
----------
orders for the payment of money of the Corporation; all deeds, mortgages and
other written contracts and agreements to which the Corporation shall be a
party; and all assignments or endorsements of stock certificates, registered
bonds or other securities owned by the Corporation shall be signed by the
president or the secretary, and, if required by law, attested by the secretary
or an assistant secretary, unless otherwise directed by the Board of Directors
or otherwise required by law.
ARTICLE VIII: FISCAL YEAR
--------------------------
Section 1. The fiscal year of the Corporation shall be determined by
----------
resolution of the Board of Directors.
<PAGE>
17
ARTICLE IX: INDEMNIFICATION
----------------------------
Section 1. The Corporation shall indemnify and reimburse
----------
shareholders, directors, officers, employees and agents as required by Section
33-320a of the Stock Corporation Act of the State of Connecticut, including any
amendment to or substitutions for such Section 33-320a which may be made from
time to time.
ARTICLE X: AMENDMENT OF BY-LAWS
--------------------------------
Section 1. These By-Laws may be amended or repealed or new By-Laws
----------
may be adopted by the affirmative vote of the holders of a majority of the stock
entitled to vote at any meeting of shareholders or by the affirmative vote of
directors holding a majority of the directorships at any meeting of directors
provided that notice of such amendment, repeal or adoption of new By-Laws be
included in the notice of such meeting.
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
INFORMATION MANAGEMENT ASSOCIATES, INC.
1. OFFICES
1.1. Offices. The Corporation shall maintain its registered office in the
-------
State of Connecticut, and such other offices, either within or without the State
of Connecticut, at such locations as the Board of Directors may from time to
time determine or the business of the Corporation may require.
2. SEAL
2.1 Seal
----
(a) The Corporation shall have a seal, which shall have inscribed
thereon its name and year of incorporation and the words, "Corporate Seal
Connecticut."
(b) The seal shall be kept in safe custody by the Secretary of the
Corporation, it shall be affixed by the Chairman of the Board, the President or
any Vice President, the Secretary or any Assistant Secretary, or the Treasurer
to any corporate instrument or document requiring it, by practice or by law, and
when so affixed, it may be attested by the signature of the officer so affixing
it.
3. MEETINGS OF SHAREHOLDERS
3.1 Annual Meetings.
---------------
(a) Annual meetings of shareholders shall be held at such place,
either within or without the State of Connecticut, and at such time and date as
the Board of Directors shall determine by resolution and set forth in the notice
of the meeting. In the event that the Board of Directors fails to so determine
the time, date and place for the annual meeting, it shall be held at the
principal office of the Corporation at 10:00 a.m. on the first Tuesday of May of
each year. In the event such day shall fall upon a legal holiday, then the
annual meeting shall be on the next succeeding business day at the
aforementioned time and place.
(b) At each annual meeting the shareholders shall, by plurality of
the votes cast, unless otherwise required by law, elect Directors and transact
such other business as may properly be brought before them.
<PAGE>
(c) The Board of Directors may, in advance of any annual or special
meeting of the shareholders, adopt an agenda for such meeting, adherence to
which the Chairman of the Board may enforce.
3.2 Special Meetings. Special meetings of the shareholders of the
----------------
Corporation, for any purpose or purposes, unless otherwise prescribed herein or
by statute, (a) may be called by the Chairman of the Board, and (b) shall be
called by the Secretary at the written request, or by resolution adopted by the
affirmative vote, of a majority of the Board of Directors. Such request shall
state the purpose or purposes of the proposed meeting.
3.3 Notice of Meetings.
------------------
(a) Notice of meetings of shareholders shall be in writing and shall
state the place (which may be within or without the State of Connecticut), date
and hour of the meeting and in the case of a special meeting, the purpose or
purposes for which a meeting is called. No business other than that specified
in the notice thereof shall be transacted at any special meeting.
(b) Such notice shall be communicated in person, by telephone,
telegraph, teletype or other form of wire or wireless communication or by mail
or private carrier to each shareholder entitled to vote at such meeting not less
than ten (10) nor more than sixty (60) days before the date of the meeting. If
mailed, the notice shall be directed to the shareholder at his or her address as
it appears on the records of the Corporation. Personal delivery of any such
notice to any officer of a corporation or association or to any member of a
partnership shall constitute delivery of such notice to such corporation,
association or partnership.
(c) Notice of any meeting of shareholders need not be given to any
shareholder if waived by such shareholder in a writing signed by the shareholder
entitled to the notice and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records. A shareholder's attendance at a
meeting: (1) waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; and (2) waives
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
3.4 Adjourned Meetings. When a meeting is adjourned to another time or
------------------
place, unless otherwise provided by these Bylaws, notice need not be given of
the adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting the shareholders
may transact any business that might have been transacted at the original
meeting. If an adjournment is for more than thirty (30) days or if after an
adjournment a new record date is fixed for the adjourned meeting a notice of the
adjourned meeting shall be given to each shareholder entitled to vote at the
meeting.
3.5 Quorum and Adjournment. Except as otherwise provided by law, by the
----------------------
Corporation's Certificate of Incorporation or by these Bylaws, the presence, in
person or by proxy, of the holders of a majority of the aggregate voting power
of the shares issued and outstanding, entitled to vote thereat, and the voting
rights of which are not suspended, shall be
2
<PAGE>
requisite and shall constitute a quorum for the transaction of business at all
meetings of shareholders. If, however, such majority shall not be present or
represented at any meeting of shareholders, the shareholders present, although
less than a quorum, shall have the power to adjourn the meeting.
3.6 Majority Vote Required. When a quorum is present at any meeting of
----------------------
shareholders, the affirmative vote of the majority of the aggregate voting power
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall constitute the act of the
shareholders; provided, however, that if a provision of the Certificate of
Incorporation, these Bylaws or any statute specifically requires a different
vote such provision shall govern and control.
3.7 Manner of Voting. At each meeting of shareholders, each shareholder
----------------
having the right to vote, and whose voting rights have not been suspended, shall
be entitled to vote in person or by proxy. Proxies need not be filed with the
Secretary of the Corporation until the meeting is called to order, but shall be
filed before being voted. Each shareholder shall be entitled to vote each share
having voting power registered in his name on the books of the Corporation on
the record date fixed, as provided in Section 6.4 of these Bylaws, for the
determination of shareholders entitled to vote at such meeting. All elections
of Directors shall be by written ballot.
3.8 Proxies.
-------
(a) At any meeting of shareholders, any shareholder may be represented
and vote by proxy or proxies appointed by a written form of proxy. In the event
that any form of proxy shall designate two or more persons to act as proxies, a
majority of such persons present at the meeting or, if only one shall be
present, then that one shall have and may exercise all of the powers conferred
by the form of proxy upon all of the persons so designated unless the form of
proxy shall otherwise provide.
(b) The Board of Directors may, in advance of any annual or special
meeting of the shareholders, prescribe additional regulations concerning the
manner of execution and filing of proxies and the validation of the same, which
are intended to be voted at any such meeting.
3.9 Presiding Officer and Secretary. At each meeting of shareholders, the
-------------------------------
Chairman of the Board shall preside and the Secretary shall act as Secretary of
the meeting.
3.10 Disregard of Nomination or Proposal. Except as otherwise provided by
-----------------------------------
law, the Certificate of Incorporation or these Bylaws, the person presiding over
any meeting of the shareholders shall have the power and duty to determine
whether a nomination or any other business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this Section 3
or Section 4.3 and, if any proposed nomination or business is not in compliance
with such provisions, to declare that such defective proposal or nomination
shall be disregarded.
3.11 Inspections of Elections. The Board of Directors by resolution may
------------------------
appoint one or more persons to act as inspector of elections (which may include
individuals who serve the
3
<PAGE>
Corporation in other capacities including, without limitation, as officers,
employees, agents or representatives of the Corporation) at any shareholders'
meeting. If appointed, the inspector of election shall have the duties of
accepting, rejecting and tabulating on behalf of the Corporation, votes,
ballots, consents, waivers and proxies for shareholders' meetings and making and
certifying the written report thereof, or such other duties as may be designated
by the Board of Directors.
3.12 Shareholder Notices. At any meeting of the shareholders, only such
-------------------
business shall be conducted, and only such proposals shall be acted upon as
shall have been brought before the meeting (a) by or at the direction of the
Board of Directors, or (b) by any shareholder who complies with the notice
procedures set forth in this Section 3.12 (or for election of Directors, with
the notice provisions set forth in Section 3.13)
(a) For a proposal to be properly brought before an annual meeting by
a shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary. To be timely, a shareholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the corporation (i)
in the case of the 1998 annual shareholders' meeting, not later than March 1,
1998, and (ii) in the case of all subsequent annual shareholders' meetings, not
less than sixty (60) days nor more than ninety (90) days prior to the scheduled
annual meeting, regardless of any postponements, deferrals or adjournments of
that meeting to a later date; provided, however, that if less than seventy (70)
days' notice or prior public disclosure of the date of the scheduled annual
meeting is given or made, notice by the shareholder to be timely must be so
delivered or received not later than the close of business on the tenth (10th)
day following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public disclosure
was made.
(b) A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the meeting (i) a brief
description of the business desired to be brought before the annual
shareholders' meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address as they appear on the Corporation's
books of the shareholder proposing such business, (iii) the class, series and
number of shares of the Corporation that are beneficially owned by the
shareholder on the date of such shareholder notice, and (iv) any material
interest of the shareholder in such business.
(c) If the presiding officer at the annual meeting determines that a
shareholder proposal was not made in accordance with the terms of this Section
3.12, such officer shall so declare at the annual meeting and any such proposal
shall not be acted upon at the annual meeting.
3.13 Director Nominations. Nominations for the election of directors may
--------------------
be made by the Board of Directors or a nominating committee appointed by the
Board of Directors or by any shareholder entitled to vote in the election of
directors generally. However, any shareholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the Corporation
not later than (i) with respect to an election to be held at an annual meeting
of shareholders, not less than sixty (60) days nor more than ninety (90) days
prior to the scheduled annual meeting, regardless of any postponements,
deferrals or
4
<PAGE>
adjournments of that meeting to a later date; provided, however, that if less
than seventy (70) days' notice or prior public disclosure of the date of the
scheduled annual meeting is given or made, notice by the shareholder to be
timely must be so delivered or received not later than the close of business on
the tenth (10th) day following the earlier of the day on which such notice of
the date of the scheduled annual meeting was mailed or the day on which such
public disclosure was made, and such written notice shall contain (ii) a
representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (iii) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (iv) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy or other applicable rules of the Securities and Exchange
Commission as then in effect; and (v) the consent of each nominee to serve as a
director of the Corporation if so elected. The presiding officer of the meeting
may refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedure, or if the nominating shareholder is not or will
not be a record holder of shares at the time of the shareholders' meeting.
3.14 Compliance with Law. Notwithstanding the foregoing provisions of
-------------------
Section 3.12 or Section 3.13, a shareholder shall also comply with all
applicable requirements of state law and of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the rules and regulations thereunder with
respect to the matters set forth in such sections. Nothing in Section 3.13
shall be deemed to affect any rights of shareholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.
4. DIRECTORS
4.1 Powers. The Board of Directors shall exercise all of the powers of
------
the Corporation except such powers conferred upon or reserved to the
shareholders of any class or classes by law, the Corporation's Certificate of
Incorporation or these Bylaws.
4.2 Number and Classification.
-------------------------
(a) The Board of Directors of the Corporation shall consist of five
(5) to fifteen (15) members, as determined by resolution duly adopted by such
Board.
(b) Subject to and as provided in the Certificate of Incorporation,
the total number of Directors shall be divided into three (3) classes, with each
class containing approximately the same percentage of the total, as near as may
be. The Board of Directors, by resolution duly adopted, shall so divide the
members of the Board of Directors into designated classes effective on and as of
the effective date of the Corporation's Amended and Restated Certificate of
Incorporation which establishes such staggered Board of Directors. In the case
of any increase in the number of Directors of the Corporation, the additional
Directors shall be so designated by the Board of Directors such that all classes
of Directors shall be increased equally as nearly as may be possible, and the
additional Directors shall be elected as provided herein by the Directors or by
the shareholders at an annual meeting. In case of any decrease in the number
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of Directors of the Corporation, all classes of Directors shall be decreased
equally as nearly as may be possible by the Board of Directors; provided,
however, that no such decrease shall shorten the current term of any then-
serving Director. Elections of Directors shall be conducted as provided in the
Certificate of Incorporation, these Bylaws or by applicable law.
4.3 Resignations. Any Director may resign at any time by giving written
------------
notice to the Board of Directors or the Secretary. Such resignation shall take
effect at the date of receipt of such notice or at any later time specified
therein. Acceptance of such resignation shall not be necessary to make it
effective.
4.4 Removal. At any special meeting of the shareholders duly called as
-------
provided herein, any Director may be removed from office in accordance with the
Certificate of Incorporation and the successor of the Director so removed may be
elected at such meeting. Any vacancy may be filled as provided in Section 4.6.
4.5 Vacancies.
---------
(a) In case any vacancy shall occur on the Board of Directors because
of death, resignation, retirement, disqualification, removal, an increase in the
authorized number of Directors or any other cause, the Board of Directors may,
at any meeting, by resolution adopted by the affirmative vote of a majority of
the Directors then in office, though less than a quorum, elect a Director to
fill such vacancy.
(b) If, as a result of a disaster or emergency (as determined in good
faith by the then remaining Directors), it becomes impossible to ascertain
whether or not vacancies exist on the Board of Directors, and a person is or
persons are elected by Directors, who in good faith believe themselves to be a
majority of the remaining Directors, to fill a vacancy or vacancies that said
remaining Directors in good faith believe exists, then the acts of such person
or persons who are so elected as Directors shall be valid and binding upon the
Corporation even though (i) there was in fact no vacancy or vacancies existing
on the Board of Directors, or (ii) the Directors who so elected such person or
persons did not in fact constitute a majority of the remaining Directors.
4.6 Presiding Officer and Secretary. At each meeting of the Board of
-------------------------------
Directors, the Chairman of the Board shall preside, and the Secretary shall act
as secretary of the meeting.
4.7 Annual Meeting. The Board of Directors shall meet each year
--------------
immediately following the annual meeting of shareholders, at the place where
such meeting of shareholders has been held, or at such other place as shall be
fixed by the person presiding over the meeting of the shareholders at which such
Directors are elected, for the purpose of organization, election of officers and
consideration of such other business as the Board considers relevant to the
management of the Corporation.
4.8 Regular Meetings. Regular meetings of the Board of Directors shall be
----------------
held on such dates and at such times and places, within or without the State of
Connecticut, as shall from time to time be determined by the Board of Directors.
In the absence of any such determination, such meetings shall be held at such
times and places, within or without the State of Connecticut,
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as shall be designated by the Chairman of the Board on not less than two (2)
calendar days' notice (specifying the time and place of the meeting) to each
Director, given orally or in writing either personally, by telephone, by
facsimile transmission, by mail, by courier service, by telegram or by telex.
4.9 Special Meetings. Special meetings of the Board of Directors shall be
----------------
held at the call of the Chairman of the Board at such times and places, within
or without the State of Connecticut, as he or she shall designate, on not less
than two (2) calendar days' notice (specifying the time and place of the
meeting) to each Director, given verbally or in writing either personally, by
telephone, by facsimile transmission, by mail, by courier service, by telegram
or by telex. Special meetings shall be called by the Secretary on like notice
at the written request of a majority of the Directors.
4.10 Quorum and Powers of a Majority. At all meetings of the Board of
-------------------------------
Directors and of each committee thereof, a majority of the members shall be
necessary and sufficient to constitute a quorum for the transaction of business,
and the act of a majority of the members present at any meeting at which a
quorum is present shall be the act of the Board of Directors or such committee,
unless by express provision of law, of the Certificate of Incorporation or these
Bylaws, a different vote is required, in which case such express provision shall
govern and control. In the absence of a quorum, a majority of the members
present at any meeting may, without notice other than announcement at the
meeting, adjourn such meeting from time to time until a quorum is present.
4.11 Waiver of Notice. Notice of any meeting of the Board of Directors, or
----------------
any committee thereof, need not be given to any member if waived by him or her
before or after the date and time of the meeting in a writing signed by the
Director entitled to the notice and filed with the minutes of the Corporation.
A Director's attendance at or participation in a meeting waives any required
notice to him or her of the meeting unless the Director at the beginning of the
meeting, or promptly upon his or her arrival, objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
4.12 Manner of Acting.
----------------
(a) Members of the Board of Directors, or any committee thereof, may
participate in any meeting of the Board of Directors or such committee by means
of conference telephone or similar communications equipment by means of which
all persons participating therein can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
(b) Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting if
all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or such committee.
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4.13 Compensation.
------------
(a) The Board of Directors, by a resolution or resolutions, may fix,
and from time to time, change the compensation of Directors.
(b) Each Director who is not also an employee of the Corporation shall
be entitled to reimbursement from the Corporation for his or her reasonable
expenses incurred in attending meetings of the Board of Directors or a committee
thereof.
(c) Nothing contained in these Bylaws shall be construed to preclude
any Director from serving the Corporation in any other capacity and from
receiving compensation from the Corporation for services rendered to it in such
other capacity.
4.14 Committees. The Board of Directors may, by resolution or resolutions
----------
adopted by the affirmative vote of a majority of the Board of Directors,
designate one or more committees, each committee to consist of two or more
Directors, which to the extent provided in said resolution or resolutions shall
have and may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation; provided that no such
committee shall have the power to (a) elect Directors, (b) alter, amend, or
repeal these Bylaws or any resolution of the Board relating to such committee,
(c) appoint any member of such committee, (d) declare any dividend or make any
other distribution to the shareholders of the Corporation or (e) take any other
actions which may lawfully be taken only by the full Board of Directors. Such
committee or committees shall have such name or names as may be determined from
time to time by resolutions adopted by the Board of Directors.
4.15 Committee Procedure.
-------------------
(a) Except as otherwise provided by these Bylaws, each committee shall
adopt its own rules governing the time, place and method of holding its meetings
and the conduct of its proceedings and shall meet as provided by such rules or
by resolution of the Board of Directors. Unless otherwise provided by these
Bylaws or any such rules or resolutions, notice of the time and place of each
meeting of a committee shall be given to each member of such committee as
provided in Section 4.10 of these Bylaws with respect to notices of special
meetings of the Board of Directors.
(b) Each committee shall keep regular minutes of its proceedings and
report the same to the Board of Directors when required.
(c) Any member of any committee, other than a member thereof serving
ex officio, may be removed from such committee either with or without cause, at
any time, by resolution adopted by the affirmative vote of a majority of the
Board of Directors at any meeting thereof. Any vacancy in any committee shall
be filled by the Board of Directors in the manner prescribed by these Bylaws for
the original appointment of the members of such committee.
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5. OFFICERS
5.1 Number
------
(a) The officers of the Corporation shall include a President, one or
more Vice Presidents, a Secretary and a Treasurer. The Board of Directors shall
also elect a Chairman of the Board pursuant to Section 5.2. The Board of
Directors may also elect such other officers as the Board of Directors may from
time to time deem appropriate or necessary. Officers of the Corporation may be
given distinctive designations such as Chief Executive Officer, Executive Vice
President, Senior Vice President, Chief Operating Officer and Chief Financial
Officer. Except for the Chairman of the Board, none of the officers of the
Corporation need be a Director of the Corporation. Any two or more offices may
be held by the same person, but no officer shall execute, acknowledge or verify
any instrument in more than one capacity.
(b) The Board of Directors may delegate to the Chairman or the
President the power to appoint one or more employees of the Corporation as
divisional or departmental Vice Presidents and fix the duties of such
appointees. However, no such divisional or departmental Vice President shall be
considered as an officer of the Corporation, the officers of the Corporation
being limited to those officers elected by the Board of Directors.
5.2 Election of Officers. The officers of the corporation to be elected
--------------------
by the Board of Directors shall be elected annually at the first meeting of the
Board of Directors held after each annual meeting of the shareholders. Each
such officer shall hold office for one (1) year and until a successor shall have
been duly elected and shall qualify in his or her stead unless the Board of
Directors shall have provided by contract or otherwise in any particular case,
or until such officer shall have resigned and his or her resignation shall have
become effective, or until such officer shall have been removed in the manner
hereinafter provided. Notwithstanding anything in this Section 5.2 to the
contrary, the Chairman of the Board may be elected only by the vote of a
majority of the Directors then in office (who may include the Director who is or
is to be the Chairman of the Board).
5.3 Removal. Except as otherwise expressly provided in a contract duly
-------
authorized by the Board of Directors, any officer elected by the Board of
Directors may be removed, either with or without cause, at any time by
resolution adopted by the affirmative vote of a majority of the Board of
Directors at any meeting thereof; provided that the Chairman of the Board may be
removed by the vote of a majority of the Directors then in office (excluding the
Director who is Chairman of the Board).
5.4 Resignations. Any officer of the Corporation may resign at any time
------------
by giving written notice to the Board of Directors or the Chairman of the Board.
Such resignation shall take
9
<PAGE>
effect at the date of the receipt of such notice or at any later time specified
therein and, unless otherwise specified herein, the acceptance of such
resignation shall not be necessary to make it effective.
5.5 Vacancies. A vacancy in any office because of death, resignation,
---------
removal, disqualification or any other cause may be filled for the unexpired
portion of the term by election by the Board of Directors at any meeting
thereof.
5.6 Salaries. The salaries of all officers of the Corporation shall be
--------
fixed by the Board of Directors from time to time, and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
Director of the Corporation.
5.7 The Chairman of the Board.
-------------------------
(a) The Chairman of the Board shall have the powers and duties
customarily and usually associated with the office of the Chairman of the Board.
The Chairman of the Board shall preside at meetings of the shareholders and of
the Board of Directors. In the event of the Chairman of the Board's temporary
absence or disability and the absence or disability of the President, the
Chairman of the Board shall have the power to designate any Director to preside
at any or all meetings of the shareholders and of the Board of Directors.
(b) If at any time the office of President shall not be filled, or in
the event of the disability of the President, the Chairman of the Board (if one
shall be elected) shall have the duties and powers of the President. The
Chairman of the Board shall have such other powers and perform such greater or
lesser duties as may be delegated to him or her from time to time by the Board
of Directors.
5.8 The President. In the absence of the Chairman of the Board, the
-------------
President shall preside at all meetings of the shareholders and directors at
which he is present. The President shall have the general powers and duties of
supervision and management usually vested in the office of president of a
corporation. In addition, the President shall see that all orders and
resolutions of the Board of Directors are carried into effect. The President
shall have such other powers and perform such other duties as may be delegated
to him or her from time to time by the Board of Directors or the Chairman of the
Board.
5.9 The Vice Presidents. Each Vice President shall have such powers and
-------------------
perform such duties as may from time to time be assigned to him or her by the
Board of Directors, the Chairman of the Board or the President.
5.10 The Secretary and the Assistant Secretary.
-----------------------------------------
(a) The Secretary shall attend meetings of the Board of Directors and
meetings of the shareholders and record all votes and minutes of all such
proceedings in a book or equivalent electronic database kept for such purpose
and shall perform like duties for the committees of Directors as provided for in
these Bylaws when required. The Secretary shall give,
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<PAGE>
or cause to be given, notice of all meetings of shareholders and of the Board of
Directors (except in case of meetings called by the Chairman of the Board in
accordance with Sections 3.2, 4.8 or 4.9). He or she shall have charge of the
stock ledger (unless responsibility for maintaining the stock ledger is
delegated to a transfer agent by the Board of Directors pursuant to Section 6.6)
and such other books and papers as the Board of Directors may direct. He or she
shall have the responsibility of authenticating records of the Corporation. He
or she shall have all such further powers and duties as generally are incident
to the position of Secretary or as may from time to time be assigned to him or
her by the Board of Directors or the Chairman of the Board.
(b) Each Assistant Secretary shall have such powers and perform such
duties as may from time to time be assigned to him or her by the Board of
Directors, the Chairman of the Board or the Secretary. In case of the absence
or disability of the Secretary, the Assistant Secretary designated by the
Secretary (or, in the absence of such designation, the senior Assistant
Secretary) shall perform the duties and exercise the powers of the Secretary.
5.11 The Treasurer and the Assistant Treasurer.
-----------------------------------------
(a) The Treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit moneys and
other valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He or she may
endorse all commercial documents requiring endorsements for or on behalf of the
Corporation and may sign all receipts and vouchers for payments made to the
Corporation.
(b) The Treasurer shall disburse funds of the Corporation as may from
time to time be ordered by the Board of Directors, taking proper vouchers for
such disbursements, and render to the Board of Directors, the Chairman of the
Board and President, whenever they may require it, an account of all
transactions undertaken by him or her as Treasurer and of the financial
condition of the Corporation.
(c) Each Assistant Treasurer shall have such powers and perform such
duties as may from time to time be assigned to him or her by the Board of
Directors, the Chairman of the Board, the President or the Treasurer. In case
of the absence or disability of the Treasurer, the Assistant Treasurer designed
by the Treasurer (or, in the absence of such designation, the senior Assistant
Treasurer) shall perform the duties and exercise the powers of the Treasurer.
5.12 Treasurer's Bond. If required by the Board of Directors, the
----------------
Treasurer or any Assistant Treasurer shall give the Corporation a bond in such
form and with such surety or sureties as are satisfactory to the Board of
Directors for the faithful performance of the duties of office and for the
restoration to the Corporation, in case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his or her possession or under his or her
control belonging to the Corporation.
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6. SHARES OF THE CORPORATION
6.1 Certificates. Share certificates shall be issued under the seal of
------------
the Corporation, or facsimile thereof, and shall be numbered and shall be
entered in the books of the Corporation as they are issued. Each certificate
shall bear a serial number, shall exhibit the holder's name and the number of
shares evidenced thereby and shall be signed by the Chairman of the Board or a
Vice Chairman, if any, or the Chief Executive Officer, if any, or the President
or any Vice President and the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person or entity were such officer, transfer agent or registrar at
the date of issue.
6.2 Transfers. Transfers of shares of the Corporation shall be made on
---------
the books of the Corporation only upon surrender to the Corporation of a share
certificate duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, provided such succession, assignment, or
transfer is not prohibited by the Certificate of Incorporation, the Bylaws,
applicable law or contract. Thereupon, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transactions upon its books.
6.3 Lost, Stolen or Destroyed Certificates. Any person claiming a share
--------------------------------------
certificate to be lost, stolen or destroyed shall make an affidavit or an
affirmation of that fact, and may be required to give the Corporation a bond of
indemnity in satisfactory form and with one or more satisfactory sureties,
whereupon a new certificate may be issued of the same tenor and for the same
number of shares as the one alleged to be lost or destroyed.
6.4 Record Date.
-----------
(a) In order that the Corporation may determine the shareholders
entitled to notice of or to vote at a meeting of shareholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of shares or for the purpose of any other lawful
action, the Board of Directors shall fix, in advance, a record date, which shall
not be more than seventy (70) nor less than ten (10) days before the date of
such meeting or any other action.
(b) If no record date is fixed by the Board of Directors, (i) the
record date for determining shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the day next
preceding the date on which notice is given or, if the notice is waived by all
shareholders entitled to vote at the meeting, at the close of business on the
day next preceding the day on which the meeting was held and (ii) the record
date for determining
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shareholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
(c) A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting; provided that the Board of Directors may fix a new record date for the
adjourned meeting.
6.5 Registered Shareholders. The Corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares as the person entitled to exercise the rights referred to in Section
6.4 and shall not be bound to recognize any equitable or other claim to or
interest in any such shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by the laws of the State of Connecticut.
6.6 Additional Powers of the Board.
------------------------------
(a) In addition to those powers set forth in Section 4.1, the Board of
Directors shall have power and authority to make all such rules and regulations
as it shall deem expedient concerning the issue, transfer and registration of
certificates for shares of the Corporation.
(b) The Board of Directors may appoint and remove transfer agents and
registrars of transfers, and may require all share certificates to bear the
signature of any such transfer agent and/or any such registrar of transfers.
(c) The Board of Directors shall have power and authority to create
and issue (whether or not in connection with the issue and sale of any shares or
other securities of the Corporation) warrants, rights or options entitling the
holders thereof to purchase from the Corporation any shares of any class or
classes or any other securities of the Corporation for such consideration and to
such persons, firms or corporations as the Board of Directors, in its sole
discretion, may determine, setting aside from the authorized but unissued shares
of the Corporation the requisite number of shares for issuance upon the exercise
of such warrant, rights or options. Such warrants, rights or options shall be
evidenced by such instrument or instruments as shall be approved by the Board of
Directors. The terms upon which, the time or times (which may be limited or
unlimited in duration) at or within which, and the price or prices at which any
such shares or other securities may be purchased from the Corporation upon the
exercise of any such warrant, right or option shall be such as shall be fixed
and stated in a resolution or resolutions of the Board of Directors providing
for the creation and issue of such warrants, rights or options.
13
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7. MISCELLANEOUS
7.1 Place and Inspection of Books.
-----------------------------
(a) The books and records of the Corporation shall be kept at the
Corporation's principal office in the State of Connecticut or, except as
otherwise required by law, at such other place or places within or without the
State of Connecticut as the Board of Directors may from time to time determine.
(b) After fixing a record date for a meeting, the officer in charge of
the stock ledger of the Corporation shall prepare an alphabetical list of the
names of all the shareholders who are entitled to notice of a shareholders'
meeting. The list shall be arranged by voting group, and within each voting
group by class or series of shares, and show the address of and number of shares
held by each shareholder. The shareholders' list shall be available for
inspection by any shareholder, beginning two business days after notice of the
meeting is given for which the list was prepared and continuing through the
meeting, at the Corporation's principal office or at a place identified in the
meeting notice in the city where the meeting will be held. A shareholder, his
agent or attorney is entitled on written demand to inspect and, subject to the
requirements of Section 33-946(c) of the CBCA, to copy the list, during regular
business hours and at his expense, during the period it is available for
inspection. The shareholders' list shall also be available at the meeting, and
any shareholder, his agent or attorney is entitled to inspect the list at any
time during the meeting or any adjournment.
(c) The Board of Directors shall determine from time to time whether,
when and under what conditions and regulations the accounts and books of the
Corporation (except such as may be by law specifically open to inspection or as
otherwise provided by these Bylaws) or any of them shall be open to the
inspection of the shareholders and the shareholders' rights in respect thereof.
7.2 Indemnification. As provided in the Corporation's Certificate of
---------------
Incorporation and pursuant to the provisions thereof, (i) the Corporation shall
indemnify all Directors and officers of the Corporation to the fullest extent
permitted by Sections 33-770 to 33-778 of the CBCA, as the same may be amended
and supplemented, from and against any and all expenses, liabilities or other
matters referred to in or covered by said sections; (ii) the Corporation shall
pay for or reimburse reasonable expenses incurred by a Director or officer who
is a party to a proceeding in advance of final disposition of the proceeding if
the requirements of Section 33-773 of the CBCA are satisfied with respect to
such Director or officer; and (iii) in the event and to the extent of a general
or specific action of the Board of Directors to that effect, the Corporation
shall indemnify and advance expenses to an employee or agent of the Corporation
who is not a Director or officer to the same extent as to a Director or officer.
In connection with the foregoing, all applicable procedural and other
requirements set forth in Sections 33-770 to 33-778 of the CBCA, as the same may
be amended and supplemented, shall be observed.
7.3 Distributions. Subject to any limitations or conditions contained in
-------------
the Corporation's Certificate of Incorporation or as provided by law, the Board
of Directors may authorize and the Corporation may make distributions to its
shareholders. The Board of Directors
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may base a determination that a distribution is not prohibited under Section 33-
687(c) of the CBCA, as the same may be amended and supplemented, either on
financial statements prepared on the basis of accounting practices and
principles that are reasonable in the circumstances or on a fair valuation or
other method that is reasonable in the circumstances.
7.4 Execution of Deeds, Contracts and Other Agreements and Instruments.
------------------------------------------------------------------
Subject to the specific directions of the Board of Directors, all deeds,
mortgages and bonds entered into by the Corporation and all other written
contracts and agreements to which the Corporation shall be a party shall be
executed in its name by the Chairman of the Board, the President or a Vice
President, or such other person or persons as may be authorized by any such
officer.
7.5 Checks. All checks, drafts, acceptances, notes and other orders,
------
demands or instruments with respect to the payment of money may be signed or
endorsed on behalf of the Corporation by such officer or officers or by such
agent or agents as the Board of Directors may from time to time designate.
7.6 Voting of Shares Held. Unless otherwise provided by resolution of the
---------------------
Board of Directors each of the Chairman and President may from time to time
appoint an attorney or attorneys or agent or agents of the Corporation, in the
name and on behalf of the Corporation, to cast the vote which the Corporation
may be entitled to cast as a shareholder or otherwise in any other corporation,
partnership, limited liability company or joint venture, any of whose securities
may be held by the Corporation, at meetings of the holders of the shares or
other securities of such other corporation, partnership, limited liability
company or joint venture or to consent in writing to any action by any such
other corporation, partnership, limited liability company or joint venture; and
the President shall instruct the person or persons so appointed as to the manner
of casting such votes or giving such consent and may execute or cause to be
executed on behalf of the Corporation, and under its corporate seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the premises. In lieu of such appointment the
Chairman or President may themselves attend any meetings of the holders of
shares or other securities of any such other corporation, partnership, limited
liability company or joint venture and there vote or exercise any or all power
of the Corporation as the holder of such shares or other securities of such
other corporation, partnership, limited liability company or joint venture.
7.7 Fiscal Year. The fiscal year of the Corporation shall correspond with
-----------
the calendar year.
7.8 Gender/Number. As used in these Bylaws, the masculine, feminine or
-------------
neuter gender, and the singular or plural number, shall each include the others
whenever the context so indicates.
7.9 Paragraph Titles. The titles of the paragraphs have been inserted as
----------------
a matter of reference only and shall not control or affect the meaning or
construction of any of the terms and provisions hereof.
7.10 Amendment. These Bylaws may be altered, amended or repealed by the
---------
affirmative vote of the holders of a majority of the voting power of the shares
issued and outstanding and
15
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entitled to vote at any meeting of shareholders or by resolution adopted by the
affirmative vote of not less than a majority of the Directors in office at any
annual or regular meeting of the Board of Directors or at any special meeting of
the Board of Directors if notice of the proposed alteration, amendment or repeal
be contained in the notice of such special meeting; provided, however, that any
provision of these Bylaws adopted or required to be adopted pursuant to the CBCA
by the shareholders of the Corporation shall only be amended by the affirmative
vote of a majority of the votes entitled to be cast on such matter.
7.11 Certificate of Incorporation. Notwithstanding anything to the
----------------------------
contrary contained herein, if any provision contained in these Bylaws is
inconsistent with or conflicts with a provision of the Corporation's Certificate
of Incorporation, such provision of these Bylaws shall be superseded by the
inconsistent provision in the Certificate of Incorporation to the extent
necessary to give effect to such provision in the Certificate of Incorporation.
16
<PAGE>
EXHIBIT 4.1
IMA
NUMBER SHARES
IM
INFORMATION MANAGEMENT ASSOCIATES, INC.
COMMON STOCK
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF CONNECTICUT CERTAIN DEFINITIONS
CUSIP 456923 10 1
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF
==================INFORMATION MANAGEMENT ASSOCIATES, INC.=======================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
This Ceritificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Albert R. Subbloie /s/ Gary R. Martino
-------------------------- --------------------------
President Treasurer
[SEAL OF INFORMATION MANAGEMENT ASSOCIATES, INC. 1990 APPEARS HERE]
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NEW YORK)
TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish to any shareholder, upon written request and
without charge, a full statement of the designations, relative rights,
preferences and limitations of each class of shares or series within a class of
shares that the Corporation is authorized to issue.
The following abbreviations, when used in the Inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- .............Custodian ....................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ........................................
in common (State)
UNIF TRF MIN ACT -- ............ Custodian (until age...........)
(Cust)
.................... under Uniform Transfers
(Minor)
to Minors Act ..............................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------
- ----------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------
X
-------------------------------------
X
-------------------------------------
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
NOTICE: WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
(860) 293-3500
May 27, 1997
Information Management Associates, Inc.
One Corporate Drive, Suite 414
Shelton, CT 06484
Re: Registration Statement No. 333-22923
------------------------------------
Gentlemen:
We refer to the Registration Statement on Form S-1, No. 333-22923 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), filed by Information Management Associates, Inc., a
Connecticut corporation (the "Company"), with the Securities and Exchange
Commission (the "Commission"). The Registration Statement covers up to
5,175,000 shares (the "Shares") of common stock, no par value, of the Company to
be offered to the public by Alex. Brown & Sons Incorporated, Robertson, Stephens
& Company LLC and SoundView Financial Group, Inc. (the "Underwriters"), pursuant
to the Registration Statement.
We have examined the originals, or photostatic or certified copies, of such
records of the Company, certificates of officers of the Company and of public
officials, and such other documents as we have deemed relevant or necessary as a
basis for the opinions set forth below. In such examination we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as photostatic or certified copies and the authenticity of the originals of
such copies.
Based upon our examination, we are of the opinion that the issuance of the
Shares has been duly and validly authorized by the Company and that the Shares,
when sold to the Underwriters, will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm appearing under the caption "Legal
Matters" in the Prospectus forming part of the Registration Statement. In
giving this consent, we do not hereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act or the
Rules and Regulations of the Commission.
Very truly yours,
/s/ LeBoeuf, Lamb, Greene &
MacRae, L.L.P.
<PAGE>
Exhibit 10.1
AMENDED AND RESTATED
INFORMATION MANAGEMENT ASSOCIATES, INC.
1991 STOCK OPTION PLAN
I. ESTABLISHMENT OF PLAN; DEFINITIONS
1. Purpose. The purpose of the Information Management Associates, Inc.
-------
1991 Stock Option Plan is to provide an incentive to key Employees of
Information Management Associates, Inc. (the "Corporation") and its Affiliates
who are in a position to contribute materially to the long-term success of the
Corporation and/or its Affiliates, to increase their interest in the welfare of
the Corporation and its Affiliates, and to aid in attracting and retaining
Employees of outstanding ability.
2. Definitions. Unless the context clearly indicates otherwise, the
-----------
following terms shall have the meanings set forth below:
a. "Affiliate" shall mean any parent or subsidiary of the
Corporation which meets the requirements of Section 425 of the Code.
b. "Board" shall mean the Board of Directors of the Corporation.
c. "Cause" shall mean repeated failure to properly perform assigned
duties, gross negligence, insubordination, commission of a felony, or any
act injurious to the Corporation involving dishonesty or breach of any duty
of confidentiality or loyalty.
d. "Code" shall mean the Internal Revenue Code of 1986, as it may
be amended from time to time.
e. "Corporation" shall mean Information Management Associates,
Inc., a Connecticut corporation.
f. "Disability" shall mean a medically determinable physical or
mental condition which causes an Employee to be unable to engage in any
substantial gainful activity and which can be expected to result in death or
to be of long-continued and indefinite duration.
g. "Employee" shall mean any employee, including officers, of the
Corporation and its Affiliates, as determined under the Code and the
Treasury Regulations thereunder.
<PAGE>
h. "Fair Market Value" shall mean, on any date, the fair market
value of the Stock on that date as determined by the Board.
i. "Grantee" shall mean an Employee granted a Stock Option under
this Plan.
j. "Incentive Stock Option" shall mean an option granted pursuant
to the Incentive Stock Option provisions as set forth in Part II of this
Plan.
k. "Non-Qualified Stock Option" shall mean an option granted
pursuant to the Non-Qualified Stock Option provisions as set forth in Part
III of this Plan.
l. "Plan" shall mean the Information Management Associates, Inc.
1991 Stock Option Plan as set forth herein and as amended from time to time.
m. "Stock" shall mean authorized but unissued shares of the Common
Stock of the Corporation or reacquired shares of the Corporation's Common
Stock.
n. "Stock Option" shall mean an option granted pursuant to the Plan
to purchase shares of Stock.
o. "Stock Option Agreement" shall mean the written instrument
evidencing the grant of one or more Stock Options under the Plan and which
contains the terms and conditions applicable to such grant.
p. "Ten Percent Shareholder" shall mean an Employee who at the time
a Stock Option is granted owns stock possessing more than ten percent (10%)
of the total combined voting power of all stock of the Corporation or of its
Affiliates.
3. Shares of Stock Subject to the Plan. Subject to the provisions of
-----------------------------------
Paragraph 2 of Part IV, the Stock which may be issued or transferred pursuant to
Stock Options granted under the Plan and the Stock which is subject to
outstanding but unexercised Stock Options under the Plan shall not exceed
400,000 shares in the aggregate. If a Stock Option shall expire and terminate
for any reason, in whole or in part, without being exercised, the number of
shares of Stock as to which such expired or terminated Stock Option shall not
have been exercised may again become available for the grant of Stock Options.
There shall be no terms and conditions in a Stock Option which provide
that the exercise of an Incentive Stock Option reduces the number of shares of
Stock for which an outstanding Non-
-2-
<PAGE>
Qualified Stock Option may be exercised; and there shall be no terms and
conditions in a Stock Option which provide that the exercise of a Non-Qualified
Stock Option reduces the number of shares of Stock for which an outstanding
Incentive Stock Option may be exercised.
4. Administration of the Plan. The Plan shall be administered by the
--------------------------
Board. Subject to the express provisions of the Plan, the Board shall have
authority to grant Stock Options under the Plan, to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to determine
the terms and provisions of Stock Option Agreements, and to make all other
determinations necessary or advisable for the administration of the Plan. In
addition, the Board shall have the authority to delegate any of its duties and
responsibilities under the Plan to such committee(s) as it shall determine. Any
controversy or claim arising out of or related to this Plan shall be determined
unilaterally by and at the sole discretion of the Board.
5. Amendment or Termination. The Board may, at any time, alter, amend,
------------------------
suspend, discontinue, or terminate this Plan; provided, however, that such
action shall not adversely affect the right of Grantees to Stock Options
previously granted and no amendment, without the approval of the stockholders of
the Corporation, shall increase the maximum number of shares which may be
awarded under the Plan in the aggregate (except as otherwise provided herein),
materially increase the benefits accruing to Grantees under the Plan, change the
class of Employees eligible to receive options under the Plan, or materially
modify the eligibility requirements for participation in the Plan.
6. Effective Date and Duration of the Plan. The Plan shall become
---------------------------------------
effective on October 29, 1991 or such earlier date as it is adopted by the
Board, subject to the approval by the stockholders of the Corporation. This
Plan shall terminate ten years from the date it becomes effective, and no Stock
option may be granted under the Plan thereafter, but such termination shall not
affect any Stock Option theretofore granted.
II. INCENTIVE STOCK OPTION PROVISIONS
1. Granting of Incentive Stock Options.
-----------------------------------
a. Only key Employees of the Corporation or its Affiliates, shall
be eligible to receive Incentive Stock Options under the Plan.
b. The purchase price of each share of Stock subject to an
Incentive Stock Option shall not be less than 100% of the Fair Market Value
of a share of the Stock on the
-3-
<PAGE>
date the Incentive Stock Option is granted; provided, however, that the
purchase price of each share of Stock subject to an Incentive Stock Option
granted to a Ten Percent Shareholder shall not be less than 110% of the
Fair Market Value of a share of the Stock on the date the Incentive Stock
Option is granted.
c. No Incentive Stock Option shall be exercisable more than ten
years from the date the Incentive Stock Option was granted; provided,
however, that an Incentive Stock Option granted to a Ten Percent
Shareholder shall not be exercisable more than five years from the date the
Incentive Stock Option was granted.
d. The Board shall determine and designate from time to time
those Employees who are to be granted Incentive Stock Options and specify
the number of shares subject to each Incentive Stock Option.
e. Notwithstanding any other provisions hereof, the aggregate
Fair Market Value (determined at the time the option is granted) of the
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Employee during any calendar year (under all such plans
of the Corporation and its Affiliates) shall not exceed $100,000.
f. The Board, in its sole discretion, shall determine whether any
particular Incentive Stock Option shall become exercisable in one or more
installments, specify the installment dates, and, within the limitations
herein provided, determine the total period during which the Incentive
Stock Option is exercisable. Further, the Board may make such other
provisions as may appear generally acceptable or desirable to the Board or
necessary to qualify its grants under the provisions of Section 422A of the
Code.
g. The Board may grant at any time new Incentive Stock Options to
an Employee who has previously received Incentive Stock Options or other
options whether such prior Incentive Stock Options or other options are
still outstanding, have previously been exercised in whole or in part, or
are canceled in connection with the issuance of new Incentive Stock
Options. The purchase price of the new Incentive Stock Options may be
established by the Board without regard to the existing Incentive Stock
Options or other options.
2. Exercise of Incentive Stock Options. The option price of an
-----------------------------------
Incentive Stock Option shall be payable on exercise of the option in cash or by
check, bank draft or postal or express money order. The Board, in its
discretion, may permit a Grantee to
-4-
<PAGE>
make partial or full payment of the exercise price by the surrender of Stock
owned by the Grantee prior to the date of exercise. Shares of Stock surrendered
in payment of the exercise price as provided above shall be valued at the Fair
Market Value thereof on the date of exercise, surrender of such stock to be
evidenced by delivery of the certificate(s) representing such shares in such
manner, and endorsed in such form, or accompanied by stock powers endorsed in
such form, as the Board may determine.
In the absence of any other action by the Board, all Incentive Stock
Options shall become exercisable in equal installments over a period of five
years calculated from the date of grant.
3. Termination of Employment. Except as provided otherwise in the
-------------------------
applicable Stock Option Agreement (in which case the Stock Option Agreement
shall control over the provisions of this paragraph 3):
a. If a Grantee's employment is terminated, including termination
by retirement at or after age 65 or by reason of Disability (other than for
Cause or voluntary termination prior to retirement at or after age 65 or
death) the terms of any then outstanding Incentive Stock Option held by the
Grantee shall extend for a period ending on the earlier of the date on
which such option would otherwise expire or three months after such
termination of employment, and such option shall be exercisable to the
extent it was exercisable as of the date of termination of employment.
b. If a Grantee's employment is terminated for Cause or if the
Grantee shall have voluntarily terminated employment other than by
retirement at or after age 65, the term of any then outstanding Incentive
Stock Option held by the Grantee shall terminate immediately and shall not
be exercisable after the date of termination of employment.
c. If a Grantee's employment is terminated by death, the
representative of his estate or beneficiaries thereof to whom the option
has been transferred shall have the right during the three month period
following his death to exercise any then outstanding Incentive Stock
Options in whole or in part. If a Grantee dies within three months after
his retirement without having fully exercised any then outstanding
Incentive Stock Options, the representative of his estate or beneficiaries
thereof to whom the option has been transferred shall have the right during
such three month period to exercise such options in whole or in part. The
number of shares of Stock in respect of which an Incentive Stock Option may
be exercised after a Grantee's death shall be the number of shares in
respect of which such option could be exercised
-5-
<PAGE>
as of the date of the Grantee's death or retirement, whichever occurs
first. In no event may the period for exercising an Incentive Stock Option
extend beyond the date on which such option would otherwise expire.
d. The Board may grant a leave of absence to any Grantee for
purposes of continuing such Grantee's employment with the Corporation or
its Affiliates.
III. NON-QUALIFIED STOCK OPTION PROVISIONS
1. Granting of Non-Qualified Stock Options.
---------------------------------------
a. Key Employees of the Corporation or its Affiliates, shall be
eligible to receive Non-Qualified Stock Options under the Plan.
b. The Board shall determine and designate from time to time those
Employees who are to be granted Non-Qualified Stock Options and the amount
subject to each Non-Qualified Stock Option.
c. The Board may grant at any time new Non-Qualified Stock Options
to an Employee who has previously received Non-Qualified Stock Options or
other options, whether such prior Non-Qualified Stock Options or other
options are still outstanding, have previously been exercised in whole or
in part, or are canceled in connection with the issuance of new Non-
Qualified Stock Options.
d. When granting a Non-Qualified Stock Option, the Board shall
determine the purchase price of the Stock subject thereto.
e. The Board, in its sole discretion, shall determine whether any
particular Non-Qualified Stock Option shall become exercisable in one or
more installments, specify the installment dates and, within the
limitations herein provided, determine the total period during which the
Non-Qualified Stock Option is exercisable. Further, the Board may make
such other provisions as may appear generally acceptable or desirable to
the Board.
f. No Non-Qualified Stock Option shall be exercisable more than
ten years from the date such option is granted.
2. Exercise of Non-Qualified Stock Options. The option price of a Non-
---------------------------------------
Qualified Stock Option shall be payable on exercise of the option in cash or by
check, bank draft or postal or express
-6-
<PAGE>
money order. The Board, in its discretion, may permit a Grantee to make partial
or full payment of the exercise price by the surrender of Stock owned by the
Grantee prior to the date of exercise. Shares of Stock surrendered in payment of
the exercise price as provided above shall be valued at the Fair Market Value
thereof on the date of exercise, surrender of such to be evidenced by delivery
of the certificates(s) representing such shares in such manner, and endorsed in
such form, or accompanied by stock powers endorsed in such form, as the Board
may determine.
In the absence of any other action by the Board, all Non-Qualified
Stock Options shall become exercisable in equal installments over a period of
five years calculated from the date of grant.
3. Termination of Employment. Except as provided otherwise in the
-------------------------
applicable Stock Option Agreement (in which case the provisions of the Stock
Option Agreement shall control over the provisions of this paragraph 3):
a. If a Grantee's employment is terminated, including termination
by retirement at or after age 65 or by reason of Disability (other than for
Cause or voluntary termination prior to retirement at or after age 65 or
death), the terms of any then outstanding Non-Qualified Stock Option held by
the Grantee shall extend for a period ending on the earlier of the date on
which such option would otherwise expire or three months after such
termination of employment and such option shall be exercisable to the extent
it was exercisable as of the date of termination of employment.
b. If a Grantee's employment is terminated for Cause or if the
Grantee shall have voluntarily terminated employment other than by
retirement at or after age 65, the term of any then outstanding Non-
Qualified Stock Option held by the Grantee shall terminate immediately and
shall not be exercisable after the date of termination of employment.
c. If a Grantee's employment is terminated by death, the
representative of his estate or beneficiaries thereof to whom the option has
been transferred shall have right during the three month period following
his death to exercise any then outstanding Non-Qualified Stock Options in
whole or in part. If a Grantee dies within three months after his retirement
without having fully exercised any then outstanding Non-Qualified Stock
Options, the representative of his estate or beneficiaries thereof to whom
the option has been transferred shall have the right during such three month
period to exercise such options in whole or in part. The number of shares of
Stock in respect of which a Non-Qualified Stock Option may be exercised
after a Grantee's death shall be
-7-
<PAGE>
the number of shares of Stock in respect of which such option could be
exercised as of the date of the Grantee's death or retirement, whichever
first occurs. In no event may the period for exercising a Non-Qualified
Stock Option extend beyond the date on which such option would otherwise
expire.
d. The Board may grant a leave of absence to any Grantee for
purposes of continuing such Grantee's employment with the Corporation or its
Affiliates.
IV. GENERAL PROVISIONS
1. Adjustments Upon Changes in Capitalization.
------------------------------------------
a. If the shares of Stock outstanding are changed in number or
class by reason of a split-up, reorganization, reclassification,
recapitalization, or any capital adjustment, including a stock dividend, or
if any distribution is made to the holders of common stock other than a cash
dividend, then the Board shall adjust,
(1) the aggregate number and class of shares or other
securities that may be issued or transferred pursuant to Paragraph 3 of
Part I,
(2) the number and class of shares or other securities which
are issuable under outstanding Stock Options, and
(3) the purchase price to be paid per share under outstanding
Stock Options.
Adjustment under the foregoing paragraph shall be made in an
equitable manner by the Board, whose determination as to what adjustments
shall be made, and the extent thereof, shall be final, binding, and
conclusive.
b. In case the Corporation is merged or consolidated with another
corporation and the Corporation is not the surviving corporation, or in case
of the sale of all or substantially all of the property of the Corporation,
or in case of a dissolution or liquidation of the Corporation, the Board or
the board of directors of any corporation assuming the obligations of the
Corporation hereunder, may, as to outstanding Stock Options, (i) provide for
the substitution on an equitable basis of other stock of the Corporation or
of the merged, consolidated or otherwise reorganized corporation for the
Stock which was otherwise issuable upon exercise of such outstanding Stock
Options, and adjust the number and kind of shares covered by such Stock
Options and the option price per share, or (ii) upon written notice to the
Grantees, provide
-8-
<PAGE>
that all unexercised Stock Options as of the date specified in such notice
will be terminated, in which case the Board may, in its discretion, give
Grantees the right, during the period preceding such termination, to
exercise Stock Options as to all or any part of the shares covered thereby,
including shares as to which such Stock Option would not otherwise be
exercisable.
2. General.
-------
a. Each Stock Option shall be evidenced by a Stock Option
Agreement.
b. The granting of a Stock Option in any year shall not give the
Grantee any right to similar grants in future years or any right to be
retained as an Employee of the Corporation, and all Employees shall remain
subject to discharge to the same extent as if the Plan were not in effect.
c. No Employee, and no beneficiary or other person claiming under
or through him, shall have any right, title or interest by reason of any
Stock Option to any particular assets of the Corporation, or any shares of
Stock allocated or reserved for the purposes of the Plan or subject to any
Stock Option except as set forth herein. The Corporation shall not be
required to establish any fund or make any other segregation of assets to
assure the exercise of any Stock Option.
d. No right under the Plan shall be subject to anticipation, sale,
assignment, pledge, encumbrance, or charge except by will or the laws of
descent and distribution, and a Stock Option shall be exercisable during the
Grantee's lifetime only by the Grantee or his conservator.
e. Notwithstanding any other provision of this Plan or agreements
made pursuant thereto, the Corporation's obligation to issue or deliver any
certificate or certificates for shares of Stock under a Stock Option, and
the transferability of Stock acquired by exercise of a Stock Option, shall
be subject to all of the following conditions:
(1) Any registration or other qualification of such shares
under any state or federal or state law or regulation, or the
maintaining in effect of any such registration or other qualification
which the Board shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable;
-9-
<PAGE>
(2) The obtaining of any other consent, approval, or permit
from any state or federal governmental agency which the Board shall, in
its absolute discretion upon the advice of counsel, determine to be
necessary or advisable; and
(3) Each stock certificate issued pursuant to a Stock Option
shall bear the following legend:
"The transferability of this certificate and the shares of Stock
represented hereby are subject to restrictions, terms and conditions
contained in the Information Management Associates, Inc. Corporation
1991 Stock Option Plan, and an Agreement between the registered
owner of such Stock and Information Management Associates, Inc. A
copy of the Plan and Agreement are on file in the office of the
Secretary of Information Management Associates, Inc."
(4) The Grantee shall agree to be bound by, and the Stock
issued by him shall be subject to, a certain amended and restated
Shareholders Agreement dated October 29, 1991 among the shareholders of
the Corporation and the Corporation, and any subsequent amendments to
such Shareholders Agreement, and the Stock issued to the Grantee shall
contain any legend required under said Shareholders Agreement.
f. All payments to Grantees or to their legal representatives
shall be subject to any applicable tax, community property, or other statutes or
regulations of the United States or of any state having jurisdiction thereof.
The Grantee may be required to pay to the Corporation the amount of any
withholding taxes which the Corporation is required to withhold with respect to
a Stock Option or its exercise. In the event that such payment is not made when
due, the Corporation shall have the right to deduct, to the extent permitted by
law, from any payment of any kind otherwise due to such person all or part of
the amount required to be withheld.
g. In the case of a grant of a Stock Option to any Employee of an
Affiliate of the Corporation, the Corporation may, if the Board so directs,
issue or transfer the shares, if any, covered by the Stock Option to the
Affiliate, for such lawful consideration as the Board may specify, upon the
condition or understanding that the Affiliate will transfer the shares to the
Employee in accordance with the terms of the
-10-
<PAGE>
Stock Option specified by the Board pursuant to the provisions of the Plan.
h. A grantee entitled to Stock as a result of the exercise of an
Option shall not be deemed for any purpose to be, or have rights as, a
shareholder of the Corporation by virtue of such exercise, except to the extent
a stock certificate is issued therefore and then only from the date such
certificate is issued. No adjustments shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as otherwise provided herein. The
Corporation shall issue any stock certificates required to be issued in
connection with the exercise of a Stock Option with reasonable promptness after
such exercise.
i. The grant or exercise of Stock Options granted under the Plan
shall be subject to, and shall in all respects comply with, applicable
Connecticut corporate law relating to such grant or exercise.
-11-
<PAGE>
EXHIBIT 10.2
INFORMATION MANAGEMENT ASSOCIATES, INC.
1991 Nonqualified Stock Option Agreement
----------------------------------------
Agreement made this ____ day of __________, 199__ between INFORMATION
MANAGEMENT ASSOCIATES, INC., a Connecticut corporation (hereinafter called the
"Corporation"), and ___________ (hereinafter called the "Grantee").
WHEREAS, the Information Management Associates, Inc. 1991 Stock Option Plan
was adopted by the Board of Directors of the Corporation on October 28, 1991 and
was approved by the shareholders of the Corporation on October 28, 1991.
WHEREAS, the Corporation desires to provide the Grantee with an opportunity
to acquire or increase his proprietary interest in the business of the
Corporation and, through stock ownership, to possess an increased personal
interest in its continued success and progress;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
hereinafter set forth, and other good and valuable consideration, the
Corporation and the Grantee agree as follows:
1. Award of Option. The Corporation hereby awards to the Grantee, as a
---------------
matter of separate inducement and agreement, and not in lieu of salary or any
other compensation for services, options to purchase an aggregate of ___ shares
of the Corporation's Common Stock pursuant to the nonqualified stock option
provisions contained in Part III of the Plan, on the terms and conditions
hereinafter set forth, at the purchase price of $____ per share (such shares,
number of shares and purchase price being subject to adjustment as provided in
Paragraph 2 of Part IV of the Plan).
2. Terms of Plan. The Plan, a copy of which is attached hereto, is
-------------
incorporated herein by reference and is made part of this agreement as if fully
set forth herein. This agreement is subject to, and the Corporation and the
Grantee agree to be bound by, all of the terms and conditions of the Plan as the
same exists at the time this agreement was entered. The Plan shall control in
the event there is any express conflict between the Plan and the terms hereof,
and on such matters that are not expressly covered in this agreement.
Subsequent amendments of the Plan shall not adversely affect the Grantee's
rights under this agreement.
3. Exercise of Option. The stock option granted pursuant to this
------------------
agreement is exercisable for all or any part of the shares covered hereby on or
after October 30, 1991.
<PAGE>
Each exercise must encompass at least 100 shares. In the event the
Grantee's exercise includes a fractional share, the Corporation will not be
required to issue a fractional share but will pay the Grantee in cash the value
of such fraction. All unexercised rights shall lapse and forever terminate
after the expiration of ten years from the date of this Agreement.
4. Termination of Employment. If the Grantee's employment with the
-------------------------
Corporation is terminated other than by disability or death, the term of any
then outstanding option held by the Grantee shall extend for a period ending on
the earlier of the date on which such option would otherwise expire or three
months after such termination of employment, and such option shall be
exercisable to the extent it was exercisable as of such last date of employment.
If the Grantee's employment with the Corporation is terminated by
reason of disability, the term of any then outstanding option held by the
Grantee shall be extended for a period ending on the earlier of the date on
which such option would otherwise expire or one year after the Grantee's last
date of employment, and such option shall be exercisable to the extent it was
exercisable as of such last date of employment. If the Grantee's employment with
the Corporation is terminated by reason of death, the term of any then
outstanding option held by the Grantee shall extend for a period ending on the
earlier of the date on which such option would otherwise expire or three months
after the Grantee's last date of employment, and such option shall be
exercisable to the extent it was exercisable as of such last date of employment.
The representative of a deceased Grantee's estate or beneficiaries thereof to
whom the option has been transferred shall have the right during the three-month
period following his death to exercise any then outstanding option in whole or
in part.
5. Manner of Exercise. Full payment for the shares purchased shall be
------------------
made at the time of any exercise of this agreement. The purchase price shall be
payable to the Corporation in United States dollars in cash or by check, bank
draft, or postal or express money order.
Subject to the terms and conditions hereof, the options shall be
exercisable by notice to the Corporation on the form provided by the
Corporation, a copy of which is attached hereto. In the event that the options
are being exercised by any person or persons other than the Grantee, the notice
shall be accompanied by proof, satisfactory to the Corporation, of the right of
such person or persons to exercise any right under this agreement.
2
<PAGE>
6. Rights of Grantee. The grant of any option in any year shall give such
-----------------
Grantee neither any right to similar grants in future years nor any right to be
retained as an employee of the Corporation, such employment being terminable to
effect. The right and power of the Corporation to dismiss or discharge any
participant is specifically unqualifiedly unimpaired by this agreement.
Neither the Grantee nor any other person legally entitled to exercise
any rights under this agreement shall be entitled to any of the rights or
privileges of a stockholder of the Corporation with respect to any shares which
may be issuable upon any exercise pursuant to this agreement, unless and until a
certificate or certificates representing such shares shall have been actually
issued and delivered to the Grantee or such person.
7. Non-Transferability of Option. Except as otherwise provided herein, an
-----------------------------
option and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any way, other than by will or the laws of
descent and distribution, and an option shall be exercisable during the
Grantee's lifetime only by the Grantee or his conservator.
8. Taxes and Withholding. All payments to a Grantee or to his legal
---------------------
representative shall be subject to any applicable tax, community property, or
other statutes or regulations of the United States or of any state having
jurisdiction thereof. The Grantee may be required to pay to the Corporation the
amount of any withholding taxes which the Corporation is required to withhold
with respect to a stock option or its exercise. In the event that such payment
is not made when due, the Corporation shall have the right to deduct, to the
extent permitted by law, from any payment of any kind otherwise due to such
person all or part of the amount required to be withheld.
9. [RESERVED]
10. Notices. Each notice to the Corporation relating to this agreement
-------
shall be in writing and delivered in person or by registered mail to the
Corporation at its office, 6527 Main Street, Trumbull, Connecticut 06611, to the
attention of the Chief Financial Officer. All notices to the Grantee or other
person or persons then entitled to exercise any right pursuant to this agreement
shall be delivered to the Grantee or such other person or persons at the
Grantee's address specified below or at such other address as the Grantee or
such other person may specify in writing to the Corporation by a notice
delivered in accordance with this paragraph.
11. Restriction on Shares. The Corporation's obligation to issue or
---------------------
deliver any certificate or certificates for shares of
3
<PAGE>
Stock under this option, and the transferability of shares acquired by the
exercise of this option, shall be subject to all of the following conditions:
(a) Any registration or other qualification of such shares under any
state or federal law or regulation, or the maintaining in effect
of any such registration or other qualification which the
Corporation shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable;
(b) The obtaining of any other consent, approval, or permit from any
state or federal governmental agency which the Corporation shall,
in its absolute discretion upon the advice of counsel, determine
to be necessary or advisable; and
(c) Each stock certificate issued pursuant to a Stock Option shall
bear the following legend and any legend deemed to be required by
the Corporation under federal and state securities laws:
"The transferability of this certificate and the shares of Stock
represented hereby are subject to restrictions, terms and
conditions contained in the Information Management Associates,
Inc. 1991 Stock Option Plan and an Agreement between the
registered owner of such Stock and Information Management
Associates, Inc. A copy of the Plan and Agreement are on file in
the office of the Secretary of Information Management Associates,
Inc."
(d) The Grantee shall agree to be bound by and the Stock issued to him
shall be subject to, a certain amended and restated Shareholders
Agreement dated October 29, 1991 among the shareholders of the
Corporation and the Corporation, and any subsequent amendments to
such Shareholders Agreement, and the Stock issued to the Grantee
shall contain any legend required under said Shareholders
Agreement.
12. Miscellaneous. This agreement comprises the whole agreement between
-------------
the parties hereto. It may not be modified or terminated orally, and it shall
be deemed to be a Connecticut
4
<PAGE>
contract, subject to construction and enforcement in accordance with the laws of
Connecticut.
This Agreement shall inure to the benefit of and be binding upon each successor
of the Corporation and to the extent specifically provided herein and in the
Plan inure to the benefit of and shall be binding upon the Grantee's heirs,
legal representatives, and successors.
IN WITNESS WHEREOF, this agreement is executed by the Grantee and by
the Corporation through its duly authorized officer or officers as of the day
and year first above written.
GRANTOR:
INFORMATION MANAGEMENT
ASSOCIATES, INC.
By ______________________________
GRANTEE:
_________________________________
5
<PAGE>
Exhibit 10.3
MASTER FORM
[Copy to Complete]
INFORMATION MANAGEMENT ASSOCIATES, INC.
Non-Qualified Stock Option Agreement
------------------------------------
Non-Qualified Stock Option Agreement (the "Agreement") made as of this
__th day of _______, 199_ between INFORMATION MANAGEMENT ASSOCIATES, INC., a
Connecticut corporation, (hereinafter called the "Corporation") and
_____________ (hereinafter called the "Grantee").
In consideration of the premises, the mutual covenants hereinafter set
forth, and other good and valuable consideration, the Corporation and the
Grantee agree as follows:
1. Award of Option. The Corporation hereby awards to the Grantee, as a
---------------
matter of separate inducement and agreement, and not in lieu of salary or any
other compensation for services, options to purchase an aggregate of ________
shares of the Corporation's Common Stock ("Stock") pursuant to the nonqualified
stock option provisions contained in Part III of the Amended and Restated
Information Management Associates, Inc. 1991 Stock Option Plan (the "Plan"), on
the terms and conditions hereinafter set forth, at the purchase price of
$_______ per share (such shares, number of shares and purchase price being
subject to adjustment as provided in Paragraph 9 below). Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to them in the
Plan.
2. Terms of Plan. The Plan, a copy of which is attached hereto, is
-------------
incorporated herein by reference and is made part of this Agreement as if fully
set forth herein. This Agreement is subject to, and the Corporation and the
Grantee agree to be bound by, all of the terms and conditions of the Plan as the
same exists at the time this Agreement was entered. The Plan shall control in
the event there is any express conflict between the Plan and the terms hereof,
and on such matters that are not expressly covered in this Agreement.
Subsequent amendments of the Plan shall not adversely affect the Grantee's
rights under this Agreement.
3. Exercise of Option. The stock option granted pursuant to this
------------------
Agreement is exercisable for all or any part of the shares covered hereby on or
after __________, 199_.
Each exercise must encompass at least 100 shares. In the event the
Grantee's exercise includes a fractional share, the Corporation will not be
required to issue a fractional share but will pay the Grantee in cash the value
of such fraction. All
<PAGE>
-2-
unexercised rights shall lapse and forever terminate after the expiration of ten
years from the date of this Agreement.
4. Termination of Employment.
-------------------------
(a) If Grantee's employment is terminated, including termination
by retirement at or after age 65 or by reason of Disability (other than for
Cause or voluntary termination prior to retirement at or after age 65 or
death) the terms of any then outstanding Non-Qualified Stock Option held by
the Grantee shall extend for a period ending on the earlier of the date on
which such option would otherwise expire or three months after such
termination of employment, and such option shall be exercisable to the
extent it was exercisable as of the date of termination of employment.
(b) If Grantee's employment is terminated for Cause or if the
Grantee shall have voluntarily terminated employment other than by
retirement at or after age 65, the term of any then outstanding Non-
Qualified Stock Option held by the Grantee shall terminate immediately and
shall not be exercisable after the date of termination of employment.
(c) If Grantee's employment is terminated by death, the
representative of his estate or beneficiaries thereof to whom the option has
been transferred shall have the right during the three month period
following his death to exercise any then outstanding Non-Qualified Stock
Options in whole or in part. If a Grantee dies within three months after his
retirement without having fully exercised any then outstanding Non-Qualified
Stock Options, the representative of his estate or beneficiaries thereof to
whom the option has been transferred shall have the right during such three
month period to exercise such options in whole or in part. The number of
shares of Stock in respect of which a Non-Qualified Stock Option may be
exercised after a Grantee's death shall be the number of shares in respect
of which such option could be exercised as of the date of the Grantee's
death or retirement, whichever occurs first. In no event may the period for
exercising a Non-Qualified Stock Option extend beyond the date on which such
option would otherwise expire.
5. Manner of Exercise. Full payment for the shares purchased shall
------------------
be made at the time of any exercise of options pursuant to this Agreement. The
purchase price shall be payable to the Corporation in United States dollars in
cash or by check, bank draft, or postal or express money order. Subject to the
terms and conditions hereof, the options shall be exercisable by notice to the
Corporation on the form provided by the Corporation, a copy of
<PAGE>
-3-
which is attached hereto. In the event that the options are being exercised by
any person or persons other than the Grantee, the notice shall be accompanied by
proof, satisfactory to the Corporation, of the right of such person or persons
to exercise any right under this Agreement.
6. Rights of Grantee. The grant of any option in any year shall give
-----------------
such Grantee neither any right to similar grants in future years nor any right
to be retained as an employee of the Corporation. The right and power of the
Corporation to dismiss or discharge any participant is specifically
unqualifiedly unimpaired by this Agreement.
Neither the Grantee nor any other person legally entitled to exercise
any rights under this Agreement shall be entitled to any of the rights or
privileges of a stockholder of the Corporation with respect to any shares which
may be issuable upon any exercise pursuant to this Agreement, unless and until a
certificate or certificates representing such shares shall have been actually
issued and delivered to the Grantee or such person.
7. Non-Transferability of Option. Except as otherwise provided
-----------------------------
herein, an option and the rights and privileges conferred hereby may not be
transferred, assigned, pledged or hypothecated in any way, other than by will or
the laws of descent and distribution, and an option shall be exercisable during
the Grantee's lifetime only by the Grantee or his conservator.
8. Taxes and Withholding. All payments to a Grantee or to his legal
---------------------
representative shall be subject to any applicable tax, community property, or
other statutes or regulations of the United States or of any state having
jurisdiction thereof. The Grantee may be required to pay to the Corporation the
amount of any withholding taxes which the Corporation is required to withhold
with respect to a stock option or its exercise. In the event that such payment
is not made when due, the Corporation shall have the right to deduct, to the
extent permitted by law, from any payment of any kind otherwise due to such
person all or part of the amount required to be withheld.
9. Reorganization; Adjustment.
--------------------------
A. Reorganization. In case the Corporation is merged or
--------------
consolidated with another corporation and the Corporation is not the surviving
corporation, or in case the property or stock of the Corporation is acquired by
any other corporation, or in case of a reorganization or liquidation of the
Corporation, the Board of Directors of the Corporation or the board of directors
of any corporation assuming the obligations of the Corporation hereunder,
<PAGE>
-4-
shall, as to any outstanding stock options under this Agreement, either (i) make
appropriate provision for the protection of any such outstanding options by the
substitution on an equitable basis of appropriate stock of the Corporation or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect of the shares of Stock, provided only that the excess of the
aggregate fair market value of the shares subject to this Agreement immediately
after such substitution over the purchase price thereof is not more than the
excess of the aggregate fair market value of the shares subject to this
Agreement immediately before such substitution over the purchase price thereof,
(ii) upon written notice to the Grantee, provide that all unexercised stock
options under this Agreement must be exercised within a specified number of days
of the date of such notice or such stock options will be terminated, or (iii)
upon written notice to the Grantee, provide that the Corporation or the merged,
consolidated or otherwise reorganized corporation shall have the right, upon the
effective date of any such merger, consolidation, sale of assets or
reorganization, to purchase all stock options held by the Grantee and
unexercised as of that date at an amount equal to the aggregate fair market
value on such date of the shares subject to the stock options held by the
Grantee, over the aggregate purchase price therefor, such amount to be paid in
cash or, if stock of the merged, consolidated or otherwise reorganized
corporation is issuable in respect of the shares of the Stock, then, in the
discretion of the Board, in stock of such merged, consolidated or otherwise
reorganized corporation equal in fair market value to the aforesaid amount. In
any such case the Board shall, in good faith, determine fair market value.
B. Adjustment Provisions. If the shares of Stock outstanding are
---------------------
changed in number or class by reason of a split-up, merger, consolidation,
reorganization, reclassification, recapitalization, or any capital adjustment,
including a stock dividend, or if any distribution is made to the holders of
common stock other than a cash dividend, then
(a) the number and class of shares or other securities which are
issuable under this Agreement, and
(b) the purchase price to be paid per share under this Agreement,
shall be adjusted in an equitable manner by the Board, whose determination as to
what adjustments shall be made, and the extent thereof, shall be final, binding,
and conclusive.
10. Notices. Each notice to the Corporation relating to this Agreement
-------
shall be in writing and delivered in person or by
<PAGE>
-5-
registered mail to the Corporation at its office, One Corporate Drive, Shelton,
Connecticut 06484, to the attention of the Chief Financial Officer. All notices
to the Grantee or other person or persons then entitled to exercise any right
pursuant to this agreement shall be delivered to the Grantee or such other
person or persons at the Grantee's address specified below or at such other
address as the Grantee or such other person may specify in writing to the
Corporation by a notice delivered in accordance with this paragraph.
11. Restriction on Shares. The Corporation's obligation to issue or
---------------------
deliver any certificate or certificates for shares of Stock under this
Agreement, and the transferability of shares acquired by the exercise of these
options, shall be subject to all of the following conditions:
(a) any registration or other qualification of such shares under
any state or federal law or regulation, or the maintaining in effect of any
such registration or other qualification which the Corporation shall, in its
absolute discretion upon the advice of counsel, deem necessary or advisable
provided that, the Corporation shall have no obligation to register any
securities of the Corporation issued to or held by the Grantee;
(b) the obtaining of any other consent, approval, or permit from
any state or federal governmental agency which the Corporation shall, in its
absolute discretion upon the advice of counsel, determine to be necessary or
advisable;
(c) each stock certificate issued pursuant to this Agreement
shall bear the following legends and any other legend deemed to be required
by the Corporation under federal and state securities laws:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act") or under state securities laws. The securities may not be
sold, transferred, pledged or hypothecated unless such securities
are registered under the Act or pursuant to an opinion of counsel
acceptable to Information Management Associates, Inc. that such
registration is not required"; and
"The transferability of this certificate and the shares of Stock
represented hereby are subject to restrictions, terms and
conditions contained in the Amended and Restated Information
Management
<PAGE>
-6-
Associates, Inc. 1991 Stock Option Plan and an Agreement between
the registered owner of such Stock and Information Management
Associates, Inc. A copy of the Plan and Agreement are on file in
the office of the Secretary of Information Management Associates,
Inc.".
12. Miscellaneous. This Agreement comprises the whole agreement
-------------
between the parties hereto. It may not be modified or terminated orally, and it
shall be deemed to be a Connecticut contract, subject to construction and
enforcement in accordance with the laws of Connecticut.
This Agreement shall inure to the benefit of, and be binding upon,
each successor of the Corporation and, to the extent specifically provided
herein and in the Plan, shall inure to the benefit of and be binding upon the
Grantee's heirs, legal representatives, and successors.
<PAGE>
-7-
IN WITNESS WHEREOF, this Agreement is executed by the Grantee and by
the Corporation through its duly authorized officer or officers as of the day
and year first above written.
GRANTOR:
INFORMATION MANAGEMENT
ASSOCIATES, INC.
By:___________________________
Name:
GRANTEE:
---------------------------
Name:
Address:
Social Security No.:
<PAGE>
LETTER OF STOCK OPTION EXERCISE
CONFIDENTIAL
INFORMATION MANAGEMENT ASSOCIATES, INC.
One Corporate Drive
Shelton, Connecticut 06484
Attention: Chief Financial Officer
Gentlemen:
I wish to purchase the following shares of Common Stock by exercising
the options granted to me on ________________ pursuant to a Stock Option
Agreement, dated __________________:
Nonqualified stock option shares: _____________________
The purchase price for these shares is $______ per share. My check
payable to Information Management Associates, Inc. in the amount of
$_______________ in payment of the purchase price is enclosed. Please issue the
stock certificate(s) for these shares in my name as follows:
______________________________________
*Name
______________________________________
______________________________________
Address
______________________________________
Social Security Number
I understand and acknowledge that neither the stock options granted to
me under the Stock Option Agreement or the shares to be issued to me upon
exercise thereof have been registered under the Securities Act of 1933, as
amended (the "Act") or under state securities laws. I am acquiring such shares
for investment and not with a view to the distribution thereof. I have been
provided with financial and other information regarding Information Management
Associates, Inc. ("IMA") sufficient to enable me to make an informed investment
decision with respect to the purchase of the shares and have had an opportunity
to ask questions of and receive answers from management of IMA with respect to
its financial condition, results of operations and material aspects of its
business. I understand and agree that the Company is under no obligation to
register the shares and that I must hold the shares indefinitely unless such
shares are registered
<PAGE>
-2-
under the Act or there is an exemption from the registration requirements of the
Act which applies to any proposed transfer.
Sincerely yours,
_______________________________
Signature
(____)__________(____)_________
Office Telephone/Home Telephone
- ---------------------
* If you wish to have the shares issued in your name and that of another
person jointly, we suggest that the following form be used: "(Your name) and
(name of other person), as joint tenants with right of survivorship."
<PAGE>
EXHIBIT 10.4
INFORMATION MANAGEMENT ASSOCIATES, INC.
1996 EMPLOYEE AND CONSULTANT STOCK OPTION PLAN
I. ESTABLISHMENT OF PLAN; DEFINITIONS
1. Purpose. The purpose of the Information Management Associates,
-------
Inc. 1996 Employee and Consultant Stock Option Plan is to provide an incentive
to Employees and Consultants of Information Management Associates, Inc. (the
"Corporation") and its Affiliates who are in a position to contribute materially
to the long-term success of the Corporation and/or its Affiliates, to increase
their interest in the welfare of the Corporation and its Affiliates, and to aid
in attracting and retaining Employees and Consultants of outstanding ability.
2. Definitions. Unless the context clearly indicates otherwise, the
-----------
following terms shall have the meanings set forth below:
a. "Affiliate" shall mean any parent or subsidiary of the
Corporation which meets the requirements of Section 425 of the Code.
b. "Board" shall mean the Board of Directors of the Corporation.
c. "Cause" shall mean repeated failure to properly perform
assigned duties, gross negligence, insubordination, commission of a felony,
or any act injurious to the Corporation involving dishonesty or breach of
any duty of confidentiality or loyalty.
d. "Code" shall mean the Internal Revenue Code of 1986, as it may
be amended from time to time.
e. "Consultant" shall mean any consultant of the Corporation or
any of its Affiliates.
f. "Corporation" shall mean Information Management Associates,
Inc., a Connecticut corporation.
g. "Disability" shall mean a medically determinable physical or
mental condition which causes an Employee to be unable to engage in any
substantial gainful activity and which can be expected to result in death
or to be of long, continued and indefinite duration.
h. "Employee" shall mean any employee, including officers, of the
Corporation or any of its Affiliates, as determined under the Code and the
Treasury Regulations thereunder.
<PAGE>
i. "Fair Market Value" shall mean on any date, (i) if the Stock is
not listed on a national securities exchange or quoted on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq"),
the fair market value of the Stock on that date as determined by the Board,
or (ii) if the Stock is listed on a national securities exchange or is
quoted on Nasdaq, the closing price reported on the composite tape for
issues listed on such exchange on such date, or the closing price or the
average of the closing dealer "bid" and "asked" prices of the Stock on the
date of grant as quoted by Nasdaq, or if no trades shall have been reported
for such date, on the next preceding date on which there were trades
reported; provided that if no quotations shall have been made within the 10
business days preceding such date, the Fair Market Value shall be
determined by the Board as provided in clause (i) above.
j. "Grantee" shall mean an Employee or Consultant granted a Stock
Option under this Plan.
k. "Incentive Stock Option" shall mean an option granted pursuant
to the Incentive Stock Option provisions as set forth in Part II of this
Plan.
l. "Non-Qualified Stock Option" shall mean an option granted
pursuant to the Non-Qualified Stock Option provisions as set forth in Part
III of this Plan.
m. "Option Period" shall mean the term of the Stock Option as
fixed by the Board.
n. "Plan" shall mean the Information Management Associates, Inc.
1996 Employee and Consultant Stock Option Plan as set forth herein and as
amended from time to time.
o. "Stock" shall mean authorized but unissued shares of the Common
Stock of the Corporation, no par value, or reacquired shares of the
Corporation's Common Stock.
p. "Stock Option" shall mean an option, which shall include Non-
Qualified Stock Options and Incentive Stock Options, granted pursuant to
the Plan to purchase shares of Stock.
q. "Stock Option Agreement" shall mean the written instrument
evidencing the grant of one or more Stock Options under the Plan and which
contains the terms and conditions applicable to such grant.
r. "Ten Percent Shareholder" shall mean an Employee who at the
time a Stock Option is granted owns stock possessing more than ten percent
(10%) of the total combined
-2-
<PAGE>
voting power of all stock of the Corporation or of its Affiliates.
3. Shares of Stock Subject to the Plan. There are hereby reserved for
-----------------------------------
issuance under the Plan 400,000 shares of Stock. Subject to the provisions of
Paragraph 1 of Part IV, the Stock which may be issued pursuant to Stock Options
authorized to be granted under the Plan and the Stock which is subject to
outstanding but unexercised Stock Options under the Plan shall not exceed
400,000 shares of Stock in the aggregate. If a Stock Option shall expire and
terminate for any reason, in whole or in part, without being exercised, the
number of shares of Stock as to which such expired or terminated Stock Option
shall not have been exercised may again become available for the grant of Stock
Options.
There shall be no terms and conditions in a Stock Option which provide
that the exercise of an Incentive Stock Option reduces the number of shares of
Stock for which an outstanding Non-Qualified Stock Option may be exercised; and
there shall be no terms and conditions in a Stock Option which provide that the
exercise of a Non-Qualified Stock Option reduces the number of shares of Stock
for which an outstanding Incentive Stock Option may be exercised.
4. Administration of the Plan. The Plan shall be administered by the
--------------------------
Board. Subject to the express provisions of the Plan, the Board shall have
authority to grant Stock Options under the Plan, to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to determine
the terms and provisions of Stock Option Agreements, and to make all other
determinations necessary or advisable for the administration of the Plan. Any
controversy or claim arising out of or related to the Plan shall be determined
unilaterally by and at the sole discretion of the Board. Any determination,
decision or action of the Board in connection with the construction,
interpretation, administration, implementation or maintenance of the Plan shall
be final, conclusive and binding upon all Grantees and all person(s) claiming
under or through any Grantees. In addition, the Board shall have the authority
to delegate any of its duties and responsibilities under the Plan to such
committee(s) as it shall determine.
5. Amendment or Termination. The Board may, at any time, alter,
------------------------
amend, suspend, discontinue, or terminate the Plan; provided, however, that such
action shall not adversely affect the right of Grantees to Stock Options
previously granted.
6. Effective Date and Duration of the Plan. The Plan shall become
---------------------------------------
effective on March 14, 1996, subject to the approval by the shareholders of the
Corporation. The Plan shall terminate ten years from the date it becomes
effective, and no Stock Option
-3-
<PAGE>
may be granted under the Plan thereafter, but such termination shall not affect
any Stock Option theretofore granted.
II. INCENTIVE STOCK OPTION PROVISIONS
1. Granting of Incentive Stock Options.
-----------------------------------
a. Only Employees of the Corporation or its Affiliates shall be
eligible to receive Incentive Stock Options under the Plan.
b. When granting an Incentive Stock Option, the Board shall
determine the purchase price of the Stock subject thereto, provided, that
the purchase price of each share of Stock subject to an Incentive Stock
Option shall not be less than 100% of the Fair Market Value of a share of
the Stock on the date the Incentive Stock Option is granted; and provided,
further, that the purchase price of each share of Stock subject to an
Incentive Stock Option granted to a Ten Percent Shareholder shall not be
less than 110% of the Fair Market Value of a share of the Stock on the date
the Incentive Stock Option is granted.
c. No Incentive Stock Option shall be exercisable more than ten
years from the date the Incentive Stock Option was granted; provided,
however, that an Incentive Stock Option granted to a Ten Percent
Shareholder shall not be exercisable more than five years from the date the
Incentive Stock Option was granted.
d. The Board shall determine and designate from time to time those
Employees who are to be granted Incentive Stock Options and specify the
number of shares subject to each Incentive Stock Option.
e. Notwithstanding any other provisions hereof, the aggregate Fair
Market Value (determined at the time the option is granted) of the Stock
with respect to which Incentive Stock Options are exercisable for the first
time by the Employee during any calendar year (under all such plans of the
Corporation and its Affiliates) shall not exceed $100,000.
f. The Board, in its sole discretion, shall determine whether any
particular Incentive Stock Option shall become exercisable in one or more
installments, specify the installment dates, and, within the limitations
herein provided, determine the total period during which the Incentive
Stock Option is exercisable. Further, the Board may make such other
provisions as may appear generally acceptable or desirable to the Board or
necessary to qualify its grants under the provisions of Section 422 of the
Code.
-4-
<PAGE>
g. The Board may grant at any time new Incentive Stock Options to
an Employee who has previously received Incentive Stock Options or other
options whether such prior Incentive Stock Options or other options are
still outstanding, have previously been exercised in whole or in part, or
are canceled in connection with the issuance of new Incentive Stock
Options. The purchase price of the new Incentive Stock Options may be
established by the Board without regard to the existing Incentive Stock
Options or other options.
2. Exercise of Incentive Stock Options. The purchase price of Stock
-----------------------------------
subject to an Incentive Stock Option shall be payable on exercise of the option
in cash or by check, bank draft or postal or express money order. The Board, in
its discretion, may permit a Grantee to make partial or full payment of the
purchase price by the surrender of Stock owned by the Grantee prior to the date
of exercise. Shares of Stock surrendered in payment of the purchase price as
provided above shall be valued at the Fair Market Value thereof on the date of
exercise. Surrender of such stock shall be evidenced by delivery of the
certificate(s) representing such shares in such manner, and endorsed in such
form, or accompanied by stock powers endorsed in such form, as the Board may
determine.
In the absence of any other action by the Board, all Incentive Stock
Options shall become exercisable in equal installments over a period of four
years calculated from the date of grant.
3. Termination of Employment. Except as provided otherwise in the
-------------------------
applicable Stock Option Agreement (in which case the provisions of the Stock
Option Agreement shall control over the provisions of this paragraph 3):
a. If a Grantee's employment is terminated, including termination
by reason of retirement at or after age 65, or by reason of Disability
(other than for Cause or voluntary termination prior to retirement at or
after age 65 or death) only those Incentive Stock Options held by the
Grantee which were immediately exercisable at the date of the termination
of Grantee's employment shall be exercisable by the Grantee following the
termination of Grantee's employment. Such Incentive Stock Options must be
exercised within three months after such termination of employment (but in
no event after expiration of the Option Period) or they shall be forfeited.
b. If a Grantee's employment is terminated for Cause or if the
Grantee shall have voluntarily terminated employment other than by
retirement at or after age 65, all then outstanding Incentive Stock Options
held by the Grantee shall expire immediately and such Incentive Stock
Options
-5-
<PAGE>
shall not be exercisable after the date of the termination of Grantee's
employment.
c. If a Grantee's employment is terminated by death, only those
Incentive Stock Options held by the Grantee which were immediately
exercisable at the date of the Grantee's death shall be exercisable by the
representative of the Grantee's estate or beneficiaries thereof to whom the
Incentive Stock Options have been transferred. Such Incentive Stock Options
must be exercised by the earlier of (i) three months from the date of the
Grantee's death or (ii) the expiration of the Option Period, or they shall
be forfeited.
d. The Board may grant a leave of absence to any Grantee and, for
purposes hereunder, such Grantee shall be deemed to be continued to be
employed with the Corporation or its Affiliates during such leave of
absence.
III. NON-QUALIFIED STOCK OPTION PROVISIONS
1. Granting of Non-Qualified Stock Options.
---------------------------------------
a. Employees and Consultants of the Corporation or its Affiliates
shall be eligible to receive Non-Qualified Stock Options under the Plan.
b. The Board shall determine and designate from time to time those
Employees and Consultants who are to be granted Non-Qualified Stock Options
and specify the number of shares subject to each Non-Qualified Stock
Option.
c. The Board may grant at any time new Non-Qualified Stock Options
to an Employee or Consultant who has previously received Non-Qualified
Stock Options or other options, whether such prior Non-Qualified Stock
Options or other options are still outstanding, have previously been
exercised in whole or in part, or are canceled in connection with the
issuance of new Non-Qualified Stock Options.
d. When granting a Non-Qualified Stock Option, the Board shall
determine the purchase price of the Stock subject thereto.
e. The Board, in its sole discretion, shall determine whether any
particular Non-Qualified Stock Option shall become exercisable in one or
more installments, specify the installment dates and, within the
limitations herein provided, determine the total period during which the
Non-Qualified Stock Option is exercisable. Further, the Board may make such
other provisions as may appear generally acceptable or desirable to the
Board.
-6-
<PAGE>
f. No Non-Qualified Stock Option shall be exercisable more than
ten years from the date such option is granted.
2. Exercise of Non-Qualified Stock Options. The purchase price of
---------------------------------------
Stock subject to a Non-Qualified Stock Option shall be payable on exercise of
the option in cash or by check, bank draft or postal or express money order. The
Board, in its discretion, may permit a Grantee to make partial or full payment
of the purchase price by the surrender of Stock owned by the Grantee prior to
the date of exercise. Shares of Stock surrendered in payment of the purchase
price as provided above shall be valued at the Fair Market Value thereof on the
date of exercise, surrender of such to be evidenced by delivery of the
certificates(s) representing such shares in such manner, and endorsed in such
form, or accompanied by stock powers endorsed in such form, as the Board may
determine.
In the absence of any other action by the Board, all Non-Qualified
Stock Options shall become exercisable in equal installments over a period of
four years calculated from the date of grant.
3. Termination of Employment. Except as provided otherwise in the
-------------------------
applicable Stock Option Agreement (in which case the provisions of the Stock
Option Agreement shall control over the provisions of this paragraph 3):
a. If a Grantee's employment is terminated, including termination
by reason of retirement at or after age 65 or by reason of Disability
(other than for Cause or voluntary termination prior to retirement at or
after age 65 or death), only those Non-Qualified Stock Options held by the
Grantee which were immediately exercisable at the date of the termination
of Grantee's employment shall be exercisable by the Grantee following the
termination of Grantee's employment. Such Non-Qualified Stock Options must
be exercised within three months after such termination of employment (but
in no event after expiration of the Option Period) or they shall be
forfeited.
b. If a Grantee's employment is terminated for Cause or if the
Grantee shall have voluntarily terminated employment other than by
retirement at or after age 65, all then outstanding Non-Qualified Stock
Options held by the Grantee shall expire immediately and such Non-Qualified
Stock Options shall not be exercisable after the date of the termination of
Grantee's employment.
c. If a Grantee's employment is terminated by death, only those
Non-Qualified Stock Options held by the Grantee which were immediately
exercisable at the date of death shall be exercisable by the representative
of the
-7-
<PAGE>
Grantee's estate or beneficiaries thereof to whom the Non-Qualified Stock
Options have been transferred. Such Non-Qualified Stock Options must be
exercised by the earlier of (i) three months from the date of the Grantee's
death or (ii) the expiration of the Option Period, or they shall be
forfeited.
d. The Board may grant a leave of absence to any Grantee and, for
purposes hereunder, such Grantee shall be deemed to continue to be employed
for purposes of continuing such Grantee's employment with the Corporation
or its Affiliates during such leave of absence.
4. Termination of Consultancy. Except as provided otherwise in the
--------------------------
applicable Stock Option Agreement (in which case the provisions of the Stock
Option Agreement shall control over the provisions of this paragraph 4):
a. If a Grantee's consulting engagement is terminated (other than
for Cause or voluntary termination or death), only those Non-Qualified
Stock Options held by the Grantee which were immediately exercisable at the
date of termination of the Grantee's consulting engagement shall be
exercisable by the Grantee following the termination of the Grantee's
consulting engagement. Such Non-Qualified Stock Options must be exercised
within three months after such termination of the Grantee's consulting
engagement (but in no event after expiration of the Option Period) or they
shall be forfeited.
b. If a Grantee's consulting engagement is terminated for Cause or
if the Grantee shall have voluntarily terminated his or her consulting
engagement, all then outstanding Non-Qualified Stock Options held by the
Grantee shall expire immediately and such Non-Qualified Stock Options shall
not be exercisable after the date of termination of the Grantee's
consulting engagement.
c. If a Grantee's consulting engagement is terminated by death,
only those Non-Qualified Stock Options immediately exercisable at the date
of the Grantee's death shall be exercisable by the representative of the
Grantee's estate or beneficiaries thereof to whom the Non-Qualified Stock
Options have been transferred. Such Non-Qualified Stock Options must be
exercised by the earlier of (i) three months from the date of the Grantee's
death or (ii) the expiration of the Option Period, or they shall be
forfeited.
-8-
<PAGE>
IV. GENERAL PROVISIONS
1. Recapitalization Adjustments.
----------------------------
a. In the event of any change in capitalization affecting the
Stock, including, without limitation, a stock dividend or other
distribution, stock split, reverse stock split, recapitalization,
consolidation, subdivision, split-up, spin-off, split-off, combination or
exchange of shares or other form of reorganization or recapitalization, or
any other change affecting the Stock, the Board shall authorize and make
such proportionate adjustments, if any, as the Board deems appropriate to
reflect such change, including, without limitation, with respect to the
aggregate number of shares of Stock for which Stock Options in respect
thereof may be granted under the Plan, the number of shares of Stock
covered by each outstanding Stock Option, and the purchase price per share
of Stock in respect of outstanding Stock Options.
b. Any provision hereof to the contrary notwithstanding, in the
event the Corporation is a party to a merger or other reorganization,
outstanding Stock Options shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding Stock Options by the surviving corporation or its
parent, for their continuation by the Corporation (if the Corporation is a
surviving corporation) for accelerated vesting and accelerated expiration
or for settlement in cash.
2. General.
-------
a. Each Stock Option shall be evidenced by a Stock Option
Agreement.
b. The granting of a Stock Option in any year shall not give the
Grantee any right to similar grants in future years or any right to be
retained as an Employee or Consultant of the Corporation, and all Employees
and Consultants shall remain subject to discharge or removal to the same
extent as if the Plan were not in effect.
c. No Employee or Consultant, and no beneficiary or other person
claiming under or through him, shall have any right, title or interest by
reason of any Stock Option to any particular assets of the Corporation, or
any shares of Stock allocated or reserved for the purposes of the Plan or
subject to any Stock Option except as set forth herein. The Corporation
shall not be required to establish any fund or make any other segregation
of assets to assure the exercise of any Stock Option.
-9-
<PAGE>
d. No Stock Option or right under the Plan shall or may be sold,
exchanged, assigned, pledged, encumbered, or otherwise hypothecated or
disposed of except by will or the laws of descent and distribution, and a
Stock Option shall be exercisable during the Grantee's lifetime only by the
Grantee or his conservator.
e. Notwithstanding any other provision of the Plan or agreements
made pursuant thereto, the Corporation's obligation to issue or deliver any
certificate or certificates for shares of Stock under a Stock Option, and
the transferability of Stock acquired by exercise of a Stock Option, shall
be subject to all of the following conditions:
(1) Any registration or other qualification of such shares
under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the
Board shall, in its absolute discretion upon the advice of counsel,
deem necessary or advisable;
(2) The obtaining of any other consent, approval, or permit
from any state or federal governmental agency which the Board
shall, in its absolute discretion upon the advice of counsel,
determine to be necessary or advisable; and
(3) Each stock certificate issued pursuant to a Stock Option
shall bear such legends which the Corporation shall determine, in
its absolute discretion, are necessary or advisable, or which in
the opinion of counsel to the Corporation are required under
applicable federal or state securities laws.
f. All payments to Grantees or to their legal representatives
shall be subject to any applicable tax, community property, or other
statutes or regulations of the United States or of any state having
jurisdiction thereof. The Grantee may be required to pay to the
Corporation the amount of any withholding taxes which the Board, in its
sole discretion, deems necessary to be withheld in order to comply with
any applicable statutes or regulations with respect to a Stock Option or
its exercise. In the event that such payment is not made when due, the
Corporation shall have the right to deduct, to the extent permitted by
law, from any payment or settlement of any kind otherwise due to such
person all or part of the amount required to be withheld. If the Board, in
its sole discretion, permits shares of Stock to be used to satisfy any
such tax withholding, such Stock shall be valued based upon the Fair
Market Value of such Stock as of the date the tax withholding is required
to be made, such date to be determined by the Board. The Corporation shall
not be required to issue Stock until such obligations are satisfied.
-10-
<PAGE>
g. In the case of a grant of a Stock Option to any Employee or
Consultant of an Affiliate of the Corporation, the Corporation may, if the
Board so directs, issue or transfer the shares, if any, covered by the
Stock Option to the Affiliate, for such lawful consideration as the Board
may specify, upon the condition or understanding that the Affiliate will
transfer the shares to the Employee or Consultant in accordance with the
terms of the Stock Option specified by the Board pursuant to the provisions
of the Plan.
h. A Grantee entitled to Stock as a result of the exercise of an
Option shall not be deemed for any purpose to be, or have rights as, a
shareholder of the Corporation by virtue of such exercise, except to the
extent a stock certificate is issued therefor and then only from the date
such certificate is issued. No adjustments shall be made for dividends or
distributions or other rights for which the record date is prior to the
date such stock certificate is issued, except as otherwise provided herein.
The Corporation shall issue any stock certificates required to be issued in
connection with the exercise of a Stock Option with reasonable promptness
after such exercise.
i. The grant or exercise of Stock Options granted under the Plan
shall be subject to, and shall in all respects comply with, applicable
Connecticut corporate law relating to such grant or exercise.
j. Should the participation of any Employee or Consultant in the
Plan be subject to Section 16 of the Securities Exchange Act of 1934 or any
successor statute ("Section 16"), it is the express intent of the
Corporation that the Plan and Stock Options granted under the Plan satisfy
and be interpreted in a manner to achieve the result that the applicable
requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission, as amended ("Rule 16b-3") shall be satisfied with respect to
such Employees and Consultants, with the result that such Employees and
Consultants shall be entitled to the benefits of Rule 16b-3 or other
applicable exemptive rules under Section 16. If any provision of the Plan
or of any Stock Option would otherwise frustrate or conflict with the
intent of the Corporation expressed in the immediately preceding sentence,
to the extent possible, such provision shall be interpreted and deemed
amended so as to avoid such conflict, and, to the extent of any remaining
irreconcilable conflict with such intent, the provision shall, solely with
respect to Employees and Consultants subject to Section 16, be deemed void.
-11-
<PAGE>
Exhibit 10.5
[FORM OF]
INFORMATION MANAGEMENT ASSOCIATES, INC.
Non-Qualified Stock Option Agreement
------------------------------------
Non-Qualified Stock Option Agreement (the "Agreement") made this _____ day
of _______________, 19____ between INFORMATION MANAGEMENT ASSOCIATES, INC., a
Connecticut corporation, (hereinafter called the "Corporation") and
_______________________ (hereinafter called the "Grantee").
In consideration of the premises, the mutual covenants hereinafter set
forth, and other good and valuable consideration, the Corporation and the
Grantee agree as follows:
1. Award of Option. The Corporation hereby awards to the Grantee, as a
---------------
matter of separate inducement and agreement, and not in lieu of salary or any
other compensation for services, options to purchase an aggregate of
_____________ shares of the Corporation's Common Stock ("Stock") pursuant to the
nonqualified stock option provisions contained in Part III of the Information
Management Associates, Inc. 1996 Employee and Consultant Stock Option Plan (the
"Plan"), on the terms and conditions hereinafter set forth, at the purchase
price of $________ per share (such shares, number of shares and purchase price
being subject to adjustment as provided in Paragraph 9 below). Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
them in the Plan.
2. Terms of Plan. The Plan, a copy of which is attached hereto, is
-------------
incorporated herein by reference and is made part of this Agreement as if fully
set forth herein. This Agreement is subject to, and the Corporation and the
Grantee agree to be bound by, all of the terms and conditions of the Plan as the
same exists at the time this Agreement was entered. The Plan shall control in
the event there is any express conflict between the Plan and the terms hereof,
and on such matters that are not expressly covered in this Agreement.
Subsequent amendments of the Plan shall not adversely affect the Grantee's
rights under this Agreement.
[TWO OPTIONS FOR SECTION 3]
[OPTION 1: ONE YEAR VESTING PERIOD]
3. Exercise of Option. The stock options granted pursuant to this
------------------
Agreement are exercisable as to all of the shares of Stock covered hereby on or
after __________________.
[OPTION 2: VESTING OVER MORE THAN ONE YEAR]
<PAGE>
3. Exercise of Option. The stock options granted pursuant to this
------------------
Agreement are exercisable as follows:
(a) as to ______ of the shares of Stock with respect to which options are
granted hereby, on or after ____________________;
(b) as to ______ of the shares of Stock with respect to which options are
granted hereby, on or after ____________________;
(c) as to ______ of the shares of Stock with respect to which options are
granted hereby, on or after ____________________; and
(d) as to ______ of the shares of Stock with respect to which options are
granted hereby, on or after ____________________.
Each exercise must encompass at least 100 shares. In the event the
Grantee's exercise includes a fractional share, the Corporation will not be
required to issue a fractional share but will pay the Grantee in cash the value
of such fraction. All unexercised rights shall lapse and forever terminate
after the expiration of ten years from the date of this Agreement (the "Option
Period").
4. Termination of Employment or Consulting Engagement.
--------------------------------------------------
(a) Employment
(1) If Grantee's employment is terminated, including termination by
reason of retirement at or after age 65 or by reason of Disability (other than
for Cause or voluntary termination prior to retirement at or after age 65 or
death), only those Non-Qualified Stock Options held by the Grantee which were
immediately exercisable by the Grantee at the date of the termination of
Grantee's employment shall be exercisable by the Grantee following the
termination of Grantee's employment. Such Non-Qualified Stock Options must be
exercised within three months after such termination of employment (but in no
event after expiration of the Option Period) or they shall be forfeited.
(2) If Grantee's employment is terminated for Cause or if the Grantee
shall have voluntarily terminated employment other than by retirement at or
after age 65, all then outstanding Non-Qualified Stock Options held by the
Grantee shall expire immediately and such Non-Qualified Stock Options shall not
be exercisable after the date of the termination of Grantee's employment.
2
<PAGE>
(3) If Grantee's employment is terminated by death, only those Non-
Qualified Stock Options held by the Grantee which were immediately exercisable
at the date of death shall be exercisable by the representative of the Grantee's
estate or beneficiaries thereof to whom the Non-Qualified Stock Options have
been transferred. Such Non-Qualified Stock Options must be exercised by the
earlier of (i) three months from the date of the Grantee's death or (ii) the
expiration of the Option Period, or they shall be forfeited.
(4) The Board may grant a leave of absence to any Grantee and, for
purposes hereunder, such Grantee shall be deemed to continue to be employed for
purposes of continuing such Grantee's employment with the Corporation or its
Affiliates during such leave of absence.
(b) Consulting Engagement
(1) If Grantee's consulting engagement is terminated (other than for
Cause or voluntary termination or death), only those Non-Qualified Stock Options
held by the Grantee which were immediately exercisable at the date of
termination of the Grantee's consulting engagement shall be exercisable by the
Grantee following the termination of the Grantee's consulting engagement. Such
Non-Qualified Stock Options must be exercised within three months after such
termination of the Grantee's consulting engagement (but in no event after
expiration of the Option Period) or they shall be forfeited.
(2) If Grantee's consulting engagement is terminated for Cause or if
the Grantee shall have voluntarily terminated his or her consulting engagement,
all then outstanding Non-Qualified Stock Options held by the Grantee shall
expire immediately and such Non-Qualified Stock Options shall not be exercisable
after the date of termination of the Grantee's consulting engagement.
(3) If Grantee's consulting engagement is terminated by death, only
those Non-Qualified Stock Options immediately exercisable at the date of the
Grantee's death shall be exercisable by the representative of the Grantee's
estate or beneficiaries thereof to whom the Non-Qualified Stock Options have
been transferred. Such Non-Qualified Stock Options must be exercised by the
earlier of (i) three months from the date of the Grantee's death or (ii) the
expiration of the Option Period, or they shall be forfeited.
5. Manner of Exercise. Full payment for the shares of Stock purchased
------------------
shall be made at the time of any exercise of options pursuant to this Agreement.
The purchase price shall be payable to the Corporation in United States dollars
in cash or by check, bank
3
<PAGE>
draft, or postal or express money order. The Board, in its discretion, may
permit Grantee to make partial or full payment of the purchase price by the
surrender of Stock owned by the Grantee prior to the date of exercise. Shares
of Stock surrendered in payment of the purchase price as provided above shall be
valued at the Fair Market Value thereof on the date of exercise, surrender of
such to be evidenced by delivery of the certificate(s) representing such shares
in such manner, and endorsed in such form, or accompanied by stock powers
endorsed in such form, as the Board may determine. Subject to the terms and
conditions hereof, the options shall be exercisable by notice to the Corporation
on the form provided by the Corporation, a copy of which is attached hereto. In
the event that the options are being exercised by any person or persons other
than the Grantee, the notice shall be accompanied by proof, satisfactory to the
Corporation, of the right of such person or persons to exercise any right under
this Agreement.
6. Rights of Grantee. The grant of any option in any year shall give such
-----------------
Grantee neither any right to similar grants in future years nor any right to be
retained as an employee of the Corporation. The right and power of the
Corporation to dismiss or discharge any participant is specifically
unqualifiedly unimpaired by this Agreement.
Neither the Grantee nor any other person legally entitled to exercise any
rights under this Agreement shall be entitled to any of the rights or privileges
of a stockholder of the Corporation with respect to any shares which may be
issuable upon any exercise pursuant to this Agreement, unless and until a
certificate or certificates representing such shares shall have been actually
issued and delivered to the Grantee or such person.
7. Non-Transferability of Option. Except as otherwise provided herein,
-----------------------------
the options and the rights and privileges conferred hereby may not be
transferred, assigned, pledged or hypothecated in any way, other than by will or
the laws of descent and distribution, and the options hereunder shall be
exercisable during the Grantee's lifetime only by the Grantee or his
conservator.
8. Taxes and Withholding. All payments to Grantee or to his or her legal
---------------------
representative shall be subject to any applicable tax, community property, or
other statutes or regulations of the United States or of any state having
jurisdiction thereof. The Grantee may be required to pay to the Corporation the
amount of any withholding taxes which the Board, in its sole discretion, deems
necessary to be withheld in order to comply with any applicable statutes or
regulations with respect to this Stock Option or its exercise. In the event
that such payment is not made when due, the Corporation shall have the right to
deduct, to the extent permitted by law, from any payment or settlement of any
kind otherwise due to
4
<PAGE>
such person all or part of the amount required to be withheld. If the Board, in
its sole discretion, permits shares of Stock to be used to satisfy any such tax
withholding, such Stock shall be valued based upon the Fair Market Value of such
Stock as of the date the tax withholding is required to be made, such date to be
determined by the Board. The Corporation shall not be required to issue Stock
until such obligations are satisfied.
9. Recapitalization Adjustments.
----------------------------
(a) In the event of any change in capitalization affecting the Stock,
including, without limitation, a stock dividend or other distribution, stock
split, reverse stock split, recapitalization, consolidation, subdivision, split-
up, spin-off, split-off, combination or exchange of shares or other form of
reorganization or recapitalization, or any other change affecting the Stock, the
Board shall authorize and make such proportionate adjustments, if any, as the
Board deems appropriate to reflect such change, including, without limitation,
the number of shares of Stock covered by this Agreement, and the purchase price
per share of Stock in respect of this Agreement.
(b) Any provision hereof to the contrary notwithstanding, in the event the
Corporation is a party to a merger or other reorganization, this Agreement shall
be subject to the agreement of merger or reorganization. Such agreement may
provide, without limitation, for the assumption of this Agreement by the
surviving corporation or its parent, for its continuation by the Corporation (if
the Corporation is a surviving corporation), for accelerated vesting and
accelerated expiration of Stock Options covered by this Agreement or for
settlement of such options in cash.
10. Notices. Each notice to the Corporation relating to this Agreement
-------
shall be in writing and delivered in person or by registered mail to the
Corporation at its office, One Corporate Drive, Suite 414, Shelton, Connecticut
06484, to the attention of the Secretary. All notices to the Grantee or other
person or persons then entitled to exercise any right pursuant to this agreement
shall be delivered to the Grantee or such other person or persons at the
Grantee's address specified below or at such other address as the Grantee or
such other person may specify in writing to the Corporation by a notice
delivered in accordance with this paragraph.
11. Restriction on Shares. The Corporation's obligation to issue or
---------------------
deliver any certificate or certificates for shares of Stock under this
Agreement, and the transferability of shares of Stock acquired by the exercise
of these options, shall be subject to all of the following conditions, which, by
his execution of this Agreement, the Grantee acknowledges may affect the
exercisablility
5
<PAGE>
of these options and the transferability of any shares acquired upon exercise
hereof:
(a) Any registration or other qualification of such shares under any
state or federal law or regulation, or the maintaining in effect of any
such registration or other qualification which the Board shall, in its
absolute discretion upon the advice of counsel, deem necessary or advisable
provided that, the Corporation shall be under no obligation to register or
qualify these options or the shares subject to these options;
(b) The obtaining of any other consent, approval, or permit from any
state or federal governmental agency which the Board shall, in its absolute
discretion upon the advice of counsel, determine to be necessary or
advisable;
(c) Each stock certificate issued pursuant to this Agreement shall
bear such legends which the Corporation shall determine, in its absolute
discretion, are necessary or advisable, or which in the opinion of counsel
to the Corporation are required under applicable federal or state
securities laws; and
(d) The Corporation shall not be obligated to issue or deliver any
shares of Stock pursuant to this Agreement or the exercise thereof if such
issuance or delivery would, in the opinion of counsel to the Corporation,
be a violation of any applicable state or federal law or regulation.
12. Miscellaneous. This Agreement comprises the whole agreement between
-------------
the parties hereto. It may not be modified or terminated orally, and it shall
be deemed to be a Connecticut contract, subject to construction and enforcement
in accordance with the laws of Connecticut.
This Agreement shall inure to the benefit of, and be binding upon, each
successor of the Corporation and, to the extent specifically provided herein and
in the Plan, shall inure to the benefit of and be binding upon the Grantee's
heirs, legal representatives, and successors.
6
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed by the Grantee and by the
Corporation through its duly authorized officer or officers as of the day and
year first above written.
GRANTOR:
INFORMATION MANAGEMENT
ASSOCIATES, INC.
By:
------------------------------
Name:
Title:
GRANTEE:
-----------------------------------
Name:
Address:
------------------------------
------------------------------
------------------------------
Social Security No.:
7
<PAGE>
LETTER OF STOCK OPTION EXERCISE
CONFIDENTIAL
INFORMATION MANAGEMENT ASSOCIATES, INC.
One Corporate Drive
Suite 414
Shelton, Connecticut 06484
Attention: Secretary
Gentlemen:
I wish to purchase the following shares of Common Stock by exercising the
options granted to me on ________________________ pursuant to a Non-Qualified
Stock Option Agreement, dated ______________________:
Nonqualified stock option shares: __________________
The purchase price for these shares is $______ per share. My check payable
to Information Management Associates, Inc. in the amount of $_______________ in
payment of the purchase price is enclosed. Please issue the stock
certificate(s) for these shares in my name as follows:
------------------------------------
*Name
------------------------------------
------------------------------------
Address
------------------------------------
Social Security Number
I understand and acknowledge that neither the stock options granted to me
under the Non-Qualified Stock Option Agreement or the shares to be issued to me
upon exercise thereof have been registered under the Securities Act of 1933, as
amended (the "Act") or under state securities laws. I am acquiring such shares
for investment and not with a view to the distribution thereof. I have been
provided with financial and other information regarding Information Management
Associates, Inc. ("IMA") sufficient to enable me to make an informed investment
decision with respect to
<PAGE>
the purchase of the shares and have had an opportunity to ask questions of and
receive answers from management of IMA with respect to its financial condition,
results of operations and material aspects of its business. I understand and
agree that the Company is under no obligation to register the shares and that I
must hold the shares indefinitely unless such shares are registered under the
Act or there is an exemption from the registration requirements of the Act which
applies to any proposed transfer.
Sincerely yours,
--------------------------------------
Signature
( ) ( )
---- ---------- ---- ---------
Office Telephone/Home Telephone
- ---------------------
* If you wish to have the shares issued in your name and that of another
person jointly, we suggest that the following form be used: "(Your name)
and (name of other person), as joint tenants with right of survivorship."
2
<PAGE>
LETTER OF STOCK OPTION GRANT
Date
- -------------------------
- -------------------------
- -------------------------
- -------------------------
- -------------------------
Dear ____________________:
I am pleased to confirm that you have been awarded a Nonqualified Stock
Option (the "Option") under the Information Management Associates, Inc. 1996
Employee and Consultant Stock Option Plan (the "Plan"). Enclosed is a
Nonqualified Stock Option Agreement (the "Agreement"), which has been signed by
Information Management Associates, Inc. Please sign such Agreement and return a
copy to me in the enclosed envelope.
As you know, the Option covers common shares of Information Management
Associates, Inc. and are exercisable in accordance with the terms of the
Agreement. In addition, the shares covered by this Option have not been
registered under state or federal securities laws. Accordingly, under these
laws, until such time as an effective registration statement is filed or an
exemption becomes available with respect to these shares, there are prohibitions
upon the exercise of this Option and the later sale of any shares purchased
under this Option. These prohibitions stem from the securities laws.
Please contact the undersigned with any questions you may have.
Sincerely,
<PAGE>
EXHIBIT 10.6
INFORMATION MANAGEMENT ASSOCIATES, INC.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
I. ESTABLISHMENT OF PLAN; DEFINITIONS
1. Purpose. The purpose of the Information Management Associates,
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Inc. 1996 Non-Employee Directors Stock Option Plan is to provide an incentive to
non-employee members of the Board of Directors of Information Management
Associates, Inc. (the "Corporation") who are in a position to contribute
materially to the long-term success of the Corporation, to increase their
interest in the welfare of the Corporation, and to aid in attracting and
retaining directors of outstanding ability.
2. Definitions. Unless the context clearly indicates otherwise, the
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following terms shall have the meanings set forth below:
a. "Affiliate" shall mean any parent or subsidiary of the
Corporation which meets the requirements of Section 425 of the Code.
b. "Board" shall mean the Board of Directors of the
Corporation.
c. "Code" shall mean the Internal Revenue Code of 1986, as it may
be amended from time to time.
d. "Corporation" shall mean Information Management Associates,
Inc., a Connecticut corporation.
e. "Disability" shall mean a medically determinable physical or
mental condition which causes a Director to be unable to engage in any
substantial gainful activity and which can be expected to result in death
or to be of long, continued and indefinite duration.
f. "Fair Market Value" shall mean on any date, (i) if the Stock is
not listed on a national securities exchange or quoted on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq"),
the fair market value of the Stock on that date as determined by the Board
or (ii) if the Stock is listed on a national securities exchange or is
quoted on Nasdaq, the closing price reported on the composite tape for
issues listed on such exchange on such date, or the closing price or the
average of the closing dealer "bid" and "asked" prices of the Stock on the
date of grant as quoted by Nasdaq, or if no trades shall have been reported
for such date, on the next preceding date on which there were trades
reported; provided that if no quotations shall have been made within the 10
business days preceding such date, the Fair
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Market Value shall be determined by the Board as provided in clause (i)
above.
g. "Grantee" shall mean a Non-Employee Director who has been
granted a Stock Option under this Plan.
h. "Non-Employee Director" shall mean an individual who is a
member of the Board, which individual is not a current or former employee
of the Corporation or an Affiliate.
i. "Plan" shall mean the Information Management Associates, Inc.
1996 Non-Employee Directors Stock Option Plan as set forth herein and as
amended from time to time.
j. "Stock" shall mean authorized but unissued shares of the Common
Stock of the Corporation, no par value, or reacquired shares of the
Corporation's Common Stock.
k. "Stock Option" shall mean an option granted pursuant to the
Plan to purchase shares of Stock.
l. "Stock Option Agreement" shall mean the written instrument
evidencing the grant of one or more Stock Options under the Plan and which
contains the terms and conditions applicable to such grant.
3. Eligibility. All Non-Employee Directors are eligible to
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participate in this Plan.
4. Shares of Stock Subject to the Plan. There are hereby reserved
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for issuance under the Plan 60,000 shares of Stock. Subject to the provisions of
Paragraph 1 of Part III hereof, the Stock which may be issued pursuant to Stock
Options authorized to be granted under the Plan and the Stock which is subject
to outstanding but unexercised Stock Options under the Plan shall not exceed
60,000 shares of Stock in the aggregate. If a Stock Option shall expire or
terminate for any reason, in whole or in part, without being exercised, the
number of shares of Stock as to which such expired or terminated Stock Option
shall not have been exercised may again become available for the grant of Stock
Options.
5. Administration of the Plan. The Plan shall be administered by
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the Board. Subject to the express provisions of the Plan, the Board shall have
authority to grant Stock Options under the Plan, to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to determine
the terms and provisions of Stock Option Agreements, and to make all other
determinations necessary or advisable for the administration of the Plan. Any
controversy or claim arising out of or related to the Plan shall be determined
unilaterally by and at the sole discretion of the Board. Any determination,
decision or action of
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the Board in connection with the construction, interpretation, administration,
implementation or maintenance of the Plan shall be final, conclusive and binding
upon all Grantees and all person(s) claiming under or through any Grantees.
6. Amendment or Termination. The Board may, at any time, alter,
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amend, suspend, discontinue, or terminate the Plan; provided, however, that such
action shall not adversely affect the right of Grantees to Stock Options
previously granted.
7. Effective Date and Duration of the Plan. The Plan shall become
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effective on March 14, 1996, subject to the approval by the shareholders of the
Corporation (the "Effective Date"). This Plan shall terminate ten years from the
date it becomes effective, and no Stock Option may be granted under the Plan
thereafter, but such termination shall not affect any Stock Option theretofore
granted.
II. STOCK OPTION PROVISIONS
1. Granting of Stock Options.
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a. Each Non-Employee Director shall receive a one-time grant of a
Stock Option to purchase 7,500 shares of Stock at the Fair Market Value thereof
on the date of grant. Each such Stock Option shall become fully-exercisable on
the date that is six months following the date of grant.
b. With respect to Non-Employee Directors in office as of the
Effective Date, the date of such grant shall be March 14, 1996. With respect to
individuals who become Non-Employee Directors after the Effective Date, the date
of such grant shall be the date of the first meeting of the Board of Directors
on or following the date such individual became a Non-Employee Director.
c. The Board may limit the time period within which a Stock Option
may be exercised if a limitation on exercise is deemed necessary in order to
effect compliance with applicable law.
d. Stock Options granted under the Plan shall expire ten years
after the date such option is granted (the "Option Period").
2. Exercise of Stock Options. The purchase price of Stock subject
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to a Stock Option shall be payable on exercise of the Stock Option in cash or by
check, bank draft or postal or express money order. The Board, in its
discretion, may permit a Grantee to make partial or full payment of the purchase
price by the surrender of Stock owned by the Grantee prior to the date of
exercise. Shares of Stock surrendered in payment of the purchase price as
provided above shall be valued at the Fair Market Value thereof on
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the date of exercise, surrender of such to be evidenced by delivery of the
certificates(s) representing such shares in such manner, and endorsed in such
form, or accompanied by stock powers endorsed in such form, as the Board may
determine.
3. Termination of Director Status. Except as provided otherwise in
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the applicable Stock Option Agreement (in which case the provisions of the Stock
Option Agreement shall control over the provisions of this paragraph 3):
a. If a Grantee's status as a Non-Employee Director is terminated
(for reasons other than retirement at or after age 65, Disability or death), all
Stock Options held by the Grantee shall expire immediately and such Stock
Options shall not be exercisable after the date of termination of the Grantee's
Non-Employee Director status.
b. If a Grantee's status as a Non-Employee Director is terminated
by reason of retirement at or after age 65 or as a result of Disability, only
those Stock Options held by the Grantee which were immediately exercisable at
the date of termination of Non-Employee Director status shall be exercisable by
the Grantee following the termination of Grantee's Non-Employee Director status.
Such Stock Options must be exercised within three months after such termination
of Non-Employee Director status (but in no event after the expiration of the
Option Period) or they shall be forfeited.
c. Upon the death of a Grantee, only those Stock Options
immediately exercisable at the date of the Grantee's death shall be exercisable
by the representative of the Grantee's estate or beneficiaries thereof to whom
the Stock Options have been transferred. Such Stock Options must be exercised by
the earlier of (i) three months from the date of the Grantee's death, or (ii)
the expiration of the Option Period, or they shall be forfeited.
d. For purposes of this Paragraph 3 of Part II only, Non-Employee
Director status of any Grantee shall not be deemed to have terminated solely by
such Grantee later attaining status as an employee of the Corporation or an
Affiliate.
III. GENERAL PROVISIONS
1. Adjustments Upon Changes in Capitalization.
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a. In the event of any change in capitalization affecting the
Stock, including, without limitation, a stock dividend or other distribution,
stock split, reverse stock split, recapitalization, consolidation, subdivision,
split-up, spin-off, split-off, combination or exchange of shares or
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other form of reorganization or recapitalization, or any other change affecting
the Stock, the Board shall authorize and make such proportionate adjustments, if
any, as the Board deems appropriate to reflect such change, including, without
limitation, with respect to the aggregate number of shares of Stock for which
Stock Options in respect thereof may be granted under the Plan, the number of
shares of Stock covered by each outstanding Stock Option, and the purchase price
per share of Stock in respect of outstanding Stock Options.
b. Any provision hereof to the contrary notwithstanding, in the
event the Corporation is a party to a merger or other reorganization,
outstanding Stock Options shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding Stock Options by the surviving corporation or its
parent, for their continuation by the Corporation (if the Corporation is a
surviving corporation) for accelerated vesting and accelerated expiration
or for settlement in cash.
2. General.
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a. Each Stock Option shall be evidenced by a Stock Option
Agreement.
b. The granting of a Stock Option hereunder shall not give the
Grantee any right to similar grants in the future or any right to be
retained as a Non-Employee Director, and all Non-Employee Directors shall
remain subject to removal to the same extent as if the Plan were not in
effect.
c. No Non-Employee Director, and no beneficiary or other person
claiming under or through him or her, shall have any right, title or
interest by reason of any Stock Option to any particular assets of the
Corporation, or any shares of Stock allocated or reserved for the purposes
of the Plan or subject to any Stock Option except as set forth herein. The
Corporation shall not be required to establish any fund or make any other
segregation of assets to assure the exercise of any Stock Option.
d. No Stock Option or right under the Plan shall or may be sold,
exchanged, assigned, pledged, encumbered, or otherwise hypothecated or
disposed of except by will or the laws of descent and distribution, and a
Stock Option shall be exercisable during the Grantee's lifetime only by the
Grantee or his or her conservator.
e. Notwithstanding any other provision of the Plan or agreements
made pursuant thereto, the Corporation's obligation to issue or deliver any
certificate or certificates for shares of stock under a Stock Option, and
the
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transferability of Stock acquired by exercise of a Stock Option, shall be
subject to all of the following conditions:
(1) Any registration or other qualification of such shares
under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the Board
shall, in its absolute discretion upon the advice of counsel, deem
necessary or advisable;
(2) The obtaining of any other consent, approval, or permit
from any state or federal governmental agency which the Board shall, in
its absolute discretion upon the advice of counsel, determine to be
necessary or advisable; and
(3) Each stock certificate issued pursuant to a Stock Option
shall bear such legends which the Corporation shall determine in its
absolute discretion are necessary or advisable or which, in the opinion
of counsel to the Corporation, are required by applicable federal or
state securities laws.
f. All payments to Grantees or to their legal representatives
shall be subject to any applicable tax, community property, or other
statutes or regulations of the United States or of any state having
jurisdiction thereof. The Grantee may be required to pay to the Corporation
the amount of any withholding taxes which the Board, in its sole
discretion, deems necessary to be withheld in order to comply with any
applicable statutes or regulations with respect to a Stock Option or its
exercise. In the event that such payment is not made when due, the
Corporation shall have the right to deduct, to the extent permitted by law,
from any payment or settlement of any kind otherwise due to such person all
or part of the amount required to be withheld. If the Board, in its sole
discretion, permits shares of Stock to be used to satisfy any such tax
withholding, such Stock shall be valued based upon the Fair Market Value of
such Stock as of the date the tax withholding is required to be made, such
date to be determined by the Board. The Corporation shall not be required
to issue Stock until such obligations are satisfied.
g. A Grantee entitled to Stock as a result of the exercise of a
Stock Option shall not be deemed for any purpose to be, or have rights as,
a shareholder of the Corporation by virtue of such exercise, except to the
extent a stock certificate is issued therefor and then only from the date
such certificate is issued. No adjustments shall be made for dividends or
distributions or other rights for which the record date is prior to the
date such stock certificate is issued, except as otherwise provided herein.
The Corporation shall issue any stock certificates required to be issued in
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connection with the exercise of a Stock Option with reasonable promptness
after such exercise.
h. The grant or exercise of Stock Options granted under the Plan
shall be subject to, and shall in all respects comply with, applicable
Connecticut corporate law relating to such grant or exercise.
i. Should the participation of any Non-Employee Director in the
Plan be subject to Section 16 of the Securities Exchange Act of 1934 or any
successor statute ("Section 16"), it is the express intent of the
Corporation that the Plan and Stock Options granted under the Plan satisfy
and be interpreted in a manner to achieve the result that the applicable
requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission, as amended ("Rule 16b-3") shall be satisfied with respect to
such Non-Employee Directors, with the result that such Non-Employee
Directors shall be entitled to the benefits of Rule 16b-3 or other
applicable exemptive rules under Section 16. If any provision of the Plan
or of any Stock Option would otherwise frustrate or conflict with the
intent of the Corporation expressed in the immediately preceding sentence,
to the extent possible, such provision shall be interpreted and deemed
amended so as to avoid such conflict, and, to the extent of any remaining
irreconcilable conflict with such intent, the provision shall, solely with
respect to Non-Employee Directors subject to Section 16, be deemed void.
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Exhibit 10.7
[FORM OF]
INFORMATION MANAGEMENT ASSOCIATES, INC.
Non-Employee Directors Stock Option Agreement
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Non-Employee Directors Stock Option Agreement (the "Agreement") made this
_____ day of _______________, 19____ between INFORMATION MANAGEMENT ASSOCIATES,
INC., a Connecticut corporation, (hereinafter called the "Corporation") and
_______________________ (hereinafter called the "Grantee").
In consideration of the premises, the mutual covenants hereinafter set
forth, and other good and valuable consideration, the Corporation and the
Grantee agree as follows:
1. Award of Option. The Corporation hereby awards to the Grantee, as a
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matter of separate inducement and agreement, and not in lieu of salary or any
other compensation for services, options to purchase an aggregate of [7,500]
shares of the Corporation's Common Stock ("Stock") pursuant to the stock option
provisions contained in Part II of the Information Management Associates, Inc.
1996 Non-Employee Directors Stock Option Plan (the "Plan"), on the terms and
conditions hereinafter set forth, at the purchase price of $________ per share
(such shares, number of shares and purchase price being subject to adjustment as
provided in Paragraph 9 below). Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Plan.
2. Terms of Plan. The Plan, a copy of which is attached hereto, is
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incorporated herein by reference and is made part of this Agreement as if fully
set forth herein. This Agreement is subject to, and the Corporation and the
Grantee agree to be bound by, all of the terms and conditions of the Plan as the
same exists at the time this Agreement was entered. The Plan shall control in
the event there is any express conflict between the Plan and the terms hereof,
and on such matters that are not expressly covered in this Agreement.
Subsequent amendments of the Plan shall not adversely affect the Grantee's
rights under this Agreement.
3. Exercise of Option.
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(a) The Stock Options granted pursuant to this Agreement are
exercisable as to all of the shares of Stock covered hereby on or after
__________________.
(b) Each exercise must encompass at least 100 shares. In the event the
Grantee's exercise includes a fractional share, the Corporation will not be
required to issue a fractional share but will pay the Grantee in cash the value
of such fraction. All
<PAGE>
unexercised rights shall lapse and forever terminate after the expiration of ten
years from the date of this Agreement (the "Option Period").
4. Termination of Director Status.
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(a) If Grantee's status as a Non-Employee Director is terminated (for
reasons other than retirement at or after age 65, Disability or death), all
Stock Options held by the Grantee shall expire immediately and such Stock Option
shall not be exercisable after the date of termination of the Grantee's Non-
Employee Director status.
(b) If Grantee's status as a Non-Employee Director is terminated by
reason of retirement at or after age 65 or as a result of Disability, only those
Stock Options held by the Grantee which were immediately exercisable at the date
of termination of Non-Employee Director status shall be exercisable by the
Grantee following the termination of Grantee's Non-Employee Director status.
Such Stock Options must be exercised within three months after such termination
of Non-Employee Director status (but in no event after the expiration of the
Option Period) or they shall be forfeited.
(c) Upon the death of Grantee, only those Stock Options immediately
exercisable at the date of the Grantee's death shall be exercisable by the
representative of the Grantee's estate or beneficiaries thereof to whom the
Stock Options have been transferred. Such Stock Options must be exercised by
the earlier of (i) three months from the date of the Grantee's death, or (ii)
the expiration of the Option Period, or they shall be forfeited.
(d) For purposes of this Paragraph 4, Non-Employee Director status of
Grantee shall not be deemed to have terminated solely by Grantee later
attaining status as an employee of the Corporation or an Affiliate.
5. Manner of Exercise. Full payment for the shares of Stock purchased
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shall be made at the time of any exercise of Stock Options pursuant to this
Agreement. The purchase price shall be payable to the Corporation in United
States dollars in cash or by check, bank draft, or postal or express money
order. The Board, in its discretion, may permit Grantee to make partial or full
payment of the purchase price by the surrender of Stock owned by the Grantee
prior to the date of exercise. Shares of Stock surrendered in payment of the
purchase price as provided above shall be valued at the Fair Market Value
thereof on the date of exercise, surrender of such to be evidenced by delivery
of the certificate(s) representing such shares in such manner, and endorsed in
such form, or accompanied by stock powers endorsed in such form, as the Board
may determine. Subject to the terms and conditions hereof, the
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Stock Options shall be exercisable by notice to the Corporation on the form
provided by the Corporation, a copy of which is attached hereto. In the event
that the Stock Options are being exercised by any person or persons other than
the Grantee, the notice shall be accompanied by proof, satisfactory to the
Corporation, of the right of such person or persons to exercise any right under
this Agreement.
6. Rights of Grantee. The granting of a Stock Option hereunder shall not
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give the Grantee any right to similar grants in the future or any right to be
retained as a Non-Employee Director, and Grantee shall remain subject to removal
to the same extent as if the Plan were not in effect.
Neither the Grantee nor any other person legally entitled to exercise any
rights under this Agreement shall be entitled to any of the rights or privileges
of a stockholder of the Corporation with respect to any shares which may be
issuable upon any exercise pursuant to this Agreement, unless and until a
certificate or certificates representing such shares shall have been actually
issued and delivered to the Grantee or such person.
7. Non-Transferability of Stock Option. Except as otherwise provided
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herein, the Stock Options and the rights and privileges conferred hereby may not
be transferred, assigned, pledged or hypothecated in any way, other than by will
or the laws of descent and distribution, and the Stock Options hereunder shall
be exercisable during the Grantee's lifetime only by the Grantee or his
conservator.
8. Taxes and Withholding. All payments to Grantee or to his or her legal
---------------------
representative shall be subject to any applicable tax, community property, or
other statutes or regulations of the United States or of any state having
jurisdiction thereof. The Grantee may be required to pay to the Corporation the
amount of any withholding taxes which the Board, in its sole discretion, deems
necessary to be withheld in order to comply with any applicable statutes or
regulations with respect to this Stock Option or its exercise. In the event
that such payment is not made when due, the Corporation shall have the right to
deduct, to the extent permitted by law, from any payment or settlement of any
kind otherwise due to such person all or part of the amount required to be
withheld. If the Board, in its sole discretion, permits shares of Stock to be
used to satisfy any such tax withholding, such Stock shall be valued based upon
the Fair Market Value of such Stock as of the date the tax withholding is
required to be made, such date to be determined by the Board. The Corporation
shall not be required to issue Stock until such obligations are satisfied.
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9. Recapitalization Adjustments.
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(a) In the event of any change in capitalization affecting the Stock,
including, without limitation, a stock dividend or other distribution, stock
split, reverse stock split, recapitalization, consolidation, subdivision, split-
up, spin-off, split-off, combination or exchange of shares or other form of
reorganization or recapitalization, or any other change affecting the Stock, the
Board shall authorize and make such proportionate adjustments, if any, as the
Board deems appropriate to reflect such change, including, without limitation,
the number of shares of Stock covered by this Agreement, and the purchase price
per share of Stock in respect of this Agreement.
(b) Any provision hereof to the contrary notwithstanding, in the event
the Corporation is a party to a merger or other reorganization, this Agreement
shall be subject to the agreement of merger or reorganization. Such agreement
may provide, without limitation, for the assumption of this Agreement by the
surviving corporation or its parent, for its continuation by the Corporation (if
the Corporation is a surviving corporation), for accelerated vesting and
accelerated expiration of Stock Options covered by this Agreement or for
settlement of such options in cash.
10. Notices. Each notice to the Corporation relating to this Agreement
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shall be in writing and delivered in person or by registered mail to the
Corporation at its office, One Corporate Drive, Suite 414, Shelton, Connecticut
06484, to the attention of the Secretary. All notices to the Grantee or other
person or persons then entitled to exercise any right pursuant to this agreement
shall be delivered to the Grantee or such other person or persons at the
Grantee's address specified below or at such other address as the Grantee or
such other person may specify in writing to the Corporation by a notice
delivered in accordance with this paragraph.
11. Restriction on Shares. The Corporation's obligation to issue or
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deliver any certificate or certificates for shares of Stock under this
Agreement, and the transferability of shares of Stock acquired by the exercise
of these Stock Options, shall be subject to all of the following conditions,
which, by his execution of this Agreement, the Grantee acknowledges may affect
the exercisability of these Stock Options and the transferability of any shares
acquired upon exercise hereof:
(a) Any registration or other qualification of such shares under any
state or federal law or regulation, or the maintaining in effect of any such
registration or other qualification which the Board shall, in its absolute
discretion upon the advice of counsel, deem necessary or
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advisable provided that, the Corporation shall be under no obligation to
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register or qualify these Stock Options or the shares subject to these Stock
Options;
(b) The obtaining of any other consent, approval, or permit from any
state or federal governmental agency which the Board shall, in its absolute
discretion upon the advice of counsel, determine to be necessary or advisable;
(c) Each stock certificate issued pursuant to this Agreement shall bear
such legends which the Corporation shall determine, in its absolute discretion,
are necessary or advisable, or which in the opinion of counsel to the
Corporation are required under applicable federal or state securities laws; and
(d) The Corporation shall not be obligated to issue or deliver any
shares of Stock pursuant to this Agreement or the exercise thereof if such
issuance or delivery would, in the opinion of counsel to the Corporation, be a
violation of any applicable state or federal law or regulation.
12. Miscellaneous.
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(a) This Agreement comprises the whole agreement between the parties
hereto. It may not be modified or terminated orally, and it shall be deemed to
be a Connecticut contract, subject to construction and enforcement in accordance
with the laws of Connecticut.
(b) This Agreement shall inure to the benefit of, and be binding upon,
each successor of the Corporation and, to the extent specifically provided
herein and in the Plan, shall inure to the benefit of and be binding upon the
Grantee's heirs, legal representatives, and successors.
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IN WITNESS WHEREOF, this Agreement is executed by the Grantee and by the
Corporation through its duly authorized officer or officers as of the day and
year first above written.
GRANTOR:
INFORMATION MANAGEMENT
ASSOCIATES, INC.
By:
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Name:
Title:
GRANTEE:
-----------------------------------
Name:
Address:
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Social Security No.:
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LETTER OF STOCK OPTION EXERCISE
CONFIDENTIAL
INFORMATION MANAGEMENT ASSOCIATES, INC.
One Corporate Drive
Suite 414
Shelton, Connecticut 06484
Attention: Secretary
Gentlemen:
I wish to purchase the following shares of Common Stock by exercising the
options granted to me on ________________________ pursuant to a Non-Employee
Directors Stock Option Agreement, dated ______________________:
Stock option shares: __________________
The purchase price for these shares is $______ per share. My check payable
to Information Management Associates, Inc. in the amount of $_______________ in
payment of the purchase price is enclosed. Please issue the stock
certificate(s) for these shares in my name as follows:
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*Name
------------------------------------
------------------------------------
Address
------------------------------------
Social Security Number
I understand and acknowledge that neither the stock options granted to me
under the Non-Employee Directors Stock Option Agreement or the shares to be
issued to me upon exercise thereof have been registered under the Securities Act
of 1933, as amended (the "Act") or under state securities laws. I am acquiring
such shares for investment and not with a view to the distribution thereof. I
have been provided with financial and other information regarding Information
Management Associates, Inc. ("IMA") sufficient to enable me to make an informed
investment decision
<PAGE>
with respect to the purchase of the shares and have had an opportunity to ask
questions of and receive answers from management of IMA with respect to its
financial condition, results of operations and material aspects of its business.
I understand and agree that the Company is under no obligation to register the
shares and that I must hold the shares indefinitely unless such shares are
registered under the Act or there is an exemption from the registration
requirements of the Act which applies to any proposed transfer.
Sincerely yours,
-------------------------------
Signature
(____)__________(____)_________
Office Telephone/Home Telephone
- ---------------------
* If you wish to have the shares issued in your name and that of another
person jointly, we suggest that the following form be used: "(Your name) and
(name of other person), as joint tenants with right of survivorship."
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LETTER OF STOCK OPTION GRANT
Date
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- --------------------------
Dear ____________________:
I am pleased to confirm that you have been awarded a Stock Option (the
"Option") under the Information Management Associates, Inc. 1996 Non-Employee
Directors Stock Option Plan (the "Plan"). Enclosed is a Non-Employee Directors
Stock Option Agreement (the "Agreement"), which has been signed by Information
Management Associates, Inc. Please sign such Agreement and return a copy to me
in the enclosed envelope.
As you know, the Option covers common shares of Information Management
Associates, Inc. and are exercisable in accordance with the terms of the
Agreement. In addition, the shares covered by this Option have not been
registered under state or federal securities laws. Accordingly, under these
laws, until such time as an effective registration statement is filed or an
exemption becomes available with respect to these shares, there are prohibitions
upon the exercise of this Option and the later sale of any shares purchased
under this Option. These prohibitions stem from the securities laws.
Please contact the undersigned with any questions you may have.
Sincerely,
<PAGE>
EXHIBIT 10.8
INFORMATION MANAGEMENT ASSOCIATES, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide Employees of the
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Company and its Designated Subsidiaries with an opportunity to purchase the
Company's Common Stock through accumulated payroll deductions and thereby
increase their interest in the growth and success of the Company and encourage
them to remain with the Company and its Designated Subsidiaries. It is the
intention of the Company that the Plan qualify as an "Employee Stock Purchase
Plan" within the meaning of Section 423 of the Code and the provisions of the
Plan shall be construed in a manner consistent with the requirements of said
Section 423.
2. Definitions.
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a. "Board" shall mean the Board of Directors of the Company.
b. "Change in Capitalization" shall mean any increase, reduction
or change or exchange of shares of Common Stock for a different number or kind
of shares or other securities of the Company by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, stock dividend, stock
split or reverse stock split, combination or exchange of shares, repurchase of
shares, change in corporate structure or otherwise.
c. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
d. "Committee" shall mean a committee of members of the Board
appointed by the Board to administer the Plan and to perform the functions set
forth herein.
e. "Common Stock" shall mean shares of the Company's common stock,
no par value per share.
f. "Company" shall mean Information Management Associates, Inc., a
Connecticut corporation.
g. "Compensation" shall mean the fixed salary or wage paid by the
Company to an Employee as reported by the Company to the United States
government for federal income tax purposes, including an Employee's portion of
salary deferral contributions pursuant to Section 401(k) of the Code and any
amount excludable pursuant to Section 125 of the Code, but excluding any bonus,
fee, overtime pay, severance pay, expenses or other special emolument or any
credit or benefit under any employee plan maintained by the Company or any of
its subsidiaries.
<PAGE>
h. "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company (including, but not limited to, military or
sick leave).
i. "Designated Subsidiaries" shall mean the Subsidiary Corporations
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
j. "Employee" shall mean any person, including an officer, who is
regularly employed by the Company or one of its Designated Subsidiaries.
k. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
l. "Exercise Date" shall mean the last business day of each Offering
Period for which payroll deductions are made under the Plan.
m. "Fair Market Value" per share of Common Stock as of a particular
date shall mean (i) the closing sales price per share of Common Stock, on the
national securities exchange on which the Common Stock is principally traded or
on NASDAQ if the Common Stock is listed thereon, on such date or, if no shares
were traded on such date, on the last preceding date on which there was a sale
of such Common Stock on such exchange or on NASDAQ, or (ii) if the shares of
Common Stock are not then listed on a national securities exchange or traded in
an over-the-counter market, such value as the Board, in its sole discretion,
shall determine to be the then-current fair market value of one share of Common
Stock.
n. "Offering Date" shall mean January 1 of each Plan Year.
o. "Offering Period" shall mean each Plan Year while the Plan is in
effect, commencing on each Offering Date, provided that the Board shall have the
--------
power to change the duration of Offering Periods.
p. "Parent Corporation" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the employer
corporation if, at the time of the granting of an option, each of the
corporations other than the employer corporation owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
2
<PAGE>
q. "Participant" shall mean an Employee who participates in the Plan.
r. "Plan" shall mean the Information Management Associates, Inc.
Employee Stock Purchase Plan, as amended from time to time.
s. "Plan Year" shall mean the calendar year.
t. "Subsidiary Corporation" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the employer
corporation if, at the time of the granting of an option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
3. Eligibility.
-----------
a. Subject to the requirements of Section 4.b hereof, any person who
(i) is an Employee as of an Offering Date, (ii) is regularly scheduled to work
at least twenty (20) hours per week and at least five (5) months per calendar
year and (iii) as of the Offering Date has maintained Continuous Status as an
Employee for at least one (1) year, shall be eligible to participate in the Plan
and to be granted an option for the Offering Period commencing on such Offering
Date (each, an "Eligible Employee").
b. Notwithstanding any provision of the Plan to the contrary, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary Corporation or Parent Corporation of the Company,
or (ii) which permits such Employee's right to purchase stock under all employee
stock purchase plans (as described in Section 423 of the Code) of the Company
and any Subsidiary Corporation or Parent Corporation of the Company to accrue at
a rate which exceeds twenty-five thousand dollars ($25,000) of Fair Market Value
of such stock (determined at the time such option is granted) for any calendar
year in which such option is outstanding at any time.
4. Grant of Option; Participation.
------------------------------
a. On each Offering Date the Company shall commence an offer by
granting each Eligible Employee an option to purchase shares of Common Stock,
subject to the limitations set forth in Sections 3.b and 10 hereof.
3
<PAGE>
b. Each Eligible Employee may elect to become a Participant in the
Plan with respect to an Offering Period, solely by filing an agreement with the
Company authorizing payroll deductions (as set forth in Section 5 hereof). Any
such authorization will remain in effect for subsequent Offering Periods, until
modified or terminated by the Participant.
c. The option price per share of Common Stock subject to an offering
shall be an amount equal to the lesser of: (i) eighty-five percent (85%) of the
Fair Market Value of a share of Common Stock on the Offering Date or (ii)
eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on
the Exercise Date.
d. Under no circumstances shall any option granted under the Plan
shall be exercisable more than five (5) years after its grant date.
5. Payroll Deductions.
------------------
a. A Participant may, in accordance with rules adopted by the Board,
authorize a payroll deduction of any whole percentage from two percent (2%) to
ten percent (10%) of such Participant's Compensation for each pay period. A
Participant may decrease such payroll deduction (including a cessation of
payroll deductions) at any time and as often as desired by filing a new
authorization form with the Board. A Participant may increase such payroll
deduction at any time upon sixty (60) days prior notice but not within six (6)
months after any increase or decrease in such payroll deduction, by filing a new
authorization form with the Board.
b. All payroll deductions made by a Participant shall be credited to
a recordkeeping account under the Plan maintained for such Participant. A
Participant may not make any additional payments into such account.
6. Exercise of Option.
------------------
a. Unless a Participant withdraws from the Plan as provided in
Section 8 hereof, such Participant's election to purchase shares of Common Stock
will be exercised automatically on the Exercise Date and the maximum number of
full shares of Common Stock subject to such option will be purchased for such
Participant at the applicable option price with the accumulated payroll
deductions and cash dividends (credited pursuant to Section 9 hereof) in such
Participant's account. During a Participant's lifetime, a Participant's option
to purchase shares hereunder shall be exercisable solely by such Participant.
b. Any cash balance remaining in a Participant's account after the
termination of an Offering Period will be carried forward to the Participant's
account for the purchase of Common Stock during the next Offering Period if the
Participant
4
<PAGE>
has not elected to terminate participation in the Plan; otherwise the
Participant will receive a cash payment equal to the balance of his or her
account.
c. The shares of Common Stock purchased upon exercise of an option
hereunder shall be credited to the Participant's account under the Plan and
shall be deemed to be transferred to the Participant on the Exercise Date and,
except as otherwise provided herein, the Participant shall have all rights of a
shareholder with respect to such shares.
7. Delivery of Common Stock.
------------------------
a. As promptly as practicable after receipt by the Board of a written
request for withdrawal of Common Stock from any Participant, the Company shall
arrange the delivery to such Participant of a stock certificate representing the
shares of Common Stock which the Participant requests to withdraw. Subject to
Section 7.b hereof, withdrawals (i) may be made no more frequently than once
each Plan Year and (ii) cannot occur prior to two (2) years from the Exercise
Date on which such shares of Common Stock were purchased. Shares of Common
Stock received pursuant to stock dividends or stock splits shall be treated as
having been purchased on the Exercise Date of the shares to which they relate.
b. Notwithstanding anything in Section 7.a hereof to the contrary,
shares of Common Stock may be withdrawn by a Participant more than once during a
Plan Year and prior to the second anniversary of the Exercise Date on which such
shares were purchased upon the approval of the Board, in its sole discretion.
Shares of Common Stock purchased pursuant to reinvestment of cash dividends
shall not be subject to the restriction set forth in Section 7.a.(ii) hereof.
8. Withdrawal; Termination of Employment.
-------------------------------------
a. A Participant may withdraw all, but not less than all, of the
payroll deductions and cash dividends credited to such Participant's account
(that have not been used to purchase shares of Common Stock) under the Plan at
any time by giving written notice to the Company received thereby prior to the
Exercise Date. All such payroll deductions and cash dividends credited to such
Participant's account shall be paid to such Participant promptly after receipt
of such Participant's notice of withdrawal and such Participant's option for the
Offering Period in which the withdrawal occurs shall be automatically
terminated. No further payroll deductions for the purchase of shares of Common
Stock shall be made for such Participant during such Offering Period and any
additional cash dividends during the Offering Period shall be distributed to the
Participant.
5
<PAGE>
b. Upon termination of a Participant's Continuous Status as an
Employee during the Offering Period for any reason, including voluntary
termination, retirement or death, the payroll deductions and cash dividends
credited to such Participant's account (that have not been used to purchase
shares of Common Stock) shall be returned (and any future cash dividends shall
be distributed) to such Participant or, in the case of such Participant's death,
to the person or persons entitled thereto under Section 12 hereof, and such
Participant's option shall be automatically terminated.
c. A Participant's withdrawal from an offering will not have any
effect upon such Participant's eligibility to participate in a succeeding
offering or in any similar plan which may hereafter be adopted by the Company.
9. Dividends and Interest.
----------------------
a. Cash dividends paid on Common Stock held in a Participant's
account shall be credited to such Participant's account and used in addition to
payroll deductions to purchase shares of Common Stock on the Exercise Date.
Dividends paid in Common Stock or stock splits of the Common Stock shall be
credited to the accounts of Participants. Dividends paid in property other than
cash or Common Stock shall be distributed to Participants as soon as
practicable.
b. No interest shall accrue on or be payable with respect to the
payroll deductions or credited cash dividends of a Participant in the Plan.
10. Stock.
-----
a. The maximum number of shares of Common Stock which shall be
reserved for sale under the Plan shall be 200,000, subject to adjustment upon
Changes in Capitalization of the Company as provided in Section 16 hereof. If
the total number of shares of Common Stock which would otherwise be subject to
options granted pursuant to Section 4.a hereof on an Offering Date exceeds the
number of such shares then available under the Plan (after deduction of all such
shares for which options have been exercised or are then outstanding), the Board
shall make a pro rata allocation of the shares of Common Stock remaining
available for option grant in as uniform a manner as shall be practicable and as
it shall determine to be equitable. In such event, the Board shall give written
notice to each Participant of such reduction of the number of option shares
affected thereby and shall similarly reduce the rate of payroll deductions, if
necessary.
b. Shares of Common Stock to be delivered to a Participant under the
Plan shall be registered in the name of the Participant or, at the election of
the Participant, in the name
6
<PAGE>
of the Participant and another person as joint tenants with rights of
survivorship.
11. Administration of the Plan. The Plan shall be administered by the
--------------------------
Board. Subject to the express provisions of the Plan, the Board shall have
authority to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to it, to determine the terms and provisions of the Plan,
and to make all other determinations necessary or advisable for the
administration of the Plan. Any controversy or claim arising out of or related
to the Plan shall be determined unilaterally by and at the sole discretion of
the Board. Any determination, decision or action of the Board in connection
with the construction, interpretation, administration, implementation or
maintenance of the Plan shall be final, conclusive and binding upon all
Participants and all person(s) claiming under or through any Participants. In
addition, the Board shall have the authority to delegate any of its duties and
responsibilities under the Plan to the Committee as it shall determine.
12. Designation of Beneficiary.
--------------------------
a. A Participant may file, on forms supplied by and delivered to
the Company, a written designation of a beneficiary who is to receive any shares
of Common Stock and cash remaining in such Participant's account under the Plan
in the event of the Participant's death.
b. Any such beneficiary designation may be changed by the
Participant at any time by written notice filed with the Company on a form
provided for such purpose by the Company. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the Participant or, if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
13. Transferability. Neither payroll deductions credited to a
---------------
Participant's account nor any rights with regard to the exercise of an option or
any rights to receive shares of Common Stock under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (other than by will,
the laws of descent and distribution or as provided in Section 12 hereof) by the
Participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with Section 8 hereof.
7
<PAGE>
14. Use of Funds. All payroll deductions received or held by the
------------
Company under the Plan may be used by the Company for any corporate purpose and
the Company shall not be obligated to segregate such payroll deductions.
15. Reports. Individual accounts shall be maintained for each
-------
Participant in the Plan. Statements of account will be given to participating
Employees as soon as practicable following each Offering Period, which
statements shall set forth the amounts of payroll deductions, the per share
purchase price, the number of shares of Common Stock purchased, the aggregate
number of such shares in the Participant's account and the remaining cash
balance, if any.
16. Effect of Certain Changes. In the event of a Change in
-------------------------
Capitalization or the distribution of an extraordinary dividend on shares of
Common Stock, the Board shall conclusively determine the appropriate equitable
adjustments, if any, to be made under the Plan, including, without limitation,
adjustments to the number of shares of Common Stock which have been authorized
for issuance under the Plan but have not yet been placed under option, as well
as the price per share of Common Stock covered by each option under the Plan
which has not yet been exercised.
17. Amendment or Termination. The Board may at any time terminate or
------------------------
amend the Plan. Except as provided in Section 16 hereof, no such termination
shall adversely affect options previously granted and no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any Participant without the consent of such Participant. No amendment shall be
effective unless approved by the Board of Directors or the shareholders of the
Company if shareholder or Board approval of such amendment is required to comply
with Rule 16b-3 under the Exchange Act or to comply with any other law,
regulation or stock exchange rule.
18. Notices. All notices or other communications by a Participant to
-------
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
19. Regulations and Other Approvals; Governing Law.
----------------------------------------------
a. The Plan and the rights of all persons claiming entitlement to
a benefit hereunder shall be construed and determined in accordance with the
laws of the State of Connecticut without giving effect to the choice of law
principles thereof, except to the extent that such law is preempted by federal
law.
b. The obligation of the Company to sell or deliver shares of
Common Stock with respect to options granted
8
<PAGE>
under the Plan shall be subject to all applicable laws, rules and regulations,
including all applicable federal and state securities laws, and the obtaining of
all such approvals by governmental agencies as may be deemed necessary or
appropriate by the Board.
c. The Plan is intended to comply with Rule 16b-3 under the
Exchange Act and the Board shall interpret and administer the provisions of the
Plan in a manner consistent therewith. Any provisions inconsistent with such
Rule shall be inoperative and shall not affect the validity of the Plan.
20. Withholding of Taxes. If the Participant makes a disposition,
--------------------
within the meaning of Section 424(c) of the Code and regulations promulgated
thereunder, of any share or shares of Common Stock issued to such Participant
pursuant to such Participant's exercise of an option, and such disposition
occurs within the two (2) year period commencing on the day after the Offering
Date or within the one (1) year period commencing on the day after the Exercise
Date, such Participant shall, within ten (10) days of such disposition, notify
the Company thereof and thereafter immediately deliver to the Company any amount
of federal, state or local income taxes and other amounts which the Company
informs the Participant the Company is required to withhold.
21. Effective Date. The Plan shall be effective as of the date
--------------
determined by the Company subject to the approval of the Plan by the
shareholders of the Company within twelve (12) months before or after the date
on which the Plan is adopted.
9
<PAGE>
INFORMATION MANAGEMENT ASSOCIATES, INC.
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Offering Period Commencing __________, 19__
Print Name of Employee: __________________________________
Social Security Number: _______________________________
1. I elect to participate in the Information Management Associates, Inc.
Employee Stock Purchase Plan (the "Plan") for this Offering Period (as defined
in the Plan) and to subscribe to purchase shares of the Common Stock of
Information Management Associates, Inc. (the "Company"), no par value per share,
in accordance with this Subscription Agreement and the Plan.
2. I authorize payroll deductions from each paycheck during the Offering
Period, in an amount equal to ____% of my Compensation (as defined in the Plan).
I understand that my payroll deductions must be a whole percentage that cannot
be less than 2% nor more than 10% of my compensation. I further understand that
my payroll deduction authorization will continue in effect for future Offering
Periods until it is modified or terminated by me.
3. I understand that my payroll deductions will be accumulated for the
purchase of shares of the Company's Common Stock, at the price determined in
accordance with the terms of the Plan. I further understand that, except as
otherwise set forth in the Plan, such shares will be purchased for me
automatically on the Exercise Date (as defined in the Plan) unless I withdraw
from the Plan by giving written notice to the Company prior to the Exercise
Date.
4. I have received a copy of the Plan and a description of the Plan. I
understand that my participation in the Plan is in all respects subject to the
terms of the Plan.
5. Shares purchased for me under the Plan should be issued in the name(s)
of:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
6. If I dispose of any shares of the Company's Common Stock received by me
pursuant to the Plan within 2 years after the Offering Date (as defined in the
Plan) or 1 year after the Exercise Date with respect to such shares, I hereby
agree to notify the Company in writing within 10 days after the date of any such
disposition.
7. I agree to be bound by the terms of the Plan. The effectiveness of this
Subscription Agreement is dependent upon my eligibility to participate in the
Plan.
Signature:
-----------------------
Date:
----------------------------
1
<PAGE>
Exhibit 10.60
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease (the "Amendment") is entered into as of
July 15 , 1996, (the "Effective Date"), by and between LAKESHORE TOWERS
-----
LIMITED PARTNERSHIP, PHASE I, a California limited partnership ("Landlord"), and
Information Management Associates, Inc., a Connecticut corporation ("Tenant"),
with reference to the following facts:
A. Landlord and Tenant entered into that certain Full Service Office Lease
dated November 4, 1994 ( the "Lease"), as amended by that certain First
Amendment to Lease dated January 26, 1995 (as amended, the "Lease"), pursuant to
which Tenant leases from Landlord those certain premises located on the eleventh
floor of the Building at 18101 Von Karman Avenue, Irvine, California, as more
particularly described in the Lease (the "Premises").
B. Landlord and Tenant mutually desire to amend the Lease in order to, among
other things, extend the Term of the Lease and to expand the Premises to include
additional space on the twelfth floor of the Building.
C. The purpose of this Amendment is to provide for certain modifications to the
Lease in connection with, among other things, the extension of the Term and
expansion of the Premises.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
1. Extension of Term.
-----------------
Landlord and Tenant agree that as of the Effective Date, the original
Term of the Lease shall be extended for (12) months from January 20, 2000 until
January 19, 2001. Accordingly, Item "6" of the Basic Lease Provisions is amended
and restated in full to read as follows:
6. "Term" means seventy-two (72) months.
The "Option" set forth in Section 2.C. of the Lease shall remain in full
force and effect to provide that Tenant shall have the right to extend the Term
for an additional one (1) year period beyond January 19, 2001, and an additional
four (4) year period beyond January 19, 2002.
2. Expansion Space.
---------------
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
approximately four thousand one hundred sixty-five (4,165) rentable square feet
and three thousand three hundred sixty-eight (3,368) usable square feet located
on the twelfth floor of the Building, as more particularly identified and shown
on Schedule "1" attached hereto and incorporated herein by this reference (the
------------
"Expansion Space"). Except as otherwise provided for herein, the Expansion Space
is leased to Tenant subject to all the terms, covenants and conditions set forth
in the Lease Accordingly, from and after the "Expansion Space Commencement Date"
(as that term is defined hereinbelow), the Lease is hereby amended to provide
that the term "Premises", as such term is defined in Item "5" of the Basic Lease
Provisions, shall mean and include, collectively, the original Premises and the
Expansion Space for a total of twenty-six thousand three (26,003) rentable
square feet and twenty-two thousand nine hundred two (22,902) usable square
feet.
-1-
<PAGE>
3. Expansion Space Monthly Rental.
------------------------------
Effective as of the Expansion Space Commencement Date, the Expansion
Space Monthly Rental payable by Tenant under the Lease shall be the following
amounts:
<TABLE>
<CAPTION>
Months Monthly Rental
From Expansion Rate Per Expansion Space
Space Commencement Rentable Monthly
Date Square Foot Rental
------------------ -------------- ---------------
<S> <C> <C>
1 - 2 $0.00 $ 0.00
3 - end of lease term $1.75 $7,288.75
</TABLE>
If the Expansion Space Commencement Date should occur on a day other
than the first day of a calendar month, or the Expiration Date should occur on a
day other than the last day of a calendar month, then the rental for such
fractional month shall be prorated on a daily basis based upon a thirty (30) day
calendar month.
4. Monthly Rental.
--------------
Landlord and Tenant agree that as of the Expansion Space Commencement
Date, the term "Monthly Rental" as defined in Item "8" of the Basic Lease
Provisions, for the entire premises including Expansion Space, shall be amended
to mean as follows:
<TABLE>
<CAPTION>
Months from Total
Lease Commencement Monthly
Date Rental
------------------ -----------
<S> <C>
20 $36,155.59
21 - 24 $42,229.55
25 - 30 $41,137.65
31 - 60 $43,321.45
61 - 72 $45,505.25
</TABLE>
5. Expansion Space Commencement Date.
---------------------------------
Tenant shall commence leasing from Landlord the Expansion Space on the
date that Landlord has substantially completed all Expansion Improvements to the
Expansion Space required to be constructed by Landlord pursuant to Schedule C-l
------------
attached hereto, and has tendered possession of the Expansion Space to Tenant
ready for occupancy or on such earlier date as Tenant takes possession of or
commences use of the Expansion Space for any purpose (the "Expansion Space
Commencement Date"). The term for the leasing of the Expansion Space shall
continue thereafter until January 19, 2001, which is coterminous with the Term
of the original Premises. Notwithstanding anything herein to the contrary, if
the completion of the Tenant Improvements to the Expansion Space is delayed by a
Tenant Delay, then the Expansion Space Commencement Date and Tenant's obligation
to commence the payment of Monthly Rental for the Expansion Space shall not be
delayed for the period of any such Tenant Delay.
6. Tenant's Proportionate Share.
----------------------------
Landlord and Tenant agree that commencing on the Expansion Space
Commencement Date and continuing thereafter until the expiration of the Lease,
Tenant's Proportionate Share shall be adjusted in order to reflect the total
square footage of the Expansion Space. Accordingly, from and after the
Expansion Space Commencement Date, the Lease is hereby amended to provide that
the term "Tenant's Proportionate Share" as such term in defined in Item "10" of
the Basic Lease provisions means seven and 226/1000ths percent (7.226%).
-2-
<PAGE>
7. Parking.
-------
Effective as of the Expansion Space Commencement Date, the number of
parking spaces allocated to Tenant under Item "12" of the Basic Lease Provisions
shall be increased to eighty-six (86) from seventy-two (72). The Monthly
Parking Charge for all parking spaces allocated to Tenant shall be as follows:
<TABLE>
<CAPTION>
Non-Reserved Reserved Designated Reserved
------------ -------- -------------------
<S> <C> <C>
$20.00 per stall $50.00 per stall $75.00 per stall
</TABLE>
8. Conflict or Inconsistency.
-------------------------
In the event there is any conflict or inconsistency between the terms
and conditions of this Amendment and the terms and conditions of the Lease, the
terms and conditions of this Amendment shall govern and control the rights and
obligations of the parties.
9. Defined Terms.
-------------
Any term commencing with an initial capital letter which is not
otherwise defined herein shall have the same meaning in this Amendment as such
term has in the Lease.
10. Effect of Amendment.
-------------------
Except as modified herein, all other terms and conditions of the Lease
shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
"TENANT" "LANDLORD"
Information Management LAKESHORE TOWERS LIMITED PARTNERSHIP
Associates, Inc., PHASE I, a California
a Connecticut corporation limited partnership
By: /s/ Gary R. Martino By: BIRTCHER LAKESHORE, LTD., a
------------------------------ California limited partnership,
Its: Chief Financial Officer General Partner
----------------------------
Date: 7/10/96 By: BIRTCHER LAKESHORE CORPORATION,
a California corporation,
General Partner
By: /s/ Baron R. Birtcher
-------------------------
Baron R. Birtcher
President
By:
------------------------
SIGNATURES CONTINUED ON NEXT PAGE
-3-
<PAGE>
By: SKIPPER REALTY CORPORATION,
a Delaware corporation,
General Partner
By: [SIGNATURE APPEARS HERE]
---------------------------------
Its:
--------------------------------
By:
---------------------------------
Its:
--------------------------------
-4-
<PAGE>
EXHIBIT 10.61
AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
This Amendment No. 2, dated as of March 17, 1997, to the Loan and Security
Agreement, dated as of October 26, 1995 and amended in Amendment No. 1 to Loan
and Security Agreement, dated as of December 31, 1996 (collectively, the "Loan
and Security Agreement") is by and among People's Bank, a Connecticut banking
corporation having its chief executive office at 850 Main Street, Bridgeport,
Connecticut 06604 ("Secured Party"), Information Management Associates, Inc., a
Connecticut corporation having its chief executive office located at One
Corporate Drive, Shelton, Connecticut 06484 ("IMA"), and Information Management
Associates Limited, a company registered in England and having its principal
office at Suite 404, Exchange Tower, One Harbour Exchange Square, London,
England E14 9GB ("IMA Limited"). Capitalized terms used herein and not defined
herein shall have the meanings assigned to them in the Loan and Security
Agreement.
WHEREAS, the parties named above have heretofore entered into the Loan and
Security Agreement, the Term Note and the Line of Credit Note; and
WHEREAS, the parties named above acknowledge that they desire to make
certain amendments to the Loan and Security Agreement and the Line of Credit
Note pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the mutual covenants contained herein, the parties hereto agree
as follows:
Section 1. Amendments.
----------
A. Paragraph 5(f) of the Loan and Security Agreement is hereby
deleted in its entirety and the following shall be substituted in lieu thereof:
(f) The outstanding principal balance of the Line of Credit Note,
any accrued but unpaid interest thereon and other sums due and payable
pursuant to the Loan Documents, shall be due and payable on the date (the
"Line of Credit Maturity Date") which is the earlier to occur of (i)
February 1, 1998 or (ii) the date repayment of the Line of Credit Loans is
accelerated after the occurrence of an Event of Default, unless such Line
of Credit Maturity Date is extended in writing from time to time in Secured
Party's sole and absolute discretion. Effective upon the closing of an
Initial Public Offering, the Debtor agrees to pay to the Secured Party the
outstanding principal balance of the Line of Credit Note and the Term Note,
any accrued but unpaid interest thereon and other sums due and payable
pursuant to the Loan Documents (the "Outstanding Debt"), provided that, the
-------------
Secured Party shall continue to make Line of Credit Loans available to
Debtor, and
<PAGE>
the Debtor may re-borrow under the Line of Credit Loans, in accordance with
the terms of this Agreement, as amended, until the Line of Credit Maturity
Date.
B. The third full paragraph of the Line of Credit Note is hereby
deleted in its entirety and the following shall be substituted in lieu thereof
without any further action by the Secured Party, IMA or IMA Limited:
The outstanding principal balance of the Line of Credit Note, any
accrued but unpaid interest thereon and other sums due and payable pursuant
to the Loan Documents, shall be due and payable on the date (the "Line of
Credit Maturity Date") which is the earlier to occur of (i) February 1,
1998 or (ii) the date repayment of the Line of Credit Loans is accelerated
after the occurrence of an Event of Default, unless such Line of Credit
Maturity Date is extended in writing from time to time in Secured Party's
sole and absolute discretion.
C. Effective upon the closing of an Initial Public Offering and the
payment in full of the Outstanding Debt, Paragraph 7(e) and 7(j) of the Loan and
Security Agreement shall be automatically deleted in their entirety.
D. Effective upon the closing of an Initial Public Offering and the
payment in full of the Outstanding Debt, any and all references to "Guarantors"
in Paragraph 12 of the Loan and Security Agreement shall be deleted and the
Guaranty Agreements of each of Albert R. Subbloie, Jr., Gary R. Martino and
Andrei Poludnewycz shall be automatically terminated and released without the
need for any further action on the part of the Secured Party or said Guarantors.
E. Upon the closing of an Initial Public Offering and the payment in
full of the Outstanding Debt, Paragraph 13(b)(i) of the Loan and Security
Agreement shall be automatically deleted in its entirety and the following shall
be substituted in lieu thereof:
(i) Secured Party shall have determined in the exercise of its
reasonable discretion that there has been no material adverse change in the
financial position of Debtor from that which existed on the date of the
most recent financial statements provided to Secured Party by Debtor.
2
<PAGE>
Section 2. Miscellaneous
-------------
A. Except as expressly modified herein, the Loan and Security
Agreement shall otherwise remain unmodified and in full force and effect. IMA
and IMA Limited acknowledge that they are validly indebted to Secured Party
under the Loan and Security Agreement, as amended hereby, without defense,
counterclaim or offset and that all obligations of IMA and IMA Limited
thereunder and under the Notes continue to be secured by a valid, perfected
First Lien Security Interest in the collateral.
B. IMA and IMA Limited hereby represent and warrant to the
Secured Party that each of IMA and IMA Limited has duly authorized the
execution, delivery and performance of this Amendment No. 2 to the Loan and
Security Agreement and this Amendment No. 2 to the Loan and Security Agreement
has been duly executed and delivered by each of IMA and IMA Limited and
constitutes a legal, valid and binding obligation of each of IMA and IMA
Limited, enforceable in accordance with their respective terms.
C. This Amendment No. 2 to the Loan and Security Agreement may
be executed in several original counterparts. Each such counterpart shall, for
all purposes, be deemed to be an original, and all counterparts shall together
constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
The parties have executed this Amendment No. 2 to the Loan and Security
Agreement effective as of the date first above written.
PEOPLE'S BANK
By: /s/ David P. Berey
----------------------------------------
Name: David P. Berey
Title: Vice President
INFORMATION MANAGEMENT ASSOCIATES, INC.
By: /s/ Gary R. Martino
----------------------------------------
Name: Gary R. Martino
Title: Chief Financial Officer
INFORMATION MANAGEMENT ASSOCIATES LIMITED
By: /s/ Gary R. Martino
----------------------------------------
Name: Gary R. Martino
Title: Director
4
<PAGE>
Exhibit 10.66
RESTRICTED STOCK AWARD AGREEMENT
--------------------------------
AGREEMENT made as of December 21, 1990, by and between INFORMATION
MANAGEMENT ASSOCIATES, INC. (the "Company") and PAUL SCHMIDT ("Award
Recipient"):
WHEREAS, the Award Recipient is now employed by the Company; and
WHEREAS, the Company wishes to recognize the valuable services
rendered by the Award Recipient to the Company, to retain the Award Recipient as
an employee of the Company, to provide inducement to him to continue his
employment and to provide an additional incentive to him to promote the best
interests of the Company all through the use of a restricted stock award; and
WHEREAS, the Board of Directors has awarded to the Award Recipient a
restricted stock award of certain shares of the Common Stock, no par value
("Common Stock") conditioned upon the execution by the Company and the Award
Recipient of a Restricted Stock Agreement setting forth all the terms and
conditions applicable to such award in accordance with the Connecticut Stock
Corporation Act;
THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, it is hereby agreed as follows:
1. AWARD OF SHARES AND RESTRICTIONS
--------------------------------
Subject to the terms and conditions set forth herein, the Company
awards to the Award Recipient, on the day and year first written above
(hereinafter referred to as the "Effective Date"), 4,766 fully paid and non-
assessable common shares of the Company (hereinafter referred to as the "Award
Shares").
All Award Shares awarded to the Award Recipient pursuant to this
Agreement are subject to the following restrictions:
(a) If the Award Recipient ceases to be employed as a regular
full-time employee by the Company or an Affiliated Corporation within seven (7)
years after the Effective Date of this Agreement and such termination of
<PAGE>
2
employment is for any reason other than death or total disability, the Award
Recipient shall forfeit all of the Award Shares that are then subject to the
restrictions imposed under this paragraph 2. The terms "Affiliated Corporation"
shall mean any corporation which controls, is controlled by or is under common
control with the Company and such term is intended to be interpreted and
construed in accordance with rules and regulations of the United States
Securities and Exchange Commission.
(b) In the event that the Award Recipient shall die while he is
in the regular, full-time employment of the Company or an Affiliated Corporation
or terminate his employment by virtue of his having become totally disabled, the
restrictions imposed under this paragraph 2 shall lapse.
(c) In the event of a Reorganization which involves one or more
corporations which, prior to the Reorganization, are not affiliates of the
Company and in which the Company is not the surviving or acquiring company, or
in which the Company is or becomes a wholly owned subsidiary of another company
after the effective date of the Reorganization, the restrictions imposed under
this paragraph 2 shall lapse as of the date of the Company's shareholders
approve such Reorganization. The term "Reorganization" is used in this section
2(c) shall mean any statutory merger, statutory consolidation, sale of all or
substantially all of the assets of the Company, or sale, pursuant to an
agreement with the Company, of securities of the Company pursuant to which the
Company is merged into, or becomes a wholly owned subsidiary of, another company
after the effective date of the Reorganization.
(d) Until the restrictions imposed under this paragraph 2 Lapse,
the Award Recipient shall not dispose of or encumber any of the Award Shares so
restricted, whether by gift, sale, pledge, other encumbrance, or by operation of
law.
2. SECRETARY TO HOLD CERTIFICATES
------------------------------
In order to enforce the restrictions imposed upon the Award Shares
under paragraph 2 of this Agreement, the Award Shares shall be held by the
Secretary of the Company until the restrictions imposed pursuant to said
paragraph 2 have Lapsed; and as such restrictions Lapse, the Secretary shall
distribute to the Award Recipient those Award Shares which are no longer subject
to such restrictions. The Award Recipient hereby appoints the person holding the
office of Secretary of the Company, from time to time, as his attorney-
<PAGE>
3
in-fact to take all actions necessary to carry out the intent of this Agreement
including but not limited to endorsing the certificate evidencing the Award
Shares back to the Company, and to the extent that the Company is entitled to a
distribution of some, but not all, of the Award Shares under the terms hereof,
re-issuing such new certificates with regard to the Award Shares as may be
appropriate upon Lapse of the restrictions or termination of the Award
Recipient's employment.
3. WITHHOLDING TAXES
-----------------
The Company shall have the right to retain and withhold from any
payment under the restricted stock awarded the amount of taxes required by any
government to be withheld or otherwise deducted and paid with respect to such
payment. At its discretion, the Company may require the Award Recipient
receiving shares of Common Stock under this restricted stock award to reimburse
the Company for any such taxes required to be withheld by the Company and
withhold any distribution in whole or in part until the Company is so
reimbursed. In lieu thereof, the Company shall have the right to withhold from
any other cash amounts due or to become due from the Company to the Award
Recipient an amount equal to such taxes required to be withheld by the Company
to reimburse the Company for any such taxes or retain and withhold a number of
shares having a market value of not less than the amount of such taxes and
cancel (in whole or in part) any such shares so withheld in order to reimburse
the Company for any such taxes.
4. LEGAL RESTRICTIONS
------------------
This Restricted Stock Agreement and the company's obligation to issue
shares of its Common Stock hereunder shall be subject to all applicable laws,
rules and regulations, including without limitation, federal and state
securities laws. It shall be a condition precedent to the Company's obligation
to issue any shares hereunder that the Award Recipient make any representation,
warranty or agreement to the Company as may be required by applicable law or
regulation. The Award Shares will also be subject to the terms and conditions
of any Stockholders' Agreement to which the Award Recipient is now or may
hereafter become a party. The certificate or certificates for shares of Common
Stock issued pursuant to this Agreement shall be registered in the name of the
Award Recipient and shall contain the following legend and any legend required
by any Stockholders' Agreement to which the Award Recipient is now or may
hereafter become a party:
<PAGE>
4
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (the "Act"), OR STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED UNLESS
SUCH SALE OR TRANSFER IS REGISTERED UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE
STATE SECURITIES LAWS.
5. EMPLOYEE REPRESENTATIONS AND COVENANTS
--------------------------------------
In recognition of the provisions of paragraph 6, the Award Recipient
states that:
The Award Recipient hereby represents to and agrees with the Company
that the Award Recipient is now acquiring the Award Shares solely with a view to
bona fide permanent investment for the Award Recipient's own individual account,
and not with a view to the sale or disposition of the same or any part thereof
or any interest therein.
The Award Recipient acknowledges the fact of being informed by the
Company that the Award Shares being acquired by the Award Recipient are
unregistered and must be held indefinitely once the restrictions imposed by
paragraph 2 above have lapsed unless they are subsequently registered under the
Act or an exemption from such registration is available.
The Award Recipient covenants that he will only resell such Award
Shares pursuant to an effective registration statement under the Securities Act
of 1933 and any appropriate state securities act (the "Acts") or in a
transaction exempt from the registration requirements of such Acts.
The Award Recipient further acknowledges that the Company has not
agreed to register the Award Shares under the Act.
The Award Recipient agrees to indemnify the Company and to hold it
harmless at all times in respect of any and all liabilities, losses, damages,
costs and expenses resulting from the sale or transfer by the Award Recipient of
any
<PAGE>
5
of such shares in violation of the Act or other applicable law.
6. ADMINISTRATION
--------------
The Board of Directors of the Company shall have full authority and
discretion to decide all matters relating to the administration and
interpretation of this Agreement. All such Committee determinations shall be
final, conclusive, and binding upon the Company, the Award Recipient, and any
and all interest parties.
7. RIGHT TO CONTINUE EMPLOYMENT
----------------------------
Nothing in this Agreement shall confer on an Award Recipient any right
to continue in the employ of the Company or in any way affect the Company's
right to terminate the Award Recipient's employment without prior notice at any
time for any or no reason.
8. FORCE AND EFFECT
----------------
The various provisions of this Agreement are severable in their
entirety. Any determination of invalidity or unenforceability of any one
provision shall have no effect on the continuing force and effect of the
remaining provisions.
9. PREVAILING LAWS
---------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Connecticut.
10. SUCCESSORS
----------
This Agreement shall be binding upon and inure to the benefit of the
successors, assigns and heirs of the respective parties.
11. NOTICES
-------
Unless waived by the Company, any notice to the Company required under
or relating to this Agreement shall be in writing and addressed to:
Information Management Associates, Inc.
6527 Main Street
Trumbull, Connecticut 06611
<PAGE>
6
12. TRANSFER
--------
Except as provided in paragraph 2(b) the rights of the Award Recipient
under this Agreement are non-transferable and any attempted transfer thereof
shall be void.
13. ENTIRE AGREEMENT
----------------
This Agreement contains the entire understanding of the parties and
shall not be modified or amended except by an instrument in writing and duly
signed by the parties. No waiver by either party of any default under this
Agreement shall be deemed to waiver of any subsequent default.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date hereof.
INFORMATION MANAGEMENT
ASSOCIATES, INC.
By /s/ Albert Subbloie
-----------------------------
Title: PRESIDENT
/s/ Paul Schmidt
------------------------------
Paul Schmidt
Award Recipient
<PAGE>
Exhibit 10.67
RESTRICTED STOCK AWARD AGREEMENT
--------------------------------
AGREEMENT made as of December 21, 1990, by and between INFORMATION
MANAGEMENT ASSOCIATES, INC. (the "Company") and JOSEPH LEMAY ("Award
Recipient"):
WHEREAS, the Award Recipient is now employed by the Company; and
WHEREAS, the Company wishes to recognize the valuable services
rendered by the Award Recipient to the Company, to retain the Award Recipient as
an employee of the Company, to provide inducement to him to continue his
employment and to provide an additional incentive to him to promote the best
interests of the Company all through the use of a restricted stock award; and
WHEREAS, the Board of Directors has awarded to the Award Recipient a
restricted stock award of certain shares of the Common Stock, no par value
("Common Stock") conditioned upon the execution by the Company and the Award
Recipient of a Restricted Stock Agreement setting forth all the terms and
conditions applicable to such award in accordance with the Connecticut Stock
Corporation Act;
THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, it is hereby agreed as follows:
1. AWARD OF SHARES AND RESTRICTIONS
--------------------------------
Subject to the terms and conditions set forth herein, the Company
awards to the Award Recipient, on the day and year first written above
(hereinafter referred to as the "Effective Date"), 2,384 fully paid and non-
assessable common shares of the Company (hereinafter referred to as the "Award
Shares").
All Award Shares awarded to the Award Recipient pursuant to this
Agreement are subject to the following restrictions:
(a) If the Award Recipient ceases to be employed as a regular
full-time employee by the Company or an Affiliated Corporation within seven (7)
years after the Effective Date of this Agreement and such termination of
<PAGE>
2
employment is for any reason other than death or total disability, the Award
Recipient shall forfeit all of the Award Shares that are then subject to the
restrictions imposed under this paragraph 2. The terms "Affiliated Corporation"
shall mean any corporation which controls, is controlled by or is under common
control with the Company and such term is intended to be interpreted and
construed in accordance with rules and regulations of the United States
Securities and Exchange Commission.
(b) In the event that the Award Recipient shall die while he is
in the regular, full-time employment of the Company or an Affiliated Corporation
or terminate his employment by virtue of his having become totally disabled, the
restrictions imposed under this paragraph 2 shall lapse.
(c) In the event of a Reorganization which involves one or more
corporations which, prior to the Reorganization, are not affiliates of the
Company and in which the Company is not the surviving or acquiring company, or
in which the Company is or becomes a wholly owned subsidiary of another company
after the effective date of the Reorganization, the restrictions imposed under
this paragraph 2 shall lapse as of the date of the Company's shareholders
approve such Reorganization. The term "Reorganization" is used in this section
2(c) shall mean any statutory merger, statutory consolidation, sale of all or
substantially all of the assets of the Company, or sale, pursuant to an
agreement with the Company, of securities of the Company pursuant to which the
Company is merged into, or becomes a wholly owned subsidiary of, another company
after the effective date of the Reorganization.
(d) Until the restrictions imposed under this paragraph 2 Lapse,
the Award Recipient shall not dispose of or encumber any of the Award Shares so
restricted, whether by gift, sale, pledge, other encumbrance, or by operation of
law.
2. SECRETARY TO HOLD CERTIFICATES
------------------------------
In order to enforce the restrictions imposed upon the Award Shares
under paragraph 2 of this Agreement, the Award Shares shall be held by the
Secretary of the Company until the restrictions imposed pursuant to said
paragraph 2 have Lapsed; and as such restrictions Lapse, the Secretary shall
distribute to the Award Recipient those Award Shares which are no longer subject
to such restrictions. The Award Recipient hereby appoints the person holding the
office of Secretary of the Company, from time to time, as his attorney-
<PAGE>
3
in-fact to take all actions necessary to carry out the intent of this Agreement
including but not limited to endorsing the certificate evidencing the Award
Shares back to the Company, and to the extent that the Company is entitled to a
distribution of some, but not all, of the Award Shares under the terms hereof,
re-issuing such new certificates with regard to the Award Shares as may be
appropriate upon Lapse of the restrictions or termination of the Award
Recipient's employment.
3. WITHHOLDING TAXES
-----------------
The Company shall have the right to retain and withhold from any
payment under the restricted stock awarded the amount of taxes required by any
government to be withheld or otherwise deducted and paid with respect to such
payment. At its discretion, the Company may require the Award Recipient
receiving shares of Common Stock under this restricted stock award to reimburse
the Company for any such taxes required to be withheld by the Company and
withhold any distribution in whole or in part until the Company is so
reimbursed. In lieu thereof, the Company shall have the right to withhold from
any other cash amounts due or to become due from the Company to the Award
Recipient an amount equal to such taxes required to be withheld by the Company
to reimburse the Company for any such taxes or retain and withhold a number of
shares having a market value of not less than the amount of such taxes and
cancel (in whole or in part) any such shares so withheld in order to reimburse
the Company for any such taxes.
4. LEGAL RESTRICTIONS
------------------
This Restricted Stock Agreement and the company's obligation to issue
shares of its Common Stock hereunder shall be subject to all applicable laws,
rules and regulations, including without limitation, federal and state
securities laws. It shall be a condition precedent to the Company's obligation
to issue any shares hereunder that the Award Recipient make any representation,
warranty or agreement to the Company as may be required by applicable law or
regulation. The Award Shares will also be subject to the terms and conditions
of any Stockholders' Agreement to which the Award Recipient is now or may
hereafter become a party. The certificate or certificates for shares of Common
Stock issued pursuant to this Agreement shall be registered in the name of the
Award Recipient and shall contain the following legend and any legend required
by any Stockholders' Agreement to which the Award Recipient is now or may
hereafter become a party:
<PAGE>
4
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (the "Act"), OR STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED UNLESS
SUCH SALE OR TRANSFER IS REGISTERED UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE
STATE SECURITIES LAWS.
5. EMPLOYEE REPRESENTATIONS AND COVENANTS
--------------------------------------
In recognition of the provisions of paragraph 6, the Award Recipient
states that:
The Award Recipient hereby represents to and agrees with the Company
that the Award Recipient is now acquiring the Award Shares solely with a view to
bona fide permanent investment for the Award Recipient's own individual account,
and not with a view to the sale or disposition of the same or any part thereof
or any interest therein.
The Award Recipient acknowledges the fact of being informed by the
Company that the Award Shares being acquired by the Award Recipient are
unregistered and must be held indefinitely once the restrictions imposed by
paragraph 2 above have lapsed unless they are subsequently registered under the
Act or an exemption from such registration is available.
The Award Recipient covenants that he will only resell such Award
Shares pursuant to an effective registration statement under the Securities Act
of 1933 and any appropriate state securities act (the "Acts") or in a
transaction exempt from the registration requirements of such Acts.
The Award Recipient further acknowledges that the Company has not
agreed to register the Award Shares under the Act.
The Award Recipient agrees to indemnify the Company and to hold it
harmless at all times in respect of any and all liabilities, losses, damages,
costs and expenses resulting from the sale or transfer by the Award Recipient of
any
<PAGE>
5
of such shares in violation of the Act or ether applicable law.
6. ADMINISTRATION
--------------
The Board of Directors of the Company shall have full authority and
discretion to decide all matters relating to the administration and
interpretation of this Agreement. All such Committee determinations shall be
final, conclusive, and binding upon the Company, the Award Recipient, and any
and all interest parties.
7. RIGHT TO CONTINUE EMPLOYMENT
----------------------------
Nothing in this Agreement shall confer on an Award Recipient any right
to continue in the employ of the Company or in any way affect the Company's
right to terminate the Award Recipient's employment without prior notice at any
time for any or no reason.
8. FORCE AND EFFECT
----------------
The various provisions of this Agreement are severable in their
entirety. Any determination of invalidity or unenforceability of any one
provision shall have no effect on the continuing force and effect of the
remaining provisions.
9. PREVAILING LAWS
---------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Connecticut.
10. SUCCESSORS
----------
This Agreement shall be binding upon and inure to the benefit of the
successors, assigns and heirs of the respective parties.
11. NOTICES
-------
Unless waived by the Company, any notice to the Company required under
or relating to this Agreement shall be in writing and addressed to:
Information Management Associates, Inc.
6527 Main Street
Trumbull, Connecticut 06611
<PAGE>
6
12. TRANSFER
--------
Except as provided in paragraph 2(b) the rights of the Award Recipient
under this Agreement are non-transferable and any attempted transfer thereof
shall be void.
13. ENTIRE AGREEMENT
----------------
This Agreement contains the entire understanding of the parties and
shall not be modified or amended except by an instrument in writing and duly
signed by the parties. No waiver by either party of any default under this
Agreement shall be deemed to waiver of any subsequent default.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date hereof.
INFORMATION MANAGEMENT
ASSOCIATES, INC.
By /s/ Albert Subbloie
-----------------------------
Title: PRESIDENT
/s/ Joseph R. Lemay Jr.
------------------------------
Joseph R. Lemay
Award Recipient
<PAGE>
AMENDMENT NO. 1 TO RESTRICTED STOCK AWARD AGREEMENT
---------------------------------------------------
This Amendment No. 1 as of September 1, 1996, to the Restricted Stock Award
Agreement dated December 21, 1990 (the "Restricted Stock Award Agreement") is by
and between Information Management Associates, Inc. ("IMA") and Joseph LeMay
(the "Award Recipient").
WHEREAS, the parties named above have heretofore entered into the
Restricted Stock Award Agreement; and
WHEREAS, the parties named above acknowledge that they desire to make
certain amendments to the Restricted Stock Award Agreement pursuant to the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the mutual covenants contained herein, the parties agree as
follows:
Section 1. Amendments
----------
Paragraph 1(a) of the Restricted Stock Award is hereby deleted in its
entirety and the following shall be substituted in lieu thereof:
(a) If the Award Recipient ceases to be employed as a full-time or
part-time employee or engaged as a consultant by the Company or an
Affiliated Corporation within seven (7) years after the Effective
Date of this Agreement and such termination of employment is for
any reason other than death or total disability, the Award
Recipient shall forfeit all of the Award Shares that are then
subject to the restrictions imposed under this paragraph 2. The
terms "Affiliated Corporation" shall mean any corporation which
controls, is controlled by or is under common control with the
Company and such term is intended to be interpreted and construed
in accordance with rules and regulations of the United States
Securities and Exchange Commission.
Section 2. Miscellaneous
-------------
A. Except as expressly modified herein, the Restricted Stock Award
Agreement shall otherwise remain unmodified and in full force and
effect.
B. IMA and the Award Recipient hereby represent and warrant that each of
them has duly authorized the execution, delivery, and performance of
this Amendment No. 1 to the Restricted Stock Award Agreement and this
Amendment No. 1 to the Restricted Stock Award Agreement has been duly
executed and delivered by each of them and constitutes a legal, valid
and binding obligation of each party, enforceable in accordance with
their respective terms.
C. This Amendment No. 1 to the Restricted Stock Award Agreement may be
executed in original counterparts. Each such counterpart shall, for
all purposes, be deemed to be an original, and all counterparts shall
together constitute one and the same instrument.
<PAGE>
The parties have executed this Amendment No. 1 to the Restricted Stock
Award Agreement effective as of the date first above written.
INFORMATION MANAGEMENT ASSOCIATES, INC.
By:/s/ Albert R. Subbloie
---------------------------------------
Name: Albert R. Subbloie
Title: Chief Executive Officer
and President
/s/ Joseph R. LeMay Jr.
------------------------------------------
Joseph LeMay
Award Recipient
<PAGE>
EXHIBIT 10.70
INFORMATION MANAGEMENT ASSOCIATES, INC.
AMENDMENT NO. 4
TO
COMMON STOCK PURCHASE WARRANT
-----------------------------
This Agreement is made as of April 29, 1997 by and between
Information Management Associates, Inc., a Connecticut corporation (the
"Company") and Thomas F. Hill ("Hill").
WHEREAS, Hill is currently the holder of a Warrant (No. W-3) entitling
Hill to purchase 23,810 shares of Common Stock at $.90 per share (subject to
adjustment upon the occurrence of certain events) (the "Hill Warrant") ;
WHEREAS, the Hill Warrant was previously amended as of June 1, 1994,
November 16, 1994 and September 20, 1996;
WHEREAS, the Company and Hill desire to further amend the terms of the
Hill Warrant;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follow and the Hill Warrant
(No. W-3) is hereby amended as hereinafter set forth.
SECTION 1. AMENDMENT TO WARRANT
The terms and conditions of the Hill Warrant (No. W-3) are hereby
amended as follows:
Section 16(a) is hereby deleted in its entirety and the following is
substituted therefor:
"(a) Repurchase Option. Any holder or holders of Warrants holding
-----------------
at least a majority of the total outstanding Warrants (measured by the
number of shares of Common Stock into which such Warrants are exercisable)
may require the Company to repurchase (the "Repurchase Option") all or any
part of the Warrants if on or before November 1, 1998, there has not been
an Initial Public Offering."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Hill as follows:
Authority and Validity. The execution, delivery and performance of
----------------------
this Amendment to the Hill Warrant and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action
<PAGE>
on the part of the Company. This Amendment to the Hill Warrant has been
duly and validly executed and delivered by the Company and is the valid and
binding obligation of the Company, enforceable in accordance with its
terms, except as such enforcement may be affected or limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by applicable principles of equitable
remedies. Neither the execution, delivery and performance of this Amendment
to the Hill Warrant, nor the consummation of the transactions contemplated
hereby or compliance by the Company with any of the provisions hereof will
(i) conflict with or result in a breach of any material provisions of its
Charter or By-Laws; (ii) violate or conflict with the terms of any material
agreement to which the Company is a party or by which it is bound; or (iii)
violate any law, statute, rule or regulation or judgment, order, writ,
injunction or decree of any court, administrative agency or governmental
body applicable to Company.
SECTION 3. EFFECT OF AMENDMENT
Except as amended hereby, all provisions of the Hill Warrant shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 4 as of the date and year first above written.
INFORMATION MANAGEMENT ASSOCIATES,
INC.
By: /s/ Gary R. Martino
----------------------------------
Name: Gary R. Martino
Title: Chairman & Chief Financial
Officer
By: /s/ Thomas F. Hill
----------------------------------
Thomas F. Hill
<PAGE>
EXHIBIT 10.71
INFORMATION MANAGEMENT ASSOCIATES, INC.
AMENDMENT NO. 4
TO
COMMON STOCK PURCHASE WARRANT
-----------------------------
This Agreement is made as of April 29, 1997 by and between
Information Management Associates, Inc., a Connecticut corporation (the
"Company") and Wand/IMA Investments, L.P., a Delaware limited partnership
("Wand/IMA").
WHEREAS, Wand/IMA is currently the holder of a Warrant
(No. W-4) entitling Wand/IMA to purchase 148,120 shares of Common Stock at $.90
per share (subject to adjustment upon the occurrence of certain events) (the
"New Warrant");
WHEREAS, the New Warrant was previously amended as of June 1, 1994,
November 16, 1994 and September 20, 1996;
WHEREAS, the Company and Wand/IMA desire to further amend the terms of
the New Warrant;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follow and the New Warrant (No.
W-4) is hereby amended as hereinafter set forth.
SECTION 1. AMENDMENT TO WARRANT
The terms and conditions of the New Warrant (No. W-4) are hereby
amended as follows:
Section 16(a) is hereby deleted in its entirety and the following is
substituted therefor:
"(a) Repurchase Option. Any holder or holders of Warrants holding
-----------------
at least a majority of the total outstanding Warrants (measured by the number of
shares of Common Stock into which such Warrants are exercisable) may require the
Company to repurchase (the "Repurchase Option") all or any part of the Warrants
if on or before November 1, 1998, there has not been an Initial Public
Offering."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Wand/IMA as follows:
Authority and Validity. The execution, delivery and performance of this
----------------------
Amendment to the New Warrant and the consummation of the transactions
contemplated hereby have been
1
<PAGE>
duly and validly authorized by all necessary corporate action on the part
of the Company. This Amendment to the New Warrant has been duly and validly
executed and delivered by the Company and is the valid and binding
obligation of the Company, enforceable in accordance with its terms, except
as such enforcement may be affected or limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and by applicable principles of equitable remedies.
Neither the execution, delivery and performance of this Amendment to the
New Warrant, nor the consummation of the transactions contemplated hereby
or compliance by the Company with any of the provisions hereof will (i)
conflict with or result in a breach of any material provisions of its
Charter or By-Laws; (ii) violate or conflict with the terms of any material
agreement to which the Company is a party or by which it is bound; or (iii)
violate any law, statute, rule or regulation or judgment, order, writ,
injunction or decree of any court, administrative agency or governmental
body applicable to Company.
SECTION 3. EFFECT OF AMENDMENT
Except as amended hereby, all provisions of the New Warrant shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 4 as of the date and year first above written.
INFORMATION MANAGEMENT ASSOCIATES,
INC.
By: /s/ Gary R. Martino
-------------------------
Name: Gary R. Martino
Title: Chairman & Chief
Financial Officer
Wand/IMA INVESTMENTS, L.P. by
Wand Partners, Inc.,
its General Partner
By: /s/ David J. Callard
-------------------------
Name: David J. Callard
Title: President
2
<PAGE>
EXHIBIT 10.72
INFORMATION MANAGEMENT ASSOCIATES, INC.
AMENDMENT NO. 4
TO
COMMON STOCK PURCHASE WARRANT
-----------------------------
This Agreement is made as of April 29, 1997 by and between
Information Management Associates, Inc., a Connecticut corporation (the
"Company") and Wand Partners Inc., a Delaware corporation ("WPI").
WHEREAS, WPI is currently the holder of a Warrant (No. W-5) entitling
WPI to purchase 20,068 shares of Common Stock at $3.00 per share (subject to
adjustment upon the occurrence of certain events) (the "WPI Warrant");
WHEREAS, the WPI Warrant was previously amended as of June 1, 1994,
November 16, 1994 and September 20, 1996;
WHEREAS, the Company and WPI desire to further amend the terms of the
WPI Warrant;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follow and the WPI Warrant (No.
W-5) is hereby amended as hereinafter set forth.
SECTION 1. AMENDMENT TO WARRANT
The terms and conditions of the WPI Warrant (No. W-5) are hereby
amended as follows:
Section 16(a) is hereby deleted in its entirety and the following is
substituted therefor:
"(a) Repurchase Option. Any holder or holders of Warrants holding
-----------------
at least a majority of the total outstanding Warrants (measured by the
number of shares of Common Stock into which such Warrants are exercisable)
may require the Company to repurchase (the "Repurchase Option") all or any
part of the Warrants if on or before November 1, 1998, there has not been
an Initial Public Offering."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to WPI as follows:
Authority and Validity. The execution, delivery and performance of
----------------------
this Amendment to the WPI Warrant and the consummation of the transactions
contemplated hereby have been
<PAGE>
duly and validly authorized by all necessary corporate action on the part
of the Company. This Amendment to the WPI Warrant has been duly and validly
executed and delivered by the Company and is the valid and binding
obligation of the Company, enforceable in accordance with its terms, except
as such enforcement may be affected or limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and by applicable principles of equitable remedies.
Neither the execution, delivery and performance of this Amendment to the
WPI Warrant, nor the consummation of the transactions contemplated hereby
or compliance by the Company with any of the provisions hereof will (i)
conflict with or result in a breach of any material provisions of its
Charter or By-Laws; (ii) violate or conflict with the terms of any material
agreement to which the Company is a party or by which it is bound; or (iii)
violate any law, statute, rule or regulation or judgment, order, writ,
injunction or decree of any court, administrative agency or governmental
body applicable to Company.
SECTION 3. EFFECT OF AMENDMENT
Except as amended hereby, all provisions of the WPI Warrant shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 4 as of the date and year first above written.
INFORMATION MANAGEMENT ASSOCIATES,
INC.
By: /s/ Gary R. Martino
--------------------------
Name: Gary R. Martino
Title: Chairman & Chief Financial Officer
WAND PARTNERS INC.
By: /s/ David J. Callard
--------------------------
Name: David J. Callard
Title: President
<PAGE>
EXHIBIT 10.73
AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
This Amendment No. 3, dated April 16, 1997, to the Loan and Security
Agreement, dated as of October 26, 1995, as amended in Amendment No. 1 to Loan
and Security Agreement, dated as of December 31, 1996 and as amended in
Amendment No. 2 to Loan and Security Agreement, dated as of March 17, 1997
(collectively, the "Loan and Security Agreement") is by and among People's Bank,
a Connecticut banking corporation having its chief executive office at 850 Main
Street, Bridgeport, Connecticut 06604 ("Secured Party"), Information Management
Associates, Inc., a Connecticut corporation having its chief executive office
located at One Corporate Drive, Shelton, Connecticut 06484 ("IMA"), and
Information Management Associates Limited, a company registered in England and
having its principal office at Suite 404, Exchange Tower, One Harbour Exchange
Square, London, England E14 9GB ("IMA Limited"). Capitalized terms used herein
and not defined herein shall have the meanings assigned to them in the Loan and
Security Agreement.
WHEREAS, the parties named above have heretofore entered into the Loan and
Security Agreement, the Term Note and the Line of Credit Note; and
WHEREAS, the parties named above acknowledge the need to clarify certain
covenants and definitions related thereto which were amended in Amendment No. 1
to Loan and Security Agreement dated as of December 31, 1996 ("Amendment No. 1")
to conform to their mutual intent and understanding; and
WHEREAS, the parties named above acknowledge that they desire to make
certain amendments to the Loan and Security Agreement to clarify any ambiguities
pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the mutual covenants contained herein, the parties hereto agree
as follows:
Section Amendments.
----------
A. Paragraph 2(w) of the Loan and Security Agreement is hereby
deleted in its entirety and the following shall be substituted in lieu thereof:
"(w) "Tangible Net Worth" shall mean the aggregate tangible assets of
Debtor, less the aggregate liabilities, as determined in accordance
with generally accepted accounting principles, but excluding from
liabilities of Debtor for purposes of this definition subordinated
indebtedness, the Term Loan, redeemable convertible preferred stock
and redeemable common stock warrants."
<PAGE>
B. Paragraph 6(a) of the Loan and Security Agreement is hereby
amended by deleting subclause (iii) thereof and substituting the following
therefor:
"(iii) a Tangible Net Worth of not less than $1,500,000."
C. The parties agree that this Amendment No. 3 has been made to
clarify certain covenants and definitions contained in Amendment No. 1 in order
to conform to the parties' mutual intent and understanding. This Amendment No. 3
will be effective as of December 31, 1996 and for all periods thereafter.
Section Miscellaneous
-------------
A. Except as expressly modified herein, the Loan and Security
Agreement shall otherwise remain unmodified and in full force and effect. IMA
and IMA Limited acknowledge that they are validly indebted to Secured Party
under the Loan and Security Agreement, as amended hereby, without defense,
counterclaim or offset and that all obligations of IMA and IMA Limited
thereunder and under the Notes continue to be secured by a valid, perfected
First Lien Security Interest in the collateral.
B. IMA and IMA Limited hereby represent and warrant to the Secured
Party that each of IMA and IMA Limited has duly authorized the execution,
delivery and performance of this Amendment No. 3 to the Loan and Security
Agreement and this Amendment No. 3 to the Loan and Security Agreement has been
duly executed and delivered by each of IMA and IMA Limited and constitutes a
legal, valid and binding obligation of each of IMA and IMA Limited, enforceable
in accordance with their respective terms.
C. This Amendment No. 3 to the Loan and Security Agreement may be
executed in several original counterparts. Each such counterpart shall, for all
purposes, be deemed to be an original, and all counterparts shall together
constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
The parties have executed this Amendment No. 3 to the Loan and
Security Agreement as of the date first above written.
PEOPLE'S BANK
By: /s/ David P. Berey
------------------------------------
Name: David P. Berey
Title: Vice President
INFORMATION MANAGEMENT ASSOCIATES,
INC.
By: /s/ Gary R. Martino
------------------------------------
Name: Gary R. Martino
Title: Chief Financial Officer
INFORMATION MANAGEMENT ASSOCIATES
LIMITED
By: /s/ Gary R. Martino
------------------------------------
Name: Gary R. Martino
Title: Director
3
<PAGE>
Exhibit 10.74
November 1, 1996
Information Management Associates, Inc.
1 Corporate Drive, Suite 414
Shelton, Connecticut 06484
Re: Private Placement of Series B Senior Convertible Preferred Stock
----------------------------------------------------------------
Dear Sirs:
The undersigned are each holders of any or all of (i) certain Common
Stock Purchase Warrants issued by Information Management Associates, Inc. (the
"Company") identified as No. W-3, No. W-4 and No. W-5, respectively, as amended
(the "Warrants"); (ii) shares of Common Stock of the Company; or (iii) shares of
Senior Convertible Preferred Stock of the Company.
In addition, the Company and one or more of the undersigned are
parties to (i) a Note and Warrant Purchase Agreement dated December 21, 1990, as
amended (the "Note and Warrant Purchase Agreement"); (ii) certain Stock Purchase
Agreements dated September 4, 1991, October 29, 1991, November 16, 1994 and
March 31, 1995 (collectively, the "Stock Purchase Agreements"); and (iii) a
Letter Agreement dated December 21, 1990 among the Company, certain shareholders
of the Company and Wand/IMA Investments, L.P., as amended (the "Letter
Agreement"). The Note and Warrant Purchase Agreement, the Stock Purchase
Agreements, the Letter Agreement and the Warrants are herein referred to
collectively as the "Wand Documents."
The undersigned acknowledge that Company plans to make a private
placement of 4,350 shares in the aggregate of its Series B Senior Preferred
Stock (the "Series B Senior Preferred Stock") to Wand/IMA Investments II L.P.
and Wand/IMA Investments III L.P. (collectively, the "Purchasers") pursuant to a
Stock Purchase Agreement, dated as of the date hereof (the "Series B Preferred
Stock Purchase Agreement"), a copy of which has been provided to the
undersigned. The Series B Senior Preferred Stock has such rights preferences and
limitations as are set forth in a Certificate of Amendment of the Company's
Certificate of Incorporation, dated the date hereof and filed with the Secretary
of State of the State of Connecticut (the "Certificate of Amendment"), a copy of
which has been provided to the undersigned. In order to facilitate said private
placement, the parties hereto agree as follows:
(1) each of the undersigned consents to the issuance and sale of the
Series B Senior Preferred Stock to the Purchasers and the execution,
delivery and performance by the
<PAGE>
November 1, 1996
Page 2
Company of the Series B Preferred Stock Purchase Agreement;
(2) each of the undersigned hereby waives any covenants or provisions
contained in the Wand Documents which would restrict the issuance of
the Series B Senior Preferred Stock or prohibit the execution,
delivery or performance by the Company of the Series B Preferred Stock
Purchase Agreement including, without limitation,
(a) any covenants or provisions which would prohibit the grant of
registration rights to the Purchasers in said private placement
as set forth in the Series B Preferred Stock Purchase Agreement;
(b) any covenants or provisions which would prohibit the amendment of
the Certificate of Incorporation of the Company as set forth in
the Certificate of Amendment; and
(c) any and all covenants or provisions granting rights of first
refusal or preemptive rights to purchase any shares of the Series
B Senior Preferred Stock;
(3) Wand/IMA Investments, L.P. and the Company agree to amend the
definition of "Indebtedness" in Section 15.1 of the Note and Warrant
Purchase Agreement by inserting the following after the word
"Warrants" at the end of subclause (i) of such definition:
"and other than the Company's Series A Senior Preferred Stock and
the Company's Series B Senior Preferred Stock held by Wand/IMA
Investments, L.P., Wand/IMA Investments II L.P. and Wand/IMA
Investments III L.P. or any Person which, directly or indirectly,
is in Control of, is Controlled by or is under common Control
with, any of such holders,";
(4) Wand/IMA Investments L.P. and the Company agree to amend the
definition of "Permitted Indebtedness" in Section 15.1 of the Note and
Warrant Purchase Agreement by deleting subclause (g) thereof in its
entirety and substituting the following therefor:
"(g) Indebtedness owed by the Company to People's Bank in an
aggregate principal amount
<PAGE>
November 1, 1996
Page 3
not exceeding $8,500,000 and all extensions, renewals,
refinancings or modifications thereof, provided that the
aggregate principal amount thereof does not exceed $8,500,000."
(5) Wand/IMA Investments, L.P. and the Company agree to amend the Note and
Warrant Purchase Agreement by deleting Section 9.9 thereof.
The undersigned have executed this letter agreement as of the 1st day
of November, 1996.
WAND/IMA INVESTMENTS, L.P., by Wand
Partners Inc., its General Partner
By: /s/David J. Callard
------------------------------
Name: David J. Callard
Title: President
WAND/IMA INVESTMENTS II L.P., by
Wand Partners Inc., its General
Partner
By: /s/David J. Callard
------------------------------
Name: David J. Callard
Title: President
WAND PARTNERS INC.
By: /s/David J. Callard
------------------------------
Name: David J. Callard
Title: President
/s/Thomas F. Hill
-----------------------------------
Thomas F. Hill
<PAGE>
November 1, 1996
Page 4
Accepted and Agreed:
INFORMATION MANAGEMENT
ASSOCIATES, INC.
By: /s/ Gary R. Martino
-------------------------
Gary R. Martino
Chairman
<PAGE>
EXHIBIT 11.1
INFORMATION MANAGEMENT ASSOCIATES, INC.
CALCULATION OF SHARES USED IN DETERMINING PRO FORMA NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1996 MARCH 31, 1997
------------------ -------------------------- --------------------------
<S> <C> <C> <C>
Weighted average common
stock outstanding
during the year........ 4,262,133 4,255,197 4,293,379
Convertible preferred
stock (1).............. 1,022,388 920,433 1,532,161
Redeemable common stock
warrants (1)........... 415,308 415,308 415,308
Stock options (1)....... 34,690 34,690 34,690
Dilutive effect of
common and common stock
equivalents issued
subsequent to March 6,
1996 (2)............... 272,694 272,694 272,694
--------- --------- ---------
Shares used in computing
pro forma net loss per
common share........... 6,007,213 5,898,322 6,548,232
========= ========= =========
</TABLE>
- --------
(1) The numbers of shares issuable upon conversion or exercise of the Series A
convertible preferred stock, redeemable common stock warrants and stock
options are shown as if such conversion or exercise occurred on January 1,
1996. The number of shares issuable upon conversion of the Series B
convertible preferred stock is shown as if such conversion occurred upon
issuance of such stock on November 1, 1996.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock options and warrants issued at prices below the
initial public offering price of $12.00 per share ("cheap stock") during
the 12-month period immediately preceding the initial filing date of the
Company's Registration Statement for its initial public offering have been
included as outstanding for all periods presented. The dilutive effect of
the common and common share equivalents was computed in accordance with
the treasury stock method.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Hartford, Connecticut
May 23, 1997
<PAGE>
EXHIBIT 23.3
CONSENT
-------
Reference is made to the Registration Statement on Form S-1
(Registration No. 333-22923) (the "Registration Statement"), as filed with the
Securities and Exchange Commission (the "Commission") on March 7, 1997 by
Information Management Associates, Inc. (the "Company") in connection with the
registration under the Securities Act of 1933, as amended, of up to 5,175,000
shares of common stock, no par value, of the Company.
In connection with the filing of the Registration Statement, and any
amendments or supplements filed with the Commission thereto, as an independent
marketing research firm, the undersigned hereby irrevocably consents to the
reference of our name and the use of our May 1996 research report (and the
information contained in such research report) in the Registration Statement and
any amendments or supplements thereto.
Dated: April 9, 1997
ABERDEEN GROUP, INC.
/s/ J. Christopher Pavlic
------------------------------
By: J. Christopher Pavlic
Its: Senior Research Analyst
Aberdeen Group, Inc.
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned director of Information Management Associates, Inc. hereby
severally constitutes and appoints Albert R. Subbloie, Jr. and Gary R.
Martino, and each of them singly, my true and lawful attorneys with full power
to them, and each of them singly, to sign for me and in my name in the
capacity indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b), and generally to do all such
things in my name and on my behalf in my capacity as a director to enable
Information Management Associates, Inc. to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming my signature as it may be
signed by my said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto or to any subsequent Registration Statement
for the same offering which may be filed under Rule 462(b).
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas F. Hill Director April 29, 1997
- -------------------------------------
THOMAS F. HILL
